<PAGE> 1
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Metricom, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(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:
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3. Per unit price or other underlying value of transaction computed pursuant
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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<PAGE> 2
METRICOM
LOGO
September 14, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Metricom, Inc. to be held on Friday, October 15, 1999 at 10:00 a.m., local time,
at the Company's offices located at 980 University Avenue, Los Gatos,
California.
At the Annual Meeting you will be asked to consider and approve seven
matters: (a) the election of seven directors, (b) a Preferred Stock Purchase
Agreement, dated as of June 20, 1999 (the "Purchase Agreement"), among Metricom,
Inc. (the "Company"), Vulcan Ventures Incorporated ("Vulcan") and MCI WORLDCOM,
Inc. ("MCI WorldCom") and the transactions contemplated by that agreement,
including the issuance and sale by the Company of 60 million shares of Preferred
Stock to Vulcan and MCI WorldCom on the terms and subject to the conditions set
forth in the Purchase Agreement (collectively, the "Transactions"), (c) the
restatement of the Company's Certificate of Incorporation to authorize
additional shares of Preferred Stock and Common Stock and certain other changes,
as required by the Purchase Agreement, (d) the Company's 1997 Equity Incentive
Plan, as amended, (e) the Company's 1991 Employee Stock Purchase Plan, as
amended, (f) the Company's 1993 Non-Employee Directors' Stock Option Plan, as
amended, and (g) the selection of Arthur Andersen LLP as the Company's
independent auditors for the current fiscal year.
The matters to be considered and voted upon at the Annual Meeting are of
great importance to your investment and the future of the Company. The Purchase
Agreement provides for the issuance and sale by the Company of 30 million shares
of Series A1 Preferred Stock to MCI WorldCom and 30 million shares of Series A2
Preferred Stock (together with the Series A1 Preferred Stock, the "Preferred
Shares") to Vulcan, at a price to each purchaser of $10 per share, for total
consideration of $600 million. Upon conversion of the Preferred Shares into
Common Stock, Vulcan would hold approximately 49% of the Company's outstanding
Common Stock and MCI WorldCom would hold approximately 37%, with the remaining
14% held by other current public stockholders and optionees (on a pro forma,
fully diluted basis, using the treasury method, based on Common Stock and
options outstanding at June 20, 1999). Following consummation of the
Transactions, Vulcan, currently a 43% stockholder, would continue to
beneficially own sufficient shares to control the vote on most matters submitted
to a vote of the stockholders. The Board of Directors believes the Transactions
will provide the Company with significant equity capital and facilitate the
Company's planned nationwide rollout of its high-speed Ricochet wireless data
network.
The Board of Directors and a Special Committee of the Board have carefully
reviewed and considered the terms and conditions of the Purchase Agreement and
the Transactions and received the opinion of the Special Committee's financial
advisor, J. P. Morgan Securities Inc., as to the fairness, from a financial
point of view, to the Company's stockholders of the proposed sale under the
Purchase Agreement. A copy of the opinion is attached to the accompanying Proxy
Statement as Appendix C. Details of the Transactions are also set forth in the
accompanying Proxy Statement. We urge you to read it carefully. Your vote is
important. THE BOARD OF DIRECTORS HAS APPROVED THE TRANSACTIONS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE PROPOSALS TO BE PRESENTED AT
THE ANNUAL MEETING.
We urge you to attend and to participate in the Annual Meeting. If you do
not expect to attend personally, please complete and sign, date and return the
enclosed proxy card in the postpaid envelope provided as soon as possible. You
may, of course, attend the Annual Meeting and vote in person, even if you have
previously returned your proxy card.
Sincerely,
/s/ TIMOTHY A. DREISBACH
-------------------------------------
Timothy A. Dreisbach
President and Chief Executive Officer
<PAGE> 3
METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1999
TO THE STOCKHOLDERS OF METRICOM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of METRICOM,
INC., a Delaware corporation (the "Company"), will be held on Friday, October
15, 1999 at 10:00 a.m., local time, at the Company's offices at 980 University
Avenue, Los Gatos, California for the following purposes:
1. To elect two directors to hold office until the 2002 Annual Meeting of
Stockholders, three directors to hold office until the 2001 Annual Meeting of
Stockholders and two directors to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Preferred Stock Purchase Agreement, dated as of June 20,
1999 among MCI WORLDCOM, Inc., Vulcan Ventures Incorporated and the Company and
the issuance of Preferred Stock and other transactions contemplated thereby.
3. To approve the restatement of the Company's Certificate of Incorporation
to authorize additional shares of Preferred Stock and Common Stock and to make
certain other changes.
4. To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for issuance
under such plan by 1,200,000 shares and to make certain other changes.
5. To approve the Company's 1991 Employee Stock Purchase Plan, as amended,
to increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 200,000 shares and to make certain other changes.
6. To approve the Company's 1993 Non-Employee Directors' Stock Option Plan,
as amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 200,000 shares.
7. To ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999.
8. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on September 10,
1999 as the record date for the determination of stockholders entitled to notice
of and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ DALE W. MARQUART
--------------------
Dale W. Marquart
Secretary
Los Gatos, California
September 14, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Metricom, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Friday, October 15, 1999, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's offices at 980
University Avenue, Los Gatos, California. The Company intends to mail this proxy
statement and accompanying proxy card on or about September 14, 1999 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
September 10, 1999 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on September 10, 1999, the Company had
outstanding and entitled to vote 21,089,206 shares of Common Stock. Each holder
of record of Common Stock on such date will be entitled to one vote for each
share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but, except with respect to Proposal 3, are not counted for any purpose
in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office at 980
University Avenue, Los Gatos, California 95030-2375, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not by itself revoke a proxy.
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STOCKHOLDER PROPOSALS
The Company anticipates that the Company's 2000 Annual Meeting of
Stockholders will be held on a date significantly earlier in the year than the
1999 Annual Meeting of Stockholders. Although no date has yet been established,
the Company expects the 2000 Annual Meeting to be held on or about May 31, 2000
and that proxy statements will be mailed on or about April 28, 2000.
Accordingly, the deadline for submitting a stockholder proposal for inclusion in
the Company's proxy statement and form of proxy for the Company's 2000 Annual
Meeting of Stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission (the "SEC"), as well as the deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
statement and proxy, is December 30, 1999. Stockholders are advised to review
the Company's By-laws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board of Directors will be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) will serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of seven members. There are
two directors in the class whose term of office expires in 1999, each of whom
was previously elected by the stockholders: Robert S. Cline and Justin L.
Jaschke. Each of Messrs. Cline and Jaschke are being nominated for reelection to
the Board of Directors for a term expiring at the 2002 Annual Meeting of
Stockholders or upon such director's earlier death, resignation or removal.
Three directors, Messrs. Dilworth, Derrickson and Dreisbach, are being nominated
for reelection for a term expiring at the 2001 Annual Meeting of Stockholders
and were each previously elected by the stockholders. Two directors, Messrs.
Savoy and Moore, are being nominated for a term of office expiring at the 2000
Annual Meeting of Stockholders. Mr. Savoy was previously elected by the
stockholders and Mr. Moore was elected by the Board.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of all of the nominees named below. In the event that any nominee
should be unavailable for election as a result of an unexpected occurrence, such
shares will be voted for the election of such substitute nominee as management
may propose. Each person nominated for election has agreed to serve if elected,
and management has no reason to believe that any nominee will be unable to
serve.
Set forth below is biographical information for each director nominated.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2002 ANNUAL MEETING
ROBERT S. CLINE
Robert S. Cline, 62, has served as a director of the Company since January
1994. He currently serves as Chairman and Chief Executive Officer of Airborne
Freight Corp., an air express company. Mr. Cline has been employed by Airborne
Freight Corp. since 1968. In addition to Airborne Freight Corp., Mr. Cline is
also a director of SAFECO Corp. and Esterline Technologies Corp.
JUSTIN L. JASCHKE
Justin L. Jaschke, 41, has served as a director of the Company since June
1996. He currently serves as Chief Executive Officer and a Director of Verio
Inc., an internet service provider. Prior to forming Verio, Mr. Jaschke served
as Chief Operating Officer of Nextel Communications, a telecommunications
company,
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following its merger with OneComm Corporation ("OneComm"), a telecommunications
company, in July 1995. From April 1993 to July 1995, he served as OneComm's
president and a member of its Board of Directors. From May 1990 to April 1993,
he served as President and Chief Executive Officer of Bay Area Cellular
Telephone Company, a provider of cellular service in the San Francisco Bay Area
and, from November 1987 to May 1990, as Vice President of Corporate Development
for PacTel Cellular, a telecommunications company.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2001 ANNUAL MEETING
ROBERT P. DILWORTH
Robert P. Dilworth, 57, has served as a director since August 1987 and as
Chairman of the Board since March 1997. Mr. Dilworth also served as President
from September 1987 to March 1997 and as Chief Executive Officer from August
1987 to May 1998. Prior to joining the Company, he served as President of Zenith
Data Systems Corp., a microcomputer manufacturer and a wholly-owned subsidiary
of Zenith Electronics Corp., from May 1985 to November 1987. Mr. Dilworth is
also a director of Graphon, Inc.
RALPH DERRICKSON
Ralph Derrickson, 40, has served as a director of the Company since April
1998. Mr. Derrickson has been a representative of Vulcan Northwest, Inc., a
venture capital firm affiliated with Vulcan Ventures Incorporated, the Company's
largest stockholder ("Vulcan"), since December 1996. Since June 1993, Mr.
Derrickson has also served as Vice President of Product Development at Starwave
Corporation, an internet technology company and creator and producer of online
sports, news and entertainment services. From December 1989 to May 1993, Mr.
Derrickson was with NeXT Computer Inc., a computer company, most recently as
Director of NeXTEdge.
TIMOTHY A. DREISBACH
Timothy A. Dreisbach, 49, has served as President and Chief Executive
Officer and a director of the Company since May 1998. From January 1997 through
January 1998, Mr. Dreisbach served as President and Chief Executive Officer of
Premenos Technology Corporation, an electronic commerce software company that
merged with Harbinger Corp. in December 1997. From April 1992 to December 1996,
Mr. Dreisbach served as Senior Vice President, North American Sales and Service,
for Boole & Babbage Inc., a systems management software company.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2000 ANNUAL MEETING
WILLIAM D. SAVOY
William D. Savoy, 34, has served as a director of the Company since January
1998. Mr. Savoy has served as President of Vulcan Northwest, Inc. since January
1990. Mr. Savoy is a director of CNET, Inc., Go2Net, Inc., Harbinger
Corporation, High Speed Access Corporation, Telescan, Inc., Ticketmaster
Online-City Search, Inc., USA Networks, Inc. and Value America.
DAVID M. MOORE
David M. Moore, 44, has served as a director of the Company since January
1999. Mr. Moore has served as Business Development Director of Vulcan Northwest,
Inc. since November 1998. Prior to joining Vulcan Northwest, Mr. Moore served as
President of Paralex Corporation, a provider of technical due diligence and
consulting services, from October 1997 to November 1998; Director of Development
for the Worldwide Product Group of Microsoft Corporation from 1988 to 1996;
Senior Engineer for Boeing Commercial Airplane Company from 1979 to 1981; and
Programmer with the University of Washington from 1973 to 1977.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
six meetings. The Board has an Audit Committee, a Compensation Committee and a
Non-Officer Stock Option Administration Committee. The Board does not have a
nominating committee or any committee that functions as a nominating committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board the independent auditors to be retained, and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. During fiscal 1998, the Audit Committee was composed of two
non-employee directors: Messrs. Jaschke and Savoy. It met one time during such
fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. From January 1998 to January 1999, the Compensation Committee was
composed of two non-employee directors: Robert S. Cline and David E. Liddle, a
former director. It met one time during such fiscal year. The Compensation
Committee is currently composed of two non-employee directors: Messrs. Cline and
Moore.
The Non-Officer Stock Option Administration Committee administers the
Company's stock option plans for non-officer employees only and makes stock
option grants to such employees not in excess of 25,000 shares. All option
grants in excess of this limit and all option grants to officers must be
approved by the Compensation Committee. The Non-Officer Stock Option
Administration Committee is composed of Mr. Dreisbach, who is the Chief
Executive Officer of the Company.
During fiscal 1998, each Board member attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he served, held
during the period for which he was a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF PREFERRED STOCK PURCHASE AGREEMENT
INTRODUCTION
In Proposal 2, stockholders of the Company are being asked to approve the
Preferred Stock Purchase Agreement, dated as of June 20, 1999, among MCI
WORLDCOM, Inc. ("MCI WorldCom"), Vulcan (together with MCI WorldCom, the
"Purchasers") and the Company (the "Purchase Agreement") and the transactions
contemplated by the Purchase Agreement (the "Transactions"). The Purchase
Agreement is attached to this Proxy Statement as Appendix A.
The Purchase Agreement provides for the issuance and sale by the Company of
30 million shares of Series A1 Preferred Stock to MCI WorldCom and 30 million
shares of Series A2 Preferred Stock (together with the Series A1 Preferred
Stock, the "Preferred Shares") to Vulcan, at a price to each Purchaser of $10
per share, for total consideration of $600 million. Upon conversion of the
Preferred Shares into Common Stock, Vulcan would hold approximately 49% of the
Company's outstanding Common Stock and MCI WorldCom would hold approximately
37%, with the remaining 14% held by other current public stockholders and
optionees (on a pro forma, fully diluted basis, using the treasury method, based
on Common Stock and options outstanding at June 20, 1999). Following
consummation of the Transactions, Vulcan, currently a 43% stockholder, would
continue to beneficially own sufficient shares to control the vote on most
matters submitted to a vote of the stockholders.
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THE COMPANY'S CAPITAL NEEDS; REASONS FOR THE TRANSACTIONS
Because of the capital-intensive nature of the Company's business, the
Company's management and Board regularly review the Company's need for
additional financing. As part of that review, in November 1998, management and
the Board concluded that, in view of the Company's continuing investment in its
next-generation technology and rate of negative cash flow, the Company's cash
would not be adequate to satisfy its funding requirements beyond 1999. In
addition to the Company's immediate and near-term funding needs, potential
competition from other present and future wireless data network providers made
it imperative, in management's view, that the Company speed the planned
nationwide rollout of its high-speed Ricochet wireless data network. Management
estimated that a substantial capital infusion would be needed to implement its
business plan for the rollout. The magnitude of the Company's financing needs
made bank credit facilities and the public markets unlikely sources of funding
at the level required. Accordingly, in November 1998, the Company announced that
it had retained Banc of America Securities LLC (formerly, NationsBanc Montgomery
Securities LLC) to assist it in evaluating and securing one or more strategic
partners to provide funding and to facilitate the planned nationwide rollout. In
the months following the announcement, more than 40 potential partners were
contacted. As a result of that process, the Company has entered into the
Purchase Agreement with MCI WorldCom and Vulcan.
The terms of the Purchase Agreement and the Transactions have been
unanimously approved by those members of the Board present at the meeting at
which, a quorum being present, a vote was taken on the matter, following a
unanimous recommendation in favor of approval of the Purchase Agreement and the
Transactions by a Special Committee of the Board formed to evaluate proposals
relating to strategic partners and investments in the Company and composed of
directors independent of Vulcan. Among the factors considered by the Special
Committee and the Board in favor of approval were the following:
- The presentation of J.P. Morgan Securities Inc., financial advisor to the
Special Committee, and its oral opinion, subsequently confirmed in
writing, to the effect that the proposed sale of 60 million Preferred
Shares under the terms of the Purchase Agreement was fair, from a
financial point of view, to the Company's stockholders (excluding
Vulcan);
- The Company's imperative need for funding in the immediate future;
- The price per share offered and the aggregate amount of consideration to
be paid, in light of the substantial cash infusion required to implement
the Company's business plan;
- The fact that the per-share price to be paid for the Preferred Shares
reflected a 48% premium over the closing price per share of the Common
Stock reported for November 16, 1998, the trading day prior to the
announcement of the Company's engagement of Banc of America Securities;
- The fact that the Common Stock would continue to be publicly traded,
providing stockholders with the opportunity either to realize any
short-term increase in the stock price that may follow consummation of
the Transactions or to participate in the long-term benefits that the
Board believed could be obtained from the Transactions;
- The fact that certain measures designed for the protection of the public
stockholders and implemented under the Company's 1997 Common Stock
Purchase Agreement with Vulcan would remain in effect with respect to
Vulcan, which would continue to hold sufficient shares to exercise
effective control of the Company;
- The strategic benefits of the reseller agreement with MCI WorldCom,
signed contemporaneously with the Purchase Agreement;
- The fact that the Purchase Agreement permits the Company, upon payment of
a break-up fee, to terminate the Agreement and accept a superior
proposal; and
- The views of the Special Committee and the Board that the price and other
terms offered by MCI WorldCom and Vulcan represented the best offer
available to the Company.
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DILUTIVE AND OTHER POTENTIALLY ADVERSE EFFECTS ON THE STOCKHOLDERS
In considering the Proposal, stockholders should consider that the issuance
of the Preferred Shares under the Purchase Agreement could have a number of
potentially adverse effects on the interests of existing stockholders, including
the following:
- The issuance of the Preferred Shares will have a dilutive effect with
respect to earnings per share and related matters for existing
stockholders and optionees of the Company (other than Vulcan). Following
consummation of the Transactions, these existing stockholders and
optionees would hold only 14% of the outstanding Common Stock (on a pro
forma, fully diluted basis, using the treasury method, based on Common
Stock and options outstanding at June 20, 1999). In addition, the price
per share to be paid for the Preferred Shares is 9.6% below the closing
price of the Company's Common Stock on June 18, 1999, the last trading
day prior to announcement of the execution of the Purchase Agreement.
- The issuance of the Preferred Shares will also have a dilutive effect on
the voting rights of existing stockholders. Although the voting rights of
the holders of the Preferred Shares are limited to specified matters,
upon conversion of the Preferred Shares into Common Stock, Vulcan will
control approximately 49% and MCI WorldCom approximately 37% of the
outstanding Common Stock (on a pro forma, fully diluted basis, using the
treasury method, based on Common Stock and options outstanding at June
20, 1999). As a result, Vulcan would continue to be able to control the
vote on most matters submitted to the stockholders of the Company. In
addition, conflicts of interest may arise as a consequence of the control
relationship between Vulcan and the Company, such as conflicts with
respect to corporate opportunities, contractual relationships or the
strategic direction of the Company. Further, holders of Series A1
Preferred Stock and holders of Series A2 Preferred Stock, voting as
separate series, will have the right to elect one director representing
each series to the Company's Board of Directors.
- The significant ownership interests of Vulcan and MCI WorldCom could
effectively deter a third party from making an offer to acquire the
Company, which might involve a premium stock price or other benefits for
stockholders, or otherwise prevent changes in control or management of
the Company.
- The Purchase Agreement does not contain any commitment by Vulcan or MCI
WorldCom to provide additional funding to the Company after the closing.
The funds provided under the Purchase Agreement may not be adequate to
enable the Company to fully implement its business plan, and there can be
no assurance that additional funds will be available on acceptable terms,
if at all, if additional capital is required in the future.
- The holders of the Preferred Shares will have preferential rights with
respect to distributions upon a liquidation of the Company, including
certain business combinations. Accordingly, no distributions upon
liquidation may be made to the holders of Common Stock until the holders
of the Preferred Shares have been paid their original issue prices plus
all accrued but unpaid dividends. As a result, it is possible, on
liquidation, that all amounts available for the holders of equity of the
Company would be paid to the holders of the Preferred Shares and that the
holders of Common Stock would not receive any payment at all.
- The holders of the Preferred Shares will also have preferential rights
with respect to payment of dividends. Each series of Preferred Shares
will bear a cumulative 6.5% dividend for a period of three years (payable
in cash or stock at the option of the Company), and no dividends may be
paid to the holders of Common Stock prior to payment of all accrued
dividends to the holders of the Preferred Shares. If the present value of
these dividends (using a 20% discount rate) were to be considered a
reduction of the purchase price of the Preferred Shares, it would reduce
the effective price paid by Vulcan and MCI WorldCom to $8.63 per share.
- The Preferred Shares will be subject to mandatory redemption by the
Company in 10 years from the date of issuance and to redemption at the
option of the holder upon the occurrence of specified changes in control
or major acquisitions. Redemption amounts that are due but unpaid will
accrue interest at the rate of 18% annually. Accordingly, any requirement
for redemption could impose significant
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financial obligations on the Company or could deter the Company from
effecting certain acquisitions or changes of control. There can be no
assurance that the Company will be able to obtain sufficient funds to
meet those obligations on terms favorable to the Company, if at all.
USE OF PROCEEDS
The Company currently intends to use the proceeds of the sale of the
Preferred Shares to finance its planned nationwide rollout of its high-speed
wireless data networking services, as well as for general corporate purposes,
including working capital, and repayment of outstanding loans when due.
The Company has agreed to pay to Banc of America Securities, for its
services as financial advisor to the Company, up to 4.5% of the gross cash
proceeds of the sale of the Preferred Shares, as well as reasonable out-
of-pocket expenses, less fees paid to J.P. Morgan Securities in connection with
its opinion to the Special Committee of the Board. The Company has agreed to pay
to J.P. Morgan Securities, financial advisor to the Special Committee, a fee of
$500,000, plus out-of-pocket expenses. The Company has also agreed to indemnify
Banc of America Securities and J.P. Morgan Securities against certain
liabilities in connection with the Transactions.
VULCAN VENTURES
Vulcan, currently a 43% stockholder of the Company, is the principal
vehicle through which new media investor, Paul G. Allen, researches and
implements his investments. Through Vulcan, Mr. Allen invests in, among other
things, companies that offer products, services or technologies that fit his
technology strategy and that he believes can benefit from and possibly
contribute to the technologies and strategies of other companies in which he
invests. For the biographies of persons currently serving on the Board who were
originally proposed by Vulcan, see "Proposal 1 -- Election of Directors."
MCI WORLDCOM
MCI WorldCom is one of the largest telecommunications companies in the
United States, serving local, long distance and Internet customers domestically
and internationally. Organized in 1983, MCI WorldCom provides telecommunications
services to business, government, telecommunications companies and consumer
customers, through its networks of primarily fiber optic cables, digital
microwave, and fixed and transportable satellite earth stations. Prior to
September 15, 1998, the name of MCI WorldCom was WorldCom, Inc.
INTERESTS OF CERTAIN PERSONS
Vulcan, which is proposing to purchase 30 million shares of Series A2
Preferred Stock under the Purchase Agreement, is currently the beneficial owner
of approximately 43% of the Company's outstanding Common Stock. In addition,
Vulcan originally nominated four of the Company's seven current directors. Of
the 9,121,745 shares of Common Stock held by Vulcan as of the date of this proxy
statement, 4,650,000 were acquired in February 1998 under a Common Stock
Purchase Agreement, dated as of October 10, 1997, between the Company and
Vulcan. Under that agreement, Vulcan has the right to participate on a pro rata
basis in issuances of equity securities of the Company and is subject to a
number of provisions designed to protect stockholders in the event of, among
other things, a proposal by Vulcan to acquire the Company or to sell the Company
to a third party. Those provisions will not be affected by the Purchase
Agreement that is the subject of Proposal 2. In addition, pending consummation
of the proposed Transactions, Vulcan has loaned to the Company $30 million in
secured interim financing.
In light of Vulcan's effective control of the Company and the possible
participation of Vulcan in a proposed financing, and consistent with the Common
Stock Purchase Agreement with Vulcan, the Company's Board of Directors
established a Special Committee of the Board to, among other matters, review and
evaluate proposals relating to strategic partners and investments in the
Company. The Committee is composed of three directors, each of whom served on
the Company's Board of Directors prior to consummation of Vulcan's purchase of
Common Stock in February 1998. The Special Committee unanimously recommended
approval of the Purchase Agreement and the Transactions to the Board.
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TERMS OF THE PURCHASE AGREEMENT
The following summary of the Purchase Agreement should be read in
conjunction with the Purchase Agreement, a copy of which is attached to this
Proxy Statement as Appendix A and incorporated herein by reference.
SALE OF PREFERRED SHARES. MCI WorldCom will purchase 30 million shares of
Series A1 Preferred Stock and Vulcan will purchase 30 million shares of Series
A2 Preferred Stock, each at a price of $10 per share in cash at the closing. The
rights and preferences of and limitations on the Preferred Shares are set forth
in the proposed Restated Certificate of Incorporation, a copy of which is
attached to this Proxy Statement as Appendix B. For a summary of those rights,
preferences and limitations, stockholders are urged to read "Proposal 3:
Approval of the Restated Certificate of Incorporation -- Rights and Preferences
of and Limitations on Preferred Shares," which is incorporated herein by
reference.
CLOSING. The closing will occur as soon as practicable, but no more than
five business days, following the satisfaction or waiver of all conditions set
forth in the Purchase Agreement or at such other time as the parties may agree.
REPRESENTATIONS AND WARRANTIES. The Purchase Agreement contains a number of
representations and warranties by the Company and by each of the Purchasers. The
Company makes representations regarding, among other things, its corporate
organization and authority, capital stock, filings with the SEC, financial
statements, the need for governmental consents, absence of certain changes since
December 31, 1998, year 2000 compliance, absence of undisclosed liabilities and
litigation, title to assets, material contracts, insurance, taxes, employee
benefit plans, absence of conflicts between the Purchase Agreement and the
Company's Certificate of Incorporation or other documents, labor, regulatory and
environmental matters, compliance with laws and other matters. The Purchasers
make representations regarding, among other things, corporate organization and
authority, compliance with laws, "interested stockholder" status under Section
203 of the Delaware General Corporation Law (the "DGCL"), as well as certain
investment representations.
COVENANTS. In the Purchase Agreement, the parties covenant to use
commercially reasonable efforts to comply with antitrust and other regulatory
requirements and to use their reasonable best efforts to take all appropriate
actions to consummate the Transactions. The Company also agrees, until the
Closing, to conduct its business in the ordinary course and to use commercially
reasonable efforts to preserve intact its business organization. This covenant
expressly prohibits the Company generally from, among other things, issuing
additional shares (other than pursuant to option exercises), acquiring another
entity, selling the Company's assets other than inventory, incurring
indebtedness (except to Vulcan), making commitments for capital expenditures in
excess of $500,000, entering into or modifying material agreements or
terminating material rights, entering into material litigation, revaluing
assets, increasing salaries or adding severance plans. The Company also agrees,
until the Closing, not to solicit or to enter into discussions or agreements
with respect to certain alternative transactions; however, the Company may enter
into such discussions regarding an unsolicited alternative acquisition proposal,
provided that such action is determined to be necessary for the Board to act
consistently with its fiduciary obligations. The Company may accept a superior
acquisition proposal, provided that the Company pays to the Purchasers a cash
termination fee of $10 million.
CONDITIONS. Each Purchaser's obligation to consummate the Transactions is
subject to a number of conditions, including (a) that the Company's
representations and warranties (with specified exceptions) are true and correct
as of the closing, except for changes that result from actions or events
contemplated by the Purchase Agreement or that would not have a material adverse
effect (as defined in the Purchase Agreement) on the Company, (b) that the
Company has complied in all material respects with its covenants and obtained
necessary consents, except for failures to comply or to obtain consents that
would not have a material adverse effect on the Company, (c) that necessary
regulatory approvals have been obtained and no governmental authorities have
terminated or overtly threatened to terminate rights of way, wired access points
or utility agreements except such that would not deprive the Purchasers of the
material benefits of the Purchase Agreement, (d) that the purchase of the
Preferred Shares has not been enjoined, (e) that the stockholders have approved
Proposal 2 and Proposal 3, and (f) that there is no litigation to restrain the
Transactions.
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The Company's obligation to consummate the Transactions is also subject to
a number of conditions, including (a) that the Purchasers' representations and
warranties are true and correct as of the closing, except for changes that would
not impair the ability of the Purchasers to consummate Transactions, (b) that
the Purchasers have complied in all material respects with their covenants and
obtained necessary consents, except for failures to comply or to obtain consents
that would not impair the ability of the Purchasers to consummate the
Transactions, (c) that necessary regulatory approvals have been obtained, (d)
that the sale of the Preferred Shares has not been enjoined, and (e) that the
stockholders have approved Proposal 2 and Proposal 3.
TERMINATION. The Purchase Agreement may be terminated (a) by mutual
consent, (b) by any party if the closing has not occurred by February 1, 2000,
unless the party seeking to terminate has caused the failure to close, (c) by
any party in the event of a final, nonappealable permanent injunction
prohibiting the Transactions, (d) by any party if certain Federal Communications
Commission orders have been permanently and unconditionally denied, (e) by the
Purchasers if the Company has breached, and by the Company if the Purchasers
have breached, any of their respective representations, warranties or covenants,
and any such breach is not cured within 30 days after notice and (with respect
to breaches by the Company) would have a material adverse effect on the Company
or (with respect to breaches by the Purchasers) would materially impair the
ability of Purchasers to consummate the transactions, (f) by either Purchaser if
the Company's Board withdraws its recommendation of these Transactions or
recommends an alternative transaction, (g) by any party if the stockholders fail
to approve Proposal 2 or Proposal 3, and (h) by the Company, if the Company's
Board approves a superior proposal and the Company pays the $10 million
termination fee to the Purchasers.
OTHER AGREEMENTS
RESELLER AGREEMENT. Concurrently with entering into the Purchase Agreement,
MCI WorldCom and the Company entered into a strategic reseller agreement
providing for the national distribution by MCI WorldCom of the Company's
high-speed Ricochet mobile data networking services over a five-year period.
REGISTRATION RIGHTS AGREEMENT. Pursuant to the Purchase Agreement, the
Purchasers will also enter into a Registration Rights Agreement under which the
Purchasers will have the right to require the Company, at the Company's expense,
to register shares held by the Purchasers for resale to the public. The
Purchasers will also have the right to participate in other registrations of
Common Stock effected by the Company.
REGULATORY MATTERS
Certain acquisition transactions such as the Transactions are reviewed by
the Justice Department and the Federal Trade Commission to determine whether
they comply with applicable antitrust laws. Under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Transactions may not be consummated until certain information has
been furnished to the Department of Justice and the Federal Trade Commission and
until the waiting period under the HSR Act has expired or been subject to early
termination. On August 2, 1999, MCI WorldCom, and on August 4, 1999, the
Company, filed Premerger Notification and Report Forms pursuant to the HSR Act
with the Justice Department and the Federal Trade Commission. The Company and
MCI WorldCom received notice from the Federal Trade Commission on August 24,
1999 of the early termination of the waiting period under the HSR Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
generally restricts a corporation's utilization of its carryforwards of net
operating losses ("NOLS") (and its net unrealized built-in losses, if any) by
limiting the amount of income earned by the corporation after an "ownership
change" that may be offset by NOLs that arose prior to the ownership change (the
"Section 382 Limitation").
Generally, where the Section 382 Limitation applies, a corporation's
utilization of its NOLs generated before the date on which the ownership change
occurs (the "Change Date") for any taxable period following the Change Date is
limited to an annual amount equal to the product of (a) the value of the
corporation
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immediately before the ownership change multiplied by (b) the long-term
tax-exempt rate (as announced each month by the Treasury Department and that is
5.26% for ownership changes that occur in September 1999) on the date of the
ownership change plus any unused portion of the Section 382 Limitation from
prior years. The Section 382 Limitation also is increased by the amount of
certain net unrealized built-in gains, if any, on the Change Date that are
recognized in subsequent taxable years.
As of December 1998, the Company had total NOL carryforwards of
approximately $150 million. The Company believes that consummation of the
Transactions, coupled with other changes in the Company's stock ownership that
have occurred during the testing period, will result in an ownership change with
respect to the Company. The amount of the 382 Limitation will depend upon the
total equity value of the Company immediately before the anticipated ownership
change. Due to fluctuations in the Company's stock price and uncertainty
regarding future profitability of the Company, it is not possible to predict
whether the Company's ability to utilize its NOL carryforwards for taxable years
following the ownership change will be restricted.
OPINION OF J.P. MORGAN SECURITIES INC.
At the meeting of the Special Committee on June 20, 1999, J.P. Morgan
Securities Inc. rendered its oral opinion, subsequently confirmed in writing, to
the effect that, as of such date, the consideration to be paid to the Company in
the proposed Transactions was fair to the Company's public stockholders from a
financial point of view. No limitations were imposed by the Special Committee
upon J.P. Morgan with respect to the investigations made or procedures followed
by it in rendering its opinion.
The full text of J.P. Morgan's written opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Appendix C to this Proxy Statement and is incorporated herein by
reference. The Company's stockholders are urged to read the opinion in its
entirety. J.P. Morgan's opinion is addressed to the Special Committee, is
directed only to the consideration to be paid in the Transactions and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the Annual Meeting.
In giving its opinion, J.P. Morgan relied upon and assumed the accuracy of,
without independent verification, the financial analyses and forecasts provided
by the Company to J.P. Morgan, which reflected the Company's current cash and
cash equivalents as well as the financing available to the Company (not
including the Transactions).
In view of the amount and pace of operating losses and capital expenditure
requirements of the Company and its limited access to public equity, public debt
and bank markets, J.P. Morgan agreed with the Company's assessment (as reflected
in its Annual Report on Form 10-K for the year ended December 31, 1998 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) that there
was substantial doubt regarding the Company's ability to continue as a going
concern through 1999. As such, J.P. Morgan determined that a comparison of the
Company with other publicly traded companies, or an analysis of discounted cash
flows of the Company beyond 1999, would not be relevant.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to deliver a fairness
opinion to the Special Committee on the basis of such experience and its
familiarity with the Company.
For services rendered in connection with the delivery of its opinion, the
Company has paid J.P. Morgan an aggregate fee of $500,000, and has agreed to pay
J.P. Morgan a fee of $200,000 if and at such time as J.P. Morgan is called upon
for testimony by deposition or trial in litigation relating to the Transactions.
In addition, the Company has agreed to reimburse J.P. Morgan for its expenses
incurred in connection with its services, including the fees and disbursements
of counsel, and will indemnify J.P. Morgan against certain liabilities,
including liabilities arising under the Federal securities laws.
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In the ordinary course of their businesses, J.P. Morgan and its affiliates
may actively trade the debt and equity securities of the Company and MCI
WorldCom for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
STOCKHOLDER APPROVAL
It is a condition to all parties' respective obligations under the Purchase
Agreement that Proposal 2 be approved by the affirmative vote of the holders of
a majority of the shares present in person or represented by proxy and entitled
to vote on Proposal 2 at the Annual Meeting. In addition, the Nasdaq Stock
Market rules applicable to companies traded on the Nasdaq National Market
require the Company to obtain stockholder approval prior to consummation of the
Transactions. Abstentions will be counted toward the tabulation of votes cast on
the proposal and will have the same effect as negative votes. Broker non-votes
are counted toward a quorum but are not counted for any purpose in determining
whether this matter has been approved. Vulcan has agreed to vote all of the
shares it beneficially owns in favor of Proposal 2, and against alternative
transactions, unless the Purchase Agreement is terminated according to its
terms. The Company or either of the Purchasers may choose not to consummate the
Transactions if Proposal 2 is not approved by the requisite vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
APPROVAL OF RESTATED CERTIFICATE OF INCORPORATION
GENERAL
Pursuant to the terms of the Purchase Agreement described in Proposal 2,
the Company is seeking stockholder approval of a proposed Restated Certificate
of Incorporation in substantially the form attached to this Proxy Statement as
Appendix B. The proposed Restated Certificate provides for an increase in the
Company's authorized capital stock from 52 million shares to 230 million shares,
increasing the authorized Common Stock from 50 million shares to 150 million
shares and the authorized Preferred Stock from 2 million shares to 80 million
shares. If the Restated Certificate is adopted, it will become effective upon
filing with the Secretary of State of the State of Delaware.
At July 31, 1999, there were 21,005,488 shares of Common Stock outstanding
and no shares of Preferred Stock outstanding. At the same date, an aggregate of
6,440,418 shares of Common Stock were reserved for issuance upon (a) exercise of
outstanding options granted under the Company's stock option plans, (b) exercise
of outstanding warrants, (c) exercise of rights under the Company's employee
stock purchase plan, and (d) conversion of the Company's 8% Convertible
Subordinated Notes. Under the Purchase Agreement, assuming all conditions to
closing are satisfied, the Company will issue 60 million Preferred Shares to
Vulcan and MCI WorldCom, and up to 12 million Preferred Shares will be reserved
for issuance in the event the Company elects to pay in stock the 6.5% cumulative
dividend on the Preferred Shares. In addition, 60 million shares of Common Stock
are reserved for conversion of the Preferred Shares. Currently, the Company's
Restated Certificate does not authorize sufficient shares of Preferred Stock to
permit the Company to issue the Preferred Shares under the Purchase Agreement or
sufficient shares of Common Stock to allow conversion of the Preferred Shares
into Common Stock. The Company is proposing to increase the authorized capital
stock, in part, to ensure that sufficient shares are available to consummate the
Purchase Agreement.
The additional Common Stock to be authorized by adoption of the Restated
Certificate would have rights identical to the currently outstanding Common
Stock of the Company. Increasing the authorized Common Stock and issuance of the
Common Stock would not affect the rights of the holders of currently outstanding
Common Stock of the Company, except for effects incidental to the increase, such
as dilution of the Company's earnings per share and the voting rights of current
holders of Common Stock.
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Of the 80 million shares of Preferred Stock authorized, 36 million shares
will be designated Series A1 Preferred Stock and 36 million shares will be
designated Series A2 Preferred Stock. The Series A1 Preferred and Series A2
Preferred will have the rights, powers, preferences and limitations set forth in
the Restated Certificate, as summarized below. The remaining 8 million shares of
Preferred Stock are not currently designated. Under the Restated Certificate,
the Board of Directors will have the authority, without further action by the
holders of Common Stock, to issue the undesignated shares of Preferred Stock in
one or more series and to fix the designations, powers, preferences and rights
and the qualifications, limitations or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Board of Directors, without approval of the holders of Common Stock,
can issue Preferred Stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock. Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock and may adversely affect the
voting and other rights of the holders of Common Stock.
Although, at present, the Board of Directors has no other plans to issue
the additional shares of Preferred Stock or Common Stock, it desires to have
such shares available to provide additional flexibility to use its capital stock
for business and financial purposes in the future. The additional shares may be
used, without further stockholder approval, for various purposes including,
without limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other companies
and expanding the Company's business or product lines through the acquisition of
other businesses or products.
The additional shares of capital stock that would become available for
issuance if this Proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board of Directors could adopt a "poison pill" which would, under certain
circumstances related to an acquisition of shares not approved by the Board,
give certain holders the right to acquire additional shares of capital stock at
a low price, or the Board could strategically sell shares of capital stock in a
private transaction to persons or entities that would oppose a takeover or favor
the current Board. Although this Proposal to increase the authorized capital
stock has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt (nor is the Board currently aware of any
such attempts directed at the Company), nevertheless, stockholders should be
aware that approval of the Proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current market prices.
RIGHTS AND PREFERENCES OF AND LIMITATIONS ON PREFERRED SHARES
The rights and preferences of and limitations on the Preferred Shares are
substantially similar, except that the holders of Series A1 Preferred Stock have
preferential rights with respect to dividends, liquidation and redemption over
the holders of Series A2 Preferred Stock. The principal rights, preferences,
privileges of and limitations on the Preferred Shares are described below:
DIVIDENDS. The holders of Preferred Shares are to receive cumulative
dividends payable, at the option of the Company, in cash or additional Preferred
Shares, at the annual rate of 6.5% of the original issue price of $10, for a
period of three years after initial issuance. Unless accrued dividends on the
Preferred Shares are fully paid, no dividends may be paid or declared on the
Common Stock.
VOTING RIGHTS. Each series of Preferred Shares has the right to vote only
as required by law or, so long as more than 7.5 million shares of such series
remain outstanding, with respect to the following matters:
- amendments to the Restated Certificate that change the rights or
preferences of that series so as to affect that series adversely in a
manner different from other classes or series of stock;
- any issuance of any equity securities ranking senior in liquidation
preference or dividends to the applicable series or any issuance of debt
securities convertible into equity securities of the Company at
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a price lower than $10 per share, subject to adjustment for any stock
dividend, split, combination or other similar event;
- any redemption or repurchase of stock ranking junior to the applicable
series (other than employee stock generally at cost in an amount up to 1%
of the outstanding Common Stock or redemptions pursuant to the terms of
the Restated Certificate); or
- declarations or payments of dividends on Common Stock except out of net
operating income of the Company.
In addition, the holders of each series have the right, so long as more
than 7.5 million shares of such series remain outstanding, to elect one member
of the Board of Directors to represent each such series. The holders of Series
A1 Preferred Stock may, in their discretion, waive that right and instead
designate a Board observer.
LIQUIDATION RIGHTS. Upon any liquidation of the Company prior to any
payment or distribution being made to the holders of Common Stock, the holders
of Preferred Shares are entitled to receive an amount per share equal to the
greater of (a) the original issue price plus all accrued dividends or (b) the
amount such holder would have received if the share had been converted to Common
Stock.
For this purpose, "liquidation" includes (a) a consolidation, merger or
other reorganization in which the stockholders of the Company prior to the
transaction own less than 50% of the Company's voting power after such
transaction or other transaction or series of transactions to which the Company
is a party in which over 50% of the Company's voting power is transferred; or
(b) a sale, lease or other disposition of all or substantially all of the assets
of the Company.
REDEMPTION. The Preferred Shares are subject to mandatory redemption on the
tenth anniversary of the date of original issuance at a price per share equal to
the original issuance price plus all accrued but unpaid dividends. The Preferred
Shares are also earlier redeemable, at the option of the holder, at the same
redemption price in the event of a change in control of the Company or a major
acquisition by the Company. For purposes of this redemption feature (and for
purposes of the conversion of the Series A1 Preferred Stock discussed below), a
"change in control" means an event or series of related events as a result of
which a person, entity or group (other than the Purchasers or their affiliates)
becomes a beneficial owner of more than 30% of the outstanding equity securities
of the Company or acquires the right to elect at least 30% of the Board of
Directors of the Company. A "major acquisition" means the acquisition by the
Company of more than 50% of the outstanding equity securities or all or
substantially all of the assets of any corporation or other entity or the merger
of the Company with another entity in which the Company is the surviving entity,
in each case in consideration of which the Company issues equity securities
which exceed 25% of the Company's outstanding equity securities, determined on a
fully diluted basis. Amounts due but unpaid in respect of the redemption of the
Preferred Shares accrue interest at the rate of 18% annually.
CONVERSION; ADJUSTMENTS. The Series A1 Preferred Stock becomes convertible
into Common Stock at the rate of 25% every six months, commencing two and
one-half years after the initial issuance of the shares, except in the event of
a change in control of the Company or a major acquisition by the Company, in
which event the shares become convertible at the option of the holder. The
Series A2 Preferred Stock is fully convertible at the option of the holder. Both
series of Preferred Shares are automatically converted into Common Stock in the
event of any transfer of the shares other than to MCI WorldCom, Vulcan or one of
their affiliates.
Each Preferred Share is convertible into one share of Common Stock, subject
to adjustment for stock splits, stock dividends, reclassifications, certain
reorganizations, mergers, sales of assets and the like.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
One of the terms of the Transactions is the inclusion of a provision in the
Restated Certificate providing that the Company elects not to be governed by
Section 203 of the DGCL. The election to "opt out" of Section 203 is intended to
provide the Purchasers with greater liquidity in the event they desire to sell
shares of
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the Company. Section 203 is generally designed to provide anti-takeover
protection to the Company by imposing super-majority disinterested stockholder
voting requirements for certain transactions with significant stockholders.
Under Section 203, if the Purchasers desired to sell shares equal to 15% or more
of the Company's outstanding stock to one person or entity, unless advance Board
approval of the sale were obtained, the new 15% holder would become subject to
the restrictions of Section 203 in connection with specified subsequent
transactions involving the Company and that holder. In negotiating the
Transactions, the Purchasers required that the Company opt out of Section 203 to
allow them to freely dispose of their shares without the risks, burdens and time
constraints involved in obtaining Board approval.
Stockholders of the Company are being asked, as part of this Proposal, to
approve the election to opt out of Section 203. If approved, the election will
become effective as of the earliest date permitted by law, currently 12 months
after adoption of this Restated Certificate, and will not apply to any business
combination with any interested stockholder prior to adoption. A copy of Section
203 of the DGCL is attached to this Proxy Statement as Appendix D.
Section 203 of the DGCL generally prohibits any Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time such stockholder became an interested
stockholder, unless:
- prior to such time, the board of directors approved either the business
combination or the transaction that resulted in the stockholder's
becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders and not by written consent, by the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines a "business combination" to include:
(a) any merger or consolidation between the corporation and the
interested stockholder or another entity, if the merger or consolidation
was caused by the interested stockholder;
(b) any sale, lease, transfer, pledge or other disposition of 10% or
more of the assets of the corporation to or with the interested
stockholder;
(c) subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
(d) any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
(e) the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person that, together with its affiliates, beneficially owns 15% or more of the
outstanding voting stock of the corporation or any entity or person that is an
affiliate of such corporation and owned 15% or more of the outstanding voting
stock at any time within the preceding three years.
Because Section 203 is designed to provide anti-takeover protection to the
Company, elimination of the application of Section 203 could make the Company
more vulnerable to hostile or unsolicited takeover
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attempts that have not been negotiated or approved by the Board and that may be
less favorable to all stockholders than might be available in a Board-approved
transaction. On the other hand, many stockholders may view the election to opt
out of Section 203 as providing the benefit of eliminating one mechanism that
management could use to retain control of the Company or to deter possible
takeover bids that could otherwise be favorable to the stockholders. In either
event, the Board believes that the potential benefits of the Transactions with
Vulcan and MCI WorldCom to the Company and its stockholders outweigh the risks
of electing not to be governed by Section 203. In particular, the Board notes
that Delaware law will continue to require that all directors exercise their
fiduciary duties to the stockholders of the Company, including the duty of
loyalty, when considering transactions with interested stockholders. More
specifically, with respect to Vulcan, the largest stockholder of the Company, a
number of stockholder protection measures are currently in effect, placing
limitations or procedural restrictions on Vulcan's ability to sell Common Stock
representing more than 20% of the Common Stock of the Company or to propose to
acquire the Company or to sell the Company to a third party. In addition, the
Company retains other stockholder protection measures generally, such as a
classified Board of Directors and advance notice provisions, designed to deter
hostile takeover attempts.
STOCKHOLDER APPROVAL
Approval of Proposal 3 by the requisite stockholder vote is a condition to
all of the parties' respective obligations under the Purchase Agreement. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock will be required to approve the Company's Restated Certificate of
Incorporation. As a result, abstentions and broker non-votes will have the same
effect as negative votes. Vulcan has agreed to vote all of the shares it
beneficially owns in favor of Proposal 3, unless the Purchase Agreement is
terminated according to its terms. If Proposal 3 is not approved, the Company
would not be able to complete the Transactions under the Purchase Agreement as
planned.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
APPROVAL OF 1997 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in March 1997 and approved by the stockholders in May
1997. As of July 31, 1999, there were 1,075,000 shares authorized for issuance
under the Incentive Plan.
As of July 31, 1999, options (net of cancelled or expired options) covering
an aggregate of approximately 455,372 shares had been granted under the
Incentive Plan and only approximately 619,628 shares (plus any shares that might
in the future be returned to the Incentive Plan as a result of cancellations or
expiration of options) remained available for future grant under the Incentive
Plan. In August 1999, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, to (i) increase the number of shares authorized
for issuance under the Incentive Plan from 1,075,000 to 2,275,000 and (ii) make
certain other changes, principally for the purpose of conforming the Incentive
Plan to changes in the law and clarifying the meanings of certain provisions of
the Incentive Plan. These amendments are intended to afford the Company the
flexibility to provide prospective and current employees with appropriate stock
incentives and ensure that the Company can continue to provide such incentives
at levels determined appropriate by the Board.
A copy of the Incentive Plan, as amended to date, is attached to this Proxy
Statement as Appendix E. Stockholders are requested in this Proposal 4 to
approve the Incentive Plan, as amended. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the meeting will be required to approve the Incentive Plan, as amended.
Abstentions will be counted toward the tabulation of votes cast on the proposals
and will have the same effect as negative votes. Broker non-votes are
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counted toward a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Incentive Plan, as amended, are outlined
below:
GENERAL
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock purchase awards and stock bonuses
(collectively, "Stock Awards") to employees, directors and consultants.
Incentive stock options granted under the Incentive Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the Incentive Plan are not intended to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of the various awards included in the Incentive Plan. To date,
the Company has granted only stock options under the Plan.
PURPOSE
The Incentive Plan provides a means by which selected employees of and
consultants to the Company, and its affiliates, and directors of the Company may
be given an opportunity to purchase Common Stock of the Company. The Company, by
means of the Incentive Plan, seeks to retain the services of persons who are now
employees of or consultants to the Company, or its affiliates, and directors of
the Company to secure and retain the services of new employees, directors and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its affiliates. Approximately 75% of the
Company's approximately 310 employees are eligible to participate in the
Incentive Plan.
ADMINISTRATION
The Board administers the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Board has the power to construe and interpret the Incentive
Plan and the Stock Awards granted under it and to determine from time to time
which of the persons eligible under the Incentive Plan will be granted awards,
the type of awards to be granted, when and how each award will be granted, and
to establish, amend and revoke rules and regulations for the Incentive Plan's
administration. The Board may correct any defect in the Incentive Plan or in any
award agreement to make the Incentive Plan fully effective.
The Board has the power to delegate administration of the Incentive Plan to
a committee composed of one or more Board members. In the discretion of the
Board, a committee may consist solely of non-employee directors (as defined
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
two or more outside directors (as defined under the Code). If administration is
delegated to a committee, such committee will have, in connection with the
administration of the Incentive Plan, the powers possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Incentive Plan, as may be adopted from time to time by the Board. The
committee may delegate to a subcommittee any of the administrative powers the
committee is authorized to exercise. The Board may abolish a committee or
subcommittee at any time and revest in the Board the administration of the
Incentive Plan. The Board has delegated the administration of the Incentive Plan
to the Compensation Committee and, to a limited extent, the Non-Officer Stock
Option Administration Committee. See "Proposal 1 -- Election of
Directors -- Board Committees and Meetings." As used herein, with respect to the
Incentive Plan, the "Board" refers to the Compensation Committee, and where
applicable, the Non-Officer Stock Option Administration Committee, as well as to
the Board itself.
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SHARES SUBJECT TO THE PLAN
Subject to approval of this proposal, the Common Stock that may be issued
pursuant to awards under the Incentive Plan may not exceed in the aggregate
2,275,000 shares of the Company's Common Stock. If any award expires or
terminates, in whole or in part, without having been exercised in full, the
stock not purchased under such award will revert to and again become available
for issuance under the Incentive Plan. The Common Stock subject to the Incentive
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees (including
officers) of the Company and its affiliates. Nonstatutory stock options,
restricted stock purchase awards and stock bonuses may be granted to employees
of or consultants to the Company, and its affiliates, and directors of the
Company.
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company unless the exercise
price of such option is at least 110% of the fair market value of such Common
Stock subject to the option at the date of grant and the option is not
exercisable after the expiration of five years from the date of grant. No person
is eligible to be granted Stock Awards covering more than 400,000 shares of the
Company's Common Stock in any calendar year.
TERM AND TERMINATION
The maximum term of options under the Incentive Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan generally terminate three months after
termination of the optionee's status as an employee, director or consultant
unless (i) such termination is due to the optionee's permanent and total
disability (as defined in the Code), in which case the option may be exercised
(to the extent the option was exercisable at the time of the termination of
service) at any time within 12 months of such termination; (ii) the optionee
dies before the optionee's service has terminated, or within three months after
termination of such service, in which case the option may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within 18
months of the optionee's death by the person or persons to whom the rights to
such option pass by will or by the laws of descent and distribution; or (iii)
the option by its terms specifically provides otherwise. An optionee may
designate a beneficiary who may exercise the option following the optionee's
death. Individual option grants by their terms may provide for exercise within
longer or shorter periods of time following termination of service.
An optionee's option agreement may also provide that, if the exercise of
the option following the termination of the optionee's continuous status as an
employee, director or consultant would result in liability under Section 16(b)
of the Exchange Act, then the option will terminate on the earlier of (a) the
expiration of the term of the option set forth in the option agreement and (b)
the tenth day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an optionee's option
agreement may also provide that, if the exercise of the option following the
termination of the optionee's continuous status as an employee, director or
consultant would be prohibited at any time solely because the issuance of shares
would violate the registration requirements under the Securities Act of 1933, as
amended (the "Securities Act"), then the option will terminate on the earlier of
(a) the expiration of the term of the option as set forth in the immediately
preceding paragraph and (b) the expiration of a period of three months after the
termination of the optionee's continuous status as an employee, director or
consultant during which the exercise of the option would not be in violation of
such registration requirements.
In the event a stock bonus or restricted stock recipient's continuous
status as an employee, director or consultant terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of stock held by that
person that have not vested as of the date of termination under the terms of the
stock bonus or restricted stock purchase agreement between the Company and such
person.
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EXERCISE/PURCHASE PRICE
The exercise price of each incentive stock option will not be less than
100% of the fair market value of the Company's Common Stock on the date of
grant. The exercise price of each nonstatutory stock option will not be less
than 85% of the fair market value on the date of grant. The purchase price of
restricted stock will not be less than 85% of the fair market value of the
Company's Common Stock on the date such award is made. Stock bonuses may be
awarded in consideration of past services actually rendered to the Company or
for its benefit. If options are granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m) of the Code. See "Federal Tax Information." At July
31, 1999, the closing price of the Company's Common Stock as reported on the
Nasdaq National Market was $25.438 per share.
CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant for an option) by deferred payment or other
arrangement or in any other form of legal consideration that may be acceptable
to the Board. Additionally, in the case of an option and in the discretion of
the Board at the time of the grant of an option, by delivery to the Company of
other Common Stock of the Company. In the case of any deferred payment
arrangement, interest will be payable at least annually and will be charged at
the minimum rate of interest necessary to avoid the treatment as interest of
amounts that are not stated to be interest.
TRANSFERABILITY
An incentive stock option is not transferable except by will or by the laws
of descent and distribution, and is exercisable during the lifetime of the
person to whom the incentive stock option is granted only by such person. A
stock bonus or restricted stock award is not transferable except by will or by
the laws of descent and distribution or pursuant to a domestic relations order.
A nonstatutory stock option is transferable only to the extent specifically
provided for in the option agreement evidencing the nonstatutory stock option,
provided that if the nonstatutory stock option agreement does not provide for
transferability, then the option is not transferable except by will or by the
laws of descent and distribution or pursuant to a domestic relations order. An
award holder may designate a beneficiary who may exercise his or her award after
death.
VESTING
The total number of shares of stock subject to an option may, but need not,
be allotted in periodic installments. The option agreement may provide that from
time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period or any prior period as to which the option became vested but was
not fully exercised. The option agreement may also provide that an optionee may
exercise an option prior to full vesting, provided that the Company may have a
repurchase right with respect to any unvested shares.
Restricted stock purchase awards and stock bonuses granted under the
Incentive Plan may be granted pursuant to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the Board.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the Incentive Plan, or
subject to any Stock Award, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the class(es) and maximum number of shares subject to
the Incentive Plan, the maximum annual award applicable under the Incentive Plan
and the class(es) and number of shares and price per share of stock subject to
outstanding Stock Awards will be appropriately adjusted.
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In the event of a merger, consolidation, liquidation, dissolution or the
sale of substantially all of the Company's assets or a reverse merger in which
the Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, any surviving corporation will assume any Stock Awards outstanding
under the Incentive Plan or will substitute similar awards for those outstanding
under the Incentive Plan. In the event a surviving corporation refuses to assume
such Stock Awards or substitute similar awards, then, with respect to stock
awards held by persons then performing services as employees, directors or
consultants, the time during which such Stock Awards may be exercised will be
accelerated prior to completion of such transaction and such Stock Awards
terminated if not exercised prior to such transaction. In addition, with respect
to any person who was providing services as an employee, director or consultant
immediately prior to such transaction, the time during which Stock Awards may be
exercised will be accelerated and any repurchase right of the Company with
respect to such Stock Awards will lapse if such person is terminated without
cause within 12 months following such transaction. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed as
an antitakeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
AMENDMENT OF THE INCENTIVE PLAN
The Board at any time, and from time to time, may amend the Incentive Plan.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after the adoption of the amendment,
where the amendment will increase the number of shares reserved for issuance
under the Incentive Plan, modify the requirements as to eligibility for
participation or in any other way if such modification requires stockholder
approval in order for the Incentive Plan to satisfy the requirements of Section
422 of the Code or to comply with the requirements of Rule 16b-3 of the Exchange
Act. The Board may in its sole discretion submit any other amendment to the
Incentive Plan for stockholder approval.
TERMINATION OR SUSPENSION OF THE INCENTIVE PLAN
The Board may suspend or terminate the Incentive Plan at any time. Unless
sooner terminated, the Incentive Plan will terminate in March 2007. No Stock
Awards may be granted under the Incentive Plan while the Incentive Plan is
suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price and (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's
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additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the optionee held the stock for more than one year.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, Code Section 162(m) and the satisfaction of a
tax reporting obligation) to a corresponding business expense deduction in the
tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options generally have the
following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be short-term or long-term depending on whether the stock
was held for more than one year. Slightly different rules may apply to optionees
who acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
RESTRICTED STOCK PURCHASE AWARDS AND STOCK BONUSES. Restricted stock
purchase awards and stock bonuses granted under the Incentive Plan generally
have the following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value
over the purchase price, if any. However, to the extent the stock is subject to
certain types of vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the recipient elects to be taxed on
receipt of the stock. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain covered employees in a taxable year to the extent that compensation
exceeds $1 million for a covered employee. It is possible that compensation
attributable to awards granted in the future under the Incentive Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (a) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (b) the
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option is granted (or exercisable) only upon the achievement (as certified in
writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
PROPOSAL 5
APPROVAL OF 1991 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
The 1991 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors and approved by the Company's stockholders in November
1991. As of July 31, 1999, 550,000 shares were authorized for issuance under the
Purchase Plan. At July 31, 1999, an aggregate of 432,743 shares had been issued
under the Purchase Plan and only 117,257 shares remained for the grant of future
rights under the Plan. In August 1999, the Board of Directors adopted an
amendment to the Purchase Plan, subject to stockholder approval, to increase the
number of shares authorized for issuance under the Purchase Plan from 550,000
shares to 750,000 shares and to delete the specified term of the Plan. In the
absence of the amendment, the Purchase Plan would have terminated in 2001. This
amendment is intended to afford the Company greater flexibility in providing
employees with stock incentives and ensures that the Company can continue to
provide such incentives at levels determined appropriate by the Board.
During the last fiscal year, shares were purchased by the executive
officers and other employees of the Company in the amounts and at the weighted
average prices per share under the Purchase Plan as follows: Robert P. Dilworth,
0 shares ($0), Donald F. Wood, 0 shares ($0), Gary M. Green, 1,234 shares
($12,488), William D. Swain, 3,052 shares ($24,178), Vanessa A. Wittman, 0
shares ($0), all current executive officers as a group, 0 shares ($0), and all
employees (excluding executive officers) as a group, 80,364 shares ($603,112).
Stockholders are requested in this Proposal 5 to approve the Purchase Plan,
as amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Purchase Plan, as amended. Abstentions will be
counted toward the tabulation of votes cast on the proposal and will have the
same effect as negative votes. Broker non-votes are counted toward a quorum, but
are not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist
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the Company in retaining the services of its employees, to secure and retain the
services of new employees, and to provide incentives for such persons to exert
maximum efforts for the success of the Company. Approximately 80% of the
Company's approximately 310 employees are currently eligible to participate in
the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company will be
eligible to participate in such plan. The Board has the power, which it has not
exercised, to delegate administration of such plan to a committee of not less
than two Board members. The Board may abolish any such committee at any time and
revest in the Board the administration of the Purchase Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each such offering is one
year long.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering is eligible to participate in that offering under the Purchase Plan,
provided such employee has been in the continuous employ of the Company for at
least four months preceding the first day of the offering.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 15% of such
employees' base salary compensation during the offering.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan is the lower of (a) 85% of the fair market value of a share of
Common Stock on the date of commencement of the offering and (b) 85% of the fair
market value of a share of Common Stock on the last day of the offering.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering. At any time during the offering, a participant may reduce or
terminate his or her payroll deductions. A participant may not
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increase or begin such payroll deductions after the beginning of any offering,
except, if the Board provides, in the case of an employee who first becomes
eligible to participate as of a date specified during the offering. All payroll
deductions made for a participant are credited to his or her account under the
Purchase Plan and deposited with the general funds of the Company. A participant
may not make any additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board specifies a maximum number of shares any
employee may be granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by all participants.
If the aggregate number of shares to be purchased upon exercise of rights
granted in the offering would exceed the maximum aggregate number, the Board
would make a pro rata allocation of shares available in a uniform and equitable
manner. Unless the employee's participation is discontinued, his right to
purchase shares is exercised automatically at the end of the offering at the
applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering to
the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may
be elected at any time prior to the end of the applicable offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan or (b) modify the
requirements relating to eligibility for participation in the Purchase Plan.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
23
<PAGE> 27
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
SHARES SUBJECT TO PURCHASE PLAN
Subject to approval of this proposal, an aggregate of 750,000 shares of
Common Stock is authorized for issuance under the Purchase Plan. If rights
granted under the Purchase Plan expire, lapse or otherwise terminate without
being exercised, the Common Stock not purchased under such rights will again
become available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the stock is disposed of more than two years after the beginning of the
offering and more than one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price and (b) the excess
of the fair market value of the stock as of the beginning of the offering over
the exercise price (determined as of the beginning of the offering) will be
treated as ordinary income. Any further gain or any loss will be taxed as a
long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term
depending on whether the stock has been held for more than one year.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of a tax reporting obligation).
PROPOSAL 6
APPROVAL OF 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED
In February 1993, the Board adopted, and the stockholders subsequently
approved, the Company's 1993 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). As of July 31, 1999, there were 375,000 shares authorized
for issuance under the Directors' Plan.
As of July 31, 1999, options covering an aggregate of 294,000 shares of the
Company's Common Stock had been granted under the Directors' Plan, of which
options to purchase 231,002 shares were outstanding, with exercise prices
ranging from $4.875 to $23.37. As of July 31, 1999, a total of 48,998 shares had
been exercised under the Directors' Plan and 95,000 shares remained available
for future grants under the Directors' Plan. In August 1999, the Board of
Directors adopted an amendment to the Directors' Plan, subject
24
<PAGE> 28
to stockholder approval, to increase the number of shares authorized for
issuance under the Directors' Plan from 375,000 shares to 575,000 shares. This
Amendment is intended to allow the Company to continue to attract and retain
qualified non-employee directors.
Stockholders are requested in this Proposal 6 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Directors' Plan, as amended. Abstentions
will be counted toward the tabulation of votes cast on the proposal and will
have the same effect as negative votes. Broker non-votes are counted toward a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 6.
The essential features of the Directors' Plan, as amended, are outlined
below:
GENERAL
The Directors' Plan provides for non-discretionary grants of nonstatutory
stock options. Options granted under the Directors' Plan are not intended to
qualify as incentive stock options, as defined under Section 422 of the Code.
See "Federal Income Tax Information" below for a discussion of the tax treatment
of nonstatutory stock options.
PURPOSE
The purpose of the Directors' Plan is to retain the services of persons now
serving as non-employee directors of the Company, to attract and retain the
services of persons capable of serving on the Board of Directors of the Company
and to provide incentives for such persons to exert maximum efforts to promote
the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration.
The Board of Directors is authorized to delegate administration of the
Directors' Plan to a committee of not less than two members of the Board. The
Board of Directors does not presently contemplate delegating administration of
the Directors' Plan to any committee of the Board of Directors.
SHARES SUBJECT TO THE PLAN
Subject to approval of this proposal, the Common Stock that may be issued
pursuant to options granted under the Directors' Plan may not exceed in the
aggregate 575,000 shares of Common Stock. If any option expires or terminates,
in whole or in part, without having been exercised in full, the stock not
purchased under such option will revert to and again become available for
issuance under the Directors' Plan. The Common Stock subject to the Directors'
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate. Six of the Company's
seven current directors (all except Mr. Dreisbach) are eligible to participate
in the Directors' Plan.
25
<PAGE> 29
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
NON-DISCRETIONARY GRANTS. Option grants under the Directors' Plan are
non-discretionary. Each non-employee director who is elected or appointed to the
Board of Directors for the first time receives an option to purchase 7,000
shares of the Company's Common Stock upon such person's date of initial election
or appointment to the Board of Directors. In addition, each non-employee
director on January 1 of each year (provided such person has been a non-employee
director for at least three months on such date) receives an additional option
to purchase 7,000 shares of Common Stock.
OPTION EXERCISE. An option granted under the Directors' Plan becomes
exercisable in three equal installments beginning on the first anniversary of
the grant of the option. Such vesting is conditioned upon continued service as a
director, advisory board member, employee or consultant of the Company.
EXERCISE PRICE; PAYMENT. The exercise price of options granted under the
Directors' Plan is equal to 100% of the fair market value of the Common Stock
subject to such options on the date of grant. The exercise price of options
granted under the Directors' Plan must be paid in cash at the time the option is
exercised.
TERM. The term of options under the Directors' Plan is 10 years. Options
under the Directors' Plan terminate three months after termination of the
optionholder's service unless such termination is due to the optionholder's
death, in which case an option may be exercised (to the extent the option was
exercisable at the time of the optionholder's death) within 18 months of the
optionholder's death by the person or persons to whom the rights to such option
pass by will or by the laws of descent and distribution.
TRANSFERABILITY. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution. During the lifetime of an optionee, an option may be exercised
only by the optionee or his or her guardian or legal representative.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the plan
and the class, number of shares and price per share of stock subject to
outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of the Company or a specified
type of merger or other corporate reorganization, to the extent permitted by
law, the vesting of any outstanding options under the Directors' Plan shall
accelerate and the options terminate if unexercised prior to the occurrence of
the event.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Directors' Plan at any time
or from time to time; provided, however, that the Board may not amend the
Directors' Plan with respect to the amount, price or timing of grants more often
than once every six months other than to comport with changes to the Code or
ERISA. No amendment will be effective unless approved by the stockholders of the
Company within 12 months before or after its adoption by the Board if the
amendment would: (a) increase the number of shares authorized for options under
the plan, (b) modify the requirements as to eligibility for participation in the
plan (to the extent such modification requires stockholder approval in order for
the plan to comply with the requirements of Rule 16b-3), or (c) modify the plan
in any other way if such modification requires stockholder approval in order for
the plan to meet the requirements of Rule 16b-3. Unless sooner terminated, the
Directors' Plan shall terminate in February 2003.
26
<PAGE> 30
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to optionholders who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Directors' Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionholder normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. If the optionholder becomes an employee, the
Company is required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionholder.
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon exercise of the option (or vesting of the stock). Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year.
The following table presents certain information with respect to options
expected to be granted under the Directors' Plan in fiscal 2000 to each
executive officer named in the Summary Compensation Table under the caption
"Executive Compensation" below, all current executive officers as a group, all
current non-employee directors as a group, and all employees as a group:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF PERSON OR GROUP(1) SUBJECT TO OPTIONS
-------------------------- ------------------
<S> <C>
Robert P. Dilworth.......................................... 7,000
All current executive officers as a group................... 0
All current directors who are not executive officers as a
group..................................................... 42,000
All employees as a group.................................... 0
</TABLE>
- ---------------
(1) Mr. Dilworth was formerly an executive officer of the Company. No other
executive officer or former executive officer named in the Summary
Compensation Table below is currently eligible to be granted options under
the Directors' Plan.
PROPOSAL 7
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since its inception in 1988.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of
27
<PAGE> 31
Arthur Andersen LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm. Even
if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent auditors at any
time during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 7.
28
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of July 31, 1999 by: (a) each current director
and nominee for director; (b) each of the executive officers named in the
Summary Compensation Table under the caption "Executive Compensation" below
(including certain former executive officers); (c) all executive officers and
directors of the Company as a group; and (d) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------
NAME NUMBER OF SHARES PERCENT OF TOTAL
---- ---------------- ----------------
<S> <C> <C>
Vulcan Ventures Incorporated(2)............................. 9,121,745 43.4%
110-110th Avenue NE, Suite 550
Bellevue, WA 98004
Robert S. Cline(3).......................................... 55,999 *
Ralph Derrickson(3)(4)...................................... 9,124,078 43.4%
Robert P. Dilworth.......................................... 147,579 *
Timothy A. Dreisbach(3)..................................... 203,316 1.0%
Lee M. Gopadze(3)........................................... 32,391 *
Gary M. Green............................................... 0 *
Justin L. Jaschke(3)........................................ 42,499 *
Dale W. Marquart(3)......................................... 25,721 *
David Moore(4).............................................. 9,121,745 43.4%
Robert W. Mott(3)........................................... 18,750 *
William D. Savoy(3)(4)...................................... 9,124,078 43.4%
William D. Swain............................................ 0 *
Vanessa A. Wittman(3)....................................... 14,135 *
John G. Wernke(3)........................................... 22,812 *
Donald F. Wood.............................................. 5,144 *
Directors and executive officers as a group (11
persons)(5)............................................... 9,675,478 45.3%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by directors, executive
officers and principal stockholders and Schedules 13D and 13G filed with the
SEC. Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares beneficially
owned by them, subject to community property laws where applicable. For
purposes of this table, shares held by stockholders include any shares held
as tenants in common or joint tenants with spouses. Percentages are based on
a total of 21,005,488 shares outstanding on July 31, 1999, adjusted in
accordance with the rules promulgated by the SEC.
(2) Based on a Schedule 13D filed with the SEC on October 28, 1993 and most
recently amended on January 30, 1998. Includes 25,000 shares held by Paul
Allen, the sole stockholder of Vulcan.
(3) Includes 52,999, 2,333, 183,333, 29,791, 38,999, 22,395, 18,750, 2,333,
20,312 and 4,749 shares of Common Stock subject to options exercisable
within 60 days of the date of this table held by Messrs. Cline, Derrickson,
Dreisbach, Gopadze, Jaschke, Marquart, Mott, Savoy and Wernke and Ms.
Wittman, respectively.
(4) Includes 9,121,745 shares beneficially owned directly by Vulcan. Messrs.
Derrickson, Moore and Savoy are affiliated with Vulcan Northwest, Inc., a
venture capital fund affiliated with Vulcan. Messrs. Derrickson, Moore and
Savoy disclaim beneficial ownership of these shares within the meaning of
Rule 13d-3 under the Exchange Act.
(5) Includes shares subject to options and shares held by entities affiliated
with certain officers and directors as described in the footnotes above.
Does not include shares held by Messrs. Green, Swain and Wood and Ms.
Wittman, each of whom left the Company in 1998.
29
<PAGE> 33
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$6,000 and a per meeting fee of $1,000 (plus $250 for each committee meeting
attended by committee members). In the fiscal year ended December 31, 1998, the
total compensation paid to non-employee directors was $42,250. Members of the
Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board of Directors and committee
meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the Directors' Plan. Only non-employee directors of the Company or an
affiliate of such directors (as defined in the Code) are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Code.
Option grants under the Directors' Plan are non-discretionary. On January 1
of each year (or the next business day should such date be a legal holiday),
each member of the Company's Board of Directors who is not an employee of the
Company, is automatically granted under the Directors' Plan, without further
action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,000 shares of Common Stock of the Company. No
other options may be granted at any time under the Directors' Plan. The exercise
price of options granted under the Directors' Plan is 100% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
Options granted under the Directors' Plan may not be exercised until the date
upon which such optionee has provided one year of continuous service as a
non-employee director following the date of grant of such option, whereupon such
option will become exercisable as to one third of the option shares and one
third of the option shares will become exercisable each year thereafter in
accordance with its terms. The term of options granted under the Directors' Plan
is ten years. In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or other change-in-control
transaction involving the Company, the vesting of each option will accelerate
and the option will terminate if not exercised prior to the consummation of the
transaction.
During the last fiscal year, the Company granted options covering 42,000,
7,000 and 14,000 shares to non-employee directors of the Company at exercise
prices per share of $9.3125, $10.969 and $11.75, respectively. The exercise
prices were also the respective fair market values of such Common Stock on the
date of grant (based on the closing sale price reported on the Nasdaq National
Market for the date of grant). There were no exercises of options to purchase
shares of Common Stock under the Directors' Plan from January 1, 1998 through
March 31, 1999.
Directors who are employees of the Company do not receive separate
compensation for their services as directors.
30
<PAGE> 34
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996 compensation awarded or paid to, or earned by, the current Chief
Executive Officer, four other current executive officers of the Company and five
former executive officers, including a former Chief Executive Officer, who left
the Company in 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------------
SHARES OF COMMON
ANNUAL COMPENSATION STOCK
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION(5)
------------------------------ ---- --------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Timothy A. Dreisbach................. 1998 $148,616 $ -- 550,000 $ 2,578
President and Chief Executive
Officer
Lee M. Gopadze....................... 1998 $166,179 $ 49,453 65,000 $ 2,966
Senior Vice President of 1997 $122,950 $ 49,317 20,000 --
Field Operations
Dale W. Marquart..................... 1998 $ 83,654 $ 15,000 75,000 $ 258
General Counsel, Senior Vice
President of Administration and
Secretary
Robert W. Mott....................... 1998 $ 53,846 $ 47,500 75,000 $ 1,220
Senior Vice President of
Engineering & Manufacturing
John G. Wernke....................... 1998 $ 54,808 $ 20,000 75,000 $ 2,011
Senior Vice President of Marketing
and Sales
Robert P. Dilworth................... 1998 $253,762 $ 76,250 -- $185,903
Former Chief Executive Officer 1997 $305,000 $228,750 330,000 $ 6,400
1996 $281,960 $305,000 255,000 $ 12,396
Gary M. Green........................ 1998 $150,515 $ 54,000 50,000 $143,477
Former Executive Vice President 1997 $206,774 $ 81,000 121,000 $ 6,472
and Chief Operating Officer 1996 $193,232 $ 72,000 86,000 $ 36,157
William D. Swain..................... 1998 $127,364 $ 32,600 40,000 $ 88,769
Former Vice President, 1997 $155,695 $ 48,900 95,000 $ 5,050
Administration and Secretary 1996 $145,424 $ 61,400 65,000 $ 4,789
Donald F. Wood....................... 1998 $ 57,846 $ -- -- $327,742
Former President 1997 $223,748 $141,000 362,000 $ 2,357
1996 $179,846 $ 98,000 37,000 $ 1,118
Vanessa A. Wittman................... 1998 $140,560 $ 32,000 50,000 $ 5,783
Former Chief Financial Officer 1997 $ 94,058 $ 26,500 75,000 $ 1,258
</TABLE>
- ---------------
(1) Mr. Dilworth resigned as Chief Executive Officer in May 1998. Mr. Dreisbach
joined the Company in May 1998. Mr. Gopadze joined the Company in February
1997. Mr. Marquart joined the Company in June 1998. Mr. Mott and Mr. Wernke
joined the Company in August 1998. Mr. Green and Mr. Swain left the Company
in July 1998. Mr. Wood left the Company in January 1998. Ms. Wittman joined
the Company in May 1997 and left the Company in November 1998.
(2) For fiscal 1997 and 1996, includes amounts earned but deferred at the
election of the Named Executive Officer under the Company's Non-Qualified
Deferred Compensation Plan. In accordance with the rules of the SEC, the
compensation described in this table does not include medical or group life
insurance or other benefits that are generally available to all salaried
employees of the Company or certain perquisites and other personal benefits
received by the Named Executive Officers that do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this
table.
31
<PAGE> 35
(3) For fiscal 1998, 1997 and 1996, includes shares of stock issued in
connection with the Company's annual bonuses paid in cash and stock. In
fiscal 1996, Messrs. Dilworth, Green, Swain and Wood, respectively, received
stock valued at $101,668, $34,003, $20,475 and $32,675, based on a per share
value of $12.1875, the fair market value of the Company's Common Stock on
the date bonuses were paid (based on the average of the previous day's high
and low sales price reported in the Nasdaq National Market). In fiscal 1997,
Messrs. Dilworth, Gopadze, Green, Swain, Wood and Ms. Wittman, respectively,
received stock valued at $76,258, $9,367 $27,003, $16,301, $47,003 and
$8,835, based on a per share value of $11.3125, the fair market value of the
Company's Common Stock on the date bonuses were paid (based on the average
of the previous day's high and low sales price reported in the Nasdaq
National Market). In fiscal 1998, Messrs. Dilworth, Gopadze, Green, Swain
and Ms. Wittman, respectively, received stock valued at $50,828, $13,151,
$17,993, $10,865, $10,659, based on a per share value of $8.25, the fair
market value of the Company's Common Stock on the date bonuses were paid
(based on the average of the previous day's high and low sales price
reported in the Nasdaq National Market). Included in Mr. Mott's bonus in
1998 is an advance payment of $35,000.
(4) Includes repriced options. In January 1996, the Board approved the
replacement of each outstanding stock option with a per share exercise price
of $14.00 or greater, upon the timely request of the optionee, with a
nonstatutory stock option having an exercise price of $13.125 per share and
certain extended vesting terms. Amounts for fiscal 1996 include 205,000,
61,000, 45,000, 12,000 shares subject to repriced options for Messrs.
Dilworth, Green, Swain and Wood, respectively. In September 1997, the Board
approved the replacement of each outstanding option held by an executive
officer with a per share exercise price of $11.00 per share or greater, upon
the timely request of the optionee, with a nonstatutory stock option having
an exercise price of $6.75 per share and certain delayed exercise
provisions. Amounts for fiscal 1997 include 225,000, 86,000, 65,000 and
162,000 shares subject to repriced options for Messrs. Dilworth, Green,
Swain and Wood, respectively.
(5) For 1996 and 1997, includes the Company's matching payment of $1,000 for
each executive officer under its 401(k) plan, except for Mr. Gopadze, who
received no matching payments. For 1998, includes the Company's matching
payment of $1,000 for each executive officer under its 401(k) plan, except
for Messrs. Gopadze, Marquart, Mott and Wernke, who received $0, $0, $942,
and $0 in matching payments, respectively. For fiscal 1996, includes
payments for term life insurance in the amounts of $5,400, $5,157, $3,789
and $1,118 for Messrs. Dilworth, Green, Swain and Wood, respectively, loan
principal forgiveness in the amount of $30,000 for Mr. Green and an
automobile allowance of $5,996 for Mr. Dilworth. For fiscal 1997, includes
payments for term life insurance in the amounts of $5,400, $5,472, $4,050,
$1,357 and $258 for Messrs. Dilworth, Green, Swain, Wood and Ms. Wittman,
respectively. For fiscal 1998, includes payments for term life insurance in
the amounts of $1,578, $7,875, $2,966, $258, $278, $349, $5,400, $1,357, and
$475 for Messrs. Dreisbach, Dilworth, Gopadze, Marquart, Mott, Wernke,
Green, Wood and Ms. Wittman, respectively, and an automobile allowance of
$1,662 for Mr. Wernke. Also includes, for fiscal 1998, payments under the
Key Employee Severance Plan in the amounts of $177,028, $137,077 $87,769,
$325,385 and $4,308 for Messrs. Dilworth, Green, Swain, Wood, and Ms.
Wittman, respectively. See "Change of Control and Severance Arrangements."
32
<PAGE> 36
COMPENSATION PURSUANT TO PLANS
Generally, the Company grants options to its executive officers under the
Incentive Plan. The following tables show, for the fiscal year ended December
31, 1998, certain information regarding options granted to, exercised by and
held at year end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF PERCENT OF
SHARES OF TOTAL POTENTIAL REALIZABLE VALUE AT
COMMON OPTIONS ASSUMED ANNUAL RATES OF
STOCK GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM(3)
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION ------------------------------
GRANTED(1) YEAR(2) PER SHARE DATE 5% 10%
---------- ---------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach(4)........... 550,000 23.6% $10.3750 05/08/08 $3,588,630 $9,094,293
Mr. Gopadze................ 10,000 0.4% $10.3125 04/29/08 $ 64,855 $ 164,355
55,000 2.3% $ 5.8750 09/01/08 $ 203,212 $ 514,978
Mr. Marquart............... 50,000 2.1% $ 7.9065 07/06/08 $ 248,618 $ 630,046
25,000 1.1% $ 9.8130 06/01/08 $ 154,284 $ 390,985
Mr. Mott................... 75,000 3.2% $ 6.6250 08/31/08 $ 312,482 $ 791,891
Mr. Wernke................. 75,000 3.2% $ 8.1250 08/10/08 $ 383,233 $ 971,187
Mr. Dilworth(5)............ -- -- -- -- -- --
Mr. Green(5)............... 50,000 2.1% $10.3125 07/15/99 $ 324,274 $ 821,773
Mr. Swain(5)............... 40,000 1.7% $10.3125 07/31/99 $ 259,419 $ 657,419
Mr. Wood(5)................ -- -- -- -- -- --
Ms. Wittman(5)............. 50,000 2.1% $10.3125 11/20/99 $ 324,274 $ 821,773
</TABLE>
- ---------------
(1) Options granted under the Company's employee stock option plans typically
vest at the rate of 25% after one year and approximately two percent per
month thereafter, such that the options are fully vested in four years. For
a description of the material terms of options granted under the Incentive
Plan, see "Proposal 4 -- Approval of 1997 Equity Incentive Plan, as
amended."
(2) Based on options covering a total of 2,334,301 shares of Common Stock
granted to employees in fiscal 1998.
(3) For new grants, the potential realizable value is calculated based on the
term of the option at its time of grant (ten years). Potential realizable
value is calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the SEC and do not represent the
Company's estimate or projection of future Common Stock price. No gain to
the optionee is possible unless the stock price increases over the option
term, which will benefit all stockholders.
(4) Includes 511,457 shares subject to a nonstatutory option granted to Mr.
Dreisbach outside of the Company's regular employee plans. Approximately 25%
of the shares subject to the option vested on the first anniversary of the
date of commencement of his employment, with the remaining shares vesting
monthly, at a declining rate, such that the option is fully vested in four
years. Vesting will be accelerated upon certain changes of control. In
addition, the option may be exercised for up to two years following certain
terminations of employment. See "Change of Control and Severance
Arrangements -- Employment Arrangements."
(5) Options granted to Messrs. Dilworth, Green, Swain, Wood and Ms. Wittman
expire 12 months following their termination of employment under the terms
of the Key Employee Severance Plan. See "Change of Control and Severance
Arrangements."
33
<PAGE> 37
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES OF
SHARES OF COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
COMMON UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
STOCK VALUE FISCAL YEAR-END(1) FISCAL YEAR-END(1)(2)
ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE (3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach.................. -- -- -- 550,000 -- --
Mr. Gopadze.................... -- -- 8,750 76,250 $ 3,007 $3,867
Mr. Marquart................... -- -- -- 75,000 -- --
Mr. Mott....................... -- -- -- 75,000 -- --
Mr. Wernke..................... -- -- -- 75,000 -- --
Mr. Dilworth................... -- -- 404,579 -- $ 16,406 --
Mr. Green...................... -- -- 233,078 -- $178,281 --
Mr. Swain...................... -- -- 97,910 -- -- --
Mr. Wood....................... -- -- 242,623 -- -- --
Ms. Wittman.................... -- -- 65,625 -- -- --
</TABLE>
- ---------------
(1) Includes repriced options.
(2) Value is based on the fair market value of the Company's Common Stock at
December 31, 1998 of $5.188 (based on the closing sale price reported on the
Nasdaq National Market on such date) minus the exercise price of the option.
(3) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing sale price reported on the Nasdaq
National Market on such date) minus the exercise price, and does not
necessarily indicate that the optionee sold such stock.
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
KEY EMPLOYEE SEVERANCE PLAN. In October 1997, in light of the transactions
being negotiated with Vulcan Ventures, the Compensation Committee of the Board
adopted the Company's Key Employee Severance Plan (the "Severance Plan"). An
employee is eligible to participate in the Severance Plan if (a) such employee
is notified in writing that he or she is eligible to participate in the
Severance Plan and (b) such employee's employment with the Company is terminated
due to an involuntary termination or a constructive termination (generally, a
voluntary termination following an adverse change in the employee's position,
circumstances or compensation) within 12 months following a Designated Event
(other than for cause). Such 12-month period may be extended to 18 months for
executive officers who are so notified in writing. "Designated Event" means any
transaction or series of transactions having a significant effect on the ability
of any person or group to direct or cause the direction of the Company's
management and policies that is specifically declared by the Board to be a
Designated Event. The Board declared the sale of Common Stock to Vulcan in
January 1998 as the "Designated Event" for the Severance Plan. Approximately 32
employees, including those Named Executive Officers who were employed by the
Company as of January 1998, were notified of their eligibility to participate in
the Severance Plan. Approximately 16 employees, including Messrs. Dilworth,
Green, Swain, Wood and Ms. Wittman, were receiving benefits under the Severance
Plan as of December 31, 1998.
The benefits provided by the Severance Plan are: (a) continuation of salary
for 12 months following termination of employment; (b) payment of any bonus to
which the employee would have been entitled under the Company's incentive bonus
plan for the 12 months following termination of employment, assuming such
employee's full employment with the Company during such 12-month period and the
achievement of certain incentive targets by the Company and the employee; (c)
continuation of health, life and other insurance benefits for the employee (and
any dependents covered as of the date of termination) for 12 months following
the termination of employment (or five years for health benefits, if the
employee is age 55 or older upon termination of employment, subject to earlier
termination if the employee and his or her dependents become covered by another
group insurance plan providing similar benefits); and (d) amendment of all stock
options
34
<PAGE> 38
held by such employee upon termination of employment so that (i) such options
become vested for an additional 12 months on the date of termination and (ii)
the employee may exercise such options for 12 months following termination of
employment. To receive the benefits provided by the Severance Plan, an eligible
employee must execute a release of claims in favor of the Company, and such
release must become effective in accordance with its terms.
KEY EMPLOYEE RETENTION INCENTIVE PLAN. In October 1997, the Compensation
Committee of the Board also adopted the Company's Key Employee Retention
Incentive Plan (the "Retention Plan"). Approximately 32 employees of the
Company, including the Named Executive Officers who were employed by the Company
as of January 1998, were eligible to participate in the Retention Plan.
The Retention Plan provides the following benefits: (a) if an eligible
employee is employed by the Company on the date that is six months after the
Designated Event (as defined above), such employee will receive a lump sum
payment equal to 50% of the Bonus Amount (as defined below); and (b) if the
employee is also employed by the Company on the date that is 12 months after the
Designated Event, such employee will receive a lump sum payment for the
remaining 50% of the Bonus Amount.
For purposes of the Retention Plan, bonus amount means the bonus to which
an eligible employee would be entitled under the Company's incentive bonus plan
if (a) the Company's incentive bonus plan for the 12 months following a
Designated Event were the same as during the full year most recently completed
prior to the Designated Event; (b) the eligible employee were to remain
continuously employed by the Company for 12 months following the Designated
Event and to the bonus payment date in the same capacity in which such employee
was employed on the date of the Designated Event; and (c) the employee and the
Company were to achieve 100% of any objectives affecting individual bonus
amounts under such incentive bonus plan.
EMPLOYMENT ARRANGEMENTS. In May 1998, the Company entered into an
employment agreement with Mr. Dreisbach, which provided for salary, bonus and
option grants for the ensuing year. In addition, under the agreement, in the
event that the Company were to terminate Mr. Dreisbach's employment other than
for cause (as defined in the agreement) at any time or if Mr. Dreisbach were to
voluntarily terminate his employment for good reason (as defined in the
agreement) within 90 days prior to or 180 days after a change in control of the
Company, the Company would pay to Mr. Dreisbach, for a period of 12 months, the
base compensation and health benefits to which he was entitled on the date of
his termination. In addition, under Mr. Dreisbach's non-plan option, in the
event of a change in control, the option would come fully vested if, within 90
days prior to or 180 days following such change in control, his employment were
terminated for any reason other than for cause or if he terminated his
employment for good reason. In addition, under the non-plan option, if Mr.
Dreisbach were terminated without cause or voluntarily terminated his employment
for good reason, he could exercise his options (to the extent exercisable) for
up to two years following such termination.
In addition, the Company's employment arrangements with each of the current
executive officers, other than Mr. Dreisbach, provide that upon a change in
control of the Company that results in the elimination of, or a material
reduction in, the scope of the officers' responsibilities, they would be
entitled to severance benefits consisting of six months' salary and continuation
of benefits as well as the acceleration of vesting of their options for periods
ranging from one to two years.
ACCELERATION OF VESTING UNDER STOCK OPTION PLANS. Two of the Company's
three stock option plans for the benefit of employees and consultants of the
Company, the 1997 Equity Incentive Plan and the 1997 Non-Officer Equity
Incentive Plan, provide for acceleration of vesting under certain circumstances.
Options to purchase approximately 326,792 and 1,067,360 shares of Common Stock,
respectively, were outstanding under such plans as of July 31, 1999. These plans
provide that, in the event an optionee is terminated other than for cause within
12 months after a Change in Control (as defined in such plans), the options held
by such optionee under such plans will become fully vested.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company applies a consistent methodology to compensation for all
employees, including senior management. It is based on the premise that Company
results are achieved through the coordinated efforts of all individuals working
toward meeting customer and stockholder expectations.
35
<PAGE> 39
The goals of the Company's compensation program are to align compensation
with business objectives and performance while enabling the Company to attract,
retain and reward employees who contribute to the long-term success of the
Company. In all cases, attention is given to fairness in the administration of
compensation and to assuring that all employees understand the related
performance evaluation and administrative process.
The Company's compensation program for executive officers is based on the
principles described above and is administered by the Compensation Committee.
Until January 1998, the Compensation Committee was composed of Mr. Robert S.
Cline, who is Chairman of the Committee, and Mr. Cornelius C. Bond, Jr., both
non-employee directors of the Company. In January 1998, Mr. Bond ceased to be a
member of the committee. In April 1998, David Liddle, a non-employee director,
joined the Compensation Committee. There were no interlocking or other types of
relationships affecting the independence of the committee members during fiscal
1998. Mr. Liddle has subsequently ceased to be a member of the Compensation
Committee in 1999 and has been replaced by Mr. David Moore, a non-employee
director of the Company.
The Company has taken careful steps to ensure that executive compensation
is consistent with other similar companies in the electronics and communications
industries, while being contingent upon the Company's achievement of near- and
long-term objectives and goals. For fiscal 1998, the principal measures the
Compensation Committee looked to in evaluating the Company's progress towards
these objectives and goals were (1) milestones in the development of Ricochet2,
the Company's planned 128kbps network, and (2) completion of right-of-way
agreements in cities where Ricochet service is not currently offered. Other
management objectives considered by the Compensation Committee included
expanding the installation of Ricochet networks in current markets and
increasing the Ricochet subscriber base. The Company's executive compensation is
also based on these four components, each of which is intended to serve the
overall compensation philosophy.
BASE SALARY
Base salary is targeted toward the middle of the range established by
surveys of comparable companies in the electronics and communications
industries. Base salaries are reviewed annually to ensure that the Company's
salaries are competitive within the target range. For the purpose of
establishing these levels for fiscal 1998, the Company relied in part on an
executive compensation survey of U.S.-based high technology companies conducted
by a nationally recognized compensation consulting firm and on data obtained
from executive search firms that place executives with Silicon Valley companies.
The companies in the above mentioned survey and data sources include a broad
range of companies because the Company competes for talented executives with a
wide range of companies in various industries. The Company believes the highly
competitive employment environment of Silicon Valley has the greatest impact on
base salary levels.
MERIT INCREASE
Merit increases are designed to encourage management to perform at
consistently high levels. Salaries for executives are reviewed by the
Compensation Committee on an annual basis and may be increased at that time
based on the Compensation Committee's agreement that the individual's overall
contribution to the Company merits recognition. Small lump-sum bonuses were
provided in lieu of merit increases to base salaries for the current executive
management team for 1998 given their short tenure with the Company. These
bonuses were provided primarily as recognition of their progress towards Company
objectives.
BONUSES
Bonuses for executives are considered to be "pay at risk" and as such are
used as an incentive to encourage management to perform at a high level or to
recognize a particular contribution by an employee or exceptional Company
performance. Generally, the higher the employee's level of job responsibility,
the larger the portion of the individual's compensation package that is
represented by a bonus. Whether a bonus will be given, and the amount of any
such bonus, is determined on a yearly basis. Bonus awards must be approved by
the Chief Executive Officer and the Compensation Committee in the case of
executives other than the Chief Executive Officer and by the Compensation
Committee alone in the case of the Chief Executive Officer.
36
<PAGE> 40
In awarding the bonus portion of compensation, the Compensation Committee
places particular emphasis on the Company's performance against the management
objectives and goals described above. The Compensation Committee evaluated the
Company's performance against these objectives as follows: In fiscal 1998, the
Company made substantial progress in development of Ricochet2, ending the year
on target to begin full system testing during the Spring of 1999. The Company
increased the overall subscriber base, ending the year with nearly 26,000
subscribers. The Company also made substantial progress in obtaining Right of
Way agreements for future deployment of Ricochet, showing that it can manage the
acquisition process on multiple fronts and accelerate the acquisition over a
short period of time. In light of the Company's success in achieving important
objectives in fiscal 1998, the Compensation Committee decided to award bonuses
to executives at their target levels, prorated for the time each executive had
been with the Company during the year.
Employees in sales positions participated in a commission-based bonus
program designed to recognize their efforts to grow subscribers and did not
receive bonuses under the above incentive bonus plan.
STOCK OPTIONS
The Compensation Committee believes that stock ownership by management is
beneficial in aligning management and stockholders interests with respect to
enhancing stockholder value. Stock options are also used to retain executives
and motivate them to improve long-term stock market performance. Stock options
are granted at the prevailing market value and will only have future value if
the Company's stock price increases. Generally, stock option grants vest 25%
after the first year and monthly thereafter in 36 equal amounts over three
years.
The Compensation Committee determines the number of options to be granted
based upon the competitive marketplace, with a particular focus on determining
what level of equity incentive is necessary to retain a particular individual.
Outstanding historical performance by an individual is additionally recognized
through larger than normal option grants.
CHIEF EXECUTIVE OFFICER
The Compensation Committee uses the same philosophy described above with
respect to other chief executive officers in setting the compensation for the
Chief Executive Officer, Mr. Dreisbach. Mr. Dreisbach's compensation for 1998
was set as a result of his offer of employment with the Company. No changes to
his base compensation were made during the fiscal year 1998. In light of the
progress made towards company objectives during the year, the Compensation
Committee approved a bonus award to Mr. Dreisbach of 12,000 shares of Company
stock.
SECTION 162(m)
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Compensation Committee has determined that stock options granted under
the Company's 1988 Stock Option Plan with an exercise price at least equal to
the fair market value of the Company's common stock on the date of grant will be
treated as "performance-based compensation." As a result, the Company's
stockholders were asked to approve, and did approve in May 1995, an amendment to
such plan that allows any compensation recognized by a Named Executive Officer
as a result of the grant of such a stock option to be deductible by the Company.
1998 COMPENSATION COMMITTEE
Robert S. Cline, Chairman
David E. Liddle
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For fiscal 1998, the Compensation Committee was composed of Messrs. Cline
and Liddle. Currently, Messrs. Cline and Moore serve on the Compensation
Committee.
37
<PAGE> 41
In January 1998, the Company sold 4,650,000 newly-issued shares of Common
Stock to Vulcan, a stockholder of the Company, for $12.00 per share in cash. In
connection with such transaction, the Company granted certain contractual rights
to Vulcan including the right to nominate up to four members of the Board of
Directors. As of July 31, 1999, Vulcan owned approximately 43% of the
outstanding Common Stock.
In June 1999, the Company entered into a preferred stock purchase agreement
with Vulcan and MCI WorldCom. Under the agreement, MCI WorldCom will purchase 30
million shares of Series A1 Preferred Stock and Vulcan will purchase 30 million
shares of Series A2 Preferred Stock, at a price of $10 per share to each
purchaser. The agreement and transactions contemplated thereby are described in
Proposal 2, and the rights and preferences of, and limitations on, the series of
Preferred Stock are described in Proposal 3.
Messrs. Savoy and Moore, directors of the Company, are affiliated with
Vulcan. In addition, Mr. Derrickson, a director of the Company, was formerly
affiliated with Vulcan, and David E. Liddle, who served as a director of the
Company from January 1998 to December 1998 is affiliated with Vulcan.
38
<PAGE> 42
PERFORMANCE MEASUREMENT COMPARISON
The following table shows the total stockholder return of an investment of
$100 in cash on December 31, 1993 for (a) the Company's Common Stock, (b) the
Nasdaq-United States Index, and (c) the Standard and Poor's 500 Communications
Equipment/Manufacturers Index ("S&P Communications Equipment") and the Nasdaq
Telecommunications Index ("Nasdaq Telecommunications"). The Company has elected
to commence using the Nasdaq Telecommunications Index because the Company is
currently included in that Index and believes that the Index is currently more
representative of the Company's line of business than the S&P Communications
Equipment Index used in prior years. All values assume reinvestment of the full
amount of all dividends and are calculated as of December 31 of each year:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG METRICOM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE S & P COMMUNICATIONS EQUIPMENT INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
<TABLE>
<CAPTION>
METRICOM, INC. S&P
-------------- NASDAQ STOCK COMMUNICATIONS NASDAQ
MARKET (U.S.) EQUIPMENT TELECOMMUNICATIONS
------------- -------------- ------------------
<S> <C> <C> <C> <C>
'12/93' 100 100 100 100
'12/94' 63 98 114 83
'12/95' 57 138 171 109
'12/96' 63 170 200 112
'12/97' 40 208 261 163
'12/98' 22 294 459 269
</TABLE>
* $100 Invested on 12/31/93 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
CERTAIN TRANSACTIONS
The Company's By-laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its By-laws to enter into indemnification agreements with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to these provisions, the Company
has entered into indemnification agreements with each of its directors and
officers and has obtained director and officer liability insurance.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding certain transactions with Vulcan.
39
<PAGE> 43
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The sections captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Financial Statements and Supplementary
Data," and "Qualitative and Quantitative Disclosures About Market Risk" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as amended, and the sections captioned "Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Qualitative and Quantitative Disclosures About Market Risk" in
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999, filed with the SEC, are incorporated by reference into
this proxy statement.
OTHER MATTERS
Information contained in this proxy statement regarding Vulcan and MCI
WorldCom has been furnished by those entities. Statements contained in this
proxy statement as to the contents of any contract, law or document that is
included as an appendix to this proxy statement are not necessarily complete
and, in each instance, reference is made to the copy of such contract, law or
document that is included as an appendix to this proxy statement.
This proxy statement contains forward-looking statements that involve risks
and uncertainties. Words such as "believes," "anticipates," "expects," "intends"
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. Actual results or
events could differ materially from those anticipated in or implied by any
forward-looking statement for a number of reasons, including the reasons
discussed in this proxy statement, as well as the "Risk Factors" section of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
as well as the "Risk Factors" section of the Company's Current Report on Form
8-K filed with the SEC on July 9, 1999.
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ DALE W. MARQUART
--------------------
Dale W. Marquart
Secretary
September 14, 1999
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, AS AMENDED, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
AS WELL AS ITS QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31,
1999 AND JUNE 30, 1999 ARE AVAILABLE WITHOUT CHARGE (EXCLUDING CERTAIN EXHIBITS)
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM A PROXY STATEMENT IS
DELIVERED. REQUESTS SHOULD BE DIRECTED TO: CORPORATE SECRETARY, METRICOM, INC.,
980 UNIVERSITY AVENUE, LOS GATOS, CALIFORNIA 95030-2375 OR TELEPHONE: (408)
399-8200.
40
<PAGE> 44
APPENDICES
A -- Preferred Stock Purchase Agreement
B -- Restated Certificate of Incorporation
C -- Opinion of J.P. Morgan Securities Inc.
D -- DGCL Section 203
E -- 1997 Equity Incentive Plan, as Amended
41
<PAGE> 45
APPENDIX A
PREFERRED STOCK PURCHASE AGREEMENT
AMONG
METRICOM, INC.
(A DELAWARE CORPORATION),
AS SELLER
AND
MCI WORLDCOM, INC.
(A GEORGIA CORPORATION)
AND
VULCAN VENTURES INCORPORATED
(A WASHINGTON CORPORATION),
AS PURCHASERS
DATED AS OF JUNE 20, 1999
A-1
<PAGE> 46
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS...................................... A-5
1.1 Defined Terms........................................ A-5
1.2 Beneficial Ownership................................. A-8
1.3 Securities Outstanding............................... A-8
SECTION 2. PURCHASE AND SALE OF SHARES...................... A-9
2.1 Purchase and Sale of Shares.......................... A-9
2.2 Closing Date......................................... A-9
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.... A-9
3.1 Organization, Powers and Qualifications.............. A-9
3.2 Subsidiaries......................................... A-9
3.3 Authorized Capital Stock............................. A-10
3.4 Certificate of Incorporation, By-Laws, Minute Books
and Records............................................ A-10
3.5 Authority; Binding Effect............................ A-10
3.6 No Conflict; Approvals............................... A-11
3.7 Governmental Consents and Approvals.................. A-11
3.8 SEC Reports.......................................... A-11
3.9 Financial statements................................. A-11
3.10 Absence of Certain Changes........................... A-12
3.11 Indebtedness; Absence of Undisclosed Liabilities..... A-12
3.12 Assets............................................... A-12
3.13 Contracts............................................ A-13
3.14 Insurance............................................ A-13
3.15 Authorizations; Compliance With Law.................. A-13
3.16 Taxes................................................ A-14
3.17 Absence of Litigation; Claims........................ A-15
3.18 Employee Benefit Plans; Employment Agreements........ A-15
3.19 Labor Matters........................................ A-16
3.20 Environmental Matters................................ A-17
3.21 Intellectual Property................................ A-19
3.22 Regulatory Matters................................... A-19
3.23 Year 2000 Disclosure................................. A-19
3.24 Adequacy of Disclosure............................... A-20
3.25 Proxy statement...................................... A-20
3.26 Board Action; Vote Required; Applicability of Section
203.................................................... A-20
3.27 Opinion of Financial Advisor......................... A-21
3.28 Brokers and Finders.................................. A-21
3.29 Offering of Shares................................... A-21
3.30 Transactions With Related Parties.................... A-21
3.31 Business Activities.................................. A-21
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS................................................ A-21
4.1 Organization, Powers and Qualifications.............. A-21
4.2 Authority; Binding Effect............................ A-21
4.3 Compliance with Laws................................. A-22
4.4 Investment Representations........................... A-22
4.5 Interested Stockholder............................... A-22
4.6 Proxy Statement...................................... A-22
4.7 Additional Information............................... A-23
</TABLE>
A-2
<PAGE> 47
<TABLE>
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<S> <C>
SECTION 5 RESTRICTED SECURITIES; REGISTRATION RIGHTS........ A-23
5.1 Restricted Securities................................ A-23
5.2 Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets................. A-23
5.3 Registration Rights.................................. A-24
SECTION 6. COVENANTS OF THE PURCHASERS AND THE COMPANY...... A-24
6.1 Regulatory and Other Authorizations.................. A-24
6.2 Governmental Filings................................. A-24
6.3 Compliance with Antitrust or Competition Laws and the
Communications Act..................................... A-24
6.4 Public Announcements................................. A-24
6.5 Further Assurances................................... A-25
6.6 Takeover Statute..................................... A-25
6.7 Notification......................................... A-25
6.8 Reasonable Best Efforts.............................. A-25
SECTION 7. COVENANTS OF THE COMPANY......................... A-25
7.1 Access to Information................................ A-25
7.2 Conduct of the Company's Business.................... A-26
7.3 No Solicitation...................................... A-27
7.4 Stockholders' Meeting................................ A-28
7.5 Charter Amendments................................... A-29
7.6 Subsequent Financial Statements...................... A-29
7.7 Control of Operations................................ A-30
7.8 Access to Information................................ A-30
7.9 Use of Proceeds...................................... A-30
SECTION 8. COVENANTS OF THE PURCHASERS...................... A-30
8.1 Proxy Information.................................... A-30
SECTION 9. CONDITIONS TO THE PURCHASERS' OBLIGATIONS........ A-30
9.1 Representations and Warranties....................... A-30
9.2 Agreements and Conditions............................ A-30
9.3 Regulatory Approvals................................. A-31
9.4 Purchase of Shares Not Enjoined...................... A-31
9.5 Stockholder Approval................................. A-31
9.6 Other Agreements..................................... A-31
9.7 Section 203.......................................... A-31
9.8 Nasdaq Notification.................................. A-31
9.9 Opinions of Counsel.................................. A-31
9.10 No Pending Litigation................................ A-31
9.11 Minimum Purchase..................................... A-31
SECTION 10. CONDITIONS TO THE COMPANY'S OBLIGATIONS......... A-32
10.1 Representations and Warranties...................... A-32
10.2 Agreements and Conditions........................... A-32
10.3 Governmental Approvals.............................. A-32
10.4 Sale of Shares Not Enjoined......................... A-32
10.5 Stockholder Approval................................ A-32
10.6 Other Agreements.................................... A-32
10.7 Opinions of Counsel................................. A-32
SECTION 11. TERMINATION..................................... A-32
11.1 Termination......................................... A-32
11.2 Effect of Termination............................... A-33
</TABLE>
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<TABLE>
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SECTION 12. MISCELLANEOUS................................... A-34
12.1 Notices............................................ A-34
12.2 Expenses........................................... A-35
12.3 Benefits; Assignment............................... A-35
12.4 Entire Agreement; Amendment and Waiver............. A-35
12.5 Headings........................................... A-35
12.6 Governing Law...................................... A-35
12.7 Remedies........................................... A-36
12.8 SUBMISSION TO JURISDICTION; WAIVERS................ A-36
12.9 Severability....................................... A-37
12.10 Execution and Delivery.............................. A-37
12.11 Survival of Representations and Warranties.......... A-37
12.12 Waiver of Right to Subscribe for Additional
Shares................................................. A-37
12.13 Voting Obligation................................... A-37
</TABLE>
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PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of June 20, 1999 (this
"Agreement"), between MCI WorldCom, Inc., a Georgia corporation (the "A1
Preferred Stock Purchaser"), Vulcan Ventures Incorporated, a Washington
corporation ("Vulcan" or the "A2 Preferred Stock Purchaser") and Metricom, Inc.,
a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company wishes to raise money for further development of its
technology, deployment of its business plan and for working capital and other
corporate purposes; and
WHEREAS, A1 Preferred Stock Purchaser wishes to make an investment in the
Company by purchasing newly issued shares of Preferred Stock having the rights,
preferences and privileges described herein; and
WHEREAS, the A1 Preferred Stock Purchaser has conditioned its investment on
the Principal Stockholder's (as defined in Section 1.1 hereof) making a
comparable investment in newly issued shares of the Company's A2 Preferred
Stock; and
WHEREAS, the Principal Stockholder has certain preemptive rights to acquire
a portion of newly issued shares of the Company in order to maintain its
percentage interest in the Company and, in view of such preemptive rights and A1
Preferred Stock Purchaser's unwillingness to make its investment unless the
Principal Stockholder makes such investment, the Principal Stockholder has
agreed to make such an investment in newly issued shares of the Company's A2
Preferred Stock.
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
"A1 Preferred Stock" shall mean that series of Preferred Stock, par
value $.001 per share, of the Company designated as the Series A1 Preferred
Stock, whose powers, preferences and rights and qualifications, limitations
and restrictions are set forth in the Restated Certificate.
"A2 Preferred Stock" shall mean that series of Preferred Stock, par
value $.001 per share, of the Company designated as the Series A2 Preferred
Stock, whose powers, preferences and rights and qualifications, limitations
and restrictions are set forth in the Restated Certificate.
"Acquisition Proposal" shall have the meaning assigned to it in
Section 7.3 hereof.
"Affiliate" shall mean, as applied to a specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
specified Person.
"Alternative Transaction" shall have the meaning assigned to it in
Section 7.3 hereof.
"Antitrust Division" shall mean the Antitrust Division of the United
States Department of Justice or its successor.
"Business Combination" shall mean a merger or consolidation in which
the Company is a constituent corporation and pursuant to which the Common
Stock is exchanged for cash, securities or other property or a sale of all
or substantially all of the assets of the Company and its Subsidiaries
taken as a whole.
"Business Day" shall mean any day that is not a Saturday, a Sunday, a
bank holiday or any other day on which commercial banking institutions in
New York, New York are not generally open for business.
"Restated Certificate" shall mean the Restated Certificate of
Incorporation, substantially in the form of Exhibit A hereto, which
certificate is to be filed with the Secretary of State of the State of
Delaware pursuant to Section 7.5 of this Agreement.
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"Certificate of Incorporation" shall mean the Restated Certificate of
Incorporation of the Company as the same may be hereafter amended or
supplemented.
"Closing" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
including regulations and rulings promulgated thereunder.
"Common Stock" shall mean the Common Stock, par value $.001 per share,
of the Company as designated in the Restated Certificate.
"Communications Act" shall mean the Communications Act of 1934, as
amended, and all related legislation or any successor thereto. Any
reference to a particular section of the Communications Act shall refer to
such section as the same may be hereafter renumbered or otherwise amended.
"Company Material Adverse Effect" shall mean any fact, condition,
event, development or occurrence (excluding any fact, circumstance, event,
development or occurrence affecting the economy, financial markets or
telecommunications industry generally) which, individually or when taken
together with all other such facts, conditions, events, developments or
occurrences, would reasonably be expected to have a material adverse effect
on the financial condition, operating results, business or prospects of the
Company and its Subsidiaries (hereinafter defined), taken as a whole,
without giving effect to the consummation of the Transaction. The parties
acknowledge and agree that the loss of the Company's FCC licenses, or any
event that would reasonably be expected to result in the loss of the
Company's FCC licenses, constitutes a Company Material Adverse Effect.
"Conversion Shares" shall mean the shares of the Common Stock issued
or issuable upon the conversion of the Preferred Shares in accordance with
the terms of the Preferred Shares.
"DGCL" shall mean the General Corporation Law of the State of
Delaware, as amended or as the same shall be in effect from time to time.
"Employee Shares" shall mean shares issued upon the exercise of
options issued to employees, consultants or directors pursuant to the
Employee Stock Plans or otherwise.
"Employee Stock Plans" shall mean the Company's 1988 Stock Option
Plan, 1993 Non-Employee Directors' Stock Option Plan, 1997 Equity Incentive
Plan, 1997 Non-Officer Equity Incentive Plan and 1991 Employee Stock
Purchase Plan and any other past, current or future employee stock
ownership, thrift, savings, stock bonus, stock purchase, restricted stock
or stock option plan or similar arrangement, or any grantor trust
established to fund any such plan or otherwise for the benefit of
employees, consultants or directors, pursuant to which current or former
employees, consultants or directors of the Company or any of its
Subsidiaries may acquire Equity. Any rights of any current or former
employee,consultant or director to purchase Equity under any Employee Stock
Plan, or any similar plans shall be deemed a right to acquire Equity for
all purposes hereunder.
"Equity" shall mean any and all shares of capital stock of the
Company, securities of the Company convertible into such shares, and
options, warrants or other rights to acquire such shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect from time to time.
"FCC" shall mean the Federal Communications Commission or its
successor.
"FCC Order" shall mean either:
(i) A written order or other determination from the staff of the
FCC (either in the first instance or upon review, reconsideration or
other action subsequent to an order or other determination of the staff)
either approving the consummation of the transactions contemplated by
this
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Agreement or stating that no such approval is required (or, in the case
of such review, reconsideration or other subsequent action, a written
order or other determination to the effect set forth above or affirming
or upholding, or having the effect of affirming or upholding, whether by
dismissing or denying a petition for reconsideration or terminating the
consideration thereof or otherwise, a previous order or determination to
the effect set forth in this paragraph (i)), which order or
determination shall no longer be subject to further administrative
review by the FCC; or,
(ii) A written or other determination from the FCC itself (either
in the first instance or upon review, reconsideration or other action
subsequent to an order or other determination of the staff of the FCC)
either approving the consummation of the transactions contemplated by
this Agreement or stating that no such approval is required (or, in the
case of such review, reconsideration or other action subsequent to an
order or determination of the staff of the FCC, a written order or other
determination from the FCC itself to the effect set forth above or
affirming, upholding or having the effect of affirming or upholding,
whether by dismissing or denying a petition for reconsideration or
application for review or terminating the consideration thereof or
otherwise, an order or other determination of the staff of the FCC to
the effect set forth in paragraph (i)).
For purposes of this definition, an order or other determination of the
staff shall be deemed no longer subject to further administrative review by
the FCC:
(x) If no petition for reconsideration or application for review by
the FCC of the order or determination of the staff has been filed within 30
days after the date of public notice of the order or determination, as such
30-day period is computed and as such date is defined in sections 1.104 and
1.4, as applicable, of the FCC's rules, and the FCC has not initiated
review of the order or determination of the staff on its own motion within
40 days after the date of public notice of the order or determination, as
such 40-day period is computed and as such date is defined in sections
1.117 and 1.4 of the FCC's rules, or
(y) If any such petition for reconsideration or application for review
has been filed, or, if the FCC has initiated review of the order or
determination of the staff on its own motion, the FCC itself has issued a
written order or other determination or taken other action to the effect
set forth in paragraph (ii) above.
"FTC" shall mean the Federal Trade Commission or its successor.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules promulgated thereunder, all as the same
shall be in effect from time to time.
"Interest Rate" shall mean the interest rate per annum publicly
announced by Citibank, N.A. as its "Base Rate" as in effect from time to
time.
"Liens" shall mean any lien, pledge, charge, claim, option,
subscription, warrant, call, proxy, power of attorney, voting arrangement,
reversionary interest, right of first refusal, conditional sales contract,
preemptive right, easement, encumbrance, transfer restriction, security
interest, mortgage, defect of title of any kind or any similar interests of
any kind.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the electronic inter-dealer quotation system
operated by The Nasdaq-Amex Market Group.
"Owned of Record or Voted by" shall have the meaning used in 47 U.S.C.
sec. 310(b)(4) and interpretations thereof by the FCC.
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"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Preferred Shares" shall mean the A1 Preferred Stock and the A2
Preferred Stock.
"Preferred Stock Purchaser Directors" shall mean those directors
elected by the holders of the Preferred Shares pursuant to the Restated
Certificate.
"Principal Stockholder" shall mean Vulcan Ventures Incorporated.
"Proposals" shall have the meaning set forth in Section 7.4 of this
Agreement.
"Proxy Statement" shall have the meaning set forth in Section 7.4 of
this Agreement.
"Purchasers" shall mean, collectively, the A1 Preferred Stock
Purchaser and Vulcan.
"Related Party" shall mean any (i) Person that beneficially owns more
than 10% of either the Voting Equity or Equity, (ii) director or officer of
the Company or its Subsidiaries, or (iii) corporation, partnership or other
entity of which any such Person owns greater than a 50% equity interest.
"Requirement of Law" shall mean as to any Person, any law, treaty,
rule or regulation of any Governmental Authority applicable to such Person
or any of its property or to which such Person or any of its property is
subject.
"Restated Registration Rights Agreement" shall have the meaning set
forth in Section 5.3 of this Agreement.
"SEC" shall mean the Securities and Exchange Commission or its
successor.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time.
"Shares" shall mean the Preferred Shares.
"Stockholders' Meeting" shall have the meaning set forth in Section
7.4 of this Agreement.
"Subsidiary" shall mean, with respect to the Company, any corporation
or other entity of which at least a majority of the voting power of the
voting equity securities or equity interest is owned, directly or
indirectly, by the Company and any joint venture of the Company. Metricom
DC, L.L.C. is a Subsidiary.
"Transaction" shall mean the transaction contemplated by this
Agreement.
"Voting Equity" shall mean any and all Voting Securities, securities
of the Company convertible into Voting Securities, and options, warrants or
other rights to acquire Voting Securities.
"Voting Securities" shall mean the Common Stock and any other
securities of the Company having voting power under ordinary circumstances
with respect to the election of directors of the Company.
1.2 BENEFICIAL OWNERSHIP. Unless otherwise provided in this Agreement, a
Person shall be deemed to "beneficially own" any securities in accordance with
the provisions of Rule 13d-3 under the Exchange Act.
1.3 SECURITIES OUTSTANDING. In determining the number or other amount
outstanding of any securities of the Company, securities owned by the Company or
any of its Subsidiaries shall be deemed to be not outstanding.
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SECTION 2. PURCHASE AND SALE OF SHARES.
2.1 PURCHASE AND SALE OF SHARES. On the terms and subject to the
conditions of this Agreement, the Company shall, on the Closing Date:
(a) issue and sell to the A1 Preferred Stock Purchaser, and the A1
Preferred Stock Purchaser shall purchase from the Company, 30,000,000
shares of the A1 Preferred Stock (the "A1 Preferred Shares") shares at a
price of $10 per share; and
(b) issue and sell to Vulcan, and Vulcan shall purchase from the
Company, 30,000,000 shares of A2 Preferred Stock (the "A2 Preferred
Shares") at a price of $10 per share.
The delivery of the Preferred Shares at the Closing shall be against the
respective Purchaser's payment to the account designated by the Company of
immediately available funds.
2.2 CLOSING DATE. The closing (the "Closing") of the purchase and sale of
the Preferred Shares shall take place at the offices of Cooley Godward LLP, One
Maritime Plaza, 20th Floor, San Francisco, CA 94111-3580, as soon as practicable
but no more than five Business Days following the satisfaction of all of the
conditions to each party's obligations set forth in Sections 9 and 10 (or, with
respect to any condition not satisfied, the waiver thereof by the party for
whose benefit the condition exists) or at such other place and date as the
parties may mutually agree. The date and time of such Closing are herein
referred to as the "Closing Date."
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the Purchasers as
follows, except as set forth on a Disclosure Schedule delivered by the Company
concurrently with the execution and delivery of this Agreement (the "COMPANY
SCHEDULE"), each of which exceptions shall specifically identify the relevant
subsection hereof to which it relates and shall be deemed to be representations
and warranties as if made hereunder:
3.1 ORGANIZATION, POWERS AND QUALIFICATIONS. The Company has been
incorporated and is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has all requisite
corporate power and authority to carry on its business as it has been and is now
being conducted and to own, lease and operate the properties and assets used in
connection therewith and to enter into this Agreement, to sell the Preferred
Shares and to carry out the provisions of this Agreement. The Company is duly
qualified as a foreign corporation authorized to do business and is in good
standing in every jurisdiction in which such qualification is required, all of
which jurisdictions are disclosed in the COMPANY SCHEDULE.
3.2 SUBSIDIARIES. The COMPANY SCHEDULE lists each Subsidiary of the
Company, and each equity investment of the Company, the jurisdiction of its
organization and the amount of its securities outstanding and the owners
thereof. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each Subsidiary
has all requisite power and authority to carry on its business as it has been
and is now being conducted and to own, lease and operate the assets and
properties used in connection therewith. Each Subsidiary is duly qualified as a
foreign corporation authorized to do business and is in good standing in every
jurisdiction in which such qualification is required, all of which jurisdictions
are disclosed on the COMPANY SCHEDULE. All issued and outstanding shares of
capital stock of each Subsidiary have been duly authorized, are validly issued
and outstanding, are fully paid and nonassessable, were issued in compliance
with all applicable Federal and state securities laws, and, are lawfully owned
of record and beneficially by the Company or another Subsidiary free and clear
of all Liens. There are no existing subscriptions, options, warrants,
convertible securities, calls, commitments, agreements, conversion rights or
other rights of any character (contingent or otherwise) calling for or requiring
the issuance, transfer, sale or other disposition of any shares of the capital
stock of any Subsidiary, or calling for or requiring the issuance of any
securities or rights convertible into or exchangeable for shares of capital
stock of any Subsidiary, nor is the Company or any Subsidiary subject to any
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire
shares of capital stock of any Subsidiary and there are no restrictions on the
payment of
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dividends with respect to the capital stock of any Subsidiary. Except for its
Subsidiaries or as set forth in the COMPANY SCHEDULE, neither the Company nor
any Subsidiary directly or indirectly (a) owns or controls any shares of any
corporation nor has any voting securities of, or economic interest in, either of
record, beneficially or equitably, in any association, partnership, limited
liability company, joint venture or other legal entity, or (b) is a general
partner of any partnership.
3.3 AUTHORIZED CAPITAL STOCK. As of the date hereof, the authorized
capital stock of the Company consists of (a) 50,000,000 shares of Common Stock,
$0.001 par value per share, of which 19,346,798 shares were outstanding as of
May 24, 1999 and (b) 2,000,000 shares of Preferred Stock, $0.001 par value per
share, none of which are issued and outstanding. Since May 24, 1999, no shares
of Common Stock have been issued by the Company other than Employee Shares. All
of the outstanding shares of Common Stock have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable, and were issued in
compliance with all applicable Federal and state securities laws. Except for (A)
3,896,575 shares of Common Stock subject to options granted under the Company's
1988 Stock Option Plan, 1997 Equity Incentive Plan and 1997 Non-Officer Equity
Incentive Plan and to the Company's Chief Executive Officer outside those plans,
(B) 484,000 shares of Common Stock subject to options granted to members of the
Company's Board of Directors under the Company's 1993 Non-Employee Directors'
Stock Option Plan and to members of the Company's Advisory Board, (C) 200,000
shares of Common Stock subject to outstanding warrants, (D) 3,092,783 shares of
Common Stock issuable upon conversion of the Company's 8% Convertible
Subordinated Notes due 2003 ("Convertible Notes"), and (E) 167,666 shares of
Common Stock reserved for issuance under the Company's 1991 Employee Stock
Purchase Plan, there were not outstanding as of the date of this Agreement any
existing subscriptions, options, warrants, rights (including conversion or
preemptive rights), convertible securities, calls, commitments or agreements for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities exercisable for or convertible into shares of its capital
stock nor is the Company subject to any obligation (contingent or otherwise) to
repurchase, redeem or otherwise acquire shares of capital stock of the Company
or any Subsidiary, in any case except as set forth on Schedule 3.3 of the
COMPANY SCHEDULE and as contemplated by this Agreement. Other than Vulcan and
the rights associated with the Convertible Notes, no person has any registration
rights with respect to any stock of the Company. As of the date of this
Agreement, the Company has available for future grant 246,379 shares of Common
Stock for issuance pursuant to the Employee Stock Plans. The Company does not
have a shareholder rights plan. Except as disclosed on the COMPANY SCHEDULE,
there are no voting trusts or other agreements or understandings to which the
Company is a party, nor, to the knowledge of the Company, to which any
shareholder of the Company is a party, with respect to the voting of capital
stock of the Company and there is no restriction on the payment of dividends on
any capital stock of the Company, other than this Agreement. When issued and
paid for pursuant to the terms of this Agreement, the Preferred Shares to be
sold hereunder by the Company will be validly issued and outstanding, fully paid
and nonassessable.
3.4 CERTIFICATE OF INCORPORATION, BY-LAWS, MINUTE BOOKS AND RECORDS. The
copies of the Certificate of Incorporation and all amendments thereto and of the
By-laws, as amended, of the Company and its Subsidiaries which have been
delivered to the Purchasers are true, correct and complete copies thereof as in
effect on the date hereof. The minute books of the Company and its Subsidiaries
which have been made available for inspection contain minutes, which are
accurate and complete, of all meetings and accurate consents in lieu of meetings
of the Board of Directors (and any committee thereof) and of the stockholders of
the Company and its Subsidiaries since the respective dates of incorporation.
The books and records of the Company and each Subsidiary accurately reflect the
transactions to which the Company or its Subsidiaries is a party or by which
their properties are subject or bound, and the assets and liabilities of the
Company or its Subsidiaries.
3.5 AUTHORITY; BINDING EFFECT. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
Transaction. All necessary corporate action required to have been taken by or on
behalf of it by applicable law, its charter document or otherwise to authorize
(a) the approval, execution and delivery on its behalf of this Agreement and (b)
its performance of its obligations under this Agreement and the consummation of
the Transaction have been taken, except that the adoption of the Agreement must
be approved by a majority of the votes of all outstanding shares of
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<PAGE> 55
Common Stock of record on the record date for the Stockholders' Meeting. This
Agreement constitutes the Company's valid and binding agreement, enforceable
against it in accordance with its terms, except (A) as the same may be limited
by applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, including without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (B) for the limitations imposed by
general principles of equity.
3.6 NO CONFLICT; APPROVALS. The execution and delivery of this Agreement
does not, and the consummation of the Transaction will not, (a) violate or
conflict with the Company's Certificate of Incorporation or Bylaws or the
comparable organizational documents of any of its Subsidiaries, or (b)
constitute a breach or default (or an event that with notice or lapse of time or
both would become a breach or default), give rise to any Lien, third party right
of termination, cancellation, modification or acceleration, or loss of any
benefit, or give rise to any requirement to repurchase or offer to repurchase
any indebtedness or securities of the Company or any subsidiary under any
contract to which the Company or any Subsidiary is a party or by which it is
bound, or (c) subject to the consents, approvals, orders, authorizations,
filings, declarations and registrations specified in Section 3.7 or in the
COMPANY SCHEDULE in response thereto, conflict with or result in a violation of
any permit, concession, franchise or license or any law, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their properties
or assets.
3.7 GOVERNMENTAL CONSENTS AND APPROVALS. Except as set forth on the
COMPANY SCHEDULE, neither the execution and delivery of this Agreement nor the
consummation of the Transaction will require any consent, approval, order,
authorization, or permit of, or filing with or notification to, any local,
state, Federal or foreign court, administrative agency, commission or other
Governmental Authority, agency or instrumentality, except (a) the filing of the
Proxy Statement (hereinafter defined) and related proxy materials with the
Securities Exchange Commission in accordance with the Exchange Act, (b)
notification pursuant to, and expiration or termination of the waiting period
under the HSR Act, and (c) the filings with and consents or approvals of the FCC
and state public service commissions, public utility commissions or similar
state regulatory bodies ("Public Utility Commissions") which are described in
the COMPANY SCHEDULE.
3.8 SEC REPORTS. The Company has timely filed all required forms, reports
and documents with the SEC since January 1, 1996 (collectively, the "Company's
SEC Reports"), including without limitation the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (the "Company 1998 Form 10-K"). The
Company's SEC Reports have complied in all respects with all applicable
requirements of the Securities Act and the Exchange Act. As of their respective
dates, none of the Company's SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. There have been filed as exhibits to, or
incorporated by reference in, the Company 1998 Form 10-K all contracts which, as
of the date hereof, are material as described in Item 601(b)(10) of Regulation
S-K. The Company has heretofore delivered to the Purchasers, in the form filed
with the SEC, all of the Company's SEC Reports.
3.9 FINANCIAL STATEMENTS. The Company has delivered to the Purchasers true
and complete copies of (a) consolidated balance sheets of the Company and its
consolidated Subsidiaries (including Metricom D.C. LLC) at December 31, 1998 and
1997 and the related consolidated statements of earnings, changes in
stockholders' equity and statements of cash flow for the years then ended,
together with the notes thereto, audited by Arthur Andersen & Co. (the
"Company's Auditors"), and (b) unaudited consolidated balance sheets of the
Company and its consolidated Subsidiaries at March 31, 1999 and 1998 and related
consolidated statements of income, changes in stockholders' equity and
statements of cash flow for the periods ended March 31, 1999 and 1998, all of
which have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved ("GAAP"). Such
balance sheets, including the related notes, fairly present the consolidated
financial position, assets and liabilities (whether accrued, absolute,
contingent or otherwise) of the Company and its consolidated Subsidiaries at the
dates indicated and such consolidated and consolidating statements of income,
changes in stockholders' equity and statements of cash flow fairly present the
consolidated results of operations, changes in stockholders' equity and cash
flow of
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the Company and its consolidated Subsidiaries for the periods indicated. The
unaudited consolidated financial statements as at and for the periods ended
March 31, 1999 and 1998 contain all adjustments which are solely of a normal
recurring nature, necessary to present fairly the financial position for the
periods then ended. The audited consolidated balance sheet of the Company and
its consolidated Subsidiaries at December 31, 1998 described above is referred
to herein as the "Company 1998 Balance Sheet" and the unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries at March 31, 1999
described above is referred to herein as the "Interim 1999 Balance Sheet." The
audited consolidated balance sheet of the Company and consolidated Subsidiaries
at December 31, 1998 described above is referred to herein as the "Company
Audited Financial Statements."
3.10 ABSENCE OF CERTAIN CHANGES. Except as described in the COMPANY
SCHEDULE, since December 31, 1998 (the "Audit Date"), the Company and its
Subsidiaries have conducted their business solely in the ordinary course
consistent with past practice. Except as otherwise disclosed on the COMPANY
SCHEDULE, since the Audit Date, the Company and its Subsidiaries have not:
(a) suffered any Company Material Adverse Effect;
(b) been subject to any other events or conditions of any character
that would have a Company Material Adverse Effect or impair the ability of
the Company to perform its obligations under this Agreement or prevent or
delay the consummation of any of the transactions contemplated hereby;
(c) made any change to their respective accounting methods, principles
or practices;
(d) been subject to any revaluation of any assets of the Company or
any of its Subsidiaries that, individually or in the aggregate has had, or
would reasonably be expected to have a Company Material Adverse Effect,
including writing down the value of capitalized software or inventory or
writing off notes or accounts receivable other than in the ordinary course
of business consistent with past practice; or
(e) incurred any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or discharged or
satisfied any Lien, or paid any liabilities, other than in the ordinary
course of business consistent with past practice, or failed to pay or
discharge when due any liabilities of which the failure to pay or discharge
has caused or will cause any damage or risk of loss to it or any of its
assets or properties.
3.11 INDEBTEDNESS; ABSENCE OF UNDISCLOSED LIABILITIES. The COMPANY
SCHEDULE discloses as of the date hereof all indebtedness for money borrowed of
the Company or any Subsidiary, accurately disclosing for each such indebtedness
the payee, the original principal amount of the loan, the current unpaid balance
of the loan, the interest rate and the maturity date. Neither the Company nor
its Subsidiaries have any indebtedness, liability or obligation of any kind
(whether known or unknown, accrued, absolute, asserted or unasserted, contingent
or otherwise) except (a) as and to the extent reflected, reserved against or
otherwise disclosed in the Company 1998 Balance Sheet, or (b) for liabilities
and obligations incurred subsequent to the Audit Date in the ordinary course of
business, which in the aggregate do not exceed $250,000.
3.12 ASSETS. Except as described in the COMPANY SCHEDULE, the Company and
its Subsidiaries have good and marketable title to all their properties and
assets, including without limitation those assets and properties reflected in
the Interim 1999 Balance Sheet in the amounts and categories reflected therein,
free and clear of all Liens, except (a) the lien of current taxes not yet due
and payable, (b) properties, interests, and assets disposed of by the Company or
any Subsidiary since March 31, 1999 solely in the ordinary course of business
consistent with past practice, (c) such secured indebtedness as is disclosed in
the Interim 1999 Balance Sheet covering the properties referred to therein and
the Company Schedule, and (d) such imperfections of title, easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not detract from the value, or interfere with the present or proposed use, of
the properties subject thereto ("Permitted Liens"). All buildings, structures,
facilities, equipment and other items of tangible personal property reflected on
the Interim 1999 Balance Sheet or acquired since March 31, 1999 are in good
operating condition and repair, subject to normal wear and maintenance, are
useable in the regular and ordinary course of business of the Company and its
Subsidiaries and conform to all applicable laws, statutes, ordinances, codes,
rules and regulations and Authorizations (hereinafter defined) relating to their
construc-
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tion, use and operation. The method of amortization or depreciation used by the
Company for financial reporting purposes is sufficient to write-off entirely
each building, structure, facility and item of equipment or other tangible
personal property during its useful life. Neither the Company nor any of its
Subsidiaries owns or ever has owned any real property.
3.13 CONTRACTS.
(a) The COMPANY SCHEDULE lists each written or oral contract, agreement,
arrangement, lease, instrument, mortgage, indenture or commitment to which the
Company or a Subsidiary is a party or may be bound or to which their respective
properties or assets may be subject ("Contract") (i) which is material to the
Company or a Subsidiary; (ii) which is with any present or former employee or
for the employment of any person or consultant or which is a non-compete
arrangement with any employee or former employee of the Company or a Subsidiary;
(iii) which is a severance agreement, program or policy of the Company or a
Subsidiary with or relating to its employees; (iv) under the terms of which any
of the rights or obligations of a party thereto will be modified or altered as a
result of the transactions contemplated hereby or which contain change in
control provisions; (v) which involves a commission, representative, franchise,
distributorship, or sales agency arrangement; (vi) which is a conditional sale
or lease arrangement; (vii) which involves a license, or other arrangement which
relates in whole or in part to any software, patent, trademark, trade name,
service mark or copyright or to any ideas, technical assistance or other
know-how of or used by the Company or a Subsidiary in the conduct of its
business; (viii) which represents any confidentiality or non-disclosure
arrangement pursuant to which the Company or a Subsidiary has agreed to keep
confidential information obtained from any other person; (ix) which is an
arrangement limiting or restraining the Company or any Subsidiary or any
successor thereto from engaging or competing in any manner or in any business;
(x) under which the Company or any Subsidiary guarantees the payment or
performance by others or in any way is or will be liable with respect to
obligations of any other person; or (xi) which grants Company a right of way.
(b) All Contracts are valid and binding and in full force and effect as to
the Company on the date of this Agreement except to the extent they have
previously expired in accordance with their terms. None of the Company, its
Subsidiaries nor, to the Company's knowledge, any other parties, have violated
any provision of, or committed or failed to perform any act which with notice,
lapse of time or both would constitute a default under the provisions of, any
Contract, the termination or violation of which, or the default under which,
either singularly with respect to a single Contract or in the aggregate with
respect to all the Contracts would have a Company Material Adverse Effect. The
COMPANY SCHEDULE sets forth a description of the Company's dispute over various
matters relating to Metricom D.C., LLC with PepData, Inc., including the
Company's estimate of its maximum liability with respect to such disputes.
Neither the execution of this Agreement nor the consummation of the Transaction
will constitute a breach of any of the Contracts or, except as set forth in the
COMPANY SCHEDULE, require that the Company give any notice, request any consent,
approval or waiver or pay any fees or charges. True and complete copies of all
Contracts listed on the COMPANY SCHEDULE, together with all amendments thereto
through the date hereof, have been made available to the A1 Preferred Stock
Purchaser; provided, however, the Company has made available to the A1 Preferred
Stock Purchaser only representative agreements regarding its rights of way. The
Company is not a party to any agreements, either written or oral, with respect
to the provision of Internet access and related services.
3.14 INSURANCE. The COMPANY SCHEDULE accurately sets forth as of the day
preceding the date hereof all policies of insurance, other than title insurance
policies, held by or on behalf of the Company and all outstanding claims
thereunder in excess, individually or in the aggregate, of $1,000,000. All such
policies of insurance are in full force and effect, and no notice of
cancellation has been received. In the reasonable judgment of the Company, such
policies are in amounts which are adequate in relation to the business and
properties of the Company, and all premiums to date have been paid in full.
3.15 AUTHORIZATIONS; COMPLIANCE WITH LAW.
(a) The Company and its Subsidiaries hold all licenses, franchises,
certificates, consents, permits, approvals, certificates of public convenience
and necessity, and authorizations ("Authorizations") from all Governmental
Authorities and other persons (including without limitation all required
Authorizations which may be issued or required by the FCC and Public Utility
Commissions) which are necessary for the lawful
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<PAGE> 58
conduct of their respective businesses and that will be needed for any currently
planned products or services (including, but not limited to, Ricochet II) and
their use and occupancy of their assets and properties in the manner heretofore
conducted, used and occupied. A complete and correct list of all material
Authorizations, and all Authorizations issued or granted by or under the
auspices of the Federal government, held by the Company and its Subsidiaries are
set forth in the COMPANY SCHEDULE. All of such Authorizations are valid, in good
standing and in full force and effect and the Company and its Subsidiaries have
duly performed all of their respective obligations under such Authorizations. No
event has occurred with respect to the Authorizations which permits, or after
notice or lapse of time or both would permit, revocation or termination thereof
or would result in any other impairment of the rights of the holder of any of
the Authorizations, and no terminations thereof have been, to the knowledge of
the Company, threatened.
(b) The Company and each of its Subsidiaries has complied with, and is not
in violation of any aspect of, any Federal, state or local law, ordinance, code,
order or governmental rule or regulation to which the Company or any of its
Subsidiaries is subject, including without limitation, rules, regulations or
order of the FCC and the California Public Utilities Commission, and has not
failed to obtain or to adhere to the requirements of any license, permit or
authorization necessary to the ownership, operation or use of its assets or the
conduct of its business. With respect to the licenses in the Wireless
Communications Service ("WCS") granted by the FCC to the Company, the Company
has complied with the condition in each license with respect to the payment of
the auction bid amount, and the grant of each license is final and no longer
subject to reconsideration, review, or appeal by or before the FCC or any court.
With respect to the Company's operations on unlicensed spectrum, all equipment
used by the Company in such operations has been properly certified and
authorized under the FCC's Part 15 rules and other regulations. None of the
Company's operations has had or currently has a significant environmental
effect, as defined by the FCC in its rules and regulations. To the Company's
knowledge, the Company's equipment and operations have not caused and do not
currently cause any harmful interference to other equipment and operations in
the unlicensed spectrum. Except as disclosed in the COMPANY SCHEDULE, there have
been and are currently no claims or complaints of radio interference, harm or
damage resulting from the Company's operations. The Company's operations have
not and are not being currently interfered with or impaired in any respect by
the operation of other users of unlicensed spectrum.
3.16 TAXES.
(a) All Federal, state, local and foreign tax returns, reports, statements
and other similar filings required to be filed by the Company or its
Subsidiaries (the "Tax Returns") on or prior to the date hereof or with respect
to taxable periods ending on or prior to the date hereof with respect to any
Federal, state, local or foreign taxes, assessments, deficiencies, fees and
other governmental charges or impositions (including without limitation all
income tax, unemployment compensation, social security, payroll, sales and use,
excise, privilege, property, ad valorem, transfer, franchise, license, school
and any other tax or similar governmental charge or imposition (including
interest, penalties or additions with respect thereto) under laws of the United
States or any state or municipal or political subdivision thereof or any foreign
country or political subdivision thereof) ("Taxes") have been timely filed with
the appropriate governmental agencies in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns correctly reflect the
liabilities of the Company and its Subsidiaries for Taxes for the periods,
property or events covered thereby.
(b) All Taxes, including those without limitation which are called for by
the Tax Returns, or heretofore or hereafter claimed to be due by any taxing
authority from the Company and its Subsidiaries, have been fully paid or
properly accrued. The accruals for Taxes contained in the Company 1998 Balance
Sheet and the Interim 1999 Balance Sheet are adequate to cover the tax
liabilities of the Company and its Subsidiaries as of the Audit Date and as of
March 31, 1999, respectively, and include adequate provision for all deferred
taxes, and nothing has occurred subsequent to such date to make any of such
accruals inadequate.
(c) Neither the Company nor its Subsidiaries have received any notice of
assessment or proposed assessment in connection with any Taxes or Tax Returns
and there are not pending tax examinations of or tax claims asserted against the
Company or its Subsidiaries or any of their respective assets or properties.
Neither
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the Company nor any Subsidiary has extended, or waived the application of, any
statute of limitations of any jurisdiction regarding the assessment or
collection of any Taxes.
(d) There are no tax liens (other than any lien for current taxes not yet
due and payable) on any of the assets or properties of the Company or its
Subsidiaries. The Company has no knowledge of any basis for any additional
assessment of any Taxes. The Company and its Subsidiaries have made all deposits
required by law to be made with respect to employees' withholding and other
employment taxes, including without limitation, the portion of such deposits
relating to taxes imposed upon the Company or its Subsidiaries.
(e) The Company and its Subsidiaries have withheld and paid all Taxes
required to have been withheld and paid on or before the date of this Agreement
in connection with amounts paid or owing to any employee, former employee,
creditor, shareholder, Affiliate, customer or supplier or any other third party.
(f) The Company and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreement that under
certain circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
3.17 ABSENCE OF LITIGATION; CLAIMS. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
overtly threatened against the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, or with respect
to which any director, officer, employee or agent is or may be entitled to claim
indemnification from the Company or any Subsidiary, before any Governmental
Authority or arbitrator, nor is there any judgment, decree, injunction, rule or
order of any Governmental Authority or arbitrator outstanding against the
Company or any of its Subsidiaries.
3.18 EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) The COMPANY SCHEDULE lists all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee or consultant of the
Company, any trade or business (whether or not incorporated) which is a member
of a controlled group including the Company or which is under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code, or any subsidiary of the Company, as well as each plan with respect to
which the Company or an ERISA Affiliate could incur liability under Section 4069
(if such plan has been or were terminated) or Section 4212(c) of ERISA
(together, the "Employee Plans"), excluding former agreements under which the
Company has no remaining obligations and any of the foregoing that are required
to be maintained by the Company under the laws of any foreign jurisdiction. With
respect to each Employee Plan, as applicable, a copy of (i) each such written
Employee Plan, together with all amendments, trust agreements, insurance
policies and service agreements; (ii) the three most recently filed Forms 5500
or 5500 C/R and any financial statements attached thereto; (iii) the most recent
IRS determination letter; (iv) the most recent summary plan description; and (v)
all reports submitted within the preceding three years by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors, has been made available to the Purchasers.
(b) Except as set forth in the COMPANY SCHEDULE: (i) except as required by
Section 4980B of the Code, none of the Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person and none of the
Employee Plans is a "multiemployer plan," as such term is defined in Section
3(37) of ERISA; (ii) there has been no breach of any fiduciary duty, as
described in Section 404 of ERISA, and no "prohibited transaction," as such term
is defined in Section 406 of ERISA or Section 4975 of the Code, with respect to
any Employee Plan, which could result in any liability of the Company or any of
its subsidiaries; (iii) all Employee Plans are in compliance in all respects
with the requirements prescribed by any and all statutes (including ERISA and
the Code), orders, and governmental rules and regulations currently in effect
with respect thereto (including all applicable requirements for notification to
participants, the Department of Labor, the Internal Revenue Service (the "IRS")
and the Secretary of the Treasury), all employee plans have
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been operated at all times in accordance with their terms, and the Company and
each of its subsidiaries have performed all obligations required to be performed
by them under, are not in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the Employee Plans;
(iv) each Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code is the subject
of a favorable determination letter from the IRS, and nothing has occurred which
may reasonably be expected to impair such determination; (v) all contributions
required to be made to any Employee Plan pursuant to Section 412 of the Code, or
the terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Employee Plan for the current plan years; (vi) with
respect to each Employee Plan, neither any "reportable event" within the meaning
of Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063, 4064 or 4041 of ERISA has
occurred; and (vii) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA (other than
liability for premium payments to the Pension Benefit Guaranty Corporation
arising in the ordinary course); (vii) neither the Company nor any ERISA
Affiliate has incurred any liability for any excise, income or other taxes or
penalties with respect to any Employee Plan, and no event has occurred and no
circumstance exists that could give rise to any such liability; (ix) there are
no pending or threatened claims against any Employee Plan (other than routine
claims for benefits) or against any fiduciary or an Employee Plan with respect
to such plan, nor is there any basis for such a claim; and (x) no Employee Plan
is presently under audit or examination (and no notice has been received by the
Company or any ERISA Affiliate of a potential audit or examination) by any
governmental entity, and no matters are pending with respect to any Employee
Plan under any governmental corrective or remedial program.
(c) The COMPANY SCHEDULE sets forth a true and complete list of each
current or former employee, consultant, officer or director of the Company or
any of its Subsidiaries who holds any option to purchase Common Stock as of the
date hereof, together with the number of shares of Common Stock which are
subject to such option, the date of grant of such option, the extent to which
such option is vested (or will become vested within six months from the date
hereof), the option price of such option (to the extent determined as of the
date hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option. The COMPANY SCHEDULE also sets forth the total
number of such ISOs and such nonqualified options.
(d) Any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any of its
Affiliates who is a "disqualified individual" (as such term is defined in
Proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Employee Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G of the Code).
(e) THE COMPANY SCHEDULE lists all employment or consulting contracts,
agreements or understandings to which the Company or any of its Subsidiaries is
a party.
(f) The COMPANY SCHEDULE lists the name and years of service of all persons
employed by the Company as of the date hereof and for each of the past two
fiscal years, the salary, bonus, and total compensation (including vacation,
personal and sick days) paid or owed to each such employee.
3.19 LABOR MATTERS. Neither the Company nor any of its Subsidiaries is or
ever has been a party to any collective bargaining agreement or other labor
agreement with any union or labor organization and no union or labor
organization has been recognized by the Company or any of its Subsidiaries as an
exclusive bargaining representative for employees of the Company or any of its
Subsidiaries. To the Company's knowledge, there is no current union
representation question involving employees of the Company or any of its
Subsidiaries, nor does the Company have knowledge of any significant activity or
proceeding of any labor organization (or representative thereof) or employee
group to organize any such employees. Neither the Company nor any of its
Subsidiaries has made any commitment that would require the application of the
terms of any collective
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bargaining agreements entered into by the Company or any of its Subsidiaries to
Purchasers, or to any subsidiary of any of the Purchasers (other than the
Company or its Subsidiaries). Except as disclosed on the COMPANY SCHEDULE, (a)
there is no active arbitration under any collective bargaining agreement
involving the Company or any of its Subsidiaries, (b) there is no unfair labor
practice, grievance, employment discrimination or other labor or employment
related charge, complaint or claim against the Company or any of its
Subsidiaries pending before any court, arbitrator, mediator or governmental
agency or tribunal, or, to the Company's knowledge, threatened, (c) there is no
strike, picketing or work stoppage by, or any lockout of, employees of the
Company or any of its Subsidiaries pending, or to the Company's knowledge,
threatened, against or involving the Company or any of its Subsidiaries, and (d)
there is no significant active arbitration under any collective bargaining
agreement involving the Company or any of its Subsidiaries regarding the
employer's right to move work from one location or entity to another, or to
consolidate work locations, or involving other similar restrictions on business
operations.
3.20 ENVIRONMENTAL MATTERS.
(a) The Company and each of its Subsidiaries is in compliance with all
applicable Environmental Laws and neither the Company nor any of its
Subsidiaries has received any written or, to the Company's knowledge, oral
communication from any person or Governmental Authority that alleges that the
Company or any of its Subsidiaries is not in compliance with applicable
Environmental Laws.
(b) The Company and each of its Subsidiaries has obtained or has applied
for all Environmental Permits necessary for the construction of their facilities
or the conduct of their operations, and all such Environmental Permits are
effective or, where applicable, a renewal application has been timely filed and
is pending agency approval, and the Company and its Subsidiaries are in
compliance with all terms and conditions of the Environmental Permits. Neither
the Company nor any of its Subsidiaries has knowledge of any past or present
events, conditions, circumstances, activities, practices, incidents, actions or
plans that may interfere with, or prevent, future continued compliance on the
part of the Company or any of its Subsidiaries with the Environmental Permits.
Neither the Company nor any of its Subsidiaries has knowledge of matters or
conditions that would preclude reissuance or transfer of any Environmental
Permit, including amendment of such instrument, to Purchasers or one of their
respective subsidiaries where such action is necessary to maintain compliance
with Environmental Laws.
(c) Neither the Company nor any of its Subsidiaries has knowledge of any
future requirement imposed by any Environmental Law or Environmental Permit
which could reasonably be expected to result in the accrual of a cost not
previously disclosed in writing to Purchasers.
(d) There is no Environmental Claim (as defined below) pending or, to the
knowledge of the Company, overtly threatened (i) against the Company or any of
its Subsidiaries, (ii) against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law, or (iii)
against any property or operations which the Company or any of its Subsidiaries
owns, leases or manages, in whole or in part.
(E) The Company has no knowledge of any Releases of any Hazardous Material
that would be reasonably likely to form the basis of any Environmental Claim
against the Company or any of its Subsidiaries, or against any person or entity
whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(f) The Company has no knowledge, with respect to any predecessor of the
Company or any of its Subsidiaries, of any Environmental Claim pending or
threatened, or of any Release of Hazardous Materials that would be reasonably
likely to form the basis of any Environmental Claim against the Company or any
of its Subsidiaries.
(g) To the Company's knowledge, the Company has disclosed to Purchasers all
facts which the Company reasonably believes form the basis of a current or
future cost relating to any environmental matter affecting the Company and its
Subsidiaries.
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(h) Neither the Company nor any of its Subsidiaries, nor, to the knowledge
of the Company, any owner of premises leased or operated by the Company or any
of its Subsidiaries has filed any notice with respect to such premises under
Federal, state, local or foreign law indicating past or present treatment,
storage or disposal of Hazardous Materials, as regulated under 40 C.F.R. Parts
264-267 or any state, local or foreign equivalent or is engaging or has engaged
in business operations involving the generation, transportation, treatment,
recycle or disposal of any waste regulated under Environmental Laws pertaining
to radioactive materials or the nuclear power industry, including, without
limitation, requirements of Volume 10 of the Code of Federal Regulations.
(i) None of the properties owned, leased or operated by the Company, its
Subsidiaries or, to the knowledge of the Company, any predecessor thereof are
now or were in the past, listed on the National Priorities list of Superfund
Sites, the CERCLIS Information System, or any other comparable state or local
environmental database.
(j) The transactions contemplated by this Agreement will not require any
governmental approvals under the Environmental Laws, including those that are
triggered by sales or transfers of businesses or real property.
(k) As used in this Section 3.20:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Federal, state,
local or foreign Governmental Authority having jurisdiction over the
Company or its Subsidiaries) alleging potential liability of the Company or
its Subsidiaries (including, without limitation, potential responsibility
for or liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, or Release or
threatened Release into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by the Company
or any of its Subsidiaries (including but not limited to obligations to
clean up contamination resulting from leaking underground storage tanks);
or (B) circumstances forming the basis of any violation or alleged
violation by the Company or its Subsidiaries of any Environmental Law; or
(C) any and all claims by any third party against the Company or its
Subsidiaries seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or Release of
any Hazardous Materials.
(ii) "Environmental Laws" means all applicable foreign, Federal, state
and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or any by-products
or fractions thereof, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, any form of natural gas, explosives, and
polychlorinated biphenyls; (B) any chemicals, materials or substances,
whether waste materials, raw materials or finished products, which are now
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous
substances," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "contaminants," or words of similar import under
any Environmental Law; and (C) any other chemical, material or substance,
whether waste materials, raw materials or finished products, regulated or
forming the basis of liability under any Environmental Law in a
jurisdiction in which the Company or any of its Subsidiaries operates.
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
environment (including without limitation ambient air, atmosphere, soil,
surface water, groundwater or property).
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3.21 INTELLECTUAL PROPERTY.
(a) The Company and each of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials that are used in its or any
of its Subsidiaries' businesses as currently conducted and that will be needed
for any currently planned products, services or business activities (including,
but not limited to, Ricochet II), and to the actual knowledge of its executive
officers all patents, trademarks, trade names, service marks and copyrights held
by it and/or its Subsidiaries are valid and subsisting.
(b) Except as disclosed in the COMPANY SCHEDULE:
(i) it and its Subsidiaries are not, nor will any of them be as a
result of the execution and delivery of this Agreement or the performance
of its obligations hereunder, in violation of any licenses, sublicenses and
other agreements as to which it or any of its Subsidiaries is a party and
pursuant to which it or any Subsidiary is authorized to use any third-party
patents, trademarks, service marks and copyrights ("Third-Party
Intellectual Property Right");
(ii) to its knowledge, no claims as of the date hereof with respect to
(A) the patents, registered and unregistered trademarks and service marks,
registered copyrights, trade names, and any applications therefor owned by
it or any of its Subsidiaries (the "Owned Intellectual Property Rights");
(B) any trade secrets; or (C) Third-Party Intellectual Property Rights, are
currently pending or overtly threatened by any person or entity; and
(iii) to its knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Owned Intellectual Property Rights by any
third party, including any of its or any of its Subsidiaries' employees or
former employees.
3.22 REGULATORY MATTERS.
(a) Except as disclosed in the COMPANY SCHEDULE and except for billing
disputes with customers arising in the ordinary course of business that in the
aggregate involve de minimis amounts, there are no proceedings or investigations
pending or, to the Company's knowledge, overtly threatened, before any domestic
or foreign court, administrative, governmental or regulatory body in which any
of the following matters are being considered, nor has the Company or any of its
Subsidiaries received written notice or inquiry from any such body, government
official, consumer advocacy or similar organization or any private party,
indicating that any of such matters should be considered or may become the
object of consideration or investigation: (i) reduction of rates charged to
customers; (ii) reduction of earnings; (iii) refunds of amounts previously
charged to customers; or (iv) failure to meet any expense, infrastructure,
service quality or other commitments previously made to or imposed by any
administrative, governmental or regulatory body.
(b) Except as disclosed in the COMPANY SCHEDULE, neither the Company nor
any of its Subsidiaries has any outstanding commitments regarding (i) reduction
of rates charged to customers; (ii) reduction of earnings; (iii) refunds of
amounts previously charged to customers or (iv) expenses, infrastructure
expenditures, service quality or other regulatory requirements, to or by any
domestic or foreign court, administrative, governmental or regulatory body,
government official, consumer advocacy or similar organization.
3.23 YEAR 2000 DISCLOSURE. The Company and each of its Subsidiaries has
taken preliminary steps to identify and analyze both internally developed and
acquired software which is material to its operations and utilizes date embedded
codes that may experience operations problems when the Year 2000 is reached and,
where problems have arisen, has made, or have coordinated with customers,
suppliers, financial institutions and others with which it has business
relationships that are material to the Company's business to make, all necessary
modifications to the identified software to make such software Year 2000
compliant. Except as disclosed in the Company SEC Reports, the Company and its
Subsidiaries have not incurred, and do not expect to incur, significant
operating expenses to be Year 2000 compliant, and business operations have not
been disrupted and, to the Company's knowledge, its customers have not
experienced any interruption of
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service as a result of making such software Year 2000 compliant. "Year 2000
compliant" means, with respect to the Company's and each Subsidiaries'
information technology, the information technology is designed to be used prior
to, during and after the calendar Year 2000 A.D., and the information technology
used during each such time period will accurately receive, provide and process
date/time data (including, without limitation, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap-year calculations and will not malfunction, cease
to function, or provide invalid or incorrect results as a result of date/time
data, to the extent that other information technology, used in combination with
the information technology being acquired, properly exchanges date/time data
with it. "Information technology," means computer software, computer firmware,
computer hardware (whether general or specific purpose), and other similar or
related items of automated, computerized, or software system(s) that are used or
relied on by the Company or the Subsidiaries in the conduct of its business.
3.24 ADEQUACY OF DISCLOSURE. The Company has made available to Purchasers
copies of all documents listed or referred to in the COMPANY SCHEDULE hereto or
referred to herein. Such copies are, and all documents and materials delivered
or made available in connection with Purchasers' investigation of the Company in
connection with the transactions contemplated hereby are, true and complete and
include all amendments, supplements and modifications thereto or waivers
currently in effect thereunder. No representation or warranty by the Company in
this Agreement nor any certificate, schedule, statement, document or instrument
furnished or to be furnished to Purchasers pursuant hereto, or in connection
with the negotiation, execution or performance of this Agreement, when
considered in the aggregate with all such representations, warranties,
certificates, schedules, statements, documents or instruments, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or necessary to make any
statement herein or therein not misleading. There is no fact known to the
Company that has specific application to the Company (other than general
economic or industry conditions) and that adversely affects or, as far as the
Company can reasonably foresee, threatens, the business, operations, assets,
properties, prospects or condition (financial or otherwise) of the Company and
its Subsidiaries that has not been set forth in this Agreement or the COMPANY
SCHEDULE.
3.25 PROXY STATEMENT. The information supplied by the Company for
inclusion in the Proxy Statement to be sent to the stockholders of the Company
in connection with the special meeting of the Company's stockholders to consider
this Agreement shall not, at the time the Proxy Statement is first mailed to
stockholders, at the time of the Stockholders' Meeting, or at the Closing Date,
contain any statement which, at such time and in light of the circumstances
under which it was made, is false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements made in the Proxy Statement not false or misleading or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Closing Date any event relating to the Company or any of its Subsidiaries or
Affiliates should be discovered by the Company which should be set forth in an
amendment to the Proxy Statement, the Company shall promptly inform Purchasers.
3.26 BOARD ACTION; VOTE REQUIRED; APPLICABILITY OF SECTION 203.
(a) A special committee of disinterested directors of the Board of
Directors and the Board of Directors of the Company have each unanimously
determined that the Transaction is advisable and is in the best interests of the
Company and its stockholders and the Board of Directors has approved the
Transaction and resolved to recommend to such stockholders that they vote in
favor thereof.
(b) Assuming the accuracy of the Purchasers' representations in Section 4.5
of this Agreement, the Company's Board of Directors has taken all steps within
its power that are necessary prior to execution of this Agreement, to ensure
that none of the Purchasers shall be, by reason of the execution and delivery of
this Agreement or the performance of the obligations hereunder, subject to the
restrictions of Section 203 of the DGCL. No other "fair price," "moratorium,"
"control share acquisition" or other form of anti-takeover statute or regulation
(each a "Takeover Statute") as in effect on the date hereof or any anti-takeover
provision in the Company's Certificate of Incorporation or By-laws is applicable
to the Company or the Transaction.
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(c) The Company has been advised by the Principal Stockholder that it
intends to vote its shares of Common Stock in favor of the approval and adoption
of this Agreement and the Proposals.
3.27 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
J.P. Morgan Securities Inc., dated the date of this Agreement, to the effect
that, as of such date the transactions contemplated hereby are fair from a
financial point of view to the holders of Common Stock and a copy of such
opinion will be provided to the Purchasers.
3.28 BROKERS AND FINDERS. Neither the Company nor any of its Subsidiaries
nor any of their respective officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated herein except
to J.P. Morgan Securities Inc. pursuant to the engagement letter dated June 14,
1999, and Banc of America Securities LLC pursuant to the engagement letter dated
November 16, 1998. Copies of each such letters have been provided to the
Purchasers.
3.29 OFFERING OF SHARES. Neither the Company, directly or indirectly, nor
any agent on its behalf, has offered or will offer or has solicited or will
solicit an offer to acquire Equity in the Company from any Person so as to
require registration of the issuance and sale of the Preferred Shares to be sold
to the Purchasers under the circumstances contemplated by this Agreement under
the provisions of Section 5 of the Securities Act.
3.30 TRANSACTIONS WITH RELATED PARTIES. Except as set forth in the COMPANY
SCHEDULE or in transactions that are immaterial or in the ordinary course of
business and on arms-length terms, no Related Party (a) has borrowed money from,
or loaned money to, the Company or its Subsidiaries, (b) has any contractual or
other claims, express or implied, of any kind whatsoever against the Company or
its Subsidiaries, (c) has any interest in any property or assets used by the
Company or its Subsidiaries or (d) is or was a party to any oral or written
agreement or is engaged in any other transaction with the Company or its
Subsidiaries. With respect to Related Parties that are partnerships or
corporations of which Vulcan owns greater than a 50% equity interest, this
representation is made only to the Company's knowledge.
3.31 BUSINESS ACTIVITIES. Since 1992, neither the Company nor any of its
Subsidiaries is, or ever has been, involved in any line of business activities
not described in the Company's SEC Filings.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each of the A1 Preferred Stock Purchaser and the A2 Preferred Stock
Purchaser individually and severally represents and warrants to, and agrees
with, the Company as follows:
4.1 ORGANIZATION, POWERS AND QUALIFICATIONS. It has been incorporated and
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. It has all requisite corporate power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate the properties and assets used in connection therewith
and to enter into this Agreement, to buy the shares specified herein and to
carry out the provisions of this Agreement. It is duly qualified as a foreign
corporation authorized to do business and is in good standing in every
jurisdiction in which such qualification is required, except where the failure
to be so qualified would not have a material adverse effect on such Purchaser or
its subsidiaries taken as a whole or its ability to consummate the Transaction.
4.2 AUTHORITY; BINDING EFFECT. It has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
Transaction. All necessary corporate action, required to have been taken by or
on behalf of it by applicable law, its charter document or otherwise to
authorize (a) the approval, execution and delivery on its behalf of this
Agreement and (b) its performance of its obligations under this Agreement and
the consummation of the Transaction have been taken. This Agreement constitutes
its valid and binding agreement, enforceable against it in accordance with its
terms, except (A) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers, and (B) for the limitations imposed by general principles of equity.
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4.3 COMPLIANCE WITH LAWS. Except for applicable requirements under the
Communications Act, state communications laws, the rules and regulations of the
FCC, state regulatory laws and the expiration or termination of the waiting
period under the HSR Act, no consent, approval or authorization of, or filing,
registration, qualification, declaration or designation with, any Governmental
Authority is required on its part as a condition to the valid execution and
delivery of this Agreement and the purchase of the Preferred Shares in the
manner contemplated by this Agreement, except where the absence of any such
consent, approval or authorization of, or the failure to make any such filing,
registration, qualification, declaration or designation with any Governmental
Authority would not have a material adverse effect on it or its subsidiaries
taken as a whole or its ability to consummate the Transaction.
4.4 INVESTMENT REPRESENTATIONS. It understands that neither the Preferred
Shares nor the Conversion Shares have been registered under the Securities Act
of 1933, as amended (the "Securities Act"). It also understands that the
Preferred Shares and the Conversion Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in this Agreement. Each Purchaser,
individually and severally, hereby represents and warrants as follows:
(a) Taking into account the personnel and resources it can practically
bring to bear on the purchase of the Preferred Shares contemplated hereby,
it is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in shares
presenting an investment decision like that involved in the purchase of the
Preferred Shares, including investments in securities issued by the
Company, and has requested, received, reviewed and considered all
information it deems relevant in making an informed decision to purchase
the Preferred Shares.
(b) It is acquiring its respective Preferred Shares in the ordinary
course of its business and for its own account for investment only and with
no present intention of distributing any of the Preferred Shares and has no
arrangement or understanding with any other persons regarding the
distribution of the Preferred Shares.
(c) It will not, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Preferred Shares except
in compliance with the Securities Act, the rules and regulations
promulgated thereunder and the terms and conditions hereof.
(d) It is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act.
4.5 INTERESTED STOCKHOLDER. The A1 Preferred Stock Purchaser represents
and warrants that, in each case within the meaning of Section 203 of the DGCL:
(a) at no time from three years prior to the time the Company's Board
of Directors approved the transactions contemplated by this Agreement
through the time of the signing hereof, has it or any "affiliate" or
"associate" of it "owned" fifteen percent (15%) or more of the Company's
"voting stock"; and
(b) there are no facts, known to it that have not been disclosed to
the Company that relate to whether it or any of its "affiliates" or
"associates," directly or indirectly, through one or more intermediaries,
"controls" or "controlled" or is or was "controlled by" or is or was "under
common control with" the Company.
4.6 PROXY STATEMENT. All information furnished in writing by it and its
respective affiliates or associates, as those terms are defined in Rule 12b-2
under the Exchange Act, for inclusion in the Proxy Statement will not, at the
date of mailing of the Proxy Statement to the stockholders of the Company, at
the time of the Stockholders' Meeting or at the Closing Date, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which made,
not misleading.
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4.7 ADDITIONAL INFORMATION. Each Purchaser that is subject to the
reporting requirements of the Exchange Act individually and severally represents
and warrants that the information contained in the following documents relating
to it did not or will not, as the case may be, at the respective dates of filing
with the Commission or, with respect to any proxy statement, the date of mailing
to stockholders, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading:
(a) its Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (without exhibits), as amended;
(b) its Quarterly Report on Form 10-Q for the three-month period ended
March 31, 1999; and
(c) all other documents, if any, filed by it with the Commission since
January 1, 1999 and prior to the Closing pursuant to the reporting
requirements of the Exchange Act.
SECTION 5. RESTRICTED SECURITIES; REGISTRATION RIGHTS.
5.1 RESTRICTED SECURITIES.
(a) Upon original issuance thereof, and until such time as the same is no
longer required hereunder or under the applicable requirements of the Securities
Act or applicable state securities or blue sky laws, any certificate issued
representing any of the Preferred Shares or the Conversion Shares (including,
without limitation, all certificates issued upon transfer or in exchange thereof
or in substitution therefor) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE."
(b) The certificates representing the Preferred Shares or the Conversion
Shares (including, without limitation, any certificate issued upon transfer or
in exchange thereof or in substitution therefor) shall also bear any legend
required under any applicable state securities or blue sky laws.
(c) The Company may make a notation on its records or give instructions to
any transfer agents or registrars for the Preferred Shares in order to implement
the restrictions on transfer set forth in this Section 5.1.
(d) Each of the Purchasers shall submit any and all certificates
representing Equity beneficially owned by such Purchaser or any of its
Affiliates to the Company so that the legend or legends required by this Section
5.1 may be placed thereon.
(e) The Company shall not incur any liability for any delay in recognizing
any transfer of Equity if the Company in good faith reasonably believes that
such transfer may have been or would be in violation in any material respect of
the provisions of the Securities Act, applicable state securities or blue sky
laws, or this Agreement.
(f) After such time as any of the legends described by this Section 5.1 are
no longer required on any certificate or certificates representing the Preferred
Shares or the Conversion Shares, upon the request of the respective Purchaser,
the Company will cause such certificate or certificates to be exchanged for a
certificate or certificates that do not bear such legend.
5.2 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION
OF ASSETS. The provisions of this Section 5 shall apply, to the full extent set
forth herein with respect to the capital stock of the Company, to any and all
securities of the Company or any successor to or assignee of the Company
(whether by merger, consolidation, sale of assets or otherwise) that may be
issued in respect of, in exchange for, or in substitution of such securities,
including, without limitation, in connection with any stock dividends, splits,
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reverse splits, combinations, reclassifications, recapitalizations, mergers,
consolidations and the like occurring after the date hereof.
5.3 REGISTRATION RIGHTS. At or prior to the Closing, the Company and the
Purchasers shall enter into a restated registration rights agreement (the
"Restated Registration Rights Agreement") providing for registration rights with
respect to the Conversion Shares substantially in the form attached hereto as
Exhibit B.
SECTION 6. COVENANTS OF THE PURCHASERS AND THE COMPANY.
6.1 REGULATORY AND OTHER AUTHORIZATIONS.
(a) Each party hereto agrees to use commercially reasonable efforts to
comply with all legal requirements which may be imposed on such party with
respect to the Transaction and to obtain all Authorizations, consents, orders
and approvals of Governmental Authority and non-governmental third parties that
may be or become necessary for (i) its respective execution and delivery of, and
the performance of its respective obligations pursuant to this Agreement and
(ii) the ownership of the Preferred Shares by the Purchasers, and each party
will cooperate fully with the other parties in promptly seeking to obtain all
such authorizations, consents, orders and approvals.
(b) Notwithstanding anything else to the contrary contained in this
Agreement, the Purchasers shall have no obligation to oppose, challenge or
appeal any suit action or proceeding by any Governmental Authority, agency or
tribunal, domestic or foreign or any order or ruling by any such body (i)
seeking to restrain or prohibit or restraining or prohibiting the consummation
of the Transaction, (ii) seeking to prohibit or limit or prohibiting or limiting
the ownership, operation or control by the Company or its Subsidiaries, the
Purchasers or any of their respective subsidiaries or any portion of the
business or assets of the Company or its Subsidiaries or the Purchasers or any
of their respective subsidiaries or seeking to compel or compelling the Company
or its Subsidiaries or the Purchasers or any of their respective subsidiaries to
dispose of, grant rights in respect of, or hold separate any portion of the
business or assets of the Company or its Subsidiaries or the Purchasers or any
of their respective subsidiaries. Neither the Company nor any of its
Subsidiaries shall take or agree to take any of the actions described in the
immediately preceding sentence without the prior written consent of the
Purchasers.
6.2 GOVERNMENTAL FILINGS. Each of the Company and the Purchasers agrees to
make all of its respective necessary filings in connection with the Transaction
under the HSR Act with the FCC and with all other appropriate regulatory bodies
and to use its reasonable best efforts to furnish or cause to be furnished, as
promptly as practicable, all information and documents requested under each of
such laws and shall otherwise cooperate with the applicable Governmental
Authority in order to obtain any required regulatory approvals in as expeditious
a manner as possible.
6.3 COMPLIANCE WITH ANTITRUST OR COMPETITION LAWS AND THE COMMUNICATIONS
ACT. Each of the Company and the Purchasers shall use commercially reasonable
efforts to resolve such objections, if any, as the Antitrust Division, the FTC,
or the FCC may assert with respect to this Agreement and the transactions
contemplated herein under applicable antitrust or competition laws, or the
Communications Act, respectively. In the event that a suit is instituted by any
Person or Governmental Authority challenging this Agreement and the transactions
contemplated herein as violative of applicable antitrust or competition laws or
the Communications Act, each of the Company and the Purchasers shall use
commercially reasonable efforts to resist or resolve such suit. Notwithstanding
the foregoing, in connection with any such objections of, or suit instituted by,
the Antitrust Division, the FTC, or the FCC, none of the Purchasers nor the
Company shall be required to dispose of any assets or to provide any
undertakings or comply with any condition that, in their respective reasonable
opinions, would materially diminish, taken as a whole, its or the Company's
respective rights or protections (with respect to its investment, in the case of
any Purchaser) under this Agreement, the Restated Certificate or materially and
adversely affect their respective businesses taken as a whole.
6.4 PUBLIC ANNOUNCEMENTS. No party hereto shall make any public
announcements or otherwise communicate with any news media with respect to this
Agreement or the Transaction without prior
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consultation with the other parties as to the timing and contents of any such
announcement as may be reasonable under the circumstances; provided, that
nothing contained herein shall prevent any party from promptly making all
filings with Governmental Authorities and all disclosure as may, in its good
faith judgment, be required or advisable in connection with the execution and
delivery of this Agreement or the consummation of the Transaction (in which case
the disclosing party shall advise the other parties and provide them with a copy
of the proposed disclosure or filing prior to making the disclosure or filing).
6.5 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the Transaction, including, without
limitation, making application as soon as practicable hereafter for all consents
and approvals required in connection with the Transaction and diligently
pursuing the receipt of such consents and approvals in good faith thereafter and
timely provide all notices required to be provided in connection with the
Transaction.
6.6 TAKEOVER STATUTE. If any takeover statute shall become applicable to
the Transaction, the Company and each of the Purchasers and the members of their
respective Boards of Directors shall grant such approvals and take such actions
as are reasonably necessary so that the Transaction may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
Transaction.
6.7 NOTIFICATION. Each party hereto shall, in the event of, or promptly
after obtaining knowledge of the occurrence or threatened occurrence of, any
fact or circumstance that would cause or constitute a breach of any of its
representations and warranties set forth herein, give notice thereof to the
other parties and shall use its best efforts to prevent or promptly to remedy
such breach, provided, however, that none of such notices shall be deemed to
modify, amend or supplement the representations and warranties of the such party
or the disclosure schedules of such party for the purpose of Sections 9 and 10
hereof.
6.8 REASONABLE BEST EFFORTS. Subject to the fiduciary duties of the
Company's Board of Directors, as determined by such directors in good faith
after consultation with and receipt of advice from independent legal counsel,
and except as otherwise provided herein, each of the parties hereto agrees to
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, statutes, ordinances, codes, rules and
regulations to consummate and make effective the Transaction in the most
expeditious manner practicable, including but not limited to the satisfaction of
all conditions to the Transaction set forth in Section 9 and 10, and to
consummate the Transaction as promptly as practicable, but in no event later
than February 1, 2000. Without limiting the foregoing, the Purchasers shall make
commercially reasonable efforts to be legally qualified under the rules,
regulations, and orders of the FCC and all other appropriate regulatory agencies
in connection with the Transaction, to the extent legally required; provided,
however, that the foregoing shall not require either of the Purchasers or any of
their respective Affiliates to dispose of any asset or to provide any
undertakings or take any action or comply with any condition that would
reasonably be expected to materially diminish its or the Company's respective
rights or protections (with respect to such Purchaser's investment) under this
Agreement and the Restated Certificate or adversely affect its business or
assets.
SECTION 7. COVENANTS OF THE COMPANY.
7.1 ACCESS TO INFORMATION.
(a) From the date of this Agreement until the Closing, the Company will,
and will cause its Subsidiaries and its and their directors, officers, employees
and agents to, afford to the Purchasers and their respective advisors, officers,
employees and agents reasonable access at all reasonable times to its officers,
employees, agents, properties, books, records and contracts and will furnish to
the Purchasers and their respective advisors all financial, operating and other
data and information as the Purchasers or their respective advisors may
reasonably request in connection with the Transaction.
(b) Between the date of this Agreement and the Closing Date, the Company
agrees that the A1 Preferred Stock Purchaser shall be entitled to designate an
observer to attend meetings of the Board of
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Directors of the Company; provided, however, that such observer shall be
excluded from such meetings at all times during which the Board of Directors is
discussing or considering the Transaction or any matter related thereto, any
transaction competing with or in the alternative to the Transaction, and any
other matter for which the attendance of such observer would not be in the best
interests of the stockholders as determined by the Chief Executive Officer. The
Company shall provide such observer with the same notice of meetings of the
Board of Directors of the Company as that provided to directors.
7.2 CONDUCT OF THE COMPANY'S BUSINESS. Between the date of this Agreement
and the Closing Date, the Company will, and will cause its Subsidiaries to,
conduct their respective businesses in the ordinary and normal course thereof,
except as otherwise contemplated or permitted by this Agreement; and the Company
and its Subsidiaries will use their commercially reasonable efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of those of its present officers,
employees and consultants that are integral to the operation of its business as
presently conducted and to preserve the present relationships of the Company and
its Subsidiaries with customers, suppliers and other persons with which the
Company and its Subsidiaries have significant business relations. By way of
amplification and not limitation, except as otherwise expressly contemplated by
this Agreement, the Company agrees on behalf of itself and its Subsidiaries
that, without the prior written consent of the Purchasers, they will, between
the date of this Agreement and the Closing Date:
(a) not directly or indirectly do any of the following: (i) amend or
propose to amend its Certificate of Incorporation or By-Laws except
pursuant to Section 7.5; (ii) split, combine or reclassify any outstanding
shares of its capital stock, or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to such shares;
(iii) redeem, purchase, acquire or offer to acquire any shares of its
capital stock; (iv) issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or securities
convertible or exchangeable for, or any options, warrants or rights of any
kind to acquire any shares of, its capital stock of any class or other
property or assets whether pursuant to any rights agreement, stock option
plans described in the COMPANY SCHEDULE or otherwise, provided that the
Company may grant new options under the Employee Stock Plans (A) as set
forth on the COMPANY SCHEDULE in a manner consistent with past practices or
(B) in accordance with Section 7.2(d)(iv), and issue shares of Company
Common Stock pursuant to currently outstanding options referred to in the
COMPANY SCHEDULE in response to Section 3.3 above; (v) accelerate, amend or
change the period of exercisability of options or restricted stock granted
under any of the Employee Stock Plans or authorize cash payments in
exchange for any options granted under any of such plans except as required
by the terms of such plans or any related agreements in effect as of the
date of this Agreement; or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth in
this paragraph (a);
(b) not, directly or indirectly (i) acquire (by merger, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership,
limited liability company or other business organization or division
thereof or make any equity investments therein; (ii) issue, sell, pledge,
dispose of or encumber any assets (including without limitation licenses,
Authorizations or rights) of the Company or its Subsidiaries or enter into
any securitization transactions except for sales of inventory or immaterial
amounts of assets in the ordinary course of business; (iii) incur any
indebtedness for borrowed money or issue any debt securities; (iv) make any
commitments or agreements for capital expenditures or capital additions or
betterments exceeding in the aggregate $500,000 except such as may be
involved in ordinary repair, maintenance or replacement of its assets; (v)
enter into or modify any material contract, lease or agreement except in
the ordinary course of business and consistent with past practice; (vi)
terminate, modify, assign, waive, release or relinquish any material
contract rights or amend any material rights or claims, or forgive, cancel
or compromise any material debts, claims or rights not in the ordinary
course of business or except as expressly provided herein; or (vii) enter
into any contract, agreement, commitment or arrangement with respect to any
of the matters set forth in this paragraph (b);
(c) not, directly or indirectly (i) initiate any litigation or
arbitration proceeding, or settle a litigation or arbitration proceeding or
enter into a consent decree, or series of related litigation or arbitration
proceedings or consent decrees, that results in payments aggregating more
than $100,000 or deprives
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either of the Purchasers of a benefit of this Agreement, (ii) revalue any
of its assets, including writing down the value of inventory or writing off
notes or accounts receivable, other than as required by GAAP or in the
ordinary course of business pursuant to arm's length transactions on
commercially reasonable terms, (iii) make any material change to their
respective accounting methods, principles or practices other than as
required by GAAP, or (iv) settle or compromise any Tax liability, or
prepare or file any Tax Return inconsistent with past practice or, on any
such Tax Return, take any position, make any election, or adopt any method
that is inconsistent with positions taken, elections made or methods used
in preparing or filing similar Tax Returns in prior periods;
(d) not, directly or indirectly, (i) except in the ordinary course of
business and consistent with past practice grant any increase in the salary
or other compensation of its employees or grant any bonus to any employee
or enter into any employment agreement or make any loan to or enter into
any material transaction of any other nature with any officer or employee
of the Company; (ii) take any action to institute any new severance or
termination pay practices with respect to any directors, officers or
employees of the Company or to increase the benefits payable under its
severance or termination pay practices; (iii) adopt or amend, in any
respect, except as may be required by applicable law or regulation, any
bonus, profit sharing, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment or other employee
benefit plan, agreement, trust, fund, plan or arrangement for the benefit
or welfare of any directors, officers or employees; or (iv) hire any
management-level employee or engage any consultant with total annual
aggregate compensation (including any options as determined by
Black-Scholes or another generally accepted method of valuation) in excess
of $150,000; and
(e) not, directly or indirectly, take (and will use reasonable efforts
to prevent any Affiliate of the Company from taking) or agree in writing or
otherwise to take, (i) any of the actions described in this Section 7.2,
(ii) any action which would make any of the Company's representations or
warranties in this Agreement, if made on and as of the date of such action
or agreement, untrue or incorrect in any material respect, or (iii) any
action which could prevent it from performing, or cause it not to perform,
its obligations under this Agreement.
Notwithstanding the foregoing, the Company may incur such unsecured or
secured indebtedness to the Principal Stockholder as may be necessary or
desirable to finance its operations. All such financing will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
7.3 NO SOLICITATION.
(a) From and after the date of this Agreement, the Company agrees that
neither the Company nor any of its Subsidiaries nor any of the respective
officers and directors of the Company or any of its Subsidiaries shall, and the
Company shall direct and use its best efforts to cause its employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by the Company or any of its Subsidiaries)
("Representatives") not to, (i) solicit, initiate or take any action knowingly
to facilitate the submission of inquiries, proposals or offers ("Acquisition
Proposals") from any third party relating to (A) any acquisition or purchase of
assets of the Company and its Subsidiaries other than in the ordinary course of
business consistent with past practice, (B) the purchase of any equity security
(including, without limitation, any debt entitled to vote in the election of
directors), of the Company or any of its Subsidiaries (including a self tender
offer) or any security that is convertible, exchangeable or exercisable for any
such equity security, (C) any Business Combination, any merger, consolidation,
sale of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its Subsidiaries, or (D) any
other transaction the consummation of which would, or could reasonably be
expected to impede, interfere with, prevent or materially delay the Transaction
or which would, or could reasonably be expected to, materially dilute the
benefits to the Purchasers of the Transaction (each of the foregoing items set
forth in (A) through (D), an "Alternative Transaction"), or agree to or endorse
any Alternative Transaction, or (ii) engage in any discussions relating to any
Acquisition Proposal, or (iii) enter into any agreement with respect to, agree
to, approve or recommend any Acquisition Proposal except to the extent legally
required for the discharge by the Board of Directors of the Company of its
fiduciary duties under applicable law, provided,
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however, that notwithstanding any other provision hereof, the Company may, (A)
at any time prior to the time the Company's stockholders shall have voted to
approve this Agreement, engage in discussions or negotiations with a third party
(and may furnish such third party information concerning the Company and its
business, properties and assets to such party) who (without any solicitation,
initiation, encouragement, discussion or negotiation relating to an Acquisition
Proposal, directly or indirectly, by or with the Company or the Representatives
after the date hereof) makes an unsolicited bona fide written Acquisition
Proposal if, and only to the extent that, (1) the third party has first made an
Acquisition Proposal that (as determined in good faith in each case by the
Company's Board of Directors after consultation with its financial advisors and
taking into account the long term strategic benefits) (I) is reasonably capable
of being completed, taking into account all legal, financial, regulatory and
other aspects of the Acquisition Proposal and the Person making the Acquisition
Proposal, and (II) would, if consummated, result in a transaction or
transactions more favorable from a financial point of view to the holders of
Company Common Stock than the Transaction (such an Acquisition Proposal, a
"Superior Proposal"), and the Company's Board of Directors shall conclude in
good faith, after considering applicable provisions of state law, on the basis
of oral or written advice of outside counsel that such action is necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law, and (2) prior to furnishing such information to or
entering into discussions or negotiations with such third party, the Company
receives from such third party an executed confidentiality agreement requiring
the third party to keep confidential any and all confidential information
received from the Company, and (3) the Company shall have fully complied with
this Section 7.3; (B) comply with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer, and/or (C) accept a Superior Proposal
from a third party, provided the Company first terminates this Agreement
pursuant to Section 11.1(h) hereof.
(b) Upon execution and delivery of this Agreement, the Company shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons conducted
heretofore by the Company or its Representatives with respect to the foregoing.
The Company shall notify the Purchasers orally and in writing of any such
inquiries, offers or proposals (including, without limitation, the terms and
conditions of any such proposal and the identity of the Person making it),
within 24 hours of the receipt thereof, shall keep the Purchasers informed of
the status and terms of any such inquiry, offer or proposal, and shall give the
Purchasers at least one Business Day prior written notice of (i) any meeting of
the Board of Directors of the Company to take any action with respect to an
Acquisition Proposal or to withdrawing or modifying, in a manner adverse to
either Purchaser, its recommendation to the Company's stockholders in favor of
approval of the Transaction, and (ii) any agreement to be entered into with any
Person making such inquiry, offer or proposal.
(c) Prior to accepting a Superior Proposal, the Company shall, and shall
cause its financial and legal advisors to, negotiate in good faith with each of
the Purchasers, for a period of not less than three days, to make such changes
to the terms and conditions of this Agreement as would enable the Company to
proceed with the Transaction and shall proceed with the Transaction, as so
modified, if the Board of Directors of the Company determines that such Superior
Proposal no longer constitutes a Superior Proposal.
(d) During the period from the date of this Agreement through the Closing
Date, the Company shall not terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party. During such period, the Company shall enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreement, including, but not limited to, by obtaining injunctions to prevent
any breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court of the United States of America or of any state
having jurisdiction.
7.4 STOCKHOLDERS' MEETING.
(a) As promptly as practicable after the date hereof, the Company shall
take all action necessary in accordance with Rules 14a-1 et. seq. of the
Exchange Act, the rules of the Nasdaq National Market, the DGCL, and its
Certificate of Incorporation and By-laws to call, give notice of, convene and
hold a meeting of all the outstanding shares of the Company's capital stock
(such meeting and any continuation thereof, the "Stockholders' Meeting") as
promptly as practicable (unless such date shall be delayed due to circumstances
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reasonably beyond the control of the parties) to consider and vote upon the
approval and adoption of this Agreement and the transactions contemplated hereby
and for such other purposes as may be necessary or desirable. Subject to the
fiduciary duties of the Board of Directors under applicable law, as determined
by such directors in good faith after consultation with and receipt of advice
from independent legal counsel, the Board of Directors of the Company shall use
its reasonable best efforts to solicit and secure from its stockholders such
approval and adoption of this Agreement and the Transaction, which efforts may
include, without limitation, soliciting stockholder proxies therefor and to
advise the other party upon its request, from time to time, as to the status of
the stockholder vote then tabulated.
(b) As promptly as reasonably practicable after the date hereof, the
Company shall prepare and file with the SEC pursuant to the Exchange Act and, as
promptly as practicable after the receipt of comments from the SEC staff with
respect thereto and to any required or appropriate amendments thereto, shall
mail to the stockholders entitled to vote thereon a proxy statement (as amended
or supplemented, the "Proxy Statement") in connection with the Stockholders'
Meeting to consider proposals (the "Proposals") concerning (i) the approval of
this Agreement and the Transaction, including, without limitation, the issuance
and sale of the Preferred Shares (the "Transaction Proposal"), and (ii) the
adoption of the Restated Certificate (the "Restated Certificate Proposal"). The
Proxy Statement shall contain the recommendation of the Board of Directors of
the Company that the stockholders approve the Proposals, unless otherwise
legally required for the discharge by the Board of Directors of its fiduciary
duties, under applicable law, as determined by such directors in good faith
after consultation with and receipt of advice from independent legal counsel.
The Company shall notify the Purchasers promptly of the receipt by it of any
comments from the SEC or its staff and of any request by the SEC for amendments
or supplements to the Proxy Statement or for additional information and will
supply the Purchasers with copies of all correspondence between the Company and
its representatives, on the one hand, and the SEC or the members of its staff or
any other governmental officials, on the other hand, with respect to the Proxy
Statement.
(c) The Proxy Statement, as of the date thereof and as of the date of the
Stockholders' Meeting, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they will
be made, not misleading, provided, however, that the foregoing shall not apply
to any investment bank's fairness opinion included therein or to the extent that
any such untrue statement of a material fact or omission to state a material
fact was made by the Company in reliance upon and in conformity with written
information concerning the Purchasers furnished to the Company by the Purchasers
specifically for use in the Proxy Statement. The Proxy Statement shall not be
filed, and no amendment or supplement to the Proxy Statement will be made, by
the Company without consultation with the Purchasers and their counsel.
(d) The Company shall promptly advise the Purchasers if the Board of
Directors of the Company determines to withdraw or modify in a manner adverse to
the Purchasers its recommendation to approve the Proposals.
7.5 CHARTER AMENDMENTS. On or before the Closing Date, following the
approval of the Proposals by the stockholders of the Company at the
Stockholders' Meeting, the Company will use its reasonable best efforts to cause
the Restated Certificate, substantially in the form of Exhibit A attached
hereto, to be filed with the Secretary of State of the State of Delaware;
provided, however, that nothing contained in this Agreement shall require such
Restated Certificate to be filed on behalf of or by the Company prior to the
time that all conditions set forth in Sections 9 and 10 (other than those
related to such filing or such adoptions) have been satisfied or waived. The
Company covenants and agrees that, on or before the Closing Date, it shall not
cause any amendment to be made to its charter documents other than the
amendments set forth in the Restated Certificate, and the Board of Directors of
the Company shall not cause any amendments to be made to the By-laws of the
Company, in either case without the prior consent of the Purchasers.
7.6 SUBSEQUENT FINANCIAL STATEMENTS. Prior to the Closing Date, the
Company will consult with the Purchasers prior to (a) making publicly available
its financial results for any period and (b) the filing of, and will timely file
with the SEC, each Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K and all other reports required to be filed by such
Party under the Exchange Act and the
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rules and regulations promulgated thereunder and will promptly deliver to the
other copies of each such report filed with the SEC.
7.7 CONTROL OF OPERATIONS. Nothing contained in this Agreement shall give
the Purchasers, directly or indirectly, the right to control or direct the
Company's operations prior to the Closing Date. Prior to the Closing Date, each
of the Company and Purchasers shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
7.8 ACCESS TO INFORMATION. After the Closing, the Company will permit
representatives of the Purchasers at their expense to visit and inspect all
properties, books and records of the Company and its Subsidiaries and to discuss
the affairs, finances and accounts of the Company with the principal officers of
the Company, its attorneys and auditors, all at such reasonable times and as
often as may reasonably be requested in order to enable the Purchasers to
reasonably monitor their investment in the Company, and to provide such other
access and information as may be reasonably required to enable the Purchasers to
comply with applicable requirements of U.S. securities laws, generally accepted
accounting principles and requirements of Governmental Authorities, subject to
reasonable and appropriate confidentiality agreements pursuant to which any such
information received or otherwise obtained shall be held in confidence and
subject to the terms of any confidentiality agreements with third parties to
which the Company or any of its Subsidiaries is subject, unless and to the
extent that, in connection with a Federal government contract, an agency of the
Federal government or a contractor requires the Company or any of its
Subsidiaries to restrict access to any properties or information reasonably
related to such contract on the basis of applicable laws and regulations with
respect to national security matters and unless and to the extent that other
Requirements of Law require the Company to restrict access to any properties or
information.
7.9 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Shares for (a) the development and deployment of Ricochet 2
technology; (b) working capital and general corporate purposes related to
network deployment and operation; and (c) repayment of outstanding loans when
due.
SECTION 8. COVENANTS OF THE PURCHASERS.
8.1 PROXY INFORMATION. Each Purchaser represents, warrants, covenants and
agrees that (a) it will provide to the Company for inclusion in the Proxy
Statement all information concerning it and its Affiliates requested by the
Company and necessary for the preparation of such Proxy Statement and (b) such
information will not contain any material misstatement of fact or omit to state
any material fact necessary to make the statements, in light of the
circumstances under which they are made, not misleading.
SECTION 9. CONDITIONS TO THE PURCHASERS' OBLIGATIONS.
Each Purchaser's obligation to purchase and pay for the Preferred Shares is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in Section 3 hereof shall be true and correct when made,
and (except for Sections 3.10(a) and (b) and for a threatened or pending suit,
action, proceeding, injunction or judgment that challenges the Transaction which
is covered in Section 9.10 and except to the extent such representations speak
to an earlier date) shall be true and correct at and as of the Closing Date, as
though made on and as of the Closing Date, in each case except for changes or
differences that result from actions or events contemplated by this Agreement or
that would not have a Company Material Adverse Effect.
9.2 AGREEMENTS AND CONDITIONS. The Company shall have performed and
complied in all material respects with all agreements, covenants and conditions
contained herein that are required to be performed or complied with by it on or
before the Closing Date, except for failures to so perform or comply that would
not have a Company Material Adverse Effect. The Company shall have obtained any
and all consents, permits and waivers from any third parties necessary for the
consummation of the Transaction, except for failures to obtain consents, permits
or waivers that would not have a Company Material Adverse Effect.
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9.3 REGULATORY APPROVALS. All required consents and approvals from the FCC
shall have been obtained pursuant to an FCC Order, free of any special condition
adverse to the Purchasers, provided that in the event that no petitions have
then been filed against the assignment application, this condition shall be
deemed met 30 days after the FCC's initial grant of approval of the assignment.
All other regulatory, governmental, judicial or other third-party approvals,
consents or waivers necessary with respect to the consummation of the
transactions contemplated by this Agreement shall have been obtained or waived
and the waiting period under the HSR Act shall have expired or been terminated.
No Governmental Authorities shall have terminated or overtly threatened to
terminate any right of way, wired access point or utility agreements, except
such that, individually or in the aggregate, would not deprive the Purchasers of
the material benefits of this Agreement, it being understood that this is a
higher standard than "Company Material Adverse Effect" and, without limiting the
foregoing, the termination or overtly threatened termination of any one such
agreement would not alone be deemed to deprive the Purchasers of the material
benefits of this Agreement. The Purchasers and any permitted assignee thereof
shall be legally qualified under the rules, regulations, and orders of the FCC
and all other appropriate regulatory agencies in connection with the
Transaction.
9.4 PURCHASE OF SHARES NOT ENJOINED. The purchase of the Shares by the
Purchasers shall not have been enjoined (temporarily or permanently) as of the
Closing Date.
9.5 STOCKHOLDER APPROVAL. At the Stockholders' Meeting, the stockholders
of the Company shall have approved (a) the Transaction Proposal by the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote on such proposal and (b) the Restated
Certificate Proposal by the affirmative vote of a majority of the votes entitled
to be cast by the holders of all outstanding shares of Common Stock.
9.6 OTHER AGREEMENTS. The Restated Registration Rights Agreement shall
have been executed by the relevant parties (other than the Purchasers) and
delivered to the Purchasers, and all actions required to have been taken
thereunder on or prior to the Closing hereunder shall have been accomplished
(other than the Closing under this Agreement).
9.7 SECTION 203. The Board of Directors of the Company shall have taken
appropriate action so that, if the Closing occurs, the provisions of Section 203
of the DGCL restricting "business combinations" with "interested stockholders"
(each as defined in such Section 203) will not apply to the Purchasers.
9.8 NASDAQ NOTIFICATION. The Company shall have provided notification of
the proposed issuance of the Shares to the Nasdaq pursuant to Schedule D to the
By-Laws of the NASD, and Nasdaq shall not have objected to the proposed issuance
or notified the Company that its Common Stock may be delisted from Nasdaq
National Market.
9.9 OPINIONS OF COUNSEL.
(a) The Company shall have delivered to the Purchasers an opinion of Cooley
Godward LLP, counsel to the Company, substantially in the form attached as
Exhibit C hereto.
(b) The Company shall have delivered to the Purchasers an opinion of Shook,
Hardy & Bacon L.L.P., FCC counsel to the Company, substantially in the form
attached as Exhibit D hereto.
9.10 NO PENDING LITIGATION. No suit, action or other proceeding, or
injunction or judgment relating thereto, shall be pending before any court or
governmental or regulatory official, body or authority in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the Transactions, and no investigation
that would reasonably be expected to result in any such suit, action or
proceeding shall be pending or, to the knowledge of the Company, threatened, in
each case, which either Purchaser determines, in good faith and after
consultation with and receipt of advice from independent legal counsel, is
reasonably likely to result in a monetary loss in excess of $15 million or to
deprive either of the Purchasers of a material benefit of this Agreement.
9.11 MINIMUM PURCHASE. The Purchasers shall have tendered, and the Company
shall have accepted, in the aggregate at the Closing, consideration of not less
than $600,000,000 for the purchase of the Preferred Shares.
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SECTION 10. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligation to sell the Preferred Shares to the Purchasers is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Purchasers contained in Section 4 hereof shall be true and correct when made
and (except to the extent such representations speak to an earlier date) shall
be true and correct at and as of the Closing Date, as though made on and as of
the Closing Date, except for changes or differences that would not impair the
ability of the Purchasers to consummate the Transaction.
10.2 AGREEMENTS AND CONDITIONS. Each of the Purchasers shall have
performed and complied in all material respects with all agreements, covenants
and conditions contained herein that are required to be performed or complied
with by it on or before the Closing Date, except for failures to perform that
would not impair the ability of the Purchasers to consummate the Transaction.
Each of the Purchasers shall have obtained any and all consents, permits and
waivers from any third parties necessary for the consummation of the
Transaction, except for failures to obtain consents, permits or waivers that
would not impair the ability of the Purchasers to consummate the Transaction.
10.3 GOVERNMENTAL APPROVALS. If required, an FCC Order shall have been
obtained, which has not been revoked or stayed as of the Closing Date and the
waiting period under the HSR Act shall have expired or been terminated, provided
that such governmental approvals shall not be deemed to have been obtained for
purposes hereof if such governmental approvals contain a condition or
restriction that would materially and adversely affect the business of the
Company and its Subsidiaries, taken as a whole, or, in the reasonable opinion of
the Company, would materially diminish, taken as a whole, the Company's rights
or protections under this Agreement.
10.4 SALE OF SHARES NOT ENJOINED. The sale of the Preferred Shares by the
Company shall not have been enjoined (temporarily or permanently) as of the
Closing Date.
10.5 STOCKHOLDER APPROVAL. At the Stockholders' Meeting, the stockholders
of the Company shall have approved (a) the Transaction Proposal by the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote on such proposal and (b) the Restated
Certificate Proposal by the affirmative vote of a majority of the votes entitled
to be cast by the holders of all outstanding shares Common Stock.
10.6 OTHER AGREEMENTS. The Restated Registration Rights Agreement shall
have been executed by the relevant parties (other than the Company) and
delivered to the Company, all actions required to have been taken thereunder on
or prior to the Closing hereunder shall have been accomplished (other than the
Closing under this Agreement).
10.7 OPINIONS OF COUNSEL. The Purchasers shall have delivered to the
Company opinions of counsel substantially in the form attached as Exhibit E
hereto.
SECTION 11. TERMINATION.
11.1 TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated (by written notice by the terminating party to the other
party) and the transactions contemplated hereby may be abandoned at any time
prior to the Closing Date:
(a) by mutual written consent of the Company and each of the
Purchasers;
(b) by either of the Purchasers or by the Company if the Closing shall
not have been consummated on or before February 1, 2000 (the "Termination
Date"); provided, however, that the right to terminate this Agreement under
this Section 11.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before the
Termination Date;
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(c) by either of the Purchasers or by the Company if a Governmental
Authority or arbitrator shall have issued an order, decree or ruling or
taken any other action (which order, decree or ruling the parties shall use
their commercially reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable;
(d) by the Company or either Purchaser if an FCC Order shall be
permanently and unconditionally denied;
(e) by either Purchaser if the Company shall have breached, or failed
to comply with, any of its obligations under this Agreement or any
representation or warranty made by the Company shall have been incorrect
when made or shall have since ceased to be true and correct, except for
Section 3.10(a) and (b) and for a threatened or pending suit, action,
proceeding, injunction or judgment that challenges the Transaction which is
covered in Section 9.10 and except as a result of actions or events
contemplated by this Agreement, and such breach, failure or
misrepresentation is not cured within 30 days after notice thereof and such
breaches, failures or misrepresentations, individually or in the aggregate,
result or would reasonably be expected to result in a Company Material
Adverse Effect, and by the Company if either Purchaser shall have breached,
or failed to comply with, in any material respect any of its obligations
under this Agreement or any representation or warranty made by either
Purchaser shall have been incorrect in any material respect when made or
shall have since ceased to be true and correct in any material respect, and
such breach, failure or misrepresentation is not cured within 30 days after
notice thereof and such breaches, failures or misrepresentations,
individually or in the aggregate, result or would reasonably be expected to
materially impair the ability of either of the Purchasers to consummate the
Transaction;
(f) by either Purchaser if the Board of Directors of the Company or
any committee of the Board of Directors of the Company (i) shall withdraw
or modify in any manner adverse to the Purchasers its approval or
recommendation of this Agreement, (ii) shall fail to reaffirm such approval
or recommendation within 10 days after either Purchaser's request, (iii)
shall approve or recommend that the stockholders of the Company approve any
Alternative Transaction, (iv) shall have (A) recommended that the
stockholders of the Company tender their shares in a tender offer or
exchange offer (other than by such Purchaser or an Affiliate thereof) or
(B) publicly announced its intention to take no position with respect to
such tender or exchange offer or (C) caused a registration statement to be
filed with respect thereto, or (v) shall resolve to take any of the actions
specified in this clause (f);
(g) by either of the Purchasers or the Company if the Stockholders
shall fail to approve the Proposals at the Stockholders' Meeting, including
any adjournments thereof;
(h) by the Company, at any time prior to adoption of this Agreement by
the Stockholders of the Company, if the Board of Directors of the Company
shall approve a Superior Proposal; provided, however, that (i) the Company
shall have complied with Section 7.3 (including subsections (b) and (c)
thereof) and (ii) the Company shall have made the payment of the
termination fee required by Section 11.2.
11.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement as provided in Section
11.1 hereof, this Agreement shall forthwith terminate and, except for
liabilities arising prior to or as a result of the termination, there shall be
no liability on the part of any of the parties, except as set forth in Sections
11.2(b) and 11.2(c) hereof.
(b) If this Agreement (i) is terminated by either Purchaser pursuant to
Section 11.1(f) hereof or by the Company pursuant to Section 11.1(h) hereof;
(ii) is terminated as a result of the Company's breach of Section 7.3 hereof
which is not cured within 10 days after notice thereof to the Company; or (iii)
is terminated by either of the Purchasers or by the Company pursuant to Section
11.1(g) and either (A) at the time of such termination pursuant to Section
11.1(g) or prior to the Stockholders' Meeting there shall have been an
Acquisition Proposal (whether or not such offer shall have been rejected or
shall have been withdrawn prior to the time of such termination or of the
Stockholders' Meeting), or (B) within one year after termination of the
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Agreement pursuant to Section 11.1(g) the Company shall have entered into an
agreement with respect to, or consummated, an Alternative Transaction, the
Company shall pay to the Purchasers (to be divided in proportion to the number
of Preferred Shares to be purchased by each) a cash termination fee of
$10,000,000 (the "Termination Fee") within one Business Day after such
termination or, in the case of 11.2(b)(iii)(B), within one Business Day after
entering into an agreement with respect to, or consummating, an Alternative
Transaction.
(c) If the Company fails to promptly pay the Termination Fee due under
Section 11.2(b), the Company shall pay the costs and expenses (including
reasonable legal and expert fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the Interest
Rate from the date such fee was required to be paid.
SECTION 12. MISCELLANEOUS.
12.1 NOTICES. All notices, demands, requests, certificates or other
communications under this Agreement shall be in writing and shall be
telegraphed, mailed by certified or registered mail with charges prepaid, hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by commercial courier guaranteeing next Business
Day delivery:
<TABLE>
<S> <C>
(a) if to the Company: Metricom, Inc.
980 University Avenue
Los Gatos, CA 95032
Attn: Timothy A. Dreisbach, President
and Chief Executive Officer
Phone: (408) 399-8637
Fax: (408) 399-8274
with a copy to: Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
Attn: Kenneth L. Guernsey
Phone: (415) 693-2091
Fax: (415) 951-3699
(b) if to the A1 Preferred MCI WorldCom, Inc.
Stock Purchaser: 3060 Williams Drive, Suite 600
Fairfax, VA 22031
Attn: Robert M. Finch, Vice President--
Strategic Development
Phone: (703) 206-5669
Fax: (703) 645-4637
with a copy to: MCI WorldCom, Inc.
10777 Sunset Office Drive, Suite 330
St. Louis, MO 63127
Attn: P. Bruce Borghardt, Esq.
General Counsel--Corporate Development
Phone: (314) 909-4100
Fax: (314) 909-4101
</TABLE>
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<TABLE>
<S> <C>
(c) if to Vulcan: Vulcan Northwest, Inc.
110 110th Avenue Northeast, Suite 550
Bellevue, WA 98004
Attn: William D. Savoy, President
Phone: (425) 453-1940
Fax: (425) 453-1985
with a copy to: Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attn: Alvin Segel, Esq.
Phone: (310) 203-7069
Fax: (310) 284-3052
</TABLE>
Any notice delivered after business hours or on a Saturday, Sunday or legal
holiday at the place designated in such delivery shall be deemed for purposes of
computing any time period hereunder to have been delivered on the next Business
Day.
12.2 EXPENSES. Each party shall bear its own expenses, including the fees
and expenses of any attorneys, accountants, investment bankers, brokers, finders
or other intermediaries or other Persons engaged by it, incurred in connection
with this Agreement or the other agreements contemplated hereby and the
Transaction.
12.3 BENEFITS; ASSIGNMENT. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the parties and their respective
successors and permitted assigns; however, except as expressly provided in this
Agreement, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned (a) by the Company under any
circumstances (other than as provided in Section 5.2) or (b) by either of the
Purchasers, except (i) to an Affiliate of such Purchaser, provided that the
Purchaser (A) shall remain liable for the performance by any such Affiliate of
its obligations under this Agreement, and (B) shall act as agent for any and any
such Affiliate in connection with the receipt or giving of any and all notices
under this Agreement and (ii) any Purchaser may assign its rights under the
Restated Registration Rights Agreement as provided therein. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
the parties hereto and their respective successors and permitted assigns any
rights, remedies or obligations under or by reason of this Agreement.
12.4 ENTIRE AGREEMENT; AMENDMENT AND WAIVER.
(a) This Agreement (which includes the Schedules and Exhibits hereto) and
the Restated Registration Rights Agreement constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof except for those
written agreements or understandings executed in writing by a duly authorized
officer of each party subsequent date hereof.
(b) This Agreement may not be amended, changed, supplemented, waived or
otherwise modified except by an instrument in writing signed by the party
against which enforcement is sought. Any waiver by any party hereto of a breach
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
12.5 HEADINGS. The headings in this Agreement are for convenience only and
shall not affect the construction hereof.
12.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE AS TO MATTERS BETWEEN
THE COMPANY AND ITS STOCKHOLDERS AND OTHER MATTERS OF CORPORATE GOVERNANCE AND,
AS TO ALL OTHER MATTERS, WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA AND
THE FEDERAL LAWS OF THE UNITED STATES.
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12.7 REMEDIES.
(a) The Company and each of the Purchasers acknowledges that the other
parties would not have an adequate remedy at law for money damages in the event
that any of the covenants or agreements of the other party in this Agreement
were not performed in accordance with its terms, and it is therefore agreed that
each of the Purchasers and the Company, in addition to and without limiting any
other remedy or right it may have, will have the right to an injunction or other
equitable relief in any court of competent jurisdiction, subject to Section
12.8, enjoining any such breach and enforcing specifically the terms and
provisions hereof, and each of the Purchasers and the Company hereby waive any
and all defenses it may have on the ground of lack of jurisdiction or competence
of the court to grant such an injunction or other equitable relief.
Notwithstanding anything to the contrary contained herein, any action that the
Company or the Board of Directors of the Company is required to take or is
prohibited from taking pursuant to an order of a court shall not give rise to a
breach of this Agreement, provided that (i) the Company is not prior to such
order in breach of this Agreement with respect to such action and (ii) the
Company has used reasonable efforts in good faith (including, without
limitation, the taking of any appropriate appeals) to resist the imposition of
such order.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
12.8 SUBMISSION TO JURISDICTION; WAIVERS. EACH OF THE PURCHASERS AND THE
COMPANY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF BROUGHT BY THE OTHER PARTY HERETO OR ITS SUCCESSORS OR ASSIGNS, MAY BE
BROUGHT AND DETERMINED IN THE SUPREME COURT OF THE STATE OF COLORADO IN DENVER,
COLORADO OR IN THE UNITED STATES DISTRICT COURT FOR COLORADO, AND EACH OF THE
PURCHASERS AND THE COMPANY HEREBY IRREVOCABLY SUBMITS WITH REGARD TO ANY SUCH
ACTION OR PROCEEDING FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, TO THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH
OF THE PURCHASERS AND THE COMPANY HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE, COUNTERCLAIM OR OTHERWISE, IN ANY ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE DEFENSE OF SOVEREIGN IMMUNITY,
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS FOR ANY REASON OTHER THAN THE FAILURE TO SERVE PROCESS IN
ACCORDANCE WITH THIS SECTION 12.8, THAT IT OR ITS PROPERTY IS EXEMPT OR IMMUNE
FROM JURISDICTION OF ANY SUCH COURT OR FROM ANY LEGAL PROCESS COMMENCED IN SUCH
COURTS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE),
AND TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THAT THE SUIT, ACTION OR
PROCEEDING IN ANY SUCH COURT IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE
OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT, OR THE
SUBJECT MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURTS AND FURTHER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
BENEFIT OF ANY DEFENSE THAT WOULD HINDER, FETTER OR DELAY THE LEVY, EXECUTION OR
COLLECTION OF ANY AMOUNT TO WHICH THE PARTY IS ENTITLED PURSUANT TO THE FINAL
JUDGMENT OF ANY COURT HAVING JURISDICTION. EACH OF THE PURCHASERS AND THE
COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED AIRMAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET
FORTH IN THIS AGREEMENT, SUCH SERVICE OF
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<PAGE> 81
PROCESS TO BE EFFECTIVE UPON ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED MAIL.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF EITHER PARTY TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE OTHER PARTY IN ANY OTHER JURISDICTION IN WHICH THE OTHER
PARTY MAY BE SUBJECT TO SUIT. THE PURCHASERS EXPRESSLY ACKNOWLEDGE THAT THE
FOREGOING WAIVER IS INTENDED TO BE IRREVOCABLE UNDER THE LAWS OF THE STATES OF
CALIFORNIA AND COLORADO AND OF THE UNITED STATES OF AMERICA, PROVIDED THAT THE
PURCHASERS' CONSENT TO JURISDICTION AND SERVICE CONTAINED IN THIS SECTION 12.8
IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS SECTION 12.8 AND SHALL NOT BE
DEEMED TO BE A GENERAL SUBMISSION TO SAID COURTS OR IN THE STATE OF COLORADO
OTHER THAN FOR SUCH PURPOSE.
12.9 SEVERABILITY. In the event that any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
12.10 EXECUTION AND DELIVERY. This Agreement may be executed and delivered
either originally by facsimile in one or more counterparts, each of which shall
be deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
12.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any
investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchasers herein and in any
certificates, schedules or statements furnished pursuant hereto shall survive
the execution of this Agreement and shall expire as of and be of no further
force or effect after the Closing.
12.12 WAIVER OF RIGHT TO SUBSCRIBE FOR ADDITIONAL SHARES. Pursuant to
Section 6.3 of that certain Common Stock Purchase Agreement, dated as of October
10, 1997, between the Company and Vulcan (the "Vulcan Agreement"), Vulcan hereby
waives any right it may have under the Vulcan Agreement, as a result of or in
connection with the Transaction, to receive further notice of the proposed
Transaction, to subscribe for or purchase any additional shares of capital stock
of the Company (other than the A2 Preferred Shares to be purchased in the
Transaction under this Agreement) or to purchase shares on different terms and
conditions.
12.13 VOTING OBLIGATION.
(a) Vulcan hereby agrees that, until the earlier to occur of (a) the
termination of this Agreement pursuant to Section 11.1 hereof (b) or the Closing
Date, it will vote all Voting Securities of the Company beneficially owned by it
in favor of the Proposals at the Stockholders' Meeting and against any
Alternative Transaction; provided, however, that this Section shall not preclude
Vulcan from voting any of its Voting Securities in favor of any proposals to
amend any Employee Stock Plans.
(b) Vulcan shall not sell, transfer or otherwise dispose of any of the
Voting Securities beneficially owned by it as of the date hereof prior to the
earlier to occur of (i) the termination of this Agreement pursuant to Section
11.1 hereof or (ii) the Closing Date; provided, however, that Vulcan shall not
be prohibited by this Section 12.13(b) from a disposition of any of its shares
if, in each case, the transferee of such shares agrees to be bound by this
Section 12.13 and agrees that such limitations shall apply to all of its
transferees.
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<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have executed this Preferred Stock
Purchase Agreement as of June 20, 1999.
METRICOM, INC.
By: /s/ TIMOTHY A. DREISBACH
------------------------------------
Name: Timothy A. Dreisbach
Title: President and Chief Executive
Officer
MCI WORLDCOM, INC.
By: /s/ JOHN W. SIDGMORE
------------------------------------
Name: John W. Sidgmore
Title: Vice Chairman
VULCAN VENTURES INCORPORATED
By: /s/ WILLIAM D. SAVOY
------------------------------------
Name: William D. Savoy
Title: President
SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT
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<PAGE> 83
APPENDIX B
RESTATED CERTIFICATE OF INCORPORATION
OF
METRICOM, INC.
Timothy A. Dreisbach and Dale W. Marquart hereby certify that:
ONE: The original name of this corporation is Metricom (Delaware), Inc.,
and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is October 24,
1991.
TWO: They are the duly elected and acting President and Secretary,
respectively, of Metricom, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of the corporation is METRICOM, INC. (the "Corporation" or the
"Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is two hundred thirty
million (230,000,000) shares, one hundred fifty million (150,000,000) shares of
which shall be Common Stock (the "Common Stock") and eighty million (80,000,000)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of one tenth of one cent ($0.001) per share and the
Common Stock shall have a par value of one tenth of one cent ($0.001) per share.
B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation (voting together on an as-if-converted basis).
C. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Restated Certificate of Incorporation, to fix or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and the number of shares
constituting any such Series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series prior or subsequent to
the issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
D. Thirty-six million (36,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series A1 Preferred Stock" (the "Series A1
Preferred") and thirty-six million (36,000,000) of the
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authorized shares of Preferred Stock are hereby designated "Series A2 Preferred"
(the "Series A2 Preferred").
E. The rights, preferences, privileges, restrictions and other matters
relating to the Series A1 Preferred are as follows:
1. DIVIDEND RIGHTS.
a. The holders of record of shares of Series A1 Preferred shall be entitled
to receive, when and as declared by the Board of Directors out of funds legally
available for the payment of dividends, cumulative dividends payable, at the
option of the Company, in cash or additional shares of Series A1 Preferred, at
the annual rate per share of six and one-half percent (6.5%) of the Original
Issue Price of the Series A1 Preferred (as adjusted for any stock dividend,
split, combination or other similar event with respect to such shares).
Dividends shall be payable annually, in arrears, on the 15(th) day of December
in each year (each such date being referred to herein as a "Series A1 Preferred
Dividend Payment Date"), commencing on the first Series A1 Preferred Dividend
Payment Date which is at least fifteen (15) days after the date that the first
share of Series A1 Preferred is issued. The rights of the holders of Series A1
Preferred to additional cumulative dividends under this paragraph (a) shall
terminate on the third anniversary of the date that the first share of Series A1
Preferred was issued (the "Series A1 Preferred Dividend Termination Date"). The
"Original Issue Price" of the Series A1 Preferred shall be ten dollars ($10.00).
Dividends payable to the holders of the Series A1 Preferred shall be payable
prior and in preference to any dividends to the holders of Series A2 Preferred
and Common Stock.
b. Dividends payable pursuant to paragraph (a) of this Section 1 shall
begin to accrue on each share of Series A1 Preferred on a daily basis and shall
be cumulative from the date that the first share of Series A1 Preferred is
issued (the "Series A1 Preferred Original Issue Date"), whether or not earned or
declared. The amount of dividends so payable shall be determined on the basis of
twelve (12) 30-day months and a 360-day year. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A1 Preferred in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares of the Series A1 Preferred at the time outstanding. The
Board of Directors may fix a record date for the determination of holders of
shares of Series A1 Preferred entitled to receive payment of a dividend declared
thereon, which record date shall be no more than sixty (60) days prior to the
date fixed for the payment thereof.
c. Unless accrued dividends payable pursuant to paragraph (a) on all
outstanding shares of Series A1 Preferred shall have been fully paid for all
past dividend periods and the full dividends thereon payable pursuant to
paragraph (a) for the dividend period current at the time shall have been paid
or declared and funds set apart therefor, no dividend shall be paid upon or
declared or set apart for the Series A2 Preferred or (except a dividend payable
in Common Stock) for the Common Stock (collectively, the "Junior Stock").
d. Following the Series A1 Preferred Dividend Termination Date, dividends
shall be payable on the Series A1 Preferred only when, as and if declared by the
Board of Directors. Except as otherwise set forth in this Section 1, holders of
Series A1 Preferred shall not be entitled to receive any dividends, whether in
cash or property.
2. VOTING RIGHTS.
a. GENERAL RIGHTS. The Series A1 Preferred shall not have any voting
rights, except as otherwise provided herein or as required by law.
b. SEPARATE VOTES OF SERIES A1 PREFERRED. For so long as more than seven
million five hundred thousand (7,500,000) shares of Series A1 Preferred (subject
to adjustment for any stock dividend, split, combination or other similar event
with respect to such shares) remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series A1 Preferred shall be necessary
for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of the
Restated Certificate of Incorporation of the Company (including any filing
of a Certificate of Designation), that alters or
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changes the voting powers, preferences, or other special rights or
privileges, or restrictions of the Series A1 Preferred so as to affect the
Series A1 Preferred adversely in a manner different from other classes or
series of stock;
(ii) Any issuance of any new class or series of stock or any other
equity securities of the Company, in each case ranking senior to the Series
A1 Preferred in right of liquidation preference or dividends or any
issuance of debt securities of the Company convertible into equity
securities of the Company at a conversion price below the Original Issue
Price of the Series A1 Preferred (as adjusted for any stock dividend,
split, combination or other similar event with respect to such shares);
(iii) Any redemption or repurchase of Junior Stock, except for (A)
acquisitions of Junior Stock (not to exceed one percent (1%) per year of
the total of the then-outstanding Common Stock of the Company, determined
on a fully diluted basis) by the Company at cost (plus an interest factor
not to exceed ten percent (10%) per annum if applicable), pursuant to
compensatory plans or agreements which permit the Company to repurchase
such shares upon termination of services to the Company or (B) redemptions
of the Series A2 Preferred pursuant to the terms of Section F.5. hereof; or
(iv) Any declaration or payment of any dividend on outstanding Common
Stock, unless funds legally available therefor are at least equal to the
net operating income of the Company reported in its audited financial
statements for its most recent fiscal year plus net operating income of the
Company reported in its unaudited financial statements for any subsequent
interim periods.
c. ELECTION OF BOARD OF DIRECTORS. For so long as more than seven million
five hundred thousand (7,500,000) shares of Series A1 Preferred remain
outstanding (as adjusted for any stock dividend, split, combination or other
similar event with respect to such shares) the holders of Series A1 Preferred,
voting as a separate class, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director; provided, however, that the holders of the outstanding
shares of Series A1 Preferred may waive such right from time to time and instead
may designate an observer who shall have the right to receive reasonable notice
of and to attend all meetings of the Company's Board of Directors and the
Committees thereof, other than any committee or other meeting of the Independent
Directors (as defined in Section V.A. hereof) or any meeting at which the Board
or any Committee thereof may discuss or consider any matter for which attendance
of such observer would not be in the best interests of the stockholders of the
Company as determined by the Company's Chief Executive Officer.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, before any distribution or payment shall be made to
the holders of any Junior Stock, the holders of Series A1 Preferred shall be
entitled to be paid out of the assets of the Company an amount per share of
Series A1 Preferred equal to the greater of (i) the Series A1 Preferred Original
Issue Price, plus all accrued but unpaid dividends on the Series A1 Preferred
(as adjusted for any stock dividend, split, combination, or other similar event
with respect to such shares) or (ii) the amount such holder would have received
if such share had been converted to Common Stock pursuant to Section 4 hereof,
for each share of Series A1 Preferred held by such holders. If, upon any such
liquidation, distribution or winding up, the assets of the Company shall be
insufficient to make payment in full to all holders of Series A1 Preferred of
the liquidation preference set forth in this Section 3(a), then such assets
shall be distributed among the holders of Series A1 Preferred at the time
outstanding, ratably in proportion to the full amounts to which each such holder
would otherwise be entitled.
b. After the payment of the full liquidation preference of the Series A1
Preferred as set forth in Section 3(a) above, the remaining assets of the
Company legally available for distribution, if any, shall be distributed to the
holders of Junior Stock in accordance with this Restated Certificate of
Incorporation.
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c. The following events shall be considered a liquidation under this
Section:
(i) any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior
to such consolidation, merger or reorganization, own less than fifty
percent (50%) (on an as-converted basis, assuming conversion of all
outstanding shares of Series A1 and Series A2 Preferred) of the Company's
voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions to
which the Company is a party in which in excess of fifty percent (50%) (on
an as-converted basis, assuming conversion of all outstanding shares of
Series A1 and Series A2 Preferred) of the Company's voting power is
transferred, excluding any consolidation or merger effected exclusively to
change the domicile of the Company (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially all of
the assets of the Company (an "Asset Transfer").
(iii) In any of such events, if the consideration received by the
Company is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall
be valued as follows:
(a) Securities not subject to investment letter or other similar
restrictions on free marketability covered by paragraph (b) below:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over the
30-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the 30-day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value shall be the
fair market value thereof, as determined by the Board of Directors.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in paragraphs (a)(1), (2) or
(3) to reflect the approximate fair market value thereof, as determined
by the Board of Directors.
4. CONVERSION.
The Series A1 Preferred shall be subject to the following provisions with
respect to the conversion of the Series A1 Preferred into shares of Common
Stock:
a. VOLUNTARY CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series A1 Preferred may, at any
time, at the option of the holder, be converted into fully paid and
nonassessable shares of Common Stock, subject to the following limitations:
no shares of Series A1 Preferred shall be convertible prior to the second
anniversary of the Series A1 Preferred Original Issue Date. Commencing on
the date that is six (6) months following such second anniversary,
twenty-five percent (25%) of the shares of Series A1 Preferred issued on
the Series A1 Preferred Original Issue Date shall become convertible into
Common Stock and, on each 6-month anniversary thereafter, an additional
twenty-five percent (25%) shall become convertible into Common Stock, until
all such shares shall have become convertible into Common Stock. Such right
to convert shall be allocated among the holders of Series A1 Preferred
ratably in accordance with their holdings of Series A1 Preferred.
Notwithstanding the above, the foregoing limitations shall terminate and be
of no further force or effect and all shares of the Series A1 Preferred
shall become immediately convertible at the option of the holder
immediately prior to the occurrence of a Change in Control of the Company
or a Major Acquisition by the Company (as defined elsewhere in this Section
4). The number of shares of Common Stock to which
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a holder of Series A1 Preferred shall be entitled upon conversion shall be
the product obtained by multiplying the "Series A1 Preferred Conversion
Rate" then in effect (determined as provided in Section 4(b)) by the number
of shares of Series A1 Preferred being converted.
b. SERIES A1 PREFERRED CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series A1 Preferred (the "Series A1
Preferred Conversion Rate") shall be the quotient obtained by dividing the
Original Issue Price of the Series A1 Preferred by the "Series A1 Preferred
Conversion Price," calculated as provided in Section 4(c).
c. SERIES A1 PREFERRED CONVERSION PRICE. The conversion price for the
Series A1 Preferred shall initially be the Original Issue Price of the
Series A1 Preferred (the "Series A1 Preferred Conversion Price"). Such
initial Series A1 Preferred Conversion Price shall be adjusted from time to
time in accordance with this Section 4. All references to the Series A1
Preferred Conversion Price herein shall mean the Series A1 Preferred
Conversion Price as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Series A1 Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
A1 Preferred, and shall give written notice to the Company at such office
that such holder elects to convert the same. Such notice shall state the
number of shares of Series A1 Preferred being converted. Thereupon, the
Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled and shall promptly pay (i) any accrued but
unpaid dividends on the shares of Series A1 Preferred being converted and
(ii) the value of any fractional share of Common Stock otherwise issuable
to any holder of Series A1 Preferred in cash (at the Common Stock's fair
market value determined by the Board of Directors as of the date of
conversion). Such conversion shall be deemed to have been made at the close
of business on the date of such surrender of the certificates representing
the shares of Series A1 Preferred to be converted, and the person entitled
to receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such shares of Common
Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company shall
at any time or from time to time after the Series A1 Preferred Original
Issue Date effect a subdivision of the outstanding Common Stock without a
corresponding subdivision of the Preferred Stock, the Series A1 Preferred
Conversion Price in effect immediately before that subdivision shall be
proportionately decreased. Conversely, if the Company shall at any time or
from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares without a
corresponding combination of the Preferred Stock, the Series A1 Preferred
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 4(e) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Series A1
Preferred Conversion Price that is then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as of
the close of business on such record date, by multiplying the Series A1
Preferred Conversion Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Series A1 Preferred Conversion
Price shall be recomputed accordingly as of the close of business on such
record date and thereafter the Series A1 Preferred
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Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect
the actual payment of such dividend or distribution.
g. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series A1 Preferred is changed
into the same or a different number of shares of any class or classes of
stock or other securities or property, whether by recapitalization,
reclassification or otherwise (other than an Acquisition or Asset Transfer
as defined in Section 3(c) or a subdivision or combination of shares or
stock dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), in any such event each holder of
Series A1 Preferred shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such
shares of Series A1 Preferred could have been converted immediately prior
to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
h. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at
any time or from time to time after the Series A1 Preferred Original Issue
Date, there is a capital reorganization of the Common Stock or a merger or
consolidation of the Company with or into, or a sale of all or
substantially all of the Company's assets to, another person, corporation
or other entity (other than an Acquisition or Asset Transfer as defined in
Section 3(c) or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere
in this Section 4), as a part of such capital reorganization, merger,
consolidation or sale of assets, provision shall be made so that the
holders of the Series A1 Preferred shall thereafter be entitled to receive
upon conversion of the Series A1 Preferred the number of shares of stock or
other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect
of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 4 with respect to the rights of the holders of Series A1
Preferred after the capital reorganization to the end that the provisions
of this Section 4 (including adjustment of the Series A1 Preferred
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A1 Preferred) shall be applicable after that event
and be as nearly equivalent as practicable.
i. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series A1 Preferred Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series A1 Preferred, if the Series A1 Preferred is then convertible
pursuant to this Section 4, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series A1 Preferred at the holder's address as shown
in the Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Series A1 Preferred
Conversion Price at the time in effect, and (ii) the type and amount, if
any, of other property which at the time would be received upon conversion
of the Series A1 Preferred.
j. NOTICES OF RECORD DATE. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any
Asset Transfer (as defined in Section 3(c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series A1 Preferred at least ten (10)
days prior to the earlier of the record date specified therein or the date
on which any such action is to become effective (or such shorter period
approved by a majority of the outstanding Series A1 Preferred) a notice
specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or
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distribution and a description of such dividend or distribution, (B) the
date on which any such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation
or winding up is expected to become effective, and (C) the date, if any,
that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable
upon such Acquisition, reorganization, reclassification, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or winding
up.
k. AUTOMATIC CONVERSION.
(i) Subject to Section 4(a), each share of Series A1 Preferred
shall automatically be converted into shares of Common Stock, based on
the then-effective Series A1 Preferred Conversion Price, immediately
upon the transfer of such share by the original purchaser of such share
from the Company to a transferee that is not a Purchaser or an Affiliate
of a Purchaser (as such terms are defined in the Preferred Stock
Purchase Agreement, dated as of June 20, 1999, between the Company and
the Purchasers named therein). Upon such automatic conversion, any
accrued but unpaid dividends shall be paid in accordance with the
provisions of Section 4(d).
(ii) Subject to Section 4(a), upon the occurrence of the event
specified in Section 4(k)(i) above, the applicable shares of Series A1
Preferred shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer
agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
such conversion unless the certificates evidencing such shares of Series
A1 Preferred are either delivered to the Company or its transfer agent
as provided below, or the holder notifies the Company or its transfer
agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the
Series A1 Preferred, the holders of Series A1 Preferred shall surrender
the certificates representing such shares at the office of the Company
or any transfer agent for the Series A1 Preferred. Thereupon, there
shall be issued and delivered to such holder promptly at such office and
in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock
into which the shares of Series A1 Preferred surrendered were
convertible on the date on which such automatic conversion occurred, and
any accrued but unpaid dividends shall be paid in accordance with the
provisions of Section 4(d).
l. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series A1 Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
share of Series A1 Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of any fractional share, the
Company shall, in lieu of issuing any fractional share, pay cash equal to
the product of such fraction multiplied by the Common Stock's fair market
value (as determined by the Board of Directors) on the date of conversion.
m. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of the Series A1 Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A1 Preferred. If at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of
the Series A1 Preferred, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
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n. NOTICES. Any notice required by the provisions of this Section 4
shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient;
if not, then on the next business day, (iii) five (5) days after having
been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the Company.
o. PAYMENT OF TAXES. The Company will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series A1 Preferred, excluding any tax or other charge imposed
in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Series A1 Preferred so converted were registered.
p. NO DILUTION OR IMPAIRMENT. Without the consent of the holders of
then outstanding Series A1 Preferred as required under Section 2(b), the
Company shall not amend its Restated Certificate of Incorporation or
participate in any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or take any other
voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate
in order to protect the conversion rights of the holders of the Series A1
Preferred against dilution or other impairment.
5. REDEMPTION.
a. The Company shall redeem, from any funds legally available therefor, all
of the outstanding shares of Series A1 Preferred on the date that is the tenth
anniversary of the Series A1 Preferred Original Issue Date (the "Series A1
Preferred Redemption Date"). The Company shall effect such redemption on the
Series A1 Preferred Redemption Date by paying in cash, in exchange for the
shares of Series A1 Preferred to be redeemed, a sum equal to the Original Issue
Price per share of Series A1 Preferred (as adjusted for any stock dividend,
split, combination or other similar event with respect to such shares), plus all
accrued but unpaid dividends on such shares (the "Series A1 Preferred Redemption
Price").
b. Within a reasonable time following a "Change in Control" of the Company
or a "Major Acquisition" by the Company, the Company shall provide written
notice (the "A1 Offer Notice"), by first class mail, postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of Series A1 Preferred offering to redeem such
shares at the option of the holder thereof and specifying a date not less than
twenty (20) nor more than forty (40) days following the date of such notice on
which the shares of Series A1 Preferred shall be redeemed (the "Optional Series
A1 Preferred Redemption Date"). Each holder of Series A1 Preferred shall
thereafter have the right to require the Company to redeem all, but not less
than all, of the shares of Series A1 Preferred then held by such holder. A
holder may exercise its right to require redemption of the Series A1 Preferred
held by it by notifying the Company in writing, within ten (10) days following
the date of the A1 Offer Notice by the Company, of its intent to exercise its
right. The Company shall redeem, on the Optional Series A1 Preferred Redemption
Date, all the shares of Series A1 Preferred of holders who have timely elected
to participate in the redemption. The Company shall effect such redemption on
the Optional Series A1 Preferred Redemption Date by paying in cash, in exchange
for the shares of Series A1 Preferred to be redeemed, a sum per share equal to
one hundred and one percent (101%) of the Original Issue Price of the Series A1
Preferred (as adjusted for any stock dividend, split, combination or other
similar event with respect to such shares), plus all accrued but unpaid
dividends on such shares (the "Optional Series A1 Preferred Redemption Price").
For the purposes hereof, a "Change of Control" of the Company shall mean an
event or series of related events as a result of which any "person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d) of the Securities
Exchange Act of 1934 as amended (the "Exchange Act")), other than Vulcan
Ventures Incorporated, MCI WorldCom, Inc. and their respective affiliates, (i)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of more than thirty percent (30%) of the outstanding equity
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securities of the Company (determined on a fully diluted basis) or (ii) acquires
the right to elect at least thirty percent (30%) of the Board of Directors of
the Company. For the purposes hereof, a "Major Acquisition" by the Company shall
mean the acquisition by the Company of more than fifty percent (50%) of the
outstanding equity securities or all or substantially all of the assets of any
corporation or other entity or the merger of the Company with another entity in
which the Company is the surviving entity, in each case, in consideration of the
issuance of equity securities of the Company which exceed, in the aggregate,
twenty-five percent (25%) of the outstanding equity securities of the Company,
determined on a fully diluted basis; provided, however, that a Major Acquisition
shall not include any acquisition of equity securities or assets of any entity
of which the Company owned, at the Series A1 Preferred Original Issue Date, at
least fifty percent (50%) of its outstanding equity securities or assets.
c. As used herein and in Sections 5(d) and 5(e) below, the term "A1
Redemption Date" shall refer to each of "Series A1 Preferred Redemption Date"
and the "Optional Series A1 Preferred Redemption Date," and the term "A1
Redemption Price" shall refer to each of "Series A1 Preferred Redemption Price"
and the "Optional Series A1 Preferred Redemption Price." At least twenty (20)
but no more than forty (40) days prior to each Series A1 Preferred Redemption
Date, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Series A1 Preferred to be redeemed, at
the address last shown on the records of the Company for such holder, notifying
such holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, the A1 Redemption Date, the A1 Redemption Price,
the place at which payment may be obtained and calling upon such holder to
surrender to the Company, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the "A1
Redemption Notice"). Except as provided in Section 5(d), on or after the A1
Redemption Date, each holder of Series A1 Preferred to be redeemed shall
surrender to the Company the certificate or certificates representing such
shares, in the manner and at the place designated in the A1 Redemption Notice or
A1 Offer Notice, and thereupon the A1 Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
d. From and after the A1 Redemption Date, unless there shall have been a
default in payment of the A1 Redemption Price, all rights of the holders of
shares of Series A1 Preferred designated for redemption in the A1 Redemption
Notice as holders of Series A1 Preferred (except the right to receive the A1
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Company legally
available for redemption of shares of Series A1 Preferred on any A1 Redemption
Date are insufficient to redeem the total number of shares of Series A1
Preferred to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably among
the holders of such shares to be redeemed based upon their holdings of Series A1
Preferred. The shares of Series A1 Preferred not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. If
any of the A1 Redemption Price shall remain unpaid on the A1 Redemption Date,
interest shall accrue on such unpaid amounts at the rate of eighteen percent
(18%) per annum or, if lower, at the highest rate permitted by law. At any time
thereafter when additional funds of the Company are legally available for the
redemption of shares of Series A1 Preferred, such funds will immediately be used
to redeem the balance of the shares which the Company has become obliged to
redeem on any A1 Redemption Date, but which it has not redeemed, and to pay any
interest thereon. No payment of the A2 Redemption Price or any interest thereon
shall be made so long as any of the A1 Redemption Price or any interest thereon
shall remain unpaid.
e. On or prior to each A1 Redemption Date, the Company shall deposit the A1
Redemption Price of all shares of Series A1 Preferred designated for redemption
in the A1 Redemption Notice and not yet redeemed with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust corporation to pay the A1 Redemption Price for
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such shares to their respective holders on or after the A1 Redemption Date upon
receipt of notification from the Company that such holder has surrendered his
share certificate to the Company pursuant to Section 5(d) above. As of the A1
Redemption Date, the deposit shall constitute full payment of the shares to
their holders, and from and after the A1 Redemption Date the shares so called
for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the A1 Redemption Price
of the shares, without interest, upon surrender of their certificates therefor.
Such instructions shall also provide that any funds deposited by the Company
pursuant to this Section 5(e) for the redemption of shares thereafter converted
into shares of the Company's Common Stock pursuant to Section 4 hereof prior to
the A1 Redemption Date shall be returned to the Company forthwith upon such
conversion. The balance of any funds deposited by the Company pursuant to this
Section 5(e) remaining unclaimed at the expiration of two (2) years following
the A1 Redemption Date shall thereafter be returned to the Company upon its
request expressed in a resolution of its Board of Directors.
6. NO REISSUANCE OF SERIES A1 PREFERRED.
No share or shares of Series A1 Preferred acquired by the Company by reason
of redemption, purchase, conversion or otherwise shall be reissued, and the
Board of Directors is authorized pursuant to Section 243 of the Delaware General
Corporation Law to retire any such share or shares. The retirement of any such
share or shares shall not reduce the total authorized number of shares of
Preferred Stock.
F. The rights, preferences, privileges, restrictions and other matters
relating to the Series A2 Preferred are as follows:
1. DIVIDEND RIGHTS.
a. The holders of record of shares of Series A2 Preferred shall be entitled
to receive, when and as declared by the Board of Directors out of funds legally
available for the payment of dividends, cumulative dividends payable, at the
option of the Company, in cash or additional shares of Series A2 Preferred, at
the annual rate per share of six and one-half percent (6.5%) of the Original
Issue Price of the Series A2 Preferred (as adjusted for any stock dividend,
split, combination or other similar event with respect to such shares).
Dividends shall be payable annually, in arrears, on the 15th day of December in
each year (each such date being referred to herein as a "Series A2 Preferred
Dividend Payment Date"), commencing on the first Series A2 Preferred Dividend
Payment Date which is at least fifteen (15) days after the date that the first
share of Series A2 Preferred is issued. The rights of the holders of Series A2
Preferred to additional cumulative dividends under this paragraph (a) shall
terminate on the third anniversary of the date that the first share of Series A2
Preferred was issued (the "Series A2 Preferred Termination Date"). The "Original
Issue Price" of the Series A2 Preferred shall be ten dollars ($10.00). Dividends
payable to the holders of the Series A1 Preferred shall be prior and in
preference to any dividends payable to the holders of Series A2 Preferred, and
dividends payable to the holders of Series A2 Preferred shall be prior and in
preference to any dividends payable to the holders of Common Stock.
b. Dividends payable pursuant to paragraph (a) of this Section 1 shall
begin to accrue on each share of Series A2 Preferred on a daily basis and shall
be cumulative from the date that the first share of Series A2 Preferred is
issued (the "Series A2 Preferred Original Issue Date"), whether or not earned or
declared. The amount of dividends so payable shall be determined on the basis of
twelve (12) 30-day months and a 360-day year. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A2 Preferred in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares of the Series A2 Preferred at the time outstanding. The
Board of Directors may fix a record date for the determination of holders of
shares of Series A2 Preferred entitled to receive payment of a dividend declared
thereon, which record date shall be no more than sixty (60) days prior to the
date fixed for the payment thereof.
c. Unless accrued dividends payable pursuant to paragraph (a) on all
outstanding shares of Series A2 Preferred shall have been fully paid for all
past dividend periods and the full dividends thereon for the dividend
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period current at the time shall have been paid or declared and funds set apart
therefor, no dividend (except a dividend payable in Common Stock) shall be paid
upon or declared or set apart for the Common Stock.
d. Following the Series A2 Preferred Dividend Termination Date, dividends
shall be payable on the Series A2 Preferred only when, as and if declared by the
Board of Directors. Except as otherwise set forth in this Section 1, holders of
Series A2 Preferred shall not be entitled to receive any dividends, whether in
cash or property.
2. VOTING RIGHTS.
a. GENERAL RIGHTS. The Series A2 Preferred shall not have any voting
rights, except as otherwise provided herein or as required by law.
b. SEPARATE VOTES OF SERIES A2 PREFERRED. For so long as more than seven
million five hundred thousand (7,500,000) shares of Series A2 Preferred (subject
to adjustment for any stock dividend, split, combination or other similar event
with respect to such shares) remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series A2 Preferred shall be necessary
for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of the
Restated Certificate of Incorporation of the Company (including any filing
of a Certificate of Designation), that alters or changes the voting powers,
preferences, or other special rights or privileges, or restrictions of the
Series A2 Preferred so as to affect the Series A2 Preferred adversely in a
manner different from other classes or series of stock;
(ii) Any issuance of any new class or series of stock or any other
equity securities of the Company, in each case ranking senior to the Series
A2 Preferred in right of liquidation preference or dividends or any
issuance of debt securities convertible into the equity securities of the
Company at a conversion price below the Original Issue Price of the Series
A2 Preferred (as adjusted for any stock dividend, split, combination or
other similar event with respect to such shares);
(iii) Any redemption or repurchase of Common Stock, except for
acquisitions of Common Stock (not to exceed one percent (1%) per year of
the total of the then-outstanding Common Stock of the Company, determined
on a fully diluted basis) by the Company at cost (plus an interest factor
not to exceed ten percent (10%) per annum if applicable), pursuant to
compensatory plans or agreements which permit the Company to repurchase
such shares upon termination of services to the Company; or
(iv) Any declaration or payment of any dividend on outstanding Common
Stock, unless funds legally available therefor are at least equal to the
net operating income of the Company reported in its audited financial
statements for its most recent fiscal year plus net operating income of the
Company reported in its unaudited financial statements for any subsequent
interim periods.
c. ELECTION OF BOARD OF DIRECTORS. For so long as more than seven million
five hundred thousand (7,500,000) shares of Series A2 Preferred remain
outstanding (as adjusted for any stock dividend, split, combination or other
similar event with respect to such shares) the holders of Series A2 Preferred,
voting as a separate class, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, before any distribution or payment shall be made to
the holders of any Common Stock, the holders of Series A2 Preferred shall be
entitled to be paid out of the assets of the Company an amount per share of
Series A2 Preferred equal to the greater of (i) the Series A2 Preferred Original
Issue Price, plus all accrued but unpaid dividends on the Series A2 Preferred
(as adjusted for any stock dividend, split, combination, or other similar event
with respect to such shares) or (ii) the amount such holder would have received
if such share had been converted to Common Stock pursuant to Section 4 hereof,
for each share of Series A2
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Preferred held by such holders. If, upon any such liquidation, distribution or
winding up, the assets of the Company shall be insufficient to make payment in
full to all holders of Series A2 Preferred of the liquidation preference set
forth in this Section 3(a), then such assets shall be distributed among the
holders of Series A2 Preferred at the time outstanding, ratably in proportion to
the full amounts to which each such holder would otherwise be entitled.
b. After the payment of the full liquidation preference of the Series A2
Preferred as set forth in Section 3(a) above, the remaining assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of Common Stock.
c. The following events shall be considered a liquidation under this
Section:
(i) an Acquisition; or
(ii) an Asset Transfer.
(iii) In any of such events, if the consideration received by the
Company is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall
be valued as follows:
(a) Securities not subject to investment letter or other similar
restrictions on free marketability covered by paragraph (b) below:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over the
30-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the 30-day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value shall be the
fair market value thereof, as determined by the Board of Directors.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in paragraphs (a)(1), (2) or
(3) to reflect the approximate fair market value thereof, as determined
by the Board of Directors.
4. CONVERSION.
The Series A2 Preferred shall be subject to the following provisions with
respect to the conversion of the Series A2 Preferred into shares of Common
Stock:
a. VOLUNTARY CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series A2 Preferred may, at any
time, at the option of the holder, be converted into fully paid and
nonassessable shares of Common Stock. The number of shares of Common Stock
to which a holder of Series A2 Preferred shall be entitled upon conversion
shall be the product obtained by multiplying the "Series A2 Preferred
Conversion Rate" then in effect (determined as provided in Section 4(b)) by
the number of shares of Series A2 Preferred being converted.
b. SERIES A2 PREFERRED CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series A2 Preferred (the "Series A2
Preferred Conversion Rate") shall be the quotient obtained by dividing the
Original Issue Price of the Series A2 Preferred by the "Series A2 Preferred
Conversion Price," calculated as provided in Section 4(c).
c. SERIES A2 PREFERRED CONVERSION PRICE. The conversion price for the
Series A2 Preferred shall initially be the Original Issue Price of the
Series A2 Preferred (the "Series A2 Preferred Conversion Price"). Such
initial Series A2 Preferred Conversion Price shall be adjusted from time to
time in
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accordance with this Section 4. All references to the Series A2 Preferred
Conversion Price herein shall mean the Series A2 Preferred Conversion Price
as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Series A2 Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
A2 Preferred, and shall give written notice to the Company at such office
that such holder elects to convert the same. Such notice shall state the
number of shares of Series A2 Preferred being converted. Thereupon, the
Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled and shall promptly pay (i) any accrued but
unpaid dividends on the shares of Series A2 Preferred being converted and
(ii) the value of any fractional share of Common Stock otherwise issuable
to any holder of Series A2 Preferred in cash (at the Common Stock's fair
market value determined by the Board of Directors as of the date of
conversion). Such conversion shall be deemed to have been made at the close
of business on the date of such surrender of the certificates representing
the shares of Series A2 Preferred to be converted, and the person entitled
to receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such shares of Common
Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company shall
at any time or from time to time after the Series A2 Preferred Original
Issue Date effect a subdivision of the outstanding Common Stock without a
corresponding subdivision of the Preferred Stock, the Series A2 Preferred
Conversion Price in effect immediately before that subdivision shall be
proportionately decreased. Conversely, if the Company shall at any time or
from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares without a
corresponding combination of the Preferred Stock, the Series A2 Preferred
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 4(e) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Series A2
Preferred Conversion Price that is then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as of
the close of business on such record date, by multiplying the Series A2
Preferred Conversion Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the
total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Series A2 Preferred Conversion
Price shall be recomputed accordingly as of the close of business on such
record date and thereafter the Series A2 Preferred Conversion Price shall
be adjusted pursuant to this Section 4(f) to reflect the actual payment of
such dividend or distribution.
g. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series A2 Preferred is changed
into the same or a different number of shares of any class or classes of
stock or other securities or property, whether by recapitalization,
reclassification or otherwise (other than an Acquisition or Asset Transfer
as defined in Section 3(c) or a subdivision or combination of shares or
stock dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), in any such event each holder of
Series A2 Preferred shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such
shares of Series A2 Preferred could have been converted immediately prior
to such
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recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
h. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at
any time or from time to time after the Series A2 Preferred Original Issue
Date, there is a capital reorganization of the Common Stock or a merger or
consolidation of the Company with, or a sale of all or substantially all of
the Company's assets to, another person, corporation or other entity (other
than an Acquisition or Asset Transfer as defined in Section 3(c) or a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 4), as a part
of such capital reorganization, merger, consolidation or sale of assets,
provision shall be made so that the holders of the Series A2 Preferred
shall thereafter be entitled to receive upon conversion of the Series A2
Preferred the number of shares of stock or other securities or property of
the Company to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4 with
respect to the rights of the holders of Series A2 Preferred after the
capital reorganization to the end that the provisions of this Section 4
(including adjustment of the Series A2 Preferred Conversion Price then in
effect and the number of shares issuable upon conversion of the Series A2
Preferred) shall be applicable after that event and be as nearly equivalent
as practicable.
i. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series A2 Preferred Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series A2 Preferred, if the Series A2 Preferred is then convertible
pursuant to this Section 4, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series A2 Preferred at the holder's address as shown
in the Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Series A2 Preferred
Conversion Price at the time in effect, and (ii) the type and amount, if
any, of other property which at the time would be received upon conversion
of the Series A2 Preferred.
j. NOTICES OF RECORD DATE. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any
Asset Transfer (as defined in Section 3(c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series A2 Preferred at least ten (10)
days prior to the earlier of the record date specified therein or the date
on which any such action is to become effective (or such shorter period
approved by a majority of the outstanding Series A2 Preferred) a notice
specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled
to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.
k. AUTOMATIC CONVERSION.
(i) Each share of Series A2 Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective
Series A2 Preferred Conversion Price, immediately upon the transfer of
such share by the original purchaser of such share from the Company to a
transferee that
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is not a Purchaser or an Affiliate of a Purchaser (as such terms are
defined in the Preferred Stock Purchase Agreement, dated as of June 20,
1999, between the Company and the Purchasers named therein). Upon such
automatic conversion, any accrued but unpaid dividends shall be paid in
accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in Section 4(k)(i)
above, the applicable shares of Series A2 Preferred shall be converted
automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A2 Preferred are either
delivered to the Company or its transfer agent as provided below, or the
holder notifies the Company or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such certificates. Upon the occurrence
of such automatic conversion of the Series A2 Preferred, the holders of
Series A2 Preferred shall surrender the certificates representing such
shares at the office of the Company or any transfer agent for the Series
A2 Preferred. Thereupon, there shall be issued and delivered to such
holder promptly at such office and in its name as shown on such
surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of Series
A2 Preferred surrendered were convertible on the date on which such
automatic conversion occurred, and any accrued but unpaid dividends
shall be paid in accordance with the provisions of Section 4(d).
l. Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A2 Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
share of Series A2 Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of any fractional share, the
Company shall, in lieu of issuing any fractional share, pay cash equal to
the product of such fraction multiplied by the Common Stock's fair market
value (as determined by the Board of Directors) on the date of conversion.
m. Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of the Series A2 Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A2 Preferred. If at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of
the Series A2 Preferred, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
n. Notices. Any notice required by the provisions of this Section 4
shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient;
if not, then on the next business day, (iii) five (5) days after having
been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the Company.
o. Payment of Taxes. The Company will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series A2 Preferred, excluding any tax or other charge imposed
in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Series A2 Preferred so converted were registered.
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p. No Dilution or Impairment. Without the consent of the holders of
then outstanding Series A2 Preferred as required under Section 2(b), the
Company shall not amend its Restated Certificate of Incorporation or
participate in any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or take any other
voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate
in order to protect the conversion rights of the holders of the Series A2
Preferred against dilution or other impairment.
5. REDEMPTION.
a. The Company shall redeem, from any funds legally available therefor, all
of the outstanding shares of Series A2 Preferred on the date that is the tenth
anniversary of the Series A2 Preferred Original Issue Date (the "Series A2
Preferred Redemption Date"). The Company shall effect such redemption on the
Series A2 Preferred Redemption Date by paying in cash, in exchange for the
shares of Series A2 Preferred to be redeemed, a sum equal to the Original Issue
Price per share of Series A2 Preferred (as adjusted for any stock dividend,
split, combination or other similar event with respect to such shares), plus all
accrued but unpaid dividends on such shares (the "Series A2 Preferred Redemption
Price").
b. Within a reasonable time following a "Change in Control" of the Company
or a "Major Acquisition" by the Company, the Company shall provide written
notice (the "A2 Offer Notice"), by first class mail, postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of Series A2 Preferred offering to redeem such
shares at the option of the holder thereof and specifying a date not less than
twenty (20) nor more than forth (40) days following the date of such notice on
which the shares of Series A2 Preferred shall be redeemed (the "Optional Series
A2 Preferred Redemption Date"). Each holder of Series A2 Preferred shall
thereafter have the right to require the Company to redeem all, but not less
than all, of the shares of Series A2 Preferred then held by such holder. A
holder may exercise its right to require redemption of the Series A2 Preferred
held by it by notifying the Company in writing, within ten (10) days following
the date of the A2 Offer Notice by the Company, of its intent to exercise its
right. The Company shall redeem, on the Optional Series A2 Preferred Redemption
Date, all the shares of Series A2 Preferred of holders who have timely elected
to participate in the redemption. The Company shall effect such redemption on
the Optional Series A2 Redemption Date by paying in cash, in exchange for the
shares of Series A2 Preferred to be redeemed, a sum per share equal to one
hundred and one percent (101%) of the Original Issue Price of the Series A2
Preferred (as adjusted for any stock dividend, split, combination or other
similar event with respect to such shares), plus all accrued but unpaid
dividends on such shares (the "Optional Series A2 Preferred Redemption Price").
For the purposes hereof, a "Change of Control" of the Company shall mean an
event or series of related events as a result of which any "person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d) of the Securities
Exchange Act of 1934 as amended (the "Exchange Act")), other than Vulcan
Ventures, Incorporated, MCI WorldCom, Inc. and their respective affiliates, (i)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of more than thirty percent (30%) of the outstanding equity
securities of the Company (determined on a fully diluted basis) or (ii) acquires
the right to elect at least thirty percent (30%) of the Board of Directors of
the Company. For the purposes hereof, a "Major Acquisition" by the Company shall
mean the acquisition by the Company of more than fifty percent (50%) of the
outstanding equity securities or all or substantially all of the assets of any
corporation or other entity or the merger of the Company with another entity in
which the Company is the surviving entity, in each case, in consideration of the
issuance of equity securities of the Company which exceed, in the aggregate,
twenty-five percent (25%) of the outstanding equity securities of the Company,
determined on a fully diluted basis; provided, however, that a Major Acquisition
shall not include any acquisition of equity securities or assets of any entity
of which the Company owned, at the Series A2 Preferred Original Issue Date, at
least fifty percent (50%) of its outstanding equity securities or assets.
c. As used herein and in Sections 5(d) and 5(e) below, the term "A2
Redemption Date" shall refer to each of "Series A2 Preferred Redemption Date"
and the "Optional Series A2 Preferred Redemption Date," and the term "A2
Redemption Price" shall refer to each of "Series A2 Preferred Redemption Price"
and the
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"Optional Series A2 Preferred Redemption Price." At least twenty (20) but no
more than forty (40) days prior to each A2 Redemption Date, written notice shall
be mailed, first class postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is given)
of the Series A2 Preferred to be redeemed, at the address last shown on the
records of the Company for such holder, notifying such holder of the redemption
to be effected, specifying the number of shares to be redeemed from such holder,
the A2 Redemption Date, the A2 Redemption Price, the place at which payment may
be obtained and calling upon such holder to surrender to the Company, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "A2 Redemption Notice"). Except as provided in
Section 5(d), on or after the A2 Redemption Date, each holder of Series A2
Preferred to be redeemed shall surrender to the Company the certificate or
certificates representing such shares, in the manner and at the place designated
in the A2 Redemption Notice or A2 Offer Notice, and thereupon the A2 Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
d. From and after the A2 Redemption Date, unless there shall have been a
default in payment of the A2 Redemption Price, all rights of the holders of
shares of Series A2 Preferred designated for redemption in the A2 Redemption
Notice as holders of Series A2 Preferred (except the right to receive the A2
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Company or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Company legally
available for redemption of shares of Series A2 Preferred on any A2 Redemption
Date are insufficient to redeem the total number of shares of Series A2
Preferred to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably among
the holders of such shares to be redeemed based upon their holdings of Series A2
Preferred. The shares of Series A2 Preferred not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. If
any of the A2 Redemption Price shall remain unpaid on the A2 Redemption Date,
interest shall accrue on such unpaid amounts at the rate of eighteen percent
(18%) per annum or, if lower, at the highest rate permitted by law. At any time
thereafter when additional funds of the Company are legally available for the
redemption of shares of Series A2 Preferred, such funds will immediately be used
to redeem the balance of the shares which the Company has become obliged to
redeem on any A2 Redemption Date, but which it has not redeemed, and to pay any
interest thereon. No payment of the A2 Redemption Price or any interest thereon
shall be made so long as any of the A1 Redemption Price or any interest thereon
shall remain unpaid.
e. On or prior to each A2 Redemption Date, the Company shall deposit the A2
Redemption Price of all shares of Series A2 Preferred designated for redemption
in the A2 Redemption Notice and not yet redeemed with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust corporation to pay the A2 Redemption Price for such shares
to their respective holders on or after the A2 Redemption Date upon receipt of
notification from the Company that such holder has surrendered his share
certificate to the Company pursuant to Section 5(d) above. As of the A2
Redemption Date, the deposit shall constitute full payment of the shares to
their holders, and from and after the A2 Redemption Date the shares so called
for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the A2 Redemption Price
of the shares, without interest, upon surrender of their certificates therefor.
Such instructions shall also provide that any funds deposited by the Company
pursuant to this Section 5(e) for the redemption of shares thereafter converted
into shares of the Company's Common Stock pursuant to Section 4 hereof prior to
the A2 Redemption Date shall be returned to the Company forthwith upon such
conversion. The balance of any funds deposited by the Company pursuant to this
Section 5(e) remaining unclaimed at the expiration of two (2) years following
the A2 Redemption Date shall thereafter be returned to the Company upon its
request expressed in a resolution of its Board of Directors.
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6. NO REISSUANCE OF SERIES A2 PREFERRED.
No share or shares of Series A2 Preferred acquired by the Company by reason
of redemption, purchase, conversion or otherwise shall be reissued, and the
Board of Directors is authorized pursuant to Section 243 of the Delaware General
Corporation Law to retire any such share or shares. The retirement of any such
share or shares shall not reduce the total authorized number of shares of
Preferred Stock.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted from time to time by the Board of Directors.
The directors shall be divided into three classes designated as Class I,
Class II and Class III, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the closing of
the Corporation's initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of the Common Stock of the corporation (the "Initial Public Offering"), the
term of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the
then-outstanding shares of voting stock of the corporation entitled to vote
generally in the election of directors (the "Voting Stock") voting together as a
single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the number
of directors shall, unless the Board of Directors determines by resolution that
any such newly created directorship shall be filled by the stockholders, be
filled only by the affirmative vote of the directors then in office, even though
less than a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified. Notwithstanding the foregoing, in the event of any vacancy on the
Board of Directors resulting from the resignation, death, disability, removal or
disqualification of any director serving on the Board of Directors both prior to
and immediately after the closing of the transactions contemplated by the Common
Stock Purchase Agreement, dated October 10, 1997, between the Company and the
purchaser named therein, or any successor thereto, or successor of such
successor (an "Independent Director"), a committee of the Board of Directors
consisting of the remaining Independent Directors shall, pursuant to Section
141(a) of the Delaware General Corporation Law, fill such vacancy by a majority
vote of such directors. Any director so elected by such committee shall be an
"Independent Director" for purposes of this paragraph.
B. The Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the
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Voting Stock. In furtherance and not in limitation of the power conferred by
statute, the Board of Directors is expressly authorized to adopt, amend,
supplement or repeal the Bylaws.
C. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
D. No action shall be taken by the stockholders of the Corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent;
provided, however, that notwithstanding anything to the contrary contained
herein, the stockholders may act without a meeting, without prior notice and
without a vote solely in the election of directors to fill vacancies on the
Board of Directors (other than a vacancy resulting from the resignation, death,
disability, removal or disqualification of any Independent Director).
E. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
F. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
VI.
A. The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent under applicable law.
B. The Corporation is authorized to provide indemnification of agents (as
defined in Section 145 of the Delaware General Corporation Law) for breach of
duty to the Corporation and its stockholders through bylaw provisions, through
agreements with the agents, and/or through stockholder resolutions, or
otherwise, in excess of the indemnification otherwise permitted by Section 145
of the Delaware General Corporation Law.
C. Any repeal or modification of this Article VI shall be prospective only
and shall not effect the rights under this Article VI in effect at the time of
the alleged occurrence of any action or omission to act giving rise to liability
or indemnification.
VII.
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal Article V, Article VII or
Article X.
VIII.
The Corporation is to have perpetual existence.
IX.
The Corporation elects not to be governed by Section 203 of the Delaware
General Corporation Law, as the same may be amended from time to time. This
election shall be effective as of the earliest date permitted by law.
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X.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in Article VII of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
* * * *
FOUR: This Restated Certificate of Incorporation has been duly approved by
the Board of Directors of this Corporation.
FIVE: This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and the
stockholders of the Corporation.
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IN WITNESS WHEREOF, METRICOM, INC. has caused this Restated Certificate of
Incorporation to be signed by the President and the Secretary in
, California this day of 1999.
METRICOM, INC.
By:
------------------------------------
Timothy A. Dreisbach
President
ATTEST:
By:
--------------------------------------------------------
Dale W. Marquart
Secretary
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APPENDIX C
J.P. MORGAN SECURITIES INC. LOGO
June 20, 1999
Independent Special Committee of the Board of Directors
Metricom Inc.
980 University Ave.
Los Gatos, CA 95032
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the Public Shareholders (as defined below) of Metricom Inc. (the
"Company") of the Investment (as defined below) for the securities to be issued
therefor pursuant to the terms of a proposed $600,000,000 convertible preferred
stock financing. It is our understanding that this financing consists of
$300,000,000 from a new investor, MCI WorldCom, Inc. ("MCI"), and an additional
$300,000,000 investment from an existing investor, Vulcan Ventures Incorporated
("Vulcan"), which has waived certain preemptive rights obtained in a previous
transaction in exchange for an invitation to participate in the Investment.
We understand that the Investment consists of (i) an investment by MCI of
$300,000,000 to receive Series A1 preferred stock at $10.00 per share; and (ii)
an investment by Vulcan of $300,000,000 to receive Series A2 preferred stock at
$10.00 per share. Upon consummation of the Investment, we understand that (i)
MCI will hold an approximately 37.3% equity stake in the Company; (ii) Vulcan
will hold an approximately 49.0% equity stake in the Company; and (iii) the
remaining shareholders (the "Public Shareholders") will hold an approximately
13.7% equity stake in the Company.
As more fully reflected in the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1999 and its annual report on Form 10-K for the year
ended December 31, 1998, the Company has experienced substantial challenges in
obtaining the capital required for its planned 46-city build-out of the
nationwide Ricochet2 system. The unavailability of funds has made it difficult
for the Company to form partnerships with suppliers and service providers on
favorable terms and has severely restricted the Company's access to credit
facilities and other forms of funding. Under current conditions and at the
present rate the Company is using cash, absent the infusion of capital to be
provided pursuant to the Investment or from another comparable transaction, the
Company's cash, cash equivalents and available financing will be insufficient to
satisfy its current operating loss and capital expenditure requirements past
June 1999. The Company's independent accountant, Arthur Andersen LLP, has
advised the Company's shareholders (through a qualifying statement appearing in
the most recent 10-K filing) that "the Company has suffered recurring losses
from operations and has a net working capital deficiency that raise substantial
doubt about its ability to continue as a going concern".
In arriving at our opinion, we have reviewed (i) the audited financial
statements of the Company for the fiscal year ended December 31, 1998, and the
unaudited financial statements of the Company for the quarter ended March 31,
1999; (ii) the Company management's financial forecasts; (iii) liquidation
estimates for certain assets of the Company provided by management of the
Company; (iv) a draft dated June 19, 1999 of the "Restated Certificate of
Incorporation of Metricom Inc." (the "Certificate"); (v) certain publicly
available information concerning the business of the Company and of certain
other companies engaged in businesses comparable to those of the Company; and
(vi) market prices of the common stock of the Company.
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In addition, we have held discussions with certain members of the
management of the Company and with Banc of America Securities LLC ("BAS"), the
Company's financial advisor, with respect to certain aspects of the Investment,
the past and current business operations of the Company, the financial condition
and future prospects and operations of the Company, the effects of the
Investment on the financial condition of the Company, the limited alternatives
Company management believes are available to the Company at this time, and
certain other matters we believed necessary or appropriate to our inquiry. We
have reviewed such other financial studies and analyses and considered such
other information as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or BAS or otherwise reviewed by
us, and we have not assumed any responsibility or liability therefor. We have
not conducted any valuation or appraisal of any assets or liabilities, nor have
any such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company. In this regard, we have
relied on the Company's current cash balance position and estimated monthly cash
flow needs assuming no equity capital infusion. We have also reviewed the
forecasts prepared by management assuming a minimum equity infusion by a
strategic partner to fund the roll-out of Ricochet2. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments with respect to the
Company, in the financial markets or otherwise may affect this opinion
(including any changes to the Certificate from the draft reviewed by us to the
definitive Certificate as ultimately adopted) and that we do not have any
obligation to update, revise, or reaffirm this opinion. We are expressing no
opinion herein as to the price at which the Company's stock will trade at any
time.
We have been advised by the Company's management that various alternative
transactions and courses of action other than the Investment have been
considered. We have also been advised that, beginning in November 1998, BAS
undertook, on behalf of the Company, to solicit indications of interest from
potential strategic and financial investors. We further understand that over
forty potential investors were identified and contacted; that meetings were held
with nine potential investors; and that this process resulted in two proposals,
including the Investment. We express no opinion as to the relative benefits of
the Investment compared to the potential relative benefits of any alternative
transaction or proposal, or the Company's decision to proceed with the
Investment rather than any alternative transaction or proposal.
As you are aware, we were not requested to, and did not, assist directly in
the negotiations concerning the Investment or provide advice concerning the
specific amount or form of the Investment. Consequently, we have assumed that
the terms of the proposed Investment are the most beneficial terms from the
Company's perspective that could under the circumstances be negotiated among the
parties, and no opinion is expressed whether any alternative transaction might
produce a more favorable transaction for the Company's Public Shareholders
relative to that contemplated by the Investment.
We are receiving a fee from the Company for our services. As you are aware,
we acted as a co-manager on a high yield offering for the Company that was not
consummated. As you are also aware, we or our affiliates provide financing
services to, and have entered into trading activities with, MCI. In the ordinary
course of their businesses, J.P. Morgan Securities Inc. and its affiliates may
actively trade the debt and equity securities of the Company and MCI for their
own account or for the accounts of customers and, accordingly, they may at any
time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the proposed Investment for the securities issued therefor is
fair, from a financial point of view, to the Company's Public Shareholders.
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This letter is provided to the Independent Special Committee of the Board
of Directors of the Company in connection with and for the purposes of its
evaluation of the Investment. This opinion does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should vote with
respect to the Investment.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ TODD R. MARIN
----------------------------------
Name: Todd R. Marin
Title: Managing Director
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APPENDIX D
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203. Business combinations with interested stockholders
(a) Notwithstanding any other provisions of this chapter, a corporation
shall not engage in any business combination with any interested stockholder for
a period of 3 years following the time that such stockholder became an
interested stockholder, unless:
(1) Prior to such time the board of directors of the corporation
approved either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder;
(2) Upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
(3) At or subsequent to such time the business combination is approved
by the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
(b) The restrictions contained in this section shall not apply if:
(1) The corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by this section;
(2) The corporation, by action of its board of directors, adopts an
amendment to its bylaws within 90 days of February 2, 1988, expressly
electing not to be governed by this section, which amendment shall not be
further amended by the board of directors;
(3) The corporation, by action of its stockholders, adopts an
amendment to its certificate of incorporation or bylaws expressly electing
not to be governed by this section; provided that, in addition to any other
vote required by law, such amendment to the certificate of incorporation or
bylaws must be approved by the affirmative vote of a majority of the shares
entitled to vote. An amendment adopted pursuant to this paragraph shall be
effective immediately in the case of a corporation that both (i) has never
had a class of voting stock that falls within any of the 3 categories set
out in subsection (b)(4) hereof, and (ii) has not elected by a provision in
its original certificate of incorporation or any amendment thereto to be
governed by this section. In all other cases, an amendment adopted pursuant
to this paragraph shall not be effective until 12 months after the adoption
of such amendment and shall not apply to any business combination between
such corporation and any person who became an interested stockholder of
such corporation on or prior to such adoption. A bylaw amendment adopted
pursuant to this paragraph shall not be further amended by the board of
directors;
(4) The corporation does not have a class of voting stock that is: (i)
Listed on a national securities exchange; (ii) authorized for quotation on
The NASDAQ Stock Market; or (iii) held of record by more than 2,000
stockholders, unless any of the foregoing results from action taken,
directly or indirectly, by an interested stockholder or from a transaction
in which a person becomes an interested stockholder;
(5) A stockholder becomes an interested stockholder inadvertently and
(i) as soon as practicable divests itself of ownership of sufficient shares
so that the stockholder ceases to be an interested stockholder; and (ii)
would not, at any time within the 3-year period immediately prior to a
business combination between the corporation and such stockholder, have
been an interested stockholder but for the inadvertent acquisition of
ownership;
(6) The business combination is proposed prior to the consummation or
abandonment of and subsequent to the earlier of the public announcement or
the notice required hereunder of a proposed transaction which (i)
constitutes one of the transactions described in the 2nd sentence of this
paragraph;
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(ii) is with or by a person who either was not an interested stockholder
during the previous 3 years or who became an interested stockholder with
the approval of the corporation's board of directors or during the period
described in paragraph (7) of this subsection (b); and (iii) is approved or
not opposed by a majority of the members of the board of directors then in
office (but not less than 1) who were directors prior to any person
becoming an interested stockholder during the previous 3 years or were
recommended for election or elected to succeed such directors by a majority
of such directors. The proposed transactions referred to in the preceding
sentence are limited to (x) a merger or consolidation of the corporation
(except for a merger in respect of which, pursuant to Section 251(f) of
this title, no vote of the stockholders of the corporation is required);
(y) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in 1 transaction or a series of transactions), whether as part
of a dissolution or otherwise, of assets of the corporation or of any
direct or indirect majority-owned subsidiary of the corporation (other than
to any direct or indirect wholly-owned subsidiary or to the corporation)
having an aggregate market value equal to 50% or more of either that
aggregate market value of all of the assets of the corporation determined
on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation; or (z) a proposed tender or exchange
offer for 50% or more of the outstanding voting stock of the corporation.
The corporation shall give not less than 20 days' notice to all interested
stockholders prior to the consummation of any of the transactions described
in clause (x) or (y) of the 2nd sentence of this paragraph; or
(7) The business combination is with an interested stockholder who
became an interested stockholder at a time when the restrictions contained
in this section did not apply by reason of any of paragraphs (1) through
(4) of this subsection (b), provided, however, that this paragraph (7)
shall not apply if, at the time such interested stockholder became an
interested stockholder, the corporation's certificate of incorporation
contained a provision authorized by the last sentence of this subsection
(b).
Notwithstanding paragraphs (1), (2), (3) and (4) of this subsection, a
corporation may elect by a provision of its original certificate of
incorporation or any amendment thereto to be governed by this section;
provided that any such amendment to the certificate of incorporation shall
not apply to restrict a business combination between the corporation and an
interested stockholder of the corporation if the interested stockholder
became such prior to the effective date of the amendment.
(c) As used in this section only, the term:
(1) "Affiliate" means a person that directly, or indirectly through 1
or more intermediaries, controls, or is controlled by, or is under common
control with, another person.
(2) "Associate," when used to indicate a relationship with any person,
means: (i) Any corporation, partnership, unincorporated association or
other entity of which such person is a director, officer or partner or is,
directly or indirectly, the owner of 20% or more of any class of voting
stock; (ii) any trust or other estate in which such person has at least a
20% beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same residence as such
person.
(3) "Business combination," when used in reference to any corporation
and any interested stockholder of such corporation, means:
(i) Any merger or consolidation of the corporation or any direct or
indirect majority-owned subsidiary of the corporation with (A) the
interested stockholder, or (B) with any other corporation, partnership,
unincorporated association or other entity if the merger or
consolidation is caused by the interested stockholder and as a result of
such merger or consolidation subsection (a) of this section is not
applicable to the surviving entity;
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in 1 transaction or a series of transactions), except
proportionately as a stockholder of such corporation, to or with the
interested stockholder, whether as part of a dissolution or otherwise,
of assets of the corporation or of any direct or indirect majority-owned
subsidiary of the corporation which assets have an aggregate market
value equal to 10% or more of either the aggregate market value of all
the assets of
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the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation;
(iii) Any transaction which results in the issuance or transfer by
the corporation or by any direct or indirect majority-owned subsidiary
of the corporation of any stock of the corporation or of such subsidiary
to the interested stockholder, except: (A) Pursuant to the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of such corporation or any such subsidiary
which securities were outstanding prior to the time that the interested
stockholder became such; (B) pursuant to a merger under Section 251(g)
of this title; (C) pursuant to a dividend or distribution paid or made,
or the exercise, exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of such corporation or any
such subsidiary which security is distributed, pro rata to all holders
of a class or series of stock of such corporation subsequent to the time
the interested stockholder became such; (D) pursuant to an exchange
offer by the corporation to purchase stock made on the same terms to all
holders of said stock; or (E) any issuance or transfer of stock by the
corporation; provided however, that in no case under items (C) - (E) of
this subparagraph shall there be an increase in the interested
stockholder's proportionate share of the stock of any class or series of
the corporation or of the voting stock of the corporation;
(iv) Any transaction involving the corporation or any direct or
indirect majority-owned subsidiary of the corporation which has the
effect, directly or indirectly, of increasing the proportionate share of
the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation or of any such
subsidiary which is owned by the interested stockholder, except as a
result of immaterial changes due to fractional share adjustments or as a
result of any purchase or redemption of any shares of stock not caused,
directly or indirectly, by the interested stockholder; or
(v) Any receipt by the interested stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of such
corporation), of any loans, advances, guarantees, pledges or other
financial benefits (other than those expressly permitted in
subparagraphs (i) - (iv) of this paragraph) provided by or through the
corporation or any direct or indirect majority-owned subsidiary.
(4) "Control," including the terms "controlling," "controlled by" and
"under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting stock, by
contract or otherwise. A person who is the owner of 20% or more of the
outstanding voting stock of any corporation, partnership, unincorporated
association or other entity shall be presumed to have control of such
entity, in the absence of proof by a preponderance of the evidence to the
contrary; Notwithstanding the foregoing, a presumption of control shall not
apply where such person holds voting stock, in good faith and not for the
purpose of circumventing this section, as an agent, bank, broker, nominee,
custodian or trustee for 1 or more owners who do not individually or as a
group have control of such entity.
(5) "Interested stockholder" means any person (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation) that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation, or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the 3-year period immediately
prior to the date on which it is sought to be determined whether such
person is an interested stockholder; and the affiliates and associates of
such person; provided, however, that the term "interested stockholder"
shall not include (x) any person who (A) owned shares in excess of the 15%
limitation set forth herein as of, or acquired such shares pursuant to a
tender offer commenced prior to, December 23, 1987, or pursuant to an
exchange offer announced prior to the aforesaid date and commenced within
90 days thereafter and either (I) continued to own shares in excess of such
15% limitation or would have but for action by the corporation or (II) is
an affiliate or associate of the corporation and so continued (or so would
have continued but for action by the corporation) to be the
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owner of 15% or more of the outstanding voting stock of the corporation at
any time within the 3-year period immediately prior to the date on which it
is sought to be determined whether such a person is an interested
stockholder or (B) acquired said shares from a person described in item (A)
of this paragraph by gift, inheritance or in a transaction in which no
consideration was exchanged; or (y) any person whose ownership of shares in
excess of the 15% limitation set forth herein is the result of action taken
solely by the corporation; provided that such person shall be an interested
stockholder if thereafter such person acquires additional shares of voting
stock of the corporation, except as a result of further corporate action
not caused, directly or indirectly, by such person. For the purpose of
determining whether a person is an interested stockholder, the voting stock
of the corporation deemed to be outstanding shall include stock deemed to
be owned by the person through application of paragraph (8) of this
subsection but shall not include any other unissued stock of such
corporation which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise.
(6) "Person" means any individual, corporation, partnership,
unincorporated association or other entity.
(7) "Stock" means, with respect to any corporation, capital stock and,
with respect to any other entity, any equity interest.
(8) "Voting stock" means, with respect to any corporation, stock of
any class or series entitled to vote generally in the election of directors
and, with respect to any entity that is not a corporation, any equity
interest entitled to vote generally in the election of the governing body
of such entity.
(9) "Owner," including the terms "own" and "owned," when used with
respect to any stock, means a person that individually or with or through
any of its affiliates or associates:
(i) Beneficially owns such stock, directly or indirectly; or
(ii) Has (A) the right to acquire such stock (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
provided, however, that a person shall not be deemed the owner of stock
tendered pursuant to a tender or exchange offer made by such person or
any of such person's affiliates or associates until such tendered stock
is accepted for purchase or exchange; or (B) the right to vote such
stock pursuant to any agreement, arrangement or understanding; provided,
however, that a person shall not be deemed the owner of any stock
because of such person's right to vote such stock if the agreement,
arrangement or understanding to vote such stock arises solely from a
revocable proxy or consent given in response to a proxy or consent
solicitation made to 10 or more persons; or
(iii) Has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except voting pursuant to a
revocable proxy or consent as described in item (B) of subparagraph (ii)
of this paragraph), or disposing of such stock with any other person
that beneficially owns, or whose affiliates or associates beneficially
own, directly or indirectly, such stock.
(d) No provision of a certificate of incorporation or bylaw shall require,
for any vote of stockholders required by this section, a greater vote of
stockholders than that specified in this section.
(e) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all matters with respect to this section.
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APPENDIX E
METRICOM, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED MARCH 14, 1997
APPROVED BY STOCKHOLDERS MAY 1, 1997
AMENDED BY THE BOARD OF DIRECTORS ON APRIL 29, 1998
APPROVED BY STOCKHOLDERS ON JUNE 26, 1998
AMENDED BY THE BOARD OF DIRECTORS ON
APPROVED BY STOCKHOLDERS ON
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means Metricom, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
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(i) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(j) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or The Nasdaq SmallCap Market, the
Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in Common Stock) on the last market trading day
prior to determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(s) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(u) "PLAN" means this 1997 Equity Incentive Plan.
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
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(w) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(x) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(y) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall
be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, or a combination of the foregoing; the provisions of each Stock
Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock
Award; and the number of shares with respect to which a Stock Award shall
be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one (1) or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate two million two hundred seventy-five thousand
(2,275,000) shares of Common Stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full (or vested in the case of Restricted Stock), the stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
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5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Stock Awards
covering more than four hundred thousand (400,000) shares of Common Stock in any
calendar year.
(d) A Consultant shall not be eligible for the grant of a Stock Award if,
at the time of grant, a Form S-8 Registration Statement under the Securities Act
("Form S-8") is not available to register either the offer or the sale of the
Company's securities to such Consultant because of the nature of the services
that the Consultant is providing to the Company, or because the Consultant is
not a natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (e.g., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities Act,
if applicable, and (ii) that such grant complies with the securities laws of all
other relevant jurisdictions.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted, and the
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to
the Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to
an assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or
(ii) at the discretion of the Board or Committee, at the time of the grant
of the Option, (A) by delivery to the Company of other Common Stock of the
Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of
other Common Stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d),
or (C) in any other form of legal consideration that may be acceptable to
the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment. In the case of any deferred payment arrangement, interest
shall be payable at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Code, of any amounts other than amounts stated
to be interest under the deferred payment arrangement.
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(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the
Incentive Stock Option is granted only by such person. A Nonstatutory Stock
Option may be transferred to the extent provided in the Option Agreement;
provided that if the Option Agreement does not expressly permit the
transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option
shall not be transferable except by will, by the laws of descent and
distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3, and shall be exercisable during the lifetime of
the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option
became vested but was not fully exercised. The Option may be subject to
such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of shares as
to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option within such period
of time designated by the Board, which shall in no event be later than the
expiration of the term of the Option as set forth in the Option Agreement
(the "Post-Termination Exercise Period") and only to the extent that the
Optionee was entitled to exercise the Option on the date Optionee's
Continuous Status as an Employee, Director or Consultant terminates. In the
case of an Incentive Stock Option, the Board shall determine the
Post-Termination Exercise Period at the time the Option is granted, and the
term of such Post-Termination Exercise Period shall in no event exceed
three (3) months from the date of termination, and may, in the event
Optionee's Continuous Status as an Employee, Director or Consultant
terminates for Cause (as defined in subsection 11(b)), terminate of the
date of such Optionee's termination. In addition, the Board may at any
time, with the consent of the Optionee, extend the Post-Termination
Exercise Period and provide for continued vesting; provided however, that
any extension of such period by the Board in excess of three (3) months
from the date of termination shall cause an Incentive Stock Option so
extended to become a Nonstatutory Stock Option, effective as of the date of
Board action. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement or as otherwise determined above,
the Option shall terminate, and the shares covered by such Option shall
revert to the Plan. Notwithstanding the foregoing, the Board shall have the
power to permit an Option to continue to vest during the Post-Termination
Exercise Period.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status
as an Employee, Director, or Consultant (other than upon the Optionee's
death or Disability) would result in liability under Section 16(b) of the
Exchange Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the Option Agreement, or
(ii) the tenth (10th) day after the last date on which such exercise would
result in such liability under Section 16(b) of the Exchange Act. Finally,
an Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (other than upon the Optionee's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities
Act, then the Option shall terminate on the earlier of
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(i) the expiration of the term of the Option set forth in the first
paragraph of this subsection 6(f), or (ii) the expiration of a period of
three (3) months after the termination of the Optionee's Continuous Status
as an Employee, Director or Consultant during which the exercise of the
Option would not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer
or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.
If, at the date of termination, the Optionee is not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion
of the Option shall revert to and again become available for issuance under
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become
available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a three (3)-month period after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised to the extent vested by the Optionee's estate, by a
person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period
ending on the earlier of (i) the date eighteen (18) months following the
date of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth
in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become
available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Any unvested
shares so purchased may be subject to a repurchase right in favor of the
Company or to any other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to
include as part of any Option Agreement a provision entitling the Optionee
to a further Option (a "Re-Load Option") in the event the Optionee
exercises the Option evidenced by the Option Agreement, in whole or in
part, by surrendering other shares of Common Stock in accordance with this
Plan and the terms and conditions of the Option Agreement. Any such Re-Load
Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall
have an expiration date which is the same as the expiration date of the
Option the exercise of which gave rise to such Re-Load Option; and (iii)
shall have an exercise price which is equal to one hundred percent (100%)
of the Fair Market Value of the Common Stock subject to the Re-Load Option
on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have
an exercise price which is equal to one hundred ten percent (110%) of the
Fair Market Value of the stock subject to the Re-Load Option on the date of
exercise of the original Option and shall have a term which is no longer
than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the
time of the grant of the original Option; provided, however, that the
designation of any Re-Load Option as an Incentive Stock Option shall be
subject to the one
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hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 10(d) of the Plan and in
Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and shall be subject to such other
terms and conditions as the Board or Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair
Market Value on the date such award is made. Notwithstanding the foregoing,
the Board or Committee may determine that eligible participants in the Plan
may be awarded stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of
descent and distribution or, if the agreement so provides, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3, so long
as stock awarded under such agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be
acceptable to the Board or Committee in its discretion; provided, however,
that at any time that the Company is incorporated in Delaware payment of
the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment. Notwithstanding the
foregoing, the Board or Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or
Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have
not vested as of the date of termination under the terms of the stock bonus
or restricted stock purchase agreement between the Company and such person.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
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commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom a
Stock Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's Bylaws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted, or
any person to whom a Stock Award is transferred in accordance with the Plan, as
a condition of exercising or acquiring stock under any Stock Award, (1) to give
written assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
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of the Company. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the maximum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of a Change in Control, (i) any surviving or acquiring
corporation shall assume Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii) in
the event any surviving or acquiring corporation refuses to assume such Stock
Awards or to substitute similar Stock Awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
as Employees, Directors or Consultants, the vesting of such Stock Awards and the
time during which such Stock Awards may be exercised shall be accelerated prior
to such event and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event.
In addition, subject to the limitation set forth in subsection 11(c) below,
with respect to any person who was providing services as an Employee, Director
or Consultant immediately prior to the consummation of the Change in Control,
any Stock Awards held by such persons shall immediately become fully vested and
exercisable, and any repurchase right by the Company with respect to shares
acquired by such person under a Stock Award shall lapse, if such person's
Continuous Status as an Employee, Director or Consultant is terminated other
than for Cause within twelve (12) months following consummation of the Change in
Control.
For purposes of the Plan, "Cause" shall mean willful conduct that is
materially injurious to the business of the person's employer, whether financial
or otherwise.
For purposes of this Plan, "Change in Control" means: (1) a dissolution,
liquidation, or sale of all or substantially all of the assets of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
(c) If any acceleration of the vesting of a Stock Award or lapse of a
repurchase right to which such Stock Award is subject or any other payment or
benefit the holder of such Stock Award would receive pursuant to a Change in
Control from the Company or otherwise ("Payment") would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be
subject to the excise tax imposed by Section 4999 of the Code
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(the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be either (x) the largest portion of the Payment that
would result in no portion of the Payment being subject to the Excise Tax or (y)
the largest portion, up to and including the total, of the Payment, whichever
amount, after taking into account all applicable federal, state and local
employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in the Stock Award holder's receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax. If a reduction
in payments or benefits constituting "parachute payments" is necessary so that
the Payment equals the Reduced Amount, reduction shall occur in the following
order unless the Stock Award holder elects in writing a different order
(provided, however, that such election shall be subject to Company approval if
made on or after the effective date of the Change in Control): reduction of cash
payments; cancellation of accelerated vesting of stock awards or lapse of
repurchase rights; reduction of employee benefits. In the event that
acceleration of vesting of stock award or lapse of repurchase right compensation
is to be reduced, such acceleration shall be cancelled in the reverse order of
the date of grant of the stock awards unless the Stock Award holder elect in
writing a different order for cancellation.
The accounting firm engaged by the Company for general audit purposes as of
the day prior to the effective date of the Change in Control shall perform the
foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Stock Award holder within fifteen (15) calendar days after
the date on which the Stock Award holder's right to a Payment is triggered (if
requested at that time by the Company or the Stock Award holder) or such other
time as requested by the Company or the Stock Award holder. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Stock Award holder with an opinion reasonably acceptable to the
Stock Award holder that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and the Stock Award
holder.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
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<PAGE> 121
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the date of adoption by the Board, but
no Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by the
Board.
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<PAGE> 122
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF METRICOM, INC.:
We have audited the accompanying consolidated balance sheets of Metricom,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1998
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metricom, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
February 1, 1999
<PAGE> 123
PROXY
METRICOM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1999
The undersigned hereby appoints TIMOTHY A. DREISBACH and DALE W.
MARQUART, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Metricom, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Metricom, Inc. to be held at the Company's offices located at
980 University Avenue, Los Gatos, California on Friday, October 15, 1999 at
10:00 a.m. (local time), and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4, 5, 6 AND 7 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(Continued and to be signed on reverse side)
1.
<PAGE> 124
[X] Please mark
votes as in
this example.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTOR LISTED BELOW AND
"FOR" PROPOSALS 2, 3, 4, 5, 6 AND 7.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
PROPOSAL 1: To elect Robert S. Cline and Justin L. Jaschke to hold office
until the 2002 Annual Meeting of Stockholders, Robert P. Dilworth,
Ralph Derrickson, Timothy A. Dreisbach to hold office until the
2001 Annual Meeting of Stockholders and William D. Savoy and David
M. Moore to hold office until the 2000 Annual Meeting of
Stockholders.
[ ] FOR all nominees [ ] WITHHOLD from all nominees
[ ]
___________________________________________________________________________
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
ABOVE:
PROPOSAL 2: To approve the Preferred Stock Purchase Agreement, dated as of
June 20, 1999, among MCI WORLDCOM, Inc., Vulcan Ventures
Incorporated and the Company and the issuance of Preferred Stock
and other transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve the restatement of the Company's Certificate of
Incorporation to authorize additional shares of Preferred Stock and
Common Stock and to make certain other changes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4: To approve the Company's 1997 Equity Incentive Plan, as amended,
to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 1,200,000 shares and to
make certain other changes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5: To approve the Company's 1991 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 200,000 shares and to
make certain other changes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 6: To approve the Company's 1993 Non-Employee Directors' Stock
Option Plan, as amended, to increase the aggregate number of shares
of Common Stock authorized for issuance under such plan by 200,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 7: To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] Mark here for
address change
and note below
DATED _________________ ________________________________________
________________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
2.
