SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant <checked-box>
Filed by a party other than the registrant <square>
Check the appropriate box:
<checked-box> Preliminary proxy statement
<square> Definitive proxy statement
<square> Definitive additional materials
<square> Soliciting material pursuant to Rule 14a-11 or Rule 14a-12
3NET SYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)
BOARD OF DIRECTORS
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (check the appropriate box):
<square> $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(I)(1), or 14a-
6(j)(2).
<square> $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(I)(3).
<square> Fee computed on table below per Exchange Act Rules 14a-6(I)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
(4) Proposed maximum aggregate value of transaction:
<square> Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of its
filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
3NET SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 1996
To Our Stockholders:
You are invited to attend the Annual Meeting of Stockholders of 3NET SYSTEMS,
INC., a Delaware corporation (the "Company"), to be held on Thursday,
November 21, 1996, at 10:00 a.m., local time, at 629 J Street, Sacramento,
California 95814, to consider and act upon the following matters:
1. To elect four directors.
2. To approve an amendment to Article Fourth of the Company's Amended
and Restated Certificate of Incorporation increasing the authorized
shares of Common Stock, par value $.01 per share, from 200,000,000
to 300,000,000.
3. To approve an amendment to Article Fourth of the Company's Amended
and Restated Certificate of Incorporation to provide for a one-for-
ten consolidation of the Company's outstanding Common Stock, par
value $.01 per share and to decrease the authorized number of shares
of Common Stock from 300,000,000 to 100,000,000.
4. To consider and act upon such other matters as may properly come
before the meeting.
Each of the above matters is more fully described in the accompanying Proxy
Statement.
Only stockholders of record at the close of business on October 23, 1996 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
In order that your shares may be represented at this meeting, please sign and
return the enclosed Proxy promptly. A return envelope, which requires no
postage, is enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
GEORGE R. VAN DERVEN
President and Chief Executive Officer
Sacramento, California
October 28, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE
PREPAID ENVELOPE. IF YOU ARE ABLE TO ATTEND THE MEETING AND WISH TO VOTE
YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANYTIME BEFORE THE PROXY IS EXERCISED.
<PAGE>
3NET SYSTEMS, INC.
629 J STREET
SACRAMENTO, CA 95814
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished to holders of Common Stock and Preferred
Stock of 3Net Systems, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation by the Company's Board of Directors of proxies
to be voted at the Annual Meeting of Stockholders to be held on Thursday,
November 21, 1996 or at any adjournment or postponement thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at 10:00 a.m. local time, at the
Company's principal executive office located at 629 J Street, Sacramento,
California 95814. A copy of the Company's Annual Report for the year ended
June 30, 1996 accompanies this Proxy Statement. The Company's Proxy Statement
and form of proxy are being mailed or delivered to stockholders of the Company
on approximately October 28, 1996.
If a stockholder has shares under an IRA arrangement, the enclosed proxy card
will serve as voting instructions for the shares held in an IRA as well as
shares registered solely in the stockholder's name.
VOTING SECURITIES
Only stockholders of record on the books of the Company at the close of
business on October 23, 1996 will be entitled to vote at the Annual Meeting.
At the close on that date, there were outstanding 200,000,000 shares of Common
Stock of the Company and 204,167 shares of Preferred Stock, Series D, of the
Company. Each share of Common Stock is entitled to one vote upon each of the
matters to be presented at the Annual Meeting. Each share of Preferred Stock,
Series D, is entitled to six votes upon each of the matters to be presented at
the Annual Meeting. The holders of Common Stock and Preferred Stock, Series
D, shall vote on each proposal as a class.
REQUIRED VOTE
The representation in person or by proxy of at least a majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
Annual Meeting. Abstentions and broker non-votes are counted as present in
determining whether the quorum requirement is satisfied. With regard to the
election of directors, votes may be cast "For" or "Withheld" each nominee;
votes that are withheld will be excluded entirely from the vote and will have
no effect. Abstentions may be specified on Proposals No. 2 and 3 (amendments to
the Certificate of Incorporation). Since the amendments to the Certificate of
Incorporation (Proposals No. 2 and 3 in this Proxy Statement) require the
approval of a majority of the outstanding shares of Common Stock and Preferred
Stock, Series D, voting as a class, abstentions will have the effect of a
negative vote. Brokers who hold shares in street name have the authority to
vote in their discretion on "routine" items when they have not received
instructions from beneficial owners. With respect to "non-routine" items, no
broker may vote shares held for customers without specific instructions from
such customers. Under Delaware law, a broker non-vote will have the same effect
as a vote against the proposed amendments to the Certificate of Incorporation
and will have no effect on the outcome of the election of directors.
REVOCABILITY OF PROXIES
Shares represented by a duly executed proxy in the accompanying form received
by the Board of Directors prior to the meeting will be voted at the meeting.
Any such proxy may be revoked at any time prior to exercise by written request
delivered to the Secretary of the Company stating that the proxy is revoked, by
the execution and submission of a later dated proxy, or by voting in person at
the Annual Meeting. If a stockholder specifies a choice with respect to any
matter to be voted upon by means of the ballot provided in the accompanying
form of proxy, the shares will be voted in accordance with the specification so
made. If the endorsed proxy does not specify how the shares represented thereby
are to be voted, the proxy will be voted as recommended by the Board of
Directors.
SOLICITATION OF PROXIES
The expense of soliciting proxies will be borne by the Company. The principal
solicitation of proxies is being made by mail and personal delivery. However,
additional solicitations may be made by telephone, telegram or other means by
directors, officers, employees or agents of the Company. No additional
compensation will be paid to these individuals for any such services.
In the case of employee stockholders located in the Company's principal office
in Sacramento, California, and in the case of certain other stockholders (see
"Certain Relationships and Related Transactions"), this Proxy Statement and
related materials may be hand delivered.
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
Four directors are to be elected at the Annual Meeting, each to serve until the
next Annual Meeting of Stockholders and until his successor shall be elected
and qualified or until his earlier death, resignation or removal. Currently
there are three members of the Board of Directors comprised of Messrs. Faust,
Lammerding and O'Neil. The four nominees receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected directors of the Company. If any nominee is not available for election
(which the Company does not foresee), the Board of Directors will recommend the
election of a substitute nominee and proxies in the accompanying form will be
voted for the election of the substitute nominee unless authority to vote such
proxies in the election of directors has been withheld.
The following table indicates certain information concerning the nominees.
NAME AGE PRINCIPAL OCCUPATION AT PRESENT AND FOR
PAST FIVE YEARS
Gerald W. Faust, Ph.D. 53 Director since June 1994; President of
Faust Management Corporation since October
1983; Adjunct Professor at the
University of California at Los Angeles
Graduate School of Management.
Dr. Faust is a member of the Board of
Directors of IMREG.
W. Robert Keen 54 Owner of Jonathan Companies, a management
and consulting company, since 1993;
President of Occupational-Urgent Care
Health Systems, Inc. from 1988 to 1992.
Mr. Keen is a member of the Advisory Board
of the U.C. Davis Graduate School of
Management and a Commissioner on the
Sacramento County Civil Service Commission.
Edward L. Lammerding 65 Director since November 1993, Chairman of
the Board since 1995; President of Sierra
Resources Corporation since
1982; Chairman of the Board of Digital
Power Corporation since 1989; member
California Lottery Commission and
member of the Board of Trustees, St.
Mary's College; Director and Secretary
of Occupational-Urgent Care Health Systems,
Inc. from September 1983 to February 1992
Thomas W. O'Neil, Jr. 66 Director since November 1995; Certified
Public Accountant; Partner, Schultze,
Wallace and O'Neil, CPA's since April
1991; Retired Partner, KPMG Peat Marwick,
1955 to 1991; Director California
Exposition and State Fair and Sacramento
Regional Foundation; Chairman, Regional
Credit Association.
COMMITTEES OF THE BOARD; MEETINGS AND ATTENDANCE
The Company has a Compensation Committee, Audit Committee and Management
Committee. The Company does not have a nominating committee.
The Compensation Committee consisted of Messrs. Lammerding and O'Neil during
the fiscal year ended June 30, 1996. The Compensation Committee held one
meeting in fiscal 1996. Its function is to establish compensation for all
executive officers of the Company and administer the Company's Special Stock
Option Plan, 1993 Stock Option/Stock Issuance Plan and Employee Savings Plan.
The Audit Committee consisted of Messrs. Faust and O'Neil in fiscal 1996 and
held one meeting during fiscal 1996. The Audit Committee provides advice and
assistance regarding accounting, auditing and financial reporting practices of
the Company. It reviews, with the Company's independent accountants, the scope
and result of their audit, fees for services and independence in servicing the
Company. The Management Committee consisted of Messrs. Faust and Lammerding in
fiscal 1996 and held no meetings during fiscal 1996. The Management Committee
may exercise all the authority of the Board of Directors in management of the
Company, except for matters expressly reserved by law for action by the Board
of Directors.
During fiscal 1996, the Board of Directors met twelve times. During this
period, there were no members of the Board of Directors who attended fewer than
seventy-five percent of the meetings of the Board of Directors and all
committees of the Board on which they served.
<PAGE>
COMPENSATION OF DIRECTORS
Directors do not receive compensation for serving as such but each Director who
is not an employee of the Company is, upon their initial election or
appointment to the Board of Directors, automatically granted a stock option,
subject to 3 years vesting, to purchase 50,000 shares of Common Stock at an
exercise price equal to the fair market value on the date of the appointment or
election under the Company's 1993 Stock Option/Stock Issuance Plan.
Furthermore, beginning in the third year as a director, each director who is
re-elected to the Board of Directors will receive an automatic grant of a stock
option to purchase 10,000 shares of Common Stock, at an exercise price equal to
the fair market value on the date of reelection. Such subsequent grant of
10,000 shares shall continue each year of re-election until the plan expires in
2003.
PROPOSAL NO. 2
INCREASE IN AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
GENERAL
The Board of Directors of the Company has approved, and proposed for submission
for stockholders' approval, an amendment to Article Fourth of the Company's
Amended and Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock, par value $0.01, from 200,000,000 to
300,000,000 in order to permit the Company to meet its obligations under
conversion provisions of Preferred Stock, Series E. The number of authorized
shares of the Company's Preferred Stock will not be affected by the proposed
increase. As of the date of this Proxy Statement, the Company had 200,000,000
shares of Common Stock outstanding, and required 52,186,768 shares to be issued
to the former holders of Preferred Stock, Series E, who converted such
Preferred Stock into Common Stock. Approval of Proposal 2 will allow the
Company to meet its obligation to issue shares of Common Stock to those
shareholders who converted their Preferred Stock, Series E.
If the proposed amendment is approved by the holders of a majority of the
outstanding shares of Common Stock and Preferred Stock, Series E, Article
Fourth will read as follows:
"FOURTH: This Corporation is authorized to issue a total of Three
Hundred One Million Two Hundred Thousand (301,200,000) shares of
stock consisting of two classes of shares to be designated "Common
Stock" and "Preferred Stock," respectively. The number of shares of
Common Stock authorized to be issued is Three Hundred Million
(300,000,000), each with a par value of one cent ($0.01) and the
number of shares of Preferred Stock authorized to be issued is One
Million Two Hundred Thousand (1,200,000), each with a par value of
six dollars ($6.00). The Preferred Stock may be issued in series.
The board of directors is authorized to fix the number of shares of
any series of Preferred Stock and the designation of any such series
of Preferred Stock. The board of directors is also authorized to
determine, fix, alter or revoke the rights, preferences, privileges
and restrictions granted to and imposed upon the Preferred Stock or
any series thereof with respect to any wholly unissued class or
series of Preferred Stock, and within the limits and restrictions
stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series."
RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR this proposal.
PROPOSAL NO. 3
PROVIDE FOR A ONE-FOR-TEN CONSOLIDATION OF SHARES OF COMMON STOCK AND DECREASE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
GENERAL
The Board of Directors has approved, and proposed for submission of
stockholders' approval, an amendment to Article Fourth of the Company's Amended
and Restated Certificate of Incorporation to effect a one-for-ten consolidation
of the Company's issued and outstanding shares of Common Stock, par value $.01
and to decrease the number of authorized shares of Common Stock from
300,000,000 to 100,000,000.
If the proposed amendment is approved by the holders of a majority of the
outstanding shares of Common Stock and Preferred Stock, Series D, Article
Fourth will read as follows:
"FOURTH: This Corporation is authorized to issue a total of One
Hundred One Million Two Hundred Thousand (101,200,000) shares of
stock consisting of two classes of shares to be designated "Common
Stock" and "Preferred Stock," respectively. The number of shares of
Common Stock authorized to be issued is One Hundred Million
(100,000,000), each with a par value of one cent ($0.01) and the
number of shares of Preferred Stock authorized to be issued is One
Million Two Hundred Thousand (1,200,000), each with a par value of
six dollars ($6.00). The Preferred Stock may be issued in series.
The board of directors is authorized to fix the number of shares of
any series of Preferred Stock and the designation of any such series
of Preferred Stock. The board of directors is also authorized to
determine, fix, alter or revoke the rights, preferences, privileges
and restrictions granted to and imposed upon the Preferred Stock or
any series thereof with respect to any wholly unissued class or
series of Preferred Stock, and within the limits and restrictions
stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
Each ten (10) issued and outstanding shares of Common Stock
of this Corporation shall hereby be combined into one (1)
share of validly issued, fully paid and non-assessable share
of Common Stock par value $0.01 per share. Each person as of
[the date that this amendment is filed] holding of record any
issued and outstanding shares of Common Stock shall receive
upon surrender to the Company's transfer agent a stock
certificate or certificates to evidence and represent the
number of shares of post-consolidation Common Stock to which
such shareholder is entitled after giving effect to the
consolidation; provided, however, that all fractional shares
resulting therefrom shall be paid in cash."
The foregoing proposed amendment to the certificate of incorporation of the
Company was unanimously adopted by the Board of Directors who directed that it
be submitted for shareholder approval. The amendment will result in one share
of post-consolidated Common Stock ("New Common Stock") being received in
exchange for each ten presently issued and outstanding shares of Common Stock
("Old Common Stock").
The rights of the shares of the Common Stock before and after the proposed
consolidation will be the same and the proposed consolidation will not affect
any shareholders' proportionate equity interest in the Company or the rights,
preference or privileges of any shareholder, other than an immaterial
adjustment which may occur due to the purchase of any fractional shares of
Common Stock. Shares issuable pursuant to any outstanding stock options,
warrants and convertible securities will also be combined in the same ratio.
The Company currently has outstanding 204,167 shares of Preferred Stock, Series
D, with each share of Preferred Stock, Series D, convertible into such number
of shares of Common Stock as is determined by dividing $6.00 and accrued but
unpaid dividends by the Preferred Stock, Series D, conversion price, as defined
in the agreement, in effect on the conversion date. The Preferred Stock,
Series D, conversion price shall initially be $1.00 per share. In the event
this proposal 3 is adopted by the shareholders, including shareholders holding
Preferred Stock, Series D, the number of outstanding shares of Preferred Stock,
Series D, would not be reduced, but the conversion ratio of Preferred Stock,
Series D, will be adjusted for the one-for-ten consolidation of Common Stock.
Assuming that Proposal No. 2 in this Proxy Statement is approved by the
shareholders, the Company will be authorized to issue 300,000,000 shares of
Common Stock and 1,200,000 shares of Preferred Stock, of which 252,186,768
shares of Common Stock and 204,167 shares of Preferred Stock, Series D, are
issued and outstanding. Proposal 3 will effect a one-for-ten consolidation of
outstanding Common Stock and will decrease the authorized number of shares of
Common Stock from 300,000,000 to 100,000,000. There would be no effect on the
Preferred Stock, Series D, outstanding except for the conversion ratio
adjustment discussed above.
The following table illustrates the principal effects of the proposed
consolidation.
NUMBER OF PRIOR TO AFTER
SHARES OF PROPOSED PROPOSED
COMMON STOCK AMENDMENT {(1)} AMENDMENT
Authorized 300,000,000 100,000,000
Outstanding 252,186,768 25,218,676 (2)
Available for Future Issuance 47,813,232 74,781,324 (2)
(1) Based on Common Stock outstanding and reserved for issuance as of the
record date and assumes that shareholders approve Proposal No. 2.
(2) Subject to minor adjustment due to the purchase of fractional shares
resulting from the consolidation.
If as a result of the consolidation there remain fractional shares, the Company
shall purchase for cash such fractional shares based on the closing price of
the Common Stock as of the date the amendment is filed with the Secretary of
State of Delaware.
REASONS FOR THE PROPOSED CONSOLIDATION
The Board of Directors believes that the current per share price of the Common
Stock and the large number of shares of Common Stock outstanding may have had a
negative effect on the marketability of the existing Common Stock, the amount
and percentage of transaction costs paid by individual shareholders, and the
potential ability of the Company to raise capital by issuing additional shares
of Common Stock. The Board of Directors is hopeful that after the
consolidation the market will react positively and in such a fashion that the
price of the Company's Common Stock will rise and will no longer be considered
low-priced by the investment community. The Board of Directors recognizes that
the proposed consolidation will not, in itself, result in the Company's Common
Stock being categorized other than as a low-priced stock, and that the only
path to being categorized as other than a low-priced stock is sustained growth
and profitability, neither of which can be assured.
The Company believes there are several reasons why the proposed consolidation
may enhance the value of and marketability of the Common Stock. These reasons
are summarized as follows:
First, certain institutional investors have internal policies preventing the
purchase of low-priced stocks and many brokerage houses do not permit low-
priced stocks to be used as collateral for margin accounts. Further, a variety
of brokerage house policies and practices tend to discourage individual brokers
within those firms from dealing in low-priced stocks. Some of those policies
and practices pertain to the payment of broker's commissions and to time-
consuming procedures (including, but not limited to requiring branch manager
approval) that function to make the handling of low-priced stocks unattractive
to brokers or prevent brokers from purchasing low-priced stock rather than
looking to such factors as the underlying nature and quality of the issuer, and
its reported results and prospects for future profitability. Others require
the broker to obtain a non-solicitation letter from the client when a client
desires to purchase a low-priced stock.
Second, since the broker's commissions on low-priced stocks generally represent
a higher percentage of the stock price than commissions on higher-priced
stocks, the current share price of the Company's Common Stock can result in
individual shareholders paying transaction costs (commissions, mark-ups or
mark-downs) which are a higher percentage of their total share value than would
be the case if the Company's share price were substantially higher. This
factor is also believed to limit the willingness of institutions to purchase
Company Common Stock.
The Board of Directors is hopeful that the decrease in the number of shares of
Common Stock outstanding as a consequence of the proposed consolidation, and
the resulting anticipated increased price level, will encourage interest in the
Company's New Common Stock and possibly promote greater liquidity for the
Company's shareholders, although such liquidity could be adversely affected by
the reduced number of shares outstanding after the proposed consolidation.
Also, the increase in the price level of the New Common Stock as a consequence
of the proposed consolidation may be proportionately less than the decrease in
the number of shares outstanding. There can be no assurances that the per-
share price level of the New Common Stock immediately after the proposed
consolidation will be maintained for any period.
The Company's Common Stock is traded on the OTC Bulletin Board under the symbol
"TNET." On September 30, 1996, the high ask and low bid prices for the
Company's Common Stock was $0.20. There is no public market for Company's
Preferred Stock, Series D.
Set forth below are the high ask and low bids for the Common Stock of the
Company for each of the last eight quarters. The quotations are derived either
from the IDD Information Services, Tradeline Database or the National
Association of Securities Dealers, Inc. and reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions in the Common Stock.
PERIOD HIGH LOW
Quarter ending September 30, 1994 $2.25 $1.03
Quarter ended December 31, 1994 $1.56 $0.63
Quarter ended March 31, 1995 $1.56 $0.63
Quarter ended June 30, 1995 $0.91 $0.38
Quarter ended September 30, 1995 $0.63 $0.13
Quarter ended December 31, 1995 $0.19 $0.05
Quarter ended March 31, 1996 $0.13 $0.03
Quarter ended June 30, 1996 $0.28 $0.05
EXCHANGE OF STOCK CERTIFICATES
If the proposed amendment is approved by the shareholders, the Company will
file an amendment to its certificate of incorporation as soon as is practicable
after the Annual Meeting. The proposed consolidation will become effective
upon the filing of that amendment (the "Effective Date"). American Securities
Transfer & Trust, Inc. has been appointed exchange agent (the "Exchange Agent")
to act for shareholders in effecting the exchange of their certificates.
Shareholders will be notified and requested to surrender their certificates
representing shares of Old Common Stock to the Exchange Agent in exchange for
certificates representing shares of New Common Stock. Commencing with the
Effective Date, however, each certificate representing shares of Old Common
Stock will be automatically deemed, without any action on the part of the
holders thereof, for all purposes to evidence ownership of shares of New Common
Stock.
No scrip or fractional share certificates of New Common Stock will be issued in
connection with the proposed consolidation. Shareholders who would otherwise
receive fractional shares will receive cash for such fractional shares.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the proposed consolidation are set forth
below. The following information is based upon existing law which is subject
to change by legislation, administrative action and judicial decision, and so
is necessarily general. Therefore, shareholders are advised to consult with
their own tax advisor(s) for more detailed information relating to their
individual tax circumstances.
1. The proposed consolidation will be a tax-free recapitalization for the
Company and its shareholders.
2. The shares of New Common Stock in the hands of a shareholder will have
an aggregate basis for computing gain or loss equal to the aggregate basis of
shares of Old Common Stock held by that shareholder immediately prior to the
proposed consolidation.
3. A shareholder's holding period for shares of New Common Stock will
include the holding period of shares of Old Common Stock exchanged therefore,
provided that the shares of Old Common Stock on the Effective Date were capital
assets in the hands of the shareholder.
4. To the extent that a shareholder receives cash in lieu of a fractional
share, the shareholder will recognize a gain or loss based on the difference
between the cash price and the shareholder's basis in the fractional share.
REGISTRATION AND TRADING
The New Common Stock will continue to be registered under the Securities
Exchange Act of 1934 and the Company will continue to file periodic reports
with the Securities and Exchange Commission. In addition, the shares of New
Common Stock will continue to be traded on the OTC Bulletin Board. The
Company currently has no intention of entering into a future transaction or
business combination the result of which would be deregistration of the New
Common Stock under the Securities Exchange Act of 1934.
USES OF AUTHORIZED SHARES AVAILABLE FOR FUTURE ISSUANCE
Any authorized shares of Common Stock or Preferred Stock may be issued in
connection with private placements, acquisitions, or stock compensation
arrangements as well as public offerings and settlements with creditors and
service providers. Such issuances may be effected by the Board of Directors
without further stockholder consent. The Company currently has no plans to
issue additional shares of Common Stock or Preferred Stock in connection with
any acquisitions. The issuance of additional shares may involve dilution of
the equity interests and voting power of existing stockholders.
POSSIBLE ANTI-TAKEOVER EFFECTS
The ability of the Company's Board of Directors to issue the authorized shares
of Common Stock or Preferred Stock to third parties without obtaining consent
of the stockholders may have the effect of discouraging persons from pursuing a
non-negotiated takeover of the Company and preventing certain changes in
control. The Board may issue, in the future, additional shares of Common or
Preferred Stock to finance the Company. At this time, however, the Company has
no agreements or understandings to do so.
VOTE REQUIRED AND BOARD OF DIRECTORS RESERVATION OF RIGHTS
Under Delaware law, approval of Proposal 3 requires the affirmative vote of at
least a majority of the outstanding shares of Common Stock and Preferred Stock,
Series, D, voting together as a class, of the Company. The Board of Directors
reserves the right, notwithstanding stockholders approval and without further
action by the stockholders, to not proceed with the share consolidation if at
any time prior to filing the Amendment to the Company's Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware, the Board of Directors, in its sole discretion, determines that the
share consolidation is no longer in the best interests of the Company and its
stockholders.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the Company's Amended and Restated Certificate of
Incorporation to effect the share consolidation.
RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR this Proposal 3.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERIES E PREFERRED STOCK
On November 18, 1994, the Company entered into a series of agreements for the
purchase of Series E Convertible Preferred Stock with James W. Cameron, Jr. and
Dr. Max Negri, two existing stockholders. The transaction included a debt to
equity conversion of $2,232,856 and an additional aggregate cash investment of
$1,215,004 in exchange for the issuance of 287,322 shares of Series E Preferred
Stock.
On December 1,1995, the holders of all the outstanding shares of the Company's
Series E Preferred Stock tendered those shares for conversion into 223,359,332
shares of the Company's Common Stock pursuant to the terms of the Series E
Preferred Stock Purchase Agreement. As of the conversion date, 200,000,000
common shares were authorized; therefore, 52,186,768 shares were recorded as
Common Stock to be issued until such time as the number of authorized shares
can be increased. See "Proposal 2."
PRIVATE PLACEMENT UNITS
In February 1995, the Cameron Foundation, an existing stockholder, purchased
1,050,000 units at $1.00 per unit, each unit consisting of one share of the
Company's Common Stock and a warrant to purchase one share of Common Stock at
an exercise price of $1.50 per share or $0.75 below the last trading price on
the date of the notice of exercise, whichever is lower. In March 1995 when the
trading price was under $0.75 the Cameron Foundation exercised its warrant for
no additional consideration.
FINANCING ARRANGEMENTS
Mr. Cameron is the guarantor of the Company's line of credit with a bank (the
"Continuing Guaranty"). As consideration for the execution of the Continuing
Guaranty, the Company entered into a Reimbursement Agreement with Mr. Cameron
pursuant to which a designee of Mr. Cameron received a warrant to purchase
100,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share. Pursuant to the Reimbursement Agreement, in the event that Mr. Cameron
is required to pay the bank any monies under the Continuing Guaranty, the
Company is required to repay Mr. Cameron the amount of each payment by either
1) paying an equal cash amount or 2) issuing to Mr. Cameron a non-convertible
note (the "Straight Note") in the principal amount of such payment by Mr.
Cameron, bearing interest at an interest rate equal to the interest rate of the
line of credit on the date of such payment and subject to adjustment when and
to the extent that the interest rate prevailing under the line of credit may
change.
Furthermore, under the terms of the Reimbursement Agreement, upon written
demand by Mr. Cameron, the Straight Note will be replaced by a convertible note
(the "Convertible Note") in a principal amount equal to the Straight Note and
bearing interest at the same rate. The conversion price of the Convertible
Note is equal to the "Applicable Percentage," as defined in the Reimbursement
Agreement, of the average trading price of the Company's Common Stock over the
period of ten trading days ending on the trading day next preceding the date of
issuance of such Convertible Note. The Applicable Percentage, which was
originally 50%, has been reduced to 20% per the terms of the Reimbursement
Agreement due to the Bank extending the maturity date of the line of credit.
The Applicable Percentage may not be reduced below 20%.
During fiscal 1996, the Company borrowed $738,752 from the Cameron Foundation
and the Negri Foundation, two existing stockholders, pursuant to three
unsecured promissory notes. All three notes mature on December 31, 1996 and
bear interest at 10.25%. Beginning in October 1996, the Company is required to
make monthly interest payments on the notes totaling $12,724.
OTHER
In July 1994, the Company entered into an interim working agreement with
Cameron & Associates, Inc., which is owned by Mr. Cameron & Dr. Negri, to
provide computer systems design, integration and operations in connection with
a Cameron & Associates, Inc. contract for provision of health care information
systems in Russia. In February 1995, the systems integration and detailed
design activities project was discontinued and the entire project was phased
out over a period of sixty days. The Company was reimbursed at cost for
expenditures incurred under this agreement.
Beginning in November 1995, the Company leased approximately 9,000 square feet
of office space from Mr. Cameron at $8,925 per month. The current lease
expires in November 1996.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based solely upon a review of copies of such forms received by it, the Company
believes that during fiscal 1996 all filing requirements applicable to
officers, directors and greater than ten percent stockholders were satisfied
except that Mr. O'Neil inadvertently failed to file a Form 3 on a timely basis
with respect to the grant of options to purchase shares of Common Stock
representing one transaction, and Messrs. Alexander, Faust and Van Derven each
inadvertently failed to file a Form 4 on a timely basis with respect to the
adjustment of the exercise price of existing options and grant of options to
purchase shares of Common Stock representing two transactions.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and one other executive officer for the years
ended June 30, 1996, 1995 and 1994. No other person made over $100,000 during
the fiscal year 1996.
Columns regarding "Bonus," "Restricted Stock Awards" and "Long-Term Incentive
Plan [LTIP] Payouts" are excluded because no reportable payments were made to
such executive officers for the relevant years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
<S> <C> <C> <C> <C> <C>
Annual Compensation Awards Payouts
Name and Fiscal Other Annual Options/ All Other
PRINCIPAL POSITION Year Salary ($) Compensation($) SARs (#) Compensation
George R. Van Derven, 1996 131,667 - 375,000(3) None
President and Chief and 1995 130,000 2,580(2) None None
Executive Officer (1) 1994 92,667 5,235(2) 700,000(3) None
James D. Alexander, 1996 108,000 - 270,000(4) None
Vice President of 1995 108,000 1,065(2) 50,000(4) None
Operations 1994 22,500 2,197(2) 200,000(4) None
</TABLE>
(1) Mr. Van Derven was elected Chief Executive Officer September 1, 1995,
prior to that date he was Chief Operating Officer.
(2) The Company paid expenses related to corporate housing for Messrs. Van
Derven and Alexander.
(3) The Company granted to Mr. Van Derven an option to purchase 375,000
shares of Common Stock at $0.078125 per share and adjusted the exercise
price of previously issued options to purchase 700,000 shares at
$0.078125 in April 1996.
(4) Mr. Alexander received an option to purchase 270,000 shares of Common
Stock at $0.078125 per share in April 1996. An option to purchase
50,000 shares at $1.00 per share was granted in October 1994, and in
April 1996 the exercise price of this option along with 200,000 other
options previously granted was adjusted to $0.078125 per share.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NAME Options/SARs Percent of total Exercise Expiration
GRANTED (#) options/SARs granted to Price ($/SH) Date
Employees in fiscal year
<S> <C> <C> <C> <C>
George R. Van Derven 375,000 22.5% $0.078125 4/10/2006
James D. Alexander 270,000 16.2% $0.078125 4/10/2006
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
No options were exercised in fiscal 1996 by any of the officers named in the
Summary Compensation Table. The following table sets forth the value of
unexercised options and SARs held by the named executives at fiscal year
end:
<TABLE>
<CAPTION>
NAME Shares Value Options/SARs Value of
Acquired Realized($) at Fiscal Unexercised in-the-
on Exercise # Year-End(#) Money Options/SARs
Exercisable(E)/ at Fiscal Year-
Subject to End(1)
Repurchase(U) Exercisable(E)/
Subject to
Repurchase(U)
<S> <C> <C> <C> <C>
George R. Van Derven 0 $0 700,000(E) $43,750(E)
375,000(U) $23,438(U)
James D. Alexander 0 0 250,000(E) $15,625(E)
270,000(U) $16,875(U)
</TABLE>
________________
(1) Based on the $0.14 per share final trading price of the Common Stock
at June 28, 1996.
SPECIAL STOCK OPTION PLAN
In June 1993 the Board of Directors adopted the 3Net Systems,
Inc. Special Stock Option Plan which authorizes 188,000 shares
of Common Stock for the grant of options. In June 1993 the
Board of Directors granted options with respect to 187,145
shares of Common Stock to approximately 43 employees. Options
to purchase 138,012 shares of Common Stock under the Special
Stock Option Plan were canceled through April 10, 1996, at
which time the remaining 49,133 options were canceled and
reissued under the 1993 Stock Option/Stock Issuance Plan. The
reissued options have a $0.078125 option price, the closing
market price on that day.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"),
pursuant to which key employees (including officers) and
consultants of the Company and the non-employee members of the
Board of Directors may acquire an equity interest in the
Company, was adopted by the Board of Directors and
Shareholders during 1993.
An aggregate of 4,000,000 shares of Common Stock are reserved
for issuance over the ten year term of the 1993 Plan.
However, no officer of the Company may be issued more than
2,000,000 shares of Common Stock under the 1993 Plan. The
1993 Plan contains three separate components: (i) a
Discretionary Option Grant Program under which key employees
and consultants may be granted options to purchase Common
Stock; (ii) an Automatic Option Grant Program under which
option grants will be made at periodic intervals to non-
employee Board members; and (iii) a Stock Issuance Program
under which eligible individuals may be issued shares of
Common Stock, either through immediate purchase or as a bonus
based on performance criteria. The 1993 Plan is administered
by the Compensation Committee. The shares issuable under the
1993 Plan will either be shares of the Company's authorized
but previously unissued Common Stock or shares of Common Stock
reacquired by the Company, including shares purchased on the
open market and held as treasury shares. As of June 30, 1996,
approximately 857,113 shares are available under the 1993 Plan
for grant.
During fiscal 1996, the Company granted options to purchase
375,000 and 270,000 shares of Common Stock for Messrs. Van
Derven and Alexander, respectively. In addition, during
fiscal 1996, Mr. O'Neil received options to acquire 50,000
shares of Common Stock pursuant to the Automatic Option Grant
Program of the 1993 Plan. Further, during fiscal 1996, the
Compensation Committee agreed to reprice previously granted
options to Messrs. Van Derven, Alexander and Faust of 700,000,
200,000, and 50,000 shares at $.078125 per share which
represented the closing price of the Company's Common Stock as
of that date.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS
The Company does not have and has not had any long-term
incentive plans.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON THE REPRICING OF OPTIONS
The Company currently has the Special Stock Option Plan and
the 1993 Stock Option/Stock Issuance Plan which are
administered by the Compensation Committee. The purposes of
these plans are to (1) align the interest of management,
employees, and shareholders to build shareholder value by
encouragement of consistent, long-term growth; (2) attract and
retain key executive officers essential to the long-term
success of the Company; (3) reward executive officers for
long-term corporate success by facilitating their ability to
acquire an ownership interest in the Company; (4) provide
direct linkage between the compensation payable to executive
officers and the Company's attainment of annual and long-term
financial goals and targets; and (5) emphasize regard for
performance at the individual and corporate level.
During fiscal 1995, the Company granted options to purchase
578,901 shares of the Company's Common Stock at exercise
prices ranging from $.625 to $1.00 per share to employees and
officers. Due to the poor financial condition of the Company,
the price of the Company's Common Stock substantially
decreased. As a result, many employees no longer felt that
they had a financial interest in the Company because their
options were "out of the money" and left the Company. In an
effort to retain quality employees, the Compensation
Committee, on April 10, 1996, repriced options to acquire
1,159,217 shares of Common Stock to $.078125 per share, the
closing market price that day. Of the 1,159,217 shares
repriced, 700,000 were attributed to Mr. Van Derven, 250,000
were attributed to Mr. Alexander, and 50,000 were attributed
to Dr. Faust.
Compensation Committee Members:
Edward L. Lammerding
Thomas W. O'Neil, Jr.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to (i)
the persons or entities known to the Company to be beneficial
owners of more than 5% of the Company's Common Stock and
Preferred Stock as of June 30, 1996, (ii) all directors of the
Company, (iii) all executive officers of the Company and (iv)
all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK
<S> <C> <C>
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER OF SHARES PERCENT(1)
James W. Cameron, Jr. 200,536,766 (2) 79.34%
629 J Street
Sacramento, CA 95814
Max Negri, M.D. 27,661,631 (3) 10.94%
31244 Palos Verdes Drive West
Suite 234
Rancho Palos Verdes, CA 90274
George R. Van Derven 1,075,000 (4) *
James D. Alexander 520,000 (5) *
Edward L. Lammerding 65,000 (6) *
Gerald W. Faust, Ph.D. 50,000 (7) *
Thomas W. O'Neil, Jr. 50,000 (8) *
All directors and executive officers 1,760,000 (9) *
as a group (5 persons)
</TABLE>
____________________
* Less than 1.0%.
(1) Based on a total of 252,186,768 shares of Common Stock outstanding
and to be issued as of June 30, 1996.
(2) Includes 548,402 shares issuable upon conversion of 76,167 shares of
Preferred Stock, Series D, and 15,000 shares issuable upon exercise
of warrants, all of which are currently convertible or exercisable.
Also includes 1,750,000 shares held by Mr. Cameron in an IRA and
2,132,500 shares held by the Cameron Foundation. Mr. Cameron
disclaims beneficial ownership in the shares held by the Cameron
Foundation.
(3) Includes 597,600 shares issuable upon conversion of 83,000 shares of
Preferred Stock, Series D, currently convertible.
(4) Includes 1,075,000 shares issuable upon exercise of options, 700,000
of which are not subject to repurchase.
(5) Includes 520,000 shares issuable upon exercise of options, 250,000
of which are not subject repurchase.
(6) Includes 50,000 shares issuable upon exercise of options of which
33,333 are not subject to repurchase, and 15,000 shares issuable upon
exercise of warrants held by Sierra Resources Corporation all of
which are currently exercisable.
(7) Includes 50,000 shares issuable upon exercise of options of which
33,333 are not subject to repurchase.
(8) Includes 50,000 shares issuable upon exercise of options of which
all are subject to repurchase.
(9) Includes 1,745,000 shares issuable upon exercise of options and
15,000 issuable upon exercise of warrants, 1,031,666 of which are not
subject to repurchase.
PREFERRED STOCK, SERIES D
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER OF SHARES PERCENT
James W. Cameron, Jr. 76,167 37.3
629 J Street
Sacramento, CA 95814
W. Robert Ramsdell 45,000 22.0
474 Paseo Miramar
Pacific Palisades, CA 90272
Max Negri, M.D. 83,000 40.7
31244 Palos Verdes Drive West
Suite 234
Rancho Palos Verdes, CA 90274
All directors and executive officers -0- -0-
as a group (5 persons)
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP, has been selected as the Company's
independent auditors for the year ended June 30, 1997.
Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and will be available to
respond to appropriate questions.
OTHER MATTERS
As of the date of this proxy statement, there are no other
matters which the Board of Directors intends to present or has
reason to believe others will present at the Annual Meeting of
Stockholders. If other matters properly come before the
Annual Meeting, those persons named in the accompanying proxy
will vote in accordance with their judgment.
RECENT EVENTS
On October 30, 1996, the SEC accepted 3Net's offer of
settlement whereby it has consented, without admitting or
denying liability, to a cease and desist order that it will
not commit or cause any future violation of certain Federal
securities laws.
As previously disclosed in its periodic filings with the SEC,
the settlement relates to allegations made by the SEC that
3Net, through prior management no longer associated with 3Net,
made certain misrepresentations concerning its medical
computer application systems and financial results in
connection with its public offering in August 1992.
1997 ANNUAL MEETING OF STOCKHOLDERS
Stockholders are entitled to present proposals for action at
stockholders' meetings if they comply with the requirements of
the proxy rules. In connection with this year's Annual
Meeting, no stockholder proposals were presented. Any
proposals intended to be presented at the 1997 Annual Meeting
must be received at the Company's offices on or before June
20, 1997 in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
GEORGE R. VAN DERVEN
President and Chief Executive Officer
Sacramento, California
October 28, 1996
<PAGE>
3NET SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders -- November 21, 1996
The undersigned stockholder of 3NET SYSTEMS, INC. (the
"Company"), revoking all previous proxies, hereby appoints
GEORGE R. VAN DERVEN and JAMES D. ALEXANDER, or any of them,
as proxies of the undersigned, and authorizes either or both
of them to vote all shares of the Company's Common Stock and
Preferred Stock held of record by the undersigned as of the
close of business on October 23, 1996 at the Annual Meeting of
Stockholders of the Company to be held on Thursday, November
21, 1995, at 10:00 a.m., local time, at 629 J Street,
Sacramento, California 95814, and at any adjournment(s) or
postponement(s) thereof (the "Annual Meeting"), according to
the votes the undersigned would be entitled to cast if then
personally present.
This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ALL OF THE
NOMINEES AND "FOR" PROPOSALS 2 AND 3 BELOW:
1. Election of Directors:
<square> FOR ALL NOMINEES LISTED BELOW (EXCEPT AS
SPECIFIED)
Gerald W. Faust, Ph.D.
W. Robert Keen
Edward L. Lammerding
Thomas W. O'Neil, Jr.
<square> WITHHOLD AUTHORITY FOR ALL NOMINEES
To withhold authority to vote for any individual nominee,
draw a line through that nominee's name.
2. A proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the Company's
authorized number of shares of Common Stock from 200,000,000
shares to 300,000,000 shares.
<square> <square> <square>
FOR AGAINST ABSTAIN
3. A proposal to amend the Company's Amended and Restated
Certificate of Incorporation to provide for a one-for-ten
consolidation of the Company's Common Stock and to decrease
the number of authorized shares of Common Stock from
300,000,000 to 100,000,000.
<square> <square> <square>
FOR AGAINST ABSTAIN
4. The authority of the proxy, in his discretion, to vote on
such other business as may properly come before the Annual
Meeting, or any adjournment(s) or postponement(s) thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF NOTICE OF
THE ANNUAL MEETING AND THE PROXY STATEMENT FURNISHED IN
CONNECTION THEREWITH. The undersigned also hereby ratifies all
that the said proxy may do by virtue hereof and hereby
confirms that this proxy shall be valid and may be voted
regardless of whether the stockholder's name is signed as set
forth below or a seal affixed or the descriptions, authority
or capacity of the person signing is given or any other defect
of signature exits.
DATED: , 1996
(Stockholder's Signature)
Print Name
(Stockholder's Signature)
Print Name
NOTE: PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT
IN THE ENCLOSED ENVELOPE. Please sign this Proxy
exactly as the name appears in the address below. If
shares are registered in more than one name, all owners
should sign. If signing in a fiduciary or representative
capacity, such as attorney-in-fact, executor,
administrator, trustee or guardian, please give full
title and attach evidence of authority. If signer is a
corporation, please sign the full corporate name and an
authorized officer should sign his name and title and
affix the corporate seal.
STOCKHOLDER'S ADDRESS:
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE REGARDLESS OF WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING.
