<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to____________
Commission File Number: 0-27658
PREFERRED NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 58-1954892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
850 Center Way, Norcross, GA 30071
(Address of principal executive offices)
(Zip Code)
(770) 582-3500
(Registrant's telephone number including area code)
5300 Oakbrook Parkway, Suite 320, Norcross, GA 30093
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 14,612,897 shares of common
stock, par value $.0001, as of November 7, 1996.
<PAGE> 2
PREFERRED NETWORKS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 30, 1996 (Unaudited)
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1996 and 1995(Unaudited) 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the nine months ended September 30, 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents.................................................... $ 20,883,718 $ 9,311,379
Accounts receivable, net..................................................... 1,738,330 923,890
Receivables from related parties............................................. 83,030 66,425
Pager inventory.............................................................. 2,033,544 1,068,970
Prepaid expenses and other current assets.................................... 735,412 386,648
------------ ------------
Total current assets....................................................... 25,474,034 11,757,312
Property and equipment, net..................................................... 17,467,119 6,885,022
Other assets, net............................................................... 8,065,615 1,403,385
------------ ------------
$ 51,006,768 $ 20,045,719
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable ............................................................ $ 1,845,567 $ 292,073
Accrued liabilities ......................................................... 1,540,705 341,604
Payables to related parties ................................................. -- 500
Accrued salaries ............................................................ 833,896 145,924
Current portion of notes payable ............................................ 609,138 2,605,627
------------ ------------
Total current liabilities ................................................ 4,829,306 3,385,728
Notes payable, less current portion ............................................ 5,393,601 2,807,398
Series A Redeemable Convertible Preferred Stock, $.01 par value,
$11 per share minimum redemption price; 159,377 shares
authorized in 1995; 159,377 shares issued and outstanding in 1995 ........... -- 2,437,890
Series B Redeemable Convertible Preferred Stock, $.01 par value,
$1,000 per share minimum redemption price; 21,000 shares
authorized in 1995; 16,565 shares issued and outstanding in 1995 ............ -- 19,220,921
------------ ------------
Total liabilities and Redeemable Convertible Preferred Stock ............. 10,222,907 27,851,937
Stockholders' equity (deficit)
Preferred stock, $.01 par value, 5,000,000 and 319,623 shares
authorized in 1996 and 1995, respectively; none issued or
outstanding ............................................................... -- --
Common stock, $.0001 par value, 70,000,000 shares authorized,
14,610,997 and 4,138,496 shares issued and outstanding in
1996 and 1995, respectively ............................................... 1,461 414
Additional paid-in capital .................................................. 51,800,496 1,013,981
Accretion on Series A and Series B Redeemable Convertible
Preferred Stock ........................................................... -- (3,289,003)
Accumulated deficit ......................................................... (11,018,096) (5,531,610)
------------ ------------
40,783,861 (7,806,218)
------------ ------------
$ 51,006,768 $ 20,045,719
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -------------------------
1996 1995 1996 1995
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Pager airtime .................................... $ 1,553,602 $ 983,773 $ 4,297,648 $ 2,376,488
Pager sales ...................................... 1,239,083 1,005,461 3,325,260 2,527,896
Maintenance and other ............................ 343,264 24,167 376,221 92,580
------------ ------------ ------------ ------------
3,135,949 2,013,401 7,999,129 4,996,964
Costs of revenues
Pager airtime .................................... 1,210,015 498,336 2,898,095 1,152,037
Pager sales ...................................... 1,651,410 1,310,241 4,320,129 3,194,607
Other ............................................ 119,362 -- 119,362 --
------------ ------------ ------------ ------------
155,162 204,824 661,543 650,320
Selling, general and administrative expenses ........ 2,321,821 826,775 5,461,667 1,854,747
Depreciation and amortization ....................... 635,788 195,701 1,398,489 489,104
------------ ------------ ------------ ------------
Operating loss ................................ (2,802,447) (817,652) (6,198,613) (1,693,531)
Interest expense .................................... 39,273 76,664 194,455 231,718
Interest income ..................................... 333,922 217,951 906,582 220,387
------------ ------------ ------------ ------------
Net Loss ...................................... (2,507,798) (676,365) (5,486,486) (1,704,862)
Accretion of Series A and Series B
Redeemable Convertible Preferred Stock ........... -- (75,049) (1,121,316) (82,391)
Series B Redeemable Convertible Preferred
Stock dividend requirements ...................... -- (502,517) (353,651) (551,531)
------------ ------------ ------------ ------------
Net loss attributable to Common Stock ......... $ (2,507,798) $ (1,253,931) $ (6,961,453) $ (2,338,784)
============ ============ ============ ============
Pro forma net loss per share of Common Stock ........ $ (.07) $ (.41) $ (.17)
============ ============ ============
Weighted average number of common shares
used in calculating pro forma net loss per
share of Common Stock ............................ 10,013,901 13,452,111 10,013,901
============ ============ ============
Historical net loss per share of Common Stock ....... $ (.17) $ (.13) $ (.46) $ (.25)
============ ============ ============ ============
Weighted average number of common shares
used in calculating historical net loss per
share of Common Stock ............................ 14,479,226 9,158,409 13,251,775 9,158,409
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Accretion of
Redeemable
Additional Convertible
Common Paid-in Preferred Accumulated
Stock Capital Stock (Deficit) Total
----- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ... $ 414 $ 1,013,981 $ (3,289,003) $ (5,531,610) $ (7,806,218)
Accretion of Series A and
Series B Redeemable
Convertible Preferred
Stock ................... -- -- (1,121,316) -- (1,121,316)
Dividends on Series B
Redeemable Convertible
Preferred Stock ......... -- (353,651) -- -- (353,651)
Issuance of Common Stock
upon Initial Public
Offering ................ 345 31,152,052 -- -- 31,152,397
Conversion of Series A and
Series B Redeemable
Convertible Preferred
Stock ................... 683 18,546,627 4,410,319 -- 22,957,629
Issuance of 9,800 shares of
Common Stock upon
exercise of stock options 1 9,505 -- -- 9,506
Issuance of 184,421 shares of
Common Stock pursuant
to acquisitions ......... 18 1,409,982 -- -- 1,410,000
Non-cash stock option
compensation ............ -- 22,000 -- -- 22,000
Net loss .................... -- -- -- (5,486,486) (5,486,486)
------ ------------ ------------ ------------ ------------
Balance at September 30, 1996 .. $1,461 $ 51,800,496 $ -- $(11,018,096) $ 40,783,861
====== ============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................................................... $(5,486,486) $(1,704,862)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................................ 1,398,489 489,104
Bad debt expense ............................................................. 164,287 88,742
Stock option compensation expense ............................................ 22,000 --
Changes in operating assets and liabilities:
Accounts receivable ........................................................ (978,727) (348,781)
Receivables from related parties ........................................... (16,605) (1,095)
Pager inventory ............................................................ (964,574) (383,332)
Prepaid expenses and other assets .......................................... (348,764) (36,393)
Accounts payable ........................................................... 1,553,494 307,240
Payables to related parties ................................................ (500) (5,781)
Accrued liabilities ........................................................ 299,101 (42,832)
Accrued salaries ........................................................... 687,972 44,788
----------- -----------
Net cash used in operating activities .......................................... (3,670,313) (1,593,202)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ......................................................... (5,345,534) (2,085,314)
Purchases of other assets ...................................................... (5,999,096) (1,212,266)
----------- -----------
Net cash used in investing activities .......................................... (11,344,630) (3,297,580)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings ....................................................... -- 2,278,869
Payments of borrowings ......................................................... (5,808,472) (1,474,568)
Issuance of Redeemable Convertible Preferred Stock ............................. -- 15,883,478
Net proceeds from initial public offering of Common Stock ...................... 31,152,397 --
Payment of Redeemable Convertible Preferred Stock dividends .................... (176,149) --
Issuance of Common Stock warrants .............................................. -- 83,750
Issuance of Common Stock upon exercise of stock options ........................ 9,506 --
Issuance of Common Stock pursuant to acquisitions .............................. 1,410,000 --
----------- -----------
Net cash provided by financing activities ...................................... 26,587,282 16,771,529
----------- -----------
Net increase in cash and cash equivalents ...................................... 11,572,339 11,880,747
Cash and cash equivalents, beginning of period ................................. 9,311,379 221,255
----------- -----------
Cash and cash equivalents, end of period ....................................... $20,883,718 $12,102,002
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
PREFERRED NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. THE COMPANY
Preferred Networks, Inc. (the "Company") commenced operations in July
1991 and is a carrier's carrier of exclusively wholesale one-way paging
network services. The Company's networks are currently operational in
the Southeast, Mid-Atlantic, Northeast and Midwest regions, and the
Company plans to expand its operations on a nationwide basis to provide
local and regional paging services, primarily on a common frequency, in
the 50 largest U.S. metropolitan markets and adjacent areas. The
Company's customers are organizations that offer the Company's network
services to their subscribers, including existing paging carriers and
resellers of paging services. As a carrier's carrier, the Company does
not market paging services directly to end users and therefore does not
compete with its customers.
In the third quarter of 1996, the Company began expanding its
carrier's carrier strategy to provide certain other outsourced services
to the wireless industry. By adding Preferred Technical Services, Inc.
in July, the Company now provides engineering and technical support
services to its customers. With the expected addition of EPS Wireless,
Inc. in the fourth quarter, the Company plans to provide product and
inventory management services to its customers.
The Company has formed wholly-owned subsidiaries to execute certain
business transactions. All significant intercompany activity has been
eliminated.
2. BASIS FOR PRESENTATION
The interim condensed consolidated financial information contained
herein has been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC")
and include in the opinion of management, all adjustments, which are of
a normal recurring nature necessary for a fair presentation of the
financial position, results of operations and cash flows for the
periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. These financial statements and related notes should be read
in conjunction with the financial statements and notes as of December
31, 1995, included in the Company's Registration Statement on Form S-1
(No. 33-80507) with respect to the sale of the Company's Common Stock.
Results of operations for the periods presented herein are not
necessarily indicative of results to be expected for the full year or
any other interim period.
Effective January 24, 1996, the Company amended its certificate
of incorporation to increase the authorized Common Stock to 70,000,000
shares, to reduce Common Stock par value to $.0001, and to provide a
7.35-for-1 Common Stock split. The number of authorized shares of
Preferred Stock was increased to 5,000,000, with terms and rights to be
determined. All common share and per common share amounts have been
adjusted for all periods to reflect the stock split.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include investments in money market
instruments, which are carried at fair market value. Cash payments made
for interest during the nine months ended September 30, 1996 and 1995,
were approximately $266,000 and $282,000, respectively. There were no
significant federal or state income taxes paid or refunded for the nine
months ended September 30, 1996 and 1995.
4. INITIAL PUBLIC OFFERING (IPO)
On March 1, 1996, the Company issued 3,300,000 shares of Common Stock
in a public offering. The Company received net proceeds before offering
expenses of $30.7 million. In addition, on March 28, 1996, the
underwriters exercised their over-allotment option to purchase an
additional 148,000 shares of Common Stock and the Company received
additional net proceeds of $1.4 million.
Pursuant to their terms, upon consummation of the IPO all
outstanding shares of Series A Redeemable Convertible Preferred Stock
(the "Series A") and Series B Redeemable Convertible Preferred Stock
(the "Series B") automatically converted into Common Stock. The Company
elected to pay accrued dividends on the Series B through January 31,
1996, in shares of Common Stock and the remainder of the accrued
dividends from February 1 to March 1, 1996, in the amount of $176,000
in cash. The total number of shares of Common Stock issued upon such
conversion and such dividend payment was 6,830,280 shares. All
accretion previously accrued was eliminated upon conversion to shares
of Common Stock.
7
<PAGE> 8
PREFERRED NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. INITIAL PUBLIC OFFERING (IPO) - CONTINUED
A portion of the proceeds of the IPO was used to repay all
debt then outstanding.
5. LOAN AGREEMENTS
All existing loan agreements were terminated and outstanding balances
repaid in March 1996, with funds received from the IPO.
In January 1996, the Company entered into a $12 million line of credit
with an equipment manufacturer, effective upon consummation of the IPO.
Debt outstanding under this agreement bears interest at the five-year
U.S. Treasury rate plus 6.5%, is payable in various monthly
installments of principal and interest with maturity dates through 2001
and is secured by paging equipment. At September 30, 1996, borrowings
were $3.4 million at 12.10% under this facility.
In March 1996, the Company entered into a $5 million line of credit
with a finance company. Interest on debt outstanding under this
agreement is based upon the prime rate plus 1.75%. This facility is
payable in various monthly installments of principal and interest, with
maturity dates through 2001. Borrowings under this agreement are
secured by paging equipment. At September 30, 1996, borrowings were
$2.6 million at 11% under this facility.
In August 1996, the Company entered into a $20 million revolving
credit facility with a financial institution, the majority of which
is to be used to finance paging network acquisitions and capital
expenditures. The outstanding balance under this facility bears
interest at a rate of prime plus 1% or at a rate of LIBOR plus 3.75%,
at the Company's option. Interest only is payable monthly in arrears
with the entire principal due in full in August 1998. Borrowings
under this facility and the other two credit facilities will be
secured by substantially all the assets of the Company. This new
credit facility contains various conditions, financial covenants and
restrictions. At September 30, 1996, there was no debt outstanding
under this facility.
6. LOSS PER SHARE
Pro forma net loss per share for periods prior to the IPO was computed
by dividing net loss by the weighted average number of shares of Common
Stock outstanding after giving retroactive effect to the mandatory
conversion of the Series A and the Series B into Common Stock, and the
related accrued dividends on the Series B through January 31, 1996,
paid in shares of Common Stock, which occurred upon the consummation of
the IPO, plus cheap stock as defined below. Pro forma net loss per
share for periods ending after the IPO is calculated as the sum of pro
forma net loss per share for the period from January 1, 1996 until the
March 1, 1996 IPO closing date plus historical net loss per share from
the IPO until March 31, 1996.
Historical net loss per share was computed using the requirements of
Accounting Principles Board Opinion No. 15 and SEC Staff Accounting
Bulletin No. 83 and as such equals the net loss increased by the
portion of accretion of the Series A which relates to shares which are
not considered as cheap stock, as defined below, and the dividends on
Series B divided by the weighted average number of shares of Common
Stock outstanding, plus cheap stock as defined below, up until the
March 1, 1996 closing date of the IPO. The calculation excludes any
antidilutive shares during the period, other than cheap stock. After
the IPO, historical and pro forma net loss per share are identical and
hence pro forma disclosures are not included after the IPO. Loss per
share is computed independently for each of the quarters presented.
Therefore, the sum of the quarterly loss per share does not equal the
year-to-date loss per share due to the stock transactions in 1996. See
note 4 and note 7.
Pursuant to SEC Staff Accounting Bulletin No. 83, common stock and
common stock equivalents (including preferred stock) issued at prices
equal to or below the IPO price per share ("cheap stock") during the
twelve-month period immediately preceding the initial filing date of
the Company's registration statement for the IPO have been included as
if outstanding for all periods presented, up until the March 1, 1996
closing date of the IPO (using the treasury stock method at the IPO
price) even though the effect is to reduce the loss per share. A
portion of the Series A, all of the Series B and certain of the stock
options and warrants have been treated as cheap stock.
8
<PAGE> 9
PREFERRED NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. LOSS PER SHARE - CONTINUED
Supplemental loss per common share is calculated using the weighted
average number of common and common equivalent shares outstanding
during the respective periods assuming the same number of shares
outstanding as described above, and also considering the reduction in
interest expense from the repayment of long term debt of $5.6 million
with proceeds of the IPO, as if such shares had been issued and
repayment had occurred at the beginning of the period or later if the
debt was not outstanding the entire period. The computations of
supplemental loss per share for the nine months ended September 30,
1996 are ($.44) for historical and ($.40) for pro forma.
Retroactive restatement has been made to all share, weighted average
shares and all loss per share calculations for the stock splits
effected in January 1996.
The computation of fully diluted historical net loss per share of
Common Stock was antidilutive in each of the periods presented;
therefore the amounts reported for primary and fully diluted are the
same.
7. ACQUISITIONS
In July 1996, the Company acquired the stock of Paging Services, Inc.
("PSI") for $750,000, paid by the issuance of 58,823 shares of Common
Stock and $250,000 in cash. The name of PSI was changed to Preferred
Technical Services, Inc. ("PTSI"), and PTSI operates as a wholly-owned
subsidiary of PNI. PTSI provides repair, maintenance and installation
services and equipment sales to paging carriers.
In September 1996, the Company completed the acquisition of
substantially all the assets of Big Apple Paging Corporation ("Big
Apple") for $2.6 million, $1.4 million of which was paid in cash and
the remainder of which was paid by the issuance of 125,598 shares of
Common Stock. Additional consideration of up to approximately $1.3
million, payable primarily in stock, could be due and payable by the
Company based on the operating performance of Big Apple's business
during the quarter ended September 30, 1996 plus subsequent collection
of the related receivables. The Company used working capital to fund
the cash portion of the acquisition. Big Apple is a reseller-based
paging carrier in the states of New York, New Jersey, and Connecticut.
In September 1996, the Company signed a definitive agreement to acquire
the stock of Mercury Paging & Communications, Inc. ("Mercury") and its
affiliated companies for approximately $14.0 million of which
approximately $10.0 million will be paid in cash and the balance in
Common Stock, subject to certain adjustments and possible additional
consideration based on Mercury's achievement of targeted operating
performance. Mercury presently serves, primarily through reseller
distribution, over 63,000 paging subscribers in the New Jersey, New
York and Southern Connecticut markets. The acquisition is subject to
various conditions, including Federal Communications Commission ("FCC")
approval and is expected to close in early 1997. Prior to closing, the
Company will provide certain services to Mercury under an agency
agreement. The Company intends to finance the majority of the cash
portion under its acquisition credit facility.
8. SUBSEQUENT EVENT
In November 1996, the Company signed a definitive agreement to acquire
the stock of EPS Wireless, Inc. ("EPS") for approximately $5.0 million,
subject to certain adjustments and possible additional consideration of
up to an additional $5.0 million based on EPS's achievement of targeted
operating performance during the two year period ending December 31,
1998. Of the purchase price, $4.5 million will be paid in shares of
Common Stock with the remainder to be paid in cash. EPS is a national
provider of pager and cellular product repair services. EPS also offers
product sourcing and sales of new and refurbished paging products,
inventory management and product fulfillment. EPS presently processes
more than 70,000 product units per month. The acquisition is subject to
various conditions including approval of the stockholders of EPS and is
expected to close in fourth quarter 1996.
9
<PAGE> 10
PREFERRED NETWORKS,INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Throughout this section, the Company makes reference to "EBITDA" which
represents earnings before interest expense, interest income, taxes,
depreciation and amortization. EBITDA is a financial measure commonly used in
the telecommunications industry and should not be construed as an alternative to
operating income (as determined in accordance with generally accepted accounting
principles ("GAAP")), as an alternative to cash flows from operating activities
(as determined in accordance with GAAP), or as a measure of liquidity.
The following table presents certain items in the Consolidated Statements
of Operations as a percentage of total revenues for the three months and
nine months ended September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Pager airtime 49.5 % 48.9 % 53.7 % 47.6 %
Pager sales 39.5 49.9 41.6 50.6
Maintenance and other 11.0 1.2 4.7 1.8
----- ----- ----- -----
100.0 100.0 100.0 100.0
Costs of revenues
Pager airtime 38.6 24.7 36.2 23.1
Pager sales 52.7 65.1 54.0 63.9
Other 3.8 -- 1.5 --
----- ----- ----- -----
4.9 10.2 8.3 13.0
Selling, general & administrative 74.0 41.1 68.3 37.1
Depreciation and amortization 20.3 9.7 17.5 9.8
----- ----- ----- -----
Operating loss (89.4) (40.6) (77.5) (33.9)
Interest expense 1.3 3.8 2.4 4.6
Interest income 10.7 10.8 11.3 4.4
----- ----- ----- -----
Net Loss (80.0)% (33.6)% (68.6)% (34.1)%
===== ===== ===== =====
EBITDA (69.1)% (30.9)% (60.0)% (24.1)%
</TABLE>
The table below provides information about the Company's units in service by
customer type and average revenue per unit ("ARPU") for the nine months ended
September 30. ARPU is calculated by dividing pager airtime revenues for the
month by the total units in service at month end. ARPU for periods greater than
one month equals the average of the monthly ARPUs during the period.
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
for the Twelve-Month
September 30, period ended September 30,
------------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units in service
Reseller units 194,398 115,158 68.8 % 114.8 %
Co-location/interconnection units 54,913 17,835 207.9 % 2,244.6 %
------------- -------------
Total 249,311 132,993 87.5 % 114.9 %
Units under agency agreement 63,959 -- 100.0 % --
------------- -------------
Total Units 313,270 132,993 135.6 % 144.9 %
============= =============
ARPU $ 2.55 $ 3.02 (15.6)% (10.6)%
</TABLE>
10
<PAGE> 11
PREFERRED NETWORKS, INC.
RESULTS OF OPERATIONS
Total revenues increased $1.1 million or 55.8%, to $3.1 million for the
three-month period ended September 30, 1996, from $2.0 million for the
three-month period ended September 30, 1995. Total revenues increased $3.0
million, or 60.1%, to $8.0 million for the nine-month period ended September 30,
1996, from $5.0 million for the nine-month period ended September 30, 1995.
Total units in service increased by 116,318, or 87.5%, to 249,311 at September
30, 1996, from 132,993 at September 30, 1995.
Revenues from pager airtime increased by $570,000 or 57.9%, to $1.6 million for
the three-month period ended September 30, 1996, from $984,000 for the
three-month period ended September 30, 1995. Revenues from pager airtime
increased by $1.9 million, or 80.8%, to $4.3 million for the nine-month period
ended September 30, 1996, from $2.4 million for the nine-month period ended
September 30, 1995. The increase in revenues was attributable to the growth in
units in service and the associated recurring revenue stream, which resulted
from approximately 30,000 units from new reseller agreements negotiated after
the purchase of certain network assets from BellSouth Telecommunications, Inc.,
approximately 26,000 units attributable to the purchase of network assets from
Big Apple, expansion into new markets (New York, Chicago, Philadelphia,
Pittsburgh, Orlando, Jacksonville, Miami, Columbia, Savannah, and Knoxville) and
the continued growth in existing markets. The growth in units in service was
offset in part by declining ARPU due to competitive pressures particularly when
the Company enters a new geographic market, a change in the mix of customer type
and to a lesser extent, unit volume and airtime usage discounts. Co-location and
interconnection customers generate lower ARPU to the Company because certain
operating expenses customarily incurred by the Company are borne by the
customer. The ARPU was also lower on the units in service on certain purchased
network assets due to generally fewer paging service features available on those
networks.
Revenues from pager sales increased $234,000 or 23.2%, to $1.2 million for the
three-month period ended September 30, 1996, from $1.0 million for the
three-month period ended September 30, 1995. Revenues from pager sales
increased $797,000, or 31.5%, to $3.3 million for the nine-month period ended
September 30, 1996, from $2.5 million for the nine-month period ended
September 30, 1995. The increase in the number of pagers sold was attributable
to continued expansion in existing markets and expansion into new markets. In
addition, the average selling price per pager declined as a result of
competitive pricing in the industry and the Company's new market entry
marketing programs to attract resellers to its networks.
Revenues from maintenance and other increased $319,000 to $343,000 for
three-month period ended September 30, 1996 from $24,000 for the three-month
period ended September 30, 1995. Revenues from maintenance and other increased
$284,000 to $376,000 for the nine-month period ended September 30, 1996 from
$92,000 for the nine-month period ended September 30, 1995. The increase is
primarily attributable to engineering services and equipment sales for paging
carriers provided by the Company's wholly-owned subsidiary, Preferred Technical
Services, Inc. ("PTSI"), acquired in a merger in July 1996.
Cost of pager airtime increased by $712,000, or 142.8%, to $1.2 million for the
three-month period ended September 30, 1996, from $498,000 for the three-month
period ended September 30, 1995. Cost of pager airtime increased by $1.7
million, or 151.6%, to $2.9 million for the nine-month period ended September
30, 1996, from $1.2 million for the nine-month period ended September 30, 1995.
The increase was primarily attributable to the expansion into new markets and
the increased number of units in service. Cost of pager airtime as a percentage
of pager airtime revenue was 77.9% and 67.4% for the three-month and nine-month
periods ended September 30, 1996, respectively, compared to 50.7% and 48.5% for
the three-month and nine-month periods ended September 30, 1995, reflecting the
expansion into new markets and the higher cost of airtime per unit during the
start up period (i.e., telephone costs and transmission site rental) due to
fewer units in service in those new markets.
Cost of pager sales increased by $341,000, or 26.0%, to $1.7 million for the
three-month period ended September 30, 1996, from $1.3 million for the
three-month period ended September 30, 1995. Cost of pager sales increased by
$1.1 million, or 35.2%, to $4.3 million for the nine-month period ended
September 30, 1996, from $3.2 million for the nine-month period ended September
30, 1995. The increase was due to the increased number of pagers sold, offset in
part by lower vendor pricing on pagers sold to the Company. Cost as a percentage
of pager sales was 133.3% and 129.9% for the three-month and nine-month periods
ended September 30, 1996, compared to 130.3% and 126.4% for the three-month and
nine-month periods ended September 30, 1995, reflecting the Company's marketing
programs to attract customers to its networks particularly in its new geographic
markets and the competitive nature of pricing in the industry.
Other costs of $119,000 for the three-month and nine-month periods ended
September 30, 1996 represent engineering services and equipment sales to paging
carriers provided by PTSI.
Selling, general and administrative expenses increased by $1.5 million, or
180.8%, to $2.3 million for the three-month period ended September 30, 1996,
from $827,000 for the three-month period ended September 30, 1995, and increased
as a percentage of total revenues to 74.0% for the three-month period ended
11
<PAGE> 12
PREFERRED NETWORKS, INC.
September 30, 1996, from 41.1% for the three-month period ended September 30,
1995. Selling, general and administrative expenses increased by $3.6 million,
or 194.5%, to $5.5 million for the nine-month period ended September 30, 1996,
from $1.9 million for the nine-month period ended September 30, 1995, and
increased as a percentage of total revenues to 68.3% for the nine-month period
ended September 30, 1996, from 37.1% for the nine-month period ended September
30, 1995. The increases primarily reflect additional sales and administrative
personnel to attract and support the increasing number of customers and
expansion into new markets.
Depreciation and amortization increased by $440,000, or 224.9%, to $636,000 for
the three-month period ended September 30, 1996, from $196,000 for the
three-month period ended September 30, 1995. Depreciation and amortization
increased by $909,000, or 185.9%, to $1.4 million for the nine-month period
ended September 30, 1996, from $489,000 for the nine-month period ended
September 30, 1995. The increases were primarily due to additional assets being
put in service resulting from expansion into new markets. Depreciation and
amortization increased as a percentage of total revenues to 20.3% and 17.5% for
the three-month and nine-month periods ended September 30, 1996, from 9.7% and
9.8% for the three-month and nine-month periods ended September 30, 1995.
Interest expense decreased $37,000, or 48.8%, to $39,000 for the three-month
period ended September 30, 1996, from $77,000 for the three-month period ended
September 30, 1995. Interest expense decreased $37,000 or 16.1% to $194,000, for
the nine-month period ended September 30, 1996 from $232,000 for the nine-month
period ended September 30, 1995, due to the repayment of all outstanding loan
balances in March 1996 with funds received from the IPO. Interest expense is
primarily attributable to the ongoing financing of assets purchased for
expansion into new markets and those markets beginning commercial operation.
While markets are under construction, the interest associated with the financing
of the network assets in those markets is capitalized. The amount of interest
capitalized for the three-month and nine-month periods ended September 30, 1996,
was $90,000 and $136,000 compared to $24,000 and $53,000 capitalized during the
same periods in 1995. The average level of indebtedness outstanding during the
three-month and nine-month periods ended September 30, 1996, was approximately
$5.2 million and $3.5 million compared to approximately $3.7 million and $3.4
million outstanding during the three-month and nine-month periods ended
September 30, 1995. In March 1996, all then outstanding debt was repaid with a
portion of the proceeds of the IPO. Subsequent to that date, the Company has
borrowed $6.0 million to finance its equipment purchases.
Interest income increased $116,000, or 53.2%, to $334,000 for the three-month
period ended September 30, 1996, from $218,000 for the three-month period ended
September 30, 1995. Interest income increased $686,000, or 311.4%, to $907,000
for the nine-month period ended September 30, 1996, from $220,000 for the
nine-month period ended September 30, 1995. The increase represents interest
income from the investment of the remainder of funds received from the sale of
the Series B, which was consummated in June 1995, and the net proceeds of the
IPO, which was consummated in March 1996.
Net loss for the three-month period ended September 30, 1996, as compared with
the three-month period ended September 30, 1995, increased to $2.5 million from
$676,000. Net loss for the nine-month period ended September 30, 1996, as
compared with the nine-month period ended September 30, 1995, increased to $5.5
million from $1.7 million. The increases were primarily due to losses incurred
due to sales of pagers below cost and substantial increases in selling, general
and administrative expenses, as described above. The Company expects to incur
start up losses when entering a new market until sufficient subscribers utilize
the Company's network in that market. Due to the Company's rapid expansion
strategy, consolidated net losses are expected for at least the next three
fiscal years.
The historical net loss per share of Common Stock for the three-month period
ended September 30, 1996 increased to ($.17) from ($.13) for the same three
month period ended in 1995. The increased losses per share result primarily from
the additional losses of the Company for the reasons described above offsetting
an increase in the number of shares used in the calculation. The increase in
historical net loss and pro forma net loss per share for the nine-month period
ended September 30, 1996 as compared to the nine-month period ended September
30, 1995 is due to the same reason, offset by an increase in the number of
shares used in both the pro forma and historical calculations for the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's expansion strategy will continue to require substantial funds to
finance the expansion of existing operations, the expansion into new markets as
part of the nationwide build-out of its networks, the purchase of network assets
and related FCC licenses, capital expenditures, debt service and general
corporate purposes.
The Company's net cash used in operations was $3.7 million for the nine-month
period ended September 30, 1996, as compared to $1.6 million for the nine-month
period ended September 30, 1995. The increase in net cash used in operations was
due primarily to the Company's increased net loss and increase in accounts
receivable and pager inventory, offset in part by the increase of accounts
payable and depreciation and amortization. The increases in accounts receivable,
pager inventory, accounts payable and depreciation and amortization are due
primarily to expansion into new markets.
12
<PAGE> 13
PREFERRED NETWORKS, INC.
Capital expenditures were $11.7 million for the nine-months ended September 30,
1996, compared to $2.5 million for the comparable period in 1995 reflecting the
rapid expansion of the Company's networks. As of September 30, 1996, the Company
was constructing networks in 26 new markets, including Technical Control Centers
(TCCs) in Michigan, Colorado, Washington and California and network expansions
into Boston, Raleigh/Durham, Charlotte, Orlando, Tampa, Jacksonville,
Gainesville, Albany, Mid-Hudson Valley, Rochester, Hartford, Miami, Detroit,
Cleveland, Cincinnati, Milwaukee, Indianapolis, Denver, Phoenix, Seattle,
Portland, San Francisco, Sacramento, San Jose, Oakland and Los Angeles. The
Company anticipates making capital expenditures of approximately $40.0 million
during 1996 and 1997 (at least $10.0 million of which will be paid from the net
proceeds of the IPO) related to the nationwide expansion of its networks,
including purchases of network assets and related equipment.
On March 1, 1996, the Company issued 3,300,000 shares of Common Stock in the
IPO. The Company received net proceeds before offering expenses of $30.7
million. In addition, on March 28, 1996, the underwriters exercised their
over-allotment option to purchase an additional 148,000 shares of Common Stock
and the Company received additional net proceeds of $1.4 million.
A portion of the net proceeds of the IPO was used to repay all debt then
outstanding which was approximately $5.6 million. The Company intends to use the
remaining net proceeds to finance the expansion of its network facilities
through the purchase of paging system equipment and possible network asset
purchases and for working capital and general corporate purposes.
Pursuant to their terms, upon consummation of the IPO all outstanding shares of
the Series A and the Series B automatically converted into Common Stock. The
Company elected to pay accrued dividends on the Series B through January 31,
1996, in shares of Common Stock and the remainder of the accrued dividends from
February 1 to March 1, 1996, in the amount of $176,000 in cash. The total number
of shares of Common Stock issued upon such conversion and such dividend payment
was 6,830,280 shares. All accretion previously accrued was eliminated upon
conversion to shares of Common Stock.
Upon the consummation of the IPO, all existing vendor financing commitments
terminated.
The Company has a secured credit facility for $12.0 million of vendor financing
which bears interest at the five-year U.S. Treasury rate plus 6.5%. This credit
facility contains various conditions, financial covenants and restrictions and
is secured by paging equipment.
The Company also has a $5.0 million secured line of credit from a finance
company for the purchase of Motorola paging system equipment which bears
interest at 1.75% over prime at the time of funding.
In August 1996, the Company entered into a $20.0 million revolving credit
facility with a financial institution, the majority of which is to be used to
finance paging network acquisitions and capital expenditures. The outstanding
balance under this facility bears interest at a rate of prime plus 1% or at a
rate of LIBOR plus 3.75%, at the Company's option. Interest only is payable
monthly in arrears with the entire principal due in full in August 1998.
Borrowings under this facility and the other two credit facilities will be
secured by substantially all the assets of the Company. This new credit facility
contains various conditions, financial covenants and restrictions.
Management believes that cash and cash equivalents on hand together with the new
secured credit facilities in place, will be sufficient to meet the Company's
working capital and capital expenditure needs for the next nine months without
obtaining additional vendor or other financing. However, in order to fully
implement its nationwide expansion strategy on its anticipated schedule, the
Company believes it will need to raise additional funds prior to the end of this
period in the form of equity, bank debt, or other debt financing. No assurance
can be given that such additional funds will be available on terms acceptable to
the Company, if at all. If such additional funds are not obtained within such
period, the Company would be required to slow its planned nationwide network
expansion, and the failure to obtain such additional funds within such period
could have a material adverse effect on the Company. In addition, future
acquisitions of paging network assets and licenses or other assets or businesses
may change the Company's capital requirements.
The market price of the Common Stock is likely to be highly volatile. Factors
such as delays by the Company in achieving its expansion goals, fluctuations in
the Company's operating results, announcements of new services offered by the
Company or its competitors, changes in earnings estimates of securities
analysts, regulatory changes and general market conditions, among other things,
could cause the market price of the Common Stock to fluctuate substantially.
Such market fluctuations could adversely affect the market price for the Common
Stock.
ACQUISITIONS
In July 1996, the Company acquired the stock of Paging Services, Inc. ("PSI")
for $750,000, paid by the issuance of 58,823 shares of Common Stock and $250,000
in cash. The name of PSI was changed to Preferred Technical Services, Inc.,
("PTSI"), and PTSI operates as a wholly-owned subsidiary of PNI. PTSI provides
repair, maintenance and installation services and equipment sales to paging
carriers.
13
<PAGE> 14
PREFERRED NETWORKS, INC.
In September 1996, the Company completed the acquisition of substantially all
the assets of Big Apple Paging Corporation ("Big Apple") for $2.6 million, $1.4
million of which was paid in cash and the remainder of which was paid by the
issuance of 125,598 shares of Common Stock. Additional consideration of up to
approximately $1.3 million, payable primarily in stock, could be due and payable
by the Company based on the operating performance of Big Apple's business during
the quarter ended September 30, 1996 plus subsequent collection of the related
receivables. The Company used working capital to fund the cash portion of the
acquisition. Big Apple is a reseller-based paging carrier in the states of New
York, New Jersey, and Connecticut.
In September 1996, the Company signed a definitive agreement to acquire the
stock of Mercury Paging & Communications, Inc. ("Mercury") and its affiliated
companies for approximately $14.0 million of which approximately $10.0 million
will be paid in cash and the balance in Common Stock, subject to certain
adjustments and possible additional consideration based on Mercury's achievement
of targeted operating performance. Mercury presently serves, primarily through
reseller distribution, over 63,000 paging subscribers in the New Jersey, New
York and Southern Connecticut markets. The acquisition is subject to various
conditions, including Federal Communications Commission ("FCC") approval and is
expected to close in early 1997. Prior to closing, the Company will provide
certain services to Mercury under an agency agreement.
In November 1996, the Company signed a definitive agreement to acquire the stock
of EPS Wireless, Inc. ("EPS") for approximately $5.0 million, subject to certain
adjustments and possible additional consideration of up to an additional $5.0
million based on EPS's achievement of targeted operating performance during the
two year period ending December 31, 1998. Of the purchase price, $4.5 million
will be paid in shares of Common Stock with the remainder to be paid in cash.
EPS is a national provider of pager and cellular product repair services. EPS
also offers product sourcing and sales of new and refurbished paging products,
inventory management and product fulfillment. EPS presently processes more than
70,000 product units per month. The acquisition is subject to various conditions
including approval of the stockholders of EPS and is expected to close in fourth
quarter 1996.
With the addition of PTSI in July and the expected addition of EPS in the
fourth quarter, the Company began expanding its carriers' carrier strategy to
provide certain other outsourced services to the wireless industry. Upon
completion of the EPS acquisition, the Company will provide both engineering
and technical support services and product and inventory management services to
its customers.
OTHER MATTERS
On February 8, 1996, the FCC released a notice of proposed rulemaking (the
"NPRM") which, among other things, provided that the FCC would accept no new
applications for paging licenses until it adopted an interim licensing procedure
to be used during the pendency of the rulemaking procedure. On April 22, 1996,
the FCC adopted an order in which it eased the freeze on the acceptance of
applications for licenses for paging channels, including the shared channel
primarily utilized by the Company (157.740 MHz). Under the order, the FCC
allowed applications to be filed for new sites on these channels if the
applicant certifies that the proposed site is within 40 miles of an operating
transmission site which was licensed to the same applicant on the same channel
prior to February 8, 1996. All paging applications received through July 31,
1996 will be processed under the interim rules where all such applications will
be placed on public notice for the applicable period and competing applications
will be accepted. Applications received after July 31, 1996 may be affected by
the timing of a final order and the transition to new licensing rules. The
Company filed for 83 additional licenses within 40 miles of its operating
transmission sites prior to July 31. To date, the Company has received 32 of
the licenses from the FCC with the remaining applications still on file
with the FCC.
As a result of the NPRM and the subsequent actions of the FCC noted above, the
Company has been forced to modify its prior build-out schedule to install
transmitters on an expedited basis in areas where it has needed to protect its
license position. These unscheduled installations have delayed and may continue
to delay the Company's buildout of certain markets in the Company's planned
nationwide expansion.
On August 1, 1996, the FCC adopted both a First Report and Order and Second
Report and Order in CC Docket No. 96-98 ("Orders"), in which it adopted rules
implementing the local competition provisions of the 1996 Telecommunications
Act. As adopted, the Orders would modify the charges imposed on
telecommunications carriers, including commercial mobile radio service
providers such as the Company, by local exchange carriers. Among other
provisions, the Orders required local exchange carriers to provide commercial
mobile radio service providers with: 1) reciprocal compensation for transport
and termination of local traffic; and 2) a "fresh look" at existing
non-reciprocal agreements. The Orders were expected to reduce the charges
currently assessed by local exchange carriers for providing local DID numbers,
as well as for the associated trunking charges, which are a significant portion
of the Company's cost of providing service. In addition, the Company was
expected to become eligible to receive revenue for terminating local exchange
carriers' traffic on its network.
On October 15, 1996, the U.S. Court of Appeals for the Eighth Circuit imposed a
"stay" on certain provisions of the Orders. On November 1, 1996, the same
court, acting on an Emergency Motion filed by AirTouch Communications, lifted
the stay with respect to the reciprocal compensation and "fresh look"
provisions as they apply to commercial mobile radio service carriers.
The Company believes that the Orders, as currently effective, could be
beneficial to the Company and other wireless providers.
14
<PAGE> 15
PREFERRED NETWORKS, INC.
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------ -----------------------
<S> <C>
10.1 Agreement and Plan of Merger, dated July 3, 1996, by and among Paging Services, Inc.,
Preferred Networks, Inc., and the shareholders of Paging Services, Inc. (1)
10.2 Asset Purchase Agreement, dated as of June 19, 1996 and amended as of September 5, 1996
and as of September 13, 1996, by and among Big Apple Paging Corporation,
Preferred Networks, Inc. and Gary Hencken. (2)
10.3 Stock Purchase Agreement by and among Preferred Networks, Inc.,
Mercury Paging & Communications, Inc., HTB Communications,
Inc., Custom Page, Inc., and MPC Distributors, Inc.
(collectively, "Sellers") and the Shareholders of Sellers dated
September 30, 1996. The exhibits and schedules to this
agreement have been omitted from this Exhibit 10.3. The Company
agrees to furnish supplementally such exhibits and schedules to
the Securities and Exchange Commission upon request.
11.1 Computation of Pro Forma Net Loss Per Share
11.2 Computation of Historical Net Loss Per Share
11.3 Computation of Supplemental Pro Forma and Supplemental Historical Net Loss Per Share
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (for SEC use only)
27.3 Financial Data Schedule (for SEC use only)
27.4 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, the Company filed two
reports on Form 8-K:
1. A Current Report on Form 8-K dated July 3, 1996 reporting under Item
5 the acquisition of Paging Services, Inc. The following financial
statements were filed as part of this report:
The audited financial statements of Paging Services,
Inc. as of and for the year ended December 31, 1995 and the
unaudited financial statements as of March 31, 1996 and for the
three-months ended March 31, 1996 and 1995.
The unaudited pro forma condensed consolidated
balance sheet of Preferred Networks, Inc. as of March 31, 1996,
and the unaudited pro forma condensed consolidated statements of
operations of Preferred Networks, Inc. for the year ended December
31, 1995 and for the three-months ended March 31, 1996.
2. A Current Report on Form 8-K dated September 13, 1996 reporting under
Item 2 the acquisition of substantially all the assets of Big Apple
Paging Corporation. No financial statements were filed with this report
because it was impracticable to provide the required financial
information at the time of the report. The Company will file the
required financial information no later than 60 days after September 28,
1996.
</TABLE>
- -----------------------------------
(1) Filed on August 14, 1996, as an exhibit to Preferred Networks, Inc.'s
Quarterly Report on Form 10-Q (file no. 0-27658) for the quarter ended
June 30, 1996 and incorporated by reference herein.
(2) Filed on September 27, 1996, as an exhibit to Preferred Networks, Inc.'s
Current Report on Form 8-K (file no. 0-27658) dated September 13, 1996
and incorporated by reference herein.
15
<PAGE> 16
PREFERRED NETWORKS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREFERRED NETWORKS, INC.
Date: November 14, 1996 By: /s/ Mark H. Dunaway
-----------------------------------
Mark H. Dunaway
Chief Executive Officer
Date: November 14, 1996 By: /s/ Michael J. Saner
-----------------------------------
Michael J. Saner
President
Date: November 14, 1996 By: /s/ Kim Smith Hughes
----------------------------------
Kim Smith Hughes
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
16
<PAGE> 17
PREFERRED NETWORKS, INC.
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C>
10.1 Agreement and Plan of Merger, dated July 3, 1996, by and among
Paging Services, Inc., Preferred Networks, Inc., and the shareholders
of Paging Services, Inc. (1)
10.2 Asset Purchase Agreement, dated as of June 19, 1996 and amended
as of September 5, 1996 and as of September 13, 1996, by and among
Big Apple Paging Corporation, Preferred Networks, Inc. and
Gary Hencken. (2)
10.3 Stock Purchase Agreement by and among Preferred Networks, Inc.,
Mercury Paging & Communications, Inc., HTB Communications,
Inc.,Custom Page, Inc., and MPC Distributors, Inc. (collectively,
"Sellers") and the Shareholders of Sellers dated September 30,
1996. The exhibits and schedules to this agreement have been
omitted from this Exhibit 10.3. The Company agrees to furnish
supplementally such exhibits and schedules to the Securities and
Exchange Commission upon request.
11.1 Computation of Pro Forma Net Loss Per Share
11.2 Computation of Historical Net Loss Per Share
11.3 Computation of Supplemental Pro Forma and Supplemental Historical
Net Loss Per Share
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (for SEC use only)
27.3 Financial Data Schedule (for SEC use only)
27.4 Financial Data Schedule (for SEC use only)
</TABLE>
- -----------------------------------
(1) Filed on August 14, 1996, as an exhibit to Preferred Networks,
Inc.'s Quarterly Report on Form 10-Q (file no. 0-27658) for the
quarter ended June 30, 1996 and incorporated by reference herein.
(2) Filed on September 27, 1996, as an exhibit to Preferred Networks,
Inc.'s Current Report on Form 8-K (file no. 0-27658) dated
September 13, 1996 and incorporated by reference herein.
17
<PAGE> 1
EXHIBIT 10.3
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
PREFERRED NETWORKS, INC.,
MERCURY PAGING & COMMUNICATIONS, INC.,
HTB COMMUNICATIONS, INC.,
CUSTOM PAGE, INC., AND MPC DISTRIBUTORS, INC.
(COLLECTIVELY, "SELLERS")
AND
THE SHAREHOLDERS OF
SELLERS
================================================================================
September 30, 1996
================================================================================
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS IN
RELIANCE ON ONE OR MORE EXEMPTIONS THEREUNDER AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT THEREUNDER. THESE SECURITIES HAVE BEEN ISSUED
OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE "GEORGIA
SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER SUCH ACT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 Page
SALE AND PURCHASE OF THE SHARES
<S> <C>
1.1 TRANSFER OF THE SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 AMOUNT OF PURCHASE PRICE; TIME AND MANNER OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) CASH ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) ADDITIONAL CASH AMOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) PURCHASER SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) STOCK ADJUSTMENT; ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) ALLOCATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 PURCHASE PRICE ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) DOWNWARD ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) UPWARD ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) DETERMINATION OF RESELLER EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) VALUATION OF PURCHASER COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2
CLOSING
2.1 TIME AND PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES BY SELLERS AND SHAREHOLDERS
3.1 ORGANIZATION AND QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 NON-CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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3.9 GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.12 TITLE TO PROPERTIES; ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.13 BANK ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.14 LEASES AND SUBLEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.15 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.16 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 LABOR RELATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.18 INSIDER INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.19 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.20 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.21 EMPLOYEE AND FRINGE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) SCHEDULE OF PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) ACCRUALS; FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) REPORTING AND DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) PROHIBITED TRANSACTIONS; TERMINATIONS; OTHER REPORTABLE EVENTS . . . . . . . . . . . . . . 18
(f) CLAIMS FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) CREATION OF OBLIGATIONS BY REASON OF SALE OF THE SHARES . . . . . . . . . . . . . . . . . . 19
(i) NO MULTI-EMPLOYER PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.22 [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.23 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.24 CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.25 ACCURACY OF SCHEDULES, CERTIFICATES AND DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.26 BROKERS, FINDERS AND INVESTMENT BANKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
4.1 OWNERSHIP OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 ABSENCE OF VIOLATIONS OR CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.4 NO CONSENTS REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.5 NO CLAIMS AGAINST SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 LITIGATION RELATED TO THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 INVESTMENT INTENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.9 ECONOMIC RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 TAX ADVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11 OFFERING MEMORANDUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 NON-CONTRAVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.8 BROKERS, FINDERS AND INVESTMENT BANKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.9 DELIVERY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10 REGULATORY QUALIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 CONDUCT OF BUSINESS PENDING THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) OPERATION BY SELLERS IN THE ORDINARY COURSE OF BUSINESS . . . . . . . . . . . . . . . . . . 26
(b) FORBEARANCES BY SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) CONTROL OF SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 REASONABLE BEST EFFORTS; FURTHER ASSURANCES; COOPERATION . . . . . . . . . . . . . . . . . . . . . . 28
6.3 INVESTIGATION; CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 [INTENTIONALLY OMITTED.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 NO SOLICITATION OF TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 SHARE TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.8 NASDAQ LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.11 SHAREHOLDER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.12 FCC MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.13 ADDITIONAL FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.14 NO TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.15 SPECIAL PROVISIONS WITH RESPECT TO SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.16 NONCOMPETITION; NONDISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) SCOPE AND REASONABLENESS OF RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) USE OF NAMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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(c) NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) NO INTERFERENCE WITH CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) NO INTERFERENCE WITH EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) TRADE SECRETS; CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) COVENANTS INDEPENDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.17 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) TRANSFER TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) PREPARATION AND FILING OF RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) AMENDED RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) COOPERATION AND EXCHANGE OF INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 35
(e) TAX PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(f) SECTION 338(H)(10) ELECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.18 CHASE MANHATTAN NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.19 NATIONSBANK LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 7
CONDITIONS PRECEDENT TO THE CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) CONSENTS, AUTHORIZATIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) INJUNCTION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . 37
(d) CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(e) AVERAGE BILLABLE RESELLER REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) OPINIONS OF SELLERS' COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(g) EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(h) CONSULTING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(i) FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(j) REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(k) LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS AND THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . 37
(a) CONSENTS, AUTHORIZATIONS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(b) INJUNCTION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(c) REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . 38
(d) PURCHASER COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(e) CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(f) OPINIONS OF PURCHASER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(h) CONSULTING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 EXCEPTION REQUIRING CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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ARTICLE 8
ITEMS TO BE DELIVERED AT CLOSING
8.1 TO BE DELIVERED BY SELLERS AND THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 TO BE DELIVERED BY PURCHASER TO THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 INDEMNIFICATION BY PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3 CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.4 CLAIMS FOR INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.5 DEFENSE OF CLAIM BY THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.6 THIRD PARTY CLAIM ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.7 SETTLEMENT OF INDEMNIFICATION CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.8 MANNER OF INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.9 INDEMNIFICATION EXCLUSIVE REMEDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.10 CERTAIN LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) DEDUCTIBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) CAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(c) COLLINS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10
TERMINATION AND ABANDONMENT
10.1 TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.2 SPECIFIC PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.3 RIGHTS AND OBLIGATIONS UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 11
SHAREHOLDERS' COMMITTEE
11.1 APPOINTMENT; ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.3 ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.4 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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11.5 EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 12
GENERAL PROVISIONS
12.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.2 TABLE OF CONTENTS; HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.3 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.4 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.5 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.6 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.7 TIME OF THE ESSENCE; COMPUTATION OF TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.8 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.10 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.11 CERTAIN ACCOUNTING TERMINOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE> 8
LIST OF EXHIBITS
Exhibit A-1 Pipeline Calculation (Section 1.3(c))
Exhibit A-2 EBITDA Example
Exhibit B Escrow Agreement (Section 2.2)
Exhibit C Purchase Price Allocation (Section 6.17(f))
Exhibit D Opinion of Sellers' Counsel (Section 7.1(f))
Exhibit E Opinion of Sellers' FCC Counsel (Section 7.1(f))
Exhibit F Employment Agreement of Scott Levy (Section 7.1(g))
Exhibit G Consulting Agreement of Allen Wolfbiss (Section
7.1(h))
Exhibit H Registration Rights Agreement (Section 7.1(j))
Exhibit I Opinion of Purchaser's Counsel (Section 7.2(f))
Exhibit J Opinion of Purchaser's FCC Counsel (Section 7.2(f))
LIST OF SCHEDULES
Schedule 3.1 Organization and Qualification
3.2 Capitalization
3.4 Non-Contravention
3.5 Consents
3.8 Absence of Certain Changes or Events
3.9 Governmental Authorization and Compliance with Laws
3.10 Absence of Undisclosed Liabilities
3.13 Bank Accounts
3.14 Leases and Subleases
3.15 Material Contracts
3.16 Legal Proceedings
3.17 Labor Relations
3.18 Insider Interests
3.19 Intellectual Property
3.20 Insurance
3.21 Employee and Fringe Benefit Plans
3.23 Environmental Matters
4.1 Ownership of Shares
4.4 No Consents Required
4.5 No Claims Against Sellers
5.1 Qualification
5.5 Consents
6.1 Conduct of Business Pending the Closing Date
6.18 Notes
vii
<PAGE> 9
DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.6
Additional Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(b)
Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(b)(ii)
Adjustment Month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(d)
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.18
Agency Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.1
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Annualized Reseller EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
ARPU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.1(e)
Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.5
Base Reseller EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Citations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.23(b)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(a)
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(a)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11
Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.5
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(f)(ii)
Continuing Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.10(a)
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.1
Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.9
Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(c)
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.7
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(c)
EEOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.17
8-Ks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.8
Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.23(c)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)(i)
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)
Escrowed Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
Escrowed Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background Statement
FCC Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.12
Final Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.5
Intellectual Property Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.19
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.19
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.4
</TABLE>
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<TABLE>
<S> <C>
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.4
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.4
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.15
Multi-Employer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)(ii)
NLRB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.17
Noncompete Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(c)
Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.4
Notice of Possible Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.4
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)
Pension/Profit-Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)(i)
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Purchaser Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(b)
Purchaser Delivered Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.3
Purchaser Material Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.4
Purchaser Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.2
Reseller EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(c)
Restricted Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(c)
Review Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.10(b)
S-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.8
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.18
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Seller Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9
Seller Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.7
Seller Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2
Seller Delivered Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.3
Seller FCC Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9
Seller Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.7
Seller Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9
Seller State Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Shareholder Delivered Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.2
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Shareholders' Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.1
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background Statement
Signing Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(b)
State Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.7
State Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9
Stock Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(d)
Stock Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(b)
</TABLE>
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<TABLE>
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Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.6
Superfund Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.23(b)
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background Statement
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11
10-Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.8
Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(a)
Trade Secret . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.16(f)(ii)
Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
Welfare Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.21(a)(iii)
</TABLE>
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<PAGE> 12
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
September 30, 1996, by and among Preferred Networks, Inc., a Delaware
corporation ("Purchaser"), Mercury Paging & Communications, Inc., a Delaware
corporation ("Mercury"), HTB Communications Inc., a New York corporation
("HTB"), Custom Page, Inc., a Delaware corporation ("Custom"), M.P.C.
Distributors Inc., a New York corporation ("MPC") (each of Mercury, HTB, Custom
and MPC is referred to herein individually as a "Seller" and, collectively, as
"Sellers"), and the undersigned shareholders of Sellers (referred to herein
individually as a "Shareholder" and collectively as the "Shareholders").
BACKGROUND STATEMENT
The Shareholders own Three Million (3,000,000) shares of the common
stock of Mercury, One Hundred (100) shares of the common stock of HTB, One
Hundred (100) shares of the common stock of Custom, and One Hundred (100)
shares of the common stock of MPC, collectively constituting all of the
outstanding shares of capital stock (the "Shares") of Sellers. In order to
acquire substantially all of the assets and business of Sellers, including a
radio common carrier one-way signaling system (the "System") licensed by the
Federal Communications Commission (the "FCC"), Purchaser wishes to purchase and
the Shareholders wish to sell the Shares upon the terms and conditions set
forth in this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES
1.1 TRANSFER OF THE SHARES. On the terms and subject to the
conditions set forth herein, the Shareholders shall sell, assign, transfer and
deliver to Purchaser and Purchaser shall purchase and accept at the Closing (as
defined below) the Shares free and clear of all liens, claims, options,
proxies, charges, pledges, security interests, adverse claims and other
encumbrances (collectively, "Liens") other than those imposed by or through the
Purchaser and restrictions on transfer imposed by federal and state securities
laws.
1.2 AMOUNT OF PURCHASE PRICE; TIME AND MANNER OF PAYMENT. Subject
to the adjustments described in Section 1.3, and subject to Section 1.5, the
aggregate purchase price (the "Purchase Price") for all of the Shares, and the
time and manner of payment, shall be as follows:
<PAGE> 13
(a) CASH ESCROW. Upon execution of this Agreement, Purchaser
shall pay an amount equal to Seven Hundred Fifty Thousand Dollars
($750,000) (the "Escrow Funds") to the escrow agent (the "Escrow
Agent") under the escrow agreement executed and delivered
simultaneously herewith (the "Escrow Agreement"), which amount shall
be payable by the Escrow Agent to the Shareholders, at the Closing,
subject to the provisions of, and as provided in, the Escrow
Agreement, if and only if either (i) the Closing occurs or (ii) the
Closing does not occur as a result of Purchaser's failure to obtain
financing as specified in Section 7.1(i) or Purchaser's refusal to
close the transactions contemplated by this Agreement in breach of
this Agreement. Notwithstanding any other provision of this Agreement,
the Escrow Funds represent liquidated damages in the event of, and
constitute the sole remedy for, Purchaser's failure to close the
transactions contemplated by this Agreement in breach of this
Agreement.
(b) ADDITIONAL CASH AMOUNTS.
(i) At the Closing, an amount equal to (A) the amount
that bears the same proportionate relationship to Ten Million
One Hundred Thousand Dollars ($10,100,000) as the Annualized
Reseller EBITDA (as defined below) for the three calendar
months ended December 31, 1996 attributable to the Units (as
defined below), bears to One Million, One Hundred Eighty
Thousand, Six Hundred Thirty-Three Dollars ($1,180,633),
provided, however, that in no event shall the proportionate
relationship referred to above be greater than 1:1, less (B)
the Escrow Funds, and less (C) the amount, if any, by which (1)
the total of Sellers' current liabilities and long-term debt as
of the Closing Date exceeds (2) Sellers' current assets as of
the Closing Date and less (D) any legal, accounting and other
fees and expenses paid by Sellers but to be borne by the
Shareholders pursuant to Section 6.5, shall be delivered by
wire transfer in immediately available funds to accounts
designated by the Shareholders by written notice to Purchaser
at least two (2) business days prior thereto.
(ii) Pursuant to Section 1.4, after the Adjustment Date
(as defined below), and within two (2) business days following
the determination of the appropriate calculation under Section
1.4, any additional amount necessary to make the aggregate cash
payments pursuant to this Section 1.2 equal (A) Ten Million One
Hundred Thousand Dollars ($10,100,000) (as adjusted pursuant to
Section 1.3) less (B) the amount, if any, by which (1) the
total of Sellers' current liabilities (including, without
limitation, accrued bonuses) and long-term debt as of the
Closing Date exceeds (2) Sellers' current assets as of the
Closing Date and less (C) any legal, accounting and other fees
and expenses paid by Sellers but to be borne by the
Shareholders pursuant to Section 6.5, shall be delivered by
wire transfer in immediately available funds to accounts
designated by the Shareholders by written notice to Purchaser
at least two (2) business days prior thereto. The "Adjustment
Date" shall be (A) March 31, 1997, or (B) December 31, 1996 or
such month-end in 1997 prior to March 1 as may be selected by
either Purchaser or the Shareholders' Committee within thirty
(30 ) days after such
2
<PAGE> 14
date if, and only if, as of such month-end the Annualized
Reseller EBITDA (as defined below) is equal to or greater than
One Million, One Hundred Eighty Thousand, Six Hundred
Thirty-Three Dollars ($1,180,633).
(c) PURCHASER SHARES.
(i) At the Closing, the number of shares of the $.0001
par value common stock of Purchaser ("Purchaser Common Stock")
equal to the quotient, rounded to the nearest whole number,
obtained by dividing (A) the number that bears the same
proportionate relationship to One Million, Two Hundred Thousand
Dollars ($1,200,000) as the Annualized Reseller EBITDA for the
three calendar months ended December 31, 1996 attributable to
the Units bears to One Million, One Hundred Eighty Thousand,
Six Hundred Thirty-Three Dollars ($1,180,633), provided,
however, that in no event shall the proportionate relationship
referred to above be greater than 1:1, by (B) the average
closing price per share of Purchaser Common Stock for the last
twenty (20) days in which such shares were traded on the Nasdaq
National Market immediately preceding the date that is five (5)
days prior to the date of this Agreement (the "Signing Price")
shall be delivered to the Shareholders; and
(ii) Pursuant to Section 1.4, as soon as reasonably
practicable after the Adjustment Date, subject to the escrow
and adjustment provisions described in Section 1.2(d), and the
Purchase Price adjustments in Section 1.3, such additional
number of shares of Purchaser Common Stock as shall be
necessary to make the total number of shares of Purchaser
Common Stock issued pursuant to this Agreement (the "Stock
Consideration") equal the sum, rounded to the nearest whole
number, of (A) the quotient obtained by dividing (1) $1,200,000
by (2) the Signing Price and (B) the quotient obtained by
dividing (1) $2,800,000 by (2) the average closing price per
share of Purchaser Common Stock for the last twenty (20) days
on which such shares were traded on the Nasdaq National Market
immediately preceding the date that is five (5) days prior to
the Adjustment Date (the "Final Price"), shall be delivered to
the Shareholders;
provided, however, that Purchaser shall pay cash to Michael Collins ("Collins")
instead of any shares of Purchaser Common Stock otherwise issuable to Collins
pursuant to this Agreement, with any such shares valued pursuant to the terms
of the relevant provision of this Agreement; and provided, further that
Purchaser may, at its option, pay cash instead of any or all of the Stock
Consideration up to an aggregate of $4,000,000 (as adjusted pursuant to Section
1.3); and provided, further, that if Purchaser chooses to pay cash instead of a
portion, but less than all, of the Stock Consideration, such cash amount shall
be subtracted from $4,000,000 (as adjusted pursuant to Section 1.3) and thirty
percent (30%) of any resulting difference shall be issued as Stock
Consideration and valued as specified in subsection (c)(ii)(A) above and
seventy percent (70%) of such difference shall be issued as Stock Consideration
and valued as specified in subsection (c)(ii)(B) above.
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(d) STOCK ADJUSTMENT; ESCROW. Twenty-five percent (25.0%) of
the number of shares constituting the Stock Consideration (the
"Escrowed Stock") and twenty-five percent (25%) of any cash paid in
lieu thereof pursuant to the proviso to Section 1.2(c) (the "Escrowed
Cash") shall be paid to the Escrow Agent under the Escrow Agreement
and shall be payable by the Escrow Agent to the Shareholders subject
to the provisions of, and as provided in, the Escrow Agreement and the
following: if the total monthly service revenue, on an accrual basis,
for the third calendar month following the Adjustment Date
attributable to the reseller units in service on Sellers' 931.3125MHz
paging network (the "Units") is less than such total monthly service
revenue for the month in which the Adjustment Date occurs (the
"Adjustment Month"), then the amount payable to the Shareholders
hereunder shall be reduced by an amount equal to ten percent (10.0%)
of the number of shares constituting the Escrowed Stock and Escrowed
Cash, if any, for every full one-half of one percent (0.5%) by which
such total monthly service revenue has decreased; provided that, for
purposes of determining total monthly service revenue for the
Adjustment Month, the appropriate adjustment will be made to Reseller
EBITDA pursuant to Exhibit A-1. As an illustration, if the total
monthly service revenue shall have decreased by any amount ranging
from one percent (1%) to one and four-tenths percent (1.4%), then the
amount payable to the Shareholders hereunder shall be reduced by an
amount equal to twenty percent (20%) of the number of shares
constituting the Escrowed Stock and Escrowed Cash, which amount of
Escrowed Stock and Escrowed Cash shall be returned to Purchaser. The
purchase price reduction referred to in this Section 1.2(d) shall be
recoupable only from, and in no event shall exceed, the Escrowed Stock
and Escrowed Cash.
(e) ALLOCATION OF PAYMENTS. The purchase price described in
this Section 1.2 (as adjusted pursuant to Section 1.3) shall be
allocated among the Shareholders in the manner indicated on Schedule
4.1, which also indicates the state of residence of each Shareholder.
1.3 PURCHASE PRICE ADJUSTMENTS.
(a) DOWNWARD ADJUSTMENT. If as of the Adjustment Date, the
aggregate Reseller EBITDA (as defined below) for the three calendar
months then ended attributable to the Units, on an annualized basis
(the "Annualized Reseller EBITDA"), is less than One Million, Two
Hundred Seventy-Six Thousand, Three Hundred Sixty Dollars ($1,276,360)
(the "Base Reseller EBITDA"), then for every full one percent
($12,763.60) shortfall in the Annualized Reseller EBITDA in excess of
a seven and one-half percent ($95,727.00) shortfall, the Purchase
Price shall be reduced by an amount equal to One Hundred Forty
Thousand Dollars ($140,000). Seventy-two percent (72%) of any
reduction in purchase price pursuant to this Section 1.3(a) shall be
deducted from cash consideration, and twenty-eight percent (28%) of
such reduction in purchase price shall be deducted from the value of
the Stock Consideration.
(b) UPWARD ADJUSTMENT. If the Annualized Reseller EBITDA is
greater than the Base Reseller EBITDA, then for every full one percent
($12,763.60) that the Annualized Reseller EBITDA is greater than the
Base Reseller EBITDA in excess of seven and one-half
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percent ($95,727.00), the Purchase Price shall be increased by an
amount (the "Additional Consideration") equal to One Hundred Forty
Thousand Dollars ($140,000). Any Additional Consideration to be paid
pursuant to this Section 1.3 shall be paid in the form of additional
shares of Purchaser Common Stock or, at Purchaser's option, in cash.
(c) DETERMINATION OF RESELLER EBITDA. "EBITDA" represents
earnings before interest expense, interest income, taxes, depreciation
and amortization in accordance with Sellers' prior practices.
"Reseller EBITDA" shall be calculated by subtracting, from total
revenue (excluding revenue from retail customers) for the relevant
period, Seller expenses associated with such reseller revenue,
including: (i) product expenses for reseller pagers; (ii) aggregate
Seller operating expenses, excluding billing expense associated with
retail units; (iii) site rental expense; (iv) telephony expense; (v)
reseller alpha dispatch charges; and (vi) the greater of (A) the
actual officers' and owners' expenses, including salaries, benefits
and payroll taxes, and car, travel and entertainment expenses, or (B)
Two Hundred Fifty Thousand Dollars ($250,000) annually; provided,
however, that amounts paid to Purchaser for services pursuant to the
Agency Agreement, dated as of even date herewith, by and between
Purchaser and Sellers shall not be deducted from revenues for this
purpose. An illustration of the calculation of Reseller EBITDA is
attached as Exhibit A-2. For purposes of calculating Reseller EBITDA
for December 1996 and the Adjustment Month, the appropriate adjustment
will be made to such Reseller EBITDA pursuant to Exhibit A-1. For
purposes of this Section 1.3(c), total revenue shall mean revenue of
the kind previously generated by Sellers and expenses shall not
include those expenses described in Section 6.5 which the Shareholders
are required to pay.
(d) VALUATION OF PURCHASER COMMON STOCK. The number of shares
of Purchaser Common Stock, if any, to be subtracted, pursuant to
Section 1.3(a), from the Stock Consideration shall be equal to the
sum, rounded to the nearest whole number, of (i) the quotient obtained
by dividing thirty percent (30%) of the total dollar value of the
adjustment to the Stock Consideration pursuant to this Section 1.3
(the "Stock Adjustment") by the Signing Price and (ii) the quotient
obtained by dividing the remaining seventy percent (70%) of the Stock
Adjustment by the Final Price. The number of shares of Purchaser
Common Stock, if any, to be paid as Additional Consideration pursuant
to Section 1.3(b) shall be equal to the quotient, rounded to the
nearest whole number, obtained by dividing the dollar amount of the
Additional Consideration by the Final Price.
1.4 CALCULATIONS. Any calculations of Annualized Reseller EBITDA
pursuant to Section 1.2(b) prior to the Closing shall initially be made by
Sellers, subject to the review and approval of Purchaser, and any calculations
thereafter shall initially be made by Purchaser, subject to the review and
approval of the Shareholders' Committee. In the event of a dispute between
Sellers and Purchaser, if the Annualized Reseller EBITDA calculated by one
party is within three and one half percent (3.5%) of the Annualized Reseller
EBITDA calculated by the other party, then the Closing or a payment thereafter
will not be postponed as a result of such dispute, which shall thereafter be
resolved in accordance with the resolution procedures specified in this Section
1.4. If the Annualized
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Reseller EBITDA calculated by one party differs from the Annualized Reseller
EBITDA calculated by the other party by more than three and one half percent
(3.5%) then such dispute will be resolved pursuant to the procedures specified
in this Section 1.4 prior to the Closing or a payment thereafter. Any
calculations required to be made pursuant to this Article 1 shall be made by
the calculating party in good faith and the preliminary calculations shall be
delivered to the reviewing party within ten (10) business days after the latest
date used in making such calculations. Within ten (10) business days following
receipt by the reviewing party of the calculations, the reviewing party shall
deliver to the calculating party a letter stating (i) that the reviewing party
concurs with the calculations or (ii) that the reviewing party objects to the
calculations and setting forth the nature of the objections. In the event that
the reviewing party objects to the calculations, the parties shall use their
good faith efforts to attempt to resolve such dispute. Failing such resolution
within fifteen (15) days after notice to the calculating party of such
objections, the dispute shall be submitted to the public accounting firm of
Arthur Andersen & Co. or, in the event of any conflict of interest involving
such firm, to an independent "Big Six" public accounting firm mutually agreed
to by Purchaser and the Shareholders' Committee for a final and binding
determination which shall be made not later than fifteen (15) days after
submission of the dispute to such accounting firm. If Purchaser and the
Shareholders' Committee are unable to agree on an independent certified public
accountant, then Purchaser and the Shareholders' Committee shall each have the
right to request the American Arbitration Association in New York City to
appoint an arbitrator. The determination of the arbitrator shall be final and
binding on the parties. The fees of any such arbitrator shall be borne equally
by Purchaser and the Shareholders' Committee. If such determination is that an
overpayment or underpayment was made by Purchaser, then each Shareholder shall
refund the overpayment received by him or Purchaser shall pay to each
Shareholder any underpayment owed to him, in either case within five (5)
business days after the date of such determination. If such determination is
that an overpayment or underpayment was made by Purchaser, then each
Shareholder shall refund the overpayment received by him or Purchaser shall
pay to each Shareholder any underpayment owed to him, in either case within
five (5) business days after the date of such determination.
1.5 TWENTY PERCENT LIMITATION. The total number of shares of
Purchaser Common Stock to be issued pursuant to this Agreement shall be less
than twenty percent (20%) of the Purchaser Common Stock outstanding before the
date of this Agreement or the Closing, whichever is less, so as to permit the
transactions contemplated hereby to be consummated without stockholder approval
under Rule 4460(i)(C)(ii) of the Nasdaq Stock Market, Inc. If it is necessary
to so reduce the total number of shares of Purchaser Common Stock to be issued
pursuant to the Agreement, the amount of cash to be paid to the Shareholders
pursuant to this Agreement shall be correspondingly increased, with thirty
percent (30%) of such number of shares valued at the Signing Price and seventy
percent (70%) valued at the Final Price.
1.6 CONDUCT OF BUSINESS. During the period from the Closing Date
through the date that is three months after the Adjustment Date, (i) Purchaser
shall cause Sellers to conduct their paging network operations to reseller
customers (the "Operations") in the ordinary and usual course of business in
substantially the same manner as conducted prior to the Closing Date, in
consultation with Allen Wolfbiss pursuant to the Consulting Agreement, and (ii)
without the consent of the
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Shareholders' Committee (which consent shall not be unreasonably withheld),
Purchaser shall (and shall cause each Seller to) use its reasonable best
efforts not to take any action or omit to take any action that could reasonably
be expected to reduce Reseller EBITDA and will use its reasonable best efforts
(and cause each Seller to use its reasonable best efforts) to maximize Reseller
EBITDA. Without limiting the generality of the foregoing, during the period
from the Closing Date to the Adjustment Date and with respect only to the
Operations, Purchaser will use its reasonable best efforts to:
(a) Maintain all Seller FCC Authorizations (as defined below)
and Seller State Certificates, keep available the services of its
officers and employees and maintain satisfactory relationships with
the FCC and state authorities, licensors, suppliers, distributors,
customers and others having business relationships with Sellers; and
(b) Not, without the consent of the Shareholders' Committee
(which consent shall not be unreasonably withheld) transfer any
subscriber of a reseller on the System to another system of Purchaser.
In addition, during the period from the Closing Date to the Adjustment Date and
with respect only to the Operations, Purchaser will prepare separate financial
statements for the Sellers consistent with prior practices.
ARTICLE 2
CLOSING
2.1 TIME AND PLACE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Sutherland, Asbill & Brennan, 999 Peachtree Street, N.E., Atlanta, Georgia
30309-3996 at 10:00 a.m. on the later of (a) January 3, 1997 or (b) the third
business day after all conditions set forth in Article 7 have been satisfied or
waived in writing, but in neither case before such time as Purchaser has
received and reviewed any calculations necessary for the Closing and any
necessary review has been made in accordance with Section 1.4, or at such other
place and time as Purchaser and the Shareholders' Committee may agree (the
"Closing Date").
2.2 DELIVERY. To effect the transfer of the Shares referred to in
Section 1.1 hereof at the Closing, (a) the Shareholders shall deliver to
Purchaser certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank, and with the signature of
each Shareholder guaranteed by a national bank or member firm of a registered
national securities exchange, (b) the Shareholders shall deliver to Purchaser
the resignations of all officers and directors of each Seller, (c) Purchaser
and the Shareholders shall execute and deliver the Escrow Agreement
substantially in the form of Exhibit B, and (d) the parties shall execute and
deliver the agreements and other documents referred to in Article 8.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES BY SELLERS AND SHAREHOLDERS
Each Seller jointly and severally and each of the Shareholders other
than Collins hereby severally (based on the percentages set forth on Schedule
4.1 under "Custom Page, Inc.") and not jointly with each other represents and
warrants to Purchaser as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware or, in the case of HTB and MPC, New York, has the corporate
power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in the jurisdictions shown on Schedule 3.1, which include
all jurisdictions in which it is required to be qualified except where the
failure to be so qualified would not have a material adverse effect on the
Sellers, taken as a whole. The copies of each Seller's Certificate of
Incorporation and Bylaws, as amended to date, which have been delivered to
Purchaser, are complete and correct, and such instruments, as so amended, are
in full force and effect at the date hereof.
3.2 CAPITALIZATION. The authorized capital stock of (i) Mercury
consists of 3,000,000 shares of $.001 par value common stock, (ii) HTB consists
of 200 shares of no par value common stock, (iii) Custom consists of 200 shares
of no par value common stock, and (iv) MPC consists of 200 shares of no par
value common stock (collectively, "Seller Common Stock"). All of the issued and
outstanding shares of Seller Common Stock are duly authorized, validly issued,
fully paid and nonassessable, and were not issued in violation of any
preemptive rights. As of the date hereof: (i) the Shares are the only shares of
capital stock of any Seller issued and outstanding; and (ii) no shares of
capital stock of any Seller are held by such Seller as treasury shares. Except
as set forth on Schedule 3.2 and in this Section 3.2, there are no shares of
capital stock of any Seller outstanding, and there are no subscriptions,
options, convertible securities, calls, rights, warrants or other agreements,
claims or commitments of any nature whatsoever obligating any Seller to issue,
transfer, register with any securities commission or other authority, deliver
or sell or cause to be issued, transferred, so registered, delivered or sold,
additional shares of the capital stock or other securities of any Seller or
obligating any Seller to grant, extend or enter into any such agreement or
commitment.
3.3 AUTHORITY. Each Seller has the corporate power and authority to
execute and deliver this Agreement and any other agreements, instruments and
documents executed and delivered by such Seller pursuant to this Agreement
(this Agreement and such other agreements, instruments and documents are
collectively referred to as the "Seller Delivered Agreements") and to
consummate the transactions contemplated on the part of such Seller hereby and
thereby. The execution and delivery by each Seller of the Seller Delivered
Agreements and the consummation by each Seller of the transactions contemplated
on its part thereby have been duly authorized by all necessary action on the
part of each Seller. The Seller Delivered Agreements have been duly executed
and delivered by
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each Seller and each is a valid and binding obligation of each Seller
enforceable in accordance with its terms, except (i) as such enforcement may
be limited by bankruptcy, reorganization, insolvency or other laws and court
decisions relating to or affecting the enforcement of creditors' rights
generally (including but not limited to statutory or other law regarding
fraudulent transfers), and (ii) as to the availability of specific performance
or other equitable remedies.
3.4 NON-CONTRAVENTION. The execution and delivery of the Seller
Delivered Agreements by any Seller do not and the consummation by each Seller
of the transactions contemplated thereby does not and will not (i) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
any Seller, or (ii) except as set forth on Schedule 3.4, violate or conflict
with, or result (with the giving of notice or the lapse of time or both) in a
violation of or constitute a default under any provision of, or result in the
acceleration or termination of or entitle any party to accelerate or terminate
(whether after the giving of notice or lapse of time or both), any obligation
or benefit under, or result in the creation or imposition of any Lien upon any
of the assets or properties of any Seller or require consent, authorization or
approval of any person or entity pursuant to any provision of any "Material
Contract" (as defined below), "Intellectual Property Agreement" (as defined
below), "Seller License" (as defined below) or other license granted or issued
by any Governmental Entity to any Seller, law, ordinance, regulation, policy,
order or rule (collectively "Laws"), arbitration award, judgment or decree to
which any Seller is a party or by which it or its assets or properties are
bound and do not and will not violate or conflict with any other restriction of
any kind or character to which any Seller is subject or by which any of its
assets or properties may be bound, and the same does not and will not
constitute an event permitting termination of any Material Contract or
Intellectual Property Agreement to which any Seller is a party.
3.5 CONSENTS. Except as set forth on Schedule 3.5 and except for
any required filings with or approvals by the FCC under the Communications Act
of 1934, as amended, and the rules and policies promulgated thereunder (the
"Communications Act"), and state public utility or public service agencies, no
consent, authorization, clearance, order or approval of, or filing or
registration (collectively, "Authorizations") with, any executive, judicial or
other public authority, agency, department, bureau, division, unit or court or
other public person or entity (collectively, a "Governmental Entity") or any
other third party is required for, or in connection with, the execution and
delivery of the Seller Delivered Agreements by any Seller and the consummation
by each Seller of the transactions contemplated thereby.
3.6 SUBSIDIARIES. As used in this Agreement, the term "Subsidiary"
means, with respect to any person, corporation or other entity, any corporation
or other organization, whether incorporated or unincorporated, of which at
least a majority of the securities or interests having by the terms thereof
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is at
that time directly or indirectly owned or controlled by such person,
corporation or other entity. There are no Subsidiaries of any Seller.
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3.7 FINANCIAL STATEMENTS. Sellers have previously furnished
Purchaser with a true and complete copy of the combined balance sheet of
Sellers as of December 31, 1995 and the related combined statements of
operations and accumulated deficit and cash flows for the year then ended,
including the notes thereto, certified by Schneider Ehrlich Sosinsky Rodis &
Wengrover LLP, independent certified public accountants (the "Seller Audited
Financial Statements"). The Seller Audited Financial Statements and the
unaudited Seller financial statements for the six-month period ending June 30,
1996 (together with the Seller Audited Financial Statements and the audited and
unaudited financial statements to be provided pursuant to Section 6.13, the
"Seller Financial Statements") have been prepared from, and are in accordance
with, the books and records of Sellers and present fairly in all material
respects the financial position and results of operations of Sellers taken as a
whole as of the dates and for the periods indicated, in each case in conformity
with generally accepted accounting principles, consistently applied, except as
otherwise stated in the Seller Financial Statements and except for year-end
adjustments and the absence of footnotes in the case of unaudited statements,
and include all adjustments (consisting only of normal recurring accruals) that
are necessary for the fair presentation in all material respects of the
financial position of Sellers and the results of operations and cash flows
except as otherwise stated in the Seller Financial Statements. The accounts
receivable, net of allowance for doubtful accounts, of Sellers reflected in the
latest Seller Financial Statements, are valid, existing and fully collectible
without resort to legal proceedings.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
Schedule 3.8, since December 31, 1995, there has not been: (i) any material
adverse change in the assets, liabilities, business, financial condition or
results of operations of any Seller; (ii) any material damage, destruction,
loss or casualty to property or assets of any Seller, whether or not covered by
insurance; (iii) any strike, work stoppage or slowdown or other labor trouble
involving any Seller; (iv) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, capital stock or property) with
respect to the capital stock of any Seller; (v) any redemption or other
acquisition by any Seller of any of the capital stock of any Seller; (vi) any
split, combination, reclassification or other similar change in the outstanding
capital stock of any Seller; (vii) any transaction entered into by any Seller
other than in the ordinary course of business; or (viii) any agreement to do
any of the foregoing. Except as set forth on Schedule 3.8, since December 31,
1995, there has not been any issuance by any Seller of any shares, or options,
calls or commitments relating to shares of its capital stock, or any securities
or obligations convertible into or exchangeable for, or giving any person any
right to acquire from it, any shares of its capital stock. Except as disclosed
on Schedule 3.8, since June 30, 1996, there has not been any material adverse
change in the assets, liabilities, business, financial condition or results of
operations of Sellers as reflected in the June 30, 1996 financial statements
included in the Seller Financial Statements.
3.9 GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS. Except as
disclosed on Schedule 3.9, each Seller has been and is in material compliance
with all Laws of all Governmental Entities applicable to such Seller or its
business, properties or assets. Each Seller holds all licenses, permits,
certificates, franchises, registrations, consents, Authorizations or other
rights filed with, granted, issued by, or entered by any Governmental Entity,
including without limitation, the FCC, any
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state or local regulatory authorities and any state or local public service
commission or public utility commission asserting jurisdiction over the radio
facilities of such Seller (each, a "State Authority"), that are required for
the conduct of its business as now being conducted (collectively, "Seller
Licenses"). The Seller Licenses are set forth on Schedule 3.9 and are valid and
in full force and effect, and the terms of said Seller Licenses are not subject
to any restrictions or conditions that limit or would limit the operations of
the business of any Seller as presently conducted, other than restrictions or
conditions generally applicable to licenses of that type. The System and the
Seller Licenses granted, issued or entered by the FCC are subject to the
Communications Act. There are no proceedings pending or, to the best knowledge
of Sellers, complaints or petitions by others, or threatened proceedings,
before the FCC or any other Governmental Entity relating to the business or
operations of any Seller or the Seller Licenses, other than proceedings of a
rule-making nature intended to affect substantial segments of the paging
industry generally, and to the best knowledge of Sellers, there are no facts or
conditions that reasonably could be expected to constitute grounds for the FCC
to revoke, terminate, suspend, deny, annul, or impose conditions, other than
the customary conditions, on any renewal of any Seller Licenses, or impair the
ability of any Seller to consummate the transactions contemplated hereby or to
impose any fines, forfeitures or other penalties on any Seller. Schedule 3.9
contains a true and complete list of all licenses granted or issued by any
Governmental Authority to any Seller and of each application of any Seller
pending before the FCC (the "Seller Applications"), and each of the Seller
Licenses issued by the FCC (collectively, the "Seller FCC Authorizations").
Schedule 3.9 also contains a true and complete list of all material licenses,
permits, certificates, franchises, registrations, consents, approvals and
Authorizations of any Seller pending before or issued by any State Authority
(the "Seller State Certificates"), including all broadcasting permits pending
before or issued by any State Authority. The Seller FCC Authorizations and the
Seller State Certificates are the only such federal, state or local licenses,
permits, certificates, franchise registrations, consents and Authorizations
that are required for the conduct of the business and operations of Sellers as
currently conducted. Subject to the consent of the FCC and any applicable State
Authority, upon consummation of the transactions contemplated hereby, Purchaser
shall, through its ownership of all of the stock of Sellers, have the right to
utilize in its business all of the Seller FCC Authorizations and Seller State
Certificates.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
balance sheet as of June 30, 1996, or on Schedule 3.10 or any other Schedule
hereto and identified sufficiently to reflect that it is a debt, liability or
obligation, each Seller (i) did not have, as of June 30, 1996, debts,
liabilities or obligations, whether accrued, absolute, contingent or otherwise
and whether due or to become due (including without limitation any uninsured
liabilities resulting from failure to comply with any Laws); (ii) has not
incurred since June 30, 1996, any such debts, liabilities or obligations (other
than debts, liabilities or obligations incurred in the ordinary and usual
course of business after June 30, 1996 and except for expenses to be paid by
the Shareholders pursuant to Section 6.5), and (iii) since June 30, 1996, has
not conducted its business otherwise than in the ordinary and usual course;
provided, however, that if any debt, liability or obligation that otherwise
would require disclosure on Schedule 3.10 is the subject of a specific
representation or warranty in this Article 3 and such representation or
warranty is limited to the knowledge of Sellers or as to materiality, then such
knowledge or materiality qualification shall apply in this Section 3.10, as
well.
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3.11 TAX MATTERS. Except as disclosed on Schedule 3.11, all taxes
arising under the Internal Revenue Code of 1986, as amended (the "Code"), or
any Law promulgated thereunder, or arising under any federal, state, local or
foreign Law, including, without limitation, any income, profits, employment,
sales, use, occupation, excise, real property, personal property or ad valorem
taxes or any license or franchise fee or tax and all penalties and interest
related thereto (collectively, "Taxes"), due and payable by any Seller have
been paid or provided for in the Seller Financial Statements and are not
delinquent. All Taxes not yet due have been fully accrued on the books of
Sellers and adequate reserves have been established therefor. The charges,
accruals and reserves which have been provided in the Seller Financial
Statements in respect of Taxes for all fiscal periods prior to and ending at
June 30, 1996, are sufficient for the payment of all unpaid Taxes, whether or
not disputed, that are accrued or applicable for the period ended June 30,
1996, and for all years and periods ended prior thereto. There are no pending
claims asserted for Taxes against any Seller or outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of any Seller for any period. Each Seller has duly and timely filed all
federal, state, local and foreign tax returns and all other returns required to
be filed with respect to Taxes ("Tax Returns"). Sellers have delivered to
Purchaser true and correct copies of all Tax Returns filed with respect to
their 1995 taxable year. No Seller has filed a consent to the application of
Section 341(f) of the Code. Each Seller has made all estimated income tax
deposits and all other required Tax payments or deposits and has complied for
all prior periods with the Tax withholding provisions of all applicable
federal, state, local and other Laws. Each Seller has had a valid election
under Section 1362 of the Code and comparable provisions of state law to be
taxed as an S corporation and has qualified and will qualify as of the Closing
to be taxed as an S corporation for all of its taxable years ending on or prior
to the Closing Date; or if a Section 338(h)(10) election is not made in
accordance with Section 6.17(f), will qualify to be taxed as an S corporation
for all of its taxable years ending prior to the Closing Date.
3.12 TITLE TO PROPERTIES; ADEQUACY. Sellers have good and marketable
title to all properties and assets reflected in the balance sheet dated June
30, 1996 (or acquired after that date), or valid leasehold interests in all
properties and assets not reflected on such balance sheet but used by Sellers,
free and clear of any title defects or Liens, except (i) mortgages and Liens
securing debt reflected as liabilities on such balance sheet, (ii) Liens for
current Taxes and assessments not in default, (iii) mechanics', carriers',
workers', repair persons', statutory or common law Liens either not delinquent
or being contested in good faith and (iv) Liens, covenants, rights-of-way,
building or use restrictions, easements, exceptions, variances, reservations
and other matters or limitations of any kind, if any, which do not have an
adverse effect on Sellers' use of the real property affected for the purposes
currently used. No person other than a Seller is currently entitled to
possession of any of the properties of any Seller, whether owned or leased by
such Seller. The real property, buildings, structures and improvements owned or
leased by Sellers conform in all material respects to all applicable Laws,
including zoning regulations, none of which would upon consummation of the
transactions contemplated hereby materially and adversely interfere with the
use of such properties, buildings, structures or improvements for the purposes
for which they are now utilized. No Seller has received notice nor has
knowledge of (A) any pending or contemplated condemnation or eminent domain
proceeding affecting the real properties owned or leased by any Seller, (B) any
proposal for increasing the assessed value of any such properties for state,
county, local or other ad valorem Taxes
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or (C) any pending or, to the best knowledge of Sellers, contemplated
proceedings or public improvements that would result in the levy of any special
Tax or assessment against any such real properties for which a Seller would be
responsible; and there are no outstanding requirements or recommendations by
Sellers' insurance providers requiring or recommending any repairs or work to
be done with reference to any such properties. The properties and assets owned
or leased by Sellers are adequate for the conduct of its business as presently
conducted and are in good repair and operating condition, normal wear and tear
excepted. The properties and assets owned by Sellers constitute all of the
property and assets which Sellers use in connection with the operation of their
business as presently conducted, and, except as set forth on Schedule 3.4, the
consummation of the transactions contemplated by this Agreement will not impair
the ability of Purchaser to use such properties and assets.
3.13 BANK ACCOUNTS. Schedule 3.13 lists all bank, money market,
savings and similar accounts and safe deposit boxes of Sellers, specifying the
account numbers and the authorized signatories or persons having access to
them.
3.14 LEASES AND SUBLEASES. Schedule 3.14 sets forth each lease or
sublease pursuant to which any Seller leases or subleases any real or personal
property, either as lessor or lessee, except any lease or sublease of personal
property that (i) can be canceled by such Seller upon 30 or fewer days' notice
without cost or penalty, acceleration of rentals or exercise of an option to
purchase the leased property or (ii) involves an annual rental of $5,000 or
less, and the leases and subleases not required to be disclosed on Schedule
3.14 do not involve annual payments by or to the Sellers of more than $50,000
in the aggregate. Sellers have delivered to Purchaser true and correct copies
of all leases and subleases required to be set forth on Schedule 3.14, and: (A)
no Seller is in default under any lease or sublease to which it is a party or
by which it is bound; and so far as Sellers know, no other party is in default
under any such lease or sublease; (B) no act or event has occurred which with
notice or lapse of time, or both, would constitute a default by any Seller or,
to Sellers' knowledge, by any other party under any such lease or sublease; (C)
there is no outstanding notice of cancellation or termination in connection
therewith; and (D) each such lease or sublease is a valid and binding agreement
of Sellers and, to Sellers' knowledge, the other parties thereto which is in
full force and effect in accordance with its terms. Except as set forth on
Schedule 3.14, no consents of landlords are required to consummate the
transactions contemplated by this Agreement.
3.15 MATERIAL CONTRACTS. Schedule 3.15 contains a correct and
complete list of the following (collectively, the "Material Contracts"):
(a) all bonds, debentures, loan agreements, notes, mortgages,
deeds to secure debt, deeds of trust, reinsurance and other risk
sharing agreements, indentures or guaranties to which any Seller is a
party or by which any Seller or its properties or assets are bound;
(b) all leases (whether capital or operating) under which any
Seller is the lessee of real or personal property;
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(c) all employment agreements of Sellers; and
(d) all existing contracts and commitments to which any
Seller is a party or by which any Seller or its properties or assets
may be bound (other than those described in subparagraphs (a), (b) or
(c) and any "Employee Plans" (as defined below) and other than those
involving an annual commitment or annual payment by any party thereto
of $10,000 or less individually (but not more than $100,000 in the
aggregate)).
True and complete copies of all Material Contracts other than those between or
among the Shareholders being terminated at the Closing without liability or
obligation to Sellers, including all amendments thereto, have been made
available to Purchaser. Except as set forth on Schedule 3.15: (A) all Material
Contracts are in full force and effect and constitute the valid and binding
obligations of Sellers and to the best knowledge of Sellers the other parties
thereto; (B) there has not been and there currently is no default under any
Material Contract by any Seller or, to the knowledge of Sellers, any other
party thereto; (C) no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default by any Seller or, to the best knowledge of Sellers, any
other party thereunder entitling any party to terminate a Material Contract;
and (D) the continuation, validity and effectiveness of all such Material
Contracts under the current terms thereof and the current rights and
obligations of any Seller thereunder will in no way be affected, altered or
impaired by the consummation of the transactions contemplated hereby. Except as
disclosed on Schedule 3.15, there are no contracts or options to sell or lease
any properties or assets of any Seller.
3.16 LEGAL PROCEEDINGS. Except as set forth on Schedule 3.16, (i)
there is no written claim, action, suit or proceeding, other than proceedings
of a rule-making nature intended to affect substantial segments of the paging
industry generally, pending or, to the knowledge of Sellers, threatened against
any Seller or any of its properties or assets (or any of its officers or
directors in connection with the business of any Seller) before any arbitrator
or Governmental Entity, domestic or foreign, which in the event of a final
adverse determination, considered individually or in the aggregate with all
such other claims, actions, suits or proceedings, would adversely affect the
assets, liabilities, financial condition, results of operations or business of
any Seller, or which seeks treble damages, seeks damages in connection with any
of the transactions contemplated by this Agreement or seeks to prohibit,
restrict or delay consummation of the transactions contemplated hereby or any
of the conditions to consummation of the transactions contemplated hereby or to
limit the right of Purchaser to control any Seller or any aspect of the
business of any Seller after the Closing, nor is there any judgment, decree,
injunction, ruling or order of any Governmental Entity, arbitrator or any other
person outstanding against any Seller having any such effect, nor has any
Seller received notice of any investigation by any Governmental Entity,
arbitrator or any other person against any Seller which would have such effect;
and (ii) no Seller is a party to or bound by any judgment, decree, injunction,
ruling or order of any Governmental Entity, arbitrator or any other person
against a Seller that, when considered individually or in the aggregate with
all such other judgments, decrees, injunctions, rulings or orders, adversely
affects the assets, liabilities, financial condition, results of operations or
business of any Seller.
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3.17 LABOR RELATIONS. Except as disclosed on Schedule 3.17, each
Seller is in compliance in all material respects with all federal and state
Laws respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. There is no unlawful employment practice or discrimination
charge pending before the Equal Employment Opportunity Commission ("EEOC") or
any EEOC recognized state "referral agency." There is no unfair labor practice
charge or complaint against any Seller pending before the National Labor
Relations Board ("NLRB"). There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the best knowledge of Sellers, threatened
against or involving or affecting any Seller and no NLRB representation
question exists respecting any of its employees. No grievance or arbitration
proceeding is pending and no written claim therefor exists. There is no
collective bargaining agreement that is binding on any Seller. Except for any
Material Contract disclosed pursuant to Section 3.15, no Seller is a party to
or bound by any agreement, arrangement or understanding with any employee or
consultant that cannot be terminated on notice of ninety (90) or fewer days
without liability to any Seller or that entitles the employee or consultant to
receive any salary continuation or severance payment or retain any specified
position with any Seller.
3.18 INSIDER INTERESTS. Except as disclosed on Schedule 3.18, no
affiliate (an "Affiliate"), as that term is defined in Rule 405 of Regulation C
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), officer, director or Shareholder of any Seller (i) has any agreement
with any Seller or any interest in any property, real or personal, tangible or
intangible, including without limitation trade names or trademarks used in or
pertaining to the business of any Seller, except for the normal rights as a
stockholder or (ii) has any claim or cause of action against any Seller, except
for accrued compensation and benefits, expenses and similar obligations
incurred in the ordinary course of business (including reimbursement of medical
expenses pursuant to Employee Plans) with respect to employees of a Seller.
3.19 INTELLECTUAL PROPERTY. Except as set forth on Schedule 3.19
(and except for licenses of generally available computer programs), each Seller
owns, or owned during all periods of use, all patents, trademarks, service
marks, trade names, copyrights or applications for the foregoing, and all
computer programs, firmware and documentation relating thereto, and trade
secrets and other intellectual properties (collectively, the "Intellectual
Property") that are or were used in the conduct of the business of such Seller.
Except as disclosed on Schedule 3.19, and subject to FCC rules, each Seller has
and has had the unrestricted right to produce, market, license and sell all of
the products and services produced, marketed and licensed by it and the
consummation of the transactions contemplated by this Agreement will not alter
or impair any such rights. Schedule 3.19 lists all of the Intellectual Property
other than trade secrets, which have been separately disclosed to Purchaser,
and lists all licenses or other agreements (other than licenses of generally
available computer programs) pursuant to which any Seller has any right to use
or enjoy any Intellectual Property that is owned by others or pursuant to which
any Seller is under a duty of confidentiality with respect to any Intellectual
Property owned by others (the "Intellectual Property Agreements"). Except as
disclosed on Schedule 3.19, all of the Intellectual Property is owned free and
clear of all assignments, licenses, sublicenses, and Liens, including claims of
employees, former employees or independent contractors
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of any Seller, and no Seller has received notice that the use of any of the
Intellectual Property in the business of any Seller, any of the products or
services of any Seller or any products held for future sale or license by any
Seller violates or infringes upon the claimed rights of others and, to the best
of Sellers' knowledge, there is no valid basis for such a claim. As to the
Intellectual Property Agreements, except as set forth on Schedule 3.19, (i) all
are in full force and effect; (ii) no Seller is, nor to the best of the
knowledge of Sellers or the Shareholders, is any other party thereto, in
default under any Intellectual Property Agreement; (iii) no Seller is obligated
to make any royalty, transfer or similar payments under any Intellectual
Property Agreement, (iv) the rights of Sellers under the Intellectual Property
Agreements will not be affected by the consummation of the transactions
provided for herein, and (v) to the best of Sellers' knowledge, the exercise by
a Seller of its respective rights under any Intellectual Property Agreement
will not infringe upon the claimed rights of others.
3.20 INSURANCE. Each Seller maintains the amount and scope of all
insurance policies or contracts providing coverage as summarized on Schedule
3.20. All such policies or contracts of insurance are of a scope and, in the
opinion of management, in an amount usual and customary for businesses engaged
in the businesses of such Seller and are sufficient for compliance with all
Laws and of all agreements to which such Seller is a party. All insurance
policies pursuant to which any such insurance is provided are in full force and
effect and no effective notice of cancellation or termination of any such
insurance policies has been given to any Seller by the carrier of any such
policy. All premiums required to be paid in connection therewith have been paid
in full.
3.21 EMPLOYEE AND FRINGE BENEFIT PLANS.
(a) SCHEDULE OF PLANS. Schedule 3.21 lists each of the
following that any Seller or any ERISA Affiliate (as defined below)
either maintains, is required to contribute to or otherwise
participates in (or at any time maintained, contributed to or
otherwise participated in) or as to which any Seller or any ERISA
Affiliate has any unsatisfied liability or obligation, whether
accrued, contingent or otherwise:
(i) any employee pension benefit plan
("Pension/Profit-Sharing Plan") (as such term is defined in the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), including any pension, profit-sharing, retirement,
thrift or stock bonus plan;
(ii) any "multi-employer plan" ("Multi-Employer Plan")
(as such term is defined in ERISA);
(iii) any employee welfare benefit plan ("Welfare Plan")
(as such term is defined in ERISA); or
(iv) any other compensation, stock option, restricted
stock, fringe benefit or retirement plan, program, policy,
understanding or arrangement of any kind whatsoever, whether
formal or informal, not included in the foregoing and providing
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for benefits for, or the welfare of, any or all of the current
or former employees or agents of any Seller or any ERISA
Affiliate or their beneficiaries or dependents, including any
group health, life insurance, retiree medical, bonus, incentive
or severance arrangement, and all outstanding stock options,
restricted shares, phantom stock awards, stock appreciation
rights, performance share unit awards or cash or other similar
incentive awards thereunder;
(all of the foregoing in items (i), (ii), (iii) and (iv) being
referred to as "Employee Plans"). "ERISA Affiliate" means each trade
or business (whether or not incorporated) which together with a Seller
is treated as a single employer pursuant to Code Section 414(b), (c),
(m) or (o). Sellers have delivered to Purchaser (and Schedule 3.21
lists each item delivered) copies of the following: (1) each written
Employee Plan, as amended (including either the original plan or the
most recent restatement and all subsequent amendments); (2) the most
recent Internal Revenue Service ("IRS") determination letter issued
with respect to each Pension/Profit-Sharing Plan; (3) the latest
actuarial valuation (if any) for each Pension/Profit-Sharing Plan; (4)
all annual reports on the Form 5500 series; (5) each trust agreement,
insurance contract or document setting forth any other funding
arrangement, if any, with respect to each Employee Plan; (6) the most
recent ERISA summary plan description or other summary of plan
provisions distributed to participants or beneficiaries for each
Employee Plan; (7) each opinion or ruling from the IRS, the Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC")
concerning any Employee Plan; and (8) each Registration Statement,
amendment thereto and prospectus relating thereto filed with the
Securities and Exchange Commission (the "SEC") or furnished to
participants in connection with any Employee Plan.
(b) QUALIFICATION. Except as set forth on Schedule 3.21 each
Pension/Profit-Sharing Plan: (i) has received a favorable
determination letter from the IRS to the effect that it is qualified
under Code Sections 401(a) and 501, both as to the original plan and
all restatements or material amendments; (ii) has never been subject
to any assertion by any Governmental Entity that it is not so
qualified; and (iii) has been operated so that it has always been so
qualified.
(c) ACCRUALS; FUNDING.
(i) Pension/Profit-Sharing Plans. None of the Employee
Plans is a Pension/Profit-Sharing Plan subject to ERISA Title
IV (including those for retired, terminated or other former
employees and agents).
(ii) Other Plans. Schedule 3.21 fully and accurately
sets forth any funding liability under each Employee Plan not
subject to ERISA Title IV, whether insured or otherwise,
specifically setting forth any liabilities under any retiree
medical arrangement and specifically designating any insured
plan which provides for retroactive premium or other
adjustments. The levels of insurance reserves and accrued
liabilities with
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regard to each such Employee Plan are reasonable and are
sufficient to provide for all incurred but unreported claims
and any retroactive premium adjustments.
(iii) Contributions. Except as set forth on Schedule
3.21: (1) Each Seller and each ERISA Affiliate have made full
and timely payment of all amounts required to be contributed
under the terms of each Employee Plan and applicable Law, or
required to be paid as expenses under such Employee Plan,
including PBGC premiums and amounts required to be contributed
under Code Section 412; (2) all contributions have been made in
accordance with the actuarial recommendations; and (3) no
excise taxes are assessable as a result of any nondeductible or
other contributions made or not made to an Employee Plan.
(d) REPORTING AND DISCLOSURE. Summary plan descriptions and
all other returns, reports, registration statements, prospectuses,
documents, statements and communications which are required to have
been filed, published or disseminated under ERISA or other Law and the
rules and regulations promulgated by the Department of Labor under
ERISA and the Treasury Department or by the SEC with respect to the
Employee Plans have been so filed, published or disseminated.
(e) PROHIBITED TRANSACTIONS; TERMINATIONS; OTHER REPORTABLE
EVENTS. Except as set forth on Schedule 3.21:
(i) neither any Seller, any ERISA Affiliate, any
Employee Plan, any trust or arrangement created under any of
them, nor any trustee, fiduciary, custodian, administrator or
any person or entity holding or controlling assets of any of
the Employee Plans has engaged in any "prohibited transaction"
(as such term is defined in ERISA or the Code) which could
subject any of the foregoing persons or entities, or any person
or entity dealing with them, to any tax, penalty or other cost
or liability of any kind; and
(ii) no termination, whether partial or complete, has
occurred with respect to any Employee Plan.
(f) CLAIMS FOR BENEFITS. Other than claims for benefits
arising in the ordinary course of the administration and operation of
the Employee Plans, no claims, investigations or arbitrations are
pending or threatened against any Employee Plan or against any Seller,
any ERISA Affiliate, any trust or arrangement created under or as part
of any Employee Plan, any trustee, fiduciary, custodian, administrator
or other person or entity holding or controlling assets of any
Employee Plan, and no basis to anticipate any such claim or claims
exists.
(g) OTHER. Each Seller and all ERISA Affiliates have fully
complied with all of their obligations under each of the Employee
Plans and with all provisions of ERISA and any and all other Laws
applicable to the Employee Plans. No written notice has been received
by any
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Seller of any claim by any participant in the Employee Plans of any
violations of such Laws, and to the best knowledge of Sellers, no such
claims are pending or threatened.
(h) CREATION OF OBLIGATIONS BY REASON OF SALE OF THE SHARES.
Except as set forth on Schedule 3.21, the execution and delivery of
this Agreement and the consummation of the transactions contemplated
by this Agreement will not constitute an event under any Employee Plan
that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee, including any obligation to make a payment
that would be nondeductible under Code Section 280G or any other Code
provision.
(i) NO MULTI-EMPLOYER PLANS. Except as set forth on Schedule
3.21, none of the Employee Plans is a Multi-Employer Plan, and neither
any Seller nor any ERISA Affiliate has any liability, joint or
otherwise, for any withdrawal liability (potential, contingent or
otherwise) under ERISA Title IV for a complete or partial withdrawal
from any Multi-Employer Plan.
3.22 [INTENTIONALLY OMITTED]
3.23 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.23:
(a) Each Seller has obtained all Authorizations, kept all
records and made all filings required by applicable Environmental Laws
(as defined below) with respect to emissions or discharges into the
environment and the proper disposal of any hazardous wastes, hazardous
substances, or other hazardous or toxic materials as defined in the
Environmental Laws. None of the properties occupied or used by any
Seller has been contaminated with any such hazardous wastes, hazardous
substances, or other hazardous or toxic materials by a Seller. Each
Seller has conducted its operations and will consummate the
transactions contemplated by this Agreement in compliance with all
Environmental Laws and all Authorizations obtained pursuant thereto.
(b) No Seller has received any notice from the United States
Environmental Protection Agency that it is a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund Notice"), any citation from any Governmental
Entity for noncompliance with its requirements with respect to air,
water or environmental pollution, or the improper storage, use or
discharge of any hazardous waste, other waste or other substance or
material pertaining to its business ("Citations") or any written
notice from any private party alleging any such noncompliance or
impropriety; and there are no pending or unresolved Superfund Notices,
Citations or written notices from private parties alleging any such
noncompliance or impropriety.
(c) The term "Environmental Laws" shall mean all Laws relating
to pollution or protection of the environment.
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3.24 CORPORATE RECORDS. Within a reasonable time prior to the
Closing, the corporate record books (including the share records) of each
Seller will be complete, accurate and up to date with all necessary signatures
and set forth all meetings and actions taken by the stockholders and directors
of such Seller and all transactions involving the shares of such Seller (and
contain all canceled share certificates) and shall be delivered to Purchaser
for review.
3.25 ACCURACY OF SCHEDULES, CERTIFICATES AND DOCUMENTS. All
information concerning Sellers contained in this Agreement, in any certificate
furnished to Purchaser pursuant hereto and in each schedule hereto is both
complete (in that, except as otherwise stated therein, it represents all the
information called for and does not omit to state any material fact necessary
to make the statements contained therein not misleading) and accurate in all
material respects; and all documents furnished to Purchaser pursuant to this
Agreement as being documents described in this Agreement or in any schedule
attached hereto are true and correct copies of the documents which they purport
to represent.
3.26 BROKERS, FINDERS AND INVESTMENT BANKERS. Neither any Seller nor
any of its officers, directors or employees have employed any broker, finder or
investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' or similar fees in
connection with the transactions contemplated by this Agreement, except that
Sellers have arrangements with Daniels & Associates, L.P., the complete terms
of which have been disclosed to Purchaser and the cost of which shall be borne
by the Shareholders.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders other than, with respect to the
representations and warranties in Sections 4.7, 4.8, 4.9 and 4.11, Collins,
severally represents and warrants to Purchaser with respect to himself and his
ownership of Shares as follows:
4.1 OWNERSHIP OF SHARES. Such Shareholder owns of record and
beneficially the number of Shares of each Seller set forth opposite the name of
such Shareholder on Schedule 4.1. Such Shareholder owns all right, title and
interest in and to such Shares, free and clear of all Liens (including those
for federal or state estate or inheritance taxes), options, rights of refusal
or similar rights or other transfer restrictions of any nature whatsoever
(including any arising from any pending or threatened litigation) other than
restrictions on transfers arising out of applicable federal and state
securities Laws and except as provided in a Shareholders' Agreement to be
terminated at or prior to the Closing. Except as set forth on Schedule 4.1,
such Shareholder owns no other security of any Seller.
4.2 AUTHORIZATION. With respect to this Agreement and any other
agreements, instruments and documents executed and delivered by such
Shareholder pursuant to this Agreement (this
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Agreement and such other agreements, instruments and documents, are
collectively referred to as the "Shareholder Delivered Agreements"): (i) such
Shareholder has the right, power and authority to enter into the Shareholder
Delivered Agreements executed and delivered by him and to consummate the
transactions contemplated by, and otherwise to comply with and perform his
obligations under, them; and (ii) the Shareholder Delivered Agreements will,
when delivered, constitute valid and binding obligations of such Shareholder
enforceable against such Shareholder in accordance with their terms.
4.3 ABSENCE OF VIOLATIONS OR CONFLICTS. The execution and delivery
of the Shareholder Delivered Agreements and the consummation by such
Shareholder of the transactions contemplated by, or other compliance with the
performance under, them do not and will not with the passing of time or giving
of notice or both: (i) constitute a violation of, be in conflict with,
constitute a default or require any payment under, permit a termination of, or
result in the creation or imposition of any Lien upon any assets of any Seller
under (A) any contract, agreement, commitment, undertaking or understanding
(including rights of refusal or similar rights or other transfer restrictions)
to which such Shareholder is a party or to which he or his properties are
subject or bound, (B) any judgment, decree or order of any Governmental Entity
to which such Shareholder or his properties are subject or bound, or (C) any
applicable Laws; or (ii) create, or cause the acceleration of the maturity of,
any debt, obligation or liability of such Shareholder that would result in any
Lien or other claim upon the assets of any Seller.
4.4 NO CONSENTS REQUIRED. Except as set forth on Schedule 4.4, no
Authorization of or with any Governmental Entity or any other Authorization of
or with any other third party, on the part of such Shareholder is required in
connection with his execution or delivery of the Shareholder Delivered
Agreements or the consummation of the transactions contemplated by, or other
compliance with the performance under, such Shareholder Delivered Agreements by
such Shareholder.
4.5 NO CLAIMS AGAINST SELLERS. Except as set forth on Schedule 4.5,
such Shareholder has no claim against any Seller, except for accrued
compensation and benefits and expenses or similar obligations incurred in the
ordinary course of business (including reimbursement of medical expenses
pursuant to the Employee Plans disclosed pursuant to this Agreement) with
respect to Shareholders who are employees of such Seller, and except as
otherwise specifically provided in this Agreement.
4.6 LITIGATION RELATED TO THIS AGREEMENT. Such Shareholder is not a
party to, or subject to any judgment, decree or order entered in, any lawsuit
or proceeding brought by any Governmental Entity or other third party seeking
to prevent the execution of this Agreement or the consummation of the
transactions contemplated hereby.
4.7 INVESTMENT INTENT. Such Shareholder will acquire the securities
issued pursuant to this Agreement, for his own account, to hold for investment,
and with no present intention of dividing his participation with others or
reselling or otherwise participating, directly or indirectly, in a distribution
thereof (other than a transfer by Allen Wolfbiss of no more than 3% of the
shares of Purchaser Common Stock acquired by him pursuant to this Agreement,
provided that any recipient of such
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shares shall be subject to the restrictions set forth in this Agreement without
reference to any exceptions thereto), and he will not make any sale, transfer,
or other disposition of the Purchaser Common Stock in violation of the
Securities Act or any applicable state securities laws (the "State Acts"). Such
Shareholder agrees that there will be placed on the certificate for his
Purchaser Common Stock, or any substitutions for it, a legend stating in
substance:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS IN
RELIANCE ON ONE OR MORE EXEMPTIONS THEREUNDER AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN TRANSACTIONS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT THEREUNDER. THESE SECURITIES HAVE
BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973,"
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO
AN EFFECTIVE REGISTRATION UNDER SUCH ACT. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED SEPTEMBER 30, 1996 AMONG THE CORPORATION AND THE
HOLDER OF THESE SECURITIES AND OTHERS. ANY ATTEMPTED
TRANSFER IN VIOLATION OF THE AGREEMENT SHALL BE NULL AND
VOID. A COPY OF THE AGREEMENT OR A SUMMARY OF SUCH
RESTRICTIONS IS AVAILABLE FROM THE CORPORATION UPON
REQUEST.
4.8 ACCESS TO INFORMATION. Such Shareholder has been given access
to all material and relevant information concerning Purchaser, thereby enabling
such Shareholder to make an informed investment decision concerning the
Purchaser Common Stock. Such Shareholder has relied solely upon an independent
investigation made by him and his representatives, if any, and has, prior to
the date hereof, been given access to and the opportunity to examine data and
information relating to Purchaser. In making his investment decision to acquire
the Purchaser Common Stock pursuant to this Agreement, such Shareholder is not
relying on any oral or written representations or assurances from Purchaser or
any other person or any representative of Purchaser or any other person other
than as set forth in this Agreement. Without limiting the foregoing, such
Shareholder has reviewed Purchaser's Registration Statement on Form S-1,
effective February 26, 1996 (the "S-1"), and Purchaser's Quarterly Reports on
Form 10-Q for the quarters ended March 31 and June 30, 1996,
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respectively (the "10-Qs") and Purchaser's Current Reports on Form 8-K dated
July 3, 1996 and September 13, 1996 (the "8-Ks"). The foregoing does not limit
or modify the representations and warranties of Purchaser made in this
Agreement or such Shareholders' right to rely thereon. Such Shareholder is an
"accredited investor" as defined in Rule 501 of Regulation D under the
Securities Act.
4.9 ECONOMIC RISK. Such Shareholder represents that he is able to
bear the economic risk of an investment in the Purchaser Common Stock. In
making this statement, such Shareholder hereby represents and warrants to
Purchaser that he has adequate means of providing for his current needs and
contingencies; he is able to afford to hold the Purchaser Common Stock and he
further represents that he has such knowledge and experience in financial and
business matters that the he is capable of evaluating the merits and risks of
the investment in the Purchaser Common Stock. Further, such Shareholder
represents that he has no present need for liquidity in the Purchaser Common
Stock and is willing to accept such investment risks.
4.10 TAX ADVICE. Such Shareholder has reviewed with his tax advisor
the U.S. federal, state, local and foreign tax consequences of an investment in
the Purchaser Common Stock and the transactions contemplated by this Agreement.
Such Shareholder is relying solely on such advisors and not on any statements
or representations of Purchaser or any of its agents and understands that he
(and not Purchaser) shall be responsible for his own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement.
4.11 OFFERING MEMORANDUM. Prior to the date of this Agreement, such
Shareholder has received an offering memorandum in connection with his approval
of this Agreement. Such Shareholder acknowledges and agrees that the
Shareholders are responsible for the accuracy of the information supplied by
Sellers or the Shareholders for inclusion therein, and Purchaser is responsible
for the accuracy of the information supplied by Purchaser for inclusion
therein.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers and the Shareholders as
follows:
5.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to own all its properties and assets
and to carry on its business as it is now being conducted, and is duly
qualified to do business and is in good standing in the jurisdictions shown on
Schedule 5.1, which include all jurisdictions in which it is required to be
qualified and the failure to be so qualified would materially and adversely
affect the financial condition, business or results of operations of Purchaser.
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The copies of Purchaser's Certificate of Incorporation and Bylaws, in each case
as amended to date, which have been delivered to Sellers, are complete and
correct, and such instruments, as so amended, are in full force and effect.
5.2 CAPITALIZATION. The authorized capital stock of Purchaser
consists of 70,000,000 shares of Purchaser Common Stock and 5,000,000 shares of
$.01 par value preferred stock (the "Purchaser Preferred Stock"). As of August
13, 1996, 14,426,576 shares of Purchaser Common Stock were duly authorized,
validly issued and outstanding, fully paid and non-assessable, were not issued
in violation of any preemptive rights, and were the only shares of Purchaser's
capital stock issued and outstanding, and no shares of Purchaser Common Stock
were held in the treasury of Purchaser. No Purchaser Preferred Stock is issued
or outstanding or held in the treasury of Purchaser.
5.3 AUTHORITY. Purchaser has the corporate power and authority to
execute and deliver this Agreement and any other agreements, instruments and
documents executed and delivered by Purchaser pursuant to this Agreement (this
Agreement and such other agreements, instruments and documents are collectively
referred to as the "Purchaser Delivered Agreements") and to consummate the
transactions contemplated on the part of Purchaser thereby. The execution and
delivery by Purchaser of the Purchaser Delivered Agreements and the
consummation by Purchaser of the transactions contemplated on its part thereby
have been duly authorized by its Board of Directors. No other corporate action
on the part of Purchaser is necessary to authorize the execution and delivery
of the Purchaser Delivered Agreements by Purchaser or the consummation by
Purchaser of the transactions contemplated thereby. The Purchaser Delivered
Agreements have been duly executed and delivered by Purchaser, and each is a
valid and binding obligation of Purchaser enforceable in accordance with its
terms, except (i) as such enforcement may be limited by bankruptcy,
reorganization, insolvency or other laws and court decisions relating to or
affecting the enforcement of creditors' rights generally (including but not
limited to statutory or other law regarding fraudulent transfers), and (ii) as
to the availability of specific performance or other equitable remedies.
5.4 NON-CONTRAVENTION. The execution and delivery of the Purchaser
Delivered Agreements by Purchaser do not and the consummation by Purchaser of
the transactions contemplated thereby does not and will not (i) violate or
conflict with any provision of the Certificate of Incorporation or Bylaws of
Purchaser or (ii) violate or conflict with, or result (with the giving of
notice or the lapse of time or both) in a violation of or constitute a default
under, any provision of, or result in the acceleration or termination of or
entitle any party to accelerate or terminate (whether after the giving of
notice or lapse of time or both) any obligation or benefit under, or result in
the creation or imposition of any Lien upon any of the assets or property of
Purchaser pursuant to any provision of, any contract, agreement, commitment,
undertaking, arrangement or understanding to which Purchaser or any of its
Subsidiaries is a party or bound or to which any of their assets or properties
are subject that is required to be disclosed in response to Items 601(b)(4) and
601(b)(10) of Regulation S-K promulgated under the Securities Act (a "Purchaser
Material Contract"), Law, order, arbitration award, judgment or decree to which
Purchaser is a party or by which Purchaser or
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its assets or properties is bound, and the same does not and will not
constitute an event permitting termination of any Purchaser Material Contract.
5.5 CONSENTS. Except for any required filings with the SEC under
Regulation D or any state securities commissions, any required filings with or
approvals by the FCC under the Communications Act and state public utility or
public service agencies, and as reflected on Schedule 5.5, no Authorization of
any Governmental Entity is required for, or in connection with, the execution
and delivery of the Purchaser Delivered Agreements by Purchaser and the
consummation by Purchaser of the transactions contemplated thereby, where the
failure to make such filing or registration or to obtain such consent,
authorization, order or approval would have a material and adverse effect on
the ability of Purchaser to consummate the transactions contemplated by the
Purchaser Delivered Agreements.
5.6 REPORTS. The S-1 and the 10-Qs and 8-Ks did not, as of their
respective dates, contain any 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 the light of the circumstances under which they were
made, not misleading.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1996,
there has not been any material adverse change in the financial condition,
business or results of operations of Purchaser and its Subsidiaries, taken as a
whole. All information concerning Purchaser and its Subsidiaries contained in
this Agreement, in any certificate furnished to the Shareholders pursuant
hereto and in each schedule hereto is both complete (in that, except as
otherwise stated therein, it represents all the information called for and does
not omit to state any material fact necessary to make the statements contained
therein not misleading) and accurate in all material respects; and all
documents furnished to the Shareholders pursuant to this Agreement as being
documents described in this Agreement or in any schedule attached hereto are
true and correct copies of the documents which they purport to represent.
5.8 BROKERS, FINDERS AND INVESTMENT BANKERS. Neither Purchaser nor
any of its officers, directors or employees have employed any broker, finder or
investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' or similar fees in
connection with the transactions contemplated by this Agreement.
5.9 DELIVERY OF INFORMATION. Purchaser has delivered to
NationsBank, N.A. (South) ("NationsBank") certain information regarding Sellers
and the transactions contemplated by this Agreement required by Section 6.12 of
the Credit Agreement, dated as of August 8, 1996, by and among Purchaser, PNI
Systems, LLC and NationsBank (the "Credit Agreement"), and, on the basis of
such information, NationsBank has by letter dated September 26, 1996, consented
to PNI's consummation of the transactions contemplated by this Agreement but
has not committed to provide financing therefor.
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5.10 REGULATORY QUALIFICATIONS. Purchaser has no knowledge of any
information concerning Purchaser or its principals that could cause the FCC or
any other Governmental Entity not to issue all consents and approvals necessary
for the consummation of the transactions contemplated by this Agreement and for
the operation of the System subsequent thereto.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 CONDUCT OF BUSINESS PENDING THE CLOSING. During the period from
the date hereof to the Closing Date (except as required by Law, as set forth on
Schedule 6.1 and for the transactions contemplated by this Agreement):
(a) OPERATION BY SELLERS IN THE ORDINARY COURSE OF BUSINESS.
Each Seller shall conduct its operations according to its ordinary and
usual course of business in substantially the same manner as
heretofore conducted and use its reasonable best efforts to preserve
intact its business organization, to maintain all Seller FCC
Authorizations and Seller State Certificates, to keep available the
services of its officers and employees, and to maintain satisfactory
relationships with the FCC and relevant State Authorities, licensors,
suppliers, distributors, customers and others having business
relationships with it. Each Seller shall prepare and file all federal,
state, local and foreign returns for Taxes and other Tax reports,
filings and amendments thereto required to be filed by it, and allow
Purchaser, at its request, to review all such returns, reports,
filings and amendments at such Seller's offices prior to the filing
thereof, which review shall not interfere with the timely filing of
such returns.
(b) FORBEARANCES BY SELLERS. No Seller shall without the
prior written consent of Purchaser, which consent shall not be
unreasonably withheld:
(i) except as otherwise permitted pursuant to clause
(vi) below, incur any debt, liability or obligation, direct or
indirect, whether accrued, absolute, contingent or otherwise,
other than current liabilities incurred in the ordinary and
usual course of business, or fail to pay any debt when due or
take or fail to take any action, the taking of which, or the
failure to take of which, would permit any debt to be
accelerated;
(ii) assume, guarantee, endorse or otherwise become
responsible for the obligations of any other individual, firm
or corporation, other than endorsements of negotiable
instruments in the ordinary course of business, or make any
loans or advances to any individual, firm or corporation;
(iii) declare, set aside or pay any dividend in property
with respect to its capital stock or declare or make any
distribution in property on, redeem, or purchase or otherwise
acquire any Seller Common Stock, or split, combine or otherwise
similarly change the outstanding Seller Common Stock, or
authorize the creation or issuance of or issue or sell any
shares of its capital stock or any securities or obligations
convertible
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into or exchangeable for, or giving any person any right to
acquire from it, any shares of its capital stock, or agree to
take any such action.
(iv) mortgage, pledge or otherwise encumber any
property or asset, except in the ordinary and usual course of
business;
(v) sell, lease, transfer or dispose of any of its
properties or assets, waive or release any rights or cancel,
compromise, release or assign any indebtedness owed to it or
any claims held by it, except in the ordinary and usual course
of business but in no event shall any such sale, lease,
transfer, disposition, waiver, release, cancellation,
compromise or assignment exceed $25,000;
(vi) make any investment of a capital nature either by
purchase of stock or securities, contributions to capital,
property transfers or otherwise, or by the purchase of any
property or assets of any other individual, firm or
corporation, except in the ordinary and usual course of
business but in no event greater than $25,000; provided,
however, that no prior written consent shall be required from
Purchaser with respect to purchases of pagers in the ordinary
course of business in an amount less than $250,000 in the
aggregate;
(vii) fail to perform its material obligations under
Material Contracts (except those being contested in good faith)
or enter into, assume or amend in any material respect any
contract or commitment that would be a Material Contract other
than contracts to provide services entered into in the ordinary
and usual course of business;
(viii) except for regularly scheduled increases in
accordance, both as to timing and amount, with normal prior
practice, increase in any manner the compensation or fringe
benefits of any of its officers or employees or pay or agree to
pay any pension or retirement allowance not required by any
existing plan or agreement to any such officers or employees,
or commit itself to or enter into any employment agreement or
any incentive compensation, deferred compensation, profit
sharing, stock option, stock purchase, savings, consulting,
retirement, pension or other "fringe benefit" plan, award or
arrangement with or for the benefit of any officer, employee or
other person;
(ix) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or
terminated or any of the coverage thereunder to lapse, unless
such Seller makes reasonable efforts to obtain simultaneously
with such termination or cancellation replacement policies
providing substantially the same coverage on commercially
reasonable terms and, if so available, such policies are in
full force and effect;
(x) amend its Certificate of Incorporation or Bylaws;
(xi) enter into any union, collective bargaining or
similar agreement; or
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(xii) enter into an agreement to take any of the actions
described in clauses (i) through (xi).
(c) CONTROL OF SYSTEM. Nothing contained in this Agreement or
in the Agency Agreement of even date herewith between Purchaser and
the Sellers (the "Agency Agreement") shall be construed as giving
Purchaser any right to supervise, directly or indirectly, or direct
the operation of, the System.
In connection with the continued operation of the business of Sellers between
the date of this Agreement and the Closing Date, Sellers shall confer in good
faith on a regular basis with one or more representatives of Purchaser
designated in writing to receive reports on operational matters of materiality
and the general status of ongoing operations. Each Seller acknowledges that
Purchaser does not thereby waive any rights it may have under this Agreement as
a result of this covenant to engage in consultations nor shall Purchaser be
responsible for any decisions made by any Seller's officers and directors with
respect to matters which are the subject of such consultation, unless Purchaser
has consented in writing to a particular transaction as contemplated in this
Section 6.1.
6.2 REASONABLE BEST EFFORTS; FURTHER ASSURANCES; COOPERATION.
Subject to the other provisions in this Agreement, the parties hereto shall in
good faith perform their obligations under this Agreement and shall each use
their reasonable best efforts to do, or cause to be done, all things necessary,
proper or advisable under applicable Law to obtain all Authorizations and
orders and satisfy all conditions to the obligations of the parties under this
Agreement and to cause the transactions contemplated by this Agreement to be
carried out promptly in accordance with the terms hereof and shall cooperate
fully with each other and their respective officers, directors, employees,
agents, counsel, accountants and other designees in connection with any steps
required to be taken as part of their respective obligations under this
Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably requested by the other parties hereto in order to consummate more
effectively the transactions contemplated by this Agreement and provide such
information and access to Sellers' books and records as are appropriate to
enable any party hereto to make or review any calculations required to be made
under this Agreement.
6.3 INVESTIGATION; CONFIDENTIALITY.
(a) Purchaser may, prior to the Closing Date, make or cause
to be made, such investigation of the business and properties of any
Seller and its financial and legal condition as Purchaser deems
necessary or advisable to familiarize itself therewith, provided that
such investigations shall not unreasonably interfere with normal
operations of such Seller. Sellers agree to permit Purchaser and its
authorized representatives to have or cause them to be permitted to
have, after the date hereof, full access to the premises, books and
records of Sellers with reasonable prior notice and at reasonable
hours, and the officers of Sellers shall furnish Purchaser with such
financial and operating data and other information with respect to
Sellers' businesses and properties as Purchaser shall from time to
time reasonably request. Sellers agree to permit Purchaser and its
authorized representatives to conduct, at Purchaser's expense, an
audit of Sellers' books and records, and Sellers will request their
auditing firm
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to permit Purchaser and its representatives, including its auditing
firm, to review the work papers of the auditing firm of Sellers
relating to their examination of the Seller Audited Financial
Statements. No investigation by Purchaser heretofore or hereafter made
shall affect the representations and warranties of Sellers, and each
such representation and warranty shall survive any such investigation,
subject to Article 10.
(b) Except as contemplated by this Agreement or as necessary
to carry out the transactions contemplated hereby, all information or
documents furnished to Purchaser shall be kept confidential by
Purchaser (and Purchaser shall cause its agents and representatives to
maintain the confidentiality of such documents) and in the event such
transactions are not consummated, Purchaser shall return to Sellers
all information furnished hereunder (including all copies thereof) and
shall not thereafter use the same for any purpose until such time as
such information becomes publicly available from sources other than
parties to this Agreement, except to the extent (i) it was known by
Purchaser prior to being received, (ii) it is or thereafter becomes
lawfully obtained from other sources not under obligation of
confidentiality to a Seller, (iii) Purchaser is legally required to
disclose the same to any Governmental Entity having jurisdiction over
Purchaser or as otherwise may be required by applicable law, or (iv)
such duty of confidentiality is waived by a Seller.
(c) Purchaser acknowledges that any violation of the
provisions of this Section 6.3 may cause irreparable harm to Sellers
or the Shareholders and that damages are not an adequate remedy.
Purchaser therefore agrees that Sellers and the Shareholders shall be
entitled to an injunction by an appropriate court in the appropriate
jurisdiction, enjoining, prohibiting and restraining Purchaser from
the continuance of any such violation, in addition to any monetary
damages that might occur by reason of the violation of this Section
6.3. The remedies provided in this Section 6.3 are cumulative and
shall not exclude any other remedies to which either party to this
Agreement may be entitled under this Agreement or applicable Law, and
the exercise of a remedy shall not be deemed an election excluding any
other remedy (any such claim by any other party to this Agreement
being hereby waived).
6.4 [INTENTIONALLY OMITTED.]
6.5 EXPENSES. Except as otherwise provided in this Agreement,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses (including any brokerage commissions or any finder's or investment
banker's fees and including attorney's and accountant's fees) incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses; provided that the Shareholders
acknowledge and agree that all fees and expenses of their advisors in
connection with this Agreement and the transactions contemplated hereby,
including without limitation the fees and expenses of Daniels & Associates,
L.P., even if such fees and expenses relate to corporate action, are the
expenses of the Shareholders, and not of Sellers, and Purchaser acknowledges
and agrees that the time and expenses of Seller personnel and their costs are
expenses of Sellers, and not of the Shareholders; and provided, further, that
the Shareholders' reasonable costs of travel to Atlanta, Georgia for the
signing of this Agreement shall be borne by Purchaser.
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6.6 NO SOLICITATION OF TRANSACTIONS. Prior to the termination and
abandonment of this Agreement, neither any Seller nor any Shareholder will, or
will direct their Affiliates, officers, directors, and representatives to: (i)
solicit, initiate or encourage submission of proposals or offers from any
person other than Purchaser relating to any acquisition or purchase of all or a
material part of the stock or assets of, or any merger, consolidation, share
exchange or business combination with, or any recapitalization, restructuring
or issuance or offering of debt or equity securities of, any Seller (an
"Acquisition Proposal"); or (ii) participate in any discussions or negotiations
regarding, or furnish to any person other than Purchaser and its
representatives, any information with respect to, or otherwise cooperate in any
way or assist, facilitate or encourage, any Acquisition Proposal by any person
other than Purchaser. Sellers and the Shareholders will immediately cease and
cause to be terminated any existing activity, discussions or negotiations with
any person other than Purchaser and its representatives conducted prior to the
execution and delivery of this Agreement with respect to any Acquisition
Proposal. If, notwithstanding the foregoing, any Seller, the Shareholders or
any of their Affiliates or representatives should receive any Acquisition
Proposal or any inquiry regarding any such proposal from a third party, the
person or entity receiving such a proposal shall promptly inform Purchaser.
6.7 SHARE TRANSFER RESTRICTIONS. In addition to restrictions on
transfer imposed by the Securities Act and the State Acts, no Shareholder shall
transfer any Purchaser Common Stock received by him pursuant to this Agreement
for six months after issuance, except for transfers to immediate family members
or trusts for the benefit thereof for estate planning purposes and except that
Allen Wolfbiss may give not more than 3% of the shares of Purchaser Common
Stock received by him pursuant to this Agreement, provided, in each case, that
such transfers are in compliance with the Securities Act and the State Acts and
that any transferee or donee shall be subject to the restrictions on transfer
imposed by this Agreement, without regard to any exceptions thereto, and
imposed the Securities Act and the State Acts.
6.8 NASDAQ LISTING. Prior to the Closing Date, Purchaser shall
cause the shares of Purchaser Common Stock to be issued pursuant to this
Agreement to be authorized for listing on the Nasdaq National Market, upon
official notice of issuance.
6.9 PUBLIC ANNOUNCEMENTS. The timing and content of all public
announcements regarding any aspect of this Agreement to the financial
community, Governmental Entities, employees or the general public shall be
mutually agreed upon in advance unless Purchaser or a Seller is advised by
counsel that any such announcement or other disclosure not mutually agreed upon
in advance is required to be made by Law or applicable rules of the Nasdaq
National Market and then only after making a reasonable attempt to comply with
provisions of this Section 6.9.
6.10 EMPLOYEE MATTERS.
(a) EMPLOYEE BENEFITS. Purchaser intends to offer to hire all
or substantially all of the employees of the Seller as of the Closing
Date ("Continuing Employees"). Purchaser shall take all action
necessary or appropriate to permit the Continuing Employees to
participate after the Closing Date in Purchaser's employee benefit
programs and to cause Sellers to take all actions necessary or
appropriate to adopt Purchaser's employee benefit
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programs effective as of the Closing Date. Purchaser will cause
Sellers to give each Continuing Employee full credit for service with
Sellers for purposes of eligibility to participate in, vesting and
payment of benefits under, and eligibility for any subsidized benefit
provided under (but not, except as provided in the preceding sentence,
for purposes of determining the amount of any benefit under) any
Purchaser employee benefit plan; provided, however, that nothing in
this Agreement shall be deemed to require Purchaser to cause to be
continued any employee's employment, responsibilities or officer title
for any definite period.
(b) EMPLOYMENT AGREEMENTS. On or prior to the Closing Date,
all agreements between any Seller and any of its employees shall have
been canceled at no cost to any Seller.
6.11 SHAREHOLDER AGREEMENTS. On or prior to the Closing Date, all
agreements between or among the Shareholders and any Seller relating to any
Seller or any stock or securities of any Seller shall have been canceled at no
cost to any Seller.
6.12 FCC MATTERS. Sellers shall take all actions necessary to
protect all Seller FCC Authorizations, FCC construction permits, Seller State
Certificates and Seller Applications that will expire prior to the Closing
Date, and Sellers shall provide Purchaser copies of all communication between
Sellers and the FCC or between Sellers or the FCC and Sellers' FCC counsel
(other than any materials subject to the attorney-client privilege). Sellers
and Purchaser agree to proceed as expeditiously as possible, and in no event
later than five (5) days from the date of this Agreement, to file or cause to
be filed an application (the "FCC Application"), requesting FCC consent to the
transactions contemplated by this Agreement, to the extent required by the
Communications Act and the rules and regulations thereunder. Purchaser and
Sellers will prosecute the FCC Application in good faith and with due
diligence. Purchaser shall provide Sellers with copies of all communications
between Purchaser and the FCC with respect to the FCC Application.
6.13 ADDITIONAL FINANCIAL STATEMENTS. As soon as practicable after
the end of every month (but in no event later than the twentieth day of the
following month) beginning with the month in which this Agreement is signed,
Sellers will deliver to Purchaser an unaudited combined balance sheet as of the
end of such month, and related combined statements of income, stockholders'
equity and cash flows for such month, each certified by an officer of Mercury
as meeting the standards for financial statements set forth in Section 3.7. As
soon as practicable after December 31, 1996 (and Sellers shall use their
reasonable best efforts to do so within fourteen (14) days after the Closing),
Sellers will deliver to Purchaser an audited combined balance sheet as of such
date, and related combined statements of income, stockholders' equity and cash
flows for the year then ended, each audited by Sellers' independent certified
public accounts.
6.14 NO TRANSFERS. Except pursuant to this Agreement or by will or
intestacy, none of the Shareholders shall transfer any or all of their Shares
after the date of this Agreement.
6.15 SPECIAL PROVISIONS WITH RESPECT TO SELLERS. Each Seller hereby
expressly adopts and makes, jointly and severally with the Shareholders, the
representations, warranties, covenants and agreements of the Shareholders
contained in this Agreement as its representations, warranties, covenants and
agreements, but if the Closing occurs as provided herein, then at that time all
such
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representations, warranties, covenants and agreements to the extent hereby made
and adopted by Sellers pursuant to this Section 6.15 (and only to such extent)
shall expire and be of no further force and effect, and Sellers' having made
representations, warranties, covenants and agreements shall in no way limit the
liability of the Shareholders pursuant to this Agreement.
6.16 NONCOMPETITION; NONDISCLOSURE.
(a) SCOPE AND REASONABLENESS OF RESTRICTIONS. The
Shareholders acknowledge that Sellers hold licenses, or have pending
applications for licenses, to operate in or have coverage extended
into the States of Connecticut, Delaware, Maryland, Massachusetts, New
Jersey, New York, Ohio, Pennsylvania and Rhode Island (the
"Territory") and that Purchaser would not purchase the Shares without
the assurance that the Shareholders will not engage in the activities
prohibited by this Section for the periods set forth herein, and to
induce Purchaser to consummate the purchase of the Shares, the
Shareholders agree to restrict their actions and those of their
respective Affiliates throughout the Territory and otherwise as
provided in this Section 6.16. The Shareholders acknowledge that such
restrictions are reasonable in light of the business of Purchaser and
the benefits of the transactions contemplated by this Agreement to the
Shareholders; provided, however, that such restrictions shall not
apply to any activities undertaken by such individuals after the
Closing solely in their capacities as employees or consultants of a
Seller or Purchaser, if such individuals are in fact employed by such
Seller or Purchaser after the Closing.
(b) USE OF NAMES. Except for any relationship or involvement
with Purchaser or its Affiliates, the Shareholders agree that from and
after the Closing none of the Shareholders nor any of their respective
Affiliates will, either individually or jointly, manage, operate,
join, control or participate in the ownership, management or control
of any business under the name or style of any Seller, or any name or
style incorporating any such name or style or any name or style
confusingly similar to such name or style.
(c) NONCOMPETITION. During the period commencing on the
Closing Date and terminating on the second anniversary thereof (the
"Noncompete Period"), none of the Shareholders nor any of their
respective Affiliates will either engage directly in the business of
providing wholesale paging network services (the "Restricted
Business") within the Territory, or acting as consultant, advisor,
independent contractor, officer, manager, employee, principal, agent,
trustee of any corporation, partnership, association or agent or
agency, or directly or indirectly owning more than three percent (3%)
of the outstanding capital stock of any corporation, or being a member
or employee of any partnership or any owner or employee of any other
business, any of which is engaged in the Restricted Business in the
Territory during the Noncompete Period.
(d) NO INTERFERENCE WITH CUSTOMERS. The Shareholders agree
that, during the Noncompete Period, none of the Shareholders nor any
of their respective Affiliates will induce a Customer (as defined
below): (i) to patronize any business entity engaged in the Restricted
Business in the Territory (other than Purchaser or an Affiliate
thereof); or (ii) to withdraw, curtail or cancel such Customer's
business with Purchaser. As used in this Section
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6.16, "Customer" means any actual customer of Purchaser or its
Affiliates, or any potential customer of Purchaser or its Affiliates,
served or actually solicited by Purchaser or any Seller within the
12-month period prior to the Closing Date.
(e) NO INTERFERENCE WITH EMPLOYEES. The Shareholders agree
that, during the Noncompete Period, none of the Shareholders nor any
of their respective Affiliates will directly or indirectly request or
induce any employee to terminate his employment with Purchaser or its
Affiliates and accept employment with another business entity engaged
in the Restricted Business in the Territory or hire during the
Noncompete Period, any employee within twelve (12) months after
termination of such person's employment with Purchaser or any of its
Affiliates.
(f) TRADE SECRETS; CONFIDENTIAL INFORMATION.
(i) The Shareholders recognize and acknowledge that
they have had access to certain highly sensitive, special,
unique information of Sellers that is confidential or
proprietary. The Shareholders hereby covenant and agree that
they and their respective Affiliates will not (A) as to Trade
Secrets (as defined in this Section 6.16(f)), as long as they
remain Trade Secrets, and (B) as to Confidential Information
(as defined in this Section 6.16(f)), during the Noncompete
Period, use or disclose any Trade Secrets or Confidential
Information, except for disclosures to authorized
representatives of Sellers or Purchaser; provided, however,
that the foregoing restrictions shall not apply to items that
have entered the public domain other than by an unauthorized
disclosure by any of the Shareholders or their respective
Affiliates, any items required to be disclosed by a
Governmental Authority or under applicable Laws, or
Confidential Information received subsequently from third
parties not subject to confidentiality restrictions.
(ii) For purposes of this Agreement, (A) "Trade Secret"
means any information, including, but not limited to, technical
or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a set of guidelines,
a procedure, a drawing, a process, financial data, financial
plans, product plans, or a list of actual or potential
customers or suppliers of any Seller, whether currently
existing or hereafter developed or acquired by such Seller,
that derives economic value, actual or potential, from not
being generally known to and not being readily ascertainable by
proper means by other persons who can obtain economic value
from its disclosure or use and is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy;
and (B) "Confidential Information" is any data or information
of any Seller other than Trade Secrets which is competitively
sensitive and not generally known to the public.
(iii) The Shareholders acknowledge that all Trade
Secrets and Confidential Information are and shall remain the
sole, exclusive and valuable property of Sellers or Purchaser,
and that the Shareholders and their respective Affiliates do
not have and shall acquire no right, title or interest therein.
Any and all printed, typed, written or other material that any
of the Shareholders or their respective Affiliates may have or
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obtain with respect to Trade Secrets or Confidential
Information (including all copyrights therein) shall be and
remain the exclusive property of Sellers or Purchaser, and any
and all such material (including any copies) shall, upon
request of Purchaser, be promptly delivered by the Shareholders
or their respective Affiliates to Sellers or Purchaser.
(g) REMEDIES. The Shareholders acknowledge that any violation
of the provisions of this Section 6.16 may cause irreparable harm to
Sellers or Purchaser and that damages are not an adequate remedy. The
Shareholders therefore agree that Sellers and Purchaser shall be
entitled to an injunction by an appropriate court in the appropriate
jurisdiction, enjoining, prohibiting and restraining the Shareholders
or their respective Affiliates from the continuance of any such
violation, in addition to any monetary damages that might occur by
reason of the violation of this Section 6.16. The remedies provided in
this Section 6.16 are cumulative and shall not exclude any other
remedies to which either party to this Agreement may be entitled under
this Agreement or applicable Law, and the exercise of a remedy shall
not be deemed an election excluding any other remedy (any such claim
by any other party to this Agreement being hereby waived). The
liabilities of each Shareholder under this Section 6.16 are several
and not joint.
(h) MODIFICATION. The parties agree that should any portion,
provision or clause of this Section 6.16 be deemed too broad to permit
enforcement to its full extent, then it shall be enforced to the
maximum extent permitted by Law, and the Shareholders hereby consent
and agree that such scope may be judicially modified accordingly in
any proceeding brought to enforce such restriction.
(i) COVENANTS INDEPENDENT. The covenants and agreements set
forth in this Section 6.16 shall be deemed and shall be construed as
separate and independent covenants and agreements, and, should any
portion of such covenants and agreements be held invalid, void or
unenforceable by any court of competent jurisdiction, such invalidity,
voidness, or unenforceability shall in no way render invalid, void or
unenforceable any other portion thereof or any separate covenant not
declared invalid, void or unenforceable; and this Section 6.16 shall
in that case be construed as if the void, invalid or unenforceable
portions were omitted.
(j) COLLINS. Notwithstanding the foregoing, none of the
foregoing provisions of this Section 6.16 shall apply to Collins.
6.17 TAX MATTERS.
(a) TRANSFER TAXES. The Shareholders shall pay all stock
transfer and other similar Taxes and fees in respect of the sale of
the shares or otherwise arising out of the transactions contemplated
by this Agreement and shall be responsible for paying all the costs of
filing all returns relating to such Taxes and fees.
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(b) PREPARATION AND FILING OF RETURNS. The Shareholders shall
be responsible for the good faith preparation of all federal S
corporate income Tax Returns (i.e., Form 1120S) and state S corporate
income Tax Returns for Sellers (collectively, the "S Corporation
Returns"), including extensions, for taxable periods ending on or
prior to the Closing Date. At least thirty (30) days prior to the due
date (including extensions) of any S Corporation Return, the
Shareholders shall cause such S Corporation Return to be delivered to
Purchaser, and the Purchaser will thereafter cause an appropriate
officer of Sellers to sign such Return. Purchaser shall timely file
all S Corporation Returns delivered to it by the Shareholders, without
modifications, and shall furnish the Shareholders with evidence
regarding the filing of such S Corporation Returns.
(c) AMENDED RETURNS. If the Shareholders desire to amend or
have amended an S Corporation Return, Purchaser and Sellers shall, at
the Shareholders' cost, cooperate in such matter to the extent
reasonable. Neither Purchaser nor Sellers shall amend any S
Corporation Returns without the prior written consent of all the
Shareholders.
(d) COOPERATION AND EXCHANGE OF INFORMATION. Purchaser and
Sellers shall grant the Shareholders reasonable access during
customary business hours to such books, records and personnel as they
require for the preparation of the S Corporation Returns. The
Shareholders, Sellers and Purchaser agree to furnish, or to cause to
be furnished in good faith to each other, such cooperation and
assistance as is reasonably necessary to respond to audits, to
negotiate settlements with Tax authorities, and to prosecute and
defend against Tax claims.
(e) TAX PROCEEDINGS. Purchaser and Sellers shall promptly
deliver to the Shareholders a copy of any written notice received from
a Tax authority subsequent to or on the Closing Date regarding Taxes
or a Tax proceeding with respect to a Tax period ending on or prior to
the Closing Date (or, if a Section 388(h)(10) election is not made in
accordance with Section 6.17(f), in the case of income taxes, a tax
period ending prior to the Closing Date), and shall not extend the
statue of limitations for Tax Returns filed for such Tax periods.
(f) SECTION 338(H)(10) ELECTION. The Shareholders covenant
and agree, at Purchaser's request, to cause Sellers to timely join
with Purchaser to make an election pursuant to Section 338(h)(10) of
the Code and to file such forms as are necessary to effectuate such
election in accordance with this Section 6.17(f). Purchaser recognizes
that such election may result in an additional tax liability to the
Shareholders. Purchaser agrees to pay the Shareholders within thirty
(30) days after the Forms 1120S for the Sellers for the taxable year
ending on the Closing Date are provided to Purchaser, an amount equal
to the product of (i) the amount of ordinary income recognized by the
Shareholders for Federal income tax purposes as a result of the
allocation of the Purchase Price among the assets of Sellers pursuant
to the election under Section 338(h)(10) of the Code; and (ii) a
fraction the numerator of which is equal to the maximum Federal
individual ordinary income tax rate in effect for the taxable year in
which the Closing occurs minus the maximum Federal individual capital
gains tax rate in effect for such taxable year (the "Capital Gains
Rate"), and the denominator of which is equal to one (1) minus the sum
of the Capital Gains Rate and 4.14%.
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Purchaser and the Shareholders shall allocate the purchase price under
this Agreement among Sellers' assets as set forth in Exhibit C and
shall file Tax Returns consistent with such allocation pursuant to
Section 1060 of the Code.
6.18 CHASE MANHATTAN NOTES. At the Closing, Purchaser will cause the
promissory notes payable to Chase Manhattan Bank (formerly Chemical Bank)
described on Schedule 6.18 to be paid in full, except for any prepayment
penalties, and use its reasonable best efforts to have all guarantors thereof
released, and Purchaser will in any event fully indemnify and hold harmless any
guarantors thereof with respect thereto, and will cause the promissory note
payable to Allen Wolfbiss described on Schedule 6.18 to paid in full.
6.19 NATIONSBANK LOAN. Purchaser will keep Sellers advised of any
developments relating to the financing referred to in Section 7.1(i).
ARTICLE 7
CONDITIONS PRECEDENT TO THE CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Subject to Section 7.3,
Purchaser's obligation to consummate the purchase of the Shares as provided for
by this Agreement is subject to the fulfillment to the reasonable satisfaction
of Purchaser, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by Purchaser):
(a) CONSENTS, AUTHORIZATIONS, ETC. The Authorizations of or
with any Governmental Entity (including, without limitation, a final
order of the FCC not subject to review or appeal), and the
Authorizations of any nongovernmental third party which are material
to the business, financial condition or results of operations of
Sellers, taken as a whole, that are required for or in connection with
the execution and delivery by Sellers and the Shareholders of this
Agreement and the consummation by Sellers and the Shareholders of the
transactions contemplated hereby shall have been obtained or made.
(b) INJUNCTION, ETC. The consummation of the transactions
contemplated hereby will not violate the provisions of any injunction,
order, judgment, decree, Law applicable or effective with respect to
Purchaser or its officers and directors. No suit or proceeding shall
have been instituted by any person, or, to the knowledge of Purchaser,
shall have been threatened by any Governmental Entity, which has not
been withdrawn, dismissed or otherwise eliminated, and which seeks (i)
to prohibit, restrict or delay consummation of the transactions
contemplated hereby or to limit in any material respect the right of
Purchaser to control any material aspect of the business of Purchaser
and its Subsidiaries or Sellers after the Closing Date, or (ii) to
subject Purchaser or any Seller or their respective directors or
officers to material liability on the ground that it or they have
breached any law or regulation or otherwise acted improperly in
relation to the transactions contemplated by this Agreement.
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(c) REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS.
The representations and warranties of Sellers and the Shareholders
contained in this Agreement shall have been true and correct in all
material respects at the date hereof and, except for changes
contemplated in this Agreement, shall also be true and correct in all
material respects at and as of the Closing Date, with the same force
and effect as if made at and as of the Closing Date, and Sellers and
the Shareholders shall have performed or complied (or cured any
noncompliance) in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by them at or prior to the Closing Date.
(d) CERTIFICATE. Sellers shall have delivered to Purchaser a
certificate, dated as of the Closing Date, executed on behalf of
Sellers by their respective Presidents and by the Shareholders'
Committee to the effect that the conditions specified in paragraph (c)
of this Section 7.1 have been satisfied.
(e) AVERAGE BILLABLE RESELLER REVENUE. The average billable
reseller revenue per Unit of Sellers ("ARPU") for the last full
calendar month immediately prior to Closing shall not be ten percent
(10%) or more less than such revenue per Unit for the last full
calendar month ending on or immediately prior to the date of this
Agreement. ARPU shall mean total reseller recurring revenue divided by
total reseller billable handles as set forth on Sellers' billable
handle monthly summary.
(f) OPINIONS OF SELLERS' COUNSEL. Purchaser shall have
received opinions, dated as of the Closing Date, of counsel to Sellers
and the Shareholders to the effect set forth in Exhibit D and of
Sellers' FCC counsel to the effect set forth in Exhibit E.
(g) EMPLOYMENT AGREEMENTS. Scott Levy shall have executed an
employment agreement with Purchaser in the form of Exhibit F.
(h) CONSULTING AGREEMENT. Allen Wolfbiss shall have executed
a consulting agreement with Purchaser in the form of Exhibit G.
(i) FINANCING. Purchaser shall have obtained financing under
the Credit Agreement for the cash portion of the Purchase Price.
(j) REGISTRATION RIGHTS AGREEMENT. Purchaser shall have
received a Registration Rights Agreement executed by the Shareholders
in the form of Exhibit H.
(k) LICENSES. At the Closing, Purchaser will acquire through
its ownership of Sellers complete ownership and rights to utilize all
of the FCC licenses utilized by Sellers.
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS AND THE SHAREHOLDERS.
Subject to Section 7,3, the obligation of Sellers and the Shareholders to
consummate the sale of the Shares as contemplated hereby is subject to the
fulfillment to the reasonable satisfaction of the Shareholders, prior to or at
the Closing, of each of the following conditions (any or all of which may be
waived by the Shareholders' Committee):
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(a) CONSENTS, AUTHORIZATIONS, ETC. The Authorizations of or
with any Governmental Entity, including, without limitation, a final
order of the FCC, or any nongovernmental third party, which are
required for, or in connection with, the execution and delivery of
this Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby shall have been obtained or made
except where the failure to obtain such consent, authorization, or
approval would not have a material adverse effect on the financial
condition and results of operations of Purchaser and its Subsidiaries,
taken as a whole.
(b) INJUNCTION, ETC. The consummation of the transactions
contemplated hereby will not violate the provisions of any injunction,
order, judgment, decree or Law applicable or effective with respect to
the Shareholders. No suit or proceeding shall have been instituted or,
to the knowledge of the Shareholders, threatened by any Governmental
Entity which has not been withdrawn, dismissed or otherwise
eliminated, and which seeks (i) to prohibit, restrict or delay
consummation of the transactions contemplated hereby or (ii) to
subject the Shareholders to material liability on the ground that have
breached any law or regulation or otherwise acted improperly in
relation to the transactions contemplated by this Agreement.
(c) REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS.
The representations and warranties of Purchaser contained in this
Agreement shall have been true and correct in all material respects at
the date hereof and except for changes contemplated in this Agreement,
shall also be true and correct in all material respects at and as of
the Closing Date, with the same force and effect as if made at and as
of the Closing Date; and Purchaser shall have performed or complied
(or cured any noncompliance) in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it at or prior to the Closing Date.
(d) PURCHASER COMMON STOCK. The shares of Purchaser Common
Stock issued to the Shareholders pursuant to this Agreement shall,
upon consummation of the transactions contemplated hereby, be validly
authorized and issued, fully paid and nonassessable.
(e) CERTIFICATE. Purchaser shall have delivered to the
Shareholders a certificate, dated as of the Closing Date, executed on
behalf of Purchaser by the Chairman of the Board, President or other
executive officer of Purchaser to the effect that the conditions
specified in paragraph (c) of this Section 7.2 have been satisfied.
(f) OPINIONS OF PURCHASER'S COUNSEL. The Shareholders shall
have received opinions, dated as of the Closing Date, of Sutherland,
Asbill & Brennan, counsel to Purchaser, to the effect set forth in
Exhibit I, and of Lukas, McGowan, Nace & Gutierrez, Purchaser's FCC
counsel, to the effect set forth in Exhibit J.
(g) REGISTRATION RIGHTS AGREEMENT. The Shareholders shall
have received a Registration Rights Agreement executed by Purchaser in
the form of Exhibit H.
(h) CONSULTING AGREEMENT. Purchaser shall have executed a
consulting agreement with Allen Wolfbiss in the form of Exhibit G.
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7.3 EXCEPTION REQUIRING CLOSING. Notwithstanding the foregoing in
Sections 7.1 and 7.2, if there exists one or more breaches of representations
and warranties (other than intentional breaches of representations or
warranties, failures relating to the Shareholders' ownership of all of the
outstanding stock of Sellers or failure of Sellers' licenses to be as described
or as required to be described in Section 3.9 or on Schedule 3.9) which would
not have, individually or in the aggregate, a material adverse effect on the
business, financial condition or results of operations of the breaching party,
taken as a whole, then the other party shall be required to consummate the
transactions contemplated by this Agreement and shall be indemnified and held
harmless for the Cost resulting therefrom pursuant to Article 9.
ARTICLE 8
ITEMS TO BE DELIVERED AT CLOSING
8.1 TO BE DELIVERED BY SELLERS AND THE SHAREHOLDERS. At the
Closing, Sellers and the Shareholders shall deliver, or cause to be delivered,
to Purchaser the following:
(i) The certificate referred to in Section 7.1(d).
(ii) The opinions referred to in Section 7.1(f).
(iii) Any additional certificates reasonably requested by
Purchaser.
(iv) The written resignations of the directors and officers
of, and the termination of Ronald Portnoy's consulting arrangement
with, Sellers.
(v) The Employment Agreement referred to in Section 7.1(g).
(vi) The Consulting Agreement referred to in Section 7.1(h).
(vii) If available, the audited financial statements of Sellers
sufficient to satisfy the requirements of SEC Regulation S-X.
(viii)The Registration Rights Agreement referred to in
Section 7.1(j).
(ix) The books and records of Sellers.
(x) Such other documents as Purchaser may reasonably request.
8.2 TO BE DELIVERED BY PURCHASER TO THE SHAREHOLDERS. At the
Closing, Purchaser shall deliver to the Shareholders the following:
(i) That portion of the Purchase Price which is payable at the
Closing.
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(ii) The certificate referred to in Section 7.2(e).
(iii) The opinions referred to in Section 7.2(f).
(iv) Any additional certificates reasonably requested by the
Shareholders.
(v) The Registration Rights Agreement referred to in Section
7.2(g).
(vi) The Consulting Agreement referred to in Section 7.2(h).
(vii) Such other documents as the Shareholders may reasonably
request.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders
(severally in accordance with the percentages set forth on Schedule 4.1 under
"Custom Page, Inc.") shall indemnify and hold harmless Purchaser and Sellers in
respect of any and all claims, losses, damages, liabilities, demands,
assessments, judgments, costs and expenses (including, without limitation,
settlement costs and any legal or other expenses for investigating, bringing or
defending any actions or threatened actions) reasonably incurred by Purchaser
or Sellers, net of the present value of any tax savings and insurance
reimbursements but including the taxes payable by the recipient on any
indemnification payment (collectively, the "Costs") resulting from any breach
of any representation, warranty, covenant or agreement made by the Shareholders
or Sellers under the Shareholder Delivered Agreements or the Seller Delivered
Agreements. The indemnification obligations of the Shareholders hereunder shall
be several with respect to any such breach; provided, however, that in regards
to the representations and warranties made by each Shareholder in Article 4
hereof and the covenants and agreements made by each Shareholder in Section
6.16 hereof, each Shareholder's indemnification obligations with respect
thereto shall be several only and apply only to such representations and
warranties or covenants and agreements made by such individual Shareholder.
Notwithstanding any of the foregoing, Collins shall indemnify and hold harmless
Purchaser and Sellers only with respect to breaches of his representations and
warranties in Article 4 hereof.
9.2 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and
hold harmless the Shareholders in respect of any and all Costs reasonably
incurred by the Shareholders in connection with any breach of any
representation, warranty, covenant or agreement made by Purchaser under the
Purchaser Delivered Agreements.
9.3 CERTIFICATES. Any claim based, in whole or in part, upon any
untrue or incorrect statement set forth in the certificate delivered pursuant
to Section 7.1(d) or Section 7.2(e) shall be deemed to be a claim for breach of
representation, warranty, covenant or agreement under this Agreement.
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9.4 CLAIMS FOR INDEMNIFICATION. The representations, warranties,
covenants and agreements in this Agreement shall survive the Closing subject to
the limitations set forth herein and shall not be affected by any investigation
made by the parties hereto prior to the date hereof or the Closing Date. The
party seeking indemnification (the "Indemnified Party") shall give the party
from whom indemnification is sought (the "Indemnifying Party") a written notice
("Notice of Claim") within sixty (60) days of the discovery of any loss,
liability, claim or expense in respect of which the right to indemnification
contained in this Article 9 may be claimed; provided, however, that the failure
to give such notice within such sixty (60) day period shall not result in the
waiver or loss of any right to bring such claim hereunder after such period
unless, and only to the extent that, the other party is actually prejudiced by
such failure. In the event a claim is pending or threatened or the Indemnified
Party has a reasonable belief as to the validity of the basis for such claim,
the Indemnified Party may give written notice (a "Notice of Possible Claim") of
such claim to the Indemnifying Party, regardless of whether a loss has arisen
from such claim. A party shall have no liability under this Article 9 for a
breach of any representation or warranty, unless a Notice of Claim or Notice of
Possible Claim therefore is delivered by the Indemnified Party prior to the
date that is eighteen (18) months after the Closing Date; provided, however,
that as to any liability arising pursuant to Sections 3.9, 3.11, 3.21 or 3.23
or Article 4 hereof, any Notice of Claim or Notice of Possible Claim must be
delivered by the Indemnified Party not later than ninety (90) days after the
expiration of the applicable statute of limitations (including any extensions)
therefor. Any Notice of Claim or Notice of Possible Claim shall set forth the
representations, warranties, covenants and agreements with respect to which the
claim is made, the specific facts giving rise to an alleged basis for the claim
and the amount of liability asserted or anticipated to be asserted by reason of
the claim.
9.5 DEFENSE OF CLAIM BY THIRD PARTIES. If any claim is made by a
third party against a party to this Agreement that, if sustained, would give
rise to a liability of another party under this Agreement, the party against
whom the claim is made shall promptly cause notice of the claim to be delivered
to the other party and shall afford the other party and its counsel, at the
other party's sole expense, the opportunity to defend or settle the claim. The
failure to provide such notice will not relieve the Indemnifying Party of
liability under this Agreement unless, and only to the extent that, the other
party is actually prejudiced by such failure. If any such claim is compromised
or settled without the consent of the Indemnifying Party, no liability shall be
imposed upon the Indemnifying Party by reason of the claim.
9.6 THIRD PARTY CLAIM ASSISTANCE. From time to time after the
Closing, Purchaser and the Shareholders shall provide or cause their
appropriate employees or representatives to provide the other party with
information or data in connection with the handling and defense of any third
party claim or litigation (including counterclaims filed by the parties) in
respect to which a party may be required to indemnify another party under this
Agreement. The party receiving such information or data shall reimburse the
other party for all of its costs and expenses in providing these services,
including, without limitation, (i) all out of pocket, travel and similar
expenses incurred by its personnel in rendering these services; and (ii) all
fees and expenses for services performed by third parties engaged by or at the
request of such other party.
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9.7 SETTLEMENT OF INDEMNIFICATION CLAIMS. If a recipient of a
Notice of Claim desires to dispute such claim, it shall, within thirty (30)
days after receipt of the Notice of Claim, give counternotice, setting forth
the basis for disputing such claim, to Purchaser or the Shareholders'
Committee, as the case may be. If no such counternotice if given within such
thirty (30) day period, or if Purchaser, or the Shareholders' Committee, as the
case may be, acknowledges liability for indemnification, then the amount
claimed shall be promptly satisfied as provided in Section 9.9. If, within
thirty (30) days after the receipt of counternotice by Purchaser or the
Shareholders' Committee, as the case may be, the Shareholders' Committee and
Purchaser shall have not reached agreement as to the claim in question, then
the claim of indemnification shall be submitted to and settled by arbitration
in accordance with the then prevailing commercial arbitration rules of the
American Arbitration Association. Such arbitration shall be held in the New
York, New York area before a panel of three (3) arbitrators, one selected by
each of the parties and the third selected by mutual agreement of the first
two. The decision of the arbitrators shall be final and binding as to any
matter submitted under this Agreement. To the extent the decision of the
arbitrators is that a party shall be indemnified hereunder, the amount shall be
satisfied as provided in Section 9.8. Judgment upon any award rendered by the
arbitrators may be entered in any court of competent jurisdiction. The date of
the arbitrator's decision or the date a claim otherwise becomes payable
pursuant to this Section 9.7 is referred to as the "Determination Date."
9.8 MANNER OF INDEMNIFICATION. (1)All indemnification under this
Article 9 shall be made by payment of cash or delivery of a certified or
cashier's check in the amount of the indemnification liability no later than
five (5) days following the Determination Date.
9.9 INDEMNIFICATION EXCLUSIVE REMEDY. In the absence of fraud, if
the Closing occurs, indemnification pursuant to the provisions of this Article
9 shall be the sole and exclusive remedy of the parties for any breach of any
representation, warranty, covenant or agreement contained in this Agreement.
9.10 CERTAIN LIMITATIONS. The foregoing indemnification obligations
are subject to the following:
(a) DEDUCTIBLE. The Shareholders shall not have any liability
for indemnification for breaches of representations and warranties
pursuant to this Article 9 unless and until, and only to the extent
that, the total Costs for which the Shareholders would otherwise be
liable exceeds $100,000 in the aggregate; provided, however, that in
applying the foregoing, the Shareholders shall be considered as a
single party; and provided, further, that the foregoing shall not
apply to any Costs with respect to, as a result of or involving (i) a
breach of a representation or warranty in the last sentence of Section
3.11 or Article 4 hereof, or (ii) any intentional breach of a
representation or warranty in this Agreement.
(b) CAP. The liability of each Shareholder for Costs shall
not exceed an amount equal to one hundred percent (100%) of the
amounts paid to him pursuant to this Agreement.
(c) COLLINS. Notwithstanding the foregoing, Collins shall not
be liable for a breach of any representation or warranty other than
those in Article 4 which relate to him.
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ARTICLE 10
TERMINATION AND ABANDONMENT
10.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated
and abandoned at any time prior to the Closing Date:
(a) By mutual written consent of the Shareholders' Committee
and Purchaser.
(b) By Purchaser:
(i) if any event shall have occurred as a result of
which any condition set forth in Section 7.1 is no longer
capable of being satisfied;
(ii) if there has been a breach by a Seller or a
Shareholder of any representation or warranty contained in this
Agreement or of any of the covenants or agreements set forth in
this Agreement, in each case which breach is not curable, or,
if curable, is not cured within ten (10) business days after
written notice of such breach is given by Purchaser to the
Shareholders' Committee;
(c) By the Shareholders' Committee;
(i) if any event shall have occurred as a result of
which any condition set forth in Section 7.2 is no longer
capable of being satisfied; or
(ii) if there has been a breach by Purchaser of any
representation or warranty contained in this Agreement or of
any of the covenants or agreements set forth in this Agreement,
in each case which breach is not curable or, if curable, is not
cured within ten (10) business days after written notice of
such breach is given by the Shareholders' Committee to
Purchaser.
(d) By Purchaser or the Shareholders' Committee if the
Closing shall not have occurred by March 15, 1997; provided, however,
that if the Closing is delayed as a result of Section 1.4, no
termination pursuant to this Section 10.1(d) shall be permitted before
five (5) business days following the final determination under Section
1.4.
10.2 SPECIFIC PERFORMANCE. The parties acknowledge that the rights
of each party to consummate the transactions contemplated hereby are special,
unique, and of extraordinary character, and that, in the event that either
violates or fails and refuses to perform any covenant made by it herein, the
other party or parties will be without adequate remedy at law. Each party
agrees, therefore, that, in the event that it violates, fails or refuses to
perform any covenant made by it herein, the other party or parties so long as
it or they are not in breach hereof, may, in addition to any remedies at law,
institute and prosecute an action in a court of competent jurisdiction to
enforce specific performance of such covenant or seek any other equitable
relief.
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10.3 RIGHTS AND OBLIGATIONS UPON TERMINATION. If this Agreement is
not consummated for any reason, each party will redeliver all documents, work
papers, and other materials of any party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same, except to the extent previously delivered to
third parties in connection with the transactions contemplated hereby, and all
information received by any party hereto with respect to the business of any
other party shall not at any time be used for the advantage of, or disclosed to
third parties by, such party to the detriment of the party furnishing such
information; provided, however, that this Section 10.3 shall not apply to any
documents, work papers, material, or information which is a matter of public
knowledge or which heretofore has been or hereafter is published in any
publication for public distribution or filed as public information with any
governmental agency.
10.4 EFFECT OF TERMINATION. Except for the provisions of Sections
6.3, 6.5, 6.9, 10.3 and 10.4, which shall survive any termination of this
Agreement, in the event of the termination and abandonment of this Agreement
pursuant to Article 10, this Agreement shall forthwith become void and have no
further effect, without any liability on the part of any party hereto or its
respective officers, directors or stockholders; provided, however, that except
as otherwise provided in Section 1.2(a), that nothing in this Section 10.4
shall relieve any party from liability for the knowing and intentional breach
of its representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE 11
SHAREHOLDERS' COMMITTEE
11.1 APPOINTMENT; ACCEPTANCE. By executing this Agreement, each of
the Shareholders (notwithstanding any Shareholder's current or future mental or
physical disability or incompetency) hereby irrevocably constitutes and
appoints each of Howard Weingrow and Allen Wolfbiss, and the successors of each
of them, acting as hereinafter provided, as his attorney-in-fact and agent in
his name, place and stead in connection with the transactions and agreements
contemplated by this Agreement with respect to matters subsequent to the
Closing Date (the "Shareholders' Committee"), and acknowledges that such
appointment is coupled with an interest. By executing this Agreement under the
heading "Shareholders' Committee," each of the individuals who together
constitute the Shareholders' Committee hereby (i) accepts his appointment and
authorization to act as Shareholders' Committee as attorney-in-fact and agent
on behalf of the Shareholders in accordance with the terms of this Agreement,
and (ii) agrees to perform his obligations under, and otherwise comply with,
this Article 11.
11.2 AUTHORITY. Each Shareholder by this Agreement fully and
completely, with respect to matters subsequent to the Closing Date, hereby: (a)
authorizes the Shareholders' Committee (i) to dispute or to refrain from
disputing any claim made by Purchaser under the Shareholder Delivered
Agreements, (ii) to negotiate and compromise any dispute which may arise under,
and to exercise or refrain from exercising remedies available under the
Shareholder Delivered Agreements and to sign any release or other document with
respect to such dispute or remedy, and (iii) to give such
44
<PAGE> 56
instructions and to do such other things and refrain from doing such other
things as the Shareholders' Committee shall deem necessary or appropriate to
carry out the provisions of the Shareholder Delivered Agreements; and (b)
agrees to be bound by all agreements and determinations made by and documents
executed and delivered by the Shareholders' Committee under the Shareholder
Delivered Agreements.
11.3 ACTIONS. Each of the Shareholders hereby expressly acknowledges
and agrees that the Shareholders' Committee is authorized to act on his behalf,
notwithstanding any dispute or disagreement between the Shareholders, and that
Purchaser and any other person or entity shall be entitled to rely on any and
all actions taken by the Shareholders' Committee under the Shareholder
Delivered Agreements without any liability to, or obligation to inquire of, any
of the Shareholders. Purchaser and any other person or entity is hereby
expressly authorized to rely on the genuineness of the signatures of both
members of the Shareholders' Committee, and upon receipt of any writing which
reasonably appears to have been signed by Shareholders' Committee, Purchaser
and any other person or entity may act upon the same without any further duty
of inquiry as to the genuineness of the writing. All actions by the
Shareholders' Committee require the approval of both members thereof and all
writings signed by the Shareholders Committee must be signed by both members
thereof.
11.4 SUCCESSORS. If Howard Weingrow ceases to function in his
capacity as a member of the Shareholders' Committee for any reason whatsoever,
then Robert Lifton shall be appointed as his successor, and if Allen Wolfbiss
ceases to function in such capacity for any reason whatsoever, then Ronald
Portnoy shall be appointed his successor; provided, however, that if for any
reason no successor has been appointed pursuant to the foregoing within thirty
(30) days, then Purchaser shall have the right to appoint a successor.
11.5 EFFECTIVENESS. The authorizations of the Shareholders'
Committee shall be effective until its rights and obligations under this
Agreement terminate by virtue of the termination of any and all obligations of
the Shareholders to the Purchaser under this Agreement.
ARTICLE 12
GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications under this
Agreement shall be in writing and may be given by any of the following methods:
(i) personal delivery; (ii) facsimile transmission; (iii) registered or
certified mail, postage prepaid, return receipt requested; or (iv) overnight
delivery service requiring acknowledgment of receipt. Any such notice or
communication shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given hereunder):
45
<PAGE> 57
If to Purchaser, to:
Preferred Networks, Inc.
850 Center Way
Norcross, Georgia 30071
Fax No. (770) 582-3501
Attention: Mark Jones.
with a copy to:
Sutherland, Asbill & Brennan
999 Peachtree Street, N.E.
Atlanta, Georgia 30309-3996
Fax No. (404) 853-8806
Attention: Mark D. Kaufman
If to Sellers, to:
Mercury Paging & Communications, Inc.
575 Underhill Boulevard
Suite 222
Syosset, New York 11791
Attention: Allen Wolfbiss
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
Fax No.: (212) 940-8776
Attention: Lisa Weiss
If to the Shareholders or the Shareholders' Committee, to:
the addresses of any member of the
Shareholders' Committee specified on
Schedule 4.1 hereto
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
Fax No.: (212) 940-8776
Attention: Lisa Weiss
46
<PAGE> 58
All such notices and communications shall be deemed received upon (i) actual
receipt thereof by the addressee, (ii) actual delivery thereof to the
appropriate address as evidenced by an acknowledged receipt, or (iii) in the
case of a facsimile transmission, upon transmission thereof by the sender and
confirmation of receipt. In the case of notices or communications sent by
facsimile transmission, the sender shall contemporaneously mail a copy of the
notice or communication to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice or communication is deemed received.
12.2 TABLE OF CONTENTS; HEADINGS. The Table of Contents, cross
reference pages and headings contained herein are for convenience of reference
only, do not constitute a part of this Agreement, and shall not be deemed to
limit or affect any of the provisions hereof.
12.3 AMENDMENT. No amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and executed by
each of the parties hereto.
12.4 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
12.5 WAIVER. The failure of any party hereto at any time or times
to require performance of any provision hereof shall in no manner affect the
right to enforce the same. No waiver by any party of any condition, or the
breach of any term, provision, warranty, representation, agreement or covenant
contained in this Agreement or the other agreements contemplated hereby,
whether by conduct or otherwise, in any one or more instances shall be deemed
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition or of the breach of any other term,
provision, warranty, representation, agreement or covenant herein or therein
contained.
12.6 NO THIRD PARTY BENEFICIARIES; ASSIGNMENT. This Agreement shall
inure to the benefit of the parties and their respective successors and
permitted assignees. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity. Except for
assignments to wholly-owned Subsidiaries of Purchaser, in which event Purchaser
shall remain liable for the performance of this Agreement, no transfer or
assignment of this Agreement or of any rights or obligations under this
Agreement may be made by any party without the prior written consent of the
other parties (which consent shall not be withheld unreasonably) and any
attempted transfer or assignment without that required consent shall be void.
No transfer or assignment by a party of its rights under this Agreement shall
relieve it of any of its obligations to the other parties under this Agreement.
47
<PAGE> 59
12.7 TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the
essence of each and every provision of this Agreement. Whenever the last day
for the exercise of any right or the discharge of any duty under this Agreement
shall fall upon Saturday, Sunday or a public or legal holiday, the party having
such right or duty shall have until 5:00 p.m. Atlanta, Georgia time on the
next succeeding regular business day to exercise such right or to discharge
such duty.
12.8 COUNTERPARTS. This Agreement may be executed by each party
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signatures of all of the
parties. This Agreement may be executed in two or more counterparts, each of
which shall be an original, and each of which shall constitute one and the same
agreement. Any party may deliver an executed copy of this Agreement and of any
documents contemplated hereby by facsimile transmission to another party and
such delivery shall have the same force and effect as any other delivery of a
manually signed copy of this Agreement or of such other documents.
12.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, without giving
effect to the conflicts of law principles thereof.
12.10 ENTIRE AGREEMENT. This Agreement (with its Schedules and
Exhibits), in conjunction with the Agency Agreement, contains, and is intended
as, a complete statement of all the terms of the arrangements among the parties
with respect to the matters provided for, supersedes any previous agreements
and understandings between the parties with respect to those matters and cannot
be changed or terminated orally.
12.11 CERTAIN ACCOUNTING TERMINOLOGY. Except as otherwise
specifically provided in this Agreement, all references to financial statement
items of Sellers, including without limitation references to assets,
liabilities or debt, refer to such items determined on an accrual basis in
accordance with generally accepted accounting principals, consistently applied.
48
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, under seal, as of the date first above written.
PURCHASER
Preferred Networks, Inc.
[Corporate Seal]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
- --------------------------------
, Secretary
MERCURY
Mercury Paging & Communications, Inc.
[Corporate Seal]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- --------------------------------
, Secretary
HTB
HTB Communications Inc.
[Corporate Seal]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- -------------------------------
, Secretary
49
<PAGE> 61
CUSTOM
Custom Page, Inc.
[Corporate Seal]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- -------------------------------
, Secretary
M.P.C.
M.P.C. Distributors Inc.
[Corporate Seal]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- -------------------------------
, Secretary
SHAREHOLDERS:
(L.S.)
------------------------------
(Signature of Shareholder)
Michael Collins
------------------------------------
(Name of Shareholder)
(L.S.)
------------------------------
(Signature of Shareholder)
Robert Lifton
------------------------------------
(Name of Shareholder)
50
<PAGE> 62
(L.S.)
------------------------------
(Signature of Shareholder)
Ronald Portnoy
-----------------------------------
(Name of Shareholder)
(L.S.)
------------------------------
(Signature of Shareholder)
Howard Weingrow
-----------------------------------
(Name of Shareholder)
-----------------------------------
(Signature of Shareholder)
Allen Wolfbiss
-----------------------------------
(Name of Shareholder)
SHAREHOLDERS' COMMITTEE:
(L.S.)
------------------------------
(Signature)
Howard Weingrow
-----------------------------------
(Name)
(L.S.)
-----------------------------
(Signature)
Allen Wolfbiss
----------------------------------
(Name)
51
<PAGE> 63
The exhibits and schedules to this
Stock Purchase Agreement have been omitted.
PNI agrees to furnish supplementally such exhibits and schedules
to the Securities and Exchange Commission upon request.
52
<PAGE> 1
EXHIBIT 11.1
PREFERRED NETWORKS, INC.
COMPUTATION OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1995 1996 1995
---- ---- ----
<S> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock outstanding
during the period ................................ 4,138,496 12,139,292 4,138,496
Series A Redeemable Convertible Preferred
Stock and Series B Redeemable
Convertible Preferred Stock dividends
through January 31, 1996 converted
into Common Stock upon consummation
of initial public offering (1) ................... 855,492 200,336 855,492
Effect of common Stock equivalents issued
subsequent to December 18, 1994
computed in accordance with the treasury
stock method as required by the SEC (2) .......... 5,019,913 1,112,483 5,019,913
------------ ------------ ------------
Total ........................................ 10,013,901 13,452,111 10,013,901
============ ============ ============
Net loss ............................................... $ (676,365) $ (5,486,486) $ (1,704,862)
============ ============ ============
Pro forma net loss per share of Common Stock ........... $ (.07) $ (.41) $ (.17)
============ ============ ============
</TABLE>
- --------------------------------------
(1) Pro forma net loss per share reflects securities and dividends converted
into Common Stock upon consummation of the initial public offering as if
such conversion had occurred at the beginning of the fiscal year. A
portion of Series A Redeemable Convertible Preferred Stock and all of
Series B Redeemable Convertible Preferred Stock is excluded here but
reflected below as cheap stock.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common Stock equivalents (including a portion of Series A
Redeemable Convertible Preferred Stock and all of Series B Redeemable
Convertible Preferred Stock) issued at prices equal to or below the
initial public offering price per share ("cheap stock") during the
twelve month period immediately preceding the initial filing date of the
Company's Registration Statement for its public offering have been
included as outstanding for all periods presented prior to the initial
public offering.
<PAGE> 1
EXHIBIT 11.2
PREFERRED NETWORKS, INC.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
------------- --------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock outstanding
during the period .......................................................... 14,479,226 4,138,496
Effect of Common Stock equivalents issued
subsequent to December 18, 1994 computed
in accordance with the treasury stock method
as required by the SEC (1) ................................................. -- 5,019,913
----------- -----------
Total ................................................................ 14,479,226 9,158,409
=========== ===========
Net loss ....................................................................... $(2,507,798) $ (676,365)
Less: Accretion of Series A and Series B Redeemable
Convertible Preferred Stock ................................................. -- (49,456)
Less: Series B Redeemable Convertible Preferred
Stock dividend requirements ................................................. -- (502,517)
----------- -----------
Net loss attributable to Common Stock and Common
Stock equivalents ........................................................... $(2,507,798) $(1,228,338)
=========== ===========
Historical net loss per share of Common Stock .................................. $ (.17) $ (.13)
=========== ===========
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
------------- --------------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock outstanding
during the period .......................................................... 12,139,292 4,138,496
Effect of Common Stock equivalents issued
subsequent to December 18, 1994 computed
in accordance with the treasury stock method
as required by the SEC (1) ................................................. 1,112,483 5,019,913
----------- -----------
Total ................................................................. 13,251,775 9,158,409
=========== ===========
Net loss ....................................................................... $(5,486,486) $(1,704,862)
Less: Accretion of Series A and Series B Redeemable
Convertible Preferred Stock (2) ............................................ (202,235) (56,798)
Less: Series B Redeemables Convertible Preferred
Stock dividend requirements ................................................. (353,651) (551,531)
----------- -----------
Net loss attributable to Common Stock and Common
Stock equivalents ........................................................... $(6,042,372) $(2,313,191)
=========== ===========
Historical net loss per share of Common Stock .................................. $ (.46) $ (.25)
=========== ===========
</TABLE>
- -----------------------------------------------------
(1) Pursuant to Securities and Exchange Commission Staff Accounting
bulletin No. 83, Common Stock equivalents (including a portion of Series A
Redeemable Convertible Preferred Stock and all of Series B Redeemable
Convertible Preferred Stock) issued at prices equal to or below the initial
public offering price per share ("cheap stock") during the twelve-month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering have been included as
outstanding for all periods presented prior to the initial public offering.
(2) Amount represents the portion of the accretion related to Series A
Redeemable Convertible Preferred Stock not treated as cheap stock.
<PAGE> 1
EXHIBIT 11.3
PREFERRED NETWORKS, INC.
COMPUTATION OF SUPPLEMENTAL PRO FORMA AND
SUPPLEMENTAL HISTORICAL NET LOSS PER SHARE
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Supplemental Supplemental
Pro Forma Historical
--------- ----------
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock outstanding
during the period ........................................................ 12,264,420 12,264,420
Series A Redeemable Convertible Preferred
Stock converted into Common Sock upon
consummation of initial public offering (1) .............................. 200,336 --
Effect of Common Stock equivalents issued
subsequent to December 18, 1994 computed
in accordance with the treasury stock method
as required by the SEC (2) ............................................... 1,112,483 1,112,483
----------- -----------
Total .............................................................. 13,577,239 13,376,903
=========== ===========
Net loss ....................................................................... $(5,486,486) $(5,486,486)
Less: Accretion of Series A and Series B Redeemable
Convertible Preferred Stock (3) ............................................. -- (202,235)
Less: Series B Redeemable Convertible Preferred
Stock dividend requirements ................................................. -- (353,651)
Plus: Reduction in interest expense from repayment
of current and long-term notes payable (4) .................................. 112,000 112,000
----------- -----------
Net loss attributable to Common Stock and Common
Stock equivalents ........................................................... $(5,374,486) $(5,930,372)
=========== ===========
Supplemental net loss per share of Common
Stock (4) ................................................................... $ (.40) $ (.44)
=========== ===========
</TABLE>
- --------------------------------------------
(1) Pro forma net loss per share reflects securities and dividends
converted into Common Stock upon consummation of the initial public
offering as if such conversion had occurred at the beginning of the
fiscal year. A portion of the Series A Redeemable Convertible Preferred
Stock and all of the Series B Redeemable Convertible Preferred Stock is
excluded here but reflected below as cheap stock.
(2) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, Common Stock equivalents (including a portion of the
Series A Redeemable Convertible Preferred Stock and all of the Series B
Redeemable Convertible Preferred Stock) issued at prices equal to or
below the initial public offering price per share ("cheap stock")
during the twelve-month period immediately preceding the initial filing
date of the Company's Registration Statement for its public offering
have been included as outstanding for all periods presented prior to
the initial public offering.
(3) Represents the portion of the accretion related to Series A Redeemable
Convertible Preferred Stock not treated as cheap stock.
(4) Supplemental loss per share reflects the number of shares of Common
Stock issued upon consummation of the initial public offering used to
repay $5.6 million in current and long-term notes payable as if such
issuance had occurred at the beginning of 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,102,002
<SECURITIES> 0
<RECEIVABLES> 913,722
<ALLOWANCES> 51,205
<INVENTORY> 746,165
<CURRENT-ASSETS> 13,797,831
<PP&E> 6,753,734
<DEPRECIATION> 1,314,855
<TOTAL-ASSETS> 20,465,043
<CURRENT-LIABILITIES> 2,483,542
<BONDS> 2,933,234
18,087,836
0
<COMMON> 414
<OTHER-SE> (3,039,983)
<TOTAL-LIABILITY-AND-EQUITY> 20,465,043
<SALES> 1,005,461
<TOTAL-REVENUES> 2,013,401
<CGS> 1,310,241
<TOTAL-COSTS> 1,808,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 41,980
<INTEREST-EXPENSE> 76,664
<INCOME-PRETAX> (676,365)
<INCOME-TAX> 0
<INCOME-CONTINUING> (676,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (676,365)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,883,718
<SECURITIES> 0
<RECEIVABLES> 1,928,313
<ALLOWANCES> 189,653
<INVENTORY> 2,033,544
<CURRENT-ASSETS> 25,474,034
<PP&E> 20,182,551
<DEPRECIATION> 2,715,432
<TOTAL-ASSETS> 51,006,768
<CURRENT-LIABILITIES> 4,829,306
<BONDS> 5,393,601
0
0
<COMMON> 1,461
<OTHER-SE> 40,782,400
<TOTAL-LIABILITY-AND-EQUITY> 51,006,768
<SALES> 1,239,083
<TOTAL-REVENUES> 3,135,949
<CGS> 1,651,410
<TOTAL-COSTS> 2,980,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63,200
<INTEREST-EXPENSE> 39,273
<INCOME-PRETAX> (2,507,798)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,507,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,507,798)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 12,102,002
<SECURITIES> 0
<RECEIVABLES> 913,722
<ALLOWANCES> 51,205
<INVENTORY> 746,165
<CURRENT-ASSETS> 13,797,831
<PP&E> 6,753,734
<DEPRECIATION> 1,314,855
<TOTAL-ASSETS> 20,465,043
<CURRENT-LIABILITIES> 2,483,542
<BONDS> 2,933,234
18,087,836
0
<COMMON> 414
<OTHER-SE> (3,039,983)
<TOTAL-LIABILITY-AND-EQUITY> 20,465,043
<SALES> 2,527,896
<TOTAL-REVENUES> 4,996,964
<CGS> 3,194,607
<TOTAL-COSTS> 4,346,644
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 88,742
<INTEREST-EXPENSE> 231,718
<INCOME-PRETAX> (1,704,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,704,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,704,862)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 30,
1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,883,718
<SECURITIES> 0
<RECEIVABLES> 1,928,313
<ALLOWANCES> 189,653
<INVENTORY> 2,033,544
<CURRENT-ASSETS> 25,474,034
<PP&E> 20,182,551
<DEPRECIATION> 2,715,432
<TOTAL-ASSETS> 51,006,768
<CURRENT-LIABILITIES> 4,829,306
<BONDS> 5,393,601
0
0
<COMMON> 1,461
<OTHER-SE> 40,782,400
<TOTAL-LIABILITY-AND-EQUITY> 51,006,768
<SALES> 3,325,260
<TOTAL-REVENUES> 7,999,129
<CGS> 4,320,129
<TOTAL-COSTS> 7,337,586
<OTHER-EXPENSES> 0
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