<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Preferred Networks, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PREFERRED NETWORKS, INC. (LOGO)
May 7, 1997
Dear Preferred Networks Owner:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held on June 12, 1997, at 9:00 a.m., local time, at Preferred Networks, Inc.,
850 Center Way, Norcross, Georgia.
At the annual meeting, you will be asked to approve a private placement of
Preferred Networks' Class A Redeemable Preferred Stock and warrants to acquire
common stock, to approve the 1995 Stock Option Plan as amended, to change
Preferred Networks' state of incorporation from Delaware to Georgia, and to
re-elect three directors for a three-year term. The accompanying proxy statement
contains more information describing these matters. Your Board of Directors
recommends that all stockholders vote in favor of these actions.
Your vote is important. Whether or not you plan to attend the annual
meeting in person and regardless of the number of shares you own, I urge you to
complete, sign and date the enclosed proxy card and return it in the enclosed
prepaid envelope as soon as possible. You may, of course, attend the annual
meeting and vote in person, even if you have previously returned your proxy
card.
We value your support as owners of our company, and we thank you in advance
for your participation.
Very truly yours,
/s/ MARK H. DUNAWAY
Mark H. Dunaway
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
PREFERRED NETWORKS, INC. (LOGO)
850 CENTER WAY
NORCROSS, GEORGIA 30071
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 1997
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
(the "Meeting") of Preferred Networks, Inc. (the "Company") to be held on
Thursday, June 12, 1997, at 9:00 o'clock a.m., local time, at 850 Center Way,
Norcross, Georgia 30071, for the following purposes:
1. To consider and vote upon a proposal to approve a private placement
of the Company's Class A Redeemable Preferred Stock and warrants to acquire
common stock;
2. To consider and vote upon a proposal to approve the Company's 1995
Stock Option Plan as amended;
3. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger between the Company and PNI Merger Corp., a Georgia
corporation and wholly-owned subsidiary of the Company ("PMC"), the purpose
of which is to (a) change the Company's state of incorporation from
Delaware to Georgia pursuant to a statutory merger of the Company into PMC,
and (b) make certain changes to the Company's certificate of incorporation;
4. To elect three members of the Board of Directors whose terms are
expiring;
5. To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on April 28, 1997,
will be entitled to notice of, and to vote at, the Meeting or any adjournment of
the Meeting.
WHETHER OR NOT YOU EXPECT TO BE AT THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR PROXY WILL BE VOTED WITH RESPECT TO THE
MATTERS IDENTIFIED THEREON IN ACCORDANCE WITH ANY SPECIFICATIONS ON THE PROXY.
If you plan to attend the Meeting and wish to vote your shares personally, you
may do so at any time before the Proxy is voted.
BY ORDER OF THE BOARD OF DIRECTORS
Mark B. Jones
Secretary
May 7, 1997
<PAGE> 4
PREFERRED NETWORKS, INC.
850 CENTER WAY
NORCROSS, GEORGIA 30071
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 1997
This Proxy Statement is furnished to stockholders of Preferred Networks,
Inc. (the "Company") in connection with the solicitation of proxies for use at
the 1997 Annual Meeting of Stockholders of the Company to be held at the
Company's executive offices at 850 Center Way, Norcross, Georgia 30071, on
Thursday, June 12, 1997 at 9 o'clock a.m., local time, and at any and all
adjournments or postponements thereof (the "Meeting"), for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. The
Company's Annual Report to Stockholders for the year ended December 31, 1996 is
being mailed with this Proxy Statement. This Proxy Statement and the enclosed
form of proxy were first sent or given to stockholders on or about May 7, 1997.
This solicitation is made on behalf of the Board of Directors of the
Company. Costs of the solicitation will be borne by the Company. Directors,
officers and employees of the Company and its affiliates may also solicit
proxies by telephone, telecopy or personal interview but will not receive
additional compensation for the solicitation activities. The Company will
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy material to
stockholders.
ACTIONS TO BE TAKEN UNDER THE PROXY
In voting on the proposal to approve of the private placement (the "Private
Placement") of the Company's Class A Redeemable Preferred Stock (the "Class A
Preferred Stock") and warrants (the "Warrants") to acquire the Company's common
stock [Proposal I], to approve the 1995 Stock Option Plan as amended [Proposal
II] and to approve the proposal to change, by means of a merger with a Georgia
subsidiary, the Company's state of incorporation from Delaware to Georgia and
make certain changes to the Company's certificate of incorporation (the
"Merger") [Proposal III], shareholders may vote FOR, AGAINST or ABSTAIN with
respect to the proposals. In voting on the election of directors [Proposal IV],
shareholders may vote in favor of all nominees or withhold their votes as to
some or all nominees. Unless other instructions are indicated on the proxy card,
all properly executed proxies received by the Company will be voted FOR
Proposals I, II and III and FOR the election of all of the nominees for director
set forth below under "Election of Directors." Some proxies may be broker
non-votes (marked to indicate that the shares are not being voted on any one or
all proposals).
Approval of Proposal I (the Private Placement) and II (the approval of the
1995 Stock Option Plan as amended) will require the affirmative vote of a
majority of the shares represented at the Meeting, in person or by proxy, and
entitled to vote thereon. Approval of Proposal II (the Merger) will require the
affirmative vote of a majority of the outstanding shares of the Company entitled
to vote thereon. Abstentions will have the effect of a vote against Proposal I
(the Private Placement) and Proposal III (the Merger), but broker non-votes will
not effect the outcome of the vote. Both abstentions and broker non-votes will
have the effect of a vote against Proposal II (the 1995 Stock Option Plan). The
election of directors will require the affirmative vote of a plurality of the
shares of the Company's $.0001 par value common stock (the "Common Stock")
represented at the Meeting, in person or by proxy, and entitled to vote thereon.
Votes withheld and broker non-votes will not be included in vote totals for
director nominees and will have no effect on the outcome of the vote.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares is necessary to constitute a quorum at the Meeting.
Any proxy authorized to be voted at the Meeting on any
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matter (including on routine matters pursuant to the discretionary authority
granted in management's proxy) whether or not the proxy is marked to "WITHHOLD
AUTHORITY," to "ABSTAIN" or to effect a broker non-vote on any proposal, will be
counted in establishing a quorum.
Any stockholder giving a proxy may revoke it at any time before it is
exercised by giving written notice of revocation, or a duly executed proxy
bearing a later date, to the Secretary of the Company. In order to be effective,
such notice or later dated proxy must be received by the Company prior to the
exercise of the earlier proxy. A stockholder may attend the Meeting, revoke his
proxy and vote in person.
VOTING SECURITIES
Only holders of record of shares of the Common Stock as of the close of
business on the record date of April 28, 1997 are entitled to receive notice of,
and to vote at, the Meeting. The outstanding Common Stock constitutes the only
class of securities entitled to vote at the Meeting. Each share of Common Stock
entitles the holder of record to one vote. At the close of business on April 28,
1997, there were shares of Common Stock issued and outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 28, 1997, certain information
with respect to the beneficial ownership of shares of Common Stock of (i) all
stockholders known by the Company to be the beneficial owners of more than 5% of
the Common Stock, as determined pursuant to Rule 13d-3 ("Rule 13d-3")
promulgated by the Securities and Exchange Commission (the "SEC"), (ii) each
director of the Company and each Named Executive Officer (as defined below), and
(iii) all directors and executive officers as a group. The following table is
based in part on information provided in Schedule 13Ds and Schedule 13Gs
furnished to the Company. Except as otherwise indicated, the holders listed
below have sole voting and investment power with respect to all shares
beneficially owned by them.
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<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------
PERCENTAGE
ACQUIRABLE OF
NAME OF BENEFICIAL OWNER OR GROUP CURRENTLY WITHIN 60 OUTSTANDING
(AND ADDRESS OF 5% STOCKHOLDER) OWNED DAYS STOCK
--------------------------------- --------- ---------- -----------
<S> <C> <C> <C>
Mark H. Dunaway......................................... 2,307,825(1) 17,866(2) 14.4%
Chairman of the Board and Chief
Executive Officer
944 Gatewood Court, N.W.
Atlanta, GA 30327
Michael J. Saner........................................ 502,830(3) 32,487(2) 3.3
Director and President
Kim Smith Hughes........................................ 3,000 *
Chief Financial Officer
Eugene H. Kreeft........................................ 449,104 32,487(2) 3.0
Executive Vice President of Engineering
Patrick T. Markey....................................... 100(4) *
Vice President of Marketing
William H. Bang......................................... 15,500(5) *
Director
John J. Hurley.......................................... 14,000(5) *
Director
Robert Van Degna........................................ 1,057,500(5)(6) 6.6
Director
Jeffrey H. Schutz....................................... 1,057,502(5)(7) 6.6
Director
Ronald W. White......................................... 465,663(5)(8) 2.9
Director
Richard H. Stewart...................................... 1,000,964(9) 5.7
77 East Crossville Road, Suite 310
Roswell, Georgia 30075
Centennial Fund IV, L.P................................. 1,057,502(7) 6.6
1999 Broadway, Suite 2100
Denver, CO 80202
Saugatuck Capital Company, L.P. III..................... 1,042,502(10) 6.5
One Canterbury Green
Stamford, Connecticut 06901
State of Wisconsin Investment Board..................... 900,000 5.6
121 East Wilson Street
Madison, Wisconsin 53707
All executive officers and directors as a group (17
persons).............................................. 5,879,635 115,327(2) 37.0%
</TABLE>
- ---------------
* Less than one percent
(1) All shares are jointly held with Marcia M. Dunaway, Mr. Dunaway's spouse.
(2) Consists of shares subject to stock options granted pursuant to the
Company's stock option plans.
(3) Includes 53,726 shares of Common Stock held in the name of Saner
Communications, Inc., a corporation wholly-owned by Mr. Saner.
(4) Mr. Markey's position with the Company was eliminated effective April 15,
1997.
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(5) Includes shares awarded pursuant to the Company's 1995 Non-Employee
Restricted Stock Award Plan, which are subject to restrictions on transfer
that lapse over five years.
(6) Includes 271,049 shares of Common Stock held by Fleet Equity Partners VI,
L.P. ("FEP"), 632,450 shares of Common Stock held by Fleet Venture
Resources, Inc. ("FVR"), and 139,001 shares of Common Stock held by
Chisholm Partners II L.P. ("CPII"). Mr. Van Degna is Chairman and CEO of
Fleet Growth Resources II, Inc. and President of Silverado IV Corp., the
general partners of FEP and he is a limited partner of FEP. Mr. Van Degna
is Chairman and CEO of FVR, and he is President of Silverado II Corp., the
general partner of Silverado II, L.P. which is the general partner of CPII.
Mr. Van Degna is also a limited partner of Silverado II, L.P. As Chairman
and CEO of Fleet Growth Resources II, Inc. and President of Silverado II
Corp., Mr. Van Degna may be deemed to share voting and investment power
with respect to such shares. Mr. Van Degna disclaims beneficial ownership
of all shares of Common Stock which are directly owned by FVR, and those
shares of Common Stock which are directly held by FEP and CPII, except for
his pecuniary interest therein. Does not include shares of Class A
Preferred Stock and Warrants to be issued pursuant to the Private
Placement.
(7) 1,042,502 of the shares are owned by Centennial Fund IV, L.P. ("CIV").
15,000 shares (which were granted pursuant to the Company's 1995
Non-Employee Restricted Stock Award Plan) are held by Mr. Schutz on behalf
of CIV. Mr. Schutz is a General Partner of Centennial Holdings IV, L.P.
("Holdings"). Holdings is the sole General Partner of CIV and in such
capacity has authority to make decisions regarding the voting and
disposition of shares of Common Stock owned by CIV (such decisions are made
by a six person investment committee of Holdings, of which Mr. Schutz is a
member); Holdings may, therefore, be deemed to be the indirect beneficial
owner of the shares reported by CIV above, although it does not directly
own any shares of the Common Stock itself. Mr. Schutz (and each of the
other members of Holdings' Investment Committee) disclaims beneficial
ownership of all shares of Common Stock directly or indirectly owned by
CIV. Does not include shares of Class A Preferred Stock and Warrants to be
issued pursuant to the Private Placement.
(8) Includes 465,663 shares held by Advanced Technology Development Fund II,
L.P. ("ATDF"), an entity for which Mr. White serves as general partner.
Does not include 834,208 shares held by Transit Communications U.S.A.,
L.P., a limited partnership in which ATDF owns an approximate 70% limited
partnership interest.
(9) Includes 829,208 shares of Common Stock held by Transit Communications
U.S.A., L.P., a limited partnership. Mr. Stewart controls the voting stock
of the general partner of Transit Communications U.S.A., L.P.
(10) Does not include shares of Class A Preferred Stock and Warrants to be
issued pursuant to the Private Placement.
PROPOSAL I
APPROVAL OF PRIVATE PLACEMENT
On , 1997, the Company and five of its shareholders (the
"Investors") executed the Class A Redeemable Preferred Stock Purchase Agreement
(the "Stock Purchase Agreement") pursuant to which the Investors agreed to
purchase 10,000,000 shares of the Class A Preferred Stock for $1.50 per share
and pursuant to which the Investors will receive Warrants to purchase 11,500,000
shares of Common Stock, subject to possible upward adjustment (the "First
Closing"). The Warrants are exercisable at $1.50 per share. The Investors also
have the option to purchase up to an additional 3,333,333 shares of Class A
Preferred Stock and to acquire additional Warrants to acquire 3,000,000 shares
of Common Stock subject to possible upward adjustment (the "Second Closing") on
essentially the same terms. The number of shares of Class A Preferred Stock to
be issued may increase if interest accrued on loans from the Investors described
below is paid in whole or in part with additional shares of Class A Preferred
Stock. The consummation of this Private Placement is conditioned upon approval
by the Company's stockholders.
The Company has a revolving credit facility with a financial institution
that contains a requirement that the Company raise $15,000,000 in debt or equity
capital by July 1997, plus an additional $5,000,000 by the end of January 1998.
In addition, management believes that the Company's cash and cash equivalents on
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hand, together with availability under certain secured credit facilities, will
be sufficient to meet its working capital, capital expenditure and debt covenant
requirements only until May 1997 (unless the Private Placement is consummated).
The completion of the Private Placement is intended to satisfy the requirement
in the Company's revolving credit facility, although if the Second Closing does
not occur, or the full amount of $5,000,000 is not received by the Company, the
Company will need to raise additional debt or equity capital before the end of
January 1998 to continue to meet its debt covenants under this facility. The
Company will receive proceeds of $15,000,000 from the First Closing (before
deducting any expenses relating to the Private Placement), which will be used to
cover the Company's working capital and capital expenditure needs for the
remainder of 1997. The Investors have agreed to extend loans to the Company
totaling $10,000,000 ($5,000,000 of which has already been drawn by the
Company), which are intended to provide the Company with the funds necessary to
meet its working capital and capital expenditure needs until the First Closing.
Outstanding principal amounts (and possibly accrued interest) under these loans
will be applied against the purchase price of the Class A Preferred Stock and
Warrants to the extent they have not been repaid as of the First Closing.
Set forth below is a description of the principal terms of the Private
Placement, the Class A Preferred Stock and the Warrants, which description is
qualified by reference to the Stock Purchase Agreement itself, a copy of which
is attached hereto as Exhibit A.
THE STOCK PURCHASE AGREEMENT
The Stock Purchase Agreement provides that the Investors will each purchase
a specified portion of the 10,000,000 shares of Class A Preferred Stock and a
proportionate amount of the Warrants at the First Closing, which is expected to
occur the day after the Meeting or shortly thereafter. The Stock Purchase
Agreement sets forth the features of the Class A Preferred Stock and Warrants
that are discussed below.
The obligation of the Company and the Investors to complete the Private
Placement is conditioned upon, among other things, approval by the Company's
stockholders of the Private Placement, the receipt of an opinion of counsel to
the Company with respect to certain matters relating to the Company and its
capital stock and the accuracy and completeness in all material respects of the
representations and warranties of the Company and the Investors contained
therein. The Stock Purchase Agreement may only be amended with the consent of
the Company and Investors holding at least two-thirds of the Class A Preferred
Stock.
CLASS A PREFERRED STOCK
The Class A Preferred Stock to be issued to the Investors as of the First
Closing will be capital stock of PMC, rather than of the Company, since the
operations of the Company will be carried forward by PMC after the Company
completes its change in state of incorporation to Georgia. See "Proposal
III -- The Merger" for a discussion of the proposed reincorporation in Georgia
and the effect on holders of the Company's capital stock. The Company does not
intend to register the Class A Preferred Stock on the Nasdaq Stock Market
National Market ("Nasdaq").
Dividends. Each share of Class A Preferred Stock is entitled to receive
dividends that will be declared and paid upon liquidation or redemption or when
and as declared by the Board of Directors of the Company. Dividends will accrue
at a rate of 10% per annum and will be in preference to any payment made on any
shares of Common Stock or any other class or series of capital stock of the
Company ranking junior to the Class A Preferred Stock.
Liquidation Preference. Each share of Class A Preferred Stock is entitled
to a liquidation preference of $1.50 per share plus accrued dividends. A
consolidation or merger of the Company in which the Company does not survive, or
a sale of all or substantially all of its assets, shall be deemed a liquidation
for purposes of the preference.
Voting Rights. Each share of Class A Preferred Stock is entitled to one
vote. Consent of the holders of at least two-thirds of the Class A Preferred
Stock will be required for any action which (i) alters or changes the rights,
preferences or privileges of the Class A Preferred Stock, (ii) involves any
repurchases of Common
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Stock by the Company (except for specified buy-backs under existing employee and
related plans), (iii) increases the authorized number of shares of Class A
Preferred Stock, (iv) creates any new class of shares having preference over or
being on a parity with the Class A Preferred Stock, (v) approves a material
change in the line of business of the Company, (vi) involves any sale by the
Company of all or a substantial portion of its assets, any merger of the Company
with another entity, or any amendment of the Company's certificate or articles
of incorporation, (vii) involves any significant acquisition by the Company
(i.e., has a transaction value of $5,000,000 or more), or (viii) involves any
significant increase in indebtedness of the Company (either public or private)
(i.e., any incremental increase of $5,000,000 or more). In addition, under
Georgia law, the holders of Class A Preferred Stock may be required to vote
separately as a class to approve certain transactions. See "Proposal III -- The
Merger -- Comparison of Stockholders' Rights."
Redemption. All but not less than all of the Class A Preferred Stock is
redeemable at any time at the option of the Company at a price equal to the
original purchase price plus accumulated but unpaid dividends. On the fifth
anniversary of the First Closing, each holder of the Class A Preferred Stock
shall be entitled to demand that the Class A Preferred Stock originally
purchased by such holder be redeemed by the Company at a price equal to the
original purchase price plus accumulated but unpaid dividends.
To the extent that the Company may not at any particular date legally
effectuate a redemption of Class A Preferred Stock, such redemption will take
place as soon as legally permitted.
Preemptive Rights. So long as the Class A Preferred Stock is outstanding,
if the Company offers equity securities for sale through a subsequent private
placement the Investors will be entitled to purchase their fully-diluted
percentage of such offering.
Representation on the Board of Directors. The holders of the Class A
Preferred Stock shall have the right to elect one director (which right shall
not be deemed to be satisfied by the presence on the Board of current Board
members Jeffrey H. Schutz and Robert Van Degna). The Board will meet at least
quarterly. Each Investor investing an amount equal to or greater than $1,500,000
shall be entitled, at the election of such Investor, to Board observation rights
and to receive all materials distributed to the Board of Directors.
WARRANTS
Each Warrant shall be exercisable for Common Stock at a price of $1.50 per
share for a period of five years from the date of the First Closing. Payment of
the exercise price for Warrants may be made in shares of Common Stock equal in
value to the exercise price (based on the market value of the Common Stock at
the time of exercise), in shares of Class A Preferred Stock equal in value to
the exercise price (based on the liquidation value of the Class A Preferred
Stock), or in cash. The exercise price of Warrants will be adjusted downward in
the event that the Company issues additional shares of capital stock in a
subsequent private placement at a price per share less than the exercise price.
The exercise price will be adjusted so that it is the same as the price per
share received in the subsequent private placement. The Warrants will also be
subject to adjustment for customary anti-dilution events such as stock splits,
stock dividends, reorganizations and other similar events.
Investors holding Warrants may require the Company to register the shares
of Common Stock to be received upon exercise of such Warrants pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). The Investors may
exercise these "demand" registration rights upon two separate occasions, and
will also have unlimited "piggyback" registration rights, which entitle an
Investor to request that his shares be registered as a part of any registration
being conducted by the Company. The Company will pay all expenses associated
with such registrations and will indemnify the Investors in connection with such
registrations.
If (i) the average closing bid price of Common Stock exceeds $10 per share
for a 90 day period and (ii) the Company redeems all outstanding Class A
Preferred Stock and (iii) causes all shares of Common Stock that would be
received upon exercise of Warrants to be registered pursuant to the Securities
Act, then the holders of Warrants would be required to exercise all, but not
less than all, of their Warrants.
If the Company so elects, it may cancel Warrants representing up to 500,000
shares of Common Stock (pro rata among all Investors) by redeeming all, but not
less than all, of the Class A Preferred Stock during
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the following periods and for the following amounts. If the Company redeems the
Class A Preferred Stock during the first year after the First Closing, no
consideration will be paid for the Warrants cancelled; if the Company redeems
the Class A Preferred Stock during the second year, aggregate consideration of
$750,000 will be paid; and if the Company redeems the Class A Preferred Stock
during the third year, aggregate consideration of $1,500,000 will be paid.
NASDAQ REQUIREMENTS
The rules of Nasdaq require the Company to obtain stockholder approval of
any private sale or issuance of any securities exercisable for Common Stock
equal to 20% or more of the outstanding Common Stock or 20% or more of the
voting power outstanding before the issuance, if the purchase price is less than
the greater of book or market value of Common Stock. Since the total amount of
shares of Common Stock for which Warrants may be exercised will exceed 20% of
the currently outstanding Common Stock and since the price per share is less
than the current market value of the Common Stock, stockholder approval of the
Private Placement is necessary. If stockholder approval is not obtained, the
Private Placement will not take place.
EFFECT OF PRIVATE PLACEMENT ON RIGHTS OF HOLDERS OF COMMON STOCK
The issuance of Class A Preferred Stock in the Private Placement will have
no effect on the rights or privileges of existing holders of Common Stock except
to the extent that the interests of each such stockholder in the economic
results and voting rights of the Company are diluted based on the number of
shares owned by existing stockholders prior to any issuance and except that the
holders of Class A Preferred Stock will have the right to approve certain
transactions involving the Company (and therefore a veto right over such
transactions) and the right to have a representative on the Board of Directors.
The holders of Class A Preferred Stock will be entitled to receive dividends and
distributions on a liquidation in preference to the claims of the holders of the
Common Stock.
The exercise of the Warrants will have a substantial dilutive effect on the
existing holders of Common Stock. If the market price of Common Stock at the
time of exercise of the Warrants is significantly in excess of the exercise
price of such Warrants, the dilutive effect will be greater.
INTEREST OF CERTAIN PERSONS
The Investors include CIV, Fleet Equity Partners, PNC Capital Corp.,
Saugatuck Capital III and Primus Venture Fund III, each of which is currently a
substantial stockholder of the Company. If these Investors were to act together
as a group, they would have voting control of the Company, although the
Company's management is not aware of any such intention on the part of the
Investors.
CIV (or entities affiliated with it) currently own or control 1,042,502
shares of Common Stock and Mr. Schutz (a director of the Company who is
affiliated with CIV) holds 15,000 additional shares on CIV's behalf for a total
beneficial ownership of the Company's outstanding Common Stock of 6.6%. See
"Voting Securities -- Security Ownership of Certain Beneficial Owners and
Management." Following the First Closing and assuming all the Warrants are fully
exercised, CIV may be deemed to have beneficial ownership of 3,133,333 shares of
Class A Preferred Stock, or 31.3% of the outstanding Class A Preferred Stock,
and a total of 4,660,835 shares or 11.9% of the outstanding Common Stock.
Fleet Equity Partners (or entities affiliated with it) currently owns or
controls 1,042,500 shares of Common Stock and Mr. Van Degna (one of the
Company's directors and an affiliate of Fleet Equity Partners) owns 15,000
shares of the Common Stock, for a total beneficial ownership of 6.6% of the
outstanding Common Stock. See "Voting Securities -- Security Ownership of
Certain Beneficial Owners and Management." Following the First Closing and
assuming all the Warrants are fully exercised, Fleet Equity Partners may be
deemed to have beneficial ownership of 3,400,000 shares of Class A Preferred
Stock, or 34% of the outstanding Class A Preferred Stock, and a total of
4,967,500 shares or 17.1% of the outstanding Common Stock.
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Saugatuck Capital Company, L.P. III currently owns 1,042,502 shares, or
6.5% of the outstanding Common Stock. See "Voting Securities -- Security
Ownership of Certain Beneficial Owners and Management." Following the First
Closing, and assuming all the Warrants are fully exercised, Saugatuck Capital
Company, L.P. III may be deemed to have beneficial ownership of 1,200,000 shares
of Class A Preferred Stock, or 12% of the outstanding Class A Preferred Stock,
and 2,422,502 shares or 8.4% of the outstanding Common Stock.
Each of the two remaining Investors, PNC Capital Corp. and Primus Venture
Fund III, currently own or control 416,997 shares and 521,250 shares of Common
Stock, respectively. Following the First Closing and assuming all Warrants are
exercised, each of PNC Capital Corp. and Primus Venture Fund III will own
1,700,000 shares of Class A Preferred Stock or 11.3% each of the outstanding
Class A Preferred Stock. Following the First Closing, PNC Capital Corp. may be
deemed to have beneficial ownership of 1,720,330 shares, or 5.9% of the
outstanding Common Stock, and Primus Venture Fund III may be deemed to have
beneficial ownership of 1,824,583 shares, or 6.3% of the outstanding Common
Stock.
In the event the Second Closing also occurs, the Investors are likely to
acquire additional shares of Class A Preferred Stock and additional Warrants to
acquire Common Stock. As a result they would have beneficial ownership of
greater amounts of the Company's capital stock than described above.
DESCRIPTION OF CAPITAL STOCK
Set forth below is a description of the capital stock of the Company.
Stockholders should also refer to the discussion under "Proposal III -- The
Merger" for information regarding the Company's capital stock following the
Company's reincorporation in Georgia.
General. The authorized capital stock of the Company is 75,000,000 shares,
consisting of 70,000,000 shares of Common Stock, $.0001 par value and 5,000,000
shares of preferred stock, $.01 par value. As of April 28, 1997, shares
of Common Stock were outstanding and no shares of preferred stock were
outstanding.
Common Stock. Holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders and are not entitled to cumulative
voting in the election of directors, which means that the holders of a majority
of the shares of Common Stock voting for the election of directors can elect all
of the directors then standing for election. Subject to the rights of any
outstanding preferred stock, holders of shares of Common Stock are entitled to
share ratably in such dividends as may be declared by the Board of Directors and
paid by the Company out of funds legally available therefor and to share pro
rata in the distribution to stockholders of any legally available assets upon
liquidation, dissolution or winding up of the Company.
Holders of Common Stock have no preemptive or other subscription or
conversion rights. All outstanding shares of Common Stock are fully paid and
nonassessable.
Preferred Stock. The Board of Directors is authorized to divide the
5,000,000 shares of preferred stock into series and to fix or alter the rights,
powers, preferences and privileges, and the qualifications, limitations or
restrictions thereof, including rights as to dividends, conversion, voting and
liquidation, to fix the number of shares constituting any such series and the
designation thereof and to increase or decrease the number of shares of any such
series (but not below the number of shares thereof then outstanding). The Board
of Directors, without stockholder approval, can issue preferred stock with
dividend, conversion, voting, liquidation and other rights, which could
adversely affect the holders of Common Stock. The ability of the Board of
Directors to issue such preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding voting
stock of the Company.
Delaware Law and Certain Charter and Bylaws Provisions. Certain provisions
of the Delaware General Corporation Law (the "DGCL") and of the Company's
Certificate of Incorporation and Bylaws, discussed below and in "Proposal
III -- The Merger -- Comparison of Stockholder Rights," may be considered to
have an anti-takeover effect and may delay, deter or prevent a tender offer,
proxy contest or other takeover attempt
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that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price of shares held by stockholders.
Classified Board of Directors. The Board of Directors of the Company is
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. Classification of the Board of Directors expands the time required to
change the composition of a majority of directors and may tend to discourage an
acquisition proposal for the Company. In addition, members of the Board of
Directors may be removed by the stockholders only for cause.
Special Meetings of Stockholders; Consents. The Company's Bylaws provide
that special meetings of stockholders may be called only by the Chairman of the
Board of Directors, the President, a majority of the Board of Directors of the
Company or holders of outstanding stock having not less than 75% of the votes
entitled to be cast by all of the outstanding shares of the capital stock of the
Company, and the Company's Certificate of Incorporation provides that
stockholders may act without a meeting only by unanimous written consent.
Repurchase Provisions. The Company's Certificate of Incorporation contains
provisions which are included for the purpose of ensuring that control and
management of the Company remains with citizens of the United States or United
States corporations, as required by the Federal Communications Commission (the
"FCC") and federal law with respect to the issuance of FCC licenses. The
Certificate of Incorporation provides that no equity or debt securities of the
Company, including options or warrants, shall at any time be held or owned of
record of beneficially at any time by any person or entity if such holding or
ownership would, in the opinion of counsel, more likely than not constitute a
violation of, or breach a condition of, an authority, license, franchise,
permit, or similar item, granted by the FCC or any state or other public utility
commission, public service commission or similar body, and issued to the Company
(or any entity in which the Company directly or indirectly beneficially owns an
equity interest), the violation or breach of which it is determined, upon the
vote of a majority of directors of the Company then in office, would be material
to the Company, its assets or business. The Certificate of Incorporation
authorizes the Company to redeem any such equity or debt securities for the fair
market value thereof, or, if purchased by such holder within the one-year period
prior to such redemption, for the lesser of the fair market value or the price
paid by such holder.
STOCKHOLDER APPROVAL OF THE PRIVATE PLACEMENT
Approval of the Private Placement will require the affirmative vote of a
majority of the shares represented at the Meeting, in person or by proxy, and
entitled to vote thereon. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE PRIVATE PLACEMENT.
PROPOSAL II
APPROVAL OF 1995 STOCK OPTION PLAN AS AMENDED
The stockholders are being asked to approve the 1995 Stock Option Plan as
amended (the "Stock Option Plan") to ensure that stock options and stock
appreciation rights (together "Stock Incentives") granted under the Stock Option
Plan will be fully tax deductible pursuant to Section 162(m) of the Internal
Revenue Code of 1996, as amended (the "Code"), by qualifying as
performance-based compensation within the meaning of the Code and that the
stockholder approval requirements of Section 422 of the Code, which authorizes
incentive stock options, are met.
In 1993, the Code was amended to limit the ability of a public corporation
to claim tax deductions for compensation paid to the five most highly
compensated executive officers. Code Section 162(m) generally denies a corporate
tax deduction for annual compensation exceeding $1 million paid to the Chief
Executive Officer or any of the other four most highly compensated officers of a
public corporation. Certain types of compensation that qualify as
performance-based within the limits of Code Section 162(m) are generally
excluded from this deduction limit. Stock Incentives granted pursuant to the
Stock Option Plan will qualify as performance-based compensation if the exercise
price of such Stock Incentives is no lower than the market price of the Common
Stock subject to the Stock Incentive on the date of grant and the stockholders
have
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<PAGE> 13
approved certain maximum limits on the number of shares underlying such Stock
Incentives that may be granted to any participant in a given period. Stockholder
approval of the Stock Option Plan will constitute approval of the limits on
Stock Incentive grants set forth in the Stock Option Plan and discussed below.
Since Section 162(m) became effective, the Company has been operating under
transitional rules that have not required stockholder approval of maximum limits
and performance criteria in order for Stock Incentives to be treated as
performance-based compensation. Since these transitional provisions will expire,
the Board of Directors has determined that it is appropriate to seek stockholder
approval of the Stock Option Plan at the Meeting to permit the Company to
continue to deduct for tax purposes compensation paid to covered executives as
Stock Incentives. In addition, Section 422 of the Code requires stockholder
approval for an amendment to a stock option plan which increases the number of
shares available for grant. On April 22, 1997 the Board of Directors amended the
Stock Option Plan to increase the number of shares of Common Stock available for
issuance pursuant to the Stock Option Plan to 2,374,450 shares.
The Stock Option Plan is designed to aid the Company in attracting and
retaining highly qualified executives and other key employees by providing them
with stock options and stock appreciation rights ("SARs"). The summary of the
principal terms of the Stock Option Plan that follows is subject to the specific
provisions of the Stock Option Plan, a copy of which is attached as Exhibit B
hereto.
ELIGIBILITY FOR PARTICIPATION
Employees and consultants of the Company and its future parent or
subsidiaries, if any, are eligible to participate in the Stock Option Plan. The
Board of Directors or the Compensation Committee of the Board of Directors has
full responsibility for determining the employees and consultants to whom stock
options or SARs will be granted. In making such determinations, the Board or
Compensation Committee will take into account the nature of the services
rendered by the respective employees and consultants, their present and
potential contributions to the Company and any other factors it deems relevant.
Approximately 350 employees are currently eligible to participate in the Stock
Option Plan.
SECURITIES UNDERLYING THE OPTIONS
Subject to stockholder approval, up to 2,374,450 shares of Common Stock may
be issued pursuant to Stock Incentives granted under the Stock Option Plan.
During any one calendar year no participant may be granted any Stock Incentives
that relate to more than 50,000 shares of Common Stock.
STOCK OPTIONS
Options granted under the Stock Option Plan may be "incentive stock
options" within the meaning of Section 422 of the Code, or stock options not
qualifying as incentive stock options ("non-qualified stock options"). In the
case of incentive stock options, the aggregate fair market value (determined as
of the time an incentive stock option is granted) of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
individual during any calendar year under all plans of the Company and its
parent or subsidiaries cannot exceed $100,000. To the extent the aggregate fair
market value exceeds $100,000, such options are treated as non-qualified
options. The option price per share of an incentive stock option may not be less
than the fair market value of a share of Common Stock as of the date such option
is granted. Any incentive stock option granted to any person who, at the time
such option is granted, owns (as defined in Sections 422 and 424 of the Code)
Common Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or its parent (if any) or one of its subsidiary
corporations (if any) shall have an exercise price of at least 110% of the fair
market value of a share of Common Stock on the date such option is granted. The
option price per share of a nonqualified stock option may not be less than 50%
of the fair market value of a share of Common Stock as of the date such option
is granted. Payment for shares purchased pursuant to options must be made in
cash or check or, if the option agreement so provides, by delivery of shares of
Common Stock having a market value equal to the exercise price of the option.
Options become exercisable at the times and subject to the conditions
prescribed by the Board or Compensation Committee and set forth in a particular
option agreement, but generally no options may be
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<PAGE> 14
exercised during the first six months following the date of grant. This general
rule is subject to the following exceptions: (1) different exercise terms may be
prescribed in substitute options that replace options previously granted by an
acquired company, (2) upon a Corporate Transaction (as defined in the Stock
Option Plan and described below) the vesting schedule of an option will
accelerate so that it will become freely exercisable, and (3) following the
grant of an option, the Board or Compensation Committee, in its discretion, may
accelerate the exercisability of the option in whole or in part prior to
termination of the option. Options granted under the Stock Option Plan to
employees must be exercised while the option holder is an employee of the
Company or one of its subsidiaries, except that options may be exercised within
one year after the holder's death or disability and within three months after
termination of employment for other reasons. An option may be terminated
immediately if an option holder's employment is terminated for cause. Options
are nontransferable except by will or the laws of descent and distribution and
are exercisable during the holder's lifetime only by the holder or thereafter by
the holder's legatee or personal representative. The term of each incentive
stock option may not exceed ten years. The Stock Option Plan authorizes the
transfer of Common Stock to a broker upon delivery by the broker to the Company
of the applicable option price for the Common Stock.
Any option issued pursuant to the Stock Option Plan in connection with
certain acquisitions in substitution for an option previously issued by the
acquired entity may contain an exercise price and such other terms and
conditions as the Board or Compensation Committee may prescribe to cause the
substitute option to contain terms and conditions comparable to those contained
in the previously issued option being replaced.
SARS
SARs may be granted at the discretion of the Board or Compensation
Committee in connection with all or any portion of a stock option, or not in
connection with a stock option. A SAR entitles the recipient to receive the
difference between (a) the fair market value of a specified number of shares at
a certain time and (b)(1) the exercise price of a stock option if the SAR was
granted in connection with that option, or (2) if not granted in connection with
a stock option, a price that is not less than 50% of the fair market value of
the Common Stock at the time the SAR was granted.
SARs become exercisable at the times and subject to the conditions
prescribed by the Board or Compensation Committee, provided that no SAR shall be
exercisable in whole or in part during the first six months of its term and no
SAR shall have a term of less than one year or more than ten years. Following
the grant of a SAR, the Board or Compensation Committee, in its discretion, may
accelerate the exercisability of the SAR in whole or in part prior to the
termination of the SAR. Upon a Corporate Transaction, the vesting schedule of a
SAR will accelerate so that it will become freely exercisable. Generally SARs
held by employees are only exercisable during the employee's employment by the
Company (or one of its subsidiaries) or within 30 days following the termination
of such employment, except that if an employee's employment is terminated for
cause, the Board or Compensation Committee may terminate his SAR immediately.
Upon exercise of a SAR, payment may be made in cash or Common Stock (at fair
market value on the date of exercise), as provided in the particular SAR
agreement or in the discretion of the Board or Compensation Committee.
FEDERAL INCOME TAX CONSEQUENCES
The Stock Option Plan is not qualified under Section 401(a) of the Code,
which applies only to certain qualified pension, profit-sharing and stock bonus
plans. Under present law, the following is a brief summary of the primary
federal tax consequences generally arising with respect to stock options or SARs
granted under the Stock Option Plan.
The grant of an option will create no tax consequences for an optionee or
the Company. The optionee will have no taxable income upon exercising an
incentive stock option (except that the alternative minimum tax may apply), and
the Company will receive no deduction when an incentive stock option is
exercised. Upon exercising a non-qualified stock option, the optionee must
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise; the Company will be
entitled to a deduction for the same amount. Different tax rules apply to the
exercise of a non-qualified stock option by optionees who are subject to Section
16 of the Securities Exchange Act of 1934 (the "Exchange
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<PAGE> 15
Act"). The treatment to an optionee of a disposition of shares acquired through
the exercise of an option depends on how long the shares have been held and on
whether such shares were acquired by exercising an incentive stock option or a
nonqualified stock option. Generally, there will be no tax consequence to the
Company in connection with a disposition of shares acquired under an option
except that the Company may be entitled to a deduction in the case of a
disposition of shares acquired under an incentive stock option before the
applicable holding period has been satisfied.
A participant is not taxed upon the grant of a SAR. Upon exercise of a SAR,
the participant will be taxed at the ordinary income tax rates (subject to
withholding) in the amount of cash received, and the Company will be entitled to
a corresponding deduction.
OTHER PROVISIONS
Upon an issuance or transfer of shares of Common Stock pursuant to the
exercise of a Stock Incentive, the Company has the right to require the
recipient to remit to the Company, prior to the delivery of any certificates,
any withholding tax requirements for such shares. The recipient of a
non-qualified stock option may elect to surrender or authorize the Company to
withhold shares of Common Stock in satisfaction of his estimated withholding tax
obligations, subject to certain procedures and conditions.
In the event of any change in the capitalization of the Company by reason
of a dividend, stock split or combination or any similar change or a merger,
consolidation, recapitalization, reclassification of shares or similar
reorganization, the Stock Option Plan provides that the Board or Compensation
Committee can make certain adjustments in the number and type of shares with
respect to which any current or future Stock Incentives may be exercised. In the
event of a dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, each Stock
Incentive shall terminate except to the extent another corporation assumes the
Stock Incentive or substitutes another Stock Incentive for it.
Stock Incentives granted pursuant to the Stock Option Plan will
automatically become fully exercisable upon certain transactions (each a
"Corporate Transaction") that might result in a change in control of the
Company. The Corporate Transactions that will trigger such acceleration include
a merger or consolidation, share exchange (in which 95% or more of the Company
stock is exchanged for the stock of another company), or the sale of all or
substantially all of the Company's assets, unless persons who are security
holders of the Company before the Corporate Transaction are holders of more than
50% of the outstanding voting common stock (or equivalent interests) of the
surviving or acquiring company after the Corporate Transaction. In addition, the
Board or Compensation Committee has the discretion to accelerate the vesting
schedules of both stock options and SARs at any time subsequent to their grant.
The Board of Directors or the stockholders may amend, modify or terminate
the Stock Option Plan at any time, provided that any amendment, modification or
termination without stockholder approval (a) shall not adversely affect the
rights of a Stock Incentive holder without his or her consent (except that the
Compensation Committee may terminate a Stock Incentive if the holder is
terminated for cause), and (b) shall not be effective if stockholder approval is
required in order for the Stock Option Plan to continue to meet the requirements
of SEC Rule 16b-3 or any successor rule, if applicable, or any other legal or
regulatory requirements, unless such stockholder approval is received.
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<PAGE> 16
The following table sets forth the number of shares subject to options that
have been granted under the Stock Option Plan since its adoption and through
March 31, 1997. No SARs have been granted pursuant to the Stock Option Plan.
1995 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION DOLLAR VALUE(1) OF SHARES(2)
----------------- --------------- ------------
<S> <C> <C>
Mark H. Dunaway............................................. -- 7,350
Chairman of the Board and
Chief Executive Officer
Michael J. Saner............................................ -- 7,350
President and Director
Kim Smith Hughes............................................ -- 3,675
Chief Financial Officer
Eugene H. Kreeft............................................ -- 7,350
Executive Vice President of Engineering
Patrick T. Markey........................................... -- --
Vice President of Marketing
All executive officers as a group........................... -- 160,725
All non-executive officer directors as a group.............. -- 0
All employees (except executive officers) as a group........ -- 450,034
</TABLE>
- ---------------
(1) Based on the difference between exercise price and market price as of March
31, 1997.
(2) Based on the number of shares of Common Stock subject to options under the
Stock Option Plan.
No nominee for Director or associate of any nominee for Director or
executive officer has received any options under the Stock Option Plan and no
person, other than those identified elsewhere herein, has received five percent
or more of the options granted under the Stock Option Plan.
At April 28, 1997, the closing market price of Common Stock on Nasdaq was
$ per share.
STOCKHOLDER APPROVAL OF THE STOCK OPTION PLAN
Approval of the Stock Option Plan as amended will require the affirmative
vote of a majority of the Company's outstanding Common Stock represented in
person or by proxy at the meeting and entitled to vote thereon. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE STOCK OPTION PLAN.
PROPOSAL III
THE MERGER
The Board of Directors has proposed that the Company be reincorporated in
Georgia by merging into PMC (the "Merger") pursuant to a Plan and Agreement of
Merger (the "Merger Agreement") between the Company and PMC. As the surviving
corporation in the Merger, PMC will succeed to all the business, properties,
assets and liabilities of the Company, and upon the effectiveness of the Merger
will change its name to "Preferred Networks, Inc." ("New PNI"). The stockholders
of the Company will automatically become stockholders of New PNI. After the
Merger, the rights of the Company's stockholders will be governed by the Georgia
Business Corporation Code (the "GBCC") and Georgia law, rather than by the DGCL
and Delaware law. In connection with the Merger, the Articles of Incorporation
and Bylaws of PMC, which are nearly identical to the Company's current Delaware
Certificate of Incorporation and Bylaws, will become the Articles of
Incorporation and Bylaws of New PNI.
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IN CONNECTION WITH THE APPROVAL OF THE MERGER, STOCKHOLDERS OF THE COMPANY
WILL NOT HAVE DISSENTERS' RIGHTS OF APPRAISAL UNDER SECTION 262 OF THE DGCL.
PRINCIPAL REASON FOR REINCORPORATION
The State of Delaware requires a Delaware corporation to pay an annual
franchise tax based on either (i) the number of shares of capital stock
authorized in its Certificate of Incorporation or (ii) the assumed par value of
its authorized shares of capital stock. The minimum franchise tax is $30 and the
maximum franchise tax is $150,000. Based on the number of shares of capital
stock authorized in the Company's Certificate of Incorporation, the Company
would be required to pay $150,000 per year in franchise tax as a Delaware
corporation. The assumed par value alternative currently produces a Delaware
franchise tax of approximately $70,000 per year. The Delaware tax would likely
increase under either method of calculation if the number of shares of the
Company's outstanding stock increased.
In contrast, the State of Georgia requires a Georgia corporation to pay
franchise taxes based on the corporation's net worth. Net worth consists of
total capital stock issued (including treasury stock), paid in capital, and
retained earnings. The minimum tax is $10 and the maximum tax is $5,000, which
is reached when net worth exceeds $22 million. The Company's net worth currently
exceeds this threshold, and for 1997 the Company would be required to pay
approximately $5,000 per year in franchise taxes as a Georgia corporation. As a
result, PMC would save approximately $65,000 annually in franchise taxes by
changing its state of incorporation from Delaware to Georgia. Reincorporation in
Georgia will also further the Company's identification with the State of Georgia
in which its headquarters and a substantial percentage of its employees are
located. The Company has no significant business operations in Delaware.
MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement
and certain related matters. The Merger Agreement is attached as Exhibit C
hereto.
The Merger. At the time the certificate of merger is filed with the
Secretary of State of Delaware and the Secretary of State of Georgia (which is
expected to be as soon as is practicable following the Meeting), the Company
will be merged with and into PMC, the Company's legal existence as a Delaware
corporation will cease and the Company will become a Georgia corporation.
Although PMC is technically the surviving corporation in the Merger, PMC is a
"shell" corporation with no assets or liabilities, and thus the practical effect
of the Merger will be the reincorporation of the Company in Georgia. The Merger
will not result in any change in the name, business, management, location of the
Company's principal executive offices or other facilities, assets, liabilities,
net worth or accounting practices. In addition, all of the directors, officers
and employees of the Company will, upon consummation of the Merger, become
officers, directors and employees of New PNI, and the Merger will have no affect
on the number of shares of Common Stock held by each stockholder of the Company.
Conversion of Shares. Upon the effectiveness of the Merger, each
outstanding share of the Company's Common Stock will be automatically converted
into one share of the no par value common stock of PMC, as the surviving
corporation in the Merger ("New PNI Common Stock"). New PNI Common Stock will be
entitled to the same rights, powers, qualifications, limitations and
restrictions as the presently outstanding Common Stock, although some
differences will arise as a result of the application of Georgia law. See
"Comparison of Stockholders' Rights." Following the Merger, the Common Stock
will continue to trade as New PNI Common Stock in the same manner as before, and
still under the symbol "PFNT," on Nasdaq.
Exchange of Stock Certificates. As of the effectiveness of the Merger,
each outstanding certificate representing shares of Common Stock will be deemed
to represent an identical number of shares of New PNI Common Stock. Thus, it
will not be necessary for stockholders of the Company to exchange their existing
stock certificates to reflect their ownership of New PNI Common Stock. For those
stockholders who wish to receive new stock certificates issued by New PNI, the
Company will arrange for First Union National Bank of North Carolina, N.A., the
Company's transfer agent, to exchange certificates representing shares of Common
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<PAGE> 18
Stock for certificates representing an equal number of shares of New PNI Common
Stock. COMPANY STOCKHOLDERS WHO WISH TO SEND IN THEIR CERTIFICATES SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM FIRST
UNION.
Condition to the Reincorporation. The Merger is subject only to the
approval of the stockholders of the Company.
Termination; Amendment. The Merger Agreement may be terminated or
abandoned by the Board of Directors of the Company or PMC at any time prior to
the filing of the appropriate certificate of merger with the Secretaries of
State of Georgia and Delaware. The Board of Directors or officers of the Company
and PMC may jointly amend, modify and supplement the Merger Agreement prior to
the effective time of the Merger in such manner as they may deem appropriate at
any time before approval of the Merger Agreement by the Company's stockholders.
Any amendment, modification or supplement to the Merger Agreement after its
approval by the Company's stockholders but prior to the effective time of the
Merger will require the approval of the Company's stockholders unless the
amendment, modification or supplement to the Merger Agreement (i) does not alter
(a) the amount or kind of shares to be received thereunder in exchange for
shares of Company Common Stock, or (b) any term of the Articles of Incorporation
of New PNI as provided for in the Merger Agreement, and (ii) does not alter any
of the terms and conditions of the Merger Agreement in a manner that would
adversely affect the holders of Common Stock.
OTHER CHANGES AFFECTING STOCKHOLDERS
Differences between Delaware and Georgia law will result in certain changes
affecting stockholders as a result of the reincorporation of the Company in
Georgia. For a discussion of certain significant differences between Delaware
and Georgia law relevant to the Merger, see "Comparison of Stockholders'
Rights."
The Articles of Incorporation of New PNI after the Merger will be the same
as the Certificate of Incorporation of the Company in all material respects,
except that the Articles of Incorporation of New PNI will authorize the issuance
of 30,000,000 shares of preferred stock, whereas 5,000,000 shares are authorized
under the Company's current Certificate of Incorporation. The Company currently
has no outstanding shares of preferred stock. However, to allow for issuances of
Class A Preferred Stock in the Private Placement and other possible future
issuances of preferred stock, the Board of Directors of the Company is
increasing the number of authorized shares of preferred stock at this time.
Other possible future issuances of preferred stock could occur in connection
with acquisitions of businesses or assets by the Company, as a means of raising
additional capital, or otherwise. A copy of the Articles of Incorporation of
PMC, which will become the Articles of Incorporation of New PNI, is attached as
Exhibit D hereto.
The Bylaws of New PNI will be the same as the Bylaws of the Company in all
material respects, except for changes necessary to conform to Georgia law. A
copy of the Bylaws of PMC, which will become the Bylaws of New PNI, is attached
as Exhibit E hereto.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following is a summary of the material Federal income tax consequences
of the Merger to the Company and its stockholders.
The merger of the Company into PMC, as described above, will constitute a
tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Code.
As a result, for Federal income tax purposes:
(1) Neither Company nor its stockholders will recognize any gain or
loss by reason of the conversion of Common Stock into New PNI Common Stock.
(2) The shares of New PNI Common Stock issued as a result of the
Merger in the hands of a stockholder will have an aggregate basis for
computing gain or loss equal to the aggregate basis of shares of Common
Stock held by the stockholder.
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<PAGE> 19
(3) The holding period of the shares of New PNI Common Stock issued as
a result of the Merger in the hands of a stockholder will include the
period during which the stockholder held the shares of Common Stock prior
to the Merger provided the shares of Common Stock were held as a capital
asset on the date of conversion.
COMPARISON OF STOCKHOLDERS' RIGHTS
If the Merger is consummated, holders of shares of Common Stock will become
holders of New PNI Common Stock which will result in their rights as
stockholders being governed by Georgia law. The following summary compares
certain rights of the Company's stockholders under the DGCL and the Company's
Certificate of Incorporation and Bylaws with their rights under the GBCC and New
PNI's Articles of Incorporation and Bylaws. The following summary does not
purport to be a complete statement of the rights of the Company's stockholders
under the GBCC and the New PNI Articles of Incorporation and Bylaws as compared
with their rights under the DGCL and the Company's Certificate of Incorporation
and Bylaws. This summary is qualified in its entirety by New PNI's Articles of
Incorporation and Bylaws, the Company's Certificate of Incorporation and Bylaws,
the GBCC and the DGCL, to which stockholders are referred.
Corporate Case Law. It is generally recognized that Delaware has the most
extensive and well-defined body of corporate case law in the United States.
Because many corporations are incorporated in Delaware, the Delaware judiciary
has acquired considerable expertise in dealing with corporate issues and a
substantial number of decisions have been rendered construing Delaware law and
establishing public policies for Delaware corporations. Although Georgia courts
have also rendered many decisions in the area of corporate law, these cases are
not litigated as frequently in Georgia as they are in Delaware. Consequently, if
the Company were to remain a Delaware corporation, it would have the benefit of
a more established and refined body of case law interpreting the DGCL (including
corporate control issues) than exists for the GBCC, and, in many instances there
could be greater predictability with respect to the legal affairs of the Company
as a Delaware corporation rather than as a Georgia corporation.
Vote Required for Certain Transactions. Under the DGCL, a merger,
consolidation or sale of all or substantially all of a corporation's assets
generally must be approved by the stockholders of each constituent corporation
by the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote on the transaction. Stockholders of the surviving corporation
need not approve a merger if: (i) the corporation's certificate of incorporation
will not be amended as a result of the merger; (ii) each share of the
corporation's stock outstanding immediately prior to the effective date of the
merger will be an identical outstanding or treasury share of the corporation
after the effective date of the merger; and (iii) either no shares of the
corporation's common stock and no securities convertible into such stock will be
issued pursuant to the merger or the authorized unissued shares or treasury
shares of the corporation's common stock to be issued pursuant to the merger
plus those initially issuable upon conversion of any other securities to be
issued in the merger do not exceed 20% of the shares of the corporation's common
stock outstanding immediately prior to the effective date of the merger.
In connection with the approval of proposed mergers and share exchanges,
the GBCC generally requires the affirmative vote of a majority of all votes
entitled to be cast on the plan for such transaction by all shares entitled to
vote on the plan, voting as a single group, and the affirmative vote of a
majority of the votes entitled to be cast by holders of shares of each voting
group entitled to vote as a group under the corporation's articles of
incorporation. The sale of all or substantially all of the assets of a
corporation must be approved by the affirmative vote of a majority of all the
votes entitled to be cast on the matter, regardless of voting groups. Under the
GBCC, stockholders of the surviving corporation need not approve a merger if:
(i) the articles of incorporation of the corporation will not differ from its
articles before the merger (except for certain amendments permitted under the
GBCC without shareholder approval); (ii) each share of stock of the corporation
outstanding immediately before the effective date of the merger is to be an
identical outstanding or reacquired share immediately after the merger; and
(iii) the number and kind of shares outstanding immediately after the merger,
plus the number and kind of shares issuable as a result of the merger and by
conversion of securities issued pursuant to the merger or the exercise of rights
and warrants issued pursuant to
16
<PAGE> 20
the merger, will not exceed the total number and kind of shares of the surviving
corporation authorized by its articles of incorporation immediately before the
merger.
Both the DGCL and the GBCC permit corporations to require higher votes for
approval of the transactions described above in their charters or bylaws. The
Certificate of Incorporation of the Company and the Articles of Incorporation of
New PNI require super-majority votes for certain business combinations with
"interested stockholders." See "-- Business Combination Provisions" below.
Business Combination Provisions. The Company is currently subject to
provisions of the DGCL restricting the Company's ability to engage in business
combination transactions with certain significant shareholders, and will be
subject to similar restrictions under the GBCC as a Georgia corporation. These
business combination provisions prohibit certain business combinations between a
corporation and any person who has acquired beneficial ownership of 10%
(Delaware, 15%) or more of the voting stock of the corporation (an "interested
stockholder") for a period of five (Delaware, three) years from the date such
stockholder became an interested stockholder, unless (i) such interested
stockholder, prior to becoming an interested stockholder, obtained the approval
of the Board of Directors of either the business combination or the transaction
that resulted in such person becoming an interested stockholder, (ii) such
interested stockholder became the beneficial owner of at least 90% (Delaware,
85%) of the outstanding shares of voting stock of the corporation (excluding
shares owned by persons who are directors, officers, their affiliates or
associates and by subsidiaries of the corporation and certain employee stock
plans) in the same transaction in which the interested stockholder became an
interested stockholder or (iii) on or subsequent to the date the interested
stockholder became an interested stockholder, either (a) under the DGCL, the
business combination is approved by the Board of Directors and is authorized at
a meeting of stockholders by the affirmative vote of at least two-thirds of the
voting stock that is not owned by the interested stockholder or (b) under the
GBCC, the interested stockholder, subsequent to becoming an interested
stockholder, becomes the beneficial owner of at least 90% of the voting stock of
the corporation (excluding shares owned by persons who are directors or
officers, their affiliates or associates and by subsidiaries of the corporation
and certain employee stock plans) and the business combination is approved by
holders of a majority of the voting stock entitled to vote, excluding voting
stock beneficially owned by the interested stockholder or by persons who are
directors or officers and by subsidiaries and certain employee stock plans.
Conflicting Interest Transactions. The DGCL states that contracts and
transactions between a Delaware corporation and one or more of its directors or
officers, or organizations in which they serve in such capacities or have a
financial interest, will not be void or voidable solely because of that
relationship or because such director or officer is present at or participates
in a board or committee meeting authorizing the contract or transaction if: (i)
the material facts of the relationship or interest and as to the contract or
transaction are disclosed or known to the Board or committee and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors (even if the
disinterested directors are less than a quorum); or (ii) the material facts as
to the relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by the
stockholders; or (iii) the contract or transaction is fair to the corporation as
of the time that it is authorized by the Board, a committee thereof or the
stockholders.
The GBCC states that a director's conflicting interest transaction may not
be enjoined, set aside, or give rise to an award of damages or other sanctions,
in an action by a stockholder or by or in the right of the corporation, on the
ground of an interest in the transaction of such director or any person with
whom such director has a personal, economic or other association, if (i) the
transaction receives the affirmative vote of a majority (but not less than two)
disinterested directors on the Board or a committee thereof after such directors
are made aware of the nature and effect of the conflicting interest; (ii) a
majority of the votes entitled to be cast by shares, other than shares
beneficially owned or the voting of which is controlled by the director(s)
having the conflicting interest, were cast in favor of the transaction after (A)
notice to the stockholders describing the conflicting interest transaction, (B)
disclosure by such director, prior to the stockholders' vote, to the Secretary
of the Company, of the number and identity of the persons holding or controlling
the vote of all shares that to the knowledge of the director are beneficially
owned (or the voting of
17
<PAGE> 21
which is controlled) by such director or by a related person of the director, or
both, and (C) disclosure to the stockholders of the nature and effect of the
director's conflicting interest to the extent it was not known by them; or (iii)
the transaction, judged in the circumstances at the time of commitment, is
established to have been fair to the corporation. Similar provisions of the GBCC
applicable to directors' conflicting interest transactions also apply to
officers' conflicting interest transactions.
Appraisal Rights. Under both the DGCL and the GBCC, subject to certain
limitations, stockholders have the right to dissent from a merger or
consolidation and receive the "fair value" of their shares, determined in
accordance with a judicial proceeding. The GBCC also affords such dissenters'
rights to stockholders in the event of (i) consummation of a plan of share
exchange, or the sale or exchange of all or substantially all of the
corporation's assets, if stockholders are entitled to vote on the transaction;
(ii) amendments to the corporation's articles of incorporation that materially
and adversely affect rights in respect of a dissenter's shares; and (iii) any
corporate action taken pursuant to a stockholder vote, to the extent the
articles of incorporation, bylaws, or a resolution of the board of directors
provides that shareholders are entitled to dissent and obtain payment for their
shares. Under the DGCL, dissenters' rights of appraisal are not provided to
stockholders if the corporation's shares are listed on a national securities
exchange or Nasdaq or held of record by more than 2,000 holders, or if the
corporation is the surviving corporation in a merger that did not require the
approval of the corporation's stockholders, unless holders of the corporation's
shares are required by the terms of the agreement of merger or consolidation to
accept in exchange for their shares anything except (i) shares of the surviving
corporation; (ii) shares of any other corporation listed on a national
securities exchange or Nasdaq or held of record by more than 2,000 stockholders;
(iii) cash in lieu of fractional shares; or (iv) any combination of the
foregoing. Under the GBCC, dissenters' rights of appraisal are not available
when the affected shares are listed on a national securities exchange (which is
defined to include Nasdaq) or held of record by more than 2,000 stockholders
unless (a) the articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise or (b) in a plan of
merger or share exchange, the holders of such shares are required to accept
anything other than shares of the surviving corporation or another publicly-held
corporation listed on a national securities exchange or held of record by more
than 2,000 stockholders, except for fractional shares or cash in lieu of
fractional shares.
Indemnification and Exculpation of Directors and Officers. Under both the
DGCL and the GBCC, a corporation is required to indemnify a director to the
extent that the director has been successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because of his status as a
director of the corporation. It may indemnify any director or officer made a
party to a proceeding if such director or officer acted in good faith and in a
manner he believed to be in or not opposed to the best interests of the
corporation and, in the case of any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. A Delaware corporation may indemnify a
director or officer for expenses actually and reasonably incurred in connection
with a proceeding by or in the right of the corporation, except that such
indemnification is not permitted if the individual has been adjudged liable to
the corporation unless the court determines that the individual is fairly and
reasonably entitled to indemnification for such expenses in view of the
circumstances of the case. Similarly, a Georgia corporation may indemnify a
director or officer for reasonable expenses in connection with a proceeding by
or in the right of the corporation, provided that it is determined that the
director or officer has met the relevant standard of conduct under the GBCC.
Indemnification is prohibited under the GBCC if the director or officer was
adjudged liable on the basis that a personal benefit was improperly received by
him. If authorized by the articles of incorporation or approved by shareholders,
the GBCC permits a Georgia corporation to indemnify directors without regard to
the limitations set forth in the GBCC, except that the corporation cannot
indemnify any director for liability (a) for any appropriation, in violation of
the director's duties, of any business opportunity of the corporation, (b) for
acts or omissions which involve intentional misconduct or a knowing violation of
law, (c) for any type of liability set forth in Section 14-2-832 of the GBCC
(dealing with payment of unlawful dividends), or (d) for any transaction from
which he received an improper personal benefit. Similarly, the DGCL permits a
corporation to provide indemnification beyond the limits of the DGCL pursuant to
a bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
18
<PAGE> 22
The Company's Bylaws require the Company to indemnify directors and
officers to the fullest extent permitted by the DGCL, and the Company has
entered into indemnification agreements with its directors to provide
indemnification beyond the limits of the DGCL, including indemnification of
directors for judgments and fines in connection with actions brought by or in
the right of the Company. Similarly, New PNI's Bylaws require indemnification of
directors and officers to the fullest extent permitted by the GBCC, and New PNI
will enter into indemnification agreements with directors similar to those
currently in effect between the directors and the Company.
Like Delaware, Georgia law permits a corporation to exculpate directors
from certain liabilities to the corporation. Similar to the existing Certificate
of Incorporation of the Company, the Articles of Incorporation of New PNI will
provide that a director of the Company will not be liable to the Company or to
shareholders for monetary damages for any action taken, or any failure to take
any action, as a director, except liability: (a) for any appropriation, in
violation of his or her duties, of any business opportunity of the Company, (b)
for acts or omissions which involve intentional misconduct or a knowing
violation of law, (c) for any type of liability set forth in Section 14-2-832 of
the GBCC (dealing with payment of unlawful dividends), or (d) for any
transaction from which the director received an improper personal benefit.
Amendments to Certificate or Articles of Incorporation. The DGCL permits a
corporation to amend its certificate of incorporation so long as the amended
certificate of incorporation contains only provisions that could be lawfully and
properly included in an original certificate of incorporation filed at the time
the amendment is filed. Amendments must be adopted by the Board of Directors and
approved by a majority of the outstanding shares of stock entitled to vote
thereon and by a majority of the outstanding stock of each class entitled to
vote as a class with respect to the amendment. Class voting is required when a
proposed amendment would increase or decrease the number or par value of the
authorized shares of a class or adversely affect the powers, preferences or
special rights of the shares of a class.
The GBCC imposes similar requirements to amend a corporation's articles of
incorporation, except that the board of directors may amend the articles of
incorporation without obtaining shareholder approval to: (i) extend the
corporation's duration if it was incorporated at a time the GBCC required
limited duration; (ii) delete the names and addresses of the initial directors,
initial registered agent, registered office or incorporator; (iii) delete the
mailing address of the initial principal office of the corporation if an annual
registration is on file with the Georgia Secretary of State; (iv) change each
issued or each issued and unissued authorized share of an outstanding class of
stock into a greater number of whole shares if the corporation has only shares
of that class outstanding; (v) change or eliminate the par value of each issued
and unissued share of an outstanding class if the corporation has only shares of
that class outstanding; or (v) change the corporate name.
Amendments to Bylaws. Under the DGCL, the power to adopt, amend or repeal
bylaws rests with those stockholders entitled to vote on such matters, except
that a corporation's certificate of incorporation may additionally confer such
power upon the directors. Conferring the power to adopt, amend or repeal bylaws
upon the directors does not limit the stockholders' power to adopt, amend or
repeal bylaws. Consistent with the DGCL, the Company's Certificate of
Incorporation permits the Board of Directors to amend the Bylaws.
The GBCC permits a corporation's board of directors to amend, repeal or
adopt bylaws, unless (i) the articles of incorporation reserve this power
exclusively to the shareholders in whole or in part or (ii) the shareholders, in
amending or repealing a particular bylaw, expressly reserve the power to amend
or repeal that particular bylaw. A Georgia corporation's shareholders may amend
or repeal the corporation's bylaws or adopt new bylaws even though the bylaws
may also be amended or repealed by the Board of Directors. PMC has taken no
action to restrict the ability of its board of directors to amend its Bylaws,
and thus the Board of Directors of New PNI will be able to amend the Bylaws of
New PNI just as the Board of Directors of the Company can amend its Bylaws.
Dividends and Distributions. A Delaware corporation, unless otherwise
restricted by its certificate of incorporation, may pay dividends out of
surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year (but the
directors may not declare and pay dividends out of such net profits if the
amount of capital of the corporation is less than the aggregate amount
19
<PAGE> 23
of capital represented by the issued and outstanding stock of all classes having
preference upon the distribution of assets). The Company's Certificate of
Incorporation contains no provisions restricting dividends on Company Common
Stock except to the extent that preferred stock of the Company has a preference
as to dividends.
Unless provided otherwise by its articles of incorporation, a Georgia
corporation may pay dividends or make other distributions with respect to its
shares if after the dividend or distribution the corporation has the ability to
pay its debts as they become due and has net assets in excess of all senior
claims upon dissolution. New PNI's Articles of Incorporation do not limit its
ability to pay dividends or make other distributions on New PNI Common Stock
except to the extent that New PNI preferred stock has a preference as to
dividends.
Preemptive Rights. Stockholders of the Company do not currently have
preemptive rights to purchase unissued shares of the Company's Common Stock.
Consistent with the GBCC, the stockholders will also not be entitled to
preemptive rights to purchase unissued shares of New PNI.
STOCKHOLDER APPROVAL OF THE MERGER
Approval of the Merger to change the Company's state of incorporation from
Delaware to Georgia will require the affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote thereon. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE MERGER.
PROPOSAL IV
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven directors
divided into three classes serving staggered three-year terms. Directors are
elected by the stockholders and hold office for a three-year term or until their
successors are duly elected and qualified. The nominees of the Board of
Directors for election at the Meeting are William H. Bang, John J. Hurley and
Ronald W. White.
Each of the Company's nominees for election to the Board of Directors
currently serves as a director of the Company. If reelected at the Meeting, each
of Messrs. Bang, Hurley and White will serve a new term to end as of the 2000
Annual Meeting of Stockholders, or until his earlier death, resignation or
removal. Although it is anticipated that each nominee will be able to serve as a
director, should any nominee become unavailable to serve, the shares represented
by the proxies will be voted for another person or persons designated by the
Company's Board of Directors. In no event will the proxies be voted for more
than three nominees.
Set forth below is certain information regarding each of the three nominees
and the directors of the Company who will continue to serve after the Meeting:
NOMINEES FOR THREE-YEAR TERM:
<TABLE>
<CAPTION>
TERM
NAME TITLE ENDS AGE
---- -------- ---- ---
<S> <C> <C> <C>
William H. Bang............................................. Director 1997 67
John J. Hurley.............................................. Director 1997 61
Ronald W. White............................................. Director 1997 56
</TABLE>
WILLIAM H. BANG has been a director of the Company since August 1995. In
April 1994, Mr. Bang retired from the position of Corporate Vice President at
Motorola, Inc., a leading manufacturer of equipment for the wireless industry.
Mr. Bang was employed by Motorola from 1964 to 1994 and held a variety of
positions with respect to the marketing of Motorola's radio and paging products.
Mr. Bang is currently a consultant for Motorola and serves as a member of the
Board of Directors of the Personal Communications Industry Association ("PCIA")
Service and Education Foundation.
20
<PAGE> 24
JOHN J. HURLEY has been a director of the Company since July 1996. Since
1994, Mr. Hurley has been Vice Chairman and a member of the Board of Directors
of Glenayre Technologies, Inc., a leading manufacturer of network equipment for
the wireless industry. From November 1992 to December 1994, he served as
President, Chief Operating Officer and Chief Executive Officer of Glenayre
Technologies, Inc. Mr. Hurley received the Management Award for Innovation and
Excellence from PCIA convention in 1995.
RONALD W. WHITE has been a director of the Company since October 1994.
Since 1983, Mr. White has been a General Partner of certain entities affiliated
with Advanced Technology Development Funds, a family of high technology
investment funds. Mr. White also serves as a director of Natural MicroSystems
Corporation and several privately-held companies.
CONTINUING DIRECTORS:
<TABLE>
<CAPTION>
TERM
NAME TITLE ENDS AGE
---- ----- ---- ---
<S> <C> <C> <C>
Mark H. Dunaway........................... Chairman of the Board of 1999 52
Directors, Chief Executive Officer
Michael J. Saner.......................... President and Director 1999 55
Jeffrey H. Schutz......................... Director 1998 45
Robert Van Degna.......................... Director 1998 52
</TABLE>
MARK H. DUNAWAY, a founder of the Company, has been Chairman of the Board
of Directors and Chief Executive Officer of the Company since 1991. From 1986 to
1994, he served as the Chairman and Chief Executive Officer of The Beeper
Company of America, Inc., a company he founded. The Beeper Company of America,
Inc. provided paging services to more than 60,000 subscribers before it was sold
in 1994 to Arch Communications Group, Inc. In 1987, Mr. Dunaway founded Dunaway
Enterprises, Inc., a consulting company which supplied management consulting
services to British Telecom's paging operations in the United Kingdom and other
companies, and served as its Chief Executive Officer and Chairman from 1987 to
1994. Mr. Dunaway has served on a number of committees for PCIA.
MICHAEL J. SANER, a founder of the Company, has been President and a
director of the Company since 1991. From 1991 to 1993, Mr. Saner served as
President of Paging Services, Inc., a paging-related repair, maintenance,
installation and sales company he founded and which the Company acquired in
1996. From 1984 to 1990, Mr. Saner served as President of Message World, Inc., a
voice mail and paging company he founded, with offices in Atlanta, Baltimore,
Houston, and Washington, D.C. In 1990 Mr. Saner acquired the operating assets of
Message World, Inc. and until 1997 served as President of this business, which
operated as Saner Communications, Inc. From 1992 to 1993, Mr. Saner served as a
member of the Board of Directors of the Association of Telemessaging Services
International.
JEFFREY H. SCHUTZ has been a director of the Company since June 1995. Since
1987 Mr. Schutz has been a General Partner of various entities affiliated with
The Centennial Funds, a group of venture capital funds based in Denver,
Colorado. The Centennial Funds specialize in investments in telecommunications
networks and service businesses and other communications technology companies.
Mr. Schutz currently serves as a director of Castle Tower Holdings Corp., a
Centennial portfolio company, and several other privately-held companies.
ROBERT VAN DEGNA has been a director of the Company since June 1995. Since
1982, Mr. Van Degna has been the Managing General Partner and an executive
officer with various partnerships affiliated with Fleet Equity Partners, an
investment firm affiliated with Fleet Financial Group, based in Providence,
Rhode Island. Mr. Van Degna currently serves on the Board of Directors of ACC
Corporation and Orion Network Systems, Inc., as well as several privately-held
companies.
All of the Company's directors other than Mr. Hurley were elected pursuant
to the terms of a Stockholders Agreement among the Company and its stockholders,
dated as of June 21, 1995, as amended (the "Stockholders Agreement"). The
Stockholders Agreement stipulated that the Board of Directors would consist of
six directors selected by certain significant shareholder groups and management.
The provisions of
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<PAGE> 25
the Stockholders Agreement requiring a particular composition of the Board of
Directors terminated upon completion of the Company's initial public offering in
March 1996 (the "IPO").
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met seven times in 1996, and each director attended
at least 75% of such meetings. During 1996, each director also attended at least
75% of the meetings of each committee of the Board upon which such director
served.
The Board of Directors has standing compensation and audit committees. The
Board of Directors does not have a nominating committee.
The compensation committee (the "Compensation Committee"), composed of Mr.
Bang and Mr. Van Degna, met three times in 1996. The Compensation Committee
reviews and recommends executive compensation policies, practices and amounts,
and it administers the Company's employee stock plans, including the granting of
stock options pursuant to the Company's stock option plans.
The audit committee, composed of Mr. Schutz and Mr. White, met two times in
1996. The audit committee's functions are to recommend the Company's independent
auditors, review the scope of their engagement, consult with such auditors,
review the results of the audit examination, review the disposition of
recommendations made by the independent auditors, act as liaison between the
Board of Directors and the independent auditors, and review various Company
policies related to accounting and internal control matters.
STOCKHOLDER ELECTION OF DIRECTORS
Election of the three nominees named above will require the affirmative
vote of a plurality of the shares of Common Stock represented at the Meeting, in
person or by proxy, and entitled to vote thereon, assuming a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE THREE
NOMINEES NAMED ABOVE.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Effective July 1995, the Board of Directors established the Compensation
Committee, now composed of Mr. Van Degna and Mr. Bang. Prior to that time, the
Board of Directors as a whole, including Mr. Dunaway, the Chief Executive
Officer, and Mr. Saner, the President, participated in determining executive
officer compensation.
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<PAGE> 26
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table shows annual compensation paid by the Company in each
of the past three fiscal years to Mark H. Dunaway, the Chief Executive Officer,
and to the four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND OTHER ANNUAL OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) (#)(2) ($)
------------------ ---- --------- -------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark H. Dunaway....... 1996 225,000 -- 4,800 -- 950(3)
Chairman of the
Board 1995 190,745 -- 4,800 7,350 --
and Chief
Executive 1994 251,357(4) -- 800 68,707 --
Officer
Michael J. Saner...... 1996 180,000 -- 4,800 -- 950(3)
President and
Director 1995 153,550 -- 4,800 7,350 --
1994 20,000 -- 800 55,713 131,800(5)
Kim Smith Hughes...... 1996 103,125 20,000 4,800 -- 938(3)
Chief Financial
Officer 1995 81,908 -- 4,200 3,675 --
1994 7,875(6) -- 700 66,150 --
Eugene H. Kreeft...... 1996 150,000 20,000 -- -- --
Executive Vice 1995 135,000 -- -- 7,350 --
President of 1994 112,500 -- -- 55,713 --
Engineering
Patrick T. Markey..... 1996 125,000 36,500(7) 4,800 -- 9,177(8)
Vice President 1995 39,981(9) -- 1,600 40,425 --
of Marketing 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) Reflects car allowances paid to these employees.
(2) Includes options granted pursuant to the Company's 1992 Stock Option Plan,
1994 Stock Option Plan and 1995 Stock Option Plan.
(3) Reflects the Company's matching contributions to the 401(k) plan as follows:
Mr. Dunaway ($950) and Mr. Saner ($950) which are 100% vested; Ms. Hughes
($938) which is 66-2/3% vested.
(4) $99,440 of salary in 1994 was paid in 9,040 shares of Series A Redeemable
Convertible Preferred Stock valued at $11.00 per share which automatically
converted into Common Stock upon completion of the IPO.
(5) Reflects a consulting fee in the amount of $131,800 paid to Saner
Communications Inc., which is wholly-owned by Mr. Saner. Of this $131,800,
$67,604 was paid in cash and $64,196 was paid in 5,836 shares of Series A
Redeemable Convertible Preferred Stock valued at $11.00 per share which
automatically converted into Common Stock upon completion of the IPO.
(6) Ms. Hughes became an employee of the Company in November 1994.
(7) Includes $35,000 signing bonus and $1,500 annual performance bonus.
(8) Reflects moving expense of $8,385 paid to Mr. Markey, and $792 in 401(k)
plan matching contributions by the Company which are 33-1/3% vested.
(9) Mr. Markey became an employee of the Company in September 1995.
23
<PAGE> 27
GRANTS OF STOCK OPTIONS
No grants of stock options were made to the Named Executive Officers during
1996.
EXERCISES OF OPTIONS IN 1996 AND AGGREGATE YEAR-END OPTION VALUES
The following table sets forth information with respect to the year-end
values of all options held by the Named Executive Officers. No Named Executive
Officer exercised any options in 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL AT FISCAL
SHARES YEAR-END (#) YEAR-END ($) (1)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ------------- ---------------------
<S> <C> <C> <C> <C>
Mark H. Dunaway.................. N/A N/A 16,647/78,902 92,057.91/343,535.00
Michael J. Saner................. N/A N/A 32,487/63,036 179,653.11/278,565.00
Kim Smith Hughes................. N/A N/A 0/69,825 0.00/330,750.00
Eugene H. Kreeft................. N/A N/A 32,487/63,036 179,653.11/278,565.00
Patrick T. Markey................ N/A N/A 0/40,425 0.00/202,125.00
</TABLE>
- ---------------
(1) Assumes, for all unexercised in-the-money options, the difference between
fair market value and the exercise price.
EMPLOYMENT AGREEMENTS
The Company currently has an employment agreement with Mr. Dunaway, which
provides for his employment as Chief Executive Officer of the Company for a
period of three years, ending in June 1998, and on a month-to-month basis
thereafter. Mr. Dunaway's employment agreement provided initially for an annual
base salary of $18,750 per month but this was increased in 1996 to $20,168 per
month. The employment agreement prohibits Mr. Dunaway from competing against the
Company during its term and for a period of one year thereafter in certain
specified geographical areas. In addition, Mr. Dunaway is prohibited from
providing paging services to customers of the Company for a six-month period
after the termination of his employment. The employment agreement may be
terminated by mutual agreement, voluntarily by Mr. Dunaway upon 365 days' prior
written notice, for cause or upon the death or disability of Mr. Dunaway.
Depending upon the manner in which the employment agreement is terminated, Mr.
Dunaway or his heirs are entitled to different levels of compensation upon
termination, subject to a maximum amount equal to 18 months' compensation.
The Company has an employment agreement with Mr. Saner which provides for
his employment as President of the Company for a period of three years, ending
in July 1998. Mr. Saner's employment agreement provided initially for an annual
base salary of $15,000 per month but this was increased to $16,125 per month in
1996. The other provisions of Mr. Saner's employment agreement are similar to
those of Mr. Dunaway's employment agreement.
The Company also has an employment agreement with Mr. Kreeft which provides
for his employment as Executive Vice President of Engineering of the Company for
a period of five years, ending in August 1997, and on a month-to-month basis
thereafter. Mr. Kreeft's employment agreement initially provided for an annual
base salary of $7,500 per month but this was increased to $12,500 per month in
1995. The employment agreement also prohibits Mr. Kreeft from competing with the
Company for a period of six months after termination of his employment. The
employment agreement may be terminated by mutual agreement, voluntarily by Mr.
Kreeft upon 90 days' prior written notice, for cause or upon death or disability
of Mr. Kreeft. Depending on the manner in which the employment agreement is
terminated, Mr. Kreeft or his heirs are entitled to different levels of
compensation upon termination, subject to a maximum amount equal to two years'
compensation.
24
<PAGE> 28
DIRECTORS' COMPENSATION
The Company pays Mr. Bang and Mr. Hurley a director's fee of $500 for each
Board meeting and $250 for each committee meeting attended. Otherwise, the
Company pays no cash remuneration to its directors except reimbursement for
reasonable expenses.
In 1995 the Company implemented, effective March 1, 1996, the 1995
Non-Employee Directors Restricted Stock Award Plan (the "Restricted Stock
Plan"), pursuant to which non-employee directors are granted restricted stock
awards. Under the Restricted Stock Plan, every five years each non-employee
director will receive a restricted stock award covering 15,000 shares of Common
Stock, twenty percent of which vests each year the non-employee director serves
on the Board of Directors. Awards are pro-rated for non-employee directors
selected between annual meetings of the stockholders. A total of 240,000 shares
of Common Stock have been reserved for issuance under the Restricted Stock Plan
and 74,000 shares have been granted as of April 24, 1997.
25
<PAGE> 29
PERFORMANCE GRAPH
The Company completed its initial public offering on February 27, 1996, and
its Common Stock began trading on Nasdaq at a price of $10.00. The following
graph shows the value at the end of the indicated period of a $100 investment in
the Company, compared with similar investments based on (1) the value of The
Nasdaq Stock Market Index and (2) the value of an index comprised of the common
stock of the eight other companies that offer exclusively paging services (the
"Custom Peer Group"), in each case on a total return basis assuming reinvestment
of dividends.
<TABLE>
<CAPTION>
Measurement Period The Nasdaq Stock Custom Peer
(Fiscal Year Covered) The Company Market Index Group
<S> <C> <C> <C>
2/27/96 100 100 100
3/96 89 100 93
6/96 85 108 75
9/96 67 112 49
12/96 64 117 36
</TABLE>
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(1) Based on initial public offering price of $10.00.
(2) The Custom Peer Group includes American Paging, Inc., Arch Communications
Group, Metrocall, Inc., PageMart Wireless, Inc., Paging Network, Inc.,
Pronet, Inc., Teletouch Communications, Inc. and MobileMedia Corporation.
26
<PAGE> 30
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
Compensation and benefit practices of the Company are established and
governed by the Compensation Committee which is made up entirely of independent
members of the Board of Directors. The Compensation Committee establishes the
general compensation policy of the Company, establishes the compensation of the
Chief Executive Officer of the Company, approves the compensation of other
executive officers of the Company and administers the Company's stock option
plans and other employee stock plans.
Compensation Philosophy. The Compensation Committee has determined that
the Company's compensation program should be directed to rewarding performance
which creates value for stockholders. The Compensation Committee's policies
focus on attracting, motivating and assisting in the retention of key employees
who demonstrate high levels of ability and talent. The compensation program
looks both to the short and long term, balancing compensation to reward
executive officers for past performance of the Company with incentives for
contributions to a superior future performance of the Company over the long
term. The Compensation Committee utilizes base salary, cash bonuses and stock
options as part of its program.
Base Salary Program. Base salaries were initially determined primarily by
evaluating the responsibilities of the position held by, and the experience of,
each executive officer in addition to competitive comparisons with like
industries and companies in the geographic area. For 1997, executive officers'
salaries will increase in the aggregate approximately 5% from salary levels at
December 31, 1996 for anticipated merit increases.
Bonus Compensation Program. Executive officers are eligible to receive
annual cash bonuses based upon criteria established annually by the Compensation
Committee based upon the operating performance of the Company. For 1997, the
Compensation Committee has established annual incentive targets based upon the
performance of the Company, including earnings before interest expense, other
income (expense), taxes, depreciation and amortization ("EBITDA"), a standard
performance measure in the paging industry, and growth in net revenues and
units. Up to one third of the total annual cash compensation of executive
officers who participate in the program will be subject to the fulfillment of
the incentive targets. If the Company achieves its performance objectives, each
eligible executive officer would be entitled to a bonus equal to twenty-five
percent of base salary. An additional twenty-five percent of the executive
officer's base salary may be earned by achievement of individual performance
goals and objectives.
Stock Incentive Program. Awards of stock options under the Company's stock
option plans are intended to reward contributions by executive officers,
managers and key employees to the Company's performance and to align the
long-term interests of such persons with those of the stockholders. The
Compensation Committee also considers options to be an important method of
providing an incentive for executive officers to remain with, and to continue to
make significant contributions to, the Company. In awarding options, the
Compensation Committee considers the number and value of options held by each
executive officer which will vest in future periods and seeks to maintain
equitable relationships among executive officers who have similar levels of
responsibility.
CEO Compensation. Mr. Dunaway, the Company's Chief Executive Officer, was
paid a base salary of $225,000 in 1996 pursuant to the terms of an employment
agreement. The Committee concluded that the 1996 base salary and paid incentive
compensation of Mr. Dunaway were reasonable in amount and consistent with
industry practices. Mr. Dunaway is also a participant in the Company's 1997
bonus program for executive officers, as set forth above. Mr. Dunaway's
long-term incentive compensation, which consists entirely of stock options, is
set forth in an employment agreement, which provides for the award of additional
options at December 31, 1998 in the event certain financial objectives are met.
The Compensation Committee will consider additional long-term incentive
compensation awards to Mr. Dunaway based upon achievement of the Company's
operational and financial objectives.
Compliance with Code Section 162(m). Section 162(m) of the Code generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the corporation's chief executive officer and four other most highly
compensated executive officers. Qualified performance-based compensation under
Section 162(m) of the Code and the applicable regulations is not subject to the
deduction limit if
27
<PAGE> 31
certain requirements are met. The Compensation Committee believes that options
granted under the Company's 1995 Stock Option Plan have been exempt from the
limitations as performance-based compensation as a result of certain transition
rules adopted when Section 162(m) was instituted. The Company intends to take
all actions necessary so that these stock options continue to qualify as
performance-based compensation and are therefore exempt from the Section 162(m)
limit. The Company believes that other compensation expected to be paid in 1997
will not exceed the Section 162(m) limitations.
William H. Bang
Robert Van Degna
The above report will not be deemed to be incorporated into any filing by
the Company under the Securities Act or the Exchange Act, except to the extent
that the Company specifically incorporates the same by reference.
CERTAIN TRANSACTIONS
On July 3, 1996, the Company acquired Paging Services, Inc. ("PSI")
pursuant to an Agreement and Plan of Merger of the same date. The acquisition
was accomplished through the merger of PSI with and into Preferred Technical
Services, Inc., a wholly-owned subsidiary of the Company. In the merger, PSI
shareholders received an aggregate of $500,000 of Common Stock (58,823 shares)
and $250,000 in cash. The purchase price was determined based upon arms-length
negotiations between the Company and PSI and a valuation of PSI obtained by the
Company from a third party.
Michael J. Saner, President and a director of the Company, and Eugene H.
Kreeft, Executive Vice President of Engineering of the Company, each owned
approximately 45% of the capital stock of PSI prior to the merger. The Company's
purpose for the acquisition was to increase the services provided to its
customers and to reduce the cost of services and assets provided by PSI to the
Company. Pursuant to the merger, Messrs. Saner and Kreeft each received $112,500
in cash and 26,470 shares of Common Stock.
On December 3, 1996, the Company acquired by merger all of the outstanding
common stock of EPS Wireless, Inc., a Texas corporation ("EPS") by merger of EPS
with and into a wholly-owned subsidiary of the Company ("Sub Corp"). Mark H.
Dunaway, Chairman of the Board and Chief Executive Officer of the Company,
controlled approximately 11.4% of the outstanding shares of EPS common stock
prior to the merger, and served as a director of EPS prior to the merger.
Pursuant to the merger, Mr. Dunaway received $9,427.81 in cash and 76,658 shares
of Common Stock. Immediately following the merger, Sub Corp changed its name to
"EPS Wireless, Inc."
To acquire EPS, the Company paid $300,000 in cash and 673,524 shares of
Common Stock, and agreed to pay possible additional consideration in early 1999
of up to $5,000,000 in cash based on the financial performance of EPS during
calendar years 1997 and 1998, or earlier if certain events occur prior to 1999.
The total consideration to be paid for EPS was determined based on arms-length
negotiations between representatives of the Company and representatives of EPS
and a valuation of EPS obtained by the Company from a third party.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports (Forms 3, 4 and 5) of stock
ownership and changes in ownership with the SEC. Executive officers, directors
and beneficial owners of more than ten percent of the Company's stock are
required to furnish the Company with copies of all forms that they file.
28
<PAGE> 32
Based solely on the Company's review of copies of Forms 3, 4 and 5 and the
amendments thereto received by the Company, or written representations from
reporting persons that no Forms 5 were required to be filed by those persons,
the Company believes that during the year ended December 31, 1996, all filing
requirements were complied with by its executive officers, directors and
beneficial owners of more than ten percent of the Company's stock.
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP as independent auditors for the Company for 1997.
Ernst & Young LLP have been the independent public auditors for the Company
since October 26, 1995. Representatives of Ernst & Young LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
desire to do so and will be able to respond to appropriate questions.
On October 26, 1995, the Company dismissed Price Waterhouse LLP as its
independent accountants. The reports of Price Waterhouse LLP on the Company's
financial statements for the three fiscal years ended December 31, 1992, 1993
and 1994 contained no adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principle. In
connection with its audits for the fiscal years ended December 31, 1993 and
1994, and through October 26, 1995, there were no disagreements with Price
Waterhouse LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Price Waterhouse LLP would have caused them to
make reference thereto in their report on the financial statements for such
years. The decision to change firms was approved by the Company's Audit
Committee and Board of Directors.
During the two fiscal years ended December 31, 1993 and 1994 and through
October 26, 1995, the Company had not consulted with Ernst & Young LLP on items
which (i) were or should have been subject to Statement on Auditing Standards
No. 50 or (ii) concerned the subject matter of a disagreement or reportable
event with Price Waterhouse LLP.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the SEC. Reports, proxy statements and other information filed
by the Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549, and at the SEC's regional offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661, or by way of
the SEC's internet address, http://www.sec.gov. Copies of such material may also
be obtained from the SEC's public reference section at 450 Fifth Street, NW,
Washington D.C. 20549 at prescribed rates. Such reports and other information
may also be inspected at the offices of Nasdaq, 1735 K Street, NW, Washington,
D.C. 20006.
INCORPORATION BY REFERENCE
The following portions of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 are hereby incorporated by reference into this
Proxy Statement: "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Financial Statements and Supplementary Data."
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the Company's Annual
Meeting of Stockholders to be held in 1998 must be received at the Company no
later than November 23, 1997 to be included in the proxy statement for such
meeting. Proposals must comply with the requirements as to form and substance
established by the SEC for proposals in order to be included in the proxy
statement.
29
<PAGE> 33
OTHER BUSINESS
As of the date of this Proxy Statement, the Company knows of no other
business that will come before the Meeting for action. If any other matter is
properly presented for consideration and action at the Meeting, however, the
proxies will be voted with respect to those matters in accordance with the best
judgment and in the discretion of the proxy holders.
BY ORDER OF THE BOARD OF DIRECTORS
May 7, 1997 Mark B. Jones
Secretary
30
<PAGE> 34
EXHIBIT A
PREFERRED NETWORKS, INC.
CLASS A REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT
APRIL , 1997
This CLASS A REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT dated as of
April , 1997 (together with the Exhibits and Schedules attached hereto, the
"AGREEMENT") is entered into by and among Preferred Networks, Inc., a Delaware
corporation, with its current principal place of business at 850 Center Way ,
Norcross, GA 30071 (the "COMPANY"), and the persons and entities named in the
Schedule of Investors designated as Exhibit A hereto (collectively referred to
as the "INVESTORS" and individually referred to as an "INVESTOR").
1. PURCHASE, SALE AND TERMS OF PURCHASED SHARES. 1.1. The Purchased
Shares and Warrants. The Company has duly authorized the issuance and sale to
the Investors for an aggregate purchase price of $15,000,000 of (a) an aggregate
of 10,000,000 shares (the "PURCHASED SHARES") of its authorized but unissued
shares of Class A Redeemable Preferred Stock (the "CLASS A PREFERRED STOCK") and
(b) the issuance of common stock purchase warrants (the "WARRANTS") to be in
substantially the form of Exhibit B attached hereto for the purchase of an
aggregate of 11,500,000 shares of the Company's common stock, $.01 par value per
share (the "COMMON STOCK"). The designations, rights and preferences and other
terms and conditions relating to the Class A Preferred Stock shall be as set
forth in Exhibit C attached hereto. The Purchased Shares and the Warrants are
collectively referred to herein as the "SECURITIES".
1.2. Purchase and Sale of the Purchased Shares and the Warrants. The
Company agrees to issue and sell to the Investors, and, subject to and in
reliance upon the representations, warranties, terms and conditions of this
Agreement, the Investors, severally but not jointly, agree to purchase that
number of Purchased Shares and Warrants for the purchase price (the "PURCHASE
PRICE" set forth opposite their respective names in Exhibit A hereto under the
respective headings "PURCHASED SHARES," "WARRANTS" and "AGGREGATE PURCHASE PRICE
FOR SECURITIES." The Purchase Price shall be paid in immediately available
funds, provided, however, that if the Company shall not then have paid the Term
Notes in the aggregate principal amount of $10,000,000 issued to the Investors
on April , 1997, the Purchase Price shall include contribution of the
outstanding principal amount of the Term Notes in lieu of $10,000,000 of the
Purchase Price.
1.3. Closing. The closing of the purchase and sale shall take place at a
closing (the "CLOSING") to be held at the office of Kirkpatrick & Lockhart, 1500
Oliver Building, Pittsburgh, Pennsylvania at 10:00 A.M. on June 13, 1997, or on
such other date and at such time as may be mutually agreed upon by the Company
and the Investors (the "CLOSING DATE") but no later than June 30, 1997. At the
Closing, the Company will deliver to each Investor a certificate for that number
of Purchased Shares and a Warrant exerciseable into that number of shares of
Common Stock set forth opposite its name in Exhibit A hereto, against delivery
to the Company of the Purchase Price .
1.4. Use of Proceeds. The Company agrees to use the proceeds from the sale
of the Purchased Shares and the Warrants for general working capital purposes
for the Company and its Subsidiaries.
2. CONDITIONS OF PURCHASE. The obligations of each Investor under Article
1 of this Agreement are subject to the compliance by the Company in all material
respects with their agreements herein contained and to the fulfillment on or
before the Closing of the following conditions:
2.1. Opinion of Counsel. The Investors shall have received from
Sutherland, Asbill & Brennan, counsel for the Company, its favorable
opinion, dated the Closing Date, substantially in the form attached hereto
as Exhibit D.
<PAGE> 35
2.2. Authorization; Consents. The Board of Directors of the Company
shall have duly adopted resolutions in form satisfactory to the Investors
and shall have received all necessary consents of shareholders of the
Company authorizing the Company to consummate the transactions contemplated
hereby in accordance with the terms hereof, and the Investors shall have
received a duly executed certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date setting forth a copy of
such resolutions and such other matters as may be requested by the
Investors. The Company shall have obtained any and all other consents,
permits and waivers and made all filings necessary or appropriate for
consummation of the transactions contemplated by this Agreement.
2.3. Certificate of Incorporation; Certificate of Amendment. The
Certificate of Incorporation of the Company shall read as set forth in
Exhibit E attached hereto and the Company shall have filed a Certificate of
Amendment in the form as set forth in Exhibit C attached hereto.
2.4. Board of Directors. Effective as of the Closing ,
shall have been elected to the Company's Board of Directors as the
representative of the Investors.
2.5. Expenses. The Company shall have paid the expenses set forth in
Section 20 hereof.
2.6. Secretary's Certificates; Good Standings. Each of the Company
and the Subsidiaries shall have delivered to the Investors true and correct
copies of the current Certificate of Incorporation and Bylaws for such
corporation, each certified by the respective secretary of such
corporation.
2.7. All Proceedings Satisfactory. All corporate and other
proceedings taken prior to or at the Closing in connection with the
transactions contemplated by this Agreement, and all documents and
evidences incident thereto, shall be reasonably satisfactory in form and
substance to the Investors, and the Investors shall receive such copies
thereof and other materials (certified, if requested) as they may
reasonably request in connection therewith.
3. CONDITIONS OF SALE. The Company's obligation to issue and sell the
Purchased Shares and the Warrants hereunder shall be subject to compliance by
the Investors in all material respects with their agreements herein contained
and to the fulfillment on or before and at the Closing of the following
conditions:
3.1. Representations and Warranties. The representations and
warranties of the Investors contained in Section 6 of this Agreement shall
be true and correct in all material respects with the same force and effect
as though such representations and warranties had been made on and as of
the Closing Date and the Company shall receive a certificate to such effect
executed by a duly authorized representative of each of the Investors.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investors to
enter into this Agreement, the Company represents and warrants as follows as of
the date hereof and as of the Closing Date:
4.1. Organization, Corporate Power and Authority, etc. Each of the
Company and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation
and has full corporate power and authority to own and hold its properties
and to carry on its business as presently conducted. Each of the Company
and the Subsidiaries is duly licensed or qualified and in good standing as
a foreign corporation authorized to do business in all jurisdictions in
which the character of property owned or leased, or the nature of the
activities conducted by it, makes such licensing or qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect. The attached Schedule 4.1 contains a list of all entities
of which the Company owns or controls, directly or indirectly through one
or more Subsidiaries, a majority of the voting stock (each a "SUBSIDIARY"
and collectively, "SUBSIDIARIES"). Except for such Subsidiaries, neither
the Company nor any Subsidiary owns of record or beneficially any shares of
capital stock or securities convertible into capital stock of, or any other
proprietary interest in, any Person.
4.2. Validity and Enforceability. The Company has all necessary
corporate power and authority, and has taken all corporate action required
to execute, deliver and perform this Agreement, to issue, sell and deliver
the Purchased Shares and the Warrants and to issue the Common Stock
issuable upon exercise of the Warrants. This Agreement and all other
documents and instruments executed by the
A-2
<PAGE> 36
Company pursuant hereto, when delivered, are and will be duly authorized,
valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and equitable principles limiting rights to specific performance.
The sale of the Preferred Shares and the Warrants is not subject to
preemptive or other preferential rights or similar statutory or contract
rights and does not give rise to any "anti-dilution" provisions either
arising pursuant to any agreement or instrument to which the Company is a
party or which are otherwise binding on the Company. Upon the issuance,
sale and delivery of the Securities in accordance with the terms hereof,
the Securities will be validly issued, fully paid and non-assessable and
will be free and clear of all liens, charges, restrictions, claims and
Encumbrances of any nature whatsoever (each a "LIEN"), subject to
restrictions on transfer under Federal and state securities laws.
4.3. Capitalization; Status of Capital Stock. (a) The Company has a
total authorized capitalization consisting of (i) shares of Preferred
Stock, of which shares have been designated Class A Redeemable
Preferred Stock (the "CLASS A PREFERRED STOCK") and shares of
Common Stock. All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued,
are fully paid and non-assessable, and were issued in compliance with all
applicable state and Federal securities laws.
(b) The Preferred Shares and the Warrants which are being issued
hereunder have been duly and validly authorized and, when issued and
delivered in accordance with the terms hereof for the consideration
provided herein, will be validly issued, fully paid and nonassessable and
will not be subject to any Lien. The Company has authorized and reserved,
and covenants to continue to reserve, a sufficient number of shares of
Common Stock for issuance upon the exercise of the Warrants. The shares of
Common Stock which will be issued upon exercise of the Warrants will be
validly issued, fully paid and nonassessable and will not be subject to any
Lien. No further approval or authorization of the shareholders or the
directors of the Company is required for the issuance of the Common Stock
upon exercise of the Warrants.
(c) Except as set forth on Schedule 4.3: (a) neither the Company nor
any Subsidiary has any subscription, warrant, option, convertible security
or other options or rights (contingent or otherwise) to purchase shares of
capital stock, or securities convertible into shares of capital stock,
authorized, issued or outstanding, nor is the Company or any Subsidiary
obligated in any manner to issue shares of its capital stock or securities
convertible into or evidencing any right to acquire shares of its capital
stock, or to distribute to holders of any of its capital stock any evidence
of indebtedness or assets; (b) no Person has any preemptive right, right of
first refusal or similar right to acquire additional shares of capital
stock of the Company or any Subsidiary in connection with the sale and
purchase of the Securities pursuant to this Agreement or otherwise; (c)
there are no restrictions on the transfer of the shares of capital stock of
the Company, other than those imposed by relevant state and Federal
securities laws; (d) no Person has any right to cause the Company to effect
the registration under the Securities Act of any shares of capital stock or
any other securities (including debt securities) of the Company; (e)
neither the Company nor any Subsidiary has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein, or to pay any dividend or make any
other distribution in respect thereto; and (f) there are no voting trusts,
stockholders' agreements, or proxies relating to any securities of the
Company or any Subsidiary. A complete and correct schedule of the holders
of the issued and outstanding capital stock and of any subscription,
warrant, option, convertible security or other options or rights
(contingent or otherwise) to purchase shares of capital stock, or
securities convertible into shares of capital stock of the Company
immediately prior to the Closing is set forth in Schedule 4.3
4.4. Governmental and Other Consents, etc. No authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, the absence of which would have a
Material Adverse Effect is or will be necessary for, or in connection with,
the offer, issuance, sale, execution or delivery by the Company, or for the
performance by it of its obligations, under this Agreement except such, if
any, as may be required under any applicable state securities laws which
have been complied with.
A-3
<PAGE> 37
4.5. Compliance with Securities Laws. Subject to the accuracy of the
representations of the Investors set forth in Section 6 below, the Company
has complied and will comply with all applicable United States Federal and
state securities laws in connection with the offer, issuance and sale of
the Securities. The Company has not, either directly or through any agent,
offered any securities to, or otherwise approached, negotiated or
communicated in respect of any securities with, any Person so as thereby to
require that the offer or sale of the Securities be registered pursuant to
the provisions of Section 5 of the Securities Act. Subject to the accuracy
of the representations of the Investors set forth in Section 6 below, the
offer, sale and issuance of the Purchased Shares (and of the Common Shares
issuable upon conversion of the Purchased Shares) in conformity with the
terms of this Agreement are exempt from the registration requirements of
Section 5 of the Securities Act and all applicable state securities laws.
4.6. Financial Statements. The audited financial statements of the
Company as of December 31, 1996 (the "AUDITED FINANCIAL STATEMENTS") have
been previously provided to the Investors. The unaudited financial
statements of the Company for the period ending , 1997 (the
"INTERIM FINANCIAL STATEMENTS" and together with the Audited Financial
Statements, the "FINANCIAL STATEMENTS") have been previously provided to
the Investors. The Audited Financial Statements and the Interim Financial
Statements present fairly the financial position of the Company as at the
date thereof and for the period covered thereby (subject in the case of the
Interim Financial Statements to year-end adjustments) and have been
prepared in accordance with generally accepted accounting principles
consistently applied (except that the Interim Financial Statements do not
contain footnotes). Neither the Company nor any Subsidiary has any
liability, contingent or otherwise, not disclosed in the Financial
Statements or in the notes thereto, that could together with all such other
liabilities, have a Material Adverse Effect. Since the date of the Interim
Financial Statements, (i) there has been no material adverse change in the
business, assets or condition, financial or otherwise, or operations of the
Company or any Subsidiary; (ii) neither the business, condition, financial
or otherwise, or operations of the Company or any Subsidiary nor any of its
properties or assets has been materially adversely affected by any event or
occurrence of any type, whether or not insured against; (iii) except as set
forth on Schedule 4.6 hereto and except as entered into in the ordinary
course of business, neither the Company nor any Subsidiary has incurred any
liabilities or obligations; and (iv) neither the Company nor any Subsidiary
has entered into any transaction which would have a Material Adverse
Effect.
4.7. Taxes. Each of the Company and the Subsidiaries has accurately
prepared and timely filed all Federal, state and other tax returns that are
required to be filed by it and has paid or made provision for the payment
of all taxes that have become due pursuant to such returns and all other
taxes, assessments and governmental charges which have become due and
payable, including, without limitation, all taxes which the Company or any
Subsidiary is obligated to withhold from amounts owing to employees,
creditors and third parties. There are no tax liens upon any asset of the
Company or any Subsidiary except statutory liens for taxes not yet due.
Neither the Company nor any of its stockholders has ever filed (a) an
election pursuant to Section 1362 of the Internal Revenue Code of 1986, as
amended (the "CODE"), that the Company be taxed as an S corporation or (b)
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations.
4.8. Litigation. Except as set forth on Schedule 4.8, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary
which might result, either in any case or in the aggregate, in any material
adverse change in the business, assets or condition, financial or
otherwise, or operations of the Company, or which might call into question
the validity of, or hinder the enforceability or performance of this
Agreement or the Securities, or any action taken or to be taken pursuant
hereto or thereto; nor, to the Company's knowledge, has there occurred any
event nor does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted.
Neither the Company nor any Subsidiary is in default with respect to any
order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency by which the Company or any
Subsidiary is bound that
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might result, either in any case or in the aggregate, in any material
adverse change in the Company's business, assets or condition, financial or
otherwise, or operations.
4.9. ERISA. Neither the Company nor any Subsidiary makes any
contribution to any pension, defined benefit plans or defined contribution
plans for its employees which are subject to the Federal Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
4.10. No Violations. The execution, delivery and performance by the
Company of this Agreement and any documents or instruments delivered,
executed and performed in connection therewith, the consummation of the
transactions contemplated hereby (including the issuance, sale and delivery
of the Purchased Shares and the Warrants and upon exercise of the Warrants,
the issuance and delivery of the Common Stock), and compliance with the
provisions hereof, will not violate any provision of law (other than United
States Federal and state securities laws with which the Company has
represented and warranted in Section 4.5 hereof that it is in compliance),
the Certificate of Incorporation or Bylaws, as amended, of the Company or,
except where any of the following would not have a Material Adverse Effect,
violate any order of any court or other agency of government or indenture,
agreement or other instrument to which the Company or any Subsidiary is
bound, or conflict with, result in the breach of or constitute (with due
notice or lapse of time or both) a default under, any such indenture,
agreement or other instrument, or result in the creation or imposition of
any Lien upon any of the properties or assets of the Company or any
Subsidiary.
4.11. Other Agreements. Neither the Company nor any Subsidiary is a
party to or bound by any agreement, contract or commitment or subject to
any charter, bylaw or other corporate restriction which materially
adversely affects its business, assets or condition, financial or
otherwise, or operations. Neither the Company nor any Subsidiary is in
default under any provision of its Certificate of Incorporation or Bylaws,
each as amended and in effect on the date hereof.
4.12. Other Agreements of Officers, etc. No officer or Key Employee
of the Company is a party to or bound by any agreement, contract or
commitment, or subject to any restriction which materially and adversely
affects, or which in the future has a reasonable possibility (so far as the
officers of the Company can reasonably foresee) of materially and adversely
affecting, the business, assets or condition, financial or otherwise, or
operations of the Company or the right of any such Person to participate in
the affairs of the Company. To the Company's knowledge, no Key Employee has
any present intention of terminating his employment with the Company, and
the Company does not have any present intention of terminating any such
employment. This Section 4.12 shall not be deemed to constitute an
employment contract nor to grant any right in favor of any Person other
than the Investors.
4.13. Transactions with Affiliates. There are no loans, advances,
leases or other continuing transactions between the Company and any
stockholder owning more than 1% of the capital stock of the Company or any
director or officer of the Company or any Subsidiary, or any member of such
officer's, director's or stockholder's immediate family, or any Person
controlled by any such officer, director or stockholder or member of such
officer's, director's or stockholder's immediate family.
4.14. Compliance with Law. Except with regard to environmental
matter, security matters, and FCC matters covered in other Sections of this
Agreement, each of the Company and the Subsidiaries is currently in
compliance in all respects with all Federal and state laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, and has obtained and possesses all necessary
certificates of need, permits, licenses and other authorizations required
to conduct its business as presently conducted except where a failure so to
comply to or to obtain and possess the same would not have a Material
Adverse Effect. There is no Federal or state governmental inquiry,
investigation, lawsuit or proceeding pending or, to the Company's
knowledge, threatened against or affecting the Company or any Key Employee,
the effect of which may lead to or result in the suspension or revocation
of any governmental license or approval held by the Company, and, to the
Company's knowledge, there is no basis for any of the foregoing.
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<PAGE> 39
4.15. Material Contracts. Schedule 4.15 sets forth all oral and
written contracts to which the Company or any Subsidiary is a party or
other corporate restriction which in the aggregate affects the business,
prospects, financial condition, operations, property or affairs of the
Company or any Subsidiary. The Company, each Subsidiary and, to the
Company's and each Subsidiary's knowledge, each other party thereto have in
all material respects performed all the obligations required to be
performed by them to date, have received no notice of default and are not
in default under any lease, agreement or contract now in effect to which
the Company or any Subsidiary is a party or by which it or its property may
be bound. Neither the Company nor any Subsidiary has any present
expectation or intention of not fully performing all of its respective
obligations under each such lease, contract or other agreement, and neither
the Company nor any Subsidiary has any knowledge of any beach or
anticipated breach by the other party to any contract or commitment to
which the Company or any Subsidiary is a party.
4.16. Title to Assets. Each of the Company and the Subsidiaries has
good and marketable title to, and is the owner, free and clear, of or holds
a valid leasehold interest in all properties and assets necessary to
conduct its business as presently conducted except for where a failure to
do so would not have a Material Adverse Effect. Except as set forth on
Schedule 4.16, there are no Liens or other security interests outstanding
against any of these properties and assets except for those Liens which
would not have a Material Adverse Effect. All material leases pursuant to
which the Company or any Subsidiary leases personal property are in good
standing and are valid and effective in accordance with their respective
terms and there exists no default or other occurrence or condition which
could result in a default or termination thereof, except for default or
other occurrence which would not have a Material Adverse Effect.
4.17. Real Property. The Company has good and marketable fee simple
title to all real property (the "Real Property") claimed to be owned by it,
free and clear of all Encumbrances, other than (i) easements, covenants,
rights-of-way and other Liens and Encumbrances or restrictions of record,
(ii) zoning and building restrictions, (iii) Liens for current taxes and
other municipal charges not yet due, (iv) Liens of mortgages of record and
(v) encroachments shown on any surveys of the Real Property; provided that
any such Encumbrance in clauses (i), (ii) and (iii) does not either
materially adversely affect the value of the Real Estate or prohibit or
materially interfere with the operations of the business of the Company or
any Subsidiary. The Company has the right to quiet enjoyment of all Real
Property in which it holds a leasehold interest for the full term,
including all renewal rights, of the lease or similar agreement relating
thereto. Copies of all title insurance policies written in favor of the
Company and all surveys relating to the Real Property owned by the Company
have been made available to the Investors. All structures and other
improvements on all Real Property owned by the Company are within the lot
lines in all material respects and do not materially encroach on the
properties of any other Person, and the use and operation of all Real
Property conform in all material respects to all applicable building,
zoning, safety and subdivision Laws and other Laws, and all restrictive
covenants and restrictions and conditions affecting title (except with
regard to environmental matters, which are addressed in Section 4.18
hereof). The Company has not received any written or oral notice of
assessments for public improvements or condemnation against any Real
Property.
4.18. Environmental. (a) Compliance; No Liability. The Company and
each Subsidiary has operated its business and each parcel of Real Property
in compliance in all material respects with all applicable Environmental
Laws. Neither the Company nor any Subsidiary has violated any Environmental
Law prior to the Closing except for such violations which would not have a
Material Adverse Effect. No notice of any violation, citation, summons or
order has been received, no complaint has been filed, no penalty has been
assessed and, to the knowledge of the Company, no investigation or review
is pending or has been threatened by any governmental entity or other
person, which could require the Company to expend money, or abide by
conditions contained in consent decrees, settlement agreements or orders,
that is in any of such cases likely to have a Material Adverse Effect: (i)
with regard to any violation or alleged violation of any Environmental Law,
or (ii) with regard to any failure or alleged failure to comply with any
Environmental Permit, or (iii) with respect to any use, possession,
generation, treatment, storage, recycling, transportation, disposal or
release of a Regulated Material.
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<PAGE> 40
(b) Compliance with Permits. The Company and each Subsidiary is in
material compliance with all environmental permits, certificates, licenses,
approvals, registrations, and authorizations required for the operation of
its business and the Real Property (the "Environmental Permits"), and all
such Environmental Permits are in full force and effect as of the date
hereof. The Company has made timely application for renewals of such
Environmental Permits. All such Environmental Permits shall be renewed in
the ordinary course of business and shall not be renewed with conditions
which shall require expenditure of money in such amounts, or result in such
changes, as are likely to have a Material Adverse Effect.
(c) Treatment; CERCLIS. Neither the Company nor any Subsidiary has
treated, stored, recycled or disposed of any Regulated Material on any real
property, and, to the Company's knowledge, no other Person has treated,
stored, recycled or disposed of any Regulated Material on any part of the
Real Property except in material compliance with applicable Environmental
Laws. There has been no unremedied release of and there is not present any
Regulated Material at, on or under any Real Property except such Regulated
Material as is used or stored at, on, or under any Real Property in
material compliance with Environmental Laws. None of the Real Property is
listed or, to the knowledge of the Company, proposed for listing on the
National Priorities List pursuant to Superfund, CERCLIS or any state or
local list of sites requiring investigation or cleanup.
(d) Notices; Existing Claims; Certain Regulated Materials; Storage
Tanks. Neither the Company nor any Subsidiary has received any request for
information, notice of claim, demand or other notification that it is or
may be potentially responsible with respect to any investigation, abatement
or cleanup of any threatened or actual release of any Regulated Material.
Neither the Company nor any Subsidiary is required to place any notice or
restriction relating to the presence of any Regulated Material at any Real
Property or in any deed to any Real Property. Except as set forth on
Schedule 4.18, there has been no past, and there is no pending or
contemplated, claim by the Company or any Subsidiary under any
Environmental Law based on actions of others that may have impacted on the
Real Property, and the Company has not entered into any agreement with any
Person regarding any claim pursuant to any Environmental Law. All
underground storage tanks located on the Real Property are disclosed on
Schedule 4.18, and all such tanks and associated piping are in sound
condition and are not leaking and have not leaked. All underground storage
tanks are in material compliance with all Environmental Laws and if no
longer in use or being operated have been closed or removed materially in
accordance with all Environmental Laws.
(e) PCBs; Asbestos, etc. No polychlorinated biphenyls ("PCBs"),
asbestos containing materials, ("ACM"), radon, or urea formaldehyde are
present at any property now owned or leased by the Company or any
Subsidiary, except the presence of any PCBs, ACM, radon, or urea
formaldehyde that are not likely to have a Material Adverse Effect.
(f) Environmental Liens. There are no environmental Liens on any of
the assets of the Company or any Subsidiary or Real Property and no action
by a governmental entity has been taken or is in the process, or to the
knowledge of the Company, pending or threatened which could subject the
assets or Real Property to such Liens.
4.19. Foreign Investment in Real Property Tax Act. The Company is not
now and has never been a "United States real property holding corporation"
for purposes of Section 897(c)(2) of the Code and the Treasury Regulations
thereunder.
4.20. FCC Matters. (a) The FCC has issued to the company, and the
Company holds all the licenses (the "FCC Licenses") necessary to conduct
its business as such business is currently conducted and proposed to be
conducted, and such FCC Licenses are valid and in full force and effect.
For the two-year period prior to the date hereof, the Company has filed all
statements, reports and information required by the FCC and duly performed
in all respects all of its obligations under such FCC Licenses and the
Communications Act.
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<PAGE> 41
(b) The Company is in compliance in all material respects with the
Communications Act governing the ownership and operation of the paging
systems owned, permitted, licensed, being constructed and/or operated
pursuant to the FCC Licenses. There is not now pending or, to the Company's
knowledge, threatened any litigation, proceeding or investigation before
the FCC which reasonably might result in a termination of any of the FCC
Licenses. The Company has constructed all of its material facilities
operating under the FCC Licenses within the construction period provided
under the Communications Act.
(c) No event has occurred (including any notice issued by the FCC),
and no agreement has been entered into by the Company, which now or after
notice or lapse of time or both, might reasonably be expected to permit
cancellation, revocation or termination of the FCC Licenses, or would
result in any FCC action, which could reasonably be expected to have a
Material Adverse Effect and there is not, to the Company's knowledge,
pending or threatened any action or matter that would suggest that the FCC
Licenses will not be renewed in the ordinary course.
(d) There is not pending any application, petition, objection or other
pleading filed with the FCC or any federal entity with jurisdiction to
review administrative orders of the FCC, which questions the validity of or
contests any of the FCC Licenses.
(e) No consents, approvals or actions by the FCC are required to
permit the consummation of the transactions contemplated hereby, and such
consummation will not result in a violation of the Communications Act and
will not cause any forfeiture or impairment of the FCC Licenses.
4.21. Disclosure. Neither this Agreement nor any certificate, list,
exhibit, letter or other written statement furnished by the Company to the
Investors or their special counsel in connection herewith (including in
response to any request for information made by any Investor or its agent
to the Company) contains any untrue statement of a material fact or, when
read together, omits to state any material fact necessary in order to make
the statements contained therein not misleading in light of the
circumstances under which they are or were made. There exists no fact or
circumstance which materially and adversely affects the business, assets or
condition, financial or otherwise, or operations of the Company, that has
not been reflected in financial statements of the Company heretofore
delivered to the Investors or set forth in this Agreement or the Exhibits
and Schedules hereto or a certificate furnished to the Investors by the
Company at the Closing.
5. COVENANTS OF THE COMPANY. Until the such time as no Purchased Shares
are outstanding, the Company will comply with the following covenants:
5.1. Board of Directors Meetings. (a) The Company shall use its best
efforts to fix the number of directors of the Company at not more than
and to cause at one (1) nominee of the Investors, whom shall
initially be , to be recommended to the stockholders for election
as a director at all meetings of stockholders, or consents in lieu thereof,
for such purpose. The Company will reimburse all direct out-of-pocket
expenses reasonably incurred by any director of the Company in attending
meetings of the Board of Directors. The Company shall ensure that meetings
of its full Board of Directors are held at least four times each year and
at intervals of not more than four months. The Company's Certificate of
Incorporation and Bylaws shall provide for indemnification and exculpation
of directors from personal liability, to the fullest extent permitted under
applicable state law. The Company shall, from time to time, consider the
appropriateness of obtaining directors and officers liability insurance,
and, if appropriate and approved by the Board of Directors of the Company,
the Company shall obtain such insurance providing reasonable coverage and
the payment of reasonable premiums.
(b) Board Visitation and Materials. The Company will deliver to each
Investor investing at least $1,500,000 pursuant to this Agreement (each a
"Principal Holder") a copy of all materials distributed at or prior to all
meetings of the Board of Directors of the Company or any committee thereof,
(which shall include the minutes of the previous meeting) and shall
thereafter promptly deliver to each Principal Holder any revised minutes as
are adopted at such or any subsequent meeting. The Company will permit a
representative of each Principal Holder to attend all meetings of the
Company's Board of Directors, and
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<PAGE> 42
of the Company's stockholders, (b) provide to such designees not less than
10 calendar days' prior actual notice of all meetings (or as required by
the bylaws, if the meeting is an emergency meeting and the matters to be
discussed or voted on would not in any way adversely affect the Investor or
its interest or rights) of the Company's Board of Directors and of the
Company's stockholders and an agenda for the meetings and other materials
related thereto, (c) permit each such designee to attend such meetings as a
non-voting observer, and (d) provide to each such designee a copy of all
materials distributed at such meetings.
5.2. Right of First Offer on Company Sales. Each Investor shall have
a right of first offer with respect to future sales in a private placement
by the Company of its capital stock or securities convertible into or
exercisable or exchangeable for shares of such capital stock. Each time the
Company proposes to offer any such securities in a private offering, the
Company shall first offer such securities to the Investors, who shall each
be entitled to purchase its pro-rata share (on a fully-diluted basis) of
such securities.
5.3. Maintenance of Existence; Compliance with Law. The Company will
and will cause each Subsidiary to keep in full force and effect its
corporate existence, except where the failure to do so will not have a
Material Adverse Effect, and will comply in all material respects with all
applicable laws and regulations in the conduct of its business except those
being contested in good faith by appropriate procedures and will file with
the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act;
5.4. Rule 144 Requirements. The Company will comply with the
requirements of Rule 144(c) under the Securities Act with respect to
current public information about the Company and will furnish to any holder
of Registrable Shares upon request such reports and documents of the
Company as such holder may reasonable request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
5.5. Insurance. The Company will keep the insurable properties owned
by it and by the Subsidiaries insured by financially sound and reputable
insurers against the perils of liability, casualty, fire and extended
coverage in amounts of coverage at least equal to those customarily
maintained by companies in the same or a similar business of similar size.
The Company will also maintain with such insurers workers' compensation
insurance and insurance against hazards and risks and liability to persons
and property to the extent and in the manner customary for corporations
engaged in the same or a similar business of similar size.
5.6. Key Man Insurance. The Company shall maintain and continue to
pay the premiums on a key-man term life insurance policy on the life of
Mark H. Dunaway in the amount of not less than $ naming the
Company as the beneficiary. The life insurance proceeds received by the
Company shall be used for valid business purposes of the Company as
approved by the Board of Directors of the Company.
5.7. Maintenance of Properties. The Company will and will cause each
Subsidiary to maintain all properties used or useful in the conduct of its
business in good repair, working order and condition as necessary to permit
such business to be properly and advantageously conducted.
5.8. Affiliated Transactions. All transactions by and between the
Company or any Subsidiary and any officer, Key Employee, director or
stockholder of the Company or any Subsidiary or Persons controlled by or
affiliated with such officer, Key Employee, director or stockholder, shall
be conducted on an arms-length basis, shall be on terms and conditions no
less favorable to the Company or Subsidiary than could be obtained from
non-related Persons and shall be approved in advance by a majority of
disinterested Directors after full disclosure of the terms thereof.
5.9. Management Compensation. Compensation paid by the Company or any
Subsidiary to its management shall be reasonably comparable to compensation
paid to management in companies of similar size, of similar maturity, of
similar profitability and in similar industries.
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5.10. Inspection. The Company shall permit and shall cause each
Subsidiary to permit authorized representatives of the Principal Holders to
visit and inspect any of the properties of the Company, including its books
of account, and to make copies thereof at the expense of the Principal
Holders and to discuss its affairs, finances and accounts with its
officers, administrative employees and independent accountants, all at such
reasonable times with reasonable notice as may be reasonably requested but
in no event more than one time in any calendar month and all in a manner
that does not interfere with the business operations of the Company and its
Subsidiaries; provided that all such information provided to the Investors
by the Company will be maintained as confidential by the Investors and not
be disclosed to third parties and provided, further that each Investor may
provide summaries of such information to affiliates of such Investor as in
connection with reports provided by the Investor to its affiliates in its
fiduciary capacity.
5.11. Restrictive Provisions. Until the earlier of such time no
Purchased Shares are outstanding, without the written consent of holders of
an number equal to or greater than two-thirds of the then outstanding
Purchased Shares, the Company will not:
(a) take any action that amends, alters or repeals the preferences,
special rights or other powers of the Class A Preferred Stock, so as to
affect adversely the Class A Preferred Stock (including, without
limiting the generality of the foregoing, the authorization, creation or
issuance of any shares of capital stock or other securities with
preference or priority equal or superior to the Preferred Stock or on a
parity with the Preferred Stock in any regard, including, without
limitation, redemption rights and the right to receive either dividends
or amounts distributable upon liquidation, dissolution or winding up of
the corporation) or increases the authorized number of shares of Class A
Preferred Stock;
(b) redeem, purchase or otherwise acquire for consideration any
shares of its capital stock (or rights, options or warrants to purchase
such shares), other than as permitted on Schedule 5.11 (each in
accordance with the terms of currently existing agreements between such
Persons and the Company);
(c) approve any material change in the line of business of the
Company or any Subsidiary;
(d) enter into any merger, consolidation or amalgamation, or any
recapitilization, or liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution) or convey, sell, lease, assign, transfer
or otherwise dispose of all or substantially all of its business, assets
or property;
(e) amend its Certificate of Incorporation or Bylaws, if such
amendment would change any material rights, preferences, privileges or
limitations provided to the holders of Class A Preferred Stock therein
or the size of the Board of Directors or the procedures for meetings of
the Board of Directors and shareholders, including without limitation,
notice and quorum requirements;
(f) enter into any acquisition or series of acquisitions involving
an aggregate transaction value equal to or greater than $5,000,000; or
(g) increase its indebtedness in one or more transactions, whether
or not related, in an aggregate amount of $5,000,000 in excess of the
amount of the Company's indebtedness immediately preceding the Closing
(for the purposes of determining such indebtedness of the Company, there
shall not be counted the Term Notes in the aggregate principal amount
equal to $10,000,000 issued by the Company to the Investors).
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. In order to induce
the Company to enter into this Agreement, each Investor, severally and not
jointly, represents and warrants that it is an "accredited investor" as that
term is defined in Regulation D under the Securities Act and that its state of
organization and state of headquarters are as set forth on Schedule 6 attached
hereto.
7. MATTERS RELATING TO THE WARRANTS. 7.1. Mandatory Exercise of
Warrants. All but not less than all of the Warrants must be exercised by the
holders thereof at the request of the Company at the then applicable conversion
price if and only if (i) the average closing bid price for shares of common
stock
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during the ninety (90) calendar days prior to the date of such exercise exceeds
ten dollars ($10) per share, (ii) the Company has taken all actions necessary to
cause all shares of common stock issued upon such exercise to be registered
immediately upon issue, whether through registration on a Form S-3 or otherwise,
so as to be freely tradable immediately upon their issuance and (iii) the
Company simultaneously redeems all outstanding Class A Preferred Stock.
7.2. Cancellation of Warrants. Warrants in the aggregate amount of 500,000
(distributed on a pro-rata basis among the Investors based on the number of
shares of Common Stock issuable upon the exercise of the Warrants held by each
such Investor) may be canceled by the Company at its election for the following
aggregate consideration (to be distributed pro-rata to the Investors based upon
the number of shares of Common Stock issuable upon the exercise of the Warrants
held by each such Investor) in connection with the redemption in a single
transaction of all but not less than all of the Class A Preferred Stock during
the following time periods following the date of this Agreement:
<TABLE>
<CAPTION>
REDEMPTION WITHIN: AGGREGATE CONSIDERATION:
- ------------------ ------------------------
<S> <C>
First year........................................... $ 0.00
Second year.......................................... $ 750,000
Third year........................................... $1,500,000
</TABLE>
8. REGISTRATION RIGHTS. 8.1. Definitions. As used in this Article 8, the
following terms shall have the following meanings:
"HOLDER" means any person who holds Registrable Shares.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of common stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar securities proposed to be
issued in exchange for securities or assets of another corporation).
"REGISTRABLE SHARES" means the shares of Common Stock issued or
issuable upon exercise of the Warrants and any other shares of Common Stock
of the Company issued in respect of such shares (because of stock splits,
stock dividends, reclassifications, recapitalizations, anti-dilution
provisions, or similar events); provided, however that shares of Common
Stock which are Registrable Shares shall cease to be Registrable Shares
upon any sale pursuant to a Registration Statement or Rule 144 under the
Securities Act.
8.2. Required Registrations. (a) A Holder or Holders holding in the
aggregate at least % of the Registrable Shares may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2 (or any
successor form) of Registrable Shares owned by such Holder or Holders. If the
Holders initiating the registration intend to distribute the Registrable Shares
by means of an underwriting, they shall so advise the Company in their request.
In the event such registration is underwritten, the right of other Holders to
participate shall be conditioned on such Holders' participation in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Holders. Such Holders shall
have the right, by giving written notice to the Company within 30 days (the
"Holder Notice Period") after the Company provides its notice, to elect to have
included in such registration such of their Registrable Shares as such Holders
may request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-1 or Form S-2 (or any successor form) of all Registrable Shares which the
Company has been requested to so register. Notwithstanding the foregoing, if the
underwriter (if any) managing the offering determines that, because of marketing
factors, all of the Registrable Shares requested to be registered by all Holders
may not be included in the offering, then all Holders who have requested
registration shall participate in the registration pro rata based upon the
number of Registrable Shares which they have requested to be so registered
(giving effect to the conversion into Common Stock of all securities convertible
thereinto). No securities other than Registrable Shares shall be included in the
securities covered by such registration unless the managing underwriter of such
offering shall have advised in writing each Holder of Registrable Shares to be
covered by such registration that the inclusion of such other securities would
not adversely effect such offering, or the
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Holders of not less than 66 2/3% of the securities to be covered by such
registration have consented in writing to the inclusion of such other
securities.
(b) At any time after the Company becomes eligible to file a Registration
Statement on Form S-3 (or any successor form relating to secondary offerings),
any Holder or Holders may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $ (based on the then current
public market price). In the event such registration is underwritten, the right
of Holders to participate shall be conditioned on such Holders' participation in
such underwriting. Upon receipt of any such request, the Company shall promptly
give written notice of such proposed registration to all Holders. Such Holders
shall have the right, by giving written notice to the Company within 30 days
after the Company provides its notice, to elect to have included in such
registration such of their Registrable Shares as such Holders may request in
such notice of election. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on Form S-3 (or such
successor form) of all Registrable Shares which the Company has been requested
to so register. Notwithstanding the foregoing, if the underwriter (if any)
managing the offering determines that, because of marketing factors, all of the
Registrable Shares requested to be registered by all Holders may not be included
in the offering, then all Holders who have requested registration shall
participate in the registration pro rata based upon the number of Registrable
Shares which they have requested to be so registered. No securities other than
Registrable Shares shall be included in the securities covered by such
registration unless the managing underwriter of such offering shall have advised
in writing each Holder of Registrable Shares to be covered by such registration
that the inclusion of such other securities would not adversely effect such
offering, or the Holders of not less than 66 2/3% of the securities to be
covered by such registration have consented in writing to the inclusion of such
other securities.
(c) The Company shall not be required to effect more than two (2)
registrations pursuant to paragraph (a) above; provided, however, that if fewer
than all of the Registrable Shares requested to be registered pursuant to a
request under Section 8.2 (a) are effectively registered, then for purposes of
this Section 8.2(c) such registration shall not be deemed a registration made
pursuant to Section 8.2(a). In addition, the Company shall not be required to
effect any registration (other than on Form S-3 or any successor form relating
to secondary offerings) within four months after the effective date of any other
Registration Statement of the Company.
(d) Upon the request of 100% of the Registrable Shares seeking registration
under Section 8.2 hereof, the holders of such Registrable Shares shall have the
right to withdraw the request for registration by giving written notice to the
Company within 30 days after the Holder Notice Period and, in the event of such
withdrawal, such request shall not be counted for purposes of the requests for
registration to which holders of Registrable Shares are entitled pursuant to
this Section 8.2.
(e) If at the time of any request to register Registrable Shares pursuant
to this Section 8.2 , the Company is engaged or has fixed plans to engage within
30 days of the time of the request in a registered public offering as to which
the Holders may include Registrable Shares pursuant to Section 8.3 or is engaged
in any other activity which, in the good faith determination of the Company's
Board of Directors, would be significantly adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of 90
days from the date that such request is made, such right to delay a request to
be exercised by the Company not more than once in any two-year period.
8.3. Incidental Registration. (a) Whenever the Company proposes to file a
Registration Statement (other than pursuant to Section 8.2 hereof) at any time
and from time to time, it will, prior to such filing, give written notice to all
Holders of its intention to do so and, upon the written request of a Holder or
Holders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by such Holder or Holders to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of such Holder or Holders.
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<PAGE> 46
(b) In connection with any registration under this Section 8.3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein; provided that no persons or entities other
than the Company and the Holders shall be permitted to include securities in the
offering; provided further that, the number of Registrable Shares to be included
in any such offering under this Section 8.3 shall not be limited to less than
% of the total number of shares to be sold in the offering. If the number
of Registrable Shares to be included in the offering in accordance with the
foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration shall participate in the
registration pro rata based upon their total ownership of Registrable Shares. If
any holder would thus be entitled to include more securities than such holder
requested to be registered, the excess shall be allocated among other requesting
holders pro rata in the manner described in the preceding sentence.
8.4. Provisions Regarding Underwritten Offerings. With respect to any
registration pursuant to either Section 8.2 or Section 8.3 hereof, if such
registration is an underwritten registration, the following provisions shall
apply.
(a) The Company shall (together with all Holders selling Registrable
Shares) enter into an underwriting agreement in customary form with the managing
underwriter (selected for such underwriting by the Holders in the case of a
registration under Section 8.2 hereof) and each Holder selling Registrable
Shares shall participate in such underwriting. All representations and
warranties by and other agreements on the part of the Company to and for the
benefit of the underwriters shall also be made to and for the benefit of the
Holders of Registrable Shares, and any or all conditions precedent to the
obligations of such underwriters shall also be conditions precedent to the
obligations of the Holders of Registrable Shares. No Holder of Registrable
Shares shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Holder's Registrable Shares, intended
method of distribution, or other representations required by applicable law.
(b) If any Holder of Registrable Shares disapproves of the terms of the
underwriting, such person may elect to withdraw from such registration by
written notice to the Company, the managing underwriter and the other
participating Holders. If by the withdrawal of such Registrable Shares a greater
number of Registrable Shares held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable Shares
in the registration the right to include additional Registrable Shares in the
same proportion and manner used in determining the underwriter limitation in
Sections 8.2.
8.5. Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become (as expeditiously as possible) and remain effective;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any
other offering, until the earlier of the sale of all Registrable Shares
covered thereby or 180 days after the effective date thereof;
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<PAGE> 47
(c) as expeditiously as possible furnish to each selling Holder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the selling Holder may reasonably request in order
to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Holder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Holders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Holders to consummate the
public sale or other disposition in such states of the Registrable Shares
owned by the selling Holder.
(e) If the Company has delivered preliminary or final prospectuses to
the selling Holders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall
promptly notify the selling Holders and, if requested, the selling Holders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Holders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Holders shall be free to resume making offers of
the Registrable Shares.
8.6. Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this Article
8, the term "Registration Expenses" shall mean all expenses incident to the
Company's performance or compliance with the terms of this Agreement, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and expenses of counsel for the Company and the fees and
expenses of one counsel selected by the selling Holders to represent them (such
selection to be made by at least 51% of the selling Holders)(the "Sellers'
Counsel"), state Blue Sky fees and expenses, and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions (such excluded expenses, the
"Selling Holders' Expenses") and the fees and expenses of any counsel retained
by any selling Holder other than Sellers' Counsel. The Selling Holders' Expenses
shall be borne by selling Holders pro rata on the basis of the number of shares
of securities so registered on their behalf. The fees and expenses of any
counsel retained by any selling Holder (other than Sellers' Counsel) shall be
borne by the selling Holder retaining such counsel.
8.7. Indemnification and Contribution. (a) In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless the seller of
such Registrable Shares, each of its officers, directors, trustees, partners,
agents and affiliates, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act (and each of its officers, directors,
trustees, partners, agents and affiliates) against any losses, claims, damages
or liabilities (or action in respect thereof) including without limitation fees
and expenses of legal counsel and including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or any violation by the Company of any rule or regulation
promulgated under the Securities Act and applicable to the Company in connection
with any such registration, and the Company will reimburse such seller, each of
its officers, directors, trustees, and partners, agents, and affiliates each
underwriter of such Registrable Shares and each such controlling person (and
each of its officers, directors, trustees, partners, agents and affiliates) for
any legal or any other expenses reasonable incurred by such person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission made in such Registration
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<PAGE> 48
Statement, preliminary prospectus or final prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to the
Company, in writing, by or on behalf of such seller, each of its officers,
directors, trustees, and partners, agents, and affiliates specifically for use
therein.
(b) Each party entitled to indemnification under this Section 8.7 (the
"Article 7 Indemnified Party") shall give notice to the party required to
provide indemnification (the "Article 7 Indemnifying Party") promptly after such
Article 7 Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Article 7 Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom;
provided that counsel for the Article 7 Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Article 7
Indemnified Party (whose approval shall not be unreasonably withheld); and,
provided, further, that the failure of any Article 7 Indemnified Party to give
notice as provided herein shall not relieve the Article 7 Indemnifying Party of
its obligations under this Section 8.7. The Article 7 Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Article 7 Indemnifying Party shall pay such expense if representation of such
Article 7 Indemnified Party by the counsel retained by the Article 7
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Article 7 Indemnified Party and any other party
represented by such counsel in such proceeding. No Article 7 Indemnifying Party,
in the defense of any such claim or litigation shall, except with the consent of
each Article 7 Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Article 7 Indemnified Party of a
release from all liability in respect of such claim or litigation, and no
Article 7 Indemnified Party shall consent to entry of any judgment or settle
such claim or litigation without the prior written consent of the Article 7
Indemnifying Party (which shall not be unreasonably withheld).
(c) If the indemnification provided for in Section 8.7(b) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
Article 7 Indemnified Party in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Article 7 Indemnified Party thereunder, shall contribute to the amount paid
or payable by such Article 7 Indemnified Party as a result of such losses,
claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Investors, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Investors in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable consideration.
8.8. Information by Holder. Each Holder including Registrable Shares in
any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
8.9. Limitations on Subsequent Registration Rights. The Company shall not,
without the prior written consent of 51% of the outstanding Class A Preferred
Stock voting together as a class, enter into any agreement other than this
Agreement with any holder or prospective holder to include securities of the
Company in any Registration Statement.
9. BROKERS' FEE. The Company represents and warrants that no liabilities
for brokerage commissions, finders' fees and the like have been incurred in
connection with the financing described in this Agreement. The Company hereby
agrees to indemnify and hold the Investors harmless against and in respect of
any claim for brokerage commissions, finders' fees or the like relating to this
Agreement or the transactions contemplated hereby.
10. REMEDIES. (a) The Company agrees to indemnify each holder of any
Security (including such holder's respective directors, officers, partners,
employees and agents) and each person who controls such holder within the
meaning of Section 15 of the Securities Act (collectively the "INDEMNITEES" and
individually an "INDEMNITEE") to the full extent permitted by law against all
claims, losses, damages, expenses and liabilities, including any amount paid in
settlement of any action, suit, claim or proceeding and all legal and
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<PAGE> 49
other expenses reasonably incurred in investigating or defending against the
same ("Losses"), arising out of any breach of any representation and warranty
made by the Company herein hereof.
(b) In addition, the Company agrees to indemnify each Indemnitee from and
against any and all Losses, to which they, or any of them, may become subject by
reason of, in their capacity as or as a result of any action taken or omitted to
be taken by them as a security holder, director, agent, representative or
controlling person of the Company, including, without limitation, any and all
Losses under the federal securities laws or other federal or state statutory law
or regulation, at common law or otherwise, which relates directly or indirectly
to the purchase, sale or ownership of any securities of the Company or to any
fiduciary obligation owed with respect thereto, except for Losses arising out of
any Indemnitee's gross negligence, willful misconduct or bad faith.
(c) If the indemnification provided for in Section 10(b) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities
referred to therein, then the Company, in lieu of indemnifying such Indemnitee
thereunder, shall contribute to the amount paid or payable by such Indemnitee as
a result of such losses, claims, damages, expenses or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Investors, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Investors in connection with the
action or inaction which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable consideration.
(d) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 10, such person (the "INDEMNIFIED PARTY") shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing promptly after such indemnified party has
actual knowledge of any claim as to which indemnity may be sought provided
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 10. In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them as expressed by opinion of counsel. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(e) In the event indemnification arises hereunder as a result of a third
party claim against the indemnified party, no indemnification shall be made
pursuant to this Section 10 until such time as the indemnifying party shall have
been finally adjudicated (including the exhaustion of all appeals) or otherwise
bound to be liable hereunder to such third party; provided, however, that all
legal and other expenses reasonably incurred in investigating or defending such
claim shall be paid by the indemnifying party at the time incurred by the
indemnified party.
(f) The indemnification and contribution provided for in this Section 10
will remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnitee or any officer, director, employee, agent or
controlling person of the Indemnitee.
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(g) Each party hereto acknowledges that the other parties hereto shall not
have an adequate remedy in the event that this Agreement is breached and that
the non-breaching parties may suffer irreparable damage and injury in such
event, and that, in addition to any other available rights and remedies, the
non-breaching parties shall be entitled to an injunction restricting the
breaching party or parties, as the case may be, from committing or continuing
any violation of this Agreement.
11. AMENDMENTS AND WAIVERS. For the purposes of this Agreement and all
agreements, documents and instruments executed pursuant hereto or thereto,
except as otherwise specifically set forth herein or therein, no course of
dealing between the Company and the Investors and no delay on the part of any
party hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived or amended otherwise than by a written instrument
signed by the party so waiving or amending such covenant or other provision;
provided, however, that except as otherwise provided herein or therein,
amendments to this Agreement shall require and shall be effective upon the
receipt of the written consent of: (a) the Company, (b) Investors holding at
least sixty-six and two-thirds percent of the Securities; provided, further,
that except as otherwise provided herein or therein, compliance with any term,
covenant, condition or provision set forth herein may be waived (either
generally or in a particular instance and either retroactively or prospectively)
by a consent or consents in writing signed by the party or parties whose rights
are being waived and in the event the Investors' rights are being waived, the
consent must be signed by Investors holding at least sixty-six and two-thirds
percent of the Securities. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Securities at the time
outstanding, each future holder of all such Securities, and the Company.
Notwithstanding any of the above, the conditions to Closing set forth in Section
2 of this Agreement may only be waived by each Investor itself.
12. SURVIVAL OF COVENANTS; ASSIGNABILITY OF RIGHTS. (a) All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished in connection therewith and herewith shall be deemed material and
to have been relied upon by the Investors, and, except as provided otherwise in
this Agreement, shall survive the delivery of the Securities and shall bind the
Company's successors and assigns, whether so expressed or not, and, except as
provided otherwise in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of each Investor's
successors and assigns and to transferees of the Securities, whether so
expressed or not.
(b) The representations and warranties of the Investors made in Section 6
herein shall be deemed material and to have been relied upon by the Company and,
except as provided otherwise in this Agreement, shall survive the delivery of
the Securities and shall bind each Investor's successors and assigns, whether so
expressed or not and, except as provided otherwise in this Agreement, all such
covenants, agreements, representations and warranties shall inure to the benefit
of the Company's successors and assigns whether so expressed or not.
13. GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of
.
14. SECTION HEADINGS. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision hereof.
15. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
16. NOTICES AND DEMANDS. Any notice or demand which, by any provision of
this Agreement or any agreement, document or instrument executed pursuant hereto
or thereto, except as otherwise provided therein, is required or provided to be
given shall be deemed to have been sufficiently given or served for all purposes
three days after being sent by first class mail, postage and charges prepaid,
hand delivery, or Federal Express or similar courier service to the following
addresses: if to the Company, at its mailing address set out above, or at any
other address designated by the Company to the Investors in writing; if to any
Investor at its
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<PAGE> 51
mailing address set forth in Schedule 6, or at any other address (or facsimile
number) designated by such Investor to the Company. Any notice given by
facsimile pursuant to this Section 16 shall be followed by written notice
delivered by Federal Express or similar courier service.
17. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
18. DEFINITIONS OF TERMS. As used in this Agreement, the following terms
shall have the following meanings or the meanings ascribed to them elsewhere in
this Agreement:
<TABLE>
<CAPTION>
DEFINITION SECTION
- ---------- -------
<S> <C>
Agreement................................................... Preamble
Investors................................................... Preamble
Company..................................................... Preamble
Purchased Shares............................................ 1.1
Class A Preferred Stock..................................... 1.1
Warrants.................................................... 1.1
Common Stock................................................ 1.1
Securities.................................................. 1.1
Purchase Price.............................................. 1.2
Closing..................................................... 1.3
Closing Date................................................ 1.3
Subsidiary.................................................. 4.1
Lien........................................................ 4.2
Audited Financial Statements................................ 4.6
Interim Financial Statements................................ 4.6
Financial Statements........................................ 4.6
ERISA....................................................... 4.9
Real Property............................................... 4.17
FCC Licenses................................................ 4.20
Principal Holder............................................ 5.1
Holder...................................................... 8.1
Registration Statement...................................... 8.1
Registrable Shares.......................................... 8.1
Article 7 Indemnified Party................................. 8.7
Article 7 Indemnifying Party................................ 8.7
Indemnitees................................................. 10
Losses...................................................... 10
indemnified party........................................... 10
indemnifying party.......................................... 10
</TABLE>
Commission. The term "COMMISSION" shall mean the Securities and
Exchange Commission, or any other federal agency at the time administering
the Securities Act.
Communications Act. The term "COMMUNICATIONS ACT" shall mean the
Communications Act of 1934, as amended, or any similar law then in force,
and the rules, regulations and policies thereunder.
Encumbrance. The term "ENCUMBRANCE" shall mean any mortgage, deed of
trust, pledge, security interest, encumbrance, option, right of first
refusal, agreement of sale, adverse claim, encroachment, right-of-way,
burden or charge of any kind or nature whatsoever or any item similar or
related to the foregoing.
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Environmental Law. The term "ENVIRONMENTAL LAW" shall mean any
applicable federal, state, or local statutes, rules, regulations,
ordinances, and settlement agreements, consent decrees, or orders of any
governmental entity relating to public health and safety or protection of
the environment, including common law nuisance, property damage and similar
common law theories.
Exchange Act. The term "EXCHANGE ACT" shall mean the Securities
Exchange Act of 1934, as amended.
FCC. The term "FCC" shall mean the Federal Communications Commission.
Key Employees. The term "KEY EMPLOYEES" shall mean the Chairman, the
President, any Vice President and the Treasurer of the Company, or any
person who is not an officer of the Company but is in charge of one or more
of the following functions: sales, business development, operations or any
other position or employee so designated by the Board of Directors of the
Company.
Knowledge The terms "KNOWLEDGE" or similar terms when applied to the
Company, means the knowledge of its Key Employees, officers or directors
after reasonable inquiry.
Material Adverse Effect The term "MATERIAL ADVERSE EFFECT" shall mean
any event, occurrence or condition, if the result thereof, either singly or
in the aggregate would have a material and adverse effect upon the
business, operations, properties, assets, prospects, profitability or
condition (financial or otherwise) of the Company and its Subsidiaries
taken as a whole.
Person. The term "PERSON" shall mean any corporation, association,
partnership, joint venture, organization, business or individual.
Regulated Material. The term "REGULATED MATERIAL" shall mean any
toxic or polluting substance or waste, any pollutant or contaminate, any
hazardous substance as defined by any Environmental Law and any other
material regulated by any applicable Environmental Law, including, without
limitation, polychlorinated biphenyls, petroleum, petroleum-related
material, crude oil or any fraction thereof.
Securities Act. The term "SECURITIES ACT" shall mean the Securities
Act of 1933, as amended.
19. EXPENSES. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement. The Company shall reimburse the Investors for the legal fees,
expenses, and disbursements, of special counsel for the Investors incurred in
connection with the negotiation, execution, delivery and performance of this
Agreement and the preparation and delivery of any amendments, waivers or
consents in connection with this Agreement or the transactions contemplated
hereby, provided that such fees, expenses and disbursements shall not exceed
$ .
20. ENTIRE AGREEMENT. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with respect to the subjects hereof and thereof.
A-19
<PAGE> 53
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
<TABLE>
<S> <C>
Preferred Networks, Inc. PNC Capital Corp.
By: ------------------------------------------------- By: -------------------------------------------------
Name: --------------------------------------------- Name: ---------------------------------------------
Centennial Fund IV, L.P. Fleet Equity Partners
By: Centennial Holdings V, L.P.
its General Partner
By: ------------------------------------------------- By: -------------------------------------------------
Name: --------------------------------------------- Name: ---------------------------------------------
Saugatuck Capital III Primus Venture Fund III
By: ------------------------------------------------- By: -------------------------------------------------
Name: --------------------------------------------- Name: ---------------------------------------------
</TABLE>
A-20
<PAGE> 54
SCHEDULES
<TABLE>
<S> <C> <C>
4.3 -- Capitalization
4.8 -- Litigation
4.15 -- Material Contracts
4.16 -- Title to Assets
5.11 -- Permitted Redemptions
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Schedule of Investors
Exhibit B -- Form of Warrant
Exhibit C -- Certificate of Amendment
Exhibit D -- Opinion of Company Counsel
Exhibit E -- Certificate of Incorporation
</TABLE>
A-21
<PAGE> 55
EXHIBIT A
<TABLE>
<CAPTION>
AGGREGATE
PURCHASE PRICE
INVESTORS FOR SECURITIES PURCHASED SHARES WARRANTS
- --------- -------------- ---------------- ---------
<S> <C> <C> <C>
Centennial Fund IV..................................... 4,700,000 3,133,333 3,603,333
Fleet Equity Partners.................................. 5,100,000 3,400,000 3,910,000
PNC Capital Corp....................................... 1,700,000 1,133,333 1,300,333
Saugatuck Capital III.................................. 1,800,000 1,200,000 1,303,333
Primus Venture Fund III................................ 1,700,000 1,133,333 1,133,333
</TABLE>
A-22
<PAGE> 56
PREFERRED NETWORKS, INC.
TERM NOTE
$ Atlanta, Georgia
April , 1997
FOR VALUE RECEIVED, the undersigned, Preferred Networks, Inc., a Delaware
corporation (herein called the "Company"), hereby promises to pay to the order
of (the "Holder") with an address of , the
principal sum of ($ ) together with interest thereon at a
rate of 10% per annum on the earlier of June 30, 1997 or the closing under the
$15,000,000 financing more fully described in the Term Sheet dated April 9, 1997
between the Company, the Holder and the other parties thereto. After the
principal hereof shall have become due, the rate of interest in effect on such
overdue principal amount shall be increased to a rate (the "default rate") of
12 1/2% until such principal has been paid in full. Interest not paid when due
shall be added to principal and shall accrue interest at the default rate of
interest.
Payment of both principal and interest are to be received at the office of
Holder at the address set forth above in lawful money of the United States of
America in funds immediately available at such office.
This Term Note may not be prepaid in full or in part unless at the time of
such prepayment, the Company also prepays all of the outstanding principal and
interest under each of the Term Notes issued by the Company on the date hereof
in the aggregate principal amount of $10,000,000.
The unpaid balance of the Term Note outstanding and interest accrued
thereon and all other obligations and liabilities of the Company hereunder shall
be immediately due and payable, without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived if (a) there shall be
instituted a court proceeding seeking a decree or order for relief in respect of
the Company in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or any Subsidiary of the Company or for any substantial
part of its property, or for the winding-up or liquidation of its affairs if
such proceeding shall remain undismissed or unstayed and in effect for a period
of sixty (60) days, or such court shall enter a decree or order granting the
relief sought in such proceeding; or (b) the Company shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or for any substantial
part of its property, or shall make a general assignment for the benefit of
creditors, or shall take any corporate action in furtherance of, or indicating
its consent to, approval of or acquiescence in, any of the foregoing.
The undersigned waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Term Note and all rights of set-off against
amounts owed under this Term Note. In any action on this Term Note, the Holder
or its assignee need not produce or file the original of this Term Note, but
need only produce or file a photocopy of this Term Note certified by the Holder
or such assignee to be a true and correct copy of this Term Note. No delay or
failure on the part of the Holder of this Term Note to exercise any right under
this Term Note shall operate as a waiver of that or any other right of the
Holder of this Term Note and no right or remedy of the Holder of this Term Note
shall be deemed abridged or modified except by an instrument in writing signed
by the Holder of this Term Note.
The Company hereby represents and warrants that it has the corporate power
and authority to execute, deliver and carry out this Term Note and to make the
borrowing provided for herein and that the execution and delivery by the Company
of this Term Note and compliance by the Company with the terms hereof will not
conflict with or result in a breach of any of the terms, conditions or
provisions of the articles or certificate of incorporation or by-laws of the
Company or any law or any agreement or instrument to which the Company is a
party or by which it or any of its properties is bound or subject, or constitute
a default thereunder.
A-23
<PAGE> 57
If the Holder of this Term Note institutes any action to enforce collection
of this Term Note, there shall become due and payable from the Company, in
addition to the unpaid principal of and interest on this Term Note, all costs
and expenses of that action (including, but not limited to, reasonable
attorneys' fees) and the Holder of this Term Note shall be entitled to judgment
for all such additional amounts.
THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS TERM NOTE OR THE
TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE; AND THE COMPANY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT THE HOLDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.
The Company may not assign any of its rights or obligations under this Term
Note without the express written consent of the Holder of this Term Note.
<TABLE>
<S> <C>
ATTEST: Preferred Networks, Inc.
By: By:
- ----------------------------------------------------- -----------------------------------------------------
Title: Title:
- ----------------------------------------------------- -----------------------------------------------------
[Corporate Seal]
</TABLE>
A-24
<PAGE> 58
EXHIBIT B
PREFERRED NETWORKS, INC.
1995 STOCK OPTION PLAN
(AS AMENDED)
1. PURPOSE
This PREFERRED NETWORKS, INC. 1995 STOCK OPTION PLAN (the or this "Plan"),
as amended, provides for the grant of Stock Options and stock appreciation
rights ("SARs") to employees and consultants of Preferred Networks, Inc., a
Delaware corporation (the "Company"), and its present and future subsidiaries (a
"Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), in order to advance the interests of the Company
and its subsidiaries through the motivation, attraction and retention of key
personnel and consultants.
2. INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS
The Stock Options granted under the Plan may be either Incentive Stock
Options ("ISOs") which are intended to be "Incentive Stock Options" as that term
is defined in Section 422 of the Code; or non-qualified stock options ("NSOs")
which are intended to be options that do not qualify as "Incentive Stock
Options" under Section 422 of the Code.
All Stock Options shall be ISOs unless the Option Agreement clearly
designates the Stock Options granted thereunder, or a specified portion thereof,
as NSOs. Subject to the other provisions of the Plan, a Participant may receive
ISOs and NSOs at the same time, provided that the ISOs and NSOs are clearly
designated as such, and the exercise of one does not affect the exercise of the
other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
As used herein "Stock Incentives" refers to ISOs, NSOs and SARs.
3. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company or
a committee (the "Committee") of two or more members of the Board of Directors.
As used herein, any reference to the Committee shall be deemed to refer to
either the Board or the Committee, whichever is appropriate. The Committee shall
have full authority to administer the Plan, including authority to interpret and
construe any provision of the Plan and any Stock Incentives granted thereunder,
and to adopt such rules and regulations for administering the Plan as it may
deem necessary in order to comply with the requirements of the Code or in order
that Stock Options that are intended to be ISOs will be classified as ISOs under
the Code, or in order to conform to any regulation or to any law or change in
any law or regulation applicable thereto.
All actions taken and all determinations and interpretations made by the
Committee in good faith shall be final and binding upon all Participants, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, and all members of the Committee shall, in
addition to their rights as directors, be fully protected by the Company with
respect to any such action, determination or interpretation.
4. CERTAIN DEFINITIONS
4.1 "Common Stock." Common Stock means authorized but unissued or
reacquired Common Stock of the Company.
4.2 "Corporate Transaction." "Corporate Transaction" shall mean one or
more of the following transactions, unless persons who were holders of
securities issued by the Company which are outstanding immediately prior to such
transaction are (based on such holdings of securities of the Company) holders of
<PAGE> 59
more than 50% of the outstanding voting common stock of the surviving or
acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger or consolidation; (ii) a share exchange (with or
without a stockholder vote) in which 95% or more of the outstanding capital
stock of the Company is exchanged for capital stock of another corporation; or
(iii) the sale, transfer or other disposition of all or substantially all of the
Company's assets. In determining whether more than 50% of the voting common
stock is so held: (i) convertible preferred stock shall be calculated on an "as
converted" basis; (ii) convertible debt shall be calculated on an "as exchanged"
basis; and (iii) warrants, options and other purchase rights shall not be
counted for any purpose.
4.3 "Employee." An Employee is an employee of the Company or any
Subsidiary.
4.4 "Fair Market Value." If the Common Stock is traded on the Nasdaq
National Market, the Fair Market Value of a share of Common Stock on any date
shall be the closing price, as quoted on the Nasdaq National Market for the date
in question, or, if the Common Stock is listed on a national stock exchange, the
closing price on such exchange on the date in question. If the Common Stock is
not traded on the Nasdaq National Market or on such an exchange, the Fair Market
Value of a share of Common Stock on any date, or the method for determining such
value, shall be determined in good faith by the Committee.
4.5 "Participant." A Participant is an Employee or consultant of the
Company or any Subsidiary to whom a Stock Incentive is granted.
4.6 "Stock Option." A Stock Option is the right granted under the Plan to
an Employee or consultant to purchase, at such time or times and at such price
or prices (the "Option Price") as are determined by the Committee, the number of
shares of Common Stock determined by the Committee.
5. ELIGIBILITY AND PARTICIPATION
Grants of ISOs, NSOs and SARs may be made to Employees of the Company or
any Subsidiary. Grants of NSOs and SARs may be made to consultants to the
Company or any Subsidiary. The Committee shall from time to time determine the
Participants to whom Stock Incentives shall be granted, the number of shares of
Common Stock subject to each Stock Incentive and the terms and provisions of all
Stock Incentives, all as provided in this Plan.
6. TERMS OF STOCK OPTIONS
6.1 Maximum Number. The maximum aggregate number of shares of Common Stock
that may be issued pursuant to Stock Incentives shall be 2,374,450 shares. If a
Stock Option or SAR expires or terminates for any reason without being exercised
in full, the unpurchased shares of Common Stock subject to such Stock Option or
the shares to which the SAR is not exercised shall again be available for
purposes of the Plan. To the extent that the aggregate Fair Market Value
(determined as of the time the ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by any individual during any
calendar year under all plans of the Company and its parent and Subsidiaries
exceeds $100,000, such options shall be treated as options which are not ISOs.
During any calendar year, no employee or consultant shall be granted any Stock
Incentives that relate to more than 50,000 shares of Common Stock.
6.2 Price. The Option Price per share of any ISO shall be not less than
the Fair Market Value of a share of Common Stock on the date on which the Stock
Option is granted. With respect to each grant of a NSO, the Option Price per
share shall not be less than 50% of the fair market value of a share of Common
Stock on the date on which the Stock Option is granted. If an ISO is granted to
an Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or Subsidiary
of the Company, the Option Price per share of such ISO shall be at least 110% of
the Fair Market Value of the Common Stock subject to the ISO at the time such
ISO is granted, and such ISO shall not be exercisable after five years after the
date on which it was granted. Each Stock Option shall be evidenced by a written
agreement (an "Option Agreement") containing such terms and provisions as the
Committee may determine, subject to the provisions of the Plan.
B-2
<PAGE> 60
6.3 Time of Exercise. Subject to the provisions of the Plan, the
Committee, in its discretion, shall determine the time when a Stock Incentive,
or a portion of a Stock Incentive, shall become exercisable, and the time when a
Stock Incentive, or a portion of a Stock Incentive, shall expire. Each Stock
Option granted under the Plan shall be exercisable at such time or times, or
upon the occurrence of such event or events, including, without limitation, the
surrender of another Stock Option or stock award, and in such amounts, as the
Committee shall specify in the particular Option Agreement, except that no Stock
Option when initially granted shall provide that it may be exercisable to any
extent within the first six months following the date of grant. Notwithstanding
the foregoing, subsequent to the grant of a Stock Option, the Committee, at any
time before complete termination of such Stock Option, may accelerate the time
or times at which such Stock Option may be exercised in whole or in part. The
Company may also require as a condition of exercise that the Participant will
agree, if requested by the Company in connection with a public offering of the
Company's securities, to adhere to lock-up arrangements between the Company and
an underwriter involved in such public offering.
6.4 Term. A Stock Option shall have such term as the Committee shall
determine, except that no ISO shall be exercisable after the expiration of ten
years from the date such Stock Option is granted or five years if required by
section 422 of the Code or any successor provision.
6.5 Payment. Payment for all shares purchased pursuant to exercise of a
Stock Option shall be made in cash or, if the Option Agreement so provides, by
delivery of Common Stock of the Company valued at its Fair Market Value on the
date of delivery. Subject to the provisions of section 6.7, such payment shall
be made at the time that the Stock Option or any part thereof is exercised, and
no shares of Common Stock shall be issued or delivered until full payment
therefor has been made.
6.6 Withholding. Whenever the Company is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the Participant to remit to the Company an amount sufficient to satisfy
any federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares. If a Participant surrenders
shares of Common Stock acquired pursuant to the exercise of an ISO in payment of
the option price of a Stock Option and such surrender constitutes a
disqualifying disposition for purposes of obtaining ISO treatment under the
Code, the Company shall have the right to require the Participant to remit to
the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan payments are to be made in
cash, such payments shall be net of an amount sufficient to satisfy any federal,
state and local withholding tax requirements. A recipient may elect with respect
to any Stock Option (other than an ISO) or SAR which is paid in whole or part in
stock to surrender or authorize the Company to withhold shares of Common Stock
(valued at their fair market value on the date of surrender or withholding of
such shares) in satisfaction of all such withholding requirements in accordance
with any rules established by the Committee, including such rules required to
satisfy Section 16 of the Securities Exchange Act of 1934 (the "Act"), or any
successor provision.
6.7 Special Procedure for Certain Credit Assisted Transactions. To the
extent not inconsistent with the other terms and conditions of the particular
Option Agreement or any other agreement between the Participant and the Company
and to the extent not inconsistent with the provisions of section 422 of the
Code or any successor provision or the provisions of Rule 16b-3 or any successor
rule, if applicable, any Participant desiring to obtain credit from a broker,
dealer or other "creditor" as defined in Regulation T issued by the Board of
Governors of the Federal Reserve System (provided such broker, dealer or
creditor has been approved by the Committee) to assist in exercising a Stock
Option may deliver to such creditor a written exercise notice executed by such
holder with respect to such Stock Option, together with written instructions to
the Company to deliver the Common Stock issued upon such exercise of the Stock
Option to the creditor for deposit into an account designated by the
Participant. Upon receipt of such exercise notice and instructions in a form
acceptable to the Company, the Company shall confirm to the creditor that it
will deliver to the creditor on behalf of the Participant the Common Stock
issued upon such exercise of the Stock Option and covered by such instructions
promptly following receipt of the exercise price from the creditor. To the
extent not inconsistent with the provisions of section 422 of the Code or any
successor provision or the provisions of Rule 16b-3 or any successor rule, if
applicable, upon written request, the Company may in its discretion, but
B-3
<PAGE> 61
shall not be obligated to, deliver to the creditor on behalf of the Participant
shares of Common Stock resulting from such a credit assisted exercise prior to
receipt of the exercise price for such shares if the creditor has delivered to
the Company, in addition to the other documents contemplated by this section
6.7, the creditor's written agreement to pay the Company such exercise price in
cash within three days after delivery of such shares. The credit assistance
contemplated by this section 6.7 may include a margin loan by the creditor
secured by the Common Stock purchased upon exercise of a Stock Option or an
immediate sale of some or all of such Common Stock by the creditor to obtain or
recover the exercise price which the creditor has committed to pay to the
Company on behalf of the Participant.
6.8 Termination of Employment or Death. Upon any termination of employment
of the Participant for any reason other than death or disability, except as
otherwise provided in the particular Option Agreement, and except as otherwise
provided in section 16(a) with respect to termination for cause, any Stock
Option held at the date of such employment termination may, to the extent
exercisable, be exercised within three months after the date of such employment
termination. Upon any termination of employment of the Participant by reason of
disability, within the meaning of section 22(e)(3) of the Code or any successor
provision, except as otherwise provided in the particular Option Agreement, any
Stock Option held at the date of such employment termination may, to the extent
exercisable, be exercised within twelve months after the date of such employment
termination. If the Participant dies, except as otherwise provided in the
particular Option Agreement, any Stock Option held at the date of death may, to
the extent exercisable, be exercised by a legatee or legatees of the Participant
under the Participant's last will, or by the Participant's personal
representatives or distributees, within twelve months after the Participant's
death. This section 6.8 shall not extend the term of the Stock Option specified
pursuant to section 6.4. For purposes of this section 6.8, employment of a
Participant shall not be deemed terminated so long as the Participant is
employed by the Company, by a Subsidiary or by another corporation (or a parent
or subsidiary corporation of such other corporation) which has assumed the Stock
Option of the Participant in a transaction to which section 424(a) of the Code
or any successor provision is applicable. For purposes of this section 6.8, the
extent to which a Stock Option is exercisable shall be determined as of the date
of termination of employment. This section 6.8 shall not apply to a consultant
unless, and only to the extent, determined by the Committee and specified in the
particular Option Agreement.
6.9 Changes in Capitalization; Merger; Liquidation. The number of shares
of Common Stock as to which Stock Options and SARs may be granted, the number of
shares covered by each outstanding Stock Option and SAR, and the price per share
of each outstanding Stock Option or used in determining the amount payable upon
exercise of each outstanding SAR shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision or combination of shares or the payment of a stock dividend
in shares of Common Stock to holders of outstanding shares of Common Stock or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company. If the Company shall be the surviving
corporation in any merger or consolidation (other than as a subsidiary of
another corporation), recapitalization, reclassification of shares or similar
reorganization, the holder of each outstanding Stock Option shall be entitled to
purchase, at the same times and upon the same terms and conditions as are then
provided in the Stock Option, the number and class of shares of stock or other
securities to which a holder of the number of shares of Common Stock subject to
the Stock Option at the time of such transaction would have been entitled to
receive as a result of such transaction, and a corresponding adjustment shall be
made in connection with determining the value of each outstanding SAR. In the
event of any such changes in capitalization of the Company, the Committee may
make such additional adjustments in the number and class of shares of Common
Stock or other securities with respect to which outstanding Stock Options and
SARs are exercisable and with respect to which future Stock Incentives may be
granted as the Committee in its sole discretion shall deem equitable or
appropriate, subject to the provisions of section 16 hereof, to prevent dilution
or enlargement of rights. Any adjustment pursuant to this section 6.9 may
provide, in the Committee's discretion, for the elimination of any fractional
shares that might otherwise become subject to any Stock Incentive without
payment therefor. In the event of a dissolution or liquidation of the Company, a
sale of all or substantially all of the stock or all or substantially all of the
assets of the Company, a direct or indirect merger or consolidation in which the
Company is not the surviving corporation or survives only as a subsidiary of
another corporation, or any other transaction having a similar
B-4
<PAGE> 62
result or effect, each outstanding Stock Incentive shall terminate except to the
extent that another corporation assumes such Stock Incentive or substitutes
another stock incentive therefor. In the event of a change of the Company's
shares of Common Stock with $0.001 par value into the same number of shares with
no par value or a different par value, the shares resulting from any such change
shall be deemed to be the Common Stock within the meaning of the Plan. Except as
expressly provided in this section 6.9, the holder of a Stock Option or SAR
shall have no rights by reason of any subdivision or combination of shares of
Common Stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of Common Stock of any class or by
reason of any dissolution, liquidation, merger or consolidation or distribution
to the Company's shareholders of assets or stock of another corporation. Except
as expressly provided herein, any issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to any Stock Incentive.
The existence of the Plan and the Stock Incentives granted pursuant to the Plan
shall not affect in any way the right or power of the Company to make or
authorize any adjustment, reclassification, reorganization or other change in
its capital or business structure, any merger or consolidation of the Company,
any issue of debt or equity securities having preferences or priorities as to
the Common Stock or the rights thereof, the dissolution or liquidation of the
Company, any sale or transfer of all or any part of its business or assets, or
any other corporate act or proceeding.
7. SARS
Subject to the following provisions, all SARs shall be in such form and
upon such terms and conditions as the Committee in its discretion may from time
to time determine.
7.1 Award. SARs may be granted in connection with all or any portion of a
previously or contemporaneously granted Stock Option or not in connection with a
Stock Option. An SAR shall entitle the grantee to receive upon exercise the
excess of (a) the fair market value of a specified number of shares of the
Common Stock at the time of exercise over (b) a specified price which shall be
not less than the Stock Option exercise price in the case of an SAR granted in
connection with a previously or contemporaneously granted Stock Option, or in
the case of any other SAR not less than 50% of the Fair Market Value of the
Common Stock at the time the SAR was granted.
7.2 Terms. An SAR shall be granted for a period of not less than one year
nor more than ten years, and shall be exercisable in whole or in part, at such
time or times during its term and subject to terms and conditions as shall be
prescribed by the Committee at the time of grant and to all of the following:
(a) No SAR shall be exercisable in whole or in part during the first
six months of its term. Notwithstanding the foregoing, subsequent to the
grant of an SAR, the Committee, at any time before complete termination of
such SAR, may accelerate the time or times at which such SAR may be
exercised in whole or in part.
(b) Except as otherwise provided in the particular SAR agreement, SARs
will be exercisable only during a Participant's employment by the Company
or one of its Subsidiaries, or within thirty days following the termination
of such employment, except as otherwise provided in section 16(a) with
respect to termination for cause. Except as otherwise provided in the
particular SAR agreement, if the grantee of an SAR dies, the grantee's
legal successor shall have the right to exercise the SAR during its term
and not longer than thirty days after death of the grantee. SARs may
contain such other limitations with respect to the time when such rights
may be exercised as the Committee may determine and such limitations may
vary. This section 7.2(b) shall not apply to a consultant unless, and only
to the extent, determined by the Committee and specified in the particular
SAR agreement.
7.3 Payment. Upon exercise of an SAR, payment shall be made in cash or
Common Stock (at Fair Market Value on the date of exercise) as provided in the
particular SAR agreement or, in the absence of such provision, as the Committee
may determine.
B-5
<PAGE> 63
8. SPECIAL PROVISIONS FOR CERTAIN SUBSTITUTE OPTIONS
Any Stock Option issued by the Company pursuant to the Plan in substitution
for an option previously issued by another entity, which substitution occurs in
connection with a transaction to which section 424(a) of the Code or any
successor provision is applicable, may provide for an exercise price computed in
accordance with such Code section and the regulations thereunder and may contain
such other terms and conditions as the Committee may prescribe to cause such
substitute Stock Option to contain as nearly as possible the same terms and
conditions (including the applicable vesting and termination provisions) as
those contained in the previously issued option being replaced thereby.
9. NO CONTRACT OF EMPLOYMENT; LEAVES OF ABSENCE
Nothing in this Plan shall confer upon a Participant the right to continue
in the employ of the Company or any Subsidiary, nor shall it interfere in any
way with the right of the Company, or any such Subsidiary, to discharge a
Participant at any time for any reason whatsoever, with or without cause.
Nothing in this Plan or any Stock Incentive shall effect any rights or
obligations of the Company or any Participant under any written contract of
employment. Except as otherwise provided by law or regulation with respect to
ISOs, the Committee may in its discretion determine whether any leave of absence
constitutes a termination of employment for purposes of the Plan and the impact,
if any, of such leave of absence on Stock Incentives previously granted to a
holder who takes a leave of absence.
10. NO RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in section
6.9, no adjustment shall be made in the number of shares of Common Stock issued
to a Participant, or in any other rights of the Participant upon exercise of a
Stock Option by reason of any dividend, distribution or other right granted to
stockholders for which the record date is prior to the date of exercise of the
Participant's Stock Option.
11. COMPLIANCE WITH CODE; COMPLIANCE WITH RULE 16B-3
All ISOs granted under this Plan are intended to comply with section 422
and, to the extent applicable, section 424 of the Code or any successor
provision, and all provisions of this Plan and all ISOs granted hereunder shall
be construed in such manner as to effectuate that intent. With respect to
persons subject to Section 16 of the Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or any successor
provision. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
12. ASSIGNABILITY
No Stock Incentive granted under this Plan shall be assignable or
transferable by a Participant, other than by will or the laws of descent and
distribution, and Stock Incentives issued to a Participant are exercisable
during his lifetime only by him.
13. CORPORATE TRANSACTIONS
At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction, and, unless otherwise provided in the particular Stock
Option or SAR agreement, the vesting schedules of all Stock Incentives shall be
accelerated so that all of the Stock Incentives outstanding under this Plan
immediately prior to the consummation of the Corporate Transaction shall for all
purposes under this Plan, become exercisable as of such time; provided however,
that any exercise of such Stock Incentive shall be conditioned upon the
consummation of such transaction. All Stock Incentives, to the extent not
previously exercised, shall terminate upon the consummation of such Corporate
Transaction, except to the extent that another corporation assumes such Stock
Incentives or substitutes other stock incentives therefor.
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<PAGE> 64
14. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to stockholders of the Company for approval shall be
construed as creating any limitations on the power or authority of the Board of
Directors to adopt such other or additional incentive or other compensation
arrangements of whatever nature as the Board of Directors may deem appropriate
or preclude or limit the continuation of any other plan, practice or arrangement
for the payment of compensation or fringe benefits to Employees generally, or to
any class or group of Employees, which the Company or a Subsidiary has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
15. RESTRICTIONS ON DELIVERY AND SALE OF SHARES
Each Stock Incentive granted under the Plan is subject to the condition
that if at any time the Committee, in its discretion, shall determine that the
listing, registration or qualification of the shares covered by such Stock
Incentive upon any securities exchange or under any state or federal law is
necessary or desirable as a condition of or in connection with the granting of
such Stock Incentive or the purchase or delivery of shares thereunder, the
delivery of any or all shares pursuant to such Stock Incentive may be withheld
unless and until such listing, registration or qualification shall have been
effected. If a registration statement is not in effect under the Securities Act
of 1933 or any applicable state securities laws with respect to the shares of
Common Stock purchasable or otherwise deliverable under Stock Incentives then
outstanding, the Committee may require, as a condition of exercise of any Stock
Incentive, that the Participant represent, in writing, that the shares received
pursuant to the Stock Incentive are being acquired for investment and not with a
view to distribution and agree that the shares will not be disposed of except
pursuant to an effective registration statement, unless the Company shall have
received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may endorse on certificates representing shares delivered
pursuant to a Stock Incentive such legends referring to the foregoing
representations or restrictions or any other applicable restrictions on resale
as the Company, in its discretion, shall deem appropriate.
16. TERMINATION AND AMENDMENT OF THE PLAN
The Plan may be terminated, modified or amended by the stockholders or the
Board of Directors of the Company; provided, however, that:
(a) no such termination, modification or amendment without the consent
of the holder of a Stock Incentive shall adversely affect his rights under
such Stock Incentive, except the Committee may terminate a particular Stock
Incentive if the employment of the holder of the Stock Incentive is
terminated for cause; and
(b) any modification or amendment which would require shareholder
approval in order for the Plan to continue to meet the requirements of Rule
16b-3 or any successor rule, if Rule 16b-3 or any successor rule is
applicable, or any other legal or regulatory requirements, shall be
effective only if it is approved by the shareholders of the Company in the
manner required thereby.
17. EFFECTIVE DATE
This Plan was adopted by the Board of Directors and became effective on
August 23, 1995, subject to the approval of the Company's stockholders within
twelve months thereafter. All ISOs must be granted within ten years from August
23, 1995.
B-7
<PAGE> 65
EXHIBIT C
PLAN AND AGREEMENT OF MERGER
BY WHICH
PREFERRED NETWORKS, INC.
MERGES WITH AND INTO
PNI MERGER CORP.
THIS IS A PLAN AND AGREEMENT OF MERGER (this "Plan") by and between
Preferred Networks, Inc., a Delaware corporation (the "Merging Corporation"),
and PNI Merger Corp., a Georgia corporation (the "Georgia Corporation" or the
"Surviving Corporation") (the Merging Corporation and the Surviving Corporation
are hereinafter collectively referred to as the "Constituent Corporations").
BACKGROUND STATEMENT
The Merging Corporation owns one hundred percent of the issued and
outstanding stock of the Georgia Corporation. The Board of Directors of each of
the Constituent Corporations has determined that it is in the best interests of
such corporation and its stockholders that the Merging Corporation merges with
and into the Georgia Corporation for the primary purpose of changing the state
of incorporation of the Merging Corporation from Delaware to Georgia.
PLAN AND AGREEMENT
In consideration of the premises and pursuant to the terms and conditions
hereinafter set forth, the parties to this Plan agree that, in accordance with
the terms of this Plan and the applicable statutes of the States of Delaware and
Georgia, the Constituent Corporations shall make appropriate filings with the
Secretary of State of the States of Delaware and Georgia, the Merging
Corporation shall be merged with and into the Georgia Corporation, and the terms
and conditions of such merger (the "Merger") and the mode of carrying the Merger
into effect shall be as follows:
1. The Merger and Surviving Corporation. At the Effective Time of the
Merger (as hereinafter defined), the Merging Corporation shall be merged
with and into the Georgia Corporation which shall be the Surviving
Corporation after the Merger and which shall continue to exist as a
corporation created and governed by the laws of the State of Georgia under
the name of "Preferred Networks, Inc."
2. Effective Time of the Merger. The Merger shall be effective upon
filing of a Certificate of Merger with the Secretaries of State of Georgia
and Delaware (the "Effective Time").
3. Effect of Merger. At the Effective Time, the Merging Corporation
shall merge with and into the Georgia Corporation, and the separate
existence of the Merging Corporation shall cease. Without limiting any
provisions of applicable law of the State of Georgia or the State of
Delaware, including, without limitation, Georgia Business Corporation Code
sec. 14-2-1106 and Delaware General Corporation Law sec. 259, at the
Effective Time: title to all real estate and other property owned by each
of the Constituent Corporations shall be vested in the Surviving
Corporation without reversion or impairment; the Surviving Corporation
shall have all liabilities of each of the Constituent Corporations; any
proceeding pending against either of the Constituent Corporations may be
continued as if the Merger did not occur or the Surviving Corporation may
be substituted in the proceeding for the Merging Corporation, and the
shares of the Merging Corporation that are to be converted into shares of
the Surviving Corporation shall be so converted and the former holders of
such shares are to be entitled only to the rights provided in this Plan.
<PAGE> 66
4. Manner and Basis of Converting Shares. The manner and basis of
converting shares of the Merging Corporation shall be as follows:
(a) Shares of the Merging Corporation. At the Effective Time, each
issued and outstanding share of the common stock of the Merging
Corporation ("Merging Corporation Common Stock") shall thereupon be
converted into one share of the common stock of the Surviving
Corporation ("Surviving Corporation Common Shares").
(b) Merging Corporation Share Certificates. Following the
Effective Time, the holders of Merging Corporation Common Stock may
surrender to the Surviving Corporation's transfer agent certificates
representing the same, along with a duly executed letter of transmittal
in a form to be provided by the Surviving Corporation's transfer agent.
Upon surrender of the certificates representing Merging Corporation
Stock, the Surviving Corporation shall deliver to the holder of Merging
Corporation Stock Surviving Corporation share certificates in the name
of such holder, representing the Surviving Corporation Common Shares for
which such holder's Merging Corporation Common Stock shall have been
converted as described above.
(c) Deemed Surviving Corporation Shareholders. At the Effective
Time, the stockholders of the Merging Corporation shall thereupon be
deemed to be shareholders of the Surviving Corporation to the extent of
the number of Surviving Corporation Common Shares to which they are
entitled pursuant to this Plan, whether or not certificates for Merging
Corporation Common Stock are surrendered as provided in this Plan. Until
surrendered as provided above, each certificate representing Merging
Corporation Common Stock shall be deemed, for all corporate purposes
(including without limitation the payment of any dividends), to evidence
ownership of the number of Surviving Corporation Common Shares which the
holder of such certificate has become entitled to receive pursuant to
this Plan.
5. Articles of Incorporation. The Articles of Incorporation of the
Georgia Corporation shall be the Articles of Incorporation of the Surviving
Corporation, except that Article I thereof shall be amended to read in its
entirety as follows:
ARTICLE I.
The name of the Corporation is:
Preferred Networks, Inc.
6. Bylaws. The Bylaws of the Georgia Corporation as in effect at the
Effective Time shall continue to be the Bylaws of the Surviving Corporation
until amended as provided in said Bylaws, except that the name of the
Surviving Corporation shall be "Preferred Networks, Inc."
7. Directors and Officers. The persons who are the directors and
officers of the Merging Corporation as of the Effective Time shall be the
directors and officers of the Surviving Corporation until changed in
accordance with the Bylaws of the Surviving Corporation and applicable law.
Directors of the Surviving Corporation shall serve in the identical classes
in which they served as directors of the Merging Corporation.
8. Amendment; Termination and Abandonment. This Plan may be
supplemented or amended in any manner at any time and from time to time
prior to the Effective Time by the mutual consent of the Georgia
Corporation and the Merging Corporation without any action by the
shareholders of the Georgia Corporation or the Merging Corporation;
provided that any amendment, modification or supplement to this Plan after
its approval by the stockholders of the Merging Corporation but prior to
the Effective Time shall require the approval of the stockholders of the
Merging Corporation unless the amendment, modification or supplement to
this Plan (i) does not alter (a) the amount or kind of shares to be
received thereunder in exchange for shares of Merging Corporation Common
Stock, or (b) any term of the Articles of Incorporation of the Surviving
Corporation as provided for in this Plan, and (ii) does not alter any of
the terms and conditions of this Plan in a manner that would adversely
affect the holders of
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<PAGE> 67
Merging Corporation Common Stock. This Plan may be terminated and the
Merger abandoned at any time prior to the filing of articles or a
certificate of merger with the Secretary of State of the States of Georgia
and Delaware by action taken by the respective Boards of Directors of the
Constituent Corporations.
9. Further Assurances. If at any time the Surviving Corporation shall
consider or be advised that any further assignments or assurances or any
other things are necessary or desirable to vest in the Surviving
Corporation, in accordance with the terms of this Plan, the title of any
property or rights of the Merging Corporation, or otherwise to carry out
this Plan or the Merger, the last acting officers and directors of the
Merging Corporation or the corresponding officers and directors of the
Surviving Corporation shall and will execute and make all such proper
assignments and assurances and do all things necessary or proper to vest
title in such property or rights in the Surviving Corporation, or otherwise
to carry out this Plan or the Merger.
10. Counterparts. This Plan may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Plan or its terms to produce or
account for more than one of such counterparts.
DULY EXECUTED and delivered by duly authorized officers of each of the
Constituent Corporations on , 1997.
THE MERGING CORPORATION: PREFERRED NETWORKS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
THE SURVIVING CORPORATION: PNI MERGER CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
* * * * *
C-3
<PAGE> 68
EXHIBIT D
ARTICLES OF INCORPORATION
OF
PNI MERGER CORP.
ARTICLE I.
The name of the Corporation is:
PNI Merger Corp.
ARTICLE II.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Georgia Business Corporation
Code (the "GBCC").
ARTICLE III.
The total number of shares of stock which the Corporation is authorized to
issue is One Hundred Million (100,000,000) shares, of which Seventy Million
(70,000,000) shares are Common Stock (the "Common Stock") and Thirty Million
(30,000,000) shares are Preferred Stock (the "Preferred Stock"), all of which
shares are without par value. The designations, preferences, limitations and
relative rights of or on the Common Stock and the Preferred Stock are as set
forth below and are otherwise subject to applicable law. The Common Stock (a)
shall be one and the same class, (b) subject to the rights of the holders of
Preferred Stock, if any, shall have full and unlimited voting rights (with each
share having one vote on each matter submitted to shareholders for vote), and
(c) subject to the rights of the holders of Preferred Stock, if any, shall have
equal rights of participation in dividends and distributions and shall be
entitled to receive the net assets of the Corporation ratably upon dissolution.
The Board of Directors is authorized, by causing appropriate articles of
amendment to be filed pursuant to the applicable law of the State of Georgia, to
divide the Preferred Stock into series and to determine the preferences,
limitations and relative rights thereof, including but not limited to dividend
rights, dividend rates, conversion rights, voting rights, redemption rights, and
liquidation preferences; and to fix the number of shares constituting any such
series and the designation thereof; and to increase or decrease the number of
shares of any such series (but not below the number of shares thereof then
issued).
ARTICLE IV.
The street address of the initial registered office of the corporation is
850 Center Way, Norcross, Gwinnett County, Georgia 30071, and the initial
registered agent of the corporation at such address is Mark B. Jones.
ARTICLE V.
The name and address of the incorporator are:
Robert J. Pile
Sutherland, Asbill & Brennan, L.L.P.
999 Peachtree Street, N.E., Suite 2100
Atlanta, Georgia 30309-3996
<PAGE> 69
ARTICLE VI.
The mailing address of the Corporation's initial principal office will be:
850 Center Way
Norcross, Georgia 30071
ARTICLE VII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
Bylaws of the Corporation.
ARTICLE VIII.
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except liability: (a) for any
appropriation, in violation of his or her duties, of any business opportunity of
the Corporation, (b) for acts or omissions which involve intentional misconduct
or a knowing violation of law, (c) for the types of liability set forth in
section 14-2-832 of the GBCC, or (d) for any transaction from which the director
received an improper personal benefit. If the GBCC is hereafter amended to
further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the GBCC, as so amended. Any repeal or modification
of this Article VIII. by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
ARTICLE IX.
The Board of Directors shall consist of such number of directors as fixed
or changed from time to time by the Board of Directors and shall be divided into
three classes: Class I, Class II and Class III, which shall be as nearly equal
in number as possible. Each director shall serve for a term ending on the date
of the third annual meeting of shareholders following the annual meeting at
which such director was elected; provided however, that each initial director in
Class I shall hold office until the first annual meeting of shareholders after
the 1996 annual meeting; each initial director in Class II shall hold office
until the second annual meeting of shareholders after the 1996 annual meeting;
and each initial director in Class III shall hold office until the third annual
meeting of shareholders after the 1996 annual meeting. Each director shall serve
until his successor is elected and qualified or until his earlier death,
resignation or removal. The number of directors may be increased or decreased
from time to time by resolution of the Board of Directors; provided, however,
that the total number of directors at any time shall not be less than three
unless these Articles of Incorporation are amended to delete the classification
of the Board of Directors. Any vacancies in the Board of Directors for any
reason, and any directorships resulting from any increase in the authorized
number of directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum, and any
directors chosen to fill a vacancy shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors shall be elected and qualified, and any directors chosen by reason of
an increase in the number of directors shall hold office until the next election
of directors by the shareholders and until their successors shall be elected and
qualified. Subject to the foregoing and the GBCC, at each annual meeting of
shareholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting.
ARTICLE X.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation or its
shareholders, may consider the interests of the employees, customers, suppliers
and creditors of the Corporation and its subsidiaries, the communities in which
offices or other establishments of the Corporation and its subsidiaries are
located, and all other factors such directors consider pertinent; provided,
however, that this Article X shall
D-2
<PAGE> 70
be deemed solely to grant discretionary authority to the directors and shall not
be deemed to provide any constituency any right to be considered.
ARTICLE XI.
The shareholders of the Corporation shall have the right to take action in
lieu of a meeting only by one or more consents in writing signed by all of the
shareholders entitled to vote on such action.
ARTICLE XII.
Any shares of the Corporation reacquired by the Corporation shall become
treasury shares.
ARTICLE XIII.
(a) No shares of stock of the Corporation of any class or series
outstanding at any time shall be owned of record or beneficially by a person (as
defined in paragraph (d) hereof) whose ownership thereof would constitute a
violation of Section 310(a) or 310(b) of the Communications Act of 1934, as
amended, or any similar or successor federal statutes.
(b) No equity or debt securities of the Corporation, including options or
warrants, shall at any time be held or owned of record or beneficially at any
time by any person (as defined in paragraph (d) hereof) if such holding or
ownership in the opinion of general or special legal counsel to the Corporation
would more likely than not constitute a violation of, or breach a condition of,
an authority, license, franchise, permit, or similar item, granted by the
Federal Communications Commission, or any state or other public utility
commission, public service commission or similar body, issued to the Corporation
(or any entity in which the Corporation directly or indirectly beneficially owns
an equity interest), the violation or breach of which it is determined, upon the
vote of a majority of directors then in office, would be material to the
Corporation, its assets or business. Provided, however, that at any time upon
the vote of a majority of directors then in office, the Corporation may waive or
modify the application of this paragraph (b), but not paragraph (a). Before any
redemption or repurchase under paragraph (c) the Corporation shall give notice
of intent to redeem or repurchase to the holder of record and such person shall
have the lesser of: (i) one hundred (100) calendar days from the date such
notice is given, and (ii) the maximum time period permitted in the opinion of
counsel to the Corporation, to cure the facts or circumstances concerning the
holder or owner, of record or beneficially, which constitutes a violation or
breach, or to sell or transfer the securities so as to cure the violation or
breach.
(c) The Corporation may, in its sole discretion, redeem or repurchase any
outstanding shares of stock of any class or series, or any other securities
(including options or warrants), which are owned in violation of paragraphs (a)
or (b) hereof. Shares or other securities redeemed or repurchased by the
Corporation under this paragraph (c) may be redeemed or repurchased for cash,
property or rights, at the lesser of (i) the fair market value at the time of
the redemption or repurchase or (ii) provided the holder or owner purchased such
shares or securities within a year prior to the redemption or repurchase, the
holder's or owner's purchase price (plus accrued dividends and distributions to
the extent constituting income earned by the Corporation since the purchase
date, and interest in the case of a debt instrument). The Board of Directors
shall have the sole discretion to determine whether shares or other securities
are owned or held in violation of paragraphs (a) or (b) hereof, the fair market
value of any shares or other securities to be redeemed or repurchased, the value
of any non-cash consideration to be provided for such shares or other securities
in any such redemption or repurchase, whether cash, property or other rights or
any combination of same, are given in consideration for such redemption or
repurchase and the procedures for redemption or repurchase. The Corporation may
redeem or repurchase such shares or other securities pro-rata as to all persons
whose shares or other securities are redeemable or repurchasable pursuant to
this Article XIII, or in any other manner, and may contractually or otherwise,
including by provisions in these Articles of Incorporation, agree to redeem
shares or securities in a particular manner or order. Notice of intent to redeem
or repurchase, or redemption or repurchase, may be given by the same manner of
transmission and address as notice of shareholders' meetings may be given and in
such case shall be effective at the same time as notice of such a meeting would
be effective.
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<PAGE> 71
(d) For purposes of this Article XIII, "person" shall mean an individual, a
partnership, a limited partnership, a corporation, a trust, a business trust, a
joint venture, an unincorporated organization, a limited liability company, a
limited liability partnership, a government or any department or agency thereof,
an alien, a foreign government, any other legal entity, and a representative of
any such person.
ARTICLE XIV.
The undersigned incorporator does hereby undertake to publish a notice of
the filing with the Secretary of State of the State of Georgia of these Articles
of Incorporation as required by O.C.G.A. sec. 14-2-201.1(b).
DULY EXECUTED and delivered by the undersigned incorporator on
, 1997.
--------------------------------------
Robert J. Pile, as Incorporator
* * * * *
D-4
<PAGE> 72
EXHIBIT E
BYLAWS
OF
PNI MERGER CORP.
(A GEORGIA CORPORATION)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on such date, at such time and at such place as shall be set by the Board
of Directors for the purpose of electing directors and for the transaction of
such other business as may come before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose, unless otherwise prescribed by statute, may be called by the Chairman
of the Board, the President, the Board of Directors, and by holders of
outstanding stock having not less than seventy-five percent of the votes
entitled to be cast by all of the outstanding shares of the Company.
Section 3. Place of Meeting. The Board of Directors may designate any
place as the place for any annual meeting or for any special meeting of
shareholders. If no designation is made the place of the meeting shall be the
principal office of the Company.
Section 4. Notice of Meeting. Written or printed notice stating the place,
day and hour of the meeting, and, in case of a special meeting, the purpose for
which the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting, either personally or by mail, by or
at the direction of the Chairman of the Board, the President, or the Secretary
to each shareholder of record entitled to vote at such meeting. If mailed, the
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Company, with postage thereon prepaid.
Section 5. Quorum. Except as otherwise provided by the Company's Articles
of Incorporation (the "Articles of Incorporation") or the Georgia Business
Corporation Code (the "GBCC"), a majority of the votes entitled to be cast on a
matter by a voting group, represented in person or by proxy, shall constitute a
quorum of that voting group at a meeting of shareholders. If less than a quorum
is represented at a meeting, the meeting may be adjourned without further notice
if the time and place thereof are announced at the meeting at which the
adjournment is taken, provided, however, that the period shall not exceed thirty
days for any one adjournment. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally called.
If a quorum is present, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation, a bylaw adopted by the shareholders under Section
14-2-1021 of the GBCC, or the GBCC requires a greater number of affirmative
votes. Unless otherwise provided in the Articles of Incorporation, directors of
the Company shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
Section 6. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy authorized by the shareholder or his duly authorized attorney in
fact in the manner authorized by the GBCC. Such proxy shall be filed with the
Secretary of the Company before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
Section 7. Voting of Shares. Each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of the shareholders
except as otherwise provided in the Articles of Incorporation or the GBCC. In
the election of directors, each record holder of stock entitled to vote at such
<PAGE> 73
election shall have the right to vote the number of shares owned by him for as
many persons as there are directors to be elected, and for whose election he has
the right to vote. Cumulative voting shall not be allowed.
Section 8. Action Without a Meeting. Unless otherwise provided in the
Articles of Incorporation, any action required to be taken or which may be taken
at a meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by all of the shareholders entitled to vote
on such action.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Election of Board. The Board of Directors shall
consist of such number of directors as fixed or changed from time to time by the
Board of Directors and shall be divided into three classes: Class I, Class II
and Class III, which shall be as nearly equal in number as possible. Each
director shall serve for a term ending on the date of the third annual meeting
of shareholders following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall hold office until
the first annual meeting of shareholders after the 1996 annual meeting; each
initial director in Class II shall hold office until the second annual meeting
of shareholders after the 1996 annual meeting; and each initial director in
Class III shall hold office until the third annual meeting of shareholders after
the 1996 annual meeting. Each director shall serve until his successor is
elected and qualified or until his earlier death, resignation or removal. The
number of directors may be increased or decreased from time to time by
resolution of the Board of Directors; provided, however, that the total number
of directors at any time shall not be less than three unless these Articles of
Incorporation are amended to delete the classification of the Board of
Directors. Any vacancies in the Board of Directors for any reason, and any
directorships resulting from any increase in the authorized number of directors,
may be filled by the Board of Directors, acting by a majority of the directors
then in office, although less than a quorum, and any directors chosen to fill a
vacancy shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified, and any directors chosen by reason of an increase in the number of
directors shall hold office until the next election of directors by the
shareholders and until their successors shall be elected and qualified. Subject
to the foregoing and the GBCC, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
Section 2. Resignation and Removal. (a) Resignation. Any director may
resign at any time by giving written notice to the Board of Directors, the
Chairman of the Board, or to the Secretary of the Company. Such resignation
shall take effect at the time delivered unless a later date is specified therein
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(b) Removal. Any director or the entire Board of Directors may be removed
by the shareholders at any time, with or without cause, except as otherwise
provided by law.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The Board of Directors may adopt a resolution as
to the time and place for the holding of additional regular meetings without
notice other than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the President
or any director. The person or persons authorized to call special meetings of
the Board of Directors may fix any place as the place for holding any special
meeting of the Board of Directors called by him or them.
Section 5. Notice. Notice of any special meeting shall be given at least
two days prior thereto by written notice delivered personally or mailed (first
class mail) to each director at his business address or by notice given by
telegraph or telecopy to such address. If mailed, such notice shall be deemed to
be delivered five days following the deposit of such notice in the United States
mail so addressed, with postage thereon prepaid. If
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notice is given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. If notice is given by
telecopy, such notice shall be deemed to be delivered upon printed statement of
receipt by the transmitting telecopier. Any director may waive notice of any
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting unless the director at the beginning of the meeting (or
promptly upon his arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting. Neither the business to be transacted at nor the purpose
of any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. But if less than a majority is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice.
Section 7. Manner of Action. Except as otherwise provided in the Articles
of Incorporation, the vote of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 8. Expenses; Compensation. The Company shall pay the actual
out-of-pocket expenses incurred by each director in connection with attending
the meetings of the Board of Directors and any committee thereof; provided, that
the Company shall not be obligated to pay for any of such expenses that are
significantly in excess of the customary out-of-pocket expenses that would have
been incurred for travel to such meetings from such director's home or office.
In addition to the payment of each director's expenses as provided in the
preceding sentence, each director may, by resolution of the Board of Directors,
be paid a fixed sum for attendance at each meeting or a stated annual amount or
be provided other compensation in cash, stock or other property for service as a
director. No director shall be precluded from serving the Company in any other
capacity and receiving compensation therefor.
Section 9. Presumption of Assent. A director of the Company who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent or abstention shall be entered in the minutes of the meeting or unless
he files his written notice of dissent or abstention to such action with the
presiding officer of the meeting before the adjournment thereof or shall forward
such dissent to the Company immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
Section 10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment by which all persons participating in a meeting
can hear each other during the meeting. Such participation shall constitute
presence in person at the meeting.
Section 11. Action Without a Meeting. Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors entitled to vote with respect to the subject matter thereof
and filed with the minutes of the proceedings of the Board of Directors. Such
consent shall have the same force and effect as a unanimous vote of the
directors.
Section 12. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, appoint an executive committee and any other
committee of the Board of Directors, the composition of each of which shall
consist of one or more directors of the Company, and may delegate to any such
committee any of the authority of the Board of Directors, however conferred,
other than the power or authority to (i) approve or propose to shareholders
action that the GBCC requires be approved by shareholders; (ii) fill vacancies
on the Board of Directors or any of its committees; (iii) amend the Articles of
Incorporation pursuant to Section 14-2-1002 of the GBCC; (iv) adopt, amend or
repeal the Bylaws of the Company; or (v) approve a plan of merger not requiring
shareholder approval. Each such committee shall serve at the pleasure of the
Board of Directors. Any such committee shall keep written minutes of its
meetings and report the same to the Board of Directors at the next regular
meeting of the Board of Directors.
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ARTICLE III
OFFICERS AND AGENTS
Section 1. General. The officers of the Company shall be a Chairman of the
Board and Chief Executive Officer, a President, one or more Vice Presidents, a
Secretary, and a Treasurer. The Board of Directors may appoint such other
officers, assistant officers and agents, including assistant secretaries and
assistant treasurers, as they may consider necessary, who shall be chosen in
such a manner and hold their offices for such terms and have such authority and
duties as from time to time may be determined by the Board of Directors. The
salaries for all the officers of the Company shall be fixed by the Board of
Directors. Any number of offices may be held by the same person. In all cases
where duties of any officer, agent or employee are not prescribed by the Bylaws
or by the Board of Directors, such officer, agent or employee shall follow the
orders and instructions of the President.
Section 2. Election and Term of Office. The officers of the Company shall
be elected by the Board of Directors annually at the first meeting of the Board
held after each annual meeting of the shareholders. Each officer shall hold
office until his successor is elected and qualified or until his earlier death,
resignation or removal.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Company will be
served thereby.
Section 4. Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors.
Section 5. Chairman of the Board and Chief Executive Officer. The Chairman
of the Board shall be the chief executive officer of the Company, and shall be
responsible for the administration of the Company (including the general
supervision of the policies of the Company, the general and active management of
the financial affairs of the Company, and the supervision and direction of the
actions of the other officers of the Company), shall have the authority to sign
and deliver agreements, certificates and other instruments on behalf of the
Company, and shall have all such other duties and powers that are incident to
his office or that are from time to time assigned to him by the Board of
Directors. He shall preside at all meetings of the Board of Directors and of the
shareholders, and may delegate such authority to any other director or to an
officer of the Company. The Chairman of the Board may exercise any powers,
authorities or functions, granted or designated, to be performed by the
President under the Bylaws or by law.
Section 6. President. The President, subject to the direction of the Board
of Directors and the Chairman of the Board, shall be the chief operating officer
of the Company, shall have general supervision of the day-to-day affairs of the
Company and supervision and direction of the actions of the other officers of
the Company, shall have the power to sign and deliver agreements, certificates
and other instruments on behalf of the Company, and shall have all such other
duties and powers that are incident to his office or that are from time to time
assigned by the Board of Directors or the Chairman of the Board. In the absence
of the Chairman of the Board, the President shall exercise all of the functions
and perform all of the duties of the chief executive officer of the Company. In
the absence of the Chairman of the Board, if the President has not delegated
such authority, the President shall preside at meetings of the shareholders and,
if the President is a director, at meetings of the Board of Directors.
Section 7. Vice Presidents. Each Vice President shall perform such duties
and exercise such powers as the Chairman of the Board, the President or the
Board of Directors shall request or delegate and, unless the Board of Directors
or the President otherwise provides, shall perform such other duties as are
generally performed by vice presidents with equivalent restrictions, if any, on
title. In the absence of the President or in the event of his death or inability
to act, the Vice Presidents shall perform the duties of the President, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the President; provided, however, that if there is more than one Vice
President, any Vice President shall have the authority to execute agreements,
certificates and other instruments on behalf of the Company, subject to all the
restrictions upon the President relating to such functions, but all other duties
of the President shall be performed by the Vice President designated to perform
such duties at the time of his appointment, or in the absence of any
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designation, then by the Vice President with the most seniority in office (or if
more than one Vice President is appointed at the same meeting, by the Vice
President first listed in the action appointing them), and when so acting shall
have all the powers of and be subject to all the restrictions upon the
President.
Section 8. Secretary. The Secretary shall prepare minutes of all meetings
of the shareholders of the Company and the Board of Directors, shall have charge
of the minute books, share records and seal of the Company, shall authenticate
records of the Company, and shall perform such other duties and have such other
powers that are from time to time assigned by the Chairman of the Board, the
President or the Board of Directors.
Section 9. Treasurer. The Treasurer is the chief financial officer of the
Company, and without limiting the foregoing, shall be charged with the
management of the financial affairs of the Company. The Treasurer shall perform
all of the duties incident to the office of treasurer and such other duties that
are from time to time assigned by the Chairman of the Board, the President or
the Board of Directors.
ARTICLE IV
STOCK
Section 1. Stock Certificates. Stock certificates shall be issued in
consecutive order and shall be in a form or forms prescribed by the Board of
Directors and shall be numbered in the order in which they are issued. They
shall be signed by the Chairman of the Board, the President or a Vice President
and the Secretary or an Assistant Secretary, and if there is a seal of the
Company, such seal (or a facsimile of it) shall be affixed to share
certificates. Signatures on a share certificate may be facsimiles but in such
case the certificate must be countersigned by a transfer agent or registered by
a registrar other than the Company or an employee of the Company.
Section 2. Transfers of Shares. Transfers of shares shall be made in the
share records of the Company upon surrender of the certificate for such shares
signed by the person in whose name the certificate is registered or on his
behalf by a person legally authorized so to sign (or accompanied by a separate
stock transfer power so signed) and otherwise in accordance with applicable law,
and subject to such other requirements as may be imposed by the Company.
Section 3. Lost Certificates. The Company may issue a new stock
certificate in place of any certificate previously issued by the Company and
alleged to have been lost, stolen or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed and, if the Company deems it appropriate, the delivery of a commercial
indemnity bond issued by a company approved by the Company in such sum as the
Company may direct as indemnity against any claim that may be made against the
Company with respect to the certificate alleged to have been lost, stolen or
destroyed. The Company may also authorize the Company's transfer agent or
registrar, if any, to issue replacement certificates on such terms and
conditions as the Company specifies.
Section 4. Regulations, Transfer Agents and Registrars. The Board of
Directors may make all such rules and regulations as it may deem expedient
concerning the issuance, transfer, conversion, registration and cancellation of
share certificates not inconsistent with applicable law, the Articles of
Incorporation or the Bylaws of the Company. The Board of Directors may appoint
one or more transfer agents or registrars, or both, and may require all share
certificates to bear the signature of a transfer agent or registrar or both.
ARTICLE V
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Indemnification. (1). General. Pursuant to GBCC
sec. 14-2-859(a), the Company shall indemnify, and shall advance funds to pay
for or reimburse expenses to, each person who:
(a) is or was a director or officer of the Company (including the
heirs, executors, administrators or estate of such person); or
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(b) while holding a status described in (a) above, is or was serving
at the request of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
to the fullest extent permitted under, and in accordance with the procedures
required by, the GBCC.
(2) Subsequent Amendment. No amendment, termination or other elimination
of this Article V or of any relevant provisions of the GBCC or of any other
applicable law shall affect or diminish in any way the rights to indemnification
under this Article V with respect to any action, suit or proceeding arising out
of, or relating to, any event or act or omission occurring or fact or
circumstance existing prior to such amendment, termination or other elimination.
(3) Other Rights; Indemnification Agreements. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights permitted by applicable law to
which a person seeking indemnification or advancement of expenses may be
entitled, whether by contract or otherwise. Nothing contained in this Article V
shall be deemed to prohibit, and the Company is specifically authorized to enter
into, agreements which provide indemnification rights and procedures permitted
by the GBCC.
(4) Continuation of Right to Indemnification. All rights to
indemnification under this Article V (including those arising pursuant to
subsection (3) above) shall continue as to a person who has ceased to be a
director or officer, shall inure to the benefit of heirs, executors,
administrators and the estate of such person, and shall be deemed to be a
contract between the Company and each such person or entity. This Article V
shall be binding upon any successor corporation to the Company, whether by way
of merger, consolidation, liquidation, dissolution or otherwise. This Article V
shall obligate the Company to indemnify and advance expenses to directors and
officers of Preferred Networks, Inc., a Delaware corporation and predecessor to
the Company, in the same manner as officers and directors of the Company.
(5) Savings Clause. If this Article V or any portion of it shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify persons specified in this Article V to the
full extent permitted by any applicable portion of this Article V that shall not
have been invalidated and to the full extent permitted by applicable law.
(8) Insurance. The Company may purchase and maintain insurance on behalf
of an individual who is a director, officer, employee, or agent of the Company
or who, while a director, officer, employee, or agent of the Company, serves at
the Company's request as a director, officer, partner, trustee, employee or
agent of another domestic or foreign corporation, partnership, joint venture,
trust, employee benefit plan, or other entity against liability asserted against
or incurred by him or her in that capacity or arising from his or her status as
a director, officer, employee, or agent, whether or not the Company would have
the power to indemnify or advance expenses to him or her against the same
liability under these Bylaws and the GBCC.
ARTICLE VI
AMENDMENTS
Subject to the Articles of Incorporation, these Bylaws and the GBCC, these
Bylaws may be amended (or repealed and new bylaws adopted) by the shareholders
of the Company or by the Board of Directors. The shareholders of the Company may
provide expressly that any bylaws adopted, amended or repealed by them shall not
be amended or repealed by the Board of Directors. A provision of the Bylaws
limiting the authority of the Board or establishing staggered terms for
directors may only be adopted, amended or repealed by the shareholders of the
Company.
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APPENDIX
FORM OF PROXY -- PRELIMINARY PREFERRED NETWORKS, INC.
850 CENTER WAY
NORCROSS, GEORGIA 30071
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
PREFERRED NETWORKS, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS
JUNE 12, 1997
The undersigned stockholder of Preferred Networks, Inc. hereby appoints Mark
H. Dunaway and Michael J. Saner with full power of substitution, acting jointly
or by either one of them, attorney and proxies to represent and vote in the
manner specified below the shares of stock which the undersigned could vote if
personally present at the Annual Meeting of Stockholders to be held on June 12,
1997, or at any adjournment thereof.
I. Proposal to approve the private placement of Preferred Networks, Inc.
Class A Redeemable Preferred Stock and warrants to acquire shares of
common stock
FOR [ ] AGAINST [ ] ABSTAIN [ ]
II. Proposal to Approve the Preferred Networks, Inc. 1995 Stock Option Plan as
amended
FOR [ ] AGAINST [ ] ABSTAIN [ ]
III. Proposal to Approve the Agreement and Plan of Merger between Preferred
Networks, Inc. and PNI Merger Corp.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IV. Election of Three Directors
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as [ ] WITHHOLD AUTHORITY to vote
marked to the contrary below) for all nominees listed
below
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
William H. Bang John J. Hurley Ronald W. White
V. In their discretion upon such other business as may properly come before the
meeting
(Continued and to be signed on other side)
(Continued from other side)
IF NO DIRECTION TO THE CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL TO APPROVE THE PRIVATE PLACEMENT, FOR THE PROPOSAL TO APPROVE THE 1995
STOCK OPTION PLAN AS AMENDED, FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN
OF MERGER, AND FOR THE ELECTION OF EACH OF THE THREE NOMINEES FOR DIRECTOR NAMED
ABOVE.
Dated: , 1997
--------------------
--------------------------------
Signature(s) of Stockholder
--------------------------------
Signature if signing jointly
Please sign exactly as name
appears hereon. If shares are
held jointly, each stockholder
should sign. When signing for a
corporation or partnership or
other entity or as attorney,
executor, administrator,
trustee, guardian or custodian,
please indicate the capacity in
which you are signing.
PLEASE FILL IN, DATE AND SIGN THE PROXY AND RETURN IT IN THE ENCLOSED POSTPAID
ENVELOPE.
