<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] 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)
April 30, 1999
Dear Preferred Networks Owner:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held on June 10, 1999, at 10:00 a.m., local time, at Preferred Networks,
Inc., 850 Center Way, Norcross, Georgia.
At the annual meeting, you will be asked to approve the election of two
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 10, 1999
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Meeting") of Preferred Networks, Inc. (the "Company") to be held on June
10, 1999, at 10:00 a.m., local time, at 850 Center Way, Norcross, Georgia 30071,
for the following purposes:
1. To elect two members of the Board of Directors; and
2. To transact such other business as may properly come before the
Meeting.
Only stockholders of record at the close of business on April 30, 1999,
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
/s/ Mark B. Jones
Mark B. Jones
Secretary
April 30, 1999
<PAGE> 4
PREFERRED NETWORKS, INC.
850 CENTER WAY
NORCROSS, GEORGIA 30071
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
This Proxy Statement is furnished to stockholders of Preferred Networks,
Inc. (the "Company") in connection with the solicitation of proxies for use at
the 1999 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 10, 1999, at 10:00 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, 1998 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, 1999.
This solicitation is made on behalf of the Board of Directors of the
Company. Directors, officers and employees of the Company and its affiliates may
also solicit proxies by telephone, telecopier, 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 beneficial owners. In addition, the Company has retained Georgeson & Co.,
Inc. to assist in the solicitation of proxies, at a fee of $5,000.
ACTIONS TO BE TAKEN UNDER THE PROXY
In voting on the election of directors, shareholders may vote in favor of
all nominees or withhold their votes as to some or all nominees, except that
only holders of Class A Redeemable Preferred Stock ("Class A Preferred") may
vote for one director, all as more particularly set forth below. Unless other
instructions are indicated on the proxy card, all properly executed proxies
received by the Company will be voted 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).
The election of directors will require the affirmative vote of a plurality
of the shares 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 of stock that are entitled to vote at the Meeting
must be present in person, or by proxy, in order to have the quorum that is
necessary for the transaction of business at the Meeting. Any proxy authorized
to be voted at the Meeting on any 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.
STOCK OWNERSHIP
Only holders of record of shares of the no par value common stock ("Common
Stock"), Class A Preferred, and Class B Senior Redeemable Preferred Stock (the
"Class B Preferred") as of the close of
1
<PAGE> 5
business on the record date of April 30, 1999 ("Record Date") are entitled to
receive notice of, and to vote at, the Meeting. Each holder of record of the
Common Stock is entitled to one vote per share for every matter to be voted upon
by the stockholders at the Annual Meeting, other than the election of one of the
two directors. Each holder of record of the Class A Preferred and Class B
Preferred is entitled to one vote per share for every matter to be voted upon by
the stockholders at the Meeting, except that holders of the Class A Preferred,
voting as a separate class, are entitled to elect one director. As of the Record
Date, there were 16,369,302 shares of Common Stock outstanding, 10,000,000
shares of Class A Preferred outstanding, and 5,333,336 shares of Class B
Preferred outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1999, certain information
with respect to the beneficial ownership of shares of Common Stock, Class A
Preferred, and Class B Preferred of (i) all stockholders known by the Company to
be the beneficial owners of more than 5% of its outstanding Common Stock, Class
A Preferred, and Class B Preferred, 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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------- PERCENTAGE
ACQUIRABLE OF CLASS
NAME OF BENEFICIAL OWNER OR GROUP TITLE OF CURRENTLY WITHIN 60 PERCENTAGE ASSUMING
(AND ADDRESS OF 5% STOCKHOLDER) CLASS OWNED DAYS OF CLASS(1) FULL DILUTION(1)
--------------------------------- ----------------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Mark H. Dunaway(2)...................... Common 2,307,825 202,450(3) 15.15% 7.24%
Chairman of the Board and Class B Preferred 66,667 -- 1.25% 1.25%
Chief Executive Officer
944 Gatewood Court
Atlanta, Georgia 30327
Kathryn Loev Putnam(4).................. 5,211 137,500(3) * *
Senior Vice President and Class B Preferred 66,667 -- 1.25% 1.25%
Chief Financial Officer
Mark B. Jones........................... Common 400 60,283(3) * *
Vice President of Legal Affairs
William H. Bang......................... Common 17,500(5) -- * *
Director
John J. Hurley(6)....................... Common 14,000(5) 67,500 * *
Director Class B Preferred 66,667 -- 1.25% 1.25%
Robert Van Degna(7)..................... Common 1,057,500(5) 4,301,032 25.92% 15.46%
Director Class A Preferred 3,400,000 -- 34.00% 34.00%
Class B Preferred 386,205 -- 7.24% 7.24%
Jeffrey H. Schutz(8).................... Common 1,057,502(5) 3,717,408 23.77% 13.77%
Director Class A Preferred 3,133,333 -- 31.33% 31.33%
Class B Preferred 112,667 -- 2.11% 2.11%
Ronald W. White......................... Common 763,961(5)(9) 18,375 4.77% 2.26%
Director
Robert F. Benbow(10).................... Common 12,500(5) 3,712,500 18.55% 10.74%
Director Class B Preferred 3,666,667 -- 68.75% 68.75%
Richard P. Campbell(11)................. Common 1,055,002(5) 1,771,032 15.58% 8.15%
Director Class A Preferred 1,200,000 -- 12.00% 12.00%
Class B Preferred 386,205 -- 7.24% 7.24%
Alta Communications VI, L.P.(12)........ Common -- 3,712,500 18.49% 10.71%
One Post Office Square, Suite 3800 Class B Preferred 3,666,667 -- 68.75% 68.75%
Boston, Massachusetts 02109
Centennial Fund IV, L.P.(13)............ Common 1,057,502(5) 3,717,408 23.77% 13.77%
1428 Fifteenth Street Class A Preferred 3,133,333 -- 31.33% 31.33%
Denver, Colorado 80202 Class B Preferred 112,667 -- 2.11% 2.11%
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------- PERCENTAGE
ACQUIRABLE OF CLASS
NAME OF BENEFICIAL OWNER OR GROUP TITLE OF CURRENTLY WITHIN 60 PERCENTAGE ASSUMING
(AND ADDRESS OF 5% STOCKHOLDER) CLASS OWNED DAYS OF CLASS(1) FULL DILUTION(1)
--------------------------------- ----------------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Saugatuck Capital Company L.P. Common 1,042,502 1,771,032 15.51% 8.12%
III(14)...............................
One Canterbury Green Class A Preferred 1,200,000 -- 12.00% 12.00%
Stamford, Connecticut 06901 Class B Preferred 386,205 -- 7.24% 7.24%
PNC Capital Corp.(15)................... Common 416,997 1,460,118 10.53% 5.41%
3150 CNG Tower Class A Preferred 1,133,333 -- 11.33% 11.33%
625 Liberty Avenue Class B Preferred 154,849 -- 2.90% 2.90%
Pittsburgh, Pennsylvania 15222
Primus Capital Fund III Limited
Partnership(16)....................... Common 521,250 1,499,159 11.31% 5.83%
5900 Landerbrook Drive, Class A Preferred 1,133,333 -- 11.33% 11.33%
Suite 200 Class B Preferred 193,408 -- 3.63% 3.63%
Cleveland, Ohio 44124
Fleet Venture Resources, Inc.(17)....... Common 1,042,500 4,301,032 25.85% 15.41%
50 Kennedy Plaza Class A Preferred 3,400,000 -- 34.00% 34.00%
Providence, Rhode Island 02903 Class B Preferred 386,205 -- 7.24% 7.24%
State of Wisconsin Investment Board..... Common 1,400,000 -- 8.55% 4.04%
121 East Wilson Street
Madison, Wisconsin 53707
All executive officers and directors as
a
group (10 persons)(18)................ Common 7,243,335 14,291,583(2) 70.24% 62.12%
Class A Preferred 7,733,333 -- 77.33% 77.33%
Class B Preferred 4,751,745 -- 89.10% 89.10%
</TABLE>
- ---------------
* Less than one percent
(1) The Percentage of Class assumes the exercise of only the outstanding
warrants and options acquirable within 60 days held by each respective
beneficial owner and member of management. The Percentage of Class Assuming
Full Dilution assumes the exercise of all outstanding warrants and options
acquirable within 60 days.
(2) Includes 2,307,825 shares of Common Stock, 66,667 shares of Class B
Preferred and warrants to acquire 67,500 shares of Common Stock jointly
held with Marcia M. Dunaway, Mr. Dunaway's spouse.
(3) Includes shares subject to stock options granted pursuant to the Company's
stock option plans and, in the case of Mr. Dunaway, warrants to acquire
67,500 shares of Common Stock acquired in connection with his purchase of
Class B Preferred.
(4) Reflects 66,667 shares of Class B Preferred and warrants to acquire 67,500
shares of Common Stock owned by certain family members. Ms. Putnam
disclaims any beneficial ownership of the Class B Preferred and warrants to
acquire 67,500 shares of Common Stock held by family members. The total
shares acquirable within 60 days also includes warrants to acquire 4,772
shares of Common Stock with respect to which Ms. Putnam has a beneficial
interest and may be deemed to share voting and investment power.
(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 66,667 shares of Class B Preferred and warrants to acquire 67,500
shares of Common Stock jointly held with Sylvia Hurley, Mr. Hurley's
spouse.
(7) Includes 271,049 shares of Common Stock, 1,002,000 shares of Class A
Preferred, 115,861 shares of Class B Preferred, and warrants to acquire
1,269,610 shares of Common Stock held by Fleet Equity Partners VI, L.P.
("FEP"), 632,450 shares of Common Stock, 2,338,000 shares of Class A
Preferred, 270,344 shares of Class B Preferred, and warrants to acquire
2,962,422 shares of Common Stock held by Fleet Venture Resources, Inc.
("FVR"), and 139,001 shares of Common Stock, 60,000 shares of Class A
Preferred, and warrants to acquire 69,000 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 Chairman and CEO 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 Chairman and CEO of Silverado
II Corp., the general partner of Silverado II, L.P. which is the general
partner of CPII. Mr. Van Degna is
3
<PAGE> 7
also a limited partner of Silverado II, L.P. As Chairman and CEO of Fleet
Growth Resources II, Inc. and Chairman and CEO 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, Class A Preferred, Class B Preferred, and warrants to
acquire shares of Common Stock which are directly owned by FVR, and those
shares of Common Stock, Class A Preferred, Class B Preferred, and warrants
to acquire shares of Common Stock which are directly held by FEP and CPII,
except for his pecuniary interest therein.
(8) Includes 1,042,502 shares of Common Stock, 3,133,333 shares of Class A
Preferred, 112,667 shares of Class B Preferred, and warrants to acquire
3,717,408 shares of Common Stock owned by Centennial Fund IV, L.P. ("CIV").
15,000 shares of Common Stock (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, Class A Preferred, Class B Preferred
and warrants to acquire Common Stock owned by CIV. 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 itself. Mr. Schutz is
one of five individual general partners of Holdings, each of whom disclaims
beneficial ownership of all shares of Common Stock, Class A Preferred,
Class B Preferred and warrants to acquire Common Stock directly or
indirectly owned by CIV, except to the extent of his indirect proportionate
interest in CIV.
(9) Includes 748,961 shares held by Advanced Technology Development Fund II,
L.P. ("ATDF"), an entity for which Mr. White serves as general partner.
(10) Includes 3,585,060 shares of Class B Preferred and warrants to acquire
3,629,873 shares of Common Stock held by Alta Communications VI, L.P.
("ACVI"), and 81,607 shares of Class B Preferred and warrants to acquire
82,627 shares of Common Stock held by Alta Communications S by S, LLC
("ACS"). Mr. Benbow is a managing general partner of Alta Communications VI
Management Partners, L.P. ("ACMP"). ACMP is the sole general partner of
ACVI and in such capacity has authority to make decisions regarding the
voting and disposition of the Class B Preferred and warrants to acquire
Common Stock owned by ACVI. Mr. Benbow is a member of ACS. Mr. Benbow may
therefore be deemed to be the indirect beneficial owner of the warrants and
Class B Preferred reported by ACVI and ACS above. Mr. Benbow disclaims
beneficial ownership of all Class B Preferred and warrants to acquire
Common Stock held by ACS and ACVI, except for his pecuniary interest
therein.
(11) Includes 1,042,502 shares of Common Stock, 1,200,000 shares of Class A
Preferred, 386,205 shares of Class B Preferred, and warrants to acquire
1,771,032 shares of Common Stock held by Saugatuck Capital Company Limited
Partnership III ("Saugatuck"). Mr. Campbell is a general partner of
Greyrock Partners Limited Partnership ("Greyrock"). Greyrock is the sole
general partner of Saugatuck and may be deemed to share voting and
investment power with respect to said Common Stock, Class A Preferred,
Class B Preferred and warrants to acquire Common Stock. Mr. Campbell
disclaims beneficial ownership of all shares of Common Stock, Class A
Preferred, Class B Preferred, and warrants to acquire Common Stock held by
Saugatuck, except to the extent of his indirect proportionate interest in
Saugatuck.
(12) Includes 3,585,060 shares of Class B Preferred and warrants to acquire
3,629,873 shares of Common Stock held by ACVI, and 81,607 shares of Class B
Preferred and warrants to acquire 82,627 shares of Common Stock held by
ACS. Beneficial ownership of shares and warrants held by ACVI may be deemed
to be indirectly held or shared by Alta Communications, Inc., ACMP, Robert
F. Benbow, William P. Egan, Brian McNeill and/or Timothy Dibble, who may be
deemed to be affiliates of ACVI and ACS.
(13) Includes 1,042,502 shares of Common Stock, 3,133,333 shares of Class A
Preferred, 112,667 shares of Class B Preferred and warrants to acquire
3,717,408 shares of Common Stock owned by CIV, and 15,000 shares of Common
Stock (which were granted pursuant to the Company's 1995 Non-Employee
Restricted Stock Award Plan) held by Mr. Schutz for the benefit of CIV.
Beneficial ownership of shares and warrants held by CIV may be deemed to be
indirectly held or shared by Centennial Holdings
4
<PAGE> 8
IV, L.P., Steven C. Halstedt, Jeffrey H. Schutz, Adam Goldman, Donald H.
Parsons, Jr. and/or David C. Hull, Jr., who may be deemed to be affiliates
of CIV.
(14) Beneficial ownership of shares and warrants held by Saugatuck may be deemed
to be indirectly held or shared by Greyrock, Frank J. Hawley, Jr., Owen S.
Crihfield, Richard P. Campbell and/or Barbara E. Parker, who may be deemed
to be affiliates of Saugatuck.
(15) Beneficial ownership of shares and warrants held by PNC Capital Corp.
("PNC") may be deemed to be indirectly held or shared by PNC Holding Corp.
and/or PNC Bank Corp., which may be deemed to be affiliates of PNC.
(16) Beneficial ownership of shares and warrants held by Primus Capital Fund III
Limited Partnership ("Primus") may be deemed to be indirectly held or
shared by Primus Venture Partners III Limited Partnership and/or Primus
Venture Partners, Inc., which may be deemed to be affiliates of Primus.
(17) Includes 271,049 shares of Common Stock, 1,002,000 shares of Class A
Preferred, 115,861 shares of Class B Preferred and warrants to acquire
1,269,610 shares of Common Stock held by FEP, 632,450 shares of Common
Stock, 2,338,000 shares of Class A Preferred, 270,344 shares of Class B
Preferred and warrants to acquire 2,962,422 shares of Common Stock held by
FVR, and 139,001 shares of Common Stock, 60,000 shares of Class A Preferred
and warrants to acquire 69,000 shares of Common Stock held by CPII.
Beneficial ownership of shares and warrants held by FVR, FEP and CPII may
be deemed to be indirectly held or shared by Fleet Growth Resources II,
Inc., Silverado IV Corp., Fleet Growth Resources, Inc., Fleet Private
Equity Co., Fleet Financial Group, Inc., Silverado II, L.P., Silverado II
Corp., Robert Van Degna and/or Habib Y. Gorgi, who may be deemed to be
affiliates of FEP, FVR and CPII.
(18) Includes shares of Common Stock, Class A Preferred, Class B Preferred and
warrants to acquire Common Stock that may be deemed to be beneficially
owned by one officer and certain directors of the Company who have
disclaimed beneficial ownership. See Notes 4, 7, 8, 10 and 11.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
Mark H. Dunaway Chairman of the Board of Directors, Chief Executive Officer 54
and Treasurer
Kathryn Loev Putnam Senior Vice President and Chief Financial Officer 35
Mark B. Jones Vice President of Legal Affairs and Secretary 42
Charles I. Smith, III Senior Vice President of Sales and Marketing, PNI Access 50
Services
Michael C. Ward President, EPS Wireless, Inc. 49
Randall L. Johnson President, Preferred Technical Services, Inc. 42
</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 he served as its Chief Executive Officer and Chairman from 1987
to 1994. Mr. Dunaway has served on a number of committees for Personal
Communications Industry Association ("PCIA").
KATHRYN LOEV PUTNAM has been Senior Vice President and Chief Financial
Officer of the Company since July 1997 and was Vice President of Corporate
Development of the Company from April 1996 to June 1997. From 1994 to March
1996, Ms. Putnam was employed by Legg Mason Wood Walker, Inc., an investment
banking and stock brokerage firm, where she served as Vice President in the
Corporate Finance Department.
5
<PAGE> 9
From 1991 to 1994, Ms. Putnam served as Assistant Vice President in the
Corporate Finance Department of Janney Montgomery Scott Inc., an investment
banking and stock brokerage firm.
MARK B. JONES has been the Vice President of Legal Affairs and Secretary of
the Company since October 1995. From 1989 to 1995, he was engaged in the private
practice of law with the law firm of Bodker, Ramsey & Andrews in Atlanta,
Georgia focusing on corporate and tax matters. From 1982 until 1989, Mr. Jones,
who is a certified public accountant, was employed as a Tax Manager with Arthur
Andersen LLP.
CHARLES I. SMITH, III has been Senior Vice President of Sales and Marketing
of PNI Access Services since December 1998. Before joining the Company, he was
employed by AT&T Corporation from 1979 to 1998. While at AT&T, Mr. Smith held
management positions in various sales and marketing departments, dealing with
AT&T's Global Accounts in the southeastern United States. His most recent
responsibilities at AT&T included establishing and managing a new sales channel
selling AT&T network services to subsidiary locations of the Global Account
base.
MICHAEL C. WARD has been President of EPS Wireless, Inc. since September
1998. From 1997 to September 1998, Mr. Ward served as a Principal with Ward and
Associates, an operational and business consulting firm in the wireless
industry. From 1995 to 1997, Mr. Ward served as Vice President at Wireless One
Network, a Cellular One operator of 3.2 million points of presence where he
managed field and staff operations. From 1987 to 1995, Mr. Ward was employed in
various positions with Dial Page, Inc., a national paging company, and served as
Executive Vice President of Operations from 1992 to 1995. From 1981 to 1995, Mr.
Ward was a General Manager of Jacksonville and Atlanta regions at Pacific
Telesis (Pactel) Paging. From 1976 to 1981, Mr. Ward held various management
positions at AT&T Corporation.
RANDALL L. JOHNSON has been President of Preferred Technical Services, Inc.
since July 1996. Before joining the Company he served as the General Manager of
AirTouch Paging, Inc. in the southeastern United States. From 1992 to 1994, Mr.
Johnson was employed as a General Manager for Comcast Corporation, managing a
cable television system in the Philadelphia, Pennsylvania area. From 1980 to
1992, Mr. Johnson was employed with KFC Corporation, a division of PepsiCo,
Inc., where he served in various corporate and field positions in marketing,
program development, and operations.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eight directors
divided into three classes, which shall be as nearly equal in number as possible
and which have staggered terms. Two directors, Messrs. Dunaway and Campbell, are
in the class the term of which expires in 1999. In general, 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 Mark
H. Dunaway and Richard P. Campbell, each of whom currently serves as a director
of the Company. If reelected at the Meeting, each of Messrs. Dunaway and
Campbell will serve a new term to end as of the 2002 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 two nominees.
Michael J. Saner, who formerly served as the President and a Director of
the Company, resigned from both positions as of December 31, 1998. Mr. Saner was
in the same class of directors as Messrs. Dunaway and Campbell, and his term as
a director would have expired as of the 1999 Annual Meeting of Stockholders. The
Board of Directors has not yet nominated a replacement for Mr. Saner on the
Board of Directors, and therefore only two directors, Messrs. Dunaway and
Campbell, are being nominated for election at the 1999 Annual Meeting of
Stockholders.
Pursuant to the Company's Articles of Incorporation, holders of the Class A
Preferred, voting as a separate class, are entitled to elect one director, and
holders of the Class B Preferred, voting as a separate
6
<PAGE> 10
class, are entitled to elect one director. Holders of the Class A Preferred have
nominated Mr. Campbell as a director. Holders of the Class B Preferred elected
Mr. Benbow as a director at the 1998 Annual Meeting of Stockholders.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
Set forth below is certain information regarding each of the two nominees
and the directors of the Company who will continue to serve after the Meeting:
NOMINEES FOR THREE-YEAR TERMS:
<TABLE>
<CAPTION>
TERM
NAME TITLE ENDS AGE
- ---- ----- ---- ---
<S> <C> <C> <C>
Mark H. Dunaway............................................. Director 2002 54
Richard P. Campbell......................................... Director 2002 55
</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 he served as its Chief Executive Officer and Chairman from 1987
to 1994. Mr. Dunaway has served on a number of committees for Personal
Communications Industry Association ("PCIA").
RICHARD P. CAMPBELL has been a director of the Company since March 1998.
Since 1989, Mr. Campbell has been a general partner and is currently the
Managing Director of Saratoga Management Company LLC, which manages funds making
private equity investments in corporate buyouts and recapitalization. Mr.
Campbell serves as a director of several privately-held companies.
CONTINUING DIRECTORS:
<TABLE>
<CAPTION>
TERM
NAME TITLE ENDS AGE
- ---- ----- ---- ---
<S> <C> <C> <C>
William H. Bang............................................. Director 2000 69
John J. Hurley.............................................. Director 2000 63
Ronald W. White............................................. Director 2000 58
Robert F. Benbow............................................ Director 2001 63
Jeffrey H. Schutz........................................... Director 2001 47
Robert M. Van Degna......................................... Director 2001 54
</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 serves as a consultant to Motorola from time to time and serves as a
member of the Board of Directors of the PCIA Service and Education Foundation.
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 the PCIA convention in 1995.
7
<PAGE> 11
RONALD W. WHITE has been a director of the Company since October 1994.
Since 1997, Mr. White has been Vice President of Argo Global Capital, Inc. and
continues to serve as a General Partner of certain entities affiliated with
Advanced Technology Development Funds, a family of high technology development
funds. Mr. White also serves as a director of National MicroSystems Corporation
and several privately-held companies.
ROBERT F. BENBOW has been a director of the Company since March 1998. Since
1990, Mr. Benbow has served as a general partner of certain funds managed by
Burr, Egan, Deleage & Company. In addition, Mr. Benbow is one of the founding
and managing general partners of Alta Communications VI Management Partners,
L.P., a successor and the sole general partner of Alta Communications, VI, L.P.
Mr. Benbow serves as a director of several privately-held companies.
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 Crown Castle International, a
Centennial portfolio company, and several other privately-held companies in
which Centennial has an equity stake.
ROBERT M. VAN DEGNA has been a director of the Company since June 1995.
Since 1982, Mr. Van Degna has been a Managing Director and an executive officer
with various partnerships and corporations affiliated with Fleet Private Equity
Co., an investment firm affiliated with Fleet Financial Group, based in
Providence, Rhode Island. Mr. Van Degna currently serves as a director of
several privately-held companies.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met twelve times in 1998, and each director attended
at least 75% of such meetings. During 1998, 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, audit, and capital
formation 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 four times in 1998. 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
1998. 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.
The capital formation committee, composed of Messrs. Campbell, Schutz, and
Benbow, met one time during 1998. The capital formation committee's functions
are to assist management with the strategic planning process including the
review of the Company's existing credit facilities, strategic business plans and
corporate objectives.
ELECTION OF DIRECTORS
The election of Mr. Dunaway will require the affirmative vote of a
plurality of the shares represented at the Meeting, in person or by proxy, and
entitled to vote thereon, assuming a quorum is present. The election of Mr.
Campbell will require the affirmative vote of a plurality of the shares of Class
A Preferred 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 TWO NOMINEES NAMED ABOVE.
8
<PAGE> 12
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 former President, participated in determining
executive officer compensation. In 1997, 1998, and 1999, entities that may be
deemed to be affiliated with Robert Van Degna, a director of the Company and
member of the Compensation Committee, purchased Class A Preferred, Class B
Preferred and warrants to purchase Common Stock from the Company. See "Certain
Transactions."
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
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) (#)(2) ($)(3)
------------------ ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark H. Dunaway................. 1998 242,016 30,252 61,428 110,550 1,000
Chairman of the Board and 1997 225,000 -- 4,800 -- 950
Chief Executive Officer 1996 190,377 28,125 4,800 22,350 950
Michael J. Saner(4)............. 1998 191,613 24,125 53,569 110,550 1,000
President and Director 1997 180,000 -- 4,800 -- 950
1996 151,046 22,500 4,800 22,350 950
Kathryn Loev Putnam(5).......... 1998 150,617 14,375 4,800 130,000 1,000
Senior Vice President and 1997 95,004 40,000 4,800 60,000 950
Chief Financial Officer 1996 61,875 37,625 3,600 -- 563
Eugene H. Kreeft(6)............. 1998 150,000 18,750 -- 110,550 --
Executive Vice President 1997 150,000 30,000 -- 22,350 --
of Engineering 1996 150,000 -- -- -- --
Gary E. Park(7)................. 1998 147,824 15,625 4,384 60,000 950
Vice President of Sales 1997 117,500 37,961 4,800 50,000 825
1996 20,433 -- 800 -- --
Mark B. Jones................... 1998 139,367 15,000 4,800 80,000 1,000
Vice President of Legal 1997 103,603 14,000 4,800 9,575 950
Affairs 1996 85,000 3,375 4,800 0 950
</TABLE>
- ---------------
(1) Reflects car allowances paid to these employees. For Mr. Dunaway and Mr.
Saner, this includes deferred compensation earned in 1997 but paid in 1998
in the amount of $54,479 and $48,769, respectively.
(2) Includes options granted pursuant to the Company's 1992 Stock Option Plan,
1994 Stock Option Plan and 1995 Stock Option Plan.
(3) Reflects the Company's matching contributions to the 401(k) plan: Mr.
Dunaway, Mr. Saner, Ms. Putnam, and Mr. Jones are 100% vested; Mr. Park is
66 2/3% vested.
9
<PAGE> 13
(4) Mr. Saner resigned his positions as an employee, officer, and director of
the Company as of December 31, 1998.
(5) Ms. Putnam became an employee of the Company in April 1996. Prior to her
assuming the position of Senior Vice President and Chief Financial Officer
in July 1997, Ms. Putnam was Vice President of Corporate Development.
(6) Mr. Kreeft was no longer an employee or officer of the Company as of
February 28, 1999.
(7) Mr. Park became an employee of the Company in November 1996. Mr. Park was no
longer an employee or officer of the Company as of December 3, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides details regarding stock options granted (no
SARs were granted) to the Named Executive Officers during 1998 pursuant to the
1995 Stock Option Plan, as amended:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
OPTION GRANTS IN LAST FISCAL YEAR VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------ STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
UNDERLINING EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARES) DATE 5%($) 10%($)
- ---- --------------- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark H. Dunaway............. 110,550 8.80 2.13 1/30/08 148,086.76 375,280.93
Michael J. Saner............ 110,550 8.80 2.13 1/30/08 148,086.76 375,280.93
Kathryn Loev Putnam......... 100,000 7.96 2.13 1/30/08 133,954.56 339,467.14
30,000 2.39 .68 12/11/08 12,829.45 32,512.35
Eugene H. Kreeft............ 110,550 8.80 2.13 1/30/08 148,086.76 375,280.93
Gary E. Park................ 60,000 4.77 2.13 1/30/08 80,372.73 203,680.29
Mark B. Jones............... 50,000 3.98 2.13 1/30/08 66,977.28 169,733.57
30,000 2.39 .68 12/11/08 12,829.45 32,512.35
</TABLE>
- ---------------
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any on stock option exercises are dependant on future performance
of the Common Stock and overall market conditions. The amounts set forth in
the table may not necessarily be achieved.
EXERCISES OF OPTIONS IN 1998 AND AGGREGATE YEAR-END OPTION VALUES
The following table sets forth information with respect to the December 31,
1998 value of all options held by the Named Executive Officers at that date. No
Named Executive Officer exercised any options in 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY -- END OPTION/SAR VALUES
<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 ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Mark H. Dunaway.......................... N/A N/A 95,650/125,450 0/0
Michael J. Saner......................... N/A N/A 95,650/125,450 0/0
Kathryn Loev Putnam...................... N/A N/A 20,000/170,000 0/0
Eugene H. Kreeft......................... N/A N/A 95,650/125,450 0/0
Gary E. Park............................. N/A N/A 16,667/93,333 0/0
Mark B. Jones............................ N/A N/A 23,404/106,596 0/0
</TABLE>
- ---------------
(1) Assumes the difference between fair market value and the exercise price.
10
<PAGE> 14
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 1997, and remained at
this level during 1998, to $20,168 per month. Of this amount, $6,050.40 per
month was accrued for the months of April through December 1997, and paid in
1998. 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.
DIRECTOR 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 99,000 shares have been granted as of April 30, 1999.
11
<PAGE> 15
PERFORMANCE GRAPH
The Company completed its initial public offering on March 1, 1996, and its
Common Stock began trading on Nasdaq at a price of $10.00. The Nasdaq Stock
Market, Inc. has delisted the Company's Common Stock from its National Market as
of the close of business on March 22, 1999 because the Company failed to comply
with Nasdaq's quantitative maintenance criteria regarding minimum net tangible
assets, market value of public float and minimum bid price. The Company's Common
Stock became listed on the OTC Bulletin Board effective March 23, 1999.
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 five 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>
The Nasdaq
Measurement Period The Stock Market Custom Peer
(Fiscal Year Covered) Company (1) Index Group (2)
<S> <C> <C> <C>
2/96 100 100 100
3/96 90 100 97
6/96 86 114 89
9/96 68 105 56
12/96 65 118 40
3/97 29 118 25
6/97 19 127 33
9/97 20 145 44
12/97 13 145 34
3/98 19 167 46
6/98 13 172 41
9/98 8 154 24
12/98 3 199 20
</TABLE>
- ---------------
(1) Based on initial public offering price of $10.00.
(2) The Custom Peer Group includes Arch Communications Group, Inc., Metrocall,
Inc., PageMart Wireless, Inc., Paging Network, Inc., and Teletouch
Communications, Inc.
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
12
<PAGE> 16
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 1999, executive officers'
salaries will increase based on the parameters set forth above.
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 1999, the
Compensation Committee has established annual incentive targets based upon the
performance of the Company, including earnings before interest expense, interest
income, taxes, depreciation and amortization ("EBITDA"), a standard performance
measure in the paging industry, and growth in net revenues. 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.
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
entitled to a base salary of $242,016 in 1998 pursuant to the terms of an
employment agreement. The Committee concluded that the 1998 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 1999
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, 1999 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 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 and
because of the approval of the 1995 Stock Option Plan by the stockholders in
1997. 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 1998 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 of 1933, as amended or the Exchange Act,
except to the extent that the Company specifically incorporates the same by
reference.
13
<PAGE> 17
CERTAIN TRANSACTIONS
On June 17, 1997, the Company issued 10.0 million shares of Class A
Preferred, and warrants to purchase up to 11.5 million shares of Common Stock at
an exercise price of $1.50 per share, for a total purchase price of $15.0
million (the "Class A Offering"), to certain existing shareholders of the
Company and their affiliates. On March 16, 1998, the Company issued 5,333,336
shares of Class B Preferred, and warrants to purchase up to 5.4 million shares
of Common Stock at an exercise price of $1.50 per share, for a total purchase
price of $8 million (the "Class B Offering"). In the Class A Offering, units
consisting of one share of Class A Preferred and a warrant to acquire 1.15
shares of Common Stock (at an exercise price of $1.50 per share of Common Stock)
were sold for a purchase price of $1.50 in cash. In the Class B Offering, units
consisting of one share of Class B Preferred and a warrant to acquire 1.0125
shares of Common Stock (at an exercise price of $1.50 per share of Common Stock)
were sold for a purchase price of $1.50 in cash.
Centennial Fund IV, L.P., a significant shareholder of the Company which
may be deemed to be an affiliate of director Jeffrey H. Schutz, purchased
3,133,333 shares of Class A Preferred and warrants to acquire 3,603,333 shares
of Common Stock in the Class A Offering, and 112,667 shares of Class B Preferred
and warrants to acquire 114,075 shares of Common Stock in the Class B Offering.
Fleet Venture Resources, Inc., a significant shareholder of the Company
which may be deemed to be an affiliate of director Robert Van Degna, and
entities affiliated with Fleet Venture Resources, Inc., purchased 2,398,000
shares of Class A Preferred and warrants to acquire 2,757,000 shares of Common
Stock in the Class A Offering, and 386,205 shares of Class B Preferred and
warrants to acquire 391,032 shares of Common Stock in the Class B Offering.
Saugatuck Capital Company Limited Partnership III, a significant
shareholder of the Company which may be deemed to be an affiliate of director
Richard P. Campbell, purchased 1,200,000 shares of Class A Preferred and
warrants to acquire 1,380,000 shares of Common Stock in the Class A Offering,
and 386,205 shares of Class B Preferred and warrants to acquire 391,032 shares
of Common Stock in the Class B Offering.
PNC Capital Corp., a significant shareholder of the Company, purchased
1,133,333 shares of Class A Preferred and warrants to acquire 1,303,333 shares
of Common Stock in the Class A Offering, and 154,849 shares of Class B Preferred
and warrants to acquire 156,785 shares of Common Stock in the Class B Offering.
Primus Capital Fund III Limited Partnership, a significant shareholder of
the Company, purchased 1,133,333 shares of Class A Preferred and warrants to
acquire 1,303,333 shares of Common Stock in the Class A Offering, and 193,408
shares of Class B Preferred and warrants to acquire 195,826 shares of Common
Stock in the Class B Offering.
Mark H. Dunaway, Chairman of the Board and Chief Executive Officer of the
Company, purchased 66,667 shares of Class B Preferred and warrants to acquire
67,500 shares of Common Stock in the Class B Offering.
John J. Hurley, a director of the Company, purchased 66,667 shares of Class
B Preferred and warrants to acquire 67,500 shares of Common Stock in the Class B
Offering. Mr. Hurley is also a director of the Company, and is Vice Chairman and
a member of the Board of Directors of Glenayre Technologies, Inc. ("Glenayre"),
a leading manufacturer of network equipment for the wireless industry. Since
January 1, 1997, the Company has purchased approximately $2,900,000 of equipment
from Glenayre or its affiliates and has borrowed approximately $2,700,000 under
an equipment financing agreement with Glenayre.
Family members of Kathryn Loev Putnam, Senior Vice President and Chief
Financial Officer of the Company, purchased an aggregate of 66,667 shares of
Class B Preferred and warrants to acquire 67,500 shares of Common Stock in the
Class B Offering.
Alta Communications VI, L.P., a significant shareholder of the Company
which may be deemed to be an affiliate of director Robert F. Benbow, and an
entity affiliated with Alta Communications VI, L.P., purchased 3,666,667 shares
of Class B Preferred and warrants to acquire 3,712,500 shares of Common Stock in
the Class B Offering. Prior to the Class B Offering, neither Alta Communications
VI, L.P., Mr. Benbow, nor their affiliates were shareholders of, or otherwise
affiliated with, the Company.
14
<PAGE> 18
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.
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, 1998, 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 1998.
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.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the Company's Annual
Meeting of Stockholders to be held in 2000 must be received at the Company no
later than November 30, 1999 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.
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
/s/ Mark B. Jones
Mark B. Jones
Secretary
April 30, 1999
15
<PAGE> 19
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 10, 1999
The undersigned stockholder of Preferred Networks, Inc. hereby appoints Mark H.
Dunaway and Mark B. Jones 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 10,
1999, or at any adjournment thereof.
I. Election of Two Directors:
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THROUGH THE NOMINEE NAME.)
A. Election of One Director for a Three Year Term by the holders of the Common
Stock, Class A Redeemable Preferred Stock, and Class B Senior Redeemable
Preferred Stock.
<TABLE>
<S> <C>
[ ] FOR the nominee listed below [ ] WITHHOLD AUTHORITY to vote for all nominees listed
below
</TABLE>
Mark H. Dunaway
B. Election of One Director for a Three Year Term by the holders of Class A
Redeemable Preferred Stock.
<TABLE>
<S> <C>
[ ] FOR the nominee listed below [ ] WITHHOLD AUTHORITY to vote for the nominee listed below
</TABLE>
Richard P. Campbell
(Continued and to be signed on other side)
<PAGE> 20
(Continued from other side)
II. In their discretion upon such other business as may properly come
before the meeting
IF NO DIRECTION TO THE CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF EACH OF THE TWO NOMINEES FOR DIRECTOR NAMED ABOVE.
Dated: 1999
---------------------,
--------------------------------
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.
