<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ to ___________________
Commission File Number: 0-27658
PREFERRED NETWORKS, INC.
(Exact name of Registrant as Specified in its Charter)
GEORGIA 58-1954892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
850 Center Way, Norcross, GA 30071
(Address of principal executive offices)
(Zip Code)
(770) 582-3500
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,369,302 shares of common
stock, no par value, as of May 14, 1999.
<PAGE> 2
PREFERRED NETWORKS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
NUMBER
------
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31, 1999
(Unaudited) and December 31, 1998.................................... 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 respectively
(Unaudited) ......................................................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 (Unaudited) .................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited) .... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk .............. 14
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities ..................................... 15
Item 6. Exhibits and Reports on Form 8-K .................................... 15
Signatures .......................................................... 16
</TABLE>
2
<PAGE> 3
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................................................... $ 5,421,691 $ 6,474,139
Accounts receivable, net .................................................... 3,259,197 3,029,334
Inventory ................................................................... 2,531,829 2,928,217
Prepaid expenses and other current assets ................................... 661,112 417,829
Current assets of discontinued operations ................................... 2,383,919 1,809,249
------------ ------------
Total current assets ..................................................... 14,257,748 14,658,768
Property and equipment, net .................................................... 19,661,879 20,447,962
Property and equipment of discontinued operations, net ......................... 1,107,363 1,107,655
Goodwill, net .................................................................. 11,564,829 11,788,554
Goodwill of discontinued operations, net ....................................... 626,245 639,025
FCC licenses, net .............................................................. 8,664,714 8,838,444
Other assets, net .............................................................. 679,338 2,552,135
Other assets of discontinued operations ........................................ 280 --
------------ ------------
$ 56,562,396 $ 60,032,543
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................................ $ 5,654,643 $ 4,356,885
Accrued liabilities ......................................................... 1,181,605 1,060,966
Accrued compensation ........................................................ 409,273 394,989
Current portion of notes payable and capital lease obligations .............. 18,702,495 18,635,308
Current liabilities of discontinued operations .............................. 635,822 714,678
------------ ------------
Total current liabilities ................................................ 26,583,838 25,162,826
Notes payable and capital lease obligations, less current portion of
continuing operations ...................................................... 178,074 218,389
Notes payable and capital lease obligations, less current portion of
discontinued operations .................................................... 132,934 127,557
Class A Redeemable Preferred Stock, no par value, $1.50 per
share redemption price; 13,500,000 shares authorized,
10,000,000 shares issued and outstanding (including $2,683,333
and $2,308,333 of undeclared dividends in 1999 and 1998, respectively) ..... 16,360,105 15,879,309
Class B Senior Redeemable Preferred Stock, no par value, $1.50
per share redemption price; 5,500,000 shares authorized,
5,333,336 shares issued and outstanding (including $1,245,161
and $945,161 of undeclared dividends in 1999 and 1998, respectively) ....... 8,438,538 8,088,693
------------ ------------
Total liabilities and Redeemable Preferred Stock ......................... 51,693,489 49,476,774
Stockholders' equity
Common Stock, no par value, 100,000,000 shares authorized
in 1999 and 1998; 16,369,302 and 16,334,377 issued and
outstanding in 1999 and 1998, respectively ............................... 60,800,271 61,458,690
Accretion of Redeemable Preferred Stock .................................... (984,420) (828,788)
Accumulated deficit ......................................................... (54,946,944) (50,074,133)
------------ ------------
Total Stockholders' equity ............................................... 4,868,907 10,555,769
$ 56,562,396 $ 60,032,543
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues
Network services ............................................................... $ 3,306,154 $ 3,263,018
Product sales .................................................................. 3,845,690 3,894,594
Other services ................................................................. 2,494,267 2,117,801
------------ ------------
Total revenues ........................................................ 9,646,111 9,275,413
Costs of revenues
Network services ............................................................... 2,125,048 2,154,372
Product sales .................................................................. 3,205,649 3,232,300
Other services ................................................................. 2,207,907 1,707,755
------------ ------------
Total cost of revenues ................................................ 7,538,604 7,094,427
------------ ------------
Gross margin ........................................................................ 2,107,507 2,180,986
Selling, general and administrative expenses ........................................ 3,360,735 3,543,850
Depreciation and amortization ....................................................... 1,396,095 1,711,760
------------ ------------
Operating loss ........................................................ (2,649,323) (3,074,624)
Interest expense .................................................................... (488,889) (326,583)
Interest income ..................................................................... 37,161 74,395
------------ ------------
Net loss from continuing operations
before cumulative effect of change in accounting principle ........ (3,101,051) (3,326,812)
Net income from discontinued operations, net of income taxes .......... 60,638 5,049
Cumulative effect of change in accounting principle ................... (1,832,398) --
------------ ------------
Net loss .............................................................. (4,872,811) (3,321,763)
------------ ------------
Accretion of Redeemable Preferred Stock ............................................. (155,642) (111,894)
Redeemable Preferred Stock dividend requirements .................................... (675,000) (420,161)
------------ ------------
Net loss attributable to Common Stock ................................. $ (5,703,453) $ (3,853,818)
============ ============
Net earnings per Common Share:
Continuing operations before cumulative effect of change in
accounting principle ......................................................... $ (.24) $ (.24)
Discontinued operations ......................................................... .00 .00
Cumulative effect of change in accounting principle ............................. (.11) --
------------ ------------
Net loss per share of Common Stock .................................................. $ (.35) $ (.24)
============ ============
Weighted average number of common shares
used in calculating net loss per share of Common Stock ........................... 16,265,377 16,179,250
============ ============
Pro forma net loss assuming the change in
accounting principle is applied retroactively ................................... $ (3,040,413) $ (3,224,811)
============ ============
Pro forma net loss attributable to Common Stock assuming the change in
accounting principle is applied retroactively ................................... $ (3,871,055) $ (3,756,866)
============ ============
Pro forma net loss per share ........................................................ $ (.24) $ (.23)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
PREFERRED NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................................................ $ (4,872,811) $ (3,321,763)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of change in accounting principle .............................. 1,832,398 --
Depreciation and amortization .................................................... 1,396,095 1,711,760
Bad debt expense ................................................................. 132,213 62,731
Stock option and restricted stock grant compensation expense ..................... 16,590 16,581
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (362,075) 530,361
Inventory ................................................................... 396,388 505,386
Prepaid expenses and other assets ........................................... (232,883) (96,778)
Accounts payable ............................................................ 1,297,758 (1,072,212)
Accrued liabilities ......................................................... 119,479 (94,023)
Accrued compensation ........................................................ 14,556 (143,887)
------------ ------------
Net cash used in operating activities by continuing operations ................... (262,292) (1,901,844)
Net cash used in operating activities by discontinued operations ................. (554,648) (92,635)
------------ ------------
Net cash used in operating activities ............................................ (816,940) (1,994,479)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment .............................................................. (181,681) (369,295)
Purchases of equipment for discontinued operations .................................. (80,708) (14,932)
Purchases of other assets and FCC licenses .......................................... -- (213,633)
------------ ------------
Net cash used in investing activities ............................................ (262,389) (597,860)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings ............................................................ 492,136 500,000
Repayments of borrowings ............................................................ (451,277) (467,705)
Payment of deferred loan costs ...................................................... -- (220,000)
Net proceeds from issuance of Redeemable Preferred Stock ............................ -- 6,965,000
Net proceeds from issuance of Common Stock purchase warrants ........................ -- 810,000
Issuance of Common Stock upon exercise of stock options ............................. -- 8,531
------------ ------------
Net cash provided by financing activities of continuing operations ............... 40,868 7,595,826
Net cash used in financing activities of discontinued operations ................. (13,987) --
------------ ------------
Net cash provided by financing activities ........................................ 26,881 7,595,826
Net increase (decrease) in cash and cash equivalents ................................ (1,052,448) 5,003,487
Cash and cash equivalents, beginning of period ...................................... 6,474,139 7,379,254
------------ ------------
Cash and cash equivalents, end of period ............................................ $ 5,421,691 $ 12,382,741
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
PREFERRED NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. THE COMPANY
Preferred Networks, Inc. ("PNI" or "the Company"), headquartered in
metropolitan Atlanta, provides outsourcing solutions to the wireless
industry which allow companies to offer branded wireless services directly
to subscribers, while relying on PNI to provide high-quality network,
technical, and product services. PNI offers its services through its
Network Services Division, PNI Access Services ("Access"), a provider of
wholesale paging network service as one of the largest carrier's carriers
in the U.S., and through its wholly-owned subsidiaries: Preferred
Technical Services, Inc. ("PTS"), a provider of paging network equipment
installation, maintenance and engineering services; and EPS Wireless, Inc.
("EPS"), a national provider of paging and cellular product repair
services, sales of new, used and refurbished paging and cellular products
and inventory management services.
The Company has formed wholly-owned subsidiaries and limited liability
companies to execute certain business transactions. All significant
intercompany activity has been eliminated.
2. BASIS FOR PRESENTATION
The interim condensed consolidated financial information contained herein
has been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and includes
in the opinion of management, all adjustments, which are of a normal
recurring nature necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") have been condensed or omitted pursuant to
such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not misleading.
These financial statements and related notes should be read in conjunction
with the financial statements and notes as of December 31, 1998, included
in the Company's Annual Report on Form 10-K (File No. 0-27658). Results of
operations for the periods presented herein are not necessarily indicative
of results to be expected for the full year or any other interim period.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include investments in money market instruments,
which are carried at fair market value. Cash payments made for interest,
net of capitalized interest, during the three months ended March 31, 1999
and 1998 were approximately $446,000 and $388,000 respectively. There were
no significant federal or state income taxes paid or refunded for the
three months ended March 31, 1999 and 1998.
4. LOSS PER SHARE
Net loss per share was computed using the requirements of Statement of
Financial Accounting Standards No. 128, Earnings per Share, and Staff
Accounting Bulletin No. 98. Net loss per share-basic was computed by
dividing net loss attributable to common stock by the weighted average
number of shares of common stock outstanding during the period excluding
unvested shares of restricted stock. The denominator for net loss per
share-diluted also considers the dilutive effect of outstanding stock
options, warrants, and convertible preferred stock. Due to the Company's
net loss, the amounts reported for basic and diluted are the same. The
following securities could potentially dilute basic earnings per share in
the future and were not included in the computation of diluted net loss
per share because they would have been antidilutive for the periods
presented:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Common Stock Options 2,445,168 2,311,955
Common Stock Warrants 17,322,353 17,322,353
Unvested Restricted Stock 69,000 85,000
---------- ----------
Total Securities 19,836,521 19,719,308
========== ==========
</TABLE>
6
<PAGE> 7
PREFERRED NETWORKS, INC.
5. DISCONTINUED OPERATIONS
On April 19, 1999, the Company reached a definitive agreement to sell
substantially all of the assets of its wholly-owned subsidiary, PTS. Under
the terms of the agreement, an affiliate of Saratoga Partners, a New York
based merchant bank will pay the Company approximately $5 million for PTS,
subject to various purchase price adjustments. A principal of Saratoga
Partners serves as a director of the Company. The purchase price to be
paid is approximately $4 million in cash with the balance of the purchase
price to be paid in maintenance services on the Company's paging networks.
The sale is scheduled to close during the second quarter of 1999. There
are significant conditions that must be satisfied prior to the closing of
this transaction; therefore, there can be no assurances that the
transaction will close.
Revenues for PTS for the three months ended March 31, 1999 and 1998 were
$1.6 million and $389,000, respectively. Net income of PTS for the three
months ended March 31, 1999 and 1998 was $61,000 and $5,000, respectively.
This subsidiary has been presented as a discontinued operation in the
accompanying financial statements.
6. ISSUANCE OF CLASS B SENIOR REDEEMABLE PREFERRED STOCK AND COMMON STOCK
PURCHASE WARRANTS
In March 1998, the Company issued 5,333,336 shares of Class B Senior
Redeemable Preferred Stock (the "Class B Preferred") and warrants to
purchase up to 5.4 million shares of Common Stock for a total purchase
price of $8 million. Dividends accrue at the rate of 15% per annum, are
cumulative and compound annually. The Class B Preferred may be redeemed at
any time at the option of the Company at a price equal to $1.50 per share
plus accrued dividends. In addition, if the holders so demand, five years
from the date of issuance, the Class B Preferred must be redeemed by the
Company at a price equal to $1.50 per share plus accrued dividends. In the
event of redemption of the Company's Class A Redeemable Preferred Stock
(the "Class A Preferred"), the Company must simultaneously redeem the
Class B Preferred. Each warrant is exercisable for five years following
the issuance of the Class B Preferred and entitles the holder to purchase
one share of Common Stock for $1.50 per share subject to possible downward
adjustment based on any private placement of the Company's Preferred or
Common Stock for less than $1.50 per share. The Class B Preferred is
recorded at cost, net of expenses, plus accretion and undeclared
dividends.
7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires entities to charge to expense
start-up costs, including organizational costs, as incurred. In addition,
SOP 98-5 requires a write-off of any previously capitalized start-up or
organization costs, and must be reported as the cumulative effect of a
change in accounting principle. SOP 98-5 became effective January 1, 1999.
The Company adopted SOP 98-5 on January 1, 1999 and has written off the
unamortized balance of its market entry costs of $1.8 million and no
longer capitalizes such costs.
Pro forma amounts reflect adjustments to cease capitalization and
amortization as if SOP 98-5 had been adopted prior to 1998. Additional
amounts capitalized during the three months ended March 31, 1998 were
$210,000 and amortization expense was $307,000 for the three months ended
March 31, 1998.
7
<PAGE> 8
PREFERRED NETWORKS, INC.
8. SEGMENT INFORMATION
In its continuing operations, the Company has two reportable segments organized
by products or services sold: (i) one-way wireless networks, whereby companies
purchase non-branded, wholesale network services from the Company for resale to
their customers (through its PNI Access Services Division) and (ii) pager and
cellular product repair services, product sales and inventory management and
fulfillment (through EPS Wireless, Inc.). The Company's third segment,
Preferred Technical Services, Inc., is reported as discontinued operations.
The Company evaluates performance and allocates resources based on earnings
before interest, depreciation and other non-cash items. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales are recorded with profit,
which is then eliminated upon consolidation.
<TABLE>
<CAPTION>
PNI ACCESS
SERVICES AND EPS
OTHER* WIRELESS, INC. INTERSEGMENT TOTALS
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 1999
Revenue ....................................... $ 4,949,837 $ 4,696,274 $ -- $ 9,646,111
Interest expense .............................. 483,750 5,139 -- 488,889
Depreciation and amortization expense ......... 1,226,284 169,811 -- 1,396,095
Segment income (loss) after cumulative
effect of change in accounting principle..... (4,812,970) (131,045) 10,566 (4,933,449)
Segment assets ................................ 81,550,459 4,727,141 (33,833,011) 52,444,589
QUARTER ENDED MARCH 31, 1998
Revenue ....................................... 4,644,225 4,879,265 (248,077) 9,275,413
Interest expense .............................. 315,162 11,421 -- 326,583
Depreciation and amortization expense ......... 1,555,014 156,746 -- 1,711,760
Segment income (loss) after cumulative
effect of change in accounting principle..... (3,463,790) 136,777 201 (3,326,812)
Segment assets ................................ 96,167,839 5,959,640 (34,768,200) 67,359,279
</TABLE>
* "Other" includes overhead expenses primarily in the area of S,G&A
relating to executive management, information services, public reporting and
other similar expenses. The cumulative effect of the change in accounting
principle is reflected in PNI Access Services.
8
<PAGE> 9
PREFERRED NETWORKS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
In this section, the Company makes reference to "EBITDA" which represents
earnings before interest expense, interest income, taxes, depreciation and
amortization. EBITDA is a financial measure commonly used in the
telecommunications industry and should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles ("GAAP")), as an alternative to cash flows from operating
activities (as determined in accordance with GAAP), or as a measure of
liquidity.
The table below provides the components of the Company's consolidated
statements of operations and EBITDA for each of the three months ended March
31, 1999 and 1998, respectively, as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1999 1998
--------- -------
<S> <C> <C>
Revenues
Network services .................................................. 34.3% 35.2%
Product sales ..................................................... 39.9 42.0
Other services .................................................... 25.9 22.8
--------- -------
Total revenues .................................................. 100.0 100.0
Cost of revenues
Network services .................................................. 22.0 23.2
Products sales .................................................... 33.2 34.8
Other services .................................................... 22.9 18.4
--------- -------
Total cost of revenues .......................................... 78.2 76.5
--------- -------
Gross margin ......................................................... 21.8 23.5
Selling, general and administrative expenses ......................... 34.8 38.2
Depreciation and amortization ........................................ 14.5 18.5
--------- -------
Operating loss .................................................. (27.5) (33.1)
--------- -------
Interest expense ..................................................... (5.1) (3.5)
Interest income ...................................................... 0.4 0.8
--------- -------
Net loss from continuing operations before cumulative
effect of change in accounting principle ................... (32.1)% (35.9)%
Net income from discontinued operations, net of tax ............. 0.6% 0.1%
Cumulative effect of change in accounting principle ............. (19.0)% --%
--------- -------
Net loss ........................................................ (50.5)% (35.8)%
========= =======
Net loss attributable to Common Stock ........................... (59.1)% (41.5)%
========= =======
EBITDA ............................................................... (13.3)% (14.7)%
========= =======
</TABLE>
The table below provides information about the Company's units in service on
the Company's networks by customer type.
<TABLE>
<CAPTION>
MARCH 31, 1999 PERCENTAGE INCREASE IN
----------------------- ----------------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Units in service
Reseller units................................ 318,685 308,238 -2.4% 1.4%
Direct Access units........................... 224,811 168,238 13.1% 11.7%
------- -------
Total units in service........................ 543,496 476,476 33.5% 4.8%
======= =======
</TABLE>
9
<PAGE> 10
PREFERRED NETWORKS, INC.
On April 19, 1999, the Company reached a definitive agreement to sell
substantially all of the assets of its wholly-owned subsidiary, PTS. Under the
terms of the agreement, an affiliate of Saratoga Partners, a New York based
merchant bank, will pay the Company approximately $5 million for PTS, subject
to various purchase price adjustments. A principal of Saratoga Partners serves
as a director of the Company. The purchase price to be paid is approximately $4
million in cash with the balance of the purchase price to be paid in
maintenance services on the Company's paging networks. The sale is scheduled to
close during the second quarter of 1999. There are significant conditions that
must be satisfied prior to the closing of this transaction; therefore, there
can be no assurances that the transaction will close.
Revenues for PTS for the three months ended March 31, 1999 and 1998 were $1.6
million and $389,000, respectively. Net income of PTS for the three months
ended March 31, 1999 and 1998 was $61,000 and $5,000, respectively. This
subsidiary has been presented as a discontinued operation in the accompanying
financial statements.
RESULTS OF OPERATIONS
Total revenues increased by $371,000, or 4.0%, to $9.6 million for the three
months ended March 31, 1999 from $9.3 million for the three months ended March
31, 1998.
Revenues from network services increased by $43,000, or 1.3%, to $3.3 million
for the three months ended March 31, 1999 from $3.3 million for the three
months ended March 31, 1998. The Company had 28 markets in service at March 31,
1999. Units in service increased by 67,020, or 14.1%, to 543,496 at March 31,
1999 from 476,476 at March 31, 1998. Airtime revenue per unit decreased by
$0.28 to $2.06 for the three months ended March 31, 1999 from $2.34 for the
three months ended March 31, 1998. This decrease is primarily due to an
increase in units in service from Direct Access customers as a percentage of
total units in service. Units from Direct Access customers increased to 41.4%
of total units at March 31, 1999 from 35.3% at March 31, 1998. The Company
incurs minimal marginal cost in supplying only airtime to its Direct Access
customers and therefore charges these customers substantially less per unit in
service per month than it charges its reseller customers.
Revenues from product sales decreased by $49,000, or 1.3%, to $3.8 million for
the three months ended March 31, 1999 from $3.9 million for the three months
ended March 31, 1998. The decrease in product sales revenue is due to decreased
sales at EPS of new, used and refurbished pager products partially offset by
increased sales of new, used and refurbished cellular products and by increased
sales of new pagers to network customers.
Other services revenues increased by $376,000, or 17.8%, to $2.5 million for
the three months ended March 31, 1999 from $2.1 million for the three months
ended March 31, 1998. The increase for the three months ended March 31, 1999 is
due to increases in cellular repair and refurbishment volume and associated
revenue offset in part by decreases in pager repair and refurbishment volume
and associated revenue at EPS. Management believes the decrease in pager repair
and refurbishment services resulted primarily from consolidation among certain
of EPS's customers, and further believes that this consolidation may result in
increased opportunities for its pager repair and refurbishment services in the
future.
Total costs of revenues increased by $444,000, or 6.3% to $7.5 million for the
three months ended March 31, 1999 from $7.1 million for the three months ended
March 31, 1998.
Cost of network services decreased by $29,000, or 1.4%, to $2.1 million for the
three months ended March 31, 1999 from $2.2 million for the three months ended
March 31, 1998. Cost of network services as a percentage of network services
revenue decreased to 64.3% for the three months ended March 31, 1999, from
66.0% for the three months ended March 31, 1998. As markets generate increased
revenue, the decrease in costs as a percentage of revenue is expected due to
the fixed nature of many of these expenses.
Cost of product sales decreased by $27,000, or 0.8%, to $3.2 million for the
three months ended March 31, 1999 from $3.2 million for the three months ended
March 31, 1998. Cost of product sales as a percentage of product sales revenue
increased to 83.4% for the three months ended March 31, 1999, from 83.0% for
the three months ended March 31, 1998. The decrease in cost of product sales is
due to the decrease in product revenues at EPS and to PNI Access Services'
decreasing cost of new pagers sold to its network customers.
Cost of other services increased by $500,000, or 29.3% to $2.2 million for the
three months ended March 31, 1999 from $1.7 million for the three months ended
March 31, 1998. Cost of other services as a percentage of other services
revenue increased to 88.5% for the three months ended March 31, 1999, from
80.6% for the three months
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PREFERRED NETWORKS, INC.
ended March 31, 1998. The increase in cost of other services is due primarily
to the increased costs associated with the rapid increase in cellular repair
volume at EPS. The Company expected EPS to experience production inefficiencies
associated with a rapid increase in cellular repair volume and expects margins
to improve as volumes achieve more sustained levels.
Selling, general and administrative (SG&A) expenses decreased by $183,000, or
5.2%, to $3.4 million for the three months ended March 31, 1999 from $3.5
million for the three months ended March 31, 1998. SG&A expenses decreased as a
percentage of total revenues to 34.8% for the three months ended March 31, 1999
from 38.2% for the three months ended March 31, 1998. The decrease in SG&A is
due primarily to reduced sales and administrative expenses resulting from the
decreases in product sales revenues at EPS and the reduction of certain
executive personnel expenses at EPS. In addition, because the Company does not
market directly to end-users, it does not incur subscriber-related acquisition
and customer support costs and, accordingly, its SG&A expenses do not increase
in direct proportion to its revenue growth.
Depreciation and amortization decreased by $316,000, or 18.4%, to $1.4 million
for the three months ended March 31, 1999 from $1.7 million for the three
months ended March 31, 1998. Depreciation and amortization decreased as a
percentage of total revenues to 14.5% for the three months ended March 31, 1999
from 18.5% for the three months ended March 31, 1998. The decrease is due
primarily to no amortization of market start-up expenses in 1999 with the
adoption of SOP 98-5.
Interest expense, net of capitalized amounts, increased by $162,000, or 49.7%,
to $489,000 for the three months ended March 31, 1999 from $327,000 for the
three months ended March 31, 1998. The increase in interest expense is
primarily due to no interest being capitalized in 1999 since the Company had no
construction activities during the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998, when $199,000 was
capitalized.
Interest income decreased by $37,000 or 50.0% to $37,000 for the three months
ended March 31, 1999 from $74,000 for the three months ended March 31, 1998.
The decrease in interest income is due to a corresponding decrease in cash and
cash equivalents.
Net loss from continuing operations before cumulative effect of change in
accounting principle for the three months ended March 31, 1999 as compared to
the three months ended March 31, 1998 decreased to $3.1 million from $3.3
million. The decreased losses are due primarily to decreases in SG&A and
decreased depreciation and amortization expense, as described above. The
cumulative effect of change in accounting principle for the three months ended
March 31, 1999 resulting from the write-off of market start-up costs as
required by SOP 98-5 was $1.8 million. The net loss attributable to Common
Stock increased primarily due to the cumulative effect of adopting the new
accounting principle for market entry costs, and higher accretion and dividends
related to the Class A Preferred and the Class B Preferred, issued in June 1997
and March 1998, respectively.
The net loss per share of Common Stock for the three months ended March 31,
1999 increased to $0.35 from $0.24 for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operations was $0.8 million and $2.0 million for
the three months ended March 31, 1999 and 1998, respectively. The primary
reasons for the reduction in net cash used in operations were the decrease in
the net loss from operations before the effect of change in accounting
principle and an increase in accounts payable compared to the prior year
period.
Capital expenditures were $262,000 and $384,000 for the three months ended
March 31, 1999 and 1998, respectively. The Company has funded its expansion in
the past by equity infusions, bank and finance company debt, loans from
stockholders, and vendor and seller financing.
In March 1998, the Company sold $8.0 million of Class B Preferred with
warrants to one institutional investor and certain of its existing
stockholders. The Class B Preferred accrues cumulative dividends at a rate of
15.0% of its liquidation value, compounded annually. The holders of the Class B
Preferred were issued warrants to purchase 5.4 million shares of Common Stock
at an exercise price of $1.50 per share. No dividends on the Class B Preferred
have been paid as of March 31, 1999.
The Company has a secured credit facility for $12.0 million of vendor financing
bearing interest at the five-year
11
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PREFERRED NETWORKS, INC.
U.S. Treasury rate plus 6.5% payable in various monthly installments of
principal and interest over 60 months. This credit facility contains various
conditions, financial covenants and restrictions and is secured by paging
equipment. As of March 31, 1999, there was $5.2 million outstanding under this
facility, and no additional amounts were available. Beginning in 1999, the
Company has not made principal payments under this credit facility, which would
allow the lender to declare an event of default. Such unpaid amounts total
approximately $354,000 as of March 31, 1999.
The Company has a secured credit facility for $5.0 million to finance paging
system equipment from a finance company bearing interest between 10% and 11%
payable in various monthly installments of principal and interest over 60
months. This credit facility contains various conditions, financial covenants
and restrictions and is secured by paging equipment. As of March 31, 1999,
there was $3.2 million outstanding under this facility with no additional
availability. All required principal payments have been made in 1999.
As of December 31, 1998, the Company had an $11.0 million credit facility with
a financial institution, of which $7.25 million was used to finance paging
network acquisitions and $3.75 million represents a revolving credit facility
to be used for working capital purposes. The outstanding balance under this
facility bears interest at 1% plus the higher of the Federal Funds Rate for
each day plus 1/2% or prime. Pursuant to an amendment to the credit facility
executed in March 1998, interest only is payable monthly in arrears with the
principal installments beginning in February 1999, with the remaining principal
balance due in July 2000. This amendment to the credit facility also increased
the Company's availability for working capital purposes by $1.75 million,
bringing the total facility to $11.0 million. Borrowings under this facility
are secured by substantially all the assets of the Company. This credit
facility contains various conditions, financial covenants and restrictions
related to a variety of issues, including but not limited to debt service, and
minimum net worth. The amount outstanding under this facility as of December
31, 1998 and March 31, 1999 was $10.5 million, and $10.8 million, respectively.
At March 31, 1999 there was no additional availability. The amendment also
contained certain revisions to its financial covenants, including but not
limited to a requirement to maintain a minimum cash balance of $4 million at
all times
Beginning in 1999 and continuing through the date of this filing, the Company
was not in compliance with certain of the financial covenants under its senior
credit facility, which would allow the lender to declare a default and
accelerate the maturity of the debt. In addition, beginning in 1999, the
Company has not made principal payments under its equipment vendor credit
facility, which would also allow the lender to declare an event of default.
Such unpaid amounts total approximately $354,000 as of March 31, 1999 and
approximately $473,000 as the date of this filing. In addition, due to
cross-default provisions under each of the senior credit facility and equipment
vendor facility, such noncompliance could trigger an acceleration of all of the
Company's other outstanding debt, excluding its capital lease obligations. As a
result, the debt which totals $18.5 million and $18.6 million at December 31,
1998 and March 31, 1999, respectively, is reported as a current liability in
the accompanying consolidated balance sheet. This matter raises substantial
doubt about the Company's ability to continue as a going concern. As of April
13, 1999, the Company has accepted a non-binding proposal from its senior
lender to amend certain terms and conditions of its senior credit facility. As
currently negotiated, the amendment would require a repayment of $1.75 million
of cash, increase the interest rate, modify the financial covenants and shorten
the maturity date to April 30, 2000. The Company also is in negotiations to
obtain a waiver for the defaults and also is seeking deferral for 1999
principal payments due under its equipment vendor facility. Management believes
that if the proposal is executed by the lender in the form of an amendment to
its senior credit facility and the waiver is obtained with respect to the
vendor facility, the Company will be able to meet its debt covenants in 1999
and all of its debt would revert to monthly payments of principal and interest
which the Company believes it would be able to satisfy in 1999. There are
however, significant conditions that must be satisfied prior to the execution
of each of the amendment and the waiver. If the Company is unsuccessful in
obtaining an amendment of its credit facility or a waiver under its vendor
facility at terms which it currently anticipates are necessary, it may not have
sufficient resources to meet its debt obligations and working capital
requirements in 1999. The Company is presently in negotiations to satisfy these
conditions.
Management believes that the amendment of its senior credit facility, the
consummation of the sale of PTS and the waiver and deferral of unpaid principal
under its equipment vendor facility will occur during the second quarter of
1999, although there can be no assurances that these transactions will be
consummated or that the terms will be as currently desired. Each of these
transactions has significant conditions that must be satisfied by the
consummation of the other transactions.
At March 31, 1999, the Company had $5.4 million invested in short-term
investment grade securities at various interest rates.
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PREFERRED NETWORKS, INC.
The Nasdaq Stock Market, Inc. has delisted the Company's Common Stock from the
NASDAQ National Market effective as of the close of business on March 22, 1999
because the Company failed to comply with the Nasdaq's compliance 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 delisting from NASDAQ could adversely
affect the Company's ability to raise additional funds.
The Company operates in the wireless communications industry which has
experienced and continues to experience significant challenges including
competing technologies, shifts in customers' strategies, changes in the FCC
regulatory environment, and limited sources of capital. As a result, the
Company is continually required to address these and other matters, in its
business strategy and operations.
Since its March 1996 initial public offering, the Company has invested $62
million in building its network infrastructure, acquiring FCC licenses and
other paging networks, and acquiring related companies. As a result of this
expansion and the development of the Company's business and the overall
wireless industry, the Company has experienced net losses and negative cash
flows, and future cash flows have been difficult to project.
The Company's projections include significant growth in revenues, from existing
products and services and also from new switching technologies which it has
recently developed, and improved profitability due to greater utilization of
the existing base of assets. The Company's business plan may change, or
unforeseen events may occur, requiring the Company to raise additional funds.
Additionally, the Company may consider selling certain assets. The amounts of
funds required by the Company will depend on many factors, including successful
deployment of the Company's proprietary patent pending switch technology,
"Platform 1(TM)", its sales to customers, and the expected cost savings to the
Company in its own networks.
The outcome of the uncertainties surrounding the Company and the industry are
difficult to predict. These uncertainties could affect the Company's ability to
recover the carrying value of its long-lived assets from its future cash flows
and operations, although management's current projections indicate that such
values will be recovered. Currently, generally accepted accounting principles
require companies to assess future cash flows and record impairment losses on
long-lived assets based on estimates of future cash flows if insufficient to
recover the carrying values. Should the Company's future projections not
materialize, the Company could experience an impairment of its long-lived
assets requiring a charge to its income statement. As of December 31, 1998 and
March 31, 1999, the Company had $45 million and $42 million, respectively, in
net book value of long-lived assets, including property and equipment, FCC
licenses, market entry costs and goodwill.
YEAR 2000 COMPUTER ISSUE
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This may cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken.
The Company utilizes software and related computer technologies essential to
its operations that will be affected by the Year 2000 issue.
In 1998, the Company designated a cross-functional team with members of its
Information Technology, Engineering, Finance and Administration departments to
evaluate the impact of the Year 2000 problem. Initially, this team organized
and explained each member's role in the process. Second, the team established
an inventory of potential areas where a problem could exist. The inventory
included an assessment of the Company's desktop and server hardware; software
systems; telephone system; billing system; accounting system; paging terminals;
paging transmitters; and other paging network equipment. Third, the team
established a plan and assigned responsibility. According to the established
plan, the Company's mission critical systems will all be Year 2000 compliant by
September 1999. Assessment of mission critical systems and applications has
been substantially completed and most third party vendors who supply these
mission critical systems have been contacted.
The Company intends to bring its mission critical systems into Year 2000
compliance through hardware and software upgrades, software replacement and
internally developed enhanced software. The Company has purchased maintenance
agreements with respect to its desktop and server hardware, software systems
and telephone system.
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PREFERRED NETWORKS, INC.
These maintenance agreements have allowed the Company to upgrade and remedy
where necessary in order to become compliant at minimal additional cost. The
Company's subscriber control system is compliant. During 1998 and 1999, the
Company contracted with a consultant to provide services specifically related
to an upgrade of its accounting software package. These consulting services
consist primarily of programming services and this upgrade is expected to be
completed during the third quarter of 1999. The Company's paging terminals,
transmitters and other paging network equipment are not date sensitive.
The Company has not conducted its assessment of the reasonably likely worst
case scenario of systems failures and their related consequences. It is
expected that the planned testing of systems and the completed testing of
systems will greatly reduce the need for substantial contingency planning.
The Company believes that the cost of modifying its software and related
computer technologies will not exceed $250,000, of which approximately $20,000
was incurred in 1998 and $50,000 was incurred in the first quarter of 1999. The
remainder will be incurred in the second and third quarters of 1999. Costs of
the Year 2000 project are based on current estimates and actual results may
vary from such estimates once plans are fully implemented.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Quarterly
Report on Form 10-Q and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by the Company)
contains statements that are or will be forward-looking, such as statements
relating to acquisitions, construction and other business development
activities, future capital expenditures, timing of the Company's need for
additional capital, financing sources and availability and the effects of laws
and regulations (including FCC regulations) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, uncertainties affecting the paging and wireless industries
generally, risks relating to the Company's acquisition, construction and other
business development activities, risks relating to technological change in the
paging and wireless industries, risks relating to leverage and debt service
(including availability of financing terms acceptable to the Company), risks
relating to the ability of the Company to obtain additional funds in the form
of debt or equity, risks relating to the availability of transmitters,
terminals, network project management services and network engineering support,
fluctuations in interest rates, and the existence of and changes to federal and
state laws and regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There have been no significant changes since December 31, 1998. See
Management's Discussion and Analysis.
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PREFERRED NETWORKS, INC.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Beginning in 1999 and continuing through the date of this filing, the Company
was not in compliance with certain of the financial covenants under its senior
credit facility, which would allow the lender to declare a default and
accelerate the maturity of the debt. In addition, beginning in 1999, the
Company has not made principal payments under its equipment vendor credit
facility, which would allow the lender to declare an event of default. Such
unpaid amounts total approximately $354,000 as of March 31, 1999 and
approximately $473,000 as the date of this filing. In addition, due to
cross-default provisions under each of the senior credit facility and equipment
vendor credit facility, such noncompliance could trigger an acceleration of all
of the Company's other outstanding debt, excluding its capital lease
obligations. As a result, the debt which totals $18.5 million and $18.6 million
at December 31, 1998 and March 31, 1999, respectively, is reported as a current
liability in the accompanying consolidated balance sheet.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit:
<TABLE>
<S> <C>
10.40 Asset Purchase Agreement, dated as of April 19, 1999, by and
among Wireless Services Operating Corporation, Preferred
Technical Services, Inc., and Preferred Networks, Inc.
27 Financial Data Schedule (For SEC use only)
</TABLE>
(b) Reports on Form 8-K:
The registrant did not file any reports on Form 8-K during the three
months ended March 31, 1999.
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PREFERRED NETWORKS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
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PREFERRED NETWORKS, INC.
Date: May 17, 1999 By: /s/ Mark H. Dunaway
--------------------------------------------------------
Mark H. Dunaway
Chief Executive Officer
Date: May 17, 1999 By: /s/ Kathryn Loev Putnam
--------------------------------------------------------
Kathryn Loev Putnam
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
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EXHIBIT 10.40
================================================================================
ASSET PURCHASE AGREEMENT
by and among
WIRELESS SERVICES OPERATING CORPORATION,
PREFERRED TECHNICAL SERVICES, INC.
and
PREFERRED NETWORKS, INC.
Dated as of April 19, 1999
================================================================================
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
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1.1. Certain Definitions..................................................1
1.2. Certain Terms........................................................6
ARTICLE II
PURCHASE AND SALE
2.1. Purchase and Sale; Acquired Assets...................................6
2.2. Purchase and Sale; Assumption of Liabilities.........................7
2.3. Purchase Price; Adjustments to Purchase Price........................9
2.4. Closing..............................................................11
2.5. Deliveries by Buyer..................................................12
2.6. Deliveries by Seller.................................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1. Organization.........................................................12
3.2. Authorization........................................................12
3.3. Noncontravention.....................................................13
3.4. Binding Effect.......................................................13
3.5. Consents and Approvals...............................................13
3.6. Lawsuits; Claims.....................................................13
3.7. Financial Capability.................................................13
3.8. Finder's Fees........................................................14
3.9. No Other Representations or Warranties...............................14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND PNI
4.1. Organization.........................................................14
4.2. Authorization........................................................14
4.3. Noncontravention.....................................................14
4.4. Binding Effect.......................................................15
4.5. Consents and Approvals...............................................15
4.6. Intellectual Property................................................15
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4.7. Title to and Condition of Tangible Property..........................15
4.8. Contracts............................................................15
4.9. Lawsuits; Claims.....................................................16
4.10. Compliance with Laws.................................................16
4.11. Labor Relations......................................................16
4.12. Employee Benefits....................................................17
4.13. Environmental........................................................18
4.14. Financial Statements.................................................19
4.15. Assets...............................................................19
4.16. Governmental Permits.................................................19
4.17. Absence of Changes...................................................20
4.18. Finder's Fees........................................................21
4.19. Absence of Undisclosed Liabilities...................................21
4.20. Insurance............................................................21
4.21. Year 2000 Compliance.................................................21
4.22. Solvency.............................................................21
4.23. Affiliate Transactions...............................................22
4.24. Information Provided to Valuation Experts............................22
4.25. Bulk Sales...........................................................22
4.26. No Other Representations or Warranties...............................22
ARTICLE V
COVENANTS
5.1. Access...............................................................22
5.2. Conduct of the Business..............................................23
5.3. Commercially Reasonable Efforts......................................25
5.4. Tax Matters..........................................................26
5.5. No Shop..............................................................27
5.6. Further Assurances...................................................27
5.7. Waiver of Bulk Transfer Requirements.................................28
5.8. Public Announcements.................................................28
5.9. Notification of Certain Matters......................................28
5.10. Compliance with Laws.................................................28
5.11. Certain Covenants of PNI.............................................28
5.12. Noncompetition; Use of Name..........................................29
5.13. Use of Proceeds......................................................29
5.14. Employee Benefit and Payroll Transition..............................30
ARTICLE VI
CONDITIONS TO CLOSING
6.1. Conditions to the Obligations of Both Parties........................30
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6.2. Conditions to the Obligations of Buyer...............................30
6.3. Conditions to the Obligations of Seller..............................32
ARTICLE VII
EMPLOYEE AND LABOR MATTERS
7.1. Employees............................................................33
7.2. COBRA................................................................34
7.3. 401(k) Plan..........................................................34
7.4. Obligations..........................................................34
7.5. WARN Act.............................................................34
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1. Survival.............................................................35
8.2. Indemnification by Buyer.............................................35
8.3. Indemnification by Seller and PNI....................................35
8.4. Tax Indemnities......................................................36
8.5. Indemnification Procedures...........................................36
8.6. Computation of Losses Subject to Indemnification.....................37
8.7. Certain Limitations..................................................37
ARTICLE IX
TERMINATION
9.1. Termination..........................................................37
9.2. Effect of Termination................................................38
ARTICLE X
MISCELLANEOUS
10.1. Notices..............................................................38
10.2. Amendment; Waiver....................................................39
10.3. Assignment...........................................................39
10.4. Entire Agreement.....................................................39
10.5. Parties in Interest..................................................39
10.6. Public Disclosure....................................................39
10.7. Expenses.............................................................40
10.8. Schedules............................................................40
10.9. Governing Law; Submission to Jurisdiction; Waiver of Trial By Jury...40
10.10. Counterparts.........................................................40
</TABLE>
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10.11. Headings.............................................................41
10.12. Severability.........................................................41
Annex A: Draft Audited Financial Statements
Annex B: Purchase Balance Sheet
Exhibit A: Form of Maintenance Services Agreement
Exhibit B: Form of Transition Services Agreement
Exhibit C: Form of NationsBank Consent and Release
Exhibit D: Form of Sublease
SCHEDULES TO DISCLOSURE STATEMENT
Schedule 1.1(a) Equipment
Schedule 1.1(b) Seller Intellectual Property
Schedule 1.1(c) Seller Real Property
Schedule 2.2(a) Assumed Liabilities
Schedule 4.1 Organization
Schedule 4.5 Consents
Schedule 4.7 Encumbrances
Schedule 4.8(a) Material Contracts
Schedule 4.8(d) Contractual Liabilities
Schedule 4.9 Litigation
Schedule 4.12(a) Benefit Plans
Schedule 4.20 Insurance
Schedule 4.23 Affiliate Transactions
Schedule 5.2 Commitments Prior to Closing
Schedule 6.1(b) Consents
Schedule 7.1(a) Active Employees
Schedule 7.1(b) Inactive Employees
</TABLE>
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is made as of April 19, 1999 by
and among WIRELESS SERVICES OPERATING CORPORATION, a Delaware corporation
("Buyer"), PREFERRED TECHNICAL SERVICES, INC., a Georgia corporation ("Seller"),
and PREFERRED NETWORKS, INC., a Georgia corporation ("PNI").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business (the "Business") of
providing network engineering and technical services, supporting one-way and
two-way wireless technologies, including installation of network equipment,
maintenance of installed equipment and tower sites, sales of network equipment,
engineering site surveys and network equipment repair; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase and assume from Seller, certain of the assets and liabilities of
Seller, all as more fully set forth herein, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Accounts Receivable" means all accounts receivable of Seller
as of the Closing Date.
"Acquired Assets" has the meaning set forth in Section 2.1
hereof.
"Affiliates" means, with respect to any Person, any Persons
directly or indirectly controlling, controlled by, or under common control with,
such other Person at any time during the period for which the determination of
affiliation is being made. For purposes of this definition, the term "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of management policies of such Person, whether through the ownership
of voting securities or by contract or otherwise.
"Agreement" means this Asset Purchase Agreement, as the same
may be amended or supplemented from time to time in accordance with the terms
hereof.
"Assumed Liabilities" has the meaning set forth in Section
2.2(a) hereof.
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<PAGE> 7
"Benefit Plans" has the meaning set forth in Section 4.12
hereof.
"Books and Records" means all books, ledgers, files, reports,
plans and operating records of, or maintained by, Seller, except to the extent
included in or related to any Excluded Assets.
"Business" has the meaning set forth in the recitals to this
Agreement.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Buyer" has the meaning set forth in the recitals of this
Agreement.
"Buyer Indemnitees" has the meaning set forth in Section 8.3
hereof.
"Capital Expenditures Schedule" has the meaning set forth in
Section 6.2(k) hereof.
"Closing" means the closing of the transactions contemplated
by this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consideration" has the meaning set forth in Section 5.4(d)
hereof.
"Contracts" means the agreements, contracts, leases of real or
personal property, purchase orders, arrangements, commitments, permits and
licenses to which Seller is a party or by which it is bound or to which the
Business or the Acquired Assets are subject, limited to those which are set
forth on Schedule 4.8(a) hereto.
"Disclosure Statement" means the Schedules, dated the date
hereof and delivered concurrently herewith.
"Draft Audited Financial Statements" has the meaning set forth
in Section 4.14 hereof.
"Employees" means all present employees of Seller whose
services are or have been used primarily by or in connection with the Business.
"Encumbrances" means liens, charges, encumbrances, judgments,
attachments, security interests, options, or any other restrictions or third
party rights.
"Environment" means any surface water, ground water, drinking
water supply, land surface or subsurface strata, ambient air, including, without
limitation, any indoor location, and natural resources.
"Environmental Claim" means (i) any claim or notice by any
Person or governmental or regulatory body alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, response, remediation or removal costs, relocation costs,
governmental costs, medical monitoring, or harm, injuries or damages to any
person, property or natural resources,
2
<PAGE> 8
and any fines or penalties) arising out of, based upon, resulting from or
relating to (A) the emission, discharge, disposal or other Release or threatened
Release in or into the Environment of any Hazardous Material or (B)
circumstances forming the basis of any violation, or alleged violation, of
Environmental Law or (ii) any Environmental Loss arising out of, based upon,
resulting from or relating to the Business, the Acquired Assets or any condition
or circumstance relating thereto.
"Environmental Law" means all federal, state and local laws,
codes and regulations, and rules of common law, relating to pollution, the
protection of the Environment, or the Release or threatened Release of Hazardous
Materials in or into the Environment, or occupational safety or health.
"Environmental Loss" means all losses, liabilities, damages,
deficiencies, costs, fines, assessments, penalties, claims, actions, injuries,
suits, orders, decrees, judgments and expenses (including, without limitation,
reasonable attorneys' and consultants' fees and disbursements) arising out of,
based upon, resulting from or relating to any Environmental Law or Hazardous
Material and arising out of, based upon, resulting from or relating to the
Business, the Acquired Assets or the operations or conduct of, or any condition
or circumstance relating to, Seller or PNI or any of their respective
Predecessors in Interest, in each case, as existing on or prior to the Closing
Date and without regard to disclosure of any such Environmental Loss.
"Equipment" means all furniture, machinery, vehicles, computer
hardware, computer software, equipment and other tangible personal property of
Seller as of the Closing Date including those set forth on Schedule 1.1(a)
hereto except to the extent disposed of in the ordinary course in accordance
with this Agreement between the date hereof and the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any entity which is considered one
employer with Seller under Section 4001 of ERISA or Section 414 of the Code.
"Excluded Assets" means the following assets, which are not to
be acquired by Buyer hereunder:
(a) all refunds of Taxes to the extent such Taxes were paid by
Seller or any of its Affiliates, and any other losses, credits or other
Tax attributes generated by Seller or any of its Affiliates; and
(b) all Tax Returns and all other books and records which the
Seller or any Affiliate is required by law to retain.
"Excluded Liabilities" has the meaning set forth in Section
2.2(b) hereof.
"Financial Statements" has the meaning set forth in Section
4.14 hereof.
"GAAP" means generally accepted accounting principles, as in
effect from time to time.
"Governmental Permits" means all governmental permits,
licenses, registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
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"Hazardous Material" means any pollutant, contaminant,
chemical, solid waste, or hazardous, toxic, medical, biohazardous, infectious or
dangerous waste, substance, constituent or material, defined or regulated as
such in, or for purposes of, or that can give rise to liability under, any
Environmental Law, including, without limitation, any asbestos, any petroleum,
oil (including, without limitation, crude oil or any fraction thereof), any
radioactive substance, any polychlorinated biphenyls and any electromagnetic
energy or field.
"Insurance Proceeds" means all rights to causes of action,
lawsuits, claims and demands, rights of recovery and set-off, and proceeds, with
respect to claims existing or arising prior to the Closing Date under or with
respect to insurance policies.
"Intellectual Property" means patents, patent applications,
inventions, trade secrets, know-how, copyrights, works of authorship,
trademarks, service marks, trade names, and any similar proprietary rights,
including, without limitation, such rights embodied in technical reports,
laboratory notebooks and invention disclosures.
"Interim Financial Statements" has the meaning set forth in
Section 4.14 hereof.
"Inventory" means all raw materials, component parts, work in
process, and finished products, of Seller as of the Closing Date.
"Knowledge of Seller" or any similar phrase means the actual
knowledge of management employees of Seller or PNI.
"Losses" has the meaning set forth in Section 8.2 hereof.
"Maintenance Services Agreement" means an agreement between
Buyer and PNI substantially in the form of Exhibit A hereto.
"Material Adverse Effect" means a material adverse effect on
the business, operations, assets, condition (financial or otherwise), results of
operations or prospects of the Business, taken as a whole.
"NationsBank Facility" means the Credit Agreement dated as of
August 8, 1996 by and among PNI Systems, LLC, PNI and NATIONSBANK, N.A., as
successor in interest to NationsBank, N.A. (South), as amended or supplemented
from time to time.
"PageNet Receivables" means accounts receivable due to Seller
from Paging Network, Inc. as of the Closing Date.
"Pension Plan" means a Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA.
"Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization.
"PNI" has the meaning set forth in the recitals of this
Agreement.
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"Purchase Balance Sheet" means the Ernst & Young, LLP draft
audited December 31, 1998 balance sheet of Seller, incorporated in the Draft
Audited Financial Statements, adjusted to eliminate (i) intercompany accounts,
(ii) all Third-Party Indebtedness and (iii) any tax allocations as specified
therein, attached hereto as Annex B.
"Purchase Price" has the meaning set forth in Section 2.3
hereof.
"Release" means any past or present spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of Hazardous Material in or into the Environment
including, without limitation, the abandonment or discarding in or into the
Environment of barrels, containers or other receptacles containing any Hazardous
Material.
"Remedial Action" means any action taken to investigate,
evaluate, assess, test, monitor, remove, respond to, treat, neutralize, contain,
isolate or otherwise remediate the presence, Release or threatened Release of
any Hazardous Material.
"Seller" has the meaning set forth in the recitals of this
Agreement.
"Seller Indemnitees" has the meaning set forth in Section 8.2
hereof.
"Seller Intellectual Property" means Intellectual Property of
Seller, including the Intellectual Property set forth on Schedule 1.1(b) hereto.
"Seller Real Property" means all of the right, title and
interest in real property owned, used or leased by Seller, including the real
property interests set forth on Schedule 1.1(c) hereto.
"Seller's 401(k) Plan" has the meaning set forth in Section
7.3 hereof.
"Sublease" means an agreement between Buyer and PNI
substantially in the form of Exhibit D hereto.
"Tax Returns" means any return, amended return or other report
required to be filed with respect to any Tax, including information returns.
"Taxes" means any federal, state, local or foreign taxes,
including but not limited to income, gross receipts, windfall profits, value
added, severance, property, production, sales, use, license, excise, franchise,
employment, withholding, estimated or similar taxes together with any interest,
additions or penalties with respect thereto and any interest in respect of such
penalties and any joint and several, transferee or successor liability
(including, without limitation, any liability imposed pursuant to Treas. Reg.
ss.1.1502-6 or any similar provision of state, local or foreign law) for the
taxes, interest and/or penalties and additions to tax of another Person.
"Third-Party Indebtedness" means any indebtedness of Seller,
other than accounts payable, accrued liabilities and accrued salaries and
benefits, all in the ordinary course of business pursuant to GAAP applied on a
consistent basis.
"Transfer Taxes" has the meaning set forth in Section 5.4(b)
hereof.
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"Transferred Employees" has the meaning set forth in Section
7.1(a) hereof.
"Transition Services Agreement" means an agreement among
Buyer, Seller and PNI substantially in the form of Exhibit B hereto.
"Working Capital" means current assets (including cash) less
current liabilities (excluding any Third-Party Indebtedness), all as determined
pursuant to GAAP applied on a consistent basis.
1.2. Certain Terms.
(a) The words "hereof," "herein" and "hereunder" and words of
similar import, when used in this Agreement, refer to this Agreement as a whole
and not to any particular provision of this Agreement unless otherwise
specifically stated to the contrary.
(b) The terms defined in the singular have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" mean United States dollars.
(d) Wherever the word "include," "includes" or "including" is
used in this Agreement, it shall be deemed to be followed by the words "without
limitation."
(e) All references to a Schedule herein shall be deemed to be
a reference to a Schedule of the Disclosure Statement unless otherwise
specifically provided.
ARTICLE II
PURCHASE AND SALE
2.1. Purchase and Sale; Acquired Assets. On the terms and
subject to the conditions set forth herein, at the Closing, Seller agrees to
sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to
purchase from Seller, all of Seller's right, title and interest in and to the
assets of Seller, whether tangible or intangible, real or personal, except for
the Excluded Assets (the "Acquired Assets"), including all of Seller's right,
title and interest in and to the following:
(a) Cash;
(b) Accounts Receivable;
(c) Prepaid expenses;
(d) Other current assets;
(e) Books and Records;
(f) Contracts;
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(g) Equipment;
(h) Inventory;
(i) Insurance Proceeds;
(j) Seller Intellectual Property;
(k) Seller Real Property; and
(l) All other assets used in the Business.
Subject to the terms and conditions hereof, at the Closing,
the Acquired Assets shall be transferred or otherwise conveyed to Buyer free and
clear of all Encumbrances.
2.2. Purchase and Sale; Assumption of Liabilities.
(a) On the terms and subject to the conditions set forth
herein, at the Closing, Buyer agrees to assume and discharge or perform when due
the following liabilities and obligations (the "Assumed Liabilities"):
(i) Assumed Contracts. All liabilities and obligations of
Seller under Contracts to be satisfied or performed after the Closing,
other than liabilities, debts or payment obligations not set forth on
Schedule 4.8(d) hereto.
(ii) Accounts Payable. All accounts payable owing by Seller
relating to the conduct of the Business in the ordinary course.
(iii) Product Warranties. All product warranty obligations of
the Business.
(iv) Scheduled Liabilities. All liabilities relating to the
Business or Seller in the ordinary course set forth on Schedule 2.2(a)
hereto.
(b) Excluded Liabilities. Notwithstanding anything contained
in this Section 2.2 to the contrary, except to the extent specifically assumed
by Buyer under Section 2.2(a)(i), (ii), (iii) or (iv), Buyer shall not assume
and shall not be obligated to pay, perform or discharge any liabilities,
obligations, costs and expenses of Seller, including without limitation any and
all liabilities, obligations or commitments of Seller (except those that
constitute Assumed Liabilities) relating to and arising out of any of the
following ("Excluded Liabilities"):
(i) any liability, obligation or commitment that, in
accordance with GAAP, was required to have been shown as a liability in
the Draft Audited Financial Statements or in the notes thereto and was
not so shown, unless reflected on the Closing Date Balance Sheet and a
purchase price adjustment payment was paid therefor pursuant to Section
2.3(b);
(ii) except as expressly assumed by Buyer pursuant to Article
VII hereof, (A) the sponsorship, administration, contribution
obligation of any entity under, or any other liability or obligation
relating to, any Benefit Plan or any employee benefit plan covering
former employees
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of the Business, (B) the termination of any Benefit Plan on or prior
to the Closing Date or (C) the termination of employment of any
employee of the Business by Seller;
(iii) any cause of action or judicial or administration
action, suit, proceeding or investigation, pending or threatened on the
Closing Date, relating to periods prior to the Closing Date (including,
without limitation, any claim relating to or in any way based upon any
matters set forth on Schedule 4.9 hereto);
(iv) any failure or alleged failure to comply with, or any
violation or alleged violation of, (A) any law, rule, regulation,
statute, ordinance, permit, judgment , injunction, order, decree,
license or other governmental approval applicable to the Business or
the Acquired Assets or (B) any Contract, in each case which failure or
violation occurred or was alleged to have occurred prior to the Closing
Date;
(v) any infringement or alleged infringement of the rights of
any other person or entity arising out of the use of any Intellectual
Property in connection with the Business prior to the Closing Date;
(vi) any rights of any other Person relating to the
Intellectual Property pursuant to any license, sublicense or agreement
required to be disclosed and not so disclosed;
(vii) except as set forth on Schedule 2.2(a), any obligations
against Seller with respect to any notes, bonds, accounts receivable or
other evidences of indebtedness of or rights to receive payment from
any Person that have been transferred to a third person by Seller;
(viii) the Excluded Assets;
(ix) all Environmental Losses or Environmental Claims arising
from, relating to, in respect of, or incurred in connection with (A)
any real property, business entities or assets, whether domestic or
foreign, formerly owned, occupied or operated by or in connection with
the Business and not owned, occupied or operated by or in connection
with the Business as of the Closing Date, (B) the transportation or
disposal of any Hazardous Substances to or at any offsite facility or
location by or in connection with the Business occurring prior to the
Closing Date and (C) conditions existing or events occurring on or
prior to the Closing Date on any real property owned, occupied or
operated by or in connection with the Business as of the Closing Date;
(x) any claim, litigation, action or proceeding, whether or
not now pending or threatened, relating to the Business or the Acquired
Assets to the extent based on or arising out of or based upon liability
with respect to products shipped or sold or services performed prior to
the Closing;
(xi) any Third-Party Indebtedness not set forth on Schedule
2.2(a) hereto; or
(xii) all intercompany obligations and liabilities owed by the
Business or Seller to PNI or any of its Affiliates (which shall be
canceled at the Closing).
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2.3. Purchase Price; Adjustments to Purchase Price.
(a) On the terms and subject to the conditions set forth
herein, Buyer shall:
(i) pay to Seller on the Closing Date an amount in cash equal
to $3.75 million, less 50% of the difference between capital
expenditures planned to be made in the capital expenditure plan set
forth in Schedule 5.2 prior to the date of the Capital Expenditures
Schedule and capital expenditures actually made as reflected on the
Capital Expenditures Schedule provided to Buyer pursuant to Section
6.2(k) (the "Purchase Price");
(ii) pay to Seller $200,000 upon the resolution of any
Purchase Price adjustment pursuant to Section 2.3(b);
(iii) pay to Seller $50,000 upon the final resolution of any
claims relating to or in any way based upon the matters referred to on
Schedule 4.9 hereto;
(iv) provide to Seller or its successors or assigns $1.0
million in services under the Maintenance Services Agreement, billed as
provided therein;
provided that the amounts due under clauses (ii) and (iii) above and the value
of the services provided pursuant to clause (iv) above shall, without prejudice
to or limitation of any other rights or remedies of Buyer, be subject to setoff,
recoupment and reduction by the amount of:
(1) any Purchase Price adjustment payable by Seller pursuant
to Section 2.3(b)(ii)(A);
(2) any indemnities payable by Seller (including, without
limitation, any indemnities payable by Seller resulting from or arising
out of any claim relating to or in any way based upon any matters set
forth on Schedule 4.9 hereto); or
(3) any unpaid PageNet Receivables in excess of the lesser of
$100,000 or the amount retained by Buyer pursuant to Section
2.3(b)(ii)(A)(2). Within 10 Business Days of any subsequent collection
of such PageNet Receivables for which Buyer exercised its right to such
setoff, recoupment or reduction, Buyer shall pay to Seller the amount
of the PageNet Receivables collected by Buyer not to exceed the amount
which was setoff, reduced or recouped, net of any reasonable expenses
incurred in connection with the collection thereof.
If the Maintenance Services Agreement is canceled, terminated
or otherwise not renewed and $1.0 million in services has not been provided as
set forth in clause (iv), Buyer (A) shall pay to Seller within 10 Business Days
of such cancellation, termination or non-renewal an amount in cash corresponding
to 50% of the unused services credit, which payment shall not be subject to any
setoff, recoupment or reduction, and (B) shall pay to Seller the remaining 50%
upon the earlier of the completion of Buyer's 1999 year-end audit or March 31,
2000, less any amount withheld for any setoff, recoupment or reduction as set
forth above.
The amounts set forth in clauses (ii), (iii) and (iv) above
shall bear interest from the Closing Date through the date of payment at a rate
of 8.0% per annum, calculated from the Closing Date through the date of such
payment. Interest on the amount set forth in clause (iv) shall be calcu-
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<PAGE> 15
lated quarterly, based on the amount of unused services, and Buyer shall credit
Seller with additional services corresponding to such quarterly interest amount.
(b) The Purchase Price shall be subject to adjustment after
the Closing Date as specified in this Section 2.3(b).
(i) Closing Date Balance Sheet. As soon as practicable, but in
any event within 45 days following the Closing Date, Ernst & Young,
LLP, independent auditors, shall deliver to Seller and Buyer a balance
sheet for the Business and the Acquired Assets, prepared according to
GAAP applied on a consistent basis (the "Closing Date Balance Sheet "),
as of the Closing Date.
(ii) Adjustment of Purchase Price. Subject to the limitations
set forth in Section 2.3(b)(iii), within 15 days after the date of
receipt by Seller and Buyer of the Closing Date Balance Sheet:
(A) (1) in the event that the Working Capital
reflected on the Purchase Balance Sheet exceeds the Working
Capital reflected on the Closing Date Balance Sheet by at
least $25,000, Seller shall pay to Buyer (or Buyer may deduct
from the payments to be made under Section 2.3(a)(ii) or from
the services to be provided under Section 2.3(a)(iv)), as an
adjustment to the Purchase Price, in immediately available
funds, the full amount of such excess;
(2) in the event that the Working Capital
reflected on the Closing Date Balance Sheet exceeds the
Working Capital reflected on the Purchase Balance Sheet by at
least $100,000, Buyer shall pay to Seller, as an adjustment to
the Purchase Price, in immediately available funds, the amount
of such excess over $100,000;
(B) Subject to Section 2.3(b)(iii)(A), the Closing
Date Balance Sheet delivered to Buyer and Seller shall be
final, binding and conclusive on the parties hereto.
(C) Any Purchase Price adjustment payable by Buyer
pursuant to this Section 2.3(b)(ii) shall not be subject to
any setoff, recoupment or reduction other than for unpaid
PageNet Recievables. Within 10 Business Days of any subsequent
collection of such PageNet Receivables for which Buyer
exercised its right to such setoff, recoupment or reduction,
Buyer shall pay to Seller the amount of the PageNet
Receivables collected by Buyer not to exceed the amount which
was setoff, reduced or recouped, net of any reasonable
expenses incurred in connection with the collection thereof.
(iii) Disputes.
(A) Seller or Buyer may dispute any amounts reflected
on the Closing Date Balance Sheet to the extent that the net
effect of such disputed amounts in the aggregate would be to
reduce the aggregate Working Capital as reflected on the
Closing Date Balance Sheet by more than the Designated Amount
(as hereinafter defined), but only on the basis that the
Closing Date Balance Sheet does not present fairly the
combined financial position of the Business and the Acquired
Assets, as of the Closing Date, in accordance with GAAP
applied on a consistent basis; provided, however, that Seller
or
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Buyer, as the case may be, shall notify the other in writing
of each disputed item, specifying the amount thereof in
dispute and setting forth, in detail, the basis for such
dispute, within 15 Business Days of receipt of the Closing
Date Balance Sheet. In the event of such a dispute, Seller and
Buyer shall attempt to reconcile their differences and any
resolution by them as to any disputed amounts shall be final,
binding and conclusive on the parties. If any such resolution
by Seller and Buyer leaves in dispute amounts the net effect
of which in the aggregate would not be to reduce the aggregate
Working Capital reflected on the Closing Date Balance Sheet by
at least the Designated Amount, all such amounts remaining in
dispute shall then be deemed to have been resolved in favor of
the Closing Date Balance Sheet. If Seller and Buyer are unable
to reach a resolution with such effect within 10 Business Days
of the written notice of dispute, Seller and Buyer shall
submit the items remaining in dispute for resolution to a "Big
Five" independent accounting firm based in Atlanta, Georgia
appointed by Buyer (the "Independent Accounting Firm"), as an
expert not an arbitrator, which shall, within 20 Business Days
of such submission, determine and report to Seller and Buyer
upon such remaining disputed items, and such report shall be
final, binding and conclusive on Seller and Buyer. Buyer and
Seller shall each bear one-half of the fees and disbursements
of the Independent Accounting Firm.
(B) No adjustment to any amount payable by Seller
pursuant to Section 2.3(b)(ii) shall be made with respect to
amounts disputed by Seller pursuant to this Section
2.3(b)(iii), unless the net effect of the amounts successfully
disputed by Seller in the aggregate is to reduce the aggregate
Working Capital reflected on the Closing Date Balance Sheet by
at least the Designated Amount, in which cases such adjustment
shall be made in the full amount of such reduction (the
"Adjustment Amount").
(C) Any amount that is subject to dispute under this
Section 2.3(b)(iii) shall be paid by Seller or Buyer, as the
case may be, in immediately available funds, within five
Business Days following the final resolution of such dispute
and in an amount in accordance with such resolution.
(iv) Interest. Any payment required to be made by Seller
pursuant to paragraph (ii) of this Section 2.3(b) shall bear interest
from the Closing Date through the date of payment at a rate of 8.0% per
annum, calculated from the Closing Date through the date of such
payment.
(v) For the purposes of this Section 2.3, the term "Designated
Amount" means $25,000.
2.4. Closing. The Closing is scheduled to take place at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 at
10:00 a.m. New York City time, on the later of (i) 20 Business Days from the
date hereof and (ii) the fifth Business Day following the date on which all the
conditions set forth in Section 6 hereof have been satisfied or waived, or at
such other time and place as the parties hereto may mutually agree.
2.5. Deliveries by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to Seller the following:
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(a) the cash Purchase Price, in immediately available funds by
wire transfer to an account designated by Seller. Seller shall
designate such account at least three Business Days prior to the
Closing;
(b) such instruments of assumption and other instruments or
documents, in form and substance reasonably acceptable to Seller, as
may be necessary for Buyer to assume the Assumed Liabilities; and
(c) the certificates and other documents to be delivered
pursuant to Section 6.3 hereof.
2.6. Deliveries by Seller. At the Closing, Seller shall
deliver to Buyer the following:
(a) bills of sale or other appropriate documents, in form and
substance reasonably acceptable to Buyer, transferring all tangible
personal property included in the Acquired Assets to Buyer;
(b) assignments, in form and substance reasonably acceptable
to Buyer, assigning to Buyer all Contracts and Intellectual Property
included in the Acquired Assets;
(c) such other instruments or documents, in form and substance
reasonably acceptable to Buyer, as may be necessary to effect the
assignment and transfer of the Acquired Assets to Buyer;
(d) an affidavit of Seller, in a form reasonably satisfactory
to Buyer, stating under penalties of perjury the Seller's U.S. taxpayer
identification number and that Seller is not a foreign person within
the meaning of Section 1445(b)(2) of the Code; and
(e) the certificates and other documents to be delivered
pursuant to Section 6.2 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that except as
disclosed in the Disclosure Statement:
3.1. Organization. Buyer is a corporation duly organized and
validly existing under the laws of the State of Delaware and has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as currently conducted.
3.2. Authorization. Buyer has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and thereunder. The execution, delivery and performance by Buyer of
this Agreement has been duly and validly authorized, and no additional corporate
authorization or consent is required in connection with the execution, delivery
and performance by Buyer of this Agreement.
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3.3. Noncontravention. The execution, delivery and performance
by Buyer of this Agreement, and the consummation of the transactions
contemplated hereby, does not and will not (i) violate any provision of the
Articles of Incorporation, By-laws or other organizational documents of Buyer,
(ii) subject to obtaining the consents, approvals, authorizations and waivers
required to be obtained or the notices or filings required to be given as set
forth in Section 3.5 hereof, conflict with, or result in a breach of, or
constitute a default under, or result in the termination, cancellation or
acceleration (whether after the filing of notice or lapse of time or both) of
any right or obligation of Buyer under any agreement, contract, license, permit,
commitment or arrangement to which Buyer is a party or by which it is bound or
to which any of its assets are subject or result in the creation of any
Encumbrance upon any of said assets or (iii) subject to obtaining the
governmental consents, approvals, authorizations and waivers required to be
obtained or the notices or filings required to be given as set forth in Section
3.5 hereof, violate or result in a breach of or constitute a default under any
judgment, order, injunction, decree, law, rule, regulation or other restriction
of any court or governmental authority to which Buyer is subject, other than in
the case of clauses (ii) and (iii) any conflict, breach, default, termination,
cancellation, acceleration, loss, violation or Encumbrance which, individually
or in the aggregate, would not materially impair or delay Buyer's ability to
perform its obligations hereunder.
3.4. Binding Effect. This Agreement constitutes a valid and
legally binding obligation of Buyer enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
3.5. Consents and Approvals. No consent, approval, waiver or
authorization is required to be obtained by Buyer from, and no notice or filing
is required to be given by Buyer to or made by Buyer with, any federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by Buyer of this Agreement other than those
the failure of which to obtain, give or make would not, individually or in the
aggregate, materially impair or delay the ability of Buyer to effect the
Closing.
3.6. Lawsuits; Claims. There is no civil, criminal or
administrative action, suit, demand, claim, hearing, proceeding or investigation
before any court or governmental or regulatory authority or body or arbitrator
or arbitrators pending or, to the knowledge of Buyer, threatened against Buyer
which would materially impair or delay the ability of Buyer to effect the
Closing. Buyer is not subject to any order, judgment, award, injunction or
decree of any court or governmental or regulatory authority of competent
jurisdiction or any arbitrator or arbitrators other than those which would not
materially impair or delay the ability of Buyer to effect the Closing.
3.7. Financial Capability. On the Closing Date, Buyer will
have sufficient funds to effect the Closing.
3.8. Finder's Fees. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission from Buyer in
connection with the transactions contemplated by this Agreement.
3.9. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither Buyer nor
any other Person makes any other express or implied representation or warranty
on behalf of Buyer.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND PNI
Seller and PNI represent and warrant to Buyer that except as
disclosed in the Disclosure Statement:
4.1. Organization. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Georgia
and has all requisite power and authority to own and operate the Acquired Assets
and to carry on its business as currently conducted. Except as set forth on
Schedule 4.1, Seller is duly qualified to do business and is in good standing as
a foreign entity in each jurisdiction where the ownership or operation of the
Acquired Assets or the conduct of its business requires such qualification,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. Seller has no subsidiaries and PNI owns all the
outstanding capital stock of Seller.
4.2. Authorization. Seller and PNI have full power and
authority to execute and deliver this Agreement, and to perform their
obligations hereunder. Except for the consent of the Class B Senior Redeemable
Preferred Stockholders set forth on Schedule 4.5 hereto, the execution, delivery
and performance by Seller and PNI of this Agreement have been duly and validly
authorized by all necessary corporate or stockholder action, and no additional
corporate or stockholder authorization or consent is required in connection with
the execution, delivery and performance by Seller or PNI of this Agreement and
the other transactions contemplated hereby.
4.3. Noncontravention. The execution, delivery and performance
by Seller and PNI of this Agreement, and the consummation of the transactions
contemplated hereby, does not and will not (i) violate the Articles of
Incorporation or By-laws of Seller or PNI, (ii) subject to obtaining the
approvals, authorizations and waivers required to be obtained or the notices or
filings required to be given as set forth in Section 4.5 hereof, conflict with,
or result in a breach of, or constitute a default under, or result in the
termination, cancellation, acceleration, redemption or repurchase (whether after
the filing of notice or lapse of time or both) of any right or obligation of
Seller, PNI or their Affiliates under any Contract or result in the creation of
any Encumbrance upon, any of the Acquired Assets or (iii) subject to obtaining
the governmental consents, approvals, authorizations and waivers required to be
obtained or the notices or filings required to be given as set forth in Section
4.5 hereof, violate or result in a breach of or constitute a default under any
judgment, order, injunction, decree, law, rule, regulation or other restriction
of any court or governmental authority to which Seller, PNI, the Business or any
of the Acquired Assets are subject, other than in the case of clauses (ii) and
(iii) any conflict, breach, default, termination, cancellation, acceleration,
loss, violation or Encumbrance which, individually or in the aggregate, would
not have a Material Adverse Effect or materially impair or delay Seller's or
PNI's ability to perform its obligations hereunder.
4.4. Binding Effect. This Agreement constitutes a valid and
legally binding obligation of Seller and PNI enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
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4.5. Consents and Approvals. Except as set forth on Schedule
4.5, no consent, approval, waiver or authorization is required to be obtained by
Seller or PNI from, and no notice or filing is required to be given by Seller or
PNI to or made by Seller or PNI with, any federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by Seller and PNI of this Agreement other than those
the failure of which to obtain, give or make would not, individually or in the
aggregate, have a Material Adverse Effect or materially impair or delay the
ability of Seller or PNI to effect the Closing. Schedule 4.5 sets forth a list
of all Contracts comprising a portion of the Acquired Assets for which consent
to assignment to Buyer must be obtained from the other party thereto.
4.6. Intellectual Property. To the best Knowledge of Seller,
Seller owns or has the right to use all of the Intellectual Property included in
the Acquired Assets. The Intellectual Property included in the Acquired Assets
constitutes all of the Intellectual Property necessary to conduct the Business
as currently conducted. Schedule 1.1(c) contains a worldwide list of all
patents, trade names, trademarks and service marks, and applications for the
foregoing owned or possessed by the Seller and true and complete copies of all
such materials have been made available to Buyer. All issued patents and
registered trademarks and service marks owned by Seller are recorded on the
public record solely in the name of Seller.
4.7. Title to and Condition of Tangible Property. Except as
set forth on Schedule 4.7, Seller has good title to, or a valid and binding
leasehold interest in, the tangible property (including real property) included
in the Acquired Assets, free and clear of all Encumbrances, except liens for
Taxes, assessments and other governmental charges (a) not yet due and payable or
(b) being contested in good faith by appropriate proceedings and for which
adequate reserves have been established. Upon the consummation of the
transactions contemplated hereby, assuming Buyer is a bona fide purchaser for
value with no knowledge of an adverse claim, Buyer will acquire good title to
the tangible property included in the Acquired Assets, free and clear of all
Encumbrances, except for the exceptions in the immediately preceding sentence of
this Section 4.7. The tangible property included in the Acquired Assets is in
all material respects in good working condition, ordinary wear and tear
excepted.
4.8. Contracts.
(a) Schedule 4.8(a) sets forth a list, as of the date hereof,
of each Contract that is material to Seller. Each such Contract is a valid and
binding agreement of Seller and is in full force and effect.
(b) To the Knowledge of Seller, there has been no material
breach or default under any Contract listed on Schedule 4.8(a) except for
defaults that have been cured or waived. No event has occurred with respect to
Seller which, with notice or lapse of time or both, would constitute a material
breach, violation or default, or give rise to a right of termination,
cancellation, foreclosure, imposition of a lien or penalty, prepayment or
acceleration under any such Contract.
(c) Neither Seller nor PNI is not a party to any contract in
any of the following categories:
(i) any contract that materially limits or restricts where
Seller may conduct its business or the type or line of business that
Seller may engage in;
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(ii) any contract containing any agreement with respect to a
sale of all or substantially all of the assets of Seller; and
(iii) any contract that requires Seller to transfer to any
Person any rights in or to any Seller Intellectual Property.
(d) To the knowledge of Seller and except as set forth on
Schedule 4.8(d), no Contract imposes on Seller or the Business any liability,
debt or other payment obligation.
4.9. Lawsuits; Claims. Except as set forth on Schedule 4.9
hereto, there is no civil, criminal or administrative action, suit, demand,
claim, hearing, proceeding or investigation before any court or governmental or
regulatory authority or body or arbitrator or arbitrators involving Seller, PNI,
the Business or any of the Acquired Assets pending or, to the Knowledge of
Seller, threatened. None of the Acquired Assets or the Business is subject to
any order, judgment, award, injunction or decree of any court or governmental or
regulatory authority or body of competent jurisdiction or any arbitrator or
arbitrators.
4.10. Compliance with Laws. The business of Seller is being
conducted in compliance in all material respects with all applicable laws,
rules, ordinances and regulations. Seller has all licenses, permits,
certificates and other authorizations and approvals necessary in all material
respects for the conduct of the Business as currently conducted under applicable
laws, rules, ordinances or regulations of any governmental authority.
4.11. Labor Relations. Neither Seller, PNI nor any of their
Affiliates are a party to or bound by any labor agreement or collective
bargaining agreement respecting the Employees of Seller, nor is there pending,
or to the Knowledge of Seller threatened, any strike, walkout, slowdown or other
work stoppage by the Employees of Seller. No petition for certification has been
filed and is pending before the National Labor Relations Board with respect to
any Employee who is not currently organized. Seller is in compliance with all
applicable laws respecting employment practices, terms and conditions of
employment and wages and hours, except for those failures to comply that,
individually or in the aggregate, would not have a Material Adverse Effect.
4.12. Employee Benefits.
(a) All benefit plans, contracts or arrangements covering
Employees maintained or contributed to by Seller or its Affiliates (including
"employee benefit plans" within the meaning of Section 3(3) of ERISA), and stock
bonus, stock option, restricted stock, stock appreciation right, stock purchase,
bonus, incentive, deferred compensation, severance, or vacation plans, or any
other employee benefit plan, program, policy or arrangement covering Employees
(the "Benefit Plans"), are listed on Schedule 4.12(a) hereto. Copies of all
Benefit Plans, including, but not limited to, any trust instruments and
insurance contracts forming a part of any Benefit Plans, all amendments thereto
and the most recent Form 5500, if required to be filed, have been provided or
made available to Buyer.
(b) The Benefit Plans are in substantial compliance with
ERISA, the Code and other applicable laws. Each Pension Plan which is intended
to be qualified under Section 401(a) of the Code, including Seller's 401(k)
Plan, is so qualified. There is no material pending or, to the Knowledge of
Seller, threatened litigation relating to the Benefit Plans. Seller has not
engaged in a transaction with
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respect to any Benefit Plan that could subject Seller to a material tax or
penalty imposed under either Section 4975 of the Code or Section 502(i) of
ERISA.
(c) No liability under Title IV of ERISA has been or is
expected to be incurred by Seller with respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by Seller or any ERISA Affiliate. Seller
has not incurred and does not expect to incur any withdrawal liability
(including any contingent liability) or other liability under Subtitle E of
Title IV of ERISA with respect to a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA, currently or formerly maintained by Seller or any
ERISA Affiliate. No Benefit Plan is subject to Title IV of ERISA.
(d) Seller does not have any obligations for retiree health
and life benefits under any Benefit Plan with respect to Employees. Each Benefit
Plan and each employee benefit plan sponsored by Seller or any ERISA Affiliate
that is a "group health plan" (as defined in Section 607(l) of ERISA or Section
5001(b)(1) of the Code) has been operated at all times in compliance in all
material respects with the provisions of Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA ("COBRA"), Section 4980D of the Code and Part 7
of Subtitle B of Title I of ERISA ("HIPAA") and any applicable similar state
law.
(e) The consummation of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable to or in respect of any Employee.
(f) The consummation of the transactions contemplated by this
Agreement will not result in or satisfy a condition to the payment of
compensation that would, in combination with any other payment, result in an
"excess parachute payment" within the meaning of Section 280G(b) of the Code.
(g) There are no plans, programs, policies, arrangements or
agreements maintained or contributed to by, or entered into with, Seller with
respect to Employees (or former Employees) employed outside the United States
not mandated by the laws of the applicable foreign jurisdiction.
(h) During the five year period prior to the date of this
Agreement, Seller has not effectuated a "plant closing" or "mass layoff" as
defined in the Worker Adjustment and Retraining Notification Act of 1988, as
amended ("WARN Act") affecting any sites of employment of Seller; not has Seller
been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state or
foreign law. None of the Employees of Seller has suffered or will suffer an
"employment loss" (as defined in the WARN Act) during the ninety day period
prior to the date of this Agreement or the Closing Date, as the case may be.
4.13. Environmental.
(a) To the Knowledge of Seller, the Business, the Acquired
Assets and all operations, facilities and properties related thereto are in
compliance in all material respects with Environmental Law.
(b) There is no material Environmental Claim that is (i)
pending or, to the Knowledge of Seller, after due inquiry, threatened against
Seller or PNI in connection with the Business or the Ac-
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quired Assets or (ii) pending or, to the Knowledge of Seller, after due inquiry,
threatened against any Person whose liability for such Environmental Claim has
been retained or assumed by contract or otherwise by Seller or PNI or can be
imputed or attributed by law to Seller or PNI (such Person shall hereinafter be
referred to as a "Predecessor in Interest"), in each case, in connection with
the Business or the Acquired Assets. To the Knowledge of Seller, there is no
material past or present action, activity, circumstance, condition, event or
incident arising out of, based upon, resulting from or relating to the
ownership, operation, lease or use of the Acquired Assets or any facility,
property or asset currently or formerly owned, operated, leased or used by
Seller or PNI or any of their respective Predecessors in Interest, in each case,
in connection with the Business or the Acquired Assets, which is presently
expected to result in a material Environmental Claim.
(c) To the Knowledge of Seller, each of Seller and PNI has
obtained all material permits, licenses and other authorizations required under
Environmental Law with respect to the operation of the Business and the Acquired
Assets ("Environmental Authorizations") and each such Environmental
Authorization is in full force and effect. No Environmental Authorization
scheduled to expire within three years of the effective date of this Agreement
will not be renewed or will require material expenditures in connection with
such renewal, and no Environmental Law (including, without limitation, any
Environmental Law which has been formally proposed for public comment) could
reasonably be expected to interfere in any material way with current or
projected operations of the Business or the Acquired Assets.
(d) To the Knowledge of Seller, none of the Acquired Assets
nor any facility or property currently or formerly owned, operated or leased by
Seller or PNI in connection with the Business is the site of a Release or
threatened Release of Hazardous Material which could reasonably be expected to
require Remedial Action.
(e) To the Knowledge of Seller, no underground or aboveground
storage tank currently or formerly used for the containment of Hazardous
Material, or related piping, is located on, at or under any of the Acquired
Assets nor, to the Knowledge of Seller, after due inquiry, has any such tank or
piping been removed or decommissioned from or at any of the Acquired Assets.
(f) To the Knowledge of Seller, there is no friable asbestos
or asbestos containing material or polychlorinated biphenyls in, on, at or under
any of the Acquired Assets.
(g) To the Knowledge of Seller, no lien has been recorded
under any Environmental Law with respect to any of the Acquired Assets or any
property, facility or asset currently or formerly owned, leased or operated by
Seller or PNI in connection with the Business.
(h) All material environmental or health or safety
investigations, studies, audits and assessments conducted of which Seller has
Knowledge and custody or control in relation to the Business or the Acquired
Assets or other assets currently or formerly owned, operated, leased or used by
Seller or PNI in connection with the Business or the Acquired Assets have been
delivered to Buyer.
(i) To the Knowledge of Seller, the execution and delivery of
this Agreement and the consummation of the transaction contemplated hereby and
the exercise by Buyer of rights to own and operate the Business and the Acquired
Assets substantially as presently conducted (i) will not affect the validity or
require the transfer of any Environmental Authorization held by Seller or PNI
with respect to the Business or the Acquired Assets and (ii) will not require
any notification, disclosure, registration, reporting, filing or investigatory,
remedial, removal or other response action under any Environmental Law.
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4.14. Financial Statements. Seller has delivered to Buyer (a)
draft audited financial statements (balance sheet, statement of income and
statement of cash flows and, in each case, notes thereto) of Seller as of
December 31, 1998 and for the fiscal year then ended attached hereto as Annex A,
together with a report thereon by Seller's independent certified public
accountants (the "Draft Audited Financial Statements") and any letters issued by
such accountants to Seller or its management in connection with such audit and
(b) unaudited financial statements (balance sheet, statement of income and
statement of cash flows and, in each case, notes thereto) of Seller as of each
of January 31, 1999 and February 28, 1999 and for the periods then ended (the
"Monthly Financial Statements" and, together with the Draft Audited Financial
Statements, the "Financial Statements"). The Financial Statements (i) fairly
present in all material respects the financial condition of Seller as of the
dates thereof or periods then ended, as the case may be, and (ii) have been
prepared in accordance with GAAP consistently applied and in accordance with
Seller's past accounting policies throughout the period indicated. The Purchase
Balance Sheet fairly presents in all material respects the financial condition
of Seller as of December 31, 1998, adjusted to eliminate (i) inter-company
accounts, (ii) all Third-Party Indebtedness and (iii) any tax allocations as
specified therein.
4.15. Assets. The Acquired Assets constitute all the assets,
properties and rights of Seller necessary to conduct the Business as currently
conducted and, immediately after the Closing, necessary for Buyer to continue to
operate and conduct the Business in all material respects as currently
conducted. Seller is not engaged in or conducting any business or operations
other than the Business.
4.16. Governmental Permits. The Acquired Assets include all
Governmental Permits of federal, state or local governmental or regulatory
bodies that are required to operate the Business and Seller is in compliance
with the terms and conditions of the Governmental Permits, except where the
failure so to comply would not, individually or in the aggregate, have a
Material Adverse Effect. Seller has obtained, and the Acquired Assets include,
all Governmental Permits necessary to operate the Business, except where the
failure to obtain such would not have a Material Adverse Effect. Seller has
filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. To the Knowledge of Seller, no suspension,
revocation, cancellation or withdrawal of any of the Governmental Permits is
threatened and no cause exists for such suspension, revocation, cancellation or
withdrawal.
4.17. Absence of Changes. Since December 31, 1998, Seller and
PNI have conducted and operated the Business only in the ordinary course and
neither the Business nor the Acquired Assets has suffered any Material Adverse
Effect and neither the Business nor the Seller has, directly or indirectly:
(a) purchased, otherwise acquired, or agreed to purchase or
otherwise acquire, any capital stock of the Seller or any other entity,
or declared, set aside or paid any dividends or distributions (whether
in cash, capital stock or property or any combination thereof) in
respect of its capital stock;
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(b) authorized for issuance, issued, sold, delivered, granted
or issued any options, warrants, calls, subscriptions or other rights
for, or otherwise agreed or committed to issue, sell or deliver, any of
the capital stock of the Seller or any securities convertible into or
exchangeable or exercisable for the capital stock of the Seller;
(c) (i) except in the ordinary course of business and
consistent with past practice, created or incurred any indebtedness for
borrowed money, (ii) assumed or guaranteed the obligations of any other
Person, (iii) made any loans or advances to any other Person or (iv)
except as set forth on Schedule 5.2, entered into any commitment or
transaction providing for the payment or receipt of cash, goods,
services or other property having a value in excess of $25,000 in any
12-month period;
(d) instituted any change in accounting methods, principles or
practices except as required by law or to comply with any GAAP
requirement;
(e) revalued any of the assets of the Business, including,
without limitation, writing off notes or, except in the ordinary course
of business consistent with past practice, writing down the value of
inventory in connection with product returns or accounts receivables;
(f) suffered any damage, destruction or loss to real or
personal property, whether or not covered by insurance, or suffered any
other change, that in either case has had or is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect;
(g) maintained its Working Capital other than in the ordinary
course of business and consistent with past practice;
(h) (i) increased in any manner the compensation of any of the
Employees of the Seller, except in the ordinary course of business and
consistent with past practice; (ii) paid or agreed to pay any pension,
retirement allowance or other employee benefit, or entered into any
contract, agreement or understanding with any past or present Employees
relating to any such pension, retirement allowance or other employee
benefit, except, in each case, as required under agreements, plans or
arrangements existing as of the date hereof which are set forth on
Schedule 4.12(a); (iii) granted any severance or termination pay to, or
entered into any employment, consulting or severance agreement with,
any person; (iv) entered into any material Contract with any past or
present Employees; (v) except in the ordinary course of business and
consistent with past practice or as may be required to comply with
applicable law, become obligated under any new pension plan, welfare
plan, multiemployer plan, employee benefit plan, benefit arrangement,
or similar plan or arrangement that was not in existence prior to the
date hereof and set forth on Schedule 4.12(a), including any bonus,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other
benefit plan, contract, agreement or understanding or for the benefit
of any person, or amended any such plans, contracts, agreements or
understandings in existence at or prior to the date hereof and set
forth on Schedule 4.12(a); or (vi) except as otherwise contemplated by
any of the Contracts listed on Schedule 4.8(a), and except for sales of
inventory in the ordinary course of business consistent with past
practice, sold, transferred, leased, licensed, pledged, mortgaged, or
otherwise disposed of, or encumbered, or agreed to sell, transfer,
lease, license,
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pledge, mortgage or otherwise dispose of or encumber, any material
properties, real or personal, tangible or intangible, or mixed; or
(i) agreed to do any of the things described in the preceding
clauses (a) through (h) other than as expressly contemplated or
provided for in this Agreement.
4.18. Finder's Fees. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission from Seller or
any of its Affiliates in connection with the transactions contemplated by this
Agreement.
4.19. Absence of Undisclosed Liabilities. Except as disclosed
on Schedule 4.8(d), to the Knowledge of Seller, after due inquiry, except as
reflected in the Draft Audited Financial Statements (including any notes
thereto), Seller has no liabilities or obligations of any nature, whether
absolute, accrued, unmatured, contingent or otherwise, or any unsatisfied
judgments except for liabilities or obligations that would not, individually or
in the aggregate, have a Material Adverse Effect.
4.20. Insurance. Schedule 4.20 lists all insurance policies in
force on the date hereof covering the Business and the Acquired Assets and all
pending claims against such policies. All such policies are in effect and true
and complete copies of all such policies have been made available to Buyer.
Seller has not received notice of the cancellation of any of such insurance in
effect on the date of this Agreement.
4.21. Year 2000 Compliance. To the Knowledge of Seller, all
computer applications (including, to the Knowledge of Seller, those of its
suppliers and vendors) that are material to the conduct of the Business are able
to perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
4.22. Solvency. Immediately prior to and after the
consummation of the transactions contemplated hereby, (a) the fair value of the
assets of each of Seller and PNI will exceed its respective debts and
liabilities, subordinated, contingent or otherwise, (b) the present fair salable
value of the property of each of Seller and PNI will be greater than the amount
that will be required to pay the probable liability of its respective debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured, (c) each of Seller and PNI will
be able to pay its respective debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (d) each
of Seller and PNI will be sufficiently capitalized to conduct the business it
intends to conduct and (e) neither Seller nor PNI will be subject to any pending
claim, action or proceeding for liability which it will have insufficient assets
to satisfy. Each of Seller and PNI is entering into this agreement in good
faith, on an arms-length basis and without any intent to hinder, delay or
defraud creditors.
4.23. Affiliate Transactions. Schedule 4.23 sets forth a
summary of all purchases or sales of goods or services from or to Seller or the
Business by any Affiliates of the Seller from December 31, 1998 to the Closing
Date. Except as set forth on Schedule 4.23, no Affiliate purchases or provides
products or services from or to the Seller or the Business.
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4.24. Information Provided to Valuation Experts. Seller and
PNI have fully cooperated with the experts rendering the valuation opinion
referenced in Section 6.1(d) and have disclosed all information necessary to
enable such experts to render such valuation opinion.
4.25. Bulk Sales. The transactions contemplated by this
Agreement do not constitute a bulk sale or bulk transfer to which any bulk sale
or bulk transfer law is applicable.
4.26. No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV and the Certificates
delivered pursuant to Section 6.2, neither Seller, PNI nor any other Person
makes any other express or implied representation or warranty on behalf of
Seller.
ARTICLE V
COVENANTS
5.1. Access.
(a) Prior to the Closing, PNI and Seller shall permit Buyer
and its representatives (including counsel, environmental and other consultants,
accountants, auditors and agents) to have access, during regular business hours
and upon reasonable advance notice, to Seller's business (including facilities,
personnel and operations and books and records), subject to PNI's and Seller's
reasonable rules and regulations, and shall furnish, or cause to be furnished,
to Buyer any financial and operating data and other information of Seller as
Buyer shall from time to time reasonably request. All information provided
pursuant to this Section 5.1 shall remain confidential.
(b) Following the Closing, Buyer shall provide Seller and PNI
and their representatives, during normal business hours and upon reasonable
written notice, reasonable access to the Books and Records and other underlying
data and documentation relating to the Business as of the Closing and make
personnel of Buyer available to Seller and PNI in Seller's review thereof to the
extent such access is reasonably related to any Excluded Liabilities. With
respect to any such access, all information regarding Buyer, its Affiliates and
the Business shall be treated as confidential and shall not be disclosed to any
Person without the prior written consent of Buyer.
5.2. Conduct of the Business. During the period from the date
hereof to the Closing, except as otherwise expressly contemplated by this
Agreement or as Buyer shall otherwise consent to in writing (which consent shall
not be unreasonably withheld), Seller and PNI covenant and agree that Seller
shall conduct the Business, and neither Seller nor PNI shall take any action
except, in the ordinary and usual course consistent in all material respects
with past practice, and Seller and PNI shall use their reasonable best efforts
to preserve intact its business and relationships with third parties. Seller and
PNI shall use their reasonable best efforts to maintain the proprietary nature
of all of the Seller Intellectual Property and to maintain Seller's tangible
property in substantially the same working condition and repair as of the date
hereof, except for ordinary wear and tear and to preserve the current contracts,
arrangements, understandings and relationships of Seller and the Business with
customers, distributors, suppliers, licensors, licensees, contractors and other
Persons with which Seller has business relationships. By way of amplification
and not limitation, during the period from the date hereof to the Closing,
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except as otherwise expressly contemplated by this Agreement, as set forth on
Schedule 5.2 or as Buyer shall otherwise consent to in writing (which consent
shall not be unreasonably withheld), Seller and PNI covenant and agree that they
shall not do or propose to do any of the following:
(a) make any dividend or distribution in respect of Seller's
capital stock or repurchase, redeem or otherwise acquire any of
Seller's capital stock;
(b) sell, lease, transfer or dispose of any of its assets
other than in the ordinary and usual course of business consistent in
all material respects with past practice;
(c) enter into, terminate, or materially extend or modify any
Contract except in the ordinary course of business consistent in all
material respects with past practice;
(d) intentionally do any other act which would cause any
representation or warranty of Seller or PNI in this Agreement to be or
become untrue in any material respect;
(e) amend Seller's Articles of Incorporation or By-laws in a
manner that would adversely affect Buyer or the transactions
contemplated hereby;
(f) purchase, otherwise acquire, or agree to purchase or
otherwise acquire, any capital stock of Seller, or any other entity, or
declare, set aside or pay any dividends or distributions (whether in
cash, capital stock or property or any combination thereof) in respect
of Seller's capital stock;
(g) authorize for issuance, issue, sell, deliver, grant or
issue any options, warrants, calls, subscriptions or other rights for,
or otherwise agree or commit to issue, sell or deliver, any of Seller's
capital stock or any securities convertible into or exchangeable or
exercisable for its capital stock;
(h) Seller shall not, (i) except in the ordinary and usual
course of business and consistent with past practice, create or incur
indebtedness for borrowed money; (ii) assume or guarantee the
obligations of any other person or make any loans, advances or capital
contributions to or investments in any other individual, firm or
corporation; or (iii) enter into any commitment, contract or
transaction providing for the payment or receipt of cash, goods,
services or other property having a value in excess of $25,000 in any
12-month period or any amendment or modification of any such
commitment, contract or transaction or any release or relinquishment of
any rights under any such commitment, contract or transaction;
(i) (i) increase in any manner the compensation of any of
Seller's directors or employees, except in the ordinary course of
business and consistent with past practice; (ii) pay or agree to pay
any pension, retirement allowance or other employee benefit, or enter
into any Contract with any of Seller's past or present Employees
relating to any such pension, retirement allowance or other employee
benefit, except as required under agreements, plans or arrangements
existing as of the date hereof and set forth on Schedule 4.12(a); (iii)
grant any severance or termination pay to, or enter into any
employment, consulting (except in the ordinary course of business and
consistent with past practice), or severance agreement with, any
Person; (iv) enter into any material Contract with any of Seller's past
or present Employees; and (v) except in the
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ordinary course of business and consistent with past practice; (ii) pay
or agree to pay any pension, retirement allowance or other employee
benefit, or enter into any Contract with any of Seller's past or
present Employees relating to any such pension, retirement allowance or
other employee benefit, except as required under agreements, plans or
arrangements existing as of the date hereof and set forth on Schedule
4.12(a); (iii) grant any severance or termination pay to, or enter into
any employment, consulting (except in the ordinary course of business
and consistent with past practice), or severance agreement with, any
Person; (iv) enter into any material Contract with any of Seller's past
or present Employees; and (v) except in the ordinary course of business
and consistent with past practice, or as may be required to comply with
applicable law, become obligated under any new pension plan, welfare
plan, multiemployer plan, employee benefit plan, benefit arrangement,
or similar plan or arrangement for the benefit of Seller's Employees
that was not in existence on or prior to the date hereof and set forth
on Schedule 4.12(a), including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other benefit plan,
contract, agreement or understanding, or amend any such plans or
Contracts in existence on or prior to the date hereof and set forth on
Schedule 4.12(a);
(j) Seller shall not, except for sales of inventory in the
ordinary and usual course of business consistent in all material
respects with past practice, sell, transfer, lease, license, pledge,
mortgage or otherwise dispose of, or encumber, or agree to sell,
transfer, lease, license, pledge, mortgage or otherwise dispose of or
encumber, any material properties, real or personal, tangible or
intangible, or mixed;
(k) except in the ordinary and usual course of business
consistent in all material respects with past practice, grant or
acquire any material licenses to Seller Intellectual Property;
(l) Seller shall not enter into any other agreements,
commitments or contracts, except agreements, commitments or contracts
for the purchase, sale or lease of goods or services in the ordinary
and usual course of business and consistent with past practice;
(m) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in
principle or an agreement with any other person with respect to, any
plan of liquidation or dissolution, any disposition of a material
amount of assets or securities or any material change in the
capitalization of Seller;
(n) authorize or commit to make capital expenditures on the
part of Seller in excess of those identified on Schedule 5.2;
(o) permit any insurance policy naming Seller as a beneficiary
or a loss payee to be canceled, terminated or materially altered,
except in the ordinary course of business and consistent with past
practice and following written notice to Buyer;
(p) maintain Seller's books and records in a manner not in the
ordinary course of business and consistent with past practice;
(q) enter into any hedging, option, derivative or other
similar transaction;
(r) institute any change in Seller's accounting methods,
principles or practices or revalue any of its assets, including without
limitation, writing off notes or, except in the ordinary course of
business consistent with past practice, writing down the value of
inventory in connection with product returns or accounts receivable;
(s) fail to file any material Tax Return or fail to pay any
material Tax in a timely manner, settle or compromise any material
federal, state, local or foreign Tax liability for an amount materially
in excess of the amount reserved on Seller's books of account with
respect to such Tax liability, make any new material Tax election,
revoke or modify any existing Tax
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election, or request or consent to a change in any method of Tax
accounting; if such failure, settlement, compromise, revocation,
modification, request or consent, as applicable, reasonably could be
expected materially to affect the liabilities and obligations of Buyer
or its Affiliates for Taxes imposed with respect to the Business, the
Acquired Assets or the income derived therefrom for any taxable period,
or portion thereof, beginning on the Closing Date;
(t) pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities (including
accounts payable) in the ordinary course of business and consistent
with past practice, or collect, or accelerate the collection of, any
amounts owed (including accounts receivable) other than the collection
in the ordinary course of business;
(u) maintain its Working Capital other than in the ordinary
course of business and consistent with past practice;
(v) amend, modify, terminate, waive or permit to lapse any
right of first refusal, preferential right, right of first offer or any
other material right of Seller; or
(w) agree to do any of the foregoing.
5.3. Commercially Reasonable Efforts. Seller, PNI and Buyer
will cooperate and use their respective commercially reasonable best efforts to
fulfill or cause to be fulfilled the conditions precedent to the other party's
obligations hereunder and to do or cause to be done all other things necessary,
proper or appropriate under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including, to
secure as promptly as practicable all consents, approvals, waivers and
authorizations required in connection with the transactions contemplated hereby.
5.4. Tax Matters.
(a) Proration of Taxes. Whenever it is necessary to determine
the liability for Taxes for a portion of a taxable year or period that begins on
or before and ends after the Closing Date, the determination of the Taxes for
the portion of the year or period ending on, and the portion of the year or
period beginning after, the Closing Date shall be determined as if the taxable
year or period ended on the Closing Date.
(b) Transfer Taxes. All U.S. excise, sales, use, transfer,
documentary, filing, recordation and other similar taxes and fees which may be
imposed or assessed as a result of the purchase and sale of the Acquired Assets
pursuant to this Agreement, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or penalties
("Transfer Taxes"), shall be paid solely by Seller. Buyer and Seller shall
cooperate in the timely preparation and filing of any tax returns that must be
filed in connection with any Transfer Taxes.
(c) Tax Treatment. Seller, PNI and Buyer agree to treat, for
all Tax purposes, the transfer of the Acquired Assets by Seller to Buyer
hereunder as a sale of such assets, and the Consideration (as defined below) as
the amount paid by Buyer in consideration of the transfer of ownership of such
assets. All amounts paid by Seller or PNI, as the case may be, to Buyer or by
Buyer to Seller or
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PNI, as the case may be, under Section 2.3 or this Article V or Article VIII
shall be treated as adjustments to the Purchase Price and the Consideration for
all Tax purposes; it being understood that some portion thereof may be treated
as interest under Section 483 of the Code or other applicable Tax laws.
(d) Determination and Allocation of Consideration. Seller, PNI
and Buyer agree to determine the amount and value of the total consideration
transferred by Buyer to Seller pursuant to this Agreement which constitutes
purchase consideration for the Acquired Assets (the "Consideration") and to
allocate such Consideration among the assets and liabilities transferred in
accordance with their fair market values and in a manner consistent with Section
2.3. Prior to the Closing, Seller or PNI shall provide Buyer with one or more
schedules allocating the Consideration. If Buyer disagrees with any items
reflected on the schedules so provided, Buyer shall have the right to notify
Seller and PNI prior to the Closing of such disagreement and its reasons for so
disagreeing, in which case Seller, PNI and Buyer shall attempt in good faith to
resolve the disagreement prior to the Closing, provided, however, that Seller
agrees to accept and be bound by the reasonable determination of Buyer. Seller,
PNI and Buyer agree to prepare and file an IRS Form 8594 in a timely fashion in
accordance with the rules under Section 1060 of the Code and in a manner
consistent with the allocation made under this Section 5.4(d). To the extent
that the Consideration is adjusted after the Closing Date, the parties agree to
revise and amend the schedule and IRS Form 8594 in the same manner and according
to the same procedure. The determination and allocation of the Consideration
derived pursuant to this subsection shall be binding on Seller, PNI and Buyer
for all Tax reporting purposes.
(e) Assistance and Cooperation. After the Closing Date, each
of Seller, PNI and Buyer shall:
(i) make available to the other and to any taxing authority as
reasonably requested all relevant information, records, and documents
relating to Taxes including without limitation copies of any Tax
Returns of Seller that are Excluded Assets;
(ii) provide timely notice to the other in writing of any
pending or proposed audits or assessments with respect to Taxes for
which the other may have a liability under this Agreement;
(iii) furnish the other with copies of all relevant
correspondence received from any taxing authority in connection with
any audit or information request with respect to any Taxes referred to
in subsection (ii) above; and
(iv) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Taxes.
(f) Until the sixth anniversary of the Closing Date, Buyer
agrees to retain all tax returns, supporting schedules and work papers and any
other materials in Tax files designated by Seller and PNI on the Closing Date;
and at any time thereafter, Buyer agrees that it will offer to return any such
materials to Seller or PNI prior to disposing of such materials.
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5.5. No Shop.
(a) From the date hereof until the Closing or the earlier
termination of this Agreement, neither Seller nor PNI shall directly or
indirectly, through any director, officer, representative, agent or otherwise,
in any manner solicit, initiate, facilitate or encourage from any Person any
inquiries or proposals relating to the sale of the Business or with respect to
any merger, consolidation or other business combination to which Seller or PNI
is a party or direct or indirect acquisition of any kind of any material portion
of the assets or capital stock of Seller (a "Third Party Acquisition") or
initiate or continue any discussions, negotiations or communications with any
Person with respect thereto or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
transactions contemplated by this Agreement. From the date hereof until the
Closing or earlier termination of this Agreement, neither Seller nor PNI will
furnish any Person any non-public information concerning Seller, the Business or
the Acquired Assets for the purpose or with the intent of permitting such Person
to evaluate a possible Third Party Acquisition.
(b) Seller and PNI shall promptly notify Buyer of receipt of
any proposal relating to a Third Party Acquisition or any request for
information relating to Seller in connection with a Third Party Acquisition or
for access to the properties, books or records of Seller by any Person that
informs Seller or PNI that it is considering making, or has made, a proposal
relating to a Third Party Acquisition. Such notice to Buyer shall be made orally
and in writing.
5.6. Further Assurances. At any time after the Closing Date,
each of Seller, PNI and Buyer shall promptly execute, acknowledge and deliver
any other assurances or documents reasonably requested by the other party hereto
in order for such party to satisfy its obligations hereunder or for the other
party hereto to obtain the benefits contemplated hereby.
5.7. Waiver of Bulk Transfer Requirements. Buyer, Seller and
PNI waive compliance with the requirements of Article 6 of the Uniform
Commercial Code (Bulk Transfers) as in effect in any jurisdiction and all other
applicable bulk sales laws.
5.8. Public Announcements. Before issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, Seller, PNI and Buyer will consult with each other as to
its form and substance and neither Seller, PNI nor Buyer nor any of their
respective Affiliates shall issue any press release or make any public statement
with respect to the transactions contemplated hereby prior to obtaining the
written consent of the other party to this Agreement (which consent will not be
unreasonably withheld or delayed), except as may be required by law or
compulsory legal process.
5.9. Notification of Certain Matters. From and after the date
of this Agreement until the Closing, each party hereto shall promptly notify the
other party hereto of (i) the occurrence, or non-occurrence, of any event which
would be reasonably likely to cause any condition to the obligations of any
party to effect the Closing not to be satisfied or (ii) the failure to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it pursuant to this Agreement which would be reasonably likely to
result in any condition to the obligations of any party to effect the Closing
not to be satisfied. Seller and PNI shall give prompt notice to Buyer of any
notice of, or other communication relating to, a default or event which, with
notice or lapse of time or both, would become a default, received by Seller, PNI
or any of its Affiliates subsequent to the date of this Agreement and prior
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to the Closing, under any Contract involving amounts in excess of $25,000 in any
12-month period and shall keep Buyer informed of all non-routine actions Seller,
PNI or any of their Affiliates intends to take in connection with any
Environmental Law applicable to the Business or the Acquired Assets and all such
actions shall be on terms and conditions reasonably satisfactory to Buyer. Each
of Seller, PNI and Buyer shall give prompt notice to the other party of any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the Closing or other
transactions contemplated hereby. The delivery of any notice pursuant to this
Section 5.9 shall not be deemed to be an amendment of this Agreement and shall
not cure any breach of any representation or warranty set forth in this
Agreement. No delivery of any notice pursuant to this Section 5.9 shall limit or
affect the remedies available hereunder to the party receiving such notice.
5.10. Compliance with Laws. Seller and PNI will promptly
provide Buyer with copies of any document that it receives from a governmental
entity, or prepared by Seller or PNI from the date of this Agreement until the
Closing Date which bears on the regulatory status of Seller, the Business or any
product or service of Seller, including, but not limited to, any deficiency
letter, warning letter, non-approval letter/order and withdrawal letter/order,
except for documents reflecting such matters which, individually and in the
aggregate, would not have a Material Adverse Effect.
5.11. Certain Covenants of PNI.
(a) PNI will cooperate and use its commercially reasonable
best efforts to cause to be fulfilled the conditions precedent to Buyer's
obligations under this Agreement and to do or cause to be done all other things
necessary, proper or appropriate under applicable law and regulations to
consummate and make effective the transactions contemplated by this Agreement
and to enable Seller to perform its obligations under this Agreement, including
to secure as promptly as practicable all consents, approvals, waivers and
authorizations required in connection with the transactions contemplated by this
Agreement.
(b) PNI shall not, and shall cause its subsidiaries not to,
take any action that would, directly or indirectly, cause Seller, or if such
action were taken directly by Seller, cause Seller, to be in breach or violation
of any of its representations, warranties or covenants hereunder or impair,
hinder or materially delay Seller's ability to perform its obligations under
this Agreement.
(c) At any time after the Closing Date, PNI shall promptly
execute, acknowledge and deliver any other assurances or documents reasonably
requested by Buyer in order for Seller to satisfy its obligations under this
Agreement or for Buyer to obtain the benefits contemplated by this Agreement.
(d) PNI agrees, for the benefit of Buyer, to pay to Seller an
amount equal to the value of the services rendered by Buyer under the
Maintenance Services Agreement, as long as such agreement is in effect, to the
extent necessary to enable Seller to pay all of its debts, discharge all of its
liabilities, remain solvent and be adequately capitalized to conduct any
business in which it engages.
5.12. Non-Competition; Use of Name. From the Closing Date and
to the end of the fifth year following the Closing Date, each of Seller and PNI
and their Affiliates will not, directly or indirectly, unless acting in
accordance with the written consent of Buyer, engage in, own, manage, operate,
finance or participate in the ownership, management, operation or financing of
or permit its name to be used by or in connection with any business or
enterprise engaged in the production or provision of
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goods or services similar to those produced or provided by Seller on the Closing
Date. On the Closing Date, Seller and PNI shall change the name of Preferred
Technical Services, Inc. to a name which does not use the phrase "Preferred
Technical Services" or the acronym "PTS" and is not confusingly similar to
"Preferred Technical Services" or "PTS" and shall not, and shall cause their
Affiliates not to, use in any supplies, correspondence, directory, sales
literature or other written material or any inventory the phrase "Preferred
Technical Services" or the acronym "PTS" or any variant of either alone or in
combination with other words. Without limiting the generality of the foregoing,
from and after the Closing Date, Seller shall not in any way use any of the
Seller Intellectual Property. In the event of a termination of the Maintenance
Services Agreement, PNI and its Affiliates will be allowed to maintain PNI's
paging systems. Further, the parties acknowledge and agree that this section
shall not limit or otherwise restrict the ability of PNI and its Affiliates to
market, sell, or otherwise distribute that certain patent pending technology
otherwise known as the "Intelligent High-Speed Switching Matrix," filed by PNI
with the United States Patent and Trademark Office ("PTO"), Application No.
08/917,457, filed on August 26, 1997, to be marketed under the trademark
applications for "Platform1" and "i terminal," and the patent pending technology
for the "Transmission System Analyzer," filed with the PTO on October 24, 1997,
Application No. 08/957,381, including but not limited to any inventions,
discoveries, improvements, ideas, processes, formulas, devices, products, and
designs related thereto.
5.13. Use of Proceeds. Seller shall promptly and timely pay
all debts relating to the Business or the Acquired Assets not expressly assumed
by Buyer hereunder.
5.14. Employee Benefit and Payroll Transition. During the
period from the date hereof to the Closing, Seller and PNI will use their
reasonable best efforts to assist Buyer in establishing its own Benefit Plans.
Buyer and Seller shall cooperate in all reasonable respects with each other with
respect to administrative issues arising out of this Agreement which relate to
employee benefits of Buyer or Seller. From the date hereof to and after the
Closing, Seller and PNI will use their reasonable best efforts to assist Buyer,
and coordinate with Buyer, in establishing its payroll.
ARTICLE VI
CONDITIONS TO CLOSING
6.1. Conditions to the Obligations of Both Parties. The
obligations of the parties hereto to effect the Closing are subject to the
satisfaction (or waiver) prior to the Closing of the following conditions:
(a) No Injunctions. No court or governmental authority of
competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, or non-appealable
judgment, decree, injunction or other order which is in effect on the
Closing Date and prohibits the consummation of the Closing.
(b) Consents and Approvals. All the consents set forth on
Schedule 6.1(b) shall have been obtained.
(c) Maintenance Services Agreement. Buyer and PNI shall have
executed the Maintenance Services Agreement.
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(d) Valuation Opinion. Seller shall have received a valuation
opinion from a financial advisor providing for an estimate of the range
of fair market value of the Acquired Assets and such opinion shall be
in effect as of the Closing and the highest estimate of such range
shall be no greater than the total consideration paid or provided to
Seller hereunder.
(e) Sublease. Buyer and PNI shall have entered into the
Sublease.
6.2. Conditions to the Obligations of Buyer. The obligation of
Buyer to effect the Closing is subject to the satisfaction (or waiver) prior to
the Closing of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller and PNI contained herein that are qualified with
reference to a Material Adverse Effect or materiality shall be true and
correct in all respects and the representations and warranties of
Seller and PNI contained herein that are not so qualified shall be true
and correct in all material respects, in each case on the date of this
Agreement and at the Closing as though such representations and
warranties were made at such time and on such date (except that
representations and warranties that are made as of a specific date need
be true in all material respects only as of such date), and Buyer shall
have received a certificate to such effect dated the Closing Date and
executed by duly authorized officers of Seller and PNI.
(b) Covenants. The covenants and agreements of Seller and PNI
to be performed or complied with by it on or prior to the Closing shall
have been duly performed or complied with, except for those failures to
perform or comply that have not and are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect, and Buyer
shall have received a certificate to such effect dated the Closing Date
and executed by duly authorized officers of Seller and PNI.
(c) Lien Searches. Buyer shall have received copies of UCC,
tax lien, judgment and pending lawsuit searches as of a recent date
naming Seller as debtor conducted at the secretary of state of the
state in which Seller is incorporated and at the secretary of state and
each county jurisdiction where Seller has its chief executive office or
otherwise maintains an office or stores any tangible Acquired Assets.
(d) NationsBank Consent and Release. Seller and PNI shall have
obtained the consent and release of NationsBank substantially in the
form of Exhibit C hereto, together with UCC-3 termination statements
and other collateral release documents reasonably necessary to
terminate any liens on the Acquired Assets in favor of NationsBank
securing the obligations under the NationsBank Facility.
(e) Consents. Seller shall have obtained and delivered to
Buyer copies of all consents (including, without limitation, all
consents required under any Contract) listed on Schedule 4.5 hereto.
(f) Transition Services Agreement. Buyer, Seller and PNI shall
have executed the Transition Services Agreement.
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(g) Randall L. Johnson Employment Agreement. Buyer and Randall
L. Johnson shall have executed an employment agreement in form and
substance reasonably satisfactory to Buyer.
(h) William N. Friedrichs Employment Agreement. Buyer and
William N. Friedrichs shall have executed an employment agreement in
form and substance reasonably satisfactory to Buyer.
(i) March 31, 1999 Financial Statements. Seller shall have
delivered to Buyer unaudited financial statements (balance sheet,
statement of income and statement of cash flows and, in each case,
notes thereto) of Seller as of March 31, 1999 and for the 3-month
period then ended (the "March 31, 1999 Financial Statements") and Buyer
shall be satisfied in all material respects with the form, content and
substance of the March 31, 1999 Financial Statements. The March 31,
1999 Financial Statements shall (i) fairly present in all material
respects the financial condition of Seller as of the date thereof or
period then ended, as the case may be, and (ii) be prepared in
accordance with GAAP consistently applied and in accordance with
Seller's past accounting policies throughout the period indicated.
(j) Other Monthly Financial Statements. If the Closing Date
shall be any date that is later than 10 days after the final day of any
month subsequent to March 1999, Seller shall have delivered to Buyer
unaudited financial statements (balance sheet, statement of income and
statement of cash flows and, in each case, notes thereto) of Seller as
of the final day of the month prior thereto and for the period then
ended ("Other Monthly Financial Statements"). The Other Monthly
Financial Statements shall (i) fairly present in all material respects
the financial condition of Seller as of the date thereof or period then
ended, as the case may be, and (ii) be prepared in accordance with GAAP
consistently applied and in accordance with Seller's past accounting
policies throughout the period indicated.
(k) Capital Expenditures. Seller shall have delivered to Buyer
a schedule (the "Capital Expenditures Schedule") setting forth in
reasonable detail the actual capital expenditures made from December
31, 1998 through the final day of the month immediately prior to the
Closing, with sufficient supporting documentation (including copies of
invoices, receipts and other supporting documentation) to enable Buyer
to agree the Capital Expenditures Schedule to the accounting records of
Seller.
(l) Background Check. Buyer shall have been satisfied in all
material respects with its background check on Randall L. Johnson.
(m) Benefit Plans. Buyer shall have established its Benefit
Plans to its reasonable satisfaction.
(n) Encumbrances. The Encumbrances set forth on Schedule 4.7
shall have been terminated, canceled, removed or otherwise released.
(o) Audit. Seller and PNI shall have received from their
auditors (Ernst & Young LLP), and provided to Buyer, a final audit
opinion for the year ended December 31, 1998 which shall not contain
(i) any material qualifications or (ii) any material adjustments from
the Draft
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Audited Financial Statements and Buyer shall be reasonably satisfied
with such audit opinion in all material respects.
(p) Legal Opinion. Buyer shall have received the opinion of
Seller's and PNI's counsel, dated as of the Closing Date, addressed and
reasonably satisfactory to Buyer, as to the due authorization,
execution and enforceability of this Agreement, the Maintenance
Services Agreement, the Transition Services Agreement and the Sublease.
6.3. Conditions to the Obligations of Seller. The obligation
of Seller and PNI to effect the Closing is subject to the satisfaction (or
waiver) prior to the Closing of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer contained herein that are qualified with reference
to a Material Adverse Effect or materiality shall be true and correct
in all respects and the representations and warranties of Buyer
contained herein that are not so qualified shall be true and correct in
all material respects, in each case on the date of this Agreement and
at the Closing as though such representations and warranties were made
at such time and on such date (except that representations and
warranties that are made as of a specific date need be true in all
material respects only as of such date), and Seller shall have received
a certificate to such effect dated the Closing Date and executed by a
duly authorized officer of Buyer.
(b) Covenants. The covenants and agreements of Buyer to be
performed or complied with by it on or prior to the Closing shall have
been duly performed in all material respects, and Seller shall have
received a certificate to such effect dated the Closing Date and
executed by a duly authorized officer of Buyer.
(c) Legal Opinion. Seller shall have received the opinion of
Buyer's counsel, dated as of the Closing Date, addressed and reasonably
satisfactory to Seller, as to the due authorization and execution of
this Agreement, the Maintenance Services Agreement, the Transition
Services Agreement and the Sublease.
ARTICLE VII
EMPLOYEE AND LABOR MATTERS
7.1. Employees.
(a) Effective as of the Closing and subject to Section 7.1(d),
Buyer shall offer to employ each Employee listed on Schedule 7.1(a) who is
actively at work on the Closing Date ("Active Employees"), and Buyer shall offer
to employ any Employee listed on Schedule 7.1(b) who is not actively at work on
the Closing Date due to leave of absence, short-term disability leave (including
those individuals who are absent due to illness or injury for a period of less
than five days), military leave or layoff with recall rights or reemployment
rights under the Family Medical Leave Act or any other applicable law
(collectively, "Inactive Employees") upon the conclusion of their leave or
layoff, so long as such individual returns to active employment within the
period during which the individual has a protected right of recall or
reemployment under applicable law. For purposes hereof, any Employee listed on
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Schedule 7.1(a) who is not actively at work on the Closing Date due to a
short-term absence (including due to vacation, holiday, jury duty or bereavement
leave) in accordance with applicable policies of Seller shall be deemed to be an
Active Employee. For purposes of this Article VII, Active Employees who
immediately following the Closing become employed by Buyer and Inactive
Employees, to the extent that they become employed by Buyer, shall be referred
to herein collectively as "Transferred Employees", and other Employees shall be
referred to as "Non-Transferred Employees".
(b) To the knowledge of Seller, no Employee or group of
Employees employed by Seller has any plans to terminate employment.
(c) Each Transferred Employee's continuous service with Seller
ending immediately prior to the Closing Date shall be credited in determining
eligibility for participation (but not vesting) under any Benefit Plans,
programs, policies or arrangements covering such Transferred Employee sponsored
by Buyer. To the extent any Transferred Employee is entitled to severance
benefits under any Benefit Plans as a result of such individual no longer being
an employee of Seller, Buyer shall not assume such Liability, which Liability
shall remain with, and be the responsibility of Seller.
(d) Seller acknowledges and agrees that, except as otherwise
provided in this Agreement or as Buyer in its sole discretion may decide, (i) no
representations or commitments concerning the terms or conditions of employment
with Buyer has or will be given to any of the Transferred Employees by Seller,
(ii) Buyer's employment of each of the Transferred Employees will be at-will (as
defined and interpreted under the laws of each of the states where each
Transferred Employee is employed as of the Closing Date) and (iii) the terms and
conditions of the Transferred Employees' employment with Buyer are subject to
change at any time in accordance with Buyer's policies.
7.2. COBRA. Seller shall have sole responsibility for
"continuation coverage" obligations for any Employee of Seller (including any
Transferred Employee) and their "qualified beneficiaries" with respect to
"qualifying events" that occur on or prior to the Closing. Buyer shall be
responsible for "continuation coverage" obligations for Transferred Employees
and their "qualified beneficiaries" with respect to "qualifying events" that
occur after the Closing. The phrases "continuation coverage," "qualified
beneficiaries" and "qualifying event" shall have the meaning ascribed to them in
Section 4980B of the Code and Sections 601-608 of ERISA.
7.3. 401(k) Plan. Effective as of the Closing Date,
Transferred Employees who are participants in the Preferred Networks, Inc.
401(k) Plan ("Seller's 401(k) Plan") shall cease to be eligible for any future
contributions to Seller's 401(k) plan, shall have a fully vested and
nonforfeitable interest in their account balances thereunder, and shall be
entitled to a distribution of their account balances under Seller's 401(k) Plan
in accordance with and to the extent permitted by Code ss. 401(k)(10) and other
applicable provisions of the Code.
Transferred Employees who receive an eligible rollover
distribution (within the meaning of Section 402(f)(2) of the Code, including a
direct rollover distribution within the meaning of Section 401(a)(31) of the
Code) from Seller's 401(k) Plan shall, subject to the provisions of Section 402
of the Code, be permitted to make a rollover contribution to a defined
contribution plan of the Buyer ("Buyer's Defined Contribution Plan"). To the
extent that a direct rollover distribution, within the meaning of Section
401(a)(31) of the Code, is made, such rollover contribution may include
promissory notes for loans made to Company Employees under the terms of Seller's
401(k) Plan, provided such rollovers are permitted by applicable provisions of
the plans.
33
<PAGE> 39
7.4. Obligations. Nothing in this Agreement shall be construed
or interpreted to mean that Buyer is assuming or has assumed any liability
relating to or arising from any of Employee's employment with or termination
from Seller. Buyer is not assuming and has not assumed any of Seller's
obligations or liabilities under any Benefit Plan, including liabilities with
respect to accrued or future benefits under any such Benefit Plans, or any other
liabilities or obligations concerning or relating to any current or former
employees of Seller, except as expressly provided in this Agreement. Seller
shall be liable for the payment of benefits to eligible Employees and their
eligible dependents under the Benefit Plans for claims related to services
performed, supplies furnished, disabilities or deaths occurring on or prior to
the Closing Date, regardless of whether any such claim had actually then been
filed by that date.
7.5. WARN Act. From and after the date hereof, Seller shall
not effectuate a "plant closing" or "mass layoff" as defined in the WARN Act
affecting any sites of employment of the Business, without complying fully with
any and all notice obligations (and/or pay in lieu of notice) under the WARN Act
or any similar obligation under applicable state, local or foreign law requiring
notice (and/or pay in lieu of notice) to employees in the event of a plant
closing or layoffs. Seller shall indemnify Buyer, its Affiliates and each of
their officers, directors, partners, principals, employees and agents against
and hold them harmless from any loss, liability, claim, damage or expense
(including, reasonable legal fees and expenses) incurred in connection with any
suit or claim of violation brought against any such indemnified person under the
WARN Act or any similar state, local, or foreign law that relates to actions
taken by Seller with regard to any site of employment or one or more facilities
or operating units within any site of employment of Seller affected by the
transactions contemplated by this Agreement. For purposes of the WARN Act and
this Agreement, the Closing Date is and shall be the same as the "effective
date" within the meaning of the WARN Act.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1. Survival. The representations and warranties contained in
this Agreement shall survive the Closing for the period set forth in this
Section 8. 1. All representations and warranties contained in this Agreement and
all claims and causes of action with respect thereto shall terminate upon
expiration of 24 months after the Closing Date, except that the representations
and warranties in Sections 3.2, 3.4, 4.2, 4.4, 4.7, 4.13 and 4.15 and all claims
and causes of action with respect thereto shall survive until 90 days after the
expiration of the applicable statute of limitations (including any extensions);
it being understood that in the event notice of any claim for indemnification
under Section 8.2(a) or Section 8.3(a)(i) hereof shall have been given (within
the meaning of Section 10.1) within the applicable survival period, the
representations and warranties that are the subject of such indemnification
claim shall survive until such time as such claim is finally resolved.
8.2. Indemnification by Buyer. Buyer hereby agrees that it
shall indemnify, defend and hold harmless Seller, PNI, their respective
Affiliates, and, if applicable, their respective directors, officers,
shareholders, partners, members, agents and employees and their heirs,
successors and assigns (the "Seller Indemnitees") from, against and in respect
of any damages, claims, losses, liabilities, charges, actions, suits,
proceedings, deficiencies, taxes, interest, penalties, and reasonable costs and
expenses (including without limitation reasonable attorneys' fees)
(collectively, the "Losses") imposed on, sus-
34
<PAGE> 40
tained, incurred or suffered by or asserted against any of the Seller
Indemnitees, directly or indirectly relating to or arising out of (a) any breach
of any representation or warranty made by Buyer contained in this Agreement for
the period such representation or warranty survives, (b) the Assumed Liabilities
(including, without limitation, liabilities relating to any claim by any third
party, including, without limitation, tort suits for personal or bodily injury,
property damage or injunctive relief) and (c) the breach of any covenant or
agreement of Buyer contained in this Agreement.
8.3. Indemnification by Seller and PNI. Each of Seller and PNI
jointly and severally hereby agrees that it shall indemnify, defend and hold
harmless Buyer, its Affiliates and their respective directors, officers,
shareholders, partners, members, agents and employees (other than the
Transferred Employees in their capacity as Employees) (the "Buyer Indemnitees")
from, against and in respect of any Losses imposed on, sustained, incurred or
suffered by or asserted against any of the Buyer Indemnitees, directly or
indirectly relating to or arising out of (i) any breach of any representation or
warranty made by Seller contained in this Agreement for the period such
representation or warranty survives, (ii) all Excluded Liabilities, (iii) the
breach of any covenant or agreement of Seller contained in this Agreement, (iv)
any Environmental Loss and (v) any expenses incurred (including Buyer's
reasonable charges for lost work time) for the time of any officers, directors,
employees or Affiliates of Buyer devoted to appearing or preparing to appear as
witnesses, assisting in preparation for hearings, trials or other pretrial
matters and the fees and expenses of legal counsel, as and when incurred, or
otherwise with respect to hearings, trials, pretrial matters and other
proceedings in any way relating to or arising out of any Excluded Liabilities.
8.4. Tax Indemnities.
(a) Each of Seller and PNI jointly and severally shall
indemnify the Buyer Indemnitees from, against and in respect of all liabilities
and obligations for Taxes imposed on Seller or any of its Affiliates, or imposed
with respect to the Business, the Acquired Assets or the income derived
therefrom, for any taxable period, or portion thereof, ending on or before the
Closing Date, including without limitation any liability for Taxes arising from
any failure to comply with bulk sale rules in connection with the transactions
contemplated by this Agreement, and any Transfer Taxes for which Seller is
liable pursuant to Section 5.4(b) hereof.
(b) Buyer shall indemnify the Seller Indemnitees from, against
and in respect of any liability or obligation for Taxes imposed with respect to
the Business, the Acquired Assets or the income derived therefrom for any
taxable period, or portion thereof, beginning after the Closing Date.
(c) For purposes of this Section, the term Taxes shall include
Losses directly or indirectly relating to or arising out of any liability for
Taxes.
8.5. Indemnification Procedures.
(a) The party seeking indemnification shall give the
indemnifying party a written notice within 90 days of its discovery of any
Losses in respect of which the right to indemnity may be claimed under this
Article VIII or otherwise under this Agreement; provided, however, that the
failure to give such notice within such period shall not result in the waiver or
loss of any right to bring such claim hereunder after such period unless, and
only to the extent, the other party is actually prejudiced by such failure.
35
<PAGE> 41
(b) With respect to third party claims (which, with respect to
Taxes, includes any pending or proposed audits, assessments or administrative or
court proceedings), promptly after receipt by an indemnified party of notice of
the commencement of any action or the presentation or other assertion of any
claim which could result in a claim for indemnification, such indemnified party
shall assume the defense thereof, shall give prompt notice thereof to the
indemnifying party, and the indemnifying party shall be entitled to participate
in, or assume, the defense thereof with its own counsel and at its own expense.
The indemnifying party shall not compromise or settle any such action or claim
without the consent of the indemnified party (which shall not be unreasonably
withheld), and shall not be liable for any compromise or settlement of any such
action or claim effected without its consent (which shall not be unreasonably
withheld). The parties agree to cooperate to the fullest extent possible in
connection with any claim for which indemnification is or may be sought under
this Agreement.
8.6. Computation of Losses Subject to Indemnification. The
amount of any Loss for which indemnification is provided under this Article VIII
or otherwise in this Agreement shall be computed net of any actual Tax savings
realized by the indemnified party and the proceeds of any insurance received by
the indemnified party to the extent such insurance was funded by Seller or any
Affiliate.
8.7. Certain Limitations.
(a) The foregoing indemnification obligation are subject to
the limitation that the indemnifying party shall not have any liability for
indemnification pursuant to this Article VIII for breaches of representations
and warranties unless (i) in case Buyer is the indemnifying party, the total
Losses for which Buyer would be liable exceed $25,000 in the aggregate, and then
only for the excess, and (ii) in case Seller and PNI are the indemnifying
parties, the total Losses for which Seller and PNI would be liable exceed in the
aggregate the sum of $25,000 plus any amount paid to or retained by Buyer
pursuant to Section 2.3(b)(ii)(A)(2), and then only for the excess over such
sum. Neither party's liability under this Article VIII shall exceed the total
consideration paid by Buyer. The foregoing limitations shall not apply to any
Losses with respect to, as a result of or involving any intentional breach of a
representation or warranty in this Agreement.
(b) Any claims for indemnification against Seller shall be
applied as a reduction to the amount of unused services to be provided pursuant
to the Maintenance Services Agreement under Section 2.3(a)(iii), with the excess
balance, if any, to be paid in cash or readily available funds.
(c) In the absence of fraud, and except for non-monetary
equitable relief, no officer or director of any party to this Agreement shall be
personally liable for any breach of any representation or warranty contained in
this Agreement.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated at any time
prior to the Closing only as follows:
(a) by written agreement of Buyer, Seller and PNI;
36
<PAGE> 42
(b) by either Buyer or Seller and PNI, by giving written
notice of such termination to the other party, if the Closing shall not
have occurred on or prior to the date which is six months from the date
hereof; provided that the terminating party is not at the time of
termination in material breach of its obligations under this Agreement;
(c) by Buyer if the Consents listed on Schedule 6.1(b) hereof
or the audit opinion identified in Section 6.2(p) shall not have been
obtained or received within 30 days of the date hereof; or
(d) by either Buyer or Seller and PNI if there shall be in
effect any law or regulation that prohibits the consummation of the
Closing or if consummation of the Closing would violate any
non-appealable final order, decree, injunction or judgment of any court
or governmental body having competent jurisdiction.
9.2. Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 9.1 hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to the other party hereto or their respective Affiliates, directors,
officers or employees and all rights and obligations of each party hereto shall
cease, except for the obligations of the parties hereto contained in this
Section 9.2 and in Sections 10.1, 10.2, 10.4, 10.5, 10.6, 10.7, 10.8 and 10.9,
hereof, and except that nothing herein will relieve any party from liability for
or be deemed to waive any rights available to a party by reason of, any breach
by the other party or parties of its or their representations, warranties,
covenants or agreements set forth in this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Notices. All notices or other communications hereunder
shall be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended on the day so
delivered, if delivered by registered or certified mail, return receipt
requested, on the third Business day following such mailing or by a national
courier service on the Business Day following such mailing, or if sent by
telecopier on the day telecopied, or if not a Business Day, the next succeeding
Business Day, provided that the telecopy is promptly confirmed by telephone
confirmation thereof, to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person:
To Buyer:
WIRELESS SERVICES OPERATING CORPORATION
c/o Saratoga Partners IV, L.P.
535 Madison Avenue, 4th Floor
New York, New York 10022
Telephone: (212) 906-7800
Facsimile: (212) 750-3343
Attention: Christian L. Oberbeck
37
<PAGE> 43
To Seller:
PREFERRED TECHNICAL SERVICES, INC.
c/o Preferred Networks, Inc.
850 Center Way
Norcross, Georgia 30071
Telephone: (770) 582-3500
Facsimile: (770) 582-3669
Attention: Mark H. Dunaway
With a copy to:
PREFERRED NETWORKS, INC.
850 Center Way
Norcross, Georgia 30071
Telephone: (770) 582-3500
Facsimile: (770) 582-3669
Attention: Mark H. Dunaway
10.2. Amendment; Waiver. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Buyer, Seller and PNI, or in the case of
a waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. Except as otherwise provided herein, the rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
10.3. Assignment. No party to this Agreement may assign any of
its rights or delegate any of its obligations under this Agreement without the
prior written consent of the other parties hereto; provided, however, that Buyer
may in its sole discretion assign all of its rights and delegate all of its
obligations hereunder to one or more of its Affiliates so long as Buyer
absolutely, unconditionally and irrevocably guarantees the performance by such
Affiliate of Buyer's obligations hereunder; and provided, further, however, that
Seller shall have the right to assign all of its rights and delegate all of its
obligations hereunder to PNI whether by operation of law in connection with any
liquidation of Seller or otherwise. Any attempted assignment in contravention
hereof shall be null and void.
10.4. Entire Agreement. This Agreement (including the
Disclosure Statement and any Exhibits hereto) contains the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
10.5. Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Buyer, Seller, PNI, the Buyer
Indemnitees and the Seller Indemnities or their successors or permitted assigns,
any rights or remedies under or by reason of this Agreement.
38
<PAGE> 44
10.6. Public Disclosure. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of any applicable laws, and the rules and
regulations of each stock exchange upon which the securities of any party is
listed, no press release or similar public announcement or communication shall
ever, whether prior to or subsequent to the Closing, be made or caused to be
made concerning the execution or performance of this Agreement unless
specifically approved in advance by all parties hereto.
10.7. Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring
such expenses.
10.8. Schedules. The disclosure of any matter in any schedule
to this Agreement shall be deemed to be a disclosure for all purposes of this
Agreement to which such matter could reasonably be expected to be pertinent, but
shall expressly not be deemed to constitute an admission by Seller or Buyer or
to otherwise imply that any such matter is material for the purposes of this
Agreement.
10.9. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
TRIAL BY JURY.
(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA WITHOUT REFERENCE TO THE
CHOICE OF LAW PRINCIPLES THEREOF. THE PARTIES HERETO AGREE TO SUBMIT TO THE
JURISDICTION OF ANY COURT OF GENERAL JURISDICTION SITTING IN THE STATE OF NEW
YORK AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR
THE INTERPRETATION OR ENFORCEMENT HEREOF, THAT IT IS NOT SUBJECT TO SUCH
JURISDICTION OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS
NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE
OR THAT THIS AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS.
(B) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.9.
39
<PAGE> 45
10.10. Counterparts. This Agreement may be executed (including
by facsimile transmission) in one or more counterparts, each of which shall be
deemed an original, and all of which shall constitute one and the same
Agreement.
10.11. Headings. The heading references here in and the table
of contents hereto are for convenience purposes only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
10.12. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
40
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
WIRELESS SERVICES OPERATING
CORPORATION
By:----------------------------
Name: Christian L. Oberbeck
Title: President
PREFERRED TECHNICAL SERVICES, INC.
By:
-----------------------------
Name: Mark H. Dunaway
Title: Chief Executive Officer
PREFERRED NETWORKS, INC.
By:
-----------------------------
Name: Mark H. Dunaway
Title: Chief Executive Officer
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,421,691
<SECURITIES> 0
<RECEIVABLES> 3,259,197
<ALLOWANCES> (690,488)
<INVENTORY> 3,349,050
<CURRENT-ASSETS> 14,257,748
<PP&E> 30,769,559
<DEPRECIATION> (11,107,680)
<TOTAL-ASSETS> 56,562,396
<CURRENT-LIABILITIES> 25,948,014
<BONDS> 178,074
25,068,643
0
<COMMON> 59,815,851
<OTHER-SE> (54,946,944)
<TOTAL-LIABILITY-AND-EQUITY> 56,562,396
<SALES> 3,845,690
<TOTAL-REVENUES> 9,646,111
<CGS> 2,125,048
<TOTAL-COSTS> 7,538,604
<OTHER-EXPENSES> 4,755,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488,889
<INCOME-PRETAX> (3,101,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,101,051)
<DISCONTINUED> 60,638
<EXTRAORDINARY> 0
<CHANGES> (1,832,398)
<NET-INCOME> (4,872,811)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
