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PUBLIC PAGING AND PRONET STRUGGLING OVER SALES INCENTIVE PACT

New York paging reseller Public Paging and operator ProNet Inc. are suing each other over a reseller agreement designed to give Public stock shares if it meets certain sales goals.

Public filed its complaint in U.S. District Court, the Eastern District of New York. The dispute focuses on the Pinnacle reseller agreement.

The agreement says ProNet will award 40,000 shares of common stock to Public if the company meets certain conditions. For the three-year period from Jan. 1, 1996, to Dec. 31, 1988, Public was to “purchase from [ProNet] for resale at least $75,600 of additional numbers over the dollar amount” that Public purchased from ProNet in 1995. In 1999 and 2000, Public was to maintain the quantity of numbers reached during the first three years to qualify for the stock, according to the agreement. The total cash quota equals 1,200 units per month sold at a discounted rate of $1.75 for 36 months.

Since the agreement went into effect, ProNet has billed Public at $1.75 per number for numbers activated and for the amount of numbers not activated short of the Pinnacle monthly quota, said ProNet attorney Richard Lubarsky of Levi & Lubarsky, New York. But Public has paid only for its activated numbers, alleged ProNet.

The Pinnacle and other verbal agreements between the companies imply Public must meet the quota to receive the discounted per-number rate, said Lubarsky. Public previously paid ProNet an average of $2.74 per number under a separate resale agreement and Public has had the option to exit the Pinnacle agreement and revert to its previous rate of $2.74 per number, Lubarsky said.

Public says it entered the Pinnacle agreement understanding it was an incentive program only. Public hasn’t come close to meeting the Pinnacle sales goals and maintains that before it signed the Pinnacle agreement, Public told ProNet it had doubts it could sell enough numbers to receive the stock. Still, Public entered into the deal because ProNet assured Public that no penalties would be assessed if it fell short of the goal, said Public’s attorney Michael Levy of Levy & Schneps, P.C., New York.

Public, which has been in business about six years, reported about 18,000 total units in service-11,000 of which were connected to ProNet frequencies-prior to the litigation. Those figures show how unlikely it would be that Public could achieve an additional 1,200 numbers per month, noted Levy.

The case originated in New York state Supreme court in November, when Public requested a temporary restraining order. The case shortly was removed to federal court and a countercomplaint was issued by ProNet, though Public’s state filing is not considered a formal complaint. The companies agreed to enter a stipulation requiring that neither party interfere in the other’s business nor discuss matters related to the case. Public’s formal complaint was filed Dec. 18.

Levy said the issues surfaced in late October when ProNet alleged Public Paging was in default $150,000 under the Pinnacle agreement. The companies were negotiating the dispute, when ProNet began beeping Public Paging’s customers, said Len Bobrow, Public’s owner.

The customers who called back on the page reached a ProNet representative who solicited their business, alleged Bobrow in an affidavit. A user on ProNet’s frequencies himself, Bobrow says he and other Public customers were told Public was in default of an agreement with ProNet or that Public was going out of business. Customers were told they could become ProNet’s direct customers or terminate their contracts, he continued.

Public contacted its customers to alleviate confusion and keep their business, said Levy, but many customers left both Public and ProNet to avoid the hassle.

Bound by the court stipulation, ProNet corporate counsel Mark Solls restricted comment on Bobrow’s above allegations, but noted ProNet has a different account of the course of events leading up to the lawsuits.

Public submitted claims for relief for breach of contracts, inducing breach of contract, trade disparagement, fraud, injunction and unfair competition. Public is seeking an injunction prohibiting ProNet from soliciting Public’s customers, affirmative injunctive relief requiring ProNet return customers it allegedly solicited from Public, $5 million in compensatory damages and $20 million in punitive damages.

In its counterclaim, ProNet is seeking about $203,000 from Public. This amount is calculated as the number of activated pager numbers ProNet sold Public between December 1995 and November 1996-billed at $2.74, less the $1.75 per number Public has paid-plus other “applicable charges for numbers and access provided by ProNet to Public Paging.”

ProNet’s counterclaims include breach of contracts, quantum merit, unjust enrichment, injunctive relief and trade disparagement. Public filed a reply to ProNet’s counterclaims, denying most claims. ProNet alleges Public defaulted on both the Pinnacle agreement and the companies’ dealership agreement.

In Public’s formal reply to ProNet’s counterclaim, it alleges ProNet induced it to enter the Pinnacle program. Public also charged that when it contacted ProNet to ask about being billed for inactivated numbers, ProNet assured it would make appropriate adjustments to Public’s bills and to just pay what they owed for activated numbers.

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