<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-33639
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT
NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TALTON HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4825 75-2680266
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
----------------
1209 W. NORTH CARRIER PARKWAY, SUITE 300
GRAND PRAIRIE, TEXAS 75050
(972) 988-3737
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JOHN A. CROOKS, JR.
TALTON HOLDINGS, INC.
1209 W. NORTH CARRIER PARKWAY, SUITE 300
GRAND PRAIRIE, TEXAS 75050
(972) 988-3737
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
GLEN HETTINGER
HUGHES & LUCE, L.L.P.
1717 MAIN STREET, SUITE 2800
DALLAS, TEXAS 75201
(214) 939-5500
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
(EACH OF THE FOLLOWING SUBSIDIARIES OF TALTON HOLDINGS, INC., AND EACH OTHER
SUBSIDIARY THAT IS OR BECOMES A GUARANTOR OF CERTAIN OF THE SECURITIES
REGISTERED HEREBY, IS HEREBY DEEMED TO BE A REGISTRANT).
<TABLE>
<CAPTION>
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PRIMARY STANDARD
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
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<S> <C> <C> <C>
AmeriTel Pay Phones, Inc.... Missouri 4825 43-1581010
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Talton Telecommunications
Corporation................ Alabama 4825 63-0654966
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Talton Telecommunications of
Carolina, Inc.............. Alabama 4825 63-1093356
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Talton STC, Inc............. Delaware 4825 43-1782898
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Talton Invision, Inc. ....... Delaware 4825 75-2722144
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</TABLE>
<PAGE>
TALTON HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501 OF REGULATION S-K, SHOWING THE LOCATION IN
THE PROSPECTUS OF THE INFORMATION REQUIRED TO BE INCLUDED THEREIN IN ACCORDANCE
WITH PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION OR HEADING IN THE PROSPECTUS
-------------------------------- -------------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front Forepart of Registration Statement;
Cover Page of Prospectus...... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover
Pages of Prospectus
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................... Forepart of Prospectus; Prospectus
Summary; Risk Factors; Summary Pro Forma
Financial Data; Summary Pro Forma
Financial Data; Selected Consolidated
Financial and Operating Information
4. Terms of the Transaction....... Prospectus Summary; The Exchange Offer;
Description of Senior Notes; Certain
Federal Income Tax Considerations; Risk
Factors
5. Pro Forma Financial
Information................... Selected Consolidated Financial and
Operating Information; Summary Pro Forma
Financial Data
6. Material Contracts with Company
Being Acquired................ *
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. *
8. Interests of Named Experts and
Counsel....................... *
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... *
10. Information with Respect to S-3
Registrants................... *
11. Incorporation of Certain
Information by Reference...... *
12. Information with Respect to S-2
or S-3 Registrants............ *
13. Incorporation of Certain
Information by Reference...... *
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants............... Prospectus Summary; Summary Pro Forma
Financial Data; Selected Consolidated
Financial and Operating Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Legislation and
Regulation
15. Information with Respect to S-3
Companies..................... *
16. Information with Respect to S-2
or S-3 Companies.............. *
17. Information with Respect to
Companies Other Than S-3 or S-
2 Companies................... *
18. Information if Proxies,
Consents or Authorizations are
to be Solicited............... *
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................ *
</TABLE>
- --------
* Item is omitted because the answer is negative or the item is inapplicable.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR +
+AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN +
+FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT +
+BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO +
+SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1997
OFFER TO EXCHANGE
11% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING 11% SENIOR NOTES DUE 2007
OF
TALTON HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997, UNLESS EXTENDED
Talton Holdings, Inc. (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange a principal amount of 11% Series B Senior Notes due 2007 of the
Registrants (the "New Notes") for an equal principal amount of the issued and
outstanding 11% Senior Notes due 2007 (the "Old Notes," and collectively with
the New Notes, the "Senior Notes"). Interest on the Senior Notes is payable
semi-annually commencing January 1, 1998 with a final maturity date of June 30,
2007. As of the date of this Prospectus, $115,000,000 aggregate principal
amount of the Old Notes is outstanding. The terms of the New Notes and the Old
Notes are identical in all material respects, except for certain transfer
restrictions and registration rights and except that holders of New Notes are
not entitled to receive an increase in interest rate that holders of the Old
Notes are entitled to receive in certain circumstances. See "Description of
Senior Notes--Exchange Offer; Registration Rights."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1997
<PAGE>
The Exchange Offer is being made to satisfy certain obligations of the
Registrant under the Registration Rights Agreement, dated as of June 27, 1997,
among the Registrant, the Subsidiary Guarantors (as defined and, together with
the Company, the "Registrants"), and the Initial Purchaser (as defined) (the
"Registration Rights Agreement"). Upon consummation of the Exchange Offer,
holders of Old Notes that were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes will not have any
registration rights under the Registration Rights Agreement with respect to
such nontendered Old Notes, and, accordingly, such Old Notes will continue to
be subject to the restrictions on transfer contained in the legend on the Old
Notes.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") with respect to similar transactions, the
Registrants believe that the New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by any holder of such New Notes (other than any such holder that
is an "affiliate" of the Registrants within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes, and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of its New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of the New Notes received in exchange for
the Old Notes acquired by the broker-dealer as a result of market-making
activities or other trading activities. The Registrant has agreed that it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale for a period of 365 days after the Exchange Date (as defined)
or, if earlier, until all participating broker-dealers have so resold. See
"Plan of Distribution."
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture (as defined). For a more complete
description of the terms of the New Notes, see "Description of Senior Notes."
There will be no cash proceeds to the Registrant from the Exchange Offer. The
Senior Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all current and future senior indebtedness
of the Company and senior to all current and future subordinated indebtedness
of the Company. The Subsidiary Guarantees will be senior unsecured obligations
of the Subsidiary Guarantors and will rank pari passu in right of payment with
all current and future senior indebtedness of the Subsidiary Guarantors and
senior to all current and future subordinated indebtedness of the Subsidiary
Guarantors. The Senior Notes will be jointly and severally guaranteed
(collectively, the "Subsidiary Guarantees"), by each direct and indirect
Restricted Subsidiary (as defined) of the Company existing on the closing date
of the Offering. As of the date of this Prospectus there is aggregate
indebtedness of $600,000 of the Company's Subsidiaries that is effectively
senior to the Senior Notes because the Company is a holding company. See "Risk
Factors--Holding Company Structure."
The Old Notes were originally issued and sold on June 27, 1997 in an
offering of $115,000,000 aggregate principal amount of Old Notes (the
"Offering"). The Offering was exempt from registration under the Securities
Act under the exemptions provided by Rule 144A and Regulation S under, and
Section 4(2) of, the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold, or otherwise pledged, hypothecated, or transferred in the
United States unless so registered or unless an exemption from the
registration requirements of the Securities Act and applicable state
securities laws is available. BASED ON INTERPRETATIONS OF THE STAFF OF THE
COMMISSION, "AFFILIATES" OF THE COMPANY (AS SUCH TERM IS DEFINED IN RULE 405
UNDER THE SECURITIES ACT) ARE PROHIBITED FROM TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
The Registrants have not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer,
and, to the best of the Registrants' information and belief, each person
participating in the Exchange Offer is acquiring the New Notes in its ordinary
course of business
2
<PAGE>
and has no arrangement or understanding with any person to participate in the
distribution of the New Notes to be received in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless extended (as
it may be so extended, the "Expiration Date"), provided that the Exchange
Offer will not be extended beyond 30 business days from the date of this
Prospectus. The date of acceptance for exchange of the Old Notes for the New
Notes (the "Exchange Date") will be the first business day following the
Expiration Date. Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date; otherwise such tenders are
irrevocable.
Prior to this Exchange Offer, there has been no public market for the Senior
Notes. If a market for the New Notes should develop, the New Notes could trade
at a discount from their initial offering price. The Company does not intend
to apply for listing of the New Notes on any securities exchange or in any
automated quotation system. There can be no assurance that an active trading
market for the New Notes will develop.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-4 under the Securities Act with respect to
the Exchange Offer. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Exchange Offer, reference is
made to such Registration Statement and the exhibits and schedules filed as
part thereof. The Registration Statement and the exhibits and schedules
thereto filed with the Commission may be inspected without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and will also be available for
inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement may be obtained
from the Public Reference Section of the Commission upon payment of certain
prescribed fees. Electronic registration statements made through the
Electronic Data Gathering, Analysis, and Retrieval system are publicly
available through the Commission's Web site (http://www.sec.gov), which is
maintained by the Commission and which contains reports, proxy, and
information statements and other information regarding registrants that file
electronically with the Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE REGISTRANT ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES LAWS OF SUCH JURISDICTION.
CORPORATE STRUCTURE
Talton Holdings, Inc.
AmeriTel Pay Phones, Inc.(1)(2)
Talton Telecommunications Corporation(1)(2)
Talton Telecommunications of Carolina, Inc.(2)(3)
Talton STC, Inc.(1)(2)
Talton Invision, Inc.(1)(2)
- --------
(1) Wholly owned by Talton Holdings, Inc.
(2) Subsidiary Guarantor.
(3) Wholly owned by Talton Telecommunications Corporation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
(including notes) appearing elsewhere in this Prospectus. Except as otherwise
stated or unless the context otherwise requires, the information set forth in
this Prospectus gives effect to the STC Acquisition (as defined), and
references to the "Company" are to Talton Holdings, Inc. and its consolidated
subsidiaries and the historical operations and activities of certain
predecessor companies, including AmeriTel Pay Phones, Inc. ("AmeriTel") and
Talton Telecommunications Corporation ("Talton Telecommunications"), each of
which became wholly owned subsidiaries of the Company in December 1996, Tri-T,
Inc. ("Tataka"), the inmate telecommunications operations of which were
acquired by the Company in May 1997, and STC (as defined). References in this
Prospectus to the "STC Acquisition" are to the acquisition by the Company of
substantially all of the assets of Security Telecom Corporation, a Texas
corporation ("STC"), and its affiliate Law Enforcement Technology, Inc. in a
transaction that closed simultaneously with the closing of the Offering.
THE COMPANY
The Company is the largest independent provider of inmate telecommunications
services to correctional facilities operated by city, county, and state
authorities and other types of confinement facilities such as juvenile
detention centers, private jails, and halfway houses. As of June 30, 1997, the
Company owned and operated inmate telephones in 1,784 correctional facilities
in 43 states. Management believes that the Company provides inmate
telecommunications services to over 75% of the county correctional facilities
in the states of Alabama, Illinois, Iowa, Kansas, Missouri, Nebraska, and Utah
and to over 50% of the county correctional facilities in the states of
Colorado, Indiana, Kentucky, Minnesota, Mississippi, Montana, Ohio, Oklahoma,
South Dakota, and Tennessee. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company generated pro forma operating revenues
of $139.4 million and $67.8 million, respectively, and pro forma EBITDA (as
defined) of $27.0 million and $9.7 million, respectively. Management estimates
that the market for local and county correctional facilities exceeds
$700,000,000 in gross revenues annually. Management estimates that
approximately 55% of this market is controlled by RBOCs or other LECs and by
IXCs (as defined). The remainder of this market is served by independent
service providers such as the Company, with the Company accounting for
approximately 50% of the market served by independent service providers.
Management believes that no other independent provider accounts for more than
5% of the revenue derived from inmate telephone operations at local and county
correctional facilities.
The corrections industry has experienced dramatic growth over the last decade
as a result of societal and political trends. Recent anti-crime legislation,
including mandatory sentencing guidelines, limitations on parole, and spending
authorizations for crime prevention and construction of additional correctional
facilities have contributed to this industry growth. The U.S. has one of the
highest incarceration rates of any country in the world. The number of inmates
incarcerated in federal and state prisons and in city and county correctional
facilities increased from approximately 1.1 million at June 30, 1990 to
approximately 1.6 million at June 30, 1996, according to U.S. Department of
Justice statistics.
The inmate telecommunications industry is characterized by the specialized
telecommunications systems and related services required to address the unique
needs of the corrections industry. Security and public safety concerns
associated with inmate telephone use require that correctional facilities have
the ability to control inmate access to telephones and to certain telephone
numbers, and to monitor inmate telephone activity. In addition, concerns
regarding fraud and the credit quality of the parties billed for inmate
telephone usage have also led to the development of systems and procedures
unique to this industry. Inmate telephones in the U.S. are operated by a large
and diverse group of service providers, including local exchange carriers
("LECs"), regional bell operating companies ("RBOCs"), interexchange carriers
("IXCs") such as AT&T, MCI, Sprint, and LDDS/Worldcom, and independent public
pay telephone and inmate telephone companies.
4
<PAGE>
The Company's inmate telecommunications business consists of owning,
operating, servicing, and maintaining a system of telephones located in
correctional facilities and providing related services. The Company enters into
multi-year agreements with the correctional facilities pursuant to which the
Company serves as the exclusive provider of telecommunications services to
inmates within each facility. In exchange for the exclusive service rights, the
Company pays a negotiated commission to the correctional facility based upon
actual inmate telephone use. Under the terms of the Company's agreements with
correctional facilities, these commissions are a function of revenues generated
from inmate telephone use. For the six months ended June 30, 1997 pro forma
facility commissions were approximately 28% of pro forma operating revenues.
The Company installs and generally retains ownership of the telephones and
related equipment. In addition, the Company provides services that are tailored
to the specialized needs of the corrections industry and to the requirements of
the individual correctional facility, such as a specialized law enforcement
management system, call activity reporting, and call blocking. The Company also
generates revenues from public pay telephones that are ancillary to its inmate
telecommunications business.
The Company was formed in November 1996 to consummate the acquisitions of
AmeriTel and Talton Telecommunications, thereby combining the unique strengths
of two recognized independent providers of inmate telecommunications services.
The Company was formed by EUF Talton, L.P. ("EUF Talton"), an affiliate of
Engles Urso Follmer Capital Corporation ("EUFCC"), a private investment banking
and consulting firm, the principals of which are experienced in acquiring and
integrating the operations of companies in consolidating industries. With the
acquisition of AmeriTel, the Company acquired a management team with extensive
experience in identifying, consummating, and integrating acquisitions in the
inmate telecommunications industry; with Talton Telecommunications, the Company
acquired a billing and bad-debt management system that management believes
significantly reduces operating costs and affords the Company a competitive
advantage in the industry. With the acquisition of STC, the Company augmented
its information technology and services offered with, among other assets, a
specialized law enforcement management information system ("LEMS"). The Company
believes this system will be instrumental in retaining STC's customers and will
assist the Company in retaining existing and obtaining new customers.
RECENT DEVELOPMENTS
On July 31, 1997, the Company acquired Correctional Communications
Corporation ("CCC"). With this acquisition, the Company acquired CCC's
proprietary call processor technology, which management believes will reduce
the Company's installation and operating costs. CCC generated revenues of
approximately $9.6 million in 1996. The Company has recently been awarded the
contract with the Department of Corrections of the State of North Carolina to
provide inmate telephone services. The agreement covers 96 correctional
facilities with a current inmate population of approximately 32,000. The
Company will also provide coin telephone service for 1,600 telephones
throughout North Carolina in connection with this contract. On October 6, 1997,
the Company acquired substantially all of the inmate-telephone assets
("Invision") of Communications Central Inc. for $42.0 million, subject to
adjustment (the "Invision Acquisition"). Invision generated revenues of
approximately $48.9 million in 1996.
BUSINESS STRATEGY
The Company was formed to capitalize on consolidation opportunities that the
Company believes exist within the highly fragmented inmate telecommunications
industry. The Company's primary business objectives are to be a cost-efficient,
high-quality provider of telecommunications services to correctional facilities
in the U.S. and to continue to expand its installed base of inmate telephones.
The Company has developed and is implementing the following strategies to meet
these objectives:
. Target the corrections industry with specialized products and
services. The Company has developed specialized telecommunications
systems and services to focus on the unique needs of the corrections
5
<PAGE>
industry. In addition to telecommunications services, the Company offers a
computer-based law enforcement management system, which includes jail
management, victim notification, and prisoner profile software packages.
The Company markets its telecommunications system and services through a
sales force consisting largely of former law enforcement officials and
others with experience in the corrections and telecommunications
industries. The Company also maintains a staff of trained field service
technicians and independent telecommunications service contractors, which
enables the Company to respond quickly (typically within 24 hours) to
service interruptions. In each of the last three years, the Company has
retained in excess of 95% of its beginning of the year customer base
through contract extensions or renewals.
. Reduce operating costs and bad-debt expense. The Company has developed a
billing and bad-debt management system that management believes
significantly reduces operating costs and affords the Company a
competitive advantage in the inmate telecommunications industry.
Management believes that, through the use of the Company's system, which
was developed by Talton Telecommunications, the Company has achieved
levels of billing and collection costs and bad-debt expense that are
generally lower than those experienced by other competitors in the inmate
telecommunications industry. Management is currently implementing this
system throughout the Company's existing operations and intends to
implement this system in future acquired operations.
The Company also utilizes direct billing agreements with LECs to bill and
collect a majority of its operating revenues. Under the direct billing
agreements, the LEC includes charges for the Company's services on the
local telephone bill sent to the recipient of inmate collect calls.
Management believes that direct billing arrangements with LECs are
advantageous because they eliminate the costs associated with third party
billing arrangements that are utilized by a majority of independent inmate
telecommunications companies, expedite the billing and collection process,
increase collectibility, and reduce account charge-offs. As of November
30, 1996, the Company had negotiated direct billing agreements with
BellSouth and GTE South, which enabled the Company to direct bill
approximately 46% of its pro forma operating revenues. The increased
telecommunications traffic that resulted from the combination of AmeriTel
and Talton Telecommunications enabled the Company to enter into new direct
billing arrangements, which, as of June 1997, enabled the Company to
direct bill in excess of 85% of its operating revenues.
. Expand through internal growth. The Company actively seeks to increase
cash flow by installing additional telephones with current customers that
are expanding and by securing new contracts. From January 1997 through
June 1997, the Company signed 61 new contracts for facilities, including
contracts for the state of Alaska and state of North Dakota prison
systems and a new 1,500-bed facility in Ohio that is privately managed by
Corrections Corporation of America ("CCA"). Through its sales force, the
Company emphasizes the knowledge, experience, and reputation of the
Company in the inmate telecommunications industry, its high level of
service, and the additional specialized products and services offered by
the Company to its correctional facility customers. Historically, the
Company has focused on providing telecommunication services to small and
medium-sized correctional facilities (typically city or county facilities
with fewer than 250 beds). From June 30, 1990 to June 30, 1996, the
inmate population in city and county jails increased at an average annual
rate of approximately 4.2%, to approximately 518,000 of the 1.6 million
individuals incarcerated in the U.S. The Company also intends to
selectively pursue additional state and federal contracts that become
available for bid.
Management also believes that the growth of the private corrections
industry provides the Company opportunities for further expansion. The
private corrections industry has experienced dramatic growth over the last
several years, with the rated capacity of privately managed adult
correctional facilities in the U.S. increasing from 10,973 beds at
December 31, 1989 to 77,584 beds at December 31, 1996, representing an
annual growth rate of approximately 32.2%. As the largest provider of
inmate telecommunication services to CCA, the largest private prison
management company in the U.S., the
6
<PAGE>
Company believes it is positioned to continue to benefit from the growth
in the private corrections industry.
. Pursue selective consolidating acquisitions. Management believes that the
inmate telecommunications industry is highly fragmented, which affords
significant opportunities for consolidation. Independent inmate telephone
companies are generally small, local, or regional operators that may lack
the financial resources and infrastructure necessary to achieve the
efficiencies and economies of scale necessary to develop new systems and
services to compete effectively for new customers and, as such, present
attractive acquisition opportunities for the Company. In addition,
management believes that the Telecommunications Act of 1996 (the "Telecom
Act"), which requires RBOCs to decouple their pay phone operations from
their local telephone businesses, will contribute to the consolidation
opportunities existing in the market.
Management believes that the Company's experience in acquiring independent
inmate telecommunication companies will be instrumental in identifying
acquisition candidates, negotiating favorable terms, and integrating the
acquired operations into the Company. Since January 1993, the Company has
successfully completed 27 acquisitions ranging from the purchase of
relatively small local inmate telecommunication service providers to the
acquisition of larger groups of inmate facility telecommunications
contracts and related assets, including those of Peoples Telephone
Company, Inc. for a seven state region in the midwestern U.S. In May 1997,
the Company acquired the inmate telecommunications operations of Tataka,
the leading independent inmate telecommunications service provider in the
state of Utah; on July 31, 1997, the Company acquired substantially all of
the assets of CCC; and on October 6, 1997, the Company consummated the
Invision Acquisition.
. Increase geographic concentration/clustering. The Company seeks to
increase market penetration in the states in which it operates. High
market penetration contributes to operating efficiencies through
economies of scale and enables the Company to provide better customer
service and more meaningful call activity reports to its correctional
facility customers. The Company currently serves all of the state
operated correctional facilities and 63 of 72 county correctional
facilities in Alabama, 83 of 95 county correctional facilities in Iowa,
82 of 94 county correctional facilities in Kansas, 104 of 108 county
correctional facilities in Missouri, 52 of 67 county correctional
facilities in Nebraska, 21 of 26 county correctional facilities in Utah,
and over half of the county correctional facilities in Colorado,
Minnesota, Mississippi, Oklahoma, and South Dakota.
. Capitalize upon economies of scale. Management believes that the
combination of AmeriTel and Talton Telecommunications, in addition to the
completion of the STC Acquisition, has improved operating efficiencies,
and that additional improvements in efficiency will result from future
acquisitions. As a result of the increased telecommunications traffic and
greater market leverage obtained by the Company in connection with its
acquisitions of AmeriTel and Talton Telecommunications, the Company
negotiated more favorable terms from its primary long distance carrier,
LDDS/Worldcom, which has reduced the Company's long distance expenses. To
the extent that the Company is successful in further increasing its
telecommunications traffic through new installations or acquisitions, the
Company expects to be able to negotiate even more favorable terms from
its long distance providers. Management also believes that the continuing
deregulation of local exchange services will enable the Company to
negotiate more favorable rates from incumbent LECs and competitive local
exchange carriers. In addition, management believes that the Company's
existing infrastructure allows the Company to operate new and acquired
inmate telephones in its existing markets without significant incremental
field service, collection, and other general and administrative costs.
Management believes that the expansion of the Company's installed base of
inmate telephones will also allow the Company to enter into additional
direct billing agreements, thereby decreasing billing and collection
costs and bad-debt expense, and increasing the effectiveness of the
Company's call validation process.
The Company's executive offices are located at 1209 W. North Carrier Parkway,
Suite 300, Grand Prairie, Texas 75050. The phone number for the Company is
(972) 988-3737.
7
<PAGE>
THE EXCHANGE OFFER
Securities Offered..........
Up to $115,000,000 aggregate principal amount of
11% Series B Senior Notes due 2007 of the Company
(the "New Notes," and collectively with the Old
Notes, the "Senior Notes"). The terms of the New
Notes and the Old Notes are identical in all ma-
terial respects, except for certain transfer re-
strictions, registration rights, and interest
payments relating to the Old Notes that will not
apply to the New Notes. See "Description of Se-
nior Notes."
The Exchange Offer.......... The Company is offering to exchange a principal
amount of New Notes for an equal principal amount
of Old Notes. See "The Exchange Offer" for a de-
scription of the procedures for tendering Old
Notes. The Exchange Offer satisfies the registra-
tion obligations of the Registrant under the Reg-
istration Rights Agreement. Upon consummation of
the Exchange Offer, holders of Old Notes that
were not prohibited from participating in the Ex-
change Offer and did not tender their Old Notes
will not have any registration rights under the
Registration Rights Agreement with respect to
such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the re-
strictions on transfer contained in the legend on
the Old Notes.
Tenders, Expiration Date;
Withdrawal.................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997, or such later
date and time to which it is extended, provided
that the Exchange Offer will not be extended be-
yond 30 business days from the date of this Pro-
spectus. Tenders of Old Notes pursuant to the Ex-
change Offer may be withdrawn and retendered at
any time prior to the Expiration Date. Any Old
Notes not accepted for exchange for any reason
will be returned without expense to the tendering
holder as promptly as practicable after the expi-
ration or termination of the Exchange Offer.
Federal Income Tax The Exchange Offer will not result in any income,
Considerations.............. gain, or loss to the holders of Senior Notes or
the Company for federal income tax purposes. See
"Certain Federal Income Tax Considerations."
Use of Proceeds.............
There will be no proceeds to the Company from the
exchange of New Notes for the Old Notes pursuant
to the Exchange Offer.
Exchange Agent.............. U.S. Trust Company of Texas, N.A., the Trustee
under the Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with the Ex-
change Offer.
8
<PAGE>
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes that exchange their Old Notes for New Notes
pursuant to the Exchange Offer may offer their New Notes for resale, resell
their New Notes, and otherwise transfer their New Notes without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided such New Notes are acquired in the ordinary course of the holders'
business, such holders have no arrangement with any person to participate in a
distribution of such New Notes, and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with any
resale of its New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes. The
Company is required, under the Registration Rights Agreement, to register the
New Notes in any jurisdiction requested by the holders, subject to certain
limitations. BASED ON INTERPRETATIONS OF THE STAFF OF THE COMMISSION,
"AFFILIATES" OF THE COMPANY (AS SUCH TERM IS DEFINED IN RULE 405 UNDER THE
SECURITIES ACT) ARE PROHIBITED FROM TENDERING OLD NOTES IN THE EXCHANGE OFFER.
Upon consummation of the Exchange Offer, holders that were not prohibited from
participating in the Exchange Offer and did not tender their Old Notes will not
have any registration rights under the Registration Rights Agreement with
respect to such nontendered Old Notes, and accordingly, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
on the Old Notes. In general, Old Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws. See
"The Exchange Offer--Consequences of Failure to Exchange."
9
<PAGE>
SUMMARY DESCRIPTION OF SENIOR NOTES
Securities Offered..........
Up to $115,000,000 principal amount of 11% Series
B Senior Notes due 2007 of the Company. The terms
of the New Notes and the Old Notes are identical
in all material respects, except for certain
transfer restrictions, registration rights, and
interest payments relating to the Old Notes,
which will not apply to the New Notes. See "De-
scription of Senior Notes."
Maturity.................... June 30, 2007
Interest.................... The Senior Notes will bear interest at the rate
of 11% per annum, payable semi-annually in cash
in arrears on January 1 and July 1 of each year,
commencing January 1, 1998.
Subsidiary Guarantees.......
The Senior Notes will be jointly and severally
guaranteed (collectively, the "Subsidiary Guaran-
tees"), by each direct and indirect Restricted
Subsidiary (as defined) of the Company existing
on the closing date of the Offering (the "Closing
Date") and by all other Restricted Subsidiaries
of the Company formed or acquired thereafter
(collectively the "Subsidiary Guarantors"). The
Subsidiary Guarantors' liability under the Sub-
sidiary Guarantees will be limited as described
in this Prospectus, and the Subsidiary Guarantees
will be released automatically in connection with
certain asset sales and dispositions. See "De-
scription of Notes--Subsidiary Guarantees."
Ranking.....................
The Senior Notes will be senior unsecured
obligations of the Company and will rank pari
passu in right of payment with all current and
future senior indebtedness of the Company and
senior to all current and future subordinated
indebtedness of the Company. The Subsidiary
Guarantees will be senior unsecured obligations
of the Subsidiary Guarantors and will rank pari
passu in right of payment with all current and
future senior indebtedness of the Subsidiary
Guarantors and senior to all current and future
subordinated indebtedness of the Subsidiary
Guarantors. The Company's subsidiaries (the
"Subsidiaries") will be parties to the Senior
Credit Facility and all obligations under the
Senior Credit Facility will be secured by a first
priority lien on substantially all of the assets
of the Company (including the capital stock of
the Subsidiaries) and such Subsidiaries. Although
on the date of this Prospectus there is no
secured indebtedness of the Company or the
Subsidiary Guarantors that ranks senior to the
Senior Notes and the Subsidiary Guarantees, the
Indenture permits the Company and its
Subsidiaries to incur additional indebtedness,
including secured indebtedness, subject to
certain limitations. As of the date of this
Prospectus there is aggregate indebtedness of
$600,000 of the Company's Subsidiaries that is
effectively senior to the Senior Notes because
the Company is a holding company. See "Risk
Factors--Holding Company Structure."
10
<PAGE>
Optional Redemption......... At any time on or after June 30, 2002, the Senior
Notes will be redeemable at the option of the
Company, in whole or in part, at the redemption
prices set forth in this Prospectus plus accrued
and unpaid interest, if any, to the date of re-
demption. Notwithstanding the foregoing, at any
time prior to June 30, 2000, the Company may re-
deem up to 30% of the original aggregate princi-
pal amount of the Senior Notes with the net cash
proceeds of one or more Equity Offerings at a re-
demption price equal to 111% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of redemption; provided,
that, after any such redemption, at least
$80,000,000 aggregate principal amount of Senior
Notes originally issued remains outstanding. See
"Description of Senior Notes--Optional Redemp-
tion."
Change of Control...........
Upon a Change of Control, the Company will be re-
quired to offer to purchase the Notes at a pur-
chase price in cash equal to 101% of the aggre-
gate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
See "Description of Senior Notes--Change of Con-
trol Offer." The failure to redeem the Senior
Notes upon the occurrence of a Change of Control
as required by the Indenture would constitute a
Default under the Indenture. A "Change of Con-
trol" is defined by the Indenture to include cer-
tain dispositions of all or substantially all the
assets of the Company; adoption of a plan of dis-
solution or liquidation by the Company; consumma-
tion of certain transactions that result in cer-
tain third parties acquiring beneficial ownership
of more than 50% of the Voting Stock (as defined)
of the Company; or a change in the membership of
the Board of Directors of the Company resulting
in a majority of the directors of the Company not
being Continuing Directors (as defined). For a
detailed description of "Change of Control" see
"Description of Senior Notes--Certain Defini-
tions." Certain events involving a Change of Con-
trol may result in an event of default under the
Senior Credit Facility and may result in an event
of default under other indebtedness of the Com-
pany that may be incurred in the future. An event
of default under the Senior Credit Facility or
other indebtedness could result in an accelera-
tion of such indebtedness, in which case the Se-
nior Notes would be effectively subordinated to
such other secured indebtedness to the extent of
any liens securing such other indebtedness. See
"Description of Senior Notes--Change of Control
Offer" and "Description of Other Indebtedness--
Senior Credit Facility." Under New York law,
which governs the Indenture, it is not clear
which transactions would constitute a sale of
"all or substantially all of the assets" of the
Company. See "Risk Factors--Repurchase of Senior
Notes Upon a Change of Control." There can be no
assurance that the Company would have sufficient
resources to repurchase the Senior Notes and pay
its obligations under the Senior Credit Facility
or other indebtedness upon the occurrence of a
Change of Control.
11
<PAGE>
Certain Covenants........... The indenture governing the Notes (the "Inden-
ture") contains certain covenants that, among
other things, limit the ability of the Company
and its Restricted Subsidiaries (i) to pay the
dividends and make other Restricted Payments (as
defined) or investments; (ii) to incur additional
Indebtedness; (iii) to incur certain liens; (iv)
to enter into transactions with Affiliates (as
defined); (v) to engage in sale- leaseback trans-
actions; (vi) to issue stock of Restricted Sub-
sidiaries to third parties; (vii) to enter into
agreements restricting the ability of Restricted
Subsidiaries to pay dividends and make distribu-
tions; (viii) to merge or consolidate with any
other entity; and (ix) to transfer or sell as-
sets. In addition, under certain circumstances,
the Company will be required to offer to purchase
Senior Notes at a price equal to 100% of the
principal amount of such Senior Notes, plus ac-
crued and unpaid interest, if any, to the date of
purchase with the Net Proceeds (as defined) of
certain Asset Sales (as defined). These covenants
are subject to a number of important exceptions.
See "Description of Senior Notes--Certain Cove-
nants."
Use of Proceeds.............
There will be no proceeds to the Company from the
exchange of New Notes for the Old Notes pursuant
to the Exchange Offer.
RISK FACTORS
Prospective participants in the Exchange Offer should consider all of the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
under "Risk Factors."
12
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following unaudited summary pro forma operating data for the year ended
December 31, 1996 and the six months ended June 30, 1997 give effect to (i) the
acquisitions of AmeriTel, Talton Telecommunications, and Tataka; (ii) the STC
Acquisition; (iii) the CCC Acquisition; (iv) the Invision Acquisition; and (v)
the Offering and the application of the net proceeds therefrom, as if all such
transactions had been consummated on January 1, 1996. The pro forma balance
sheet data give effect to the CCC Acquisition and the Invision Acquisition, as
if such transactions had been consummated on June 30, 1997. The summary pro
forma financial data is for illustrative purposes only and should not be viewed
as a projection or forecast of the Company's performance for any future period.
Such pro forma data should be read in conjunction with "Pro Forma Financial
Data"; "Management's Discussion and Analysis of Financial Condition and Results
of Operations"; and the financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
PRO FORMA OPERATING DATA:
Operating revenues...................................... $139,369 $67,750
Operating expenses:
Telecommunication costs............................... 58,569 30,101
Facility commissions.................................. 36,723 19,048
Field operations and maintenance...................... 4,139 2,417
Selling, general, and administrative.................. 13,050 7,063
Depreciation.......................................... 2,660 1,331
Amortization of intangibles........................... 20,861 10,433
Non-recurring expenses................................ 250 --
-------- -------
Total operating expenses............................ 136,252 70,393
-------- -------
Operating income (loss)................................. 3,117 (2,643)
Other (income) expense:
Interest expense, net................................. 14,995 7,498
Other, net............................................ (116) (581)
-------- -------
Total other (income) expense........................ 14,879 6,917
Income (loss) before income taxes....................... (11,762) (9,560)
Income tax expense...................................... -- --
-------- -------
Income (loss) from continuing operations................ $(11,762) $(9,560)
======== =======
OTHER PRO FORMA DATA:
EBITDA(1)............................................. $ 27,004 $ 9,702
Capital Expenditures(2)............................... 9,369 4,440
Ratio of EBITDA to net cash interest expense.......... 1.8 1.3
Ratio of Net Debt to EBITDA(3)........................ 5.0 6.9
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT
JUNE 30, 1997
-------------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ --
Total assets.................................................... 149,040
Total debt (including current maturities)....................... 133,960
Total stockholders' equity...................................... 353
</TABLE>
(see notes on the following page)
13
<PAGE>
NOTES TO SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) For the purposes of this Prospectus, EBITDA means income before interest,
income taxes, depreciation, amortization, and non-recurring expenses.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company has included
information concerning EBITDA in this Prospectus because it is commonly
used by certain investors and analysts as a measure of a company's ability
to service its debt obligations. EBITDA should not be used as an
alternative to, or be considered more meaningful than, operating income,
net income, or cash flow as an indicator of the Company's operating
performance. Pro forma EBITDA reflects the following adjustments:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
EBITDA before pro forma adjustments................ $19,300 $6,875
Pro forma adjustments:
Billing and collection savings................... 4,146 1,547
Long distance savings............................ 3,027 1,063
Elimination of selling, general, and
administrative costs of acquired businesses..... 512 221
Elimination of minority interest................. 19 (4)
------- ------
Pro forma EBITDA................................... $27,004 $9,702
======= ======
</TABLE>
Although management believes that revenue enhancements, additional cost
reductions, and operating expense synergies will be realized after the Company
has integrated the acquired businesses and has consolidated administrative
functions, including (i) increased revenues resulting from increases in tariff
rates during 1996; (ii) increases in call blocking limits at Invision that were
substantially lowered by Invision in late 1996; and (iii) reductions in bad-
debt expense resulting from the full implementation of Talton
Telecommunications' billing and bad-debt management system, these and other
possible synergies in overhead expenses have not been reflected in the pro
forma financial data. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Revenue and Cost Synergies" for the
effects of these synergies on the financial performance of the Company.
(2) Capital expenditures include only amounts expended for purchase of property
and equipment and the installation of facility contracts.
(3) Net Debt represents total debt less cash equivalents. For purposes of
calculating this ratio for the six months ended June 30, 1997, EBITDA has
been annualized.
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Effective December 1, 1996, the Company became the holding company for the
operations of AmeriTel and Talton Telecommunications. The Company accounted for
these acquisitions using the purchase method of accounting. Accordingly, the
Company's consolidated financial statements include the operations of AmeriTel
and Talton Telecommunications only for periods after December 1, 1996.
The following consolidated financial data for the Company for the one month
ended December 31, 1996 and combined financial data of AmeriTel and Talton
Telecommunications for the years ended December 31, 1994 and 1995 and for the
eleven months ended November 30, 1996, have been derived from the audited
consolidated financial statements of the Company and AmeriTel and Talton
Telecommunications. The financial data do not purport to indicate results of
operations as of any future date or for any future period. The combined
financial data of the Company's predecessors for the six months ended June 30,
1996 and the consolidated financial data of the Company for the six months
ended June 30, 1997 are unaudited and, in the opinion of management, reflect
all adjustments (consisting only of normal recurring accruals) that are
necessary to present fairly the combined or consolidated financial statements
for such periods. Such summary historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMBINED
COMBINED PREDECESSORS THE COMPANY PREDECESSORS THE COMPANY
------------------------------- ------------ ------------ -----------
YEARS ENDED ELEVEN MONTHS ONE MONTH SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED ENDED ENDED
---------------- NOVEMBER 30, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues...... $23,892 $40,326 $53,663 $ 5,506 $27,362 $30,082
Operating expenses:
Telecommunication
costs................. 11,761 18,673 23,317 2,299 12,341 12,405
Facility commissions... 3,901 9,595 13,962 1,455 6,962 8,161
Field operations and
maintenance........... 1,044 1,467 1,816 219 893 1,166
Selling, general, and
administrative........ 2,571 4,089 3,921 372 2,000 2,327
Depreciation........... 965 1,359 1,538 111 732 617
Amortization of intan-
gibles................ 1,392 1,605 1,746 741 924 4,738
Non-recurring ex-
penses................ -- -- 684 -- -- --
------- ------- ------- ------- ------- -------
Total operating ex-
penses................ 21,634 36,788 46,984 5,197 23,852 29,414
------- ------- ------- ------- ------- -------
Operating income........ 2,258 3,538 6,679 309 3,510 668
Other (income) expense:
Interest expense, net.. 745 1,360 1,469 612 799 3,932
Other, net............. (134) (52) 27 (20) 24 (19)
------- ------- ------- ------- ------- -------
Total other expense.... 611 1,308 1,496 592 823 3,913
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary loss..... 1,647 2,230 5,183 (283) 2,687 (3,245)
Income tax expense
(benefit).............. (11) 891 1,917 (23) 525 (850)
------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary loss..... 1,658 1,339 3,266 (260) 2,162 (2,395)
Extraordinary loss...... -- -- 52 -- -- 4,396
------- ------- ------- ------- ------- -------
Net Income (loss)....... $ 1,658 $ 1,339 $ 3,214 $ (260) $ 2,162 $(6,791)
======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA(1)............... $ 4,749 $ 6,554 $ 9,936 $ 1,181 $ 5,142 $ 6,042
Net cash provided (used)
by operating activi-
ties:.................. 4,413 4,809 5,883 (1,419) 3,130 2,053
Net cash provided (used)
by investing activi-
ties:.................. (9,976) (8,022) (7,515) (47,252) (4,741) (11,664)
Net cash provided (used)
by financing activi-
ties:.................. 5,700 4,087 870 48,966 1,430 43,469
Capital expendi-
tures(2)............... 3,223 4,669 2,804 269 871 1,297
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
1997
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 34,152
Total assets........................................................ 130,678
Total debt (including current maturities)........................... 115,612
Total stockholders' equity.......................................... 353
</TABLE>
(see notes on the following page)
15
<PAGE>
NOTES TO SUMMARY HISTORICAL FINANCIAL DATA
(1) For purposes of this Prospectus, EBITDA means income before interest,
income taxes, depreciation, amortization, and non-recurring expenses.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company has included
information concerning EBITDA in this Prospectus because it is commonly
used by certain investors and analysts as a measure of a company's ability
to service its debt obligations. EBITDA should not be used as an
alternative to, or be considered more meaningful than, operating income,
net income, or cash flow as an indicator of the Company's operating
performance.
(2) Capital expenditures includes only amounts expended for purchases of
property and equipment and the installation of facility contracts.
16
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business in connection with the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend on the Old Notes. Based on interpretations of the
staff of the Commission, "affiliates" of the Company (as such term is defined
in Rule 405 under the Securities Act) are prohibited from tendering Old Notes
in the Exchange Offer. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act and applicable state securities
laws, except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Company does
not intend to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission with respect to similar
transactions, the Company believes that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
any holder of such New Notes (other than any such holder that is an
"affiliate" of the Registrant within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Notes, and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with
any resale of its New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of the
New Notes received in exchange for the Old Notes acquired by the broker-dealer
as a result of market-making activities or other trading activities. The
Company has agreed that it will make this Prospectus available to any broker-
dealer for use in connection with any such resale for a period of 365 days
after the Exchange Date or, if earlier, until all participating broker-dealers
have so resold. See "Plan of Distribution." The New Notes may not be offered
or sold unless they have been registered or qualified for sale under
applicable state securities laws or an exemption from registration or
qualification is available and is complied with. The Registrant is required,
under the Registration Rights Agreement, to register the New Notes in any
jurisdiction requested by the holders, subject to certain limitations.
ABSENCE OF A PUBLIC MARKET
Prior to this Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, the New Notes could trade
at a discount from their principal amount. The Company does not currently
intend to list the New Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no
assurance that an active public market for the New Notes will develop.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company has significant debt and debt service obligations. At June 30,
1997, the Company had approximately $115.6 million of long-term debt
outstanding (including current maturities). In addition, for the six months
ended June 30, 1997, the Company's earnings were insufficient to cover fixed
charges by approximately $3.2 million. After giving effect to the acquisition
of Tataka, the STC Acquisition, the CCC Acquisition, the Invision Acquisition,
the Offering, and the application of the net proceeds therefrom, the Company
has, as of June 30, 1997, on a pro forma basis $134.0 million of long-term
debt (including current maturities) and $0.4 million of stockholders equity.
The significant leverage of the Company will have several important
consequences to holders of the Senior Notes, including, but not limited to,
the following: (i) the Company will incur significant interest expense and
17
<PAGE>
principal repayment obligations in connection with the Senior Notes, the
Senior Credit Facility, and other permitted indebtedness thereby reducing the
funds available for its operations, capital expenditures, and other purposes;
(ii) the Company's leveraged position and the covenants contained in the
Senior Credit Facility and the Indenture will limit the Company's ability to
obtain additional financing and dispose of assets; and (iii) the Company's
substantial leverage may make it more vulnerable to economic fluctuations,
limit its ability to withstand competitive pressures, and reduce its
flexibility in responding to changing business and economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Senior
Notes."
The Company will be required to pay the principal of the Senior Notes at
maturity in 2007. The Company's ability to make scheduled principal payments
or to refinance its obligations with respect to its indebtedness, and to pay
interest thereon, will depend on its financial and operating performance,
which in turn is subject to prevailing economic conditions and to certain
financial, business, and other factors beyond its control.
The Senior Credit Facility and the Indenture contain numerous restrictive
covenants including, among others, limitations on the ability of the Company
to incur additional indebtedness, to create liens and other encumbrances, to
make certain payments and investments, to sell or otherwise dispose of assets,
or to merge or consolidate with another entity. The Senior Credit Facility
also requires the Company to meet certain financial tests on a consolidated
basis, some of which may be more restrictive in future years. The Company's
failure to comply with its obligations under the Senior Credit Facility or the
Indenture, or in agreements relating to indebtedness incurred in the future,
could result in an event of default under such agreements, which could permit
acceleration of the related debt and acceleration of debt under other
financing arrangements that may contain cross-acceleration or cross-default
provisions. In addition, because interest under the Company's Senior Credit
Facility accrues at floating rates, the Company remains subject to interest
rate risk with respect to a significant portion of its indebtedness.
The Senior Notes are and will be senior obligations of the Company ranking
pari passu in right of payment with all current and future senior indebtedness
of the Company, including indebtedness under the Senior Credit Facility and
any refinancing of the Senior Credit Facility. The Senior Notes are and will
be unsecured obligations, however, and substantially all of the assets of the
Company (including the capital stock of the Subsidiaries) and the Subsidiaries
will be pledged to secure the obligations of the Company and its Subsidiaries
under the Senior Credit Facility. Indebtedness under the Senior Credit
Facility and any other current and future secured indebtedness of the Company
will effectively rank senior to the Senior Notes to the extent of the
collateral securing such indebtedness in the event of a realization upon the
collateral or a dissolution, liquidation, reorganization, or similar
proceeding related to the Company. After any such realization or proceeding,
there can be no assurance that there will be sufficient proceeds or other
assets available for holders of the Senior Notes to recover all or any portion
of their claims against the Company under the Senior Notes and the Indenture.
See "Capitalization"; "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources";
"Description of the Other Indebtedness--Senior Credit Facility"; and
"Description of Senior Notes."
HOLDING COMPANY STRUCTURE
The Company is a holding company, the assets of which consist principally of
the stock of its Subsidiaries, through which it conducts substantially all of
its operations. The Company's ability to pay interest on the Senior Notes and
to satisfy its other obligations will depend upon dividends or other
distributions of funds from its Subsidiaries. The Company's Subsidiaries are
distinct legal entities, and the rights of holders of the Senior Notes against
the Subsidiary Guarantors will be subject to the rights of the Subsidiary
Guarantors' creditors, to the extent senior to the obligations of the
Subsidiary Guarantors. The future operating performance of its Subsidiaries
will be affected by economic conditions, and financial, business, and other
factors, many of which are beyond the Company's control. As of the date of
this Prospectus there is aggregate indebtedness of $600,000 of the Company's
Subsidiaries that is effectively senior to the Senior Notes because the
Company is a holding company. The Company has pledged all of the outstanding
capital stock of its Subsidiaries to secure its
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obligations under the Senior Credit Facility. The Senior Credit Facility and
all obligations thereunder are also secured by a first priority lien on
substantially all of the assets of the Company's Subsidiaries, including
future Subsidiaries. There can be no assurance that the operating cash flow of
the Company's Subsidiaries will be sufficient to meet the Company's operating
expenses and debt service obligations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company is pursuing a strategy of expanding its installed base of inmate
telephones through acquisitions of inmate telecommunications service
providers. The Company evaluates specific acquisition opportunities based on
market conditions and economic factors existing at the time and intends to
pursue favorable opportunities as they arise. The Company may encounter
increased competition for acquisitions in the future, which could result in
acquisition prices the Company does not consider acceptable. There can be no
assurance that the Company will find suitable acquisition candidates at
acceptable prices, have sufficient available capital resources to realize its
acquisition strategy, be successful in entering into definitive agreements for
desired acquisitions, or that any such acquisitions, if consummated, will
prove to be advantageous to the Company. See "--Substantial Leverage;
Restrictive Covenants"; "Management's Discussion and Analysis of Financial
Condition and Results of Operations"; and "Business--Business Strategy."
The success of the Company's acquisition strategy is also dependent on the
ability of the Company to integrate acquired operations into the Company's
existing operations. The Company is in the process of integrating the
operations of AmeriTel, Talton Telecommunications, Tataka, STC, CCC, and
Invision. There can be no assurance that the integration of these operations
and future acquired operations will not require the investment of capital or
result in unforeseen difficulties or absorb significant management resources
at levels higher than that anticipated by management, or that the Company will
realize meaningful economies of scale or operating efficiencies from its
acquisitions. The failure of the Company to successfully integrate acquired
operations could have a material adverse effect on the Company. See
"Business--Business Strategy."
REGULATORY FACTORS
The inmate telecommunications industry is regulated by both the Federal
Communications Commission (the "FCC") and state public utility commissions.
The Company's operations are also significantly affected by the regulation of
other telecommunications businesses, including LECs and IXCs. Changes in the
laws and regulations governing the Company's business or other
telecommunications businesses could have a material adverse effect on the
Company.
At the federal level, the industry is currently in a period of substantial
regulatory change in the aftermath of the Telecom Act, which, among other
things, directed the FCC to change the regulatory framework of the pay
telephone industry, including the inmate telephone industry. Because the FCC
is still in the process of implementing its new regulations, and because
several aspects of rule changes proposed by the FCC are subject to requests
for reconsideration, clarification, and final resolution in related
proceedings, as well as pending court challenges, the ultimate effect of
regulatory changes on the Company's business is uncertain. In particular,
whether the FCC's rules designed to eliminate subsidization and discrimination
by the LECs prove to be effective will significantly affect the level of
competition faced by the Company in the inmate telecommunications market.
Similarly, because the rules have only recently been adopted, it is too early
to assess the LECs' competitive responses to them. See "Business--Regulation--
Federal Regulation."
Under the Billed Party Preference ("BPP") proposal currently pending before
the FCC, the Company could be prohibited from carrying many interstate collect
calls made on the Company's inmate telephones, which could substantially
reduce the Company's operating revenues. Any such reduction in the Company's
operating revenues could have a material adverse effect on the Company. See
"Business--Regulation."
In addition to federal regulation, many states have set maximum rates that
can be charged for inmate collect calls. Because collect calls are generally
the only form of calling permitted from inmate telephones, a reduction in the
maximum rates that may be charged by the Company could have a material adverse
effect on the Company. See "Business--Regulation."
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COMPETITION
The businesses in which the Company operates are highly competitive. The
Company competes with numerous providers of inmate telephone services, LECs,
RBOCs, IXCs, including major long distance carriers such as AT&T, MCI, Sprint,
and LDDS/Worldcom, and independent public pay telephone and inmate telephone
companies. Many of the Company's competitors are larger and better capitalized
and have significantly greater financial resources available than the Company.
The Company believes that the principal competitive factors in the inmate
telecommunications market are (i) system features and functionality; (ii)
system reliability and service; (iii) the ability to customize inmate call
processing systems to the specifications and needs of the particular
correctional facility; (iv) relationships with correctional facilities; and
(v) rates of commissions paid to the correctional facilities.
Historically, federal and state facilities, which are generally bid on a
system-wide basis, have been served by RBOCs, large LECs, and IXCs, which are
able to leverage their existing systems and infrastructure to serve these
large, high volume customers without the need for additional, significant
capital expenditures. These same service providers, however, have generally
not focused on the smaller city and county correctional systems, which are
typically negotiated on a facility-by-facility basis. As a result, a
significant portion of city and county correctional facilities, which
constitute a substantial majority of the Company's customers, is served by
independent inmate telephone and independent public pay telephone companies. A
decision by RBOCs, large LECs, and major long distance companies to pursue
actively contracts with city and county correctional facilities could have a
material adverse effect on the Company. See "Business--Business Strategy" and
"Business--Competition."
GOVERNMENTAL ENTITIES AS CUSTOMERS
The Company's customers include state and local governmental entities
responsible for the administration and operation of correctional facilities.
The Company is subject, therefore, to the administrative policies and
procedures employed by, and the regulations that govern the activities of,
these governmental entities, including policies, procedures, and regulations
concerning the procurement and retention of contract rights and the provision
of services. There can be no assurance that the Company's operations will not
be adversely affected by the policies and procedures employed by, or the
regulations that govern the activities of, these governmental entities or that
the Company will not be limited in its ability to secure additional customer
contracts, renew existing customer contracts, or consummate acquisitions as a
result of such policies, procedures, and regulations.
CONCENTRATION OF ACCOUNTS
The Company serves the entire corrections system operated by the state of
Alabama. Pro forma operating revenues from the state of Alabama totaled
approximately $12.8 million and $5.8 million, respectively, for the fiscal
year ended December 31, 1996 and the six months ended June 30, 1997, or 9.2%
and 8.6%, respectively, of the Company's pro forma operating revenues for such
periods. The Company's contract with the state of Alabama expires in March
1998. The loss of the state of Alabama as a customer could have a material
adverse effect on the Company. In addition, the Company is the largest
provider of inmate telecommunication services to CCA, a private operator of
correctional facilities. Aggregate pro forma revenues from CCA under these
contracts, which are terminable upon 30 days' notice, totaled approximately
$6.6 million and $5.5 million for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, representing 4.7% and 8.1% of the
Company's pro forma operating revenues for such periods, respectively. The
loss of CCA as a customer could have a material adverse effect on the Company.
See "--Provision of Inmate Telecommunications Services by Private Operators of
Correctional Facilities" and "Business--Competition."
DEPENDENCE ON EQUIPMENT VENDORS
The Company obtains the telecommunications equipment used in its operations
from several equipment vendors. Because the Company does not manufacture its
own equipment, the Company is dependent on these vendors for replacement parts
and technical service and support on its existing equipment. Although there
are
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alternative sources for equipment in the market, the inability of more than
one of the Company's equipment vendors to provide replacement parts, service,
or support to the Company could cause an interruption in the services offered
by the Company. Any prolonged interruption of the Company's services could
have a material adverse effect on the Company.
TECHNOLOGICAL CHANGE AND NEW SERVICES
The telecommunications industry has been characterized by rapid
technological advancements, frequent new service introductions, and evolving
industry standards. Management believes that its future success will depend on
its ability to anticipate and respond to such changes and new technology.
There can be no assurance that the Company will not be materially adversely
affected by the introduction and acceptance of new technology.
PROVISION OF INMATE TELECOMMUNICATIONS SERVICES BY PRIVATE OPERATORS OF
CORRECTIONAL FACILITIES
The private corrections industry has experienced dramatic growth over the
last several years and is expected to continue to grow for the foreseeable
future. At present, private operators of correctional facilities generally do
not operate their own inmate telecommunications systems. Although the growth
of this industry presents opportunities to the Company, the utilization by
private operators of correctional facilities of their own inmate
telecommunications system could have a material adverse effect on the Company.
See "--Concentration of Accounts" and "Business--Industry Overview."
SERVICE INTERRUPTIONS; EQUIPMENT FAILURES
The Company's operations require that its equipment and the equipment of its
service providers be operational 24 hours per day, 365 days per year. As is
the case with other telecommunications companies, the Company's operations may
experience temporary service interruptions or equipment failures, which may
result from causes beyond the Company's control. Any such prolonged event
could have a material adverse effect on the Company.
RELIANCE ON KEY PERSONNEL
The Company is dependent on the efforts of certain of its officers and other
senior management personnel. The Company is implementing strategies that
involve targeting the corrections industry with specialized products and
services; reducing operating costs and bad-debt expense; expanding through
internal growth; pursuing consolidating acquisitions; and capitalizing on
economies of scale. The officers and senior management of the Company have
experience in implementing various aspects of these strategies. The Company
believes that it would be difficult to replace the expertise and experience of
such persons in the event that the services of one or more such persons were
to become unavailable. Accordingly, the loss of the services of one or more of
these individuals could have a material adverse effect on the Company and its
ability to implement such strategies and to achieve its goals. In addition,
the failure of the Company to attract and retain additional management to
support its business strategy could also have a material adverse effect on the
Company. See "Management."
FRAUDULENT CONVEYANCE RISKS
The Company's obligations under the Senior Notes will be guaranteed, jointly
and severally, on a senior unsecured basis by each of the Subsidiary
Guarantors. Various fraudulent conveyance laws have been enacted for the
protection of creditors and may be applied by a court on behalf of any unpaid
creditor or a representative of the Company's creditors in a lawsuit to
subordinate or avoid the Senior Notes or any Subsidiary Guarantee in favor of
other current or future creditors of the Company or a Subsidiary Guarantor.
Based upon financial and other information currently available to it,
management believes that the Senior Notes and the Subsidiary Guarantees are
being incurred for proper purposes and in good faith, and that the Company and
each of the Subsidiary Guarantors (i) is solvent and will continue to be
solvent after issuing the Senior Notes or its Subsidiary Guarantee, as the
case may be; (ii) will have sufficient capital for carrying on its business
after such issuance; and (iii) will be able to pay its debts as they mature.
Notwithstanding management's belief, if a court
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were to find that (i) the indebtedness represented by the Senior Notes or a
Subsidiary Guarantee was incurred with intent to hinder, delay, or defraud any
present or future creditor of the Company or the Subsidiary Guarantor, as the
case may be, or contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of other creditors; or (ii) the
Company or a Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing the Senior Notes or a Subsidiary
Guarantee, as the case may be, and the Company or a Subsidiary Guarantor (a)
was insolvent, (b) was rendered insolvent by reason of the issuance of the
Senior Notes or a Subsidiary Guarantee, (c) was engaged or about to engage in
business or a transaction for which the remaining assets of the Company or
such Subsidiary Guarantor constitute unreasonably small capital to carry on
its business, (d) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, or (e) was a defendant in
an action for money damages or had a judgment for money damages docketed
against it (if in either case, after final judgment, the judgment is
unsatisfied), then in each such case, a court could avoid or subordinate the
Senior Notes or the Subsidiary Guarantee in favor of other creditors of the
Company or a Subsidiary Guarantor, as the case may be. Among other things, a
legal challenge of the Senior Notes or a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Company
or the Subsidiary Guarantor as a result of the issuance by the Company of the
Senior Notes and the execution by a Subsidiary Guarantor of a Subsidiary
Guaranty.
To the extent that any Subsidiary Guarantee were avoided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Senior
Notes would cease to have any claim in respect of such Subsidiary Guarantor
and would be creditors solely of the Company and any Subsidiary Guarantor
whose Subsidiary Guarantee was not avoided or held unenforceable. In such
event, the claims of the holders of the Senior Notes against the issuer of an
invalid Subsidiary Guarantee would be subject to the prior payment of all
liabilities of such Subsidiary Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Senior Notes relating to any voided
Subsidiary Guarantee. See "Capitalization"; "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources"; and "Description of Senior Notes--Subsidiary Guarantees."
REPURCHASE OF SENIOR NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to make an offer to
repurchase all or any part of the Senior Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of repurchase. Certain events involving a Change of Control may
result in an event of default under the Senior Credit Facility and may result
in an event of default under other indebtedness of the Company that may be
incurred in the future. An event of default under the Senior Credit Facility
or other indebtedness could result in an acceleration of such indebtedness, in
which case the Senior Notes would be effectively subordinated to such other
secured indebtedness to the extent of any liens securing such other
indebtedness. See "Description of Senior Notes--Change of Control Offer" and
"Description of Other Indebtedness--Senior Credit Facility." There can be no
assurance that the Company would have sufficient resources to repurchase the
Senior Notes and pay its obligations under the Senior Credit Facility or other
indebtedness upon the occurrence of a Change of Control. These may be deemed
to have anti-takeover effects and may delay, defer, or prevent a merger,
tender offer, or other takeover attempt. The failure to redeem the Senior
Notes upon the occurrence of a Change of Control as required by the Indenture
would constitute a Default under the Indenture. A "Change of Control" is
defined by the Indenture to include certain dispositions of all or
substantially all the assets of the Company; adoption of a plan of dissolution
or liquidation by the Company; consummation of certain transactions that
result in certain third parties acquiring beneficial ownership of more than
50% of the Voting Stock (as defined) of the Company; or a change in the
membership of the Board of Directors of the Company resulting in a majority of
the directors of the Company not being Continuing Directors (as defined). For
a detailed description of "Change of Control" see "Description of Senior
Notes--Certain Definitions."
Under New York law, which governs the Indenture, it is not clear which
transactions will constitute a disposition of "all or substantially all" of
the assets of the Company. The Company is not aware of any controlling legal
precedent interpreting this phrase. In other contexts, the courts of the State
of New York have
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indicated that for a transaction to involve a transfer of "all or
substantially all the assets" of a New York business corporation, the sale
must be one that is not "in the normal operation of [the corporation's]
business" and that a disposition of "all or substantially all the assets" of a
corporation will result when a corporation disposes of its business so as to
virtually end its historic business or to "practically dissolve." It is not
clear whether a court would apply these same standards in the context of the
Indenture provisions involving a disposition of "all or substantially all the
assets" of the Company. Accordingly, under the law governing the Indenture
there is some uncertainty with respect to whether certain substantial asset
transfers would constitute a "Change of Control."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On June 27, 1997, the Registrant issued $115,000,000 aggregate principal
amount of Old Notes to CIBC Wood Gundy Securities Corp. (the "Initial
Purchaser"). The issuance was not registered under the Securities Act in
reliance upon the exemption under Rule 144 and Regulation S under, and Section
4(2) of, the Securities Act. In connection with the issuance and sale of the
Old Notes, the Registrant entered into the Registration Rights Agreement,
which requires the Registrant to cause the Old Notes to be registered under
the Securities Act or to file with the Commission a registration statement
under the Securities Act with respect to an issue of new notes of the Company
identical in all material respects to the Old Notes, to use its best efforts
to cause such registration statement to become effective under the Securities
Act and, upon the effectiveness of that registration statement, to offer to
the holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes, which will be issued without a restrictive
legend and may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Exchange Offer is being made pursuant to the
Registration Rights Agreement to satisfy the Registrants' obligations under
the Registration Rights Agreement.
Based on no-action letters issued by the staff of the Commission to third
parties, the Registrants believe that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold,
and otherwise transferred by any holder of such New Notes (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes, and neither the holder nor any other
person is engaging in or intends to engage in a distribution of the New Notes.
Any holder who tenders in the Exchange Offer for the purpose of participating
in a distribution of the New Notes cannot rely on such interpretation by the
staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined). The Company will issue a principal amount of New
Notes in exchange for an equal principal amount of outstanding Old Notes
tendered and accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. The date of acceptance for
exchange of the Old Notes for the New Notes (the "Exchange Date") will be the
first business day following the Expiration Date.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions, registration rights, and
interest payments relating to the Old Notes, which will not apply to the New
Notes. See "Description of Senior Notes." The New Notes will evidence the same
debt as the Old Notes. The New Notes will be issued under and entitled to the
benefits of the Indenture pursuant to which the Old Notes were issued.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes.
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Holders of Old Notes do not have any appraisal or dissenters' rights under
state law or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission under the Exchange Act.
Based on interpretations of the staff of the Commission, "affiliates" of the
Company (as such term is defined in Rule 405 under the Securities Act) are
prohibited from tendering Old Notes in the Exchange Offer. Old Notes that are
not tendered and were not prohibited from being tendered for exchange in the
Exchange Offer will remain outstanding and continue to accrue interest and to
be subject to transfer restrictions, but will not be entitled to any rights or
benefits under the Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer, on
the Exchange Date the Company will accept all Old Notes properly tendered and
not withdrawn and will issue New Notes in exchange therefor. For purposes of
the Exchange Offer, the Company will be deemed to have accepted properly
tendered Old Notes for exchange when, as, and if the Company had given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purposes of receiving the New Notes
from the Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal, and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
holder as promptly as practicable after the expiration or termination of the
Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," means 5:00 p.m., New York City time, on ,
1997, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended; provided that the Exchange Offer will
not be extended beyond 30 business days after the date of this Prospectus.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement of the extension, prior to 9:00 a.m., New
York City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer, or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions" has
not been satisfied, by giving oral or written notice of such delay, extension,
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer. Any such delay in acceptance or extension, termination, or
amendment will be followed as promptly as practicable by oral or written
notice. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of Old Notes
of such amendment.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment, or termination of the
Exchange Offer, the Company will have no obligation to
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publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
New Notes will bear interest at the rate of 11% per annum, payable semi-
annually, in cash, on January 1 and June 1 of each year, commencing January 1,
1998.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any New Notes for any Old Notes, and may terminate or
amend the Exchange Offer before the acceptance of any Old Notes for exchange,
if the Exchange Offer is not permissible under applicable law or Commission
policy.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder as set forth below and the acceptance
thereof by the Company will constitute an agreement between such holder and
the Company in accordance with the terms and subject to the conditions set
forth in this Prospectus and in the Letter of Transmittal.
Only a holder of Old Notes that is not an "affiliate" of the Company as
defined in Rule 405 under the Securities Act may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must (i) complete,
sign, and date the Letter of Transmittal or a facsimile, have the signatures
on the Letter of Transmittal guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with the Old Notes (unless such tender is being effected
pursuant to the procedure for book-entry transfer described below) and any
other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date, or (ii) comply with the guaranteed delivery
procedures described below. Delivery of all documents must be made to the
Exchange Agent at its address set forth in this Prospectus.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of Old Notes the Old Notes of which are registered in
the name of a broker, dealer, commercial bank, trust company, or other nominee
and that wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering of such owner's Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
that has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by a member firm of a registered
national securities exchange or of the National
26
<PAGE>
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed in the Letter of Transmittal, such Old Notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such Old
Notes, with the signature guaranteed by an Eligible Institution. If the Letter
of Transmittal or any Old Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
Any financial institution that is a participant in the book-entry transfer
facility for the Old Notes, The Depository Trust Company ("DTC"), may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account with respect to the Old Notes in accordance
with DTC's procedures for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must, in each case, be, or be deemed to be,
transmitted to and received and confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities, or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company determines. Although the Company intends to notify holders of defects
or irregularities with respect to tenders of Old Notes, neither the Company,
the Exchange Agent, nor any other person will incur any liability for failure
to give such notification. Tenders of Old Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will also represent to the Company that (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder; (ii) neither the holder nor any such person has
an arrangement or understanding with any person to participate in the
distribution of such New Notes; and (iii) neither the holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company.
27
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders that wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) that cannot deliver their Old Notes, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to
the Expiration Date, or (iii) that cannot complete the procedures for book-
entry transfer of Old Notes to the Exchange Agent's account with DTC prior to
the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail, or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes (if possible), and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five business trading days after the Expiration Date, (i) the
Letter of Transmittal (or facsimile) together with the certificate(s)
representing the Old Notes and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, or (ii) that book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC will be effected and confirmation of such
book-entry transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal, or confirmation of book-entry transfer of the Old
Notes into the Exchange Agent's account at DTC, are received by the
Exchange Agent within five business trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The holder tendering Old Notes exchanges, assigns, and transfers the Old
Notes to the Company and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred, and exchanged. The holder represents and warrants to
the Company and the Exchange Agent that (i) it has full power and authority to
tender, exchange, assign, and transfer the Old Notes and to acquire the New
Notes in exchange for the Old Notes; (ii) when the Old Notes are accepted for
exchange, the Company will acquire good and unencumbered title to the Old
Notes, free and clear of all liens, restrictions, charges, and encumbrances
and not subject to any adverse claim; (iii) it will, upon request, execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange, assignment, and transfer of tendered Old
Notes; and (iv) acceptance of any tendered Old Notes by the Company and the
issuance of New Notes in exchange therefor will constitute performance in full
by the Company of its obligations under the Registration Rights Agreement, and
the Company will have no further obligations or liabilities thereunder to such
holders. All authority conferred by the holder will survive the death or
incapacity of the holder and every obligation of the holder will be binding
upon the heirs, legal representatives, successors, assigns, executors, and
administrators of the holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act; (ii) is
acquiring the New Notes in the ordinary course of its business; and (iii) has
no arrangement with any person or intent to participate in, and is not
participating in, a distribution of the New Notes.
28
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided in this Prospectus, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
facsimile transmission, or letter indicating notice of withdrawal must be
received by the Exchange Agent at its address set forth in this Prospectus
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered
the Old Notes to be withdrawn (the "Depositor"); (ii) identify the Old Notes
to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes); (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the
Old Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender; and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form, and eligibility (including
time of receipt) of such notices will be determined by the Company, the
determination of which will be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes that have
been tendered, but not accepted for payment, will be returned to the holder
without cost to such holder as soon as practicable after withdrawal, rejection
of tender, or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes the Old Notes of which are not tendered or are tendered
but not accepted in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and preferences and subject to the
limitations applicable to the Old Notes under the Indenture. Following
consummation of the Exchange Offer, the holders of Old Notes will continue to
be subject to the existing restrictions upon transfer, and the Company will
have no further obligations to such holders, other than the Initial Purchaser,
to provide for the registration under the Securities Act of the Old Notes held
by them. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected.
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A., the Trustee under the Indenture, has been
appointed as Exchange Agent of the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail, By Facsimile:
by hand or by Overnight Courier U.S. Trust Company of Texas, N.A.
U.S. Trust Company of Texas, N.A. Attention: Corporate Trust
2001 Ross Avenue, Suite 2700 Department
Dallas, Texas 75201 (214) 754-1303
Attention: Corporate Trust Confirm by Telephone:
Department (214) 754-1200
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
29
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, or in person by officers, regular
employees, or agents of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses and will pay the
reasonable fees and expenses of holders in delivering their Old Notes to the
Exchange Agent.
The cash expenses of the Company to be incurred in connection with the
Company's performance and completion of the Exchange Offer will be paid by the
Company. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees, and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend on the Old Notes. Based on interpretations of the
staff of the Commission, "affiliates" of the Company (as such term is defined
in Rule 405 under the Securities Act) are prohibited from tendering Old Notes
in the Exchange Offer. In general, the Old Notes may not be offered or sold
unless registered under the Securities Act and applicable state securities
laws, except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Company does
not intend to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission with respect to similar
transactions, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold,
and otherwise transferred by any holder of such New Notes (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes, and neither the holder nor any other
person is engaging in or intends to engage in a distribution of the New Notes.
If any holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the holder (i) may not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of its New Notes. See "Plan of Distribution." The
New Notes may not be offered or sold unless they have been registered or
qualified for sale under applicable state securities laws or an exemption from
registration or qualification is available and is complied with. The Company
is required, under the Registration Rights Agreement, to register the New
Notes in any such jurisdiction requested by the holders, subject to certain
limitations.
30
<PAGE>
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend on the Old Notes. However, in the event the Company
fails to consummate the Exchange Offer or a holder of Old Notes notifies the
Company in accordance with the Registration Rights Agreement that it will be
unable to participate in the Exchange Offer due to circumstances delineated in
the Registration Rights Agreement, then the holder of the Old Notes will have
certain rights to have such Old Notes registered under the Securities Act
pursuant to the Registration Rights Agreement and subject to conditions
contained in the Registration Rights Agreement.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to
participate in the distribution of the New Notes to be received in the
Exchange Offer. In this regard, the Company will make each person
participating in the Exchange Offer aware (through this Prospectus or
otherwise) that if the Exchange Offer is being registered for the purpose of
secondary resale, any holder using the Exchange Offer to participate in a
distribution of New Notes to be acquired in the registered Exchange Offer (i)
may not rely on the staff position enunciated in Morgan Stanley and Co. Inc.
(avail. June 5, 1991) and Exxon Capital Holding Corp. (avail. May 13, 1988) or
similar letters and (ii) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be expensed over the term of
the New Notes.
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer.
31
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997 on an actual basis and on a pro forma basis, after
giving effect to the CCC Acquisition and the Invision Acquisition. This table
should be read in conjunction with the other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................ $ 34,152 $ --
Long-term debt, including current maturities:
Senior Credit Facility:
Revolving loan(1)............................ 0 18,348
Notes offered in the Offering(1)............... 115,000 115,000
Other.......................................... 612 612
----------- -----------
Total Long-term debt....................... 115,612 133,960
Stockholders' equity:
Preferred Stock(2)............................. * *
Common Stock................................... * *
Additional paid-in capital..................... 22,511 22,511
Accumulated deficit............................ (22,158)(3) (22,158)
----------- -----------
Total stockholders' equity................. 353 353
----------- -----------
Total capitalization............................. $ 115,965 $ 134,313
=========== ===========
</TABLE>
- --------
(1) After completion of the Offering, the Company entered into an amendment
and restatement of its Existing Credit Facility (as defined), which
terminated the term loan portion and established a new $35 million
revolving loan facility. The Company is also in discussions with its
lenders regarding the establishment of a new acquisition facility. See
"Description of Other Indebtedness--Senior Credit Facility." In addition
to certain other permitted incurrences of indebtedness, the Indenture
permits the Company to incur up to $80.0 million of indebtedness under its
Senior Credit Facility.
(2) The Preferred Stock represents 5,925 shares outstanding with a par value
of $.01 per share, and a liquidation value per share of $1,000 plus
accumulated but unpaid dividends. The cumulative liquidation value of the
outstanding shares of Preferred Stock is $5.9 million plus accumulated but
unpaid dividends, which as of June 30, 1997 were approximately $237,000.
See "Description of Capital Stock--Preferred Stock."
(3) Because certain of the Company's stockholders held ownership interests in
one of the Company's predecessors, their continuing ownership interest in
the Company has been accounted for at their prior historical basis, which
has resulted in a reduction in stockholders' equity of approximately $14.9
million and a corresponding reduction in the fair values assigned to
tangible and identifiable assets, in accordance with the provisions of
Emerging Issue Task Force discussion No. 88-16, "Basis in Leveraged Buyout
Transactions."
* Rounds to 0.
32
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma statements of operations data for the year
ended December 31, 1996 and the six months ended June 30, 1997 give effect to
(i) the completed acquisitions of AmeriTel (including the acquisitions of
various inmate facility contracts from other telecommunication companies),
Talton Telecommunications, and Tataka; (ii) the STC Acquisition (including
STC's acquisition of five inmate facility contracts from North American
Intellicom ("NAI")); and (iii) the CCC Acquisition and the Invision
Acquisition, as if each such transaction had been consummated on January 1,
1996. The pro forma balance sheet data as of June 30, 1997 give effect to the
CCC Acquisition and the Invision Acquisition, as if each such transaction had
been consummated on June 30, 1997.
The purchase prices for the acquired businesses were determined based upon
arm's length negotiations between the Company and the respective sellers and
have been allocated primarily to inmate facility contracts and goodwill. The
Company has completed preliminary purchase price allocations for STC and
Tataka. These preliminary purchase price allocations may change upon the final
determination of the fair market values of the net assets acquired.
The pro forma financial data do not give effect to any events occurring after
consummation of the acquisitions, other than reduced telecommunications costs
associated with a new long distance contract with LDDS/Worldcom effective
January 1997 and new direct billing agreements with various LECs, which were
negotiated by the Company as a result of the higher combined telecommunications
traffic anticipated from the acquisitions of AmeriTel and Talton
Telecommunications, and which were executed after the closing of these
acquisitions. Although management believes that revenue enhancements,
additional cost reductions, and operating expense synergies will be realized
after the Company has integrated the acquired businesses and has consolidated
administrative functions, including (i) increased revenues resulting from
increases in tariff rates during 1996; (ii) increases in call blocking limits
at Invision that were substantially lowered by Invision in late 1996; and (iii)
reductions in bad-debt expense resulting from the full implementation of Talton
Telecommunications' billing and bad-debt management system, these and other
possible synergies in overhead expenses have not been reflected in the pro
forma financial data. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Revenue and Cost Synergies" for the
effects of these synergies on the financial performance of the Company.
The pro forma adjustments, which are described in the accompanying notes, are
based on currently available information and certain assumptions that
management believes are reasonable. Such pro forma financial data and the notes
thereto should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto included elsewhere in this Prospectus.
THE PRESENTATION OF PRO FORMA FINANCIAL DATA IS FOR ILLUSTRATIVE PURPOSES
ONLY, IS NOT NECESSARILY INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN
REPORTED HAD SUCH EVENTS ACTUALLY OCCURRED ON THE DATES SPECIFIED, AND SHOULD
NOT BE VIEWED AS A PROJECTION OR FORECAST OF THE COMPANY'S PERFORMANCE FOR ANY
FUTURE PERIOD. INCLUSION OF PRO FORMA FINANCIAL DATA SHOULD NOT BE REGARDED AS
A REPRESENTATION BY THE COMPANY, AND THERE CAN BE NO ASSURANCE THAT THE RESULTS
REFLECTED IN THE PRO FORMA FINANCIAL DATA WILL BE REALIZED. THE COMPANY DOES
NOT INTEND TO UPDATE OR OTHERWISE REVISE THE PRO FORMA FINANCIAL DATA TO
REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF FUTURE EVENTS, EVEN IF THE ASSUMPTIONS OR ESTIMATES UNDERLYING
THE PRO FORMA FINANCIAL DATA ARE SHOWN TO BE IN ERROR. PROSPECTIVE INVESTORS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PRO FORMA FINANCIAL DATA.
33
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
COMPANY OTHER 1996 OTHER 1997
AND ACQUIRED ACQUIRED TOTAL PRO FORMA
PREDECESSORS(A) BUSINESSES(B) BUSINESSES(C) STC CCC INVISION HISTORICAL ADJUSTMENTS PRO FORMA
--------------- ------------- ------------- ------- ------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
revenues......... $59,169 $2,623 $3,838 $15,282 $9,564 $48,893 $139,369 $ -- $139,369
Operating
expenses:
Telecommunication
costs........... 25,616 1,214 1,982 8,265 2,922 25,743 65,742 (7,173)(d) 58,569
Facility
commissions..... 15,417 737 1,097 3,246 3,668 12,558 36,723 36,723
Field operations
and
maintenance..... 2,035 86 115 1,056 289 558 4,139 4,139
Selling, general,
and
administrative.. 4,293 184 269 1,374 1,972 5,470 13,562 (512)(e) 13,050
Depreciation..... 1,649 -- -- 868 209 1,336 4,062 (1,402)(f) 2,660
Amortization of
intangibles..... 2,487 -- -- -- 124 2,054 4,665 16,196 (g) 20,861
Non-recurring
expenses........ 684 -- -- -- -- -- 684 (434)(h) 250
------- ------ ------ ------- ------ ------- -------- -------- --------
Total operating
expenses........ 52,181 2,221 3,463 14,809 9,184 47,719 129,577 6,675 136,252
------- ------ ------ ------- ------ ------- -------- -------- --------
Operating income
(loss)........... 6,988 402 375 473 380 1,174 9,792 (6,675) 3,117
Other (income)
expense:
Interest expense,
net............. 2,081 -- -- 447 40 3,386 5,954 9,041 (i) 14,995
Other, net....... 7 -- -- (66) 117 (155) (97) (19)(j) (116)
------- ------ ------ ------- ------ ------- -------- -------- --------
Total other
(income)
expense......... 2,088 -- -- 381 157 3,231 5,857 9,022 14,879
------- ------ ------ ------- ------ ------- -------- -------- --------
Income (loss)
before income
taxes............ 4,900 402 375 92 223 (2,057) 3,935 (15,697) (11,762)
Income tax expense
(benefit)........ 1,894 156 128 22 -- 66 2,266 (2,266)(k) --
------- ------ ------ ------- ------ ------- -------- -------- --------
Income (loss) from
continuing
operations....... $ 3,006 $ 246 $ 247 $ 70 $ 223 $(2,123) $ 1,669 $(13,431) $(11,762)
======= ====== ====== ======= ====== ======= ======== ======== ========
EBITDA(1)......... $11,801 $ 402 $ 375 $ 1,407 $ 596 $ 4,719 $ 19,300 $ 7,704 $ 27,004
======= ====== ====== ======= ====== ======= ======== ======== ========
</TABLE>
34
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE TOTAL PRO FORMA
COMPANY TATAKA STC CCC INVISION HISTORICAL ADJUSTMENTS PRO FORMA
------- ------ ------- ------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $30,082 $528 $10,576 $5,428 $21,136 $67,750 $ -- $67,750
Operating expenses:
Telecommunication
costs................. 12,405 291 5,528 1,485 13,002 32,711 (2,610)(d) 30,101
Facility commissions... 8,161 87 2,691 2,202 5,907 19,048 19,048
Field operations and
maintenance........... 1,166 16 805 168 262 2,417 2,417
Selling, general, and
administrative........ 2,327 37 985 995 2,940 7,284 (221)(e) 7,063
Depreciation........... 617 -- 514 113 746 1,990 (659)(f) 1,331
Amortization and write-
offs of intangibles... 4,738 -- -- 91 3,573 8,402 2,031 (g) 10,433
------- ---- ------- ------ ------- ------- ------ -------
Total operating
expenses.............. 29,414 431 10,523 5,054 26,430 71,852 (1,459) 70,393
------- ---- ------- ------ ------- ------- ------ -------
Operating income
(loss)................. 668 97 53 374 (5,294) (4,102) 1,459 (2,643)
Other (income) expense:
Interest expense, net.. 3,932 -- 282 14 1,678 5,906 1,592 (i) 7,498
Other, net............. (19) -- (76) 59 (549) (585) 4 (j) (581)
------- ---- ------- ------ ------- ------- ------ -------
Total other (income)
expense............... 3,913 -- 206 73 1,129 5,321 1,596 6,917
------- ---- ------- ------ ------- ------- ------ -------
Income (loss) before
income taxes........... (3,245) 97 (153) 301 (6,423) (9,423) (137) (9,560)
Income tax expense
(benefit).............. (850) 31 6 -- -- (813) 813 (k) --
------- ---- ------- ------ ------- ------- ------ -------
Income (loss) from
continuing operations.. $(2,395) $ 66 $ (159) $ 301 $(6,423) $(8,610) $ (950) $(9,560)
======= ==== ======= ====== ======= ======= ====== =======
EBITDA(1)............... $ 6,042 $ 97 $ 643 $ 519 $ (426) $ 6,875 $2,827 $ 9,702
======= ==== ======= ====== ======= ======= ====== =======
</TABLE>
35
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents the combined historical operating results of the Company for
the one-month period from December 1, 1996 (date of acquisition) to
December 31, 1996 and of the Company's predecessors, AmeriTel and Talton
Telecommunications (the "Predecessors"), for the eleven-month pre-
acquisition periods ended November 30, 1996.
(b) Represents the pre-acquisition combined historical operating results of
inmate facility contracts and related telecommunications assets acquired
during 1996 by AmeriTel from Peoples Telephone, Inc., in three separate
transactions, and from Intellipay Systems, Inc., Value-Added
Communications, Inc., and Steelweb, Inc. (the "Other 1996 Acquired
Businesses").
(c) Represents the combined historical operating results of inmate facility
contracts and related telecommunications assets acquired during 1997 by
the Company from Tataka and inmate facility contracts and related
telecommunications assets acquired effective January 1, 1997 by STC from
NAI (the "Other 1997 Acquired Businesses").
(d) Telecommunication costs have been reduced to reflect long distance cost
savings associated with the negotiation of a new long distance contract
with LDDS/Worldcom and billing and collection cost savings associated with
the negotiation of new direct billing agreements with GTE, US West,
Southwestern Bell, Sprint, and other LECs. The Company was able to
negotiate these new agreements as a result of the higher
telecommunications traffic of the combined AmeriTel and Talton
Telecommunications operations.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Billing and collections savings........... $(4,146) $(1,547)
Long distance savings..................... (3,027) (1,063)
------- -------
Pro forma adjustment.................... $(7,173) $(2,610)
======= =======
</TABLE>
(e) Selling, general, and administrative costs of the Other 1996 Acquired
Businesses and Other 1997 Acquired Businesses have been eliminated because
such costs were absorbed by the Company's existing overhead structure. In
addition, compensation costs of $59 in 1996 and $184 in 1997 have been
eliminated from Invisions' general and administrative expenses for
Invision employees who were terminated upon the consummation of the
Invision Acquisition.
(f) Depreciation expense has been reduced to reflect differences between pro
forma depreciation expense based on the fair values of acquired telephone
system equipment over a useful life of 7.5 years and historical
depreciation expense over useful lives primarily ranging from 5 to 7.5
years.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Pro forma depreciation expense............ $ 2,660 $ 1,330
Historical depreciation expense........... (4,062) (1,989)
------- -------
Pro forma adjustment.................... $(1,402) $ (659)
======= =======
</TABLE>
(g) Amortization expense has been increased to reflect the difference between
historical amortization expense and amortization of the purchase price
amounts allocated to the fair values of (i) acquired inmate facility
contracts over the life of the related contract (generally 3 to 5 years);
(ii) goodwill (over 20 years); and (iii) other identifiable intangibles,
such as organization costs and non-competition agreements, over the life
of the related intangible (generally 2.5 to 5 years).
36
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Pro forma amortization expense:
Acquired contracts...................... $17,468 $ 8,736
Goodwill................................ 3,301 1,651
Other intangible assets................. 92 46
Historical amortization expense:
Acquired contracts...................... (2,401) (4,050)
Goodwill................................ (1,102) (3,750)
Other intangible assets................. (1,162) (602)
------- -------
Pro forma adjustment.................. $16,196 $ 2,031
======= =======
</TABLE>
(h) Non-recurring expenses have been reduced to eliminate special management
bonuses paid to certain key managers of AmeriTel, which were contingent
upon the consummation of the Company's acquisition of AmeriTel.
(i) Interest expense has been increased to reflect interest expense on the
Senior Notes and amortization of deferred financing costs related to the
Senior Notes, and to eliminate historical interest expense and deferred
financing costs associated with indebtedness repaid with a portion of the
net proceeds from the Offering.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Pro forma interest expense on the Senior
Notes at an interest rate of 11.0%...... $12,650 $ 6,325
Pro forma interest expense on the pro
forma incremental borrowings required to
purchase Invision at an effective
interest rate of 9.5%................... 1,743 872
Pro forma amortization of new deferred
financing costs......................... 584 292
Pro forma interest expense on other long-
term debt............................... 18 9
Combined historical interest expense,
including amortization of deferred
financing costs......................... (5,954) (5,906)
------- -------
Pro forma adjustment................... $ 9,041 $ 1,592
======= =======
</TABLE>
(j) Minority interest representing STC's interest in the earnings of its
subsidiary has been eliminated because this subsidiary is now wholly owned
by the Company following the STC Acquisition.
(k) Income taxes have been adjusted to reflect pro forma income taxes at the
Company's estimated effective tax rate of 38.5%, after adjustment for
deferred income tax valuation allowance and the estimated non-deductible
permanent difference relating to goodwill of approximately $1.5 million
annually.
(l) EBITDA represents income before interest expense, income taxes,
depreciation, amortization, and non-recurring expenses. Although EBITDA is
not a measure of performance calculated in accordance with generally
accepted accounting principles, the Company has included information
concerning EBITDA in this Prospectus because it is used by certain
investors and analysts as a measure of a company's ability to service its
debt obligations. EBITDA should not be used as an alternative to, or be
considered more meaningful than, operating income, net income, or cash
flow as an indicator of the Company's operating performance.
37
<PAGE>
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
THE COMPANY CCC INVISION ADJUSTMENTS PRO FORMA
----------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............. $ 34,152 $ 578 $ -- $(52,500)(a) --
(578)(b)
18,348 (c)
Accounts receivable...... 9,301 974 7,944 (8,918)(b) 9,301
Refundable income taxes.. 516 -- -- -- 516
Inventories.............. 926 16 -- -- 942
Prepaid expenses......... 449 -- 421 -- 870
Deferred income tax
asset................... 495 -- -- -- 495
-------- ------ ------- -------- --------
Total current assets... 45,839 1,568 8,365 (43,648) 12,124
Property and equipment..... 10,509 483 9,301 (1,101)(a) 19,192
Intangible and other
assets.................... 74,330 758 29,490 13,146 (a) 117,724
-------- ------ ------- -------- --------
Total assets........... $130,678 $2,809 $47,156 $(31,603) $149,040
======== ====== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......... $ 5,502 $1,097 $ 2,463 $ (3,560)(b) $ 5,502
Accrued expenses......... 8,716 598 2,677 (3,275)(b) 8,716
Income taxes payable..... -- -- 694 (694)(b) --
Current portion of long-
term debt............... 60 25 -- (25)(b) 60
-------- ------ ------- -------- --------
Current liabilities.... 14,278 1,720 5,834 (7,554) 14,278
Long-term debt............. 115,552 456 42,642 18,348 (c) 133,900
(43,098)(b)
Deferred income taxes...... 495 -- -- -- 495
Minority interest.......... -- 14 -- -- 14
Stockholders' Equity:
Preferred stock.......... -- -- -- -- --
Common stock............. -- 138 1 (139)(b) --
Additional paid-in
capital................. 22,511 -- 1,688 (1,688)(b) 22,511
Retained earnings
(deficit)............... (22,158) 481 (3,009) 2,528 (22,158)
-------- ------ ------- -------- --------
Total stockholders'
equity................ 353 619 (1,320) 701 353
-------- ------ ------- -------- --------
Total liabilities and
stockholders' equity.. $130,678 $2,809 $47,156 $(31,603) $149,040
======== ====== ======= ======== ========
</TABLE>
38
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(a) Represents the allocation of the excess of the aggregate purchase prices of
CCC and Invision over the historical carrying value of the net assets
acquired to the fair values of net assets acquired, as follows:
<TABLE>
<CAPTION>
CCC INVISION TOTAL
------- -------- --------
<S> <C> <C> <C>
Aggregate purchase prices..................... $10,500 $ 42,000 $ 52,500
Less historical carrying value of net assets
acquired..................................... (1,243) (39,212) (40,455)
------- -------- --------
Excess purchase prices........................ $ 9,257 $ 2,788 $ 12,045
======= ======== ========
Allocation of excess purchase prices:
Excess fair value of property and
equipment................................ $ -- $ (1,101) $ (1,101)
Excess fair value of intangibles.......... 9,257 3,889 13,146
------- -------- --------
Total................................... $ 9,257 $ 2,788 $ 12,045
======= ======== ========
</TABLE>
(b) Represents the elimination of assets, liabilities, and stockholders' equity
of CCC and Invision that were not purchased or assumed in the CCC
Acquisition and the Invision Acquisition.
(c) Represents the pro forma cash required to be borrowed under the Company's
existing debt facilities to fund the CCC Acquisition and the Invision
Acquisition.
39
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Effective on December 1, 1996, the Company became the holding company for the
operations of AmeriTel and Talton Telecommunications. The Company accounted for
these acquisitions using the purchase method of accounting. Accordingly, the
Company's consolidated financial statements include the operations of AmeriTel
and Talton Telecommunications only for periods after December 1, 1996.
The following selected consolidated financial data of the Company for the one
month ended December 31, 1996 and the selected combined financial data of the
Company's predecessors for the years ended December 31, 1994 and 1995, and for
the eleven months ended November 30, 1996, have been derived from the Company's
and its predecessors' audited financial statements. The selected combined
financial data of the predecessors for the years ended December 31, 1992 and
1993, and for the six months ended June 30, 1996, and the selected consolidated
financial data of the Company for the six months ended June 30, 1997 are
unaudited and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) that are necessary to present
fairly the combined or consolidated financial statements for such periods. The
selected combined and consolidated financial data do not purport to indicate
results of operations as of any future date or for any future period.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes thereto included elsewhere in this
Prospectus.
40
<PAGE>
<TABLE>
<CAPTION>
COMBINED THE COMBINED THE
COMBINED PREDECESSORS PREDECESSORS COMPANY PREDECESSORS COMPANY
--------------------------------- ------------- ------------ ------------ ----------
ELEVEN MONTHS ONE MONTH SIX MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
--------------------------------- NOVEMBER 30, DECEMBER 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1996 1997
------ ------- ------- ------- ------------- ------------ ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues...... $7,137 $13,593 $23,892 $40,326 $53,663 $ 5,506 $27,362 $30,082
Operating expenses:
Telecommunication
costs................. 4,414 7,025 11,761 18,673 23,317 2,299 12,341 12,405
Facility commissions... 1,177 2,225 3,901 9,595 13,962 1,455 6,962 8,161
Field operations and
maintenance........... 310 538 1,044 1,467 1,816 219 893 1,166
Selling, general, and
administration........ 884 1,566 2,571 4,089 3,921 372 2,000 2,327
Depreciation........... 496 780 965 1,359 1,538 111 732 617
Amortization of
intangibles........... 3 684 1,392 1,605 1,746 741 924 4,738
Nonrecurring expenses.. -- -- -- -- 684 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 7,284 12,818 21,634 36,788 46,984 5,197 23,852 29,414
------ ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. (147) 775 2,258 3,583 6,679 309 3,510 668
Other (income) expense:
Interest expense, net.. 131 331 745 1,360 1,469 612 799 3,932
Other, net............. (2) (153) (134) (52) 27 (20) 24 (19)
------ ------- ------- ------- ------- ------- ------- -------
Total other (income)
expense............... 129 178 611 1,308 1,496 592 823 3,913
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary loss..... (276) 597 1,647 2,230 5,183 (283) 2,687 (3,245)
Income tax expense
(benefit).............. 1 -- (11) 891 1,917 (23) 525 (850)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary loss..... (277) 597 1,658 1,339 3,266 (260) 2,162 (2,395)
Extraordinary loss...... -- -- -- -- 52 -- -- 4,396
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (277) $ 597 $ 1,658 $ 1,339 $ 3,214 $ (260) $ 2,162 $(6,791)
====== ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
EBITDA(1)............... $ 354 $ 2,392 $ 4,749 $ 6,554 $10,620 $ 1,181 $ 5,142 $ 6,042
Net cash provided (used)
by operating
activities(4).......... -- -- 3,445 4,069 7,300 (1,419) 3,022 2,053
Net cash provided (used)
by investing
activities(4).......... -- -- (9,976) (8,022) (7,515) (47,252) (4,741) (11,664)
Net cash provided (used)
by financing
activities(4).......... -- -- 6,668 4,827 (547) 48,966 1,538 43,469
Capital
expenditures(2)........ 1,774 1,978 3,223 4,669 2,804 269 871 1,297
Ratio of earnings to
fixed charges(3)....... -- 2.8 3.0 2.5 4.2 -- 4.2 --
Deficiency of earnings
to fixed charges....... $ 276 -- -- -- -- $ 283 -- $ 3,245
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash
equivalents............ $ 370 $ 283 $ 419 $ 1,293 $ 531 $ 294 $ 1,112 34,152
Total assets............ 4,100 8,528 17,639 26,592 34,708 80,134 30,196 130,678
Total debt (including
current maturities).... 1,938 4,854 10,750 15,074 14,845 63,315 16,864 115,612
Total stockholders'
equity (deficit)....... (40) 556 2,027 4,850 9,361 6,481 6,960 353
</TABLE>
- -------
(1) For the purposes of this Prospectus, EBITDA means income before interest,
income taxes, depreciation, amortization, and non-recurring expenses.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company has included
information concerning EBITDA in this Prospectus because it is commonly
used by certain investors and analysts as a measure of a company's ability
to service its debt obligations. EBITDA should not be used as an
alternative to, or be considered more meaningful than, operating income,
net income, or cash flow as an indicator of the Company's operating
performance.
(2) Capital expenditures include only amounts expended for purchases of
property and equipment and the implementation of facility contracts.
(3) Earnings are defined as earnings (loss) before income taxes from continuing
operations and fixed charges. Fixed charges are defined as interest expense
and a portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing expense. This calculation is a prescribed earnings
coverage ratio intended to present the extent to which earnings are
sufficient to cover fixed charges, as defined.
(4) For 1992 and 1993, information is unavailable.
41
<PAGE>
SELECTED HISTORICAL PREDECESSOR FINANCIAL DATA
The following selected historical predecessor financial data of AmeriTel and
Talton Telecommunications for the years ended December 31, 1994 and 1995, and
for the eleven months ended November 30, 1996 (the period prior to the
effective dates of their respective acquisitions by the Company) have been
derived from AmeriTel's and Talton Telecommunications' audited financial
statements. The selected historical predecessor financial data of Talton
Telecommunications for the years ended December 31, 1992 and 1993, and for both
AmeriTel and Talton Telecommunications for the six months ended June 30, 1996,
are unaudited and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) that are necessary to present
fairly their respective financial statements for such periods.
The selected historical predecessor financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.
42
<PAGE>
AMERITEL PAY PHONES, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
------------------------------- NOVEMBER 30, JUNE 30,
1992 1993 1994 1995 1996 1996
------ ------ ------- ------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues...... $1,191 $3,858 $11,699 $20,371 $29,306 $14,562
Operating expenses:
Telecommunication
costs................. 701 1,826 5,347 9,747 13,729 6,938
Facility commissions... 170 623 1,861 3,497 6,087 2,827
Field operations and
maintenance........... 83 192 508 864 1,166 599
Selling, general and
administration........ 162 376 928 1,759 2,281 1,142
Depreciation........... 156 213 194 384 536 274
Amortization of
intangibles........... 2 81 595 1,224 1,624 857
Nonrecurring expenses.. -- -- -- -- 684 --
------ ------ ------- ------- ------- -------
Total operating
expenses.............. 1,274 3,311 9,433 17,475 26,107 12,637
------ ------ ------- ------- ------- -------
Operating income
(loss)................. (83) 547 2,266 2,896 3,199 1,925
Other (income) expense:
Interest expense, net.. 90 188 564 1,028 1,355 711
Other, net............. -- (123) -- 66 39 35
------ ------ ------- ------- ------- -------
Total other expense.... 90 65 564 1,094 1,394 746
------ ------ ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary loss..... (173) 482 1,702 1,802 1,805 1,179
Income tax expense...... -- -- -- 734 693 471
------ ------ ------- ------- ------- -------
Income (loss) before
extraordinary loss..... (173) 482 1,702 1,068 1,112 708
Extraordinary loss...... -- -- -- -- 52 --
------ ------ ------- ------- ------- -------
Net income (loss)....... $ (173) 482 $ 1,702 $ 1,068 $ 1,060 708
====== ====== ======= ======= ======= =======
OTHER DATA:
EBITDA(1)............... $ 75 $ 964 $ 3,055 $ 4,438 $ 6,004 $ 3,021
Capital
expenditures(2)........ 725 175 1,779 2,051 1,516 583
Ratio of earnings to
fixed charges(3)....... -- 3.5 3.9 2.7 2.3 2.6
Deficiency of earnings
to fixed charges....... 173 -- -- -- -- --
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 234 $ 189 $ 229 $ 891 $ 81 $ 41
Total assets............ 1,780 2,800 12,449 18,586 26,885 22,498
Long-term debt
(including current
maturities)............ 955 1,735 8,181 11,690 14,845 14,318
Total stockholders'
equity (deficit)....... (12) 470 1,985 4,537 6,894 5,197
</TABLE>
- --------
(1) For the purposes of this Prospectus EBITDA means as income before interest,
income taxes, depreciation, amortization, and non-recurring expenses.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company has included
information concerning EBITDA in this Prospectus because it is commonly
used by certain investors and analysts as a measure of a company's ability
to service its debt obligations. EBITDA should not be used as an
alternative to, or be considered more meaningful than, operating income,
net income, or cash flow as an indicator of the Company's operating
performance.
(2) Capital expenditures include only amounts expended for purchases of
property and equipment and the implementation of facility contracts.
(3) Earnings are defined as earnings (loss) before income taxes from continuing
operations and fixed charges. Fixed charges are defined as interest expense
and a portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing expense. This calculation is a prescribed earnings
coverage ratio intended to present the extent to which earnings are
sufficient to cover fixed charges, as defined.
43
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
---------------------------------------- NOVEMBER 30, JUNE 30,
1992 1993 1994 1995 1996 1996
----------- ----------- ------- ------- ------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues......... $5,946 $9,735 $12,193 $19,955 $24,357 $12,800
Operating expenses:
Telecommunication costs... 3,713 5,199 6,414 8,926 9,588 5,403
Facility commissions...... 1,007 1,602 2,040 6,098 7,875 4,135
Field operations and
maintenance.............. 227 346 536 603 650 293
Selling, general and
administration........... 722 1,190 1,643 2,330 1,640 858
Depreciation.............. 340 567 771 975 1,002 458
Amortization of
intangibles.............. 1 603 797 381 122 67
------ ------ ------- ------- ------- -------
Total operating
expenses................. 6,010 9,507 12,201 19,313 20,877 11,214
------ ------ ------- ------- ------- -------
Operating income (loss).... (64) 228 (8) 642 3,480 1,586
Other (income) expense:
Interest expense, net..... 41 143 181 332 114 88
Other, net................ (2) (30) (134) (118) (12) (10)
------ ------ ------- ------- ------- -------
Total other (income)
expense.................. 39 113 47 214 102 78
------ ------ ------- ------- ------- -------
Income (loss) before income
taxes..................... (103) 115 (55) 428 3,378 1,508
Income tax expense
(benefit)................. 1 -- (11) 157 1,224 53
------ ------ ------- ------- ------- -------
Net income (loss).......... $ (104) $ 115 $ (44) $ 271 $ 2,154 $ 1,455
====== ====== ======= ======= ======= =======
OTHER DATA:
EBITDA(1).................. $ 279 $1,428 $ 1,694 $ 2,116 $ 4,616 $ 2,121
Capital expenditures(2).... 1,049 1,803 1,444 2,618 1,288 288
Ratio of earnings to fixed
charges(3)................... -- 1.8 -- 2.1 17.4 11.1
Deficiency of earnings to
fixed charges............. $ 103 -- $ 55 -- -- --
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash equivalents.. $ 136 $ 94 $ 190 $ 402 $ 450 $ 1,071
Total assets............... 2,320 5,728 5,190 8,006 7,823 7,698
Long-term debt (including
current maturities).......... 983 3,118 2,569 3,384 -- 2,546
Total stockholders' equity
(deficit).................... (28) 86 42 313 2,467 1,763
</TABLE>
- --------
(1) For the purposes of this Prospectus EBITDA means income before interest,
income taxes, depreciation, amortization, and non-recurring expenses.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company has included
information concerning EBITDA in this Prospectus because it is commonly
used by certain investors and analysts as a measure of a company's ability
to service its debt obligations. EBITDA should not be used as an
alternative to, or be considered more meaningful than, operating income,
net income, or cash flow as an indicator of the Company's operating
performance.
(2) Capital expenditures include only amounts expended for purchases of
property and equipment and the implementation of facility contracts.
(3) Earnings are defined as earnings (loss) before income taxes from continuing
operations and fixed charges. Fixed charges are defined as interest expense
and a portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing expense. This calculation is a prescribed earnings
coverage ratio intended to present the extent to which earnings are
sufficient to cover fixed charges, as defined.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives substantially all of its revenues from its operation of
inmate telecommunication systems located in correctional facilities in 43
states and the provision of related services. The Company enters into multi-
year agreements with the correctional facilities, pursuant to which the Company
serves as the exclusive provider of telecommunications services to inmates
within each facility. In exchange for the exclusive service rights, the Company
pays a commission to the correctional facility based upon inmate telephone use.
The Company installs and generally retains ownership of the telephones and the
associated equipment and provides additional services to the correctional
facility that are tailored to the specialized needs of the corrections industry
and to the requirements of the individual correctional facility, such as call
activity reporting and call blocking. The Company also generates revenues from
public pay telephones that are ancillary to its inmate telephone business. See
"Business--Other Operations."
The Company accumulates call activity data from its various installations and
bills its revenues related to this call activity through major LECs or through
third-party billing services for smaller volume LECs. In addition, during the
same period, the Company accrues the related telecommunications costs for
validating, transmitting, billing and collection, and line and long-distance
charges, along with commissions payable to the facilities. Allowances for bad
debts are based on historical experience.
The Company's principal operating expenses consist of (i) telecommunication
costs; (ii) commissions paid to correctional facilities, which are typically
expressed as a percentage of either gross or net revenues and are fixed for the
term of the agreements with the facilities; (iii) field operations and
maintenance costs, which consist primarily of field service on the Company's
installed base of inmate telephones; and (iv) selling, general, and
administrative costs. The Company pays monthly line and usage charges to RBOCs
and other LECs for interconnection to the local network for local calls, which
are computed on a flat monthly charge plus, for certain LECs, on a per message
or per minute usage rate based on the time and duration of the call. The
Company also pays fees to RBOCs and other LECs and long distance carriers based
on usage for long distance calls. See "Business--Regulation."
The Company became the holding company for the operations of AmeriTel and
Talton Telecommunications effective December l, 1996. Because these
acquisitions have been accounted for using the purchase method of accounting,
the Company's results of operations only reflect the operations of AmeriTel and
Talton Telecommunications subsequent to the effective date of their
acquisition. Management believes that the growth of the Company and its
predecessors through acquisitions makes meaningful period-to-period comparisons
of historical results of operations difficult. Consequently, management
believes that an investor is presented with more meaningful information through
discussion of the Company and its predecessors on a combined basis for the
periods discussed below.
45
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the combined
historical results of operations of the Company, AmeriTel, and Talton
Telecommunications, without any adjustments to historical results to reflect
changes in depreciation and amortization resulting from purchase accounting
revaluations and acquisitions subsequent to the dates presented, including the
acquisitions of Tataka, STC, CCC, and Invision.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
-------------- -------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $23,892 100.0% $40,326 100.0% $59,169 100.0% $27,362 100.0% $30,082 100.0%
Operating expenses:
Telecommunication
costs................. 11,761 49.2 18,673 46.3 25,616 43.3 12,341 45.1 12,405 41.2
Facility commissions... 3,901 16.3 9,595 23.8 15,417 26.1 6,962 25.4 8,161 27.1
Field operations and
maintenance........... 1,044 4.4 1,467 3.6 2,035 3.4 893 3.3 1,166 3.9
Selling, general, and
administration........ 2,571 10.8 4,089 10.1 4,293 7.3 2,000 7.3 2,327 7.7
Depreciation........... 965 4.0 1,359 3.4 1,649 2.8 732 2.7 617 2.1
Amortization of
intangibles........... 1,392 5.8 1,605 4.0 2,487 4.2 924 3.4 4,738 15.8
Non-recurring
expenses.............. -- -- -- -- 684 1.2 -- -- -- --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total operating
expenses.............. 21,634 90.5 36,788 91.2 52,181 88.3 23,852 87.2 29,414 97.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income........ 2,258 9.5 3,538 8.8 6,988 11.7 3,510 12.8 668 2.2
Other (income) expense:
Interest expense, net.. 745 3.1 1,360 3.4 2,081 3.5 799 2.9 3,932 13.1
Other, net............. (134) (0.6) (52) (0.1) 7 0.0 24 0.1 (19) (0.1)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total other (income)
expense............... 611 2.5 1,308 3.3 2,088 3.5 823 3.0 3,913 13.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before
income taxes and
extraordinary loss..... 1,647 7.0 2,230 5.5 4,900 8.2 2,687 9.8 (3,245) (10.8)
Income tax expense
(benefit).............. (11) 0.0 891 2.2 1,894 3.2 525 1.9 (850) (2.8)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before
extraordinary loss..... 1,658 7.0 1,339 3.3 3,006 5.0 2,162 7.9 (2,395) (8.0)
Extraordinary loss...... -- -- -- -- 52 0.1 -- -- 4,396 14.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net income (loss)....... $ 1,658 7.0% $ 1,339 3.3% $ 2,954 4.9% $ 2,162 7.9% $(6,791) (22.6)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
EBITDA.................. $ 4,749 19.9% $ 6,554 16.3% $11,801 19.9% $ 5,142 18.8% $ 6,042 20.1%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Operating Revenues. The Company's operating revenues increased by $2.7
million, or 9.9%, from $27.4 million for the six months ended June 30, 1996 to
$30.1 million for the six months ended June 30, 1997. The increase in operating
revenues was primarily due to acquisitions by the Company of inmate facility
contracts during 1996 and the first six months of 1997 and increases in
operating revenues from new contract installations.
Operating Expenses. Total operating expenses increased $5.5 million, or
23.3%, from $23.9 million for the six months ended June 30, 1996 to $29.4
million for the six months ended June 30, 1997. The percentage increase in
operating expenses, excluding depreciation and amortization which is discussed
below, was primarily due to the increased costs associated with servicing newly
acquired inmate facility contracts. Operating expenses as a percentage of
operating revenues increased from 87.2% for the six months ended June 30, 1996
to 97.8% for the six months ended June 30, 1997. Excluding depreciation and
amortization, operating expenses as a percentage of operating revenues
decreased from 81.1% for the six months ended June 30, 1996 to 80.0% for the
six months ended June 30, 1997.
Telecommunication costs increased by $0.1 million, from $12.3 million for the
six months ended June 30, 1996 to $12.4 million for the six months ended June
30, 1997. Telecommunication costs represented 45.1% of operating revenues for
the six months ended June 30, 1996 and 41.2% of operating revenues for the six
months ended June 30, 1997, a decrease of 3.9%. The decrease as a percentage of
operating revenues is primarily due to
46
<PAGE>
a decrease in telecommunication costs resulting from bad debt reduction, lower
billing and collection costs attributable to direct billing arrangements
entered into with various major LECs, and lower rates as result of new long
distance agreements.
Facility commissions increased by $1.2 million, from $7.0 million for the six
months ended June 30, 1996 to $8.2 million for the six months ended June 30,
1997. Facility commissions represented 25.4% of operating revenues for the six
months ended June 30, 1996 and 27.1% of operating revenues for the six months
ended June 30, 1997, an increase of 1.7%. The increase as a percentage of
operating revenues is primarily due to higher commission percentages being paid
as a result of periodic increases.
Field operations and maintenance costs increased by $0.3 million, from $0.9
million for the six months ended June 30, 1996 to $1.2 million for the six
months ended June 30, 1997. Field operations and maintenance costs represented
3.3% of operating revenues for the six months ended June 30, 1996 and 3.9% of
operating revenues for the six months ended June 30, 1997, an increase of 0.6%.
The increase as a percentage of operating revenues is primarily due to the
increased cost associated with servicing acquired inmate facilities.
Selling, general, and administrative expenses ("SG&A") increased by $0.3
million, from $2.0 million for the six months ended June 30, 1996 to $2.3
million for the six months ended June 30, 1997. SG&A represented 7.3% of
operating revenues for the six months ended June 30, 1996 and 7.7% of operating
revenues for the six months ended June 30, 1997, an increase of 0.4%. The
increase as a percentage of operating revenues is primarily due to in part an
increase in the infrastructure necessary to support the Company's acquisitions.
Depreciation and amortization costs increased by $3.7 million, from $1.7
million for the six months ended June 30, 1996 to $5.4 million for the six
months ended June 30, 1997. Depreciation and amortization costs represented
6.1% of operating revenues for the six months ended June 30, 1996 and 17.9% of
operating revenues for the six months ended June 30, 1997, an increase of
11.8%. The increase as a percentage of operating revenues is primarily due to
additional amortization expense associated with the acquisitions by the Company
of inmate facility contracts and from the intangible assets related to the
acquisitions of AmeriTel and Talton Telecommunications.
Operating Income--The Company's operating income decreased by $2.8 million,
from $3.5 million for the six months ended June 30, 1996 to $0.7 million for
the six months ended June 30, 1997, as a result of the factors described above.
The Company's operating margin decreased from 12.8% for the six months ended
June 30, 1996 to 2.2% for the six months ended June 30, 1997 primarily due to
the increase in amortization expense from the acquisitions of AmeriTel and
Talton Telecommunications.
Other (Income) Expense--Other (income) expense, consisting primarily of
interest expense, increased by $3.1 million, from $0.8 million for the six
months ended June 30, 1996 to $3.9 million for the six months ended June 30,
1997. The increase was primarily due to increased interest expense associated
with indebtedness incurred by the Company in December 1996 in connection with
the acquisitions of AmeriTel and Talton Telecommunications.
The Company incurred an extraordinary loss of $4.4 million in 1997 related to
the write-off of the unamortized deferred loan costs and the unamortized
discount on the Senior Subordinated Notes, in conjunction with the repayment of
this debt.
Net Income (Loss)--The Company's net income decreased by $9.0 million, from
$2.2 million for the six months ended June 30, 1996 to a loss of $6.8 million
for the six months ended June 30, 1997, as a result of the factors described
above.
EBITDA--EBITDA increased by $0.9 million, from $5.1 million for the six
months ended June 30, 1996 to $6.0 million for the six months ended June 30,
1997. EBITDA as a percentage of operating revenues increased from 18.8% for the
six months ended June 30, 1996 to 20.1% for the six months ended June 30, 1997,
primarily due to increased revenues and lower operating costs as a percentage
of revenue as discussed above.
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<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating Revenues. The Company's operating revenues increased by $18.9
million, or 46.7%, from $40.3 million for the year ended December 31, 1995 to
$59.2 million for the year ended December 31, 1996. The increase in operating
revenues was primarily due to (i) the addition of operating revenues from the
Company's acquisitions of contracts covering 76 inmate facilities during 1995
(the results of which were reflected for the full year in 1996) and contracts
covering 140 inmate facilities during 1996, (ii) operating revenues from the
Company's contract with the state of Alabama, a portion of which become
operational during the last half of 1995, and (iii) increases in operating
revenues from the Company's addition of new contracts covering 130 inmate
facilities, net of contract terminations, during 1995 (the results of which
were reflected for the full year in 1996) and, to a lesser extent from the
addition of new contracts during 1996.
Operating Expenses. Total operating expenses increased $15.4 million, from
$36.8 million in 1995 to $52.2 million in 1996. Operating expenses as a
percentage of operating revenues decreased 2.9% from 91.2% for the year ended
December 31, 1995 to 88.3% for the year ended December 31, 1996. The decrease
in operating expenses as a percentage of revenues is primarily due to a
decrease in telecommunication costs resulting from lower long distance rates
from more favorable long distance service contracts and decreases in local
exchange costs, SG&A expenses, and field operations and maintenance expenses
primarily as a result of the fixed portion of these expenses being spread over
a higher revenue base.
Telecommunication costs increased by $6.9 million, from $18.7 million in 1995
to $25.6 million in 1996. Telecommunication costs represented 46.3% of
operating revenues in 1995 and 43.3% of operating revenues in 1996, a decrease
of 3.0%. The dollar increase is primarily due to increased costs associated
with higher call volumes, while the percentage decrease is primarily due to
lower long distance rates from more favorable long distance service contracts
and decreases in local exchange costs.
Facility commissions increased by $5.8 million, from $9.6 million in 1995 to
$15.4 million in 1996. Facility commissions represented 23.8% of operating
revenues in 1995 and 26.1% of operating revenues in 1996, an increase of 2.3%.
The increase is primarily due to higher commission rates on the Company's
contract with the state of Alabama and on acquired inmate facility contracts.
Field operation and maintenance costs increased by $568,000, from $1.5
million in 1995 to $2.0 million in 1996. Field operation and maintenance costs
represented 3.6% of operating revenues in 1995 and 3.4% of operating revenues
in 1996, a decrease of 0.2%. The dollar increase is primarily due to increased
costs associated with serving a larger account base, while the percentage
decrease is primarily due to the effect of spreading fixed costs over a larger
revenue base.
SG&A increased by $204,000, from $4.1 million in 1995 to $4.3 million in
1996. SG&A represented 10.1% of operating revenues in 1995 and 7.3% of
operating revenues in 1996, a decrease of 2.8%. The decrease in SG&A as a
percentage of operating revenues is primarily due to the effect of spreading
fixed costs over a larger revenue base.
Depreciation and amortization costs increased by $1.1 million, from $3.0
million in 1995 to $4.1 million in 1996. Depreciation and amortization costs
represented 7.4% of operating revenues in 1995 and 7.0% of operating revenues
in 1996, a decrease of 0.4%. The dollar increase is primarily due to $600,000
in additional depreciation and amortization expense resulting from the
Company's acquisitions of AmeriTel and Talton Telecommunications in December
1996.
The Company incurred a non-recurring expense of $684,000 in 1996 related to
$434,000 in bonuses paid by AmeriTel prior to its acquisition by the Company
and $250,000 paid by AmeriTel to settle a lawsuit. Such expense represented
1.2% of operating revenues in 1996.
Operating Income. The Company's operating income increased by $3.5 million,
from $3.5 million in 1995 to $7.0 million in 1996, as a result of the
significant increase in operating revenues offset in part by the increase
48
<PAGE>
in operating costs discussed above. The Company's operating income margin
increased from 8.8% in 1995 to 11.7% in 1996 due to the factors described
above.
Other (Income) Expense. Other (income) expense, consisting primarily of
interest expense, increased by $780,000 from $1.3 million in 1995 to $2.1
million in 1996. The increase was primarily due to increased interest expense
associated with indebtedness incurred by the Company in connection with the
acquisitions of AmeriTel and Talton Telecommunications.
Net Income (Loss). The Company's net income increased by $1.7 million, from
$1.3 million in 1995 to $3.0 million in 1996 as a result of the factors
described above.
EBITDA. EBITDA increased by $5.2 million from $6.6 million in 1995 to $11.8
million in 1996. EBITDA as a percentage of operating revenues increased from
16.3% in 1995 to 19.9% in 1996 due to the factors described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating Revenues. The Company's operating revenues increased by $16.4
million, or 68.8%, from $23.9 million for the year ended December 31, 1994 to
$40.3 million for the year ended December 31, 1995. The increase in operating
revenues was primarily due to (i) the addition of operating revenues from the
Company's acquisitions of contracts covering 284 inmate facilities in 1994 (the
results of which were reflected for the full year in 1995), and contracts
covering 76 inmate facilities in 1995, (ii) operating revenues from the
Company's contract with the state of Alabama, a portion of which became
operational during the last half of 1995, and (iii) increases in operating
revenues from the Company's addition of new contracts covering 69 inmate
facilities, net of contract terminations, during 1994 (the results of which
were reflected for the full year in 1995) and, to a lesser extent, from the
addition of new contracts during 1995.
Operating Expenses. Total operating expenses increased $15.2 million, from
$21.6 million in 1994 to $36.8 million in 1995. Operating expenses as a
percentage of operating revenues increased 0.7%, from 90.5% in 1994 to 91.2% in
1995. The increase in operating expenses was primarily due to increased costs
associated with servicing acquired inmate facility contracts. The increase in
operating expenses as a percentage of revenues is attributable primarily to
increased facility commissions, which was primarily due to the higher
commission rates on the Company's contract with the state of Alabama, which
became operational during the last half of 1995. The increase in 1995 operating
expenses as a percentage of revenues was also due to an increasing reserve for
bad debts associated with higher uncollectible accounts in certain territories
into which the Company expanded, primarily Iowa, Wisconsin, and Minnesota.
Telecommunication costs increased by $6.9 million, from $11.8 million in 1994
to $18.7 million in 1995. Telecommunication costs represented 49.2% of
operating revenues in 1994 and 46.3% of operating revenues in 1995, a decrease
of 2.9%. The dollar increase is primarily due to higher expenses associated
with increased call volume, while the percentage decrease is primarily due to
lower billing costs as the Company implemented its direct billing agreements
for a portion of its call volume and to lower bad debt.
Facility commissions increased by $5.7 million, from $3.9 million in 1994 to
$9.6 million in 1995. Facility commissions represented 16.3% of operating
revenues in 1994 and 23.8% of operating revenues in 1995, an increase of 7.5%.
The increases are primarily due to the higher commission rates on the Company's
contract with the State of Alabama, which became operational during the second
half of 1995.
Field operation and maintenance costs increased by $423,000, from $1.0
million in 1994 to $1.5 million in 1995. Field operation and maintenance costs
represented 4.4% of operating revenues in 1994 and 3.6% of operating revenues
in 1995, a decrease of 0.8%. The decrease as a percentage of operating revenues
is primarily due to economies of scale associated with servicing a larger
account base.
49
<PAGE>
SG&A increased by $1.5 million, from $2.6 million in 1994 to $4.1 million in
1995. SG&A represented 10.8% of operating revenues in 1994 and 10.1% of
operating revenues in 1995, a decrease of 0.7%. The dollar increase is
primarily due to increased costs required to service acquired inmate facility
contracts, while the decrease as a percentage of operating revenues is due
primarily to economies of scale associated with such acquisitions.
Depreciation and amortization costs increased by $607,000, from $2.4 million
in 1994 to $3.0 million in 1995. Depreciation and amortization costs
represented 9.8% of operating revenues in 1994 and 7.4% of operating revenues
in 1995, a decrease of 2.4%. The dollar increase is primarily due to increased
depreciation and amortization relating to acquired and new inmate facility
contracts, while the percentage decrease is primarily due to proportionately
less depreciation and amortization applied to a higher revenue base.
Operating Income. The Company's operating income increased by $1.2 million,
from $2.3 million in 1994 to $3.5 million in 1995, as a result of higher
revenues, net of the increases in operating costs discussed above. The
Company's operating income margin decreased from 9.5% in 1994 to 8.8% in 1995
primarily due to higher operating costs.
Other (Income) Expense. Other (income) expense, consisting primarily of
interest expense, increased by $697,000, from $611,000 in 1994 to $1.3 million
in 1995. The increase was primarily due to additional borrowings to fund
acquisitions of inmate facility contracts.
Net Income. The Company's net income decreased by $319,000, from $1.7 million
in 1994 to $1.3 million in 1995 as a result of the factors described above.
EBITDA. EBITDA increased by $1.9 million, from $4.7 million in 1994 to $6.6
million in 1995. EBITDA as a percentage of operating revenues decreased from
19.9% in 1994 to 16.3% in 1995 primarily due to the increases in facility
commissions discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.1 million for the six months
ended June 30, 1997, as compared to $3.1 million for the six months ended June
30, 1996. Net cash used in operating activities was $4.5 million and $4.8
million for the years ended December 31, 1996 and 1995, respectively. Net cash
used in operating activities consisted primarily of increases in accounts
receivable associated with the addition of new inmate facility contracts.
Cash used in investing activities was $11.7 million for the six months ended
June 30, 1997 consisting primarily of cash outflows to purchase STC, as
compared to $4.7 million for the six months ended June 30, 1996. Cash used in
investing activities was $54.8 million in 1996, consisting primarily of cash
outflows for acquisitions. Cash used in investing activities was $8.0 million
in 1995, consisting primarily of acquisitions of inmate facility contracts.
Cash provided by financing activities was $43.5 million for the six months
ended June 30, 1997 consisting primarily of the issuance of the $115.0 million
Senior Notes, and offset by the repayment of the Company's Senior Credit
Facility, Senior Subordinated Notes, and Subordinated Notes, as compared to
$1.4 million for the six months ended June 30, 1996. Cash provided by financing
activities was $49.8 million and $4.1 million in 1996 and 1995, respectively,
and consisted primarily of proceeds from borrowings under credit facilities and
the issuance of equity by the Company's predecessors to finance revenue growth
and acquisitions. Financing activity in 1996 included the issuance of equity by
the Company in connection with the acquisitions of AmeriTel and Talton
Telecommunications in December 1996. See "Certain Relationships and Related
Transactions; Historic Relationships and Related Transactions." The Company
raised $115.0 million in proceeds in connection with the issuance of the Senior
Notes in June 1997, of which $67.2 million was used to repay amounts
outstanding under the Company's Senior Credit Facility, Senior Subordinated
Notes, and Subordinated Notes; $9.9 million
50
<PAGE>
(subject to adjustment) was used to acquire STC and 100% of its affiliate,
LETI; and $5.8 million was used to pay deferred financing costs related to the
Senior Notes. The remaining net proceeds of $32.1 million along with $18.4
million of proceeds from the Company's Senior Credit Facility were used to
consummate the CCC Acquisition and the Invision Acquisition.
As of June 30, 1997, the Company had approximately $115.6 of long-term
indebtedness outstanding, stockholders' equity of $0.4 million and $34.2
million of cash. On July 30, 1997, the Company's Senior Credit Agreement was
amended to provide the Company a $35 million revolving loan commitment.
The Company expects that its principal sources of liquidity will be cash flow
from operations, and borrowings under the revolving loan commitment. The
Company anticipates that its principal uses of liquidity will be to provide
working capital, finance future acquisitions, and meet debt service
requirements. The Company anticipates that its primary capital expenditures for
the next 12 months will be for upgrades to its technology infrastructure of
approximately $500,000 and for capital items required to implement new
contracts entered into by the Company. Management believes that cash flow from
operations and from credit facilities that management believes will be
available to the Company will be sufficient to fund the requirements of the
Company for the next 12 months.
As of June 30, 1997, the Company had approximately $115.6 million of long-
term indebtedness outstanding, including (i) $115 million of Senior Notes
outstanding at an interest rate of 11.0% and (ii) $.6 million of other
indebtedness consisting primarily of contingent acquisition costs and capital
leases.
As of July 30, 1997 the Company and its Lenders (as defined) have entered
into an amendment and restatement of the Existing Credit Facility whereby the
Senior Credit Facility was established in the maximum principal amount of $35.0
million. Amounts borrowed under the Senior Credit Facility will bear interest,
at the option of the Company, at either (i) the Base Rate (i.e., the higher of
CIBC's reference rate and the overnight federal funds rate plus 0.5%) plus a
margin that is expected to vary from 0.25% to 2.75%, depending on the Company's
Total Debt to EBITDA Ratio (as defined in the Senior Credit Facility); or (ii)
the LIBOR Rate (as defined in the Senior Credit Facility) plus a margin that is
expected to vary from 1.5% to 4.0%, depending on the Company's Total Debt to
EBITDA Ratio. The Senior Credit Facility requires quarterly interest-only
payments on Base Rate Loans, and periodic interest-only payments based on the
applicable interest period on IBOR Rate loans, but at least quarterly, until
maturity. The Senior Credit Facility will mature on December 31, 2000, at which
time the outstanding principal and all accrued and unpaid interest will be due.
See "Description of Other Indebtedness--Senior Credit Facility."
The Company is also in discussions with its Lenders to obtain a senior
secured facility to be used for permitted acquisitions. The Company believes
that covenants substantially similar to those contained in the Senior Credit
Facility will be applicable to the acquisition facility. Borrowings under the
acquisition facility will be cross-collateralized and cross-defaulted with the
Senior Credit Facility. The acquisition facility would likely be subject to
mandatory prepayments over its term. Although the Company is currently in
preliminary discussions regarding such facility, the Company does not
anticipate entering into such an arrangement prior to, and acquiring this
facility is not a condition to, the consummation of the Exchange Offer. There
can be no assurance, however, that the Company will be successful in obtaining
such an acquisition facility.
Concurrently with the consummation of the Offering, the Company expensed
approximately $4.4 million to write off previously incurred deferred financing
costs related to the Existing Credit Facility, the Senior Subordinated Notes,
and the Subordinated Talton Note, which were repaid with the net proceeds of
the Offering. These expenses have been accounted for as an extraordinary loss
on the early extinguishment of debt.
Management expects that cash flow from operations along with additional
borrowings under existing and future credit facilities will be sufficient to
meet the Company's requirements for the remainder of 1997. The Company spent
$11.7 million for the six months ended June 30, 1997 and expects to spend
approximately $4.5 million in capital expenditures in the remainder of 1997 for
new installations and equipment purchases for
51
<PAGE>
its billing and inquiry center, including an amount estimated for capital
expenditures for CCC and Invision. In July of 1997, the Company acquired
substantially all of the assets of CCC for a purchase price of $10.5 million,
subject to adjustment. On October 6, 1997, the Company completed the Invision
Acquisition for a purchase price of approximately $40.0 million in cash and
approximately $2.0 million in assumption of liabilities, subject to
adjustment. The Company financed these acquisitions through proceeds from the
Offering. In addition, the Company used approximately $53.2 of the proceeds of
the Offering to repay all outstanding principal and interest under the
Existing Credit Facility. In addition, the Company intends to pursue
additional acquisitions to expand its base of installed inmate telephones and
consider acquisition opportunities from time to time. There can be no
assurance, however, that the Company will have sufficient available capital
resources to realize its acquisition strategy. Such future acquisitions,
depending on their size and the form of consideration, may require the Company
to seek additional debt or equity financing. See "Risk Factors--Risks
Associated with Acquisition Strategy."
The Company is a holding company, the assets of which consist principally of
the stock of its Subsidiaries, through which it conducts substantially all of
its operations. The Company's ability to pay interest on the Senior Notes and
to satisfy its other obligations will depend upon dividends or other
distributions of funds from its Subsidiaries. The Company's Subsidiaries are
distinct legal entities, and the rights of holders of the Senior Notes against
the Subsidiary Guarantors will be subject to the rights of the Subsidiary
Guarantors' creditors, to the extent senior to the obligations of the
Subsidiary Guarantors. The future operating performance of its Subsidiaries
will be affected by economic conditions, and financial, business, and other
factors, many of which are beyond the Company's control. The Company's
Subsidiaries are parties to no contractual agreements that would restrict
their ability to pay dividends or advance funds to the Company. As of the date
of this Prospectus there is aggregate indebtedness of $600,000 of the
Company's Subsidiaries that is effectively senior to the Senior Notes because
the Company is a holding company. See "Risk Factors--Holding Company
Structure." The Company has pledged all of the outstanding capital stock of
its Subsidiaries to secure its obligations under the Senior Credit Facility.
The Senior Credit Facility and all obligations thereunder are also secured by
a first priority lien on substantially all of the assets of the Company's
Subsidiaries, including future Subsidiaries. There can be no assurance that
the operating cash flow of the Company's Subsidiaries will be sufficient to
meet the Company's operating expenses and debt service obligations.
INCOME TAXES
Since the Company's acquisitions of AmeriTel and Talton Telecommunications
were stock purchases, the Company was required to retain the tax bases of
AmeriTel and Talton Telecommunications in the assets acquired. As a result,
the Company will not be entitled to a tax deduction for the amortization of
goodwill or the depreciation and amortization of certain other tangible and
intangible assets related to these acquisitions. The Company has provided
deferred income tax liabilities for differences in the financial accounting
and tax bases of its tangible and identifiable intangible assets. However, in
accordance with the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," future amortization of non-
deductible goodwill will be treated as a permanent difference in the Company's
financial statements.
REVENUES AND COST SYNERGIES
The combined historical results of operations of the Company do not give
effect to the historical operating results of the acquisitions of Tataka, STC,
CCC, and Invision, prior to their respective acquisition dates. While the pro
forma financial data included in this Prospectus does give effect to these
acquisitions as if they were consummated on January 1, 1996, the pro forma
financial data do not give effect to any events occurring after consummation
of the acquisitions, other than as specified. See "Pro Forma Financial Data."
During 1996, regulatory authorities approved certain increases and decreases
in tariff rates the Company is allowed to charge its customers, which had the
net effect of increasing the Company's revenues for the periods during 1996
after such rates became effective. As a result of these tariff rate increases
and decreases during 1996, the Company believes that it is probable that its
future operating results will reflect higher net revenues than those reflected
on both a historical and pro forma basis for the year ended December 31, 1996.
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As part of the Company's business and operating strategy, it has developed a
billing and bad-debt management system that management believes will
significantly reduce operating costs in the future. This billing and bad-debt
management system includes pre-established call blocking limits, validation
and credit checks on all call attempts, and the generation of timely call
reporting information, which enables the Company to identify customers of
marginal credit quality more quickly. After the completion of each of the
Company's acquisitions, the Company has begun the implementation of this
billing and bad-debt management system at each acquired business. While this
implementation process takes time to complete, the implementation of this
billing and bad-debt management system generally results in some reduction in
revenues as pre-established call blocking limits are established, which is
generally more than offset by favorable cost savings, especially in the area
of lower bad-debt expense. In the case of the Invision acquisition, however,
the implementation of the pre-established call blocking limits has resulted in
increased 1997 revenues because the Company increased Invision's call blocking
limits from unusually low limits established by Invision in late 1996.
Set forth below is a summary of the effect of these revenue and cost
synergies on pro forma EBITDA for the year ended December 31, 1996 and the six
months ended June 30, 1997, had these revenue and cost synergies been fully
implemented as of January 1, 1996. The effect of net tariff rate increases is
shown net of related increases in operating expenses such as commissions and
the billing and collections and bad-debt expense components of
telecommunications costs. The effect of implementation of the billing and bad-
debt management system results in higher revenues at Invision for 1997 and
lower bad-debt expense for all the acquired businesses for 1996 and 1997,
partially offset by related changes in revenues, facility commissions, long
distance charges, and validation and other costs. The effect of these changes
is based on estimates and assumptions made and believed to be reasonable by
the Company and are inherently uncertain and subject to significant business,
economic, and competitive contingencies, many of which are beyond the control
of the Company, and are based on assumptions with respect to future business
decisions that are subject to change. See "Special Note Regarding Forward-
Looking Statements." The following table should not be viewed as indicative of
actual or future results and were not prepared with a view towards compliance
with published guidelines of the Commission or the AICPA with respect to
prospective financial information and have not been examined or compiled by
any certified public accountant.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1996
------------ --------------
<S> <C> <C>
Pro forma EBITDA............................... $27,004 $ 9,702
Effect of net tariff rate increases............ 1,342 --
Effect of full implementation of the Company's
billing and bad-debt management systems....... 3,927 6,030
------- -------
EBITDA (as adjusted)........................... $32,273 $15,732
======= =======
</TABLE>
ACCOUNTING PRONOUNCEMENTS
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Impairment is evaluated by comparing
future cash flows (undiscounted and without interest charges) expected to
result from use of the asset and its eventual disposition to the carrying
amount of the asset. The adoption of this pronouncement had no material impact
on the Company's financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," ("SFAS No. 123") encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock
options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock-based
compensation is not mandatory, SFAS No. 123 requires companies that choose not
to adopt the new fair value accounting to disclose pro forma net income and
earnings per share under the new method. During 1996, the Company's
predecessor, AmeriTel, implemented the disclosure requirements of this
pronouncement. During 1996, neither the Company nor Talton Telecommunications
was a party to any stock-based compensation plans requiring the implementation
of SFAS No. 123.
53
<PAGE>
BUSINESS
GENERAL
The Company is the largest independent provider of inmate telecommunications
services to correctional facilities operated by city, county, and state
authorities and other types of confinement facilities such as juvenile
detention centers, private jails, and halfway houses. As of June 30, 1997, the
Company owned and operated inmate telephones located in 1,784 correctional
facilities in 43 states. Management believes that the Company provides inmate
telecommunications services to over 75% of the county correctional facilities
in the states of Alabama, Illinois, Iowa, Kansas, Missouri, Nebraska, and Utah
and to over 50% of the county correctional facilities in the states of
Colorado, Indiana, Kentucky, Minnesota, Mississippi, Montana, Ohio, Oklahoma,
South Dakota, and Tennessee. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company generated pro forma revenues of $139.4
million and $68.7 million, respectively, and pro forma EBITDA (as defined) of
$26.9 million and $9.2 million, respectively. Management estimates that the
market for local and county correctional facilities exceeds $700,000,000 in
gross revenues annually. Management estimates that approximately 55% of this
market is controlled by RBOCs or other LECs and by IXCs. The remainder of this
market is served by independent service providers such as the Company, with the
Company accounting for approximately 50% of the market served by independent
service providers. Management believes that no other independent provider
accounts for more than 5% of the revenue derived from inmate telephone
operations at local and county correctional facilities.
The Company's inmate telecommunications business consists of owning,
operating, servicing, and maintaining a system of telephones located in
correctional facilities and providing related services. The Company enters into
multi-year agreements with the correctional facilities pursuant to which the
Company serves as the exclusive provider of telecommunications services to
inmates within each facility. In exchange for the exclusive service rights, the
Company pays a negotiated commission to the correctional facility based upon
actual inmate telephone use. The Company installs and generally retains
ownership of the telephones and related equipment. Under the terms of the
Company's agreements with correctional facilities, these commissions are a
function of revenues generated from inmate telephone use. For the six months
ended June 30, 1997 pro forma facility commissions were approximately 27% of
pro forma operating revenues. In addition, the Company provides services that
are tailored to the specialized needs of the corrections industry and to the
requirements of the individual correctional facility, such as a specialized law
enforcement management system, call activity reporting, and call blocking. The
Company also generates revenues from public pay telephones that are ancillary
to its inmate telecommunications business.
The Company was formed in November 1996 to consummate the acquisitions of
AmeriTel and Talton Telecommunications, thereby combining the unique strengths
of two recognized independent providers of inmate telecommunications services.
The Company was formed by EUF Talton, an affiliate of EUFCC, a private
investment banking and consulting firm, the principals of which are experienced
in acquiring and integrating the operations of companies in consolidating
industries. The Company has recently been awarded the contract with the
Department of Corrections of the State of North Carolina to provide inmate
telephone services. The agreement covers 96 correctional facilities with a
current inmate population of approximately 32,000. The Company will also
provide coin telephone service for 1,600 telephones throughout North Carolina
in connection with this contract. With the acquisition of AmeriTel, the Company
acquired a management team with extensive experience in identifying,
consummating, and integrating acquisitions in the inmate telecommunications
industry. With Talton Telecommunications, the Company acquired a billing and
bad-debt management system that management believes significantly reduces
operating costs and affords the Company a competitive advantage in the
industry. With the acquisition of STC, the Company augmented its information
technology and services offered with, among other assets, a specialized law
enforcement management information system. The Company believes that this
system will be instrumental in retaining STC's customers and will assist the
Company in retaining existing and obtaining new customers.
54
<PAGE>
RECENT DEVELOPMENTS
On July 31, 1997, the Company acquired CCC. With this acquisition, the
Company acquired CCC's proprietary call processor technology, which management
believes will reduce the Company's installation and operating costs. CCC
generated revenues of approximately $9.6 million in 1996. The Company has
recently been awarded the contract with the Department of Corrections of the
State of North Carolina to provide inmate telephone services. The agreement
covers 96 correctional facilities with a current inmate population of
approximately 32,000. The Company will also provide coin telephone service for
1,600 telephones throughout North Carolina in connection with this contract. On
October 6 , 1997, the Company consummated the Invision Acquisition. Invision
generated revenues of approximately $48.9 million in 1996.
The Company has pursued a strategy of increasing its installed base of inmate
telephones through selective acquisitions of other inmate telecommunications
operators and has successfully completed 27 acquisitions in the industry since
1993. The following table sets forth the acquisition history of the Company:
<TABLE>
<CAPTION>
TOTAL NUMBER OF PRIMARY
DATE SELLER FACILITIES SERVED STATES SERVED
---- ------ ----------------- -------------
<C> <C> <C> <S>
January 1993 Pay-Comm Systems Corp. 7 Iowa
January 1993 to February 1994 Pay-Tel of America, Inc. 94 Colorado, Iowa, Kansas,
(4 transactions) Missouri,
Oklahoma, South Dakota,
Wisconsin
February 1993 Best Serve, Inc. 60 Iowa, Kansas, Missouri,
Nebraska,
South Dakota
July 1993 Coin Telephone, Inc. 37 North Carolina, South
Carolina
April 1994 Ad/Vantage Communications 12 Missouri, Iowa, South
Consultants, Inc. Dakota
April 1994 World Communications 1 Missouri
June 1994 to June 1996 Peoples Telephone Company, Inc. 224 Arkansas, Colorado
(6 transactions) Idaho, Iowa, Kansas,
Minnesota, Missouri,
Nebraska, New Mexico,
North Dakota, Oklahoma,
South Dakota, Utah,
Washington, Wisconsin
September 1994 Phone Management Properties 8 Minnesota
October 1994 Midwest Communications, Inc. 9 Minnesota, North Dakota
October 1994 Star Payphones, Inc. 10 Minnesota
March 1995 Inmate Tel. 26 Louisiana, Mississippi,
Texas
June 1995 Publicom, Inc. 26 Indiana, Michigan, Ohio
January 1996 Intellipay Systems, Inc. 37 Indiana, Michigan, Ohio,
West Virginia
May 1996 Value-Added Communications, Inc. 3 Florida
June 1996 Executone (Steelweb, Inc.) 57 California, Colorado,
Kansas, Maryland,
Oklahoma, South
Carolina, Tennessee,
Texas, Washington
February 1997 North American Intellicom 5 Oklahoma, Texas
May 1997 Tri-T, Inc. (Tataka) 20 Utah
July 1997 Correctional Communications 26 California
Corporation (CCC)
October 1997 Communications Central, Inc. (Invision) 595 California, Illinois,
Indiana, Kentucky,
Massachusetts, Tennessee
</TABLE>
INDUSTRY OVERVIEW
Corrections Industry
The corrections industry has experienced dramatic growth over the last decade
as a result of societal and political trends. Recent anti-crime legislation,
including mandatory sentencing guidelines, limitations on parole, and spending
authorizations for crime prevention and construction of additional correctional
facilities have contributed to this industry growth. The U.S. has one of the
highest incarceration rates of any country in the
55
<PAGE>
world. The U.S. Department of Justice estimates that as of June 30, 1996 there
were approximately 1.6 million inmates housed in U.S. correctional facilities,
or approximately one inmate for every 163 U.S. residents. Of this total,
approximately two-thirds were housed in federal and state prisons and
approximately one-third were housed in city and county correctional facilities.
According to U.S. Department of Justice statistics, the inmate population in
federal and state prisons, which generally house inmates for longer terms than
city and county facilities, increased from approximately 743,000 at December
31, 1990 to approximately 1.1 million at June 30, 1996, representing an average
annual growth rate of approximately 7.6%. The inmate population in city and
county facilities, which generally house inmates for terms of one year or less,
increased from approximately 405,000 at June 30, 1990 to approximately 518,000
at June 30, 1996, representing an average annual growth rate of approximately
4.2%. At June 30, 1996, approximately 92.0% of city and county jail capacity in
the U.S. was occupied.
Over the past several years, the private corrections industry has also
experienced dramatic growth. Increasing costs and rising inmate populations
have led a number of jurisdictions to privatize all or a portion of their
corrections operations in an attempt to control or lower expenditures. From
December 31, 1989 to December 31, 1996, the rated capacity of privately managed
adult correctional facilities in the U.S. increased from 10,973 beds to 77,584
beds, representing an annual growth rate of approximately 32.2%. Although 25
states have expressed statutory authority for privatized corrections at the
state level, only approximately 2.6% of the nation's inmate population was
housed in privately managed facilities as of December 31, 1996.
Inmate Telecommunications Industry
The inmate telecommunications industry is characterized by the specialized
telecommunications systems and related services required to address the unique
needs of the corrections industry. Security and public safety concerns
associated with inmate telephone use require that correctional facilities have
the ability to control inmate access to telephones and to certain telephone
numbers and to monitor inmate telephone activity. In addition, concerns
regarding fraud and the credit quality of the parties billed for inmate
telephone usage have also led to the development of systems and procedures
unique to this industry.
Inmate telephones in the U.S. are operated by a large and diverse group of
service providers, including RBOCs, other LECs, IXCs, such as AT&T, MCI,
Sprint, and LDDS/Worldcom, and independent public pay telephone and inmate
telephone companies. Within the inmate telecommunications industry, companies
compete for the right to serve as the exclusive provider of inmate calling
services within a particular correctional facility. Contracts may be awarded on
a facility-by-facility basis, such as for most city or county correctional
systems, which generally include small and medium-sized facilities (less than
250 beds), or system-wide, such as for most state prison systems. Generally,
contracts for federal facilities and state systems are awarded pursuant to a
competitive bidding process, while contracts for city and county facilities are
often negotiated with a single party. Contracts generally have multi-year terms
and typically contain renewal options. As part of the service contract, the
service provider generally installs, operates, and maintains all inmate
telecommunications equipment. In exchange for the exclusive contract rights,
the service provider pays a commission to the operator of the correctional
facility based upon inmate telephone use.
Inmates are generally allowed to make only collect calls from correctional
facilities. Because collect calls have, on average, the second highest revenue
per call (after operator-assisted, person-to-person calls), revenues per inmate
telephone have historically been higher than for public pay telephones. In
addition, maintenance and related labor costs for inmate telephones are
generally lower than for public pay telephones due to the use of automated
operator services and the absence of expenses associated with coin collection
and repairs of coin mechanisms. However, the inmate telecommunications industry
has also historically experienced higher levels of uncollectible accounts and
fraud than the public pay telephone market.
56
<PAGE>
BUSINESS STRATEGY
The Company was formed to capitalize on consolidation opportunities that the
Company believes exist within the highly fragmented inmate telecommunications
industry. The Company's primary business objectives are to be a cost-efficient,
high-quality provider of telecommunications services to correctional facilities
in the U.S. and to continue to expand its installed base of inmate telephones.
The Company has developed and is implementing the following strategies to meet
these objectives:
. Target the corrections industry with specialized products and
services. The Company has developed specialized telecommunications
systems and services to focus on the unique needs of the corrections
industry. In addition to telecommunications services, the Company offers
its LEMs system, which includes jail management, victim notification, and
prisoner profile software packages.
The Company markets its telecommunications system and services through a
sales force consisting largely of former law enforcement officials and
others with experience in the corrections and telecommunications
industries. The Company also maintains a staff of trained field service
technicians and independent telecommunications service contractors, which
enables the Company to respond quickly (typically within 24 hours) to
service interruptions. In each of the last three years, the Company has
retained in excess of 95% of its beginning of the year customer base
through contract extensions or renewals.
. Reduce operating costs and bad-debt expense. The Company has developed a
billing and bad-debt management system that management believes
significantly reduces operating costs and affords the Company a
competitive advantage in the inmate telecommunications industry.
Management believes that, through the use of the Company's system, which
was developed by Talton Telecommunications, the Company has achieved
levels of billing and collection costs and bad-debt expense that are
generally lower than those experienced by other competitors in the inmate
telecommunications industry. Management is currently implementing this
system throughout the Company's existing operations and intends to
implement this system in future acquired operations.
The Company also utilizes direct billing agreements with LECs to bill and
collect a majority of its operating revenues. Under the direct billing
agreements, the LEC includes charges for the Company's services on the
local telephone bill sent to the recipient of inmate collect calls.
Management believes that direct billing arrangements with LECs are
advantageous because they eliminate the costs associated with third party
billing arrangements that are utilized by a majority of independent
inmate telecommunications companies, expedite the billing and collection
process, increase collectibility, and reduce account charge-offs. As of
November 30, 1996, the Company had negotiated direct billing agreements
with BellSouth and GTE South, which enabled the Company to direct bill
approximately 46% of its pro forma operating revenues. The increased
telecommunications traffic that resulted from the combination of AmeriTel
and Talton Telecommunications enabled the Company to enter into new
direct billing arrangements, which, as of June 1997, enabled the Company
to direct bill in excess of 85% of its operating revenues.
. Expand through internal growth. The Company actively seeks to increase
cash flow by installing additional telephones with current customers that
are expanding and by securing new contracts. From January 1997 through
June 1997, the Company signed 61 new contracts for facilities, including
contracts for the state of Alaska and state of North Dakota prison
systems and a new 1,500-bed CCA facility in Ohio. Through its sales
force, the Company emphasizes the knowledge, experience, and reputation
of the Company in the inmate telecommunications industry, its high level
of service, and the additional specialized products and services offered
by the Company to its correctional facility customers. Historically, the
Company has focused on providing telecommunication services to small and
medium-sized correctional facilities (typically city or county facilities
with fewer than 250 beds). From June 30, 1990 to June 30, 1996, the
inmate population in city and county jails increased at an average annual
rate of approximately 4.2%, to approximately 518,000 of the 1.6 million
individuals incarcerated in the U.S. The Company also intends to
selectively pursue additional state and federal contracts that become
available for bid.
57
<PAGE>
Management also believes that the growth of the private corrections
industry provides the Company opportunities for further expansion. The
private corrections industry has experienced dramatic growth over the
last several years, with the rated capacity of privately managed adult
correctional facilities in the U.S. increasing from 10,973 beds at
December 31, 1989 to 77,584 beds at December 31, 1996, representing an
annual growth rate of approximately 32.2%. As the largest provider of
inmate telecommunications services to CCA, the largest private prison
management company in the U.S., the Company is positioned to continue to
benefit from the growth in the private corrections industry.
. Pursue selective consolidating acquisitions. Management believes that the
inmate telecommunications industry is highly fragmented, which affords
significant opportunities for consolidation. Independent inmate telephone
companies are generally small, local, or regional operators that may lack
the financial resources and infrastructure necessary to achieve the
efficiencies and economies of scale necessary to develop new systems and
services to compete effectively for new customers and, as such, present
attractive acquisition opportunities for the Company. In addition,
management believes that the Telecom Act, which requires RBOCs to
decouple their pay phone operations from their local telephone
businesses, will contribute to the consolidation opportunities existing
in the market. As a result of the decoupling mandated under the Telecom
Act, RBOCs are no longer entitled to earn a minimum rate of return on
their pay phone business, including their inmate pay phone business. In
addition, RBOCs will be required to charge their own pay phone business
the same rates for local exchange service that RBOCs charge to third
party pay phone operators for the same service. For these reasons, and
because of the incremental costs to the RBOCs to operate their pay phone
business as a separate business, management believes that RBOCs may
reevaluate their pay phone operations, which could increase acquisition
opportunities for the Company.
Management believes that the Company's experience in acquiring
independent inmate telecommunication companies will be instrumental in
identifying acquisition candidates, negotiating favorable terms, and
integrating the acquired operations into the Company. Since January 1993,
the Company has successfully completed 27 acquisitions ranging from the
purchase of relatively small local inmate telecommunication service
providers to the acquisition of larger groups of inmate facility
telecommunications contracts and related assets, including those of
Peoples Telephone Company, Inc. for a seven state region in the
midwestern U.S. In May 1997, the Company acquired the inmate
telecommunications operations of Tataka, the leading independent inmate
telecommunications service provider in the state of Utah; on July 31,
1997, the Company acquired substantially all of the assets of CCC; and on
October 6, 1997, the Company consummated the Invision Acquisition.
. Increase geographic concentration/clustering. The Company seeks to
increase market penetration in the states in which it operates. High
market penetration contributes to operating efficiencies through
economies of scale and enables the Company to provide better customer
service and more meaningful call activity reports to its correctional
facility customers. The Company currently serves all of the state
operated correctional facilities and 63 of 72 county correctional
facilities in Alabama, 83 of 95 county correctional facilities in Iowa,
82 of 94 county correctional facilities in Kansas, 104 of 108 county
correctional facilities in Missouri, 52 of 67 county correctional
facilities in Nebraska, 21 of 26 county correctional facilities in Utah,
and over half of the county correctional facilities in Colorado,
Minnesota, Mississippi, Oklahoma, and South Dakota.
. Capitalize upon economies of scale. Management believes that the
combination of AmeriTel and Talton Telecommunications, in addition to the
completion of the STC Acquisition, has improved operating efficiencies,
and that additional improvements in efficiency will result from future
acquisitions. As a result of the increased telecommunications traffic and
greater market leverage obtained by the Company in connection with its
acquisitions of AmeriTel and Talton Telecommunications, the Company
negotiated more favorable terms from its primary long distance carrier,
LDDS/Worldcom, which has reduced the Company's long distance expenses. To
the extent that the Company is successful in further increasing its
telecommunications traffic through new installations or acquisitions, the
Company expects to be able to negotiate even more favorable terms from
its long distance providers. Management also believes that the
58
<PAGE>
continuing deregulation of local exchange services will enable the Company
to negotiate more favorable rates from incumbent LECs and competitive
local exchange carriers. In addition, management believes that the
Company's existing infrastructure allows the Company to operate new and
acquired inmate telephones in its existing markets without significant
incremental field service, collection, and other general and
administrative costs. Management believes that the expansion of the
Company's installed base of inmate telephones will also allow the Company
to enter into additional direct billing agreements, thereby decreasing
billing and collection costs and bad-debt expense, and increasing the
effectiveness of the Company's call validation process.
OPERATIONS
Contracts
The Company has contracts to provide inmate telecommunications services on
an exclusive basis to correctional facilities ranging in size from small
municipal jails to large, state-operated facilities, as well as other types of
confinement facilities, including juvenile detention centers, private jails,
and halfway houses. The Company's contracts have multi-year terms, and
typically contain renewal options. Typically, the Company negotiates
extensions of its contracts before the end of their stated terms, in each of
the last three years, the Company has retained more than 95% of its beginning
of the year customer base through contract extensions or renewals. Although
the Company has experienced what management believes to be a high retention
rate on contracts that come up for renewal, there can be no assurance that the
Company will be successful in renewing existing inmate telephone contracts in
the future. The average remaining term of the Company's contracts with
facilities is approximately 3 years. The Company's contracts generally provide
for automatic renewal unless terminated by written notice a specified period
of time before the end of a calendar year. The Company believes that its
customer retention rate for 1997 will be at least as favorable as its
historical rate for the last three years.
Marketing
The Company seeks new contracts by participating in competitive bidding
processes and by negotiating directly with the individuals or entities
responsible for operating correctional facilities. The Company markets its
inmate telecommunications services through a sales staff largely made up of
former law enforcement officials and others with experience in the corrections
and telecommunications industries who understand the specialized needs of
correctional facilities. The Company's marketing strategy emphasizes the
knowledge, experience, and reputation of the Company in the inmate
telecommunications industry, its high level of service, and the additional
specialized products and services offered by the Company. The Company relies
on the experience and background of its sales staff to effectively communicate
the capabilities of the Company to both existing and potential customers. In
addition to conducting in-person sales calls on the operators of correctional
facilities, the Company participates in trade shows and is active in local law
enforcement associations.
The Company has historically focused its marketing efforts on city and
county correctional facilities. City and county facilities house inmates for
shorter durations than federal and state prisons and generally have higher
inmate call volumes. In addition, because bidding for contracts to serve city
and county correctional facilities is generally less competitive than that for
state and federal facilities, the Company pays relatively lower commission
rates for these facilities. However, because of their smaller size and limited
resources, these facilities typically require a higher level of service than
federal and state facilities.
Products and Services
Management believes that the specialized products and services offered by
the Company differentiate the Company from its competitors. These services
include the use of the Company's LEMS system, which includes jail management,
victim notification, and prisoner profile software packages. LEMS is a
computer-based system that allows prison authorities to better manage facility
operations and track operating information, including, among other data,
inmate profiles, payroll, and inventory. The Company offers LEMS to
correctional facilities at
59
<PAGE>
no up-front cost in exchange for lower commission rates and longer contract
terms. LEMS is a key selling point for the Company to potential customers and
will also be marketed to its existing customers. The Company also offers
additional services tailored to the corrections industry such as Guardcheck, a
system that verifies the completion of guard rounds, "man down" notification,
an emergency notification system that indicates when a guard needs assistance,
and jail training services. The Company's jail training services include
Company sponsored training seminars for jail personnel on a variety of topics
including safety and fraud detection. In addition, the Company's call activity
reporting capabilities and its ability to control inmate access to specific
telephone numbers through call blocking are valuable services to correctional
facilities. These specialized products and services afford the Company a
competitive advantage because it is less likely that a correctional facility
will be able to replace all of the services provided by the Company from a
single alternative source, or from several alternative sources, on an
economical basis.
Systems and Equipment
The Company currently utilizes automated operator calling systems that
consist of purchased and internally developed software applications installed
on specialized equipment. The Company's specialized systems limit inmates to
collect calls, validate and verify the payment history of each number dialed
for billing purposes, and confirm that the destination number has not been
blocked. If the number is valid and has not been blocked, the system
automatically requests the inmate's name, records the inmate's response, and
waits for the called party to answer. When the call is answered the system
informs the called party that there is a collect call, plays back the name of
the inmate in the inmate's voice, and instructs the called party to accept or
reject the call. The system only completes calls that have been accepted by the
called party.
The system automatically records the details of each call (i.e., the number
called and the length of the call) and transmits the data to the Company's
centralized billing center for bill processing and input into the Company's
call activity database. See "Billing and Collection." The Company's database of
telephone numbers and call activity allows the Company to provide extensive
call activity reports to the correctional facilities and to law enforcement
authorities, in addition to identifying numbers appropriate for blocking, thus
helping to reduce the number of uncollectible calls. These include reports of
frequently called numbers, calls of longer than normal duration, and calls by
more than one inmate to the same number, which can assist law enforcement
authorities in connection with ongoing investigations. Management believes this
database offers competitive advantages, particularly within states in which the
Company has achieved substantial market penetration.
Maintenance and Service
The Company provides and installs the telephone system in each correctional
facility at no cost to the operator of the facility and generally performs all
maintenance activities. The Company maintains a geographically dispersed staff
of trained field service technicians and independent contractors, which allows
the Company to respond quickly (typically within 24 hours) to service
interruptions. In addition, the Company has the ability to make some repairs
remotely through electronic communication with the installed equipment without
the need of an on-site service call. Management believes that system
reliability and service quality are particularly important in the inmate
telecommunications industry because of the potential for disruptions among
inmates if telephone service remains unavailable for extended periods.
Billing and Collection
The Company uses direct and third party billing agreements to bill and
collect phone charges. Under direct billing agreements, the LEC includes
collect call charges for the Company's services on the local telephone bill
sent to the recipient of the inmate collect call. The Company generally
receives payment for such calls thirty days after the end of the month in which
the call is submitted to the LEC for billing. The payment received by the
Company is net of a service fee and net of write-offs of uncollectible accounts
for which the Company previously received payment, or net of a reserve for bad
debt expense.
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<PAGE>
Unlike many smaller independent service providers with lower
telecommunications traffic, the Company has been able to enter into direct
billing agreements in most of its markets because of the Company's high market
penetration. As of November 30, 1996, the Company had negotiated direct billing
agreements with BellSouth and GTE South, which enabled the Company to direct
bill approximately 46% of its pro forma operating revenues. The increased
telecommunications traffic that resulted from the combination of AmeriTel and
Talton Telecommunications enabled the Company to enter into new direct billing
arrangements, which, as of June 1997, enable the Company to direct bill over
85% of its operating revenues. Management believes that direct billing
agreements with LECs decrease bad-debt expense and billing expenses by
eliminating an additional third-party billing entity, while expediting and
increasing collectibility. In addition, direct billing agreements help the
Company resolve disputes with billed parties by facilitating direct
communication between the Company and the called party, thereby reducing the
number of charge-offs.
In the absence of a direct billing arrangement, the Company bills and
collects its fees through a third party billing and collection clearinghouse
that has a billing and collection agreement with the LEC. When the Company
employs a third party billing and collection clearinghouse, the account
proceeds are forwarded by the various LECs to the clearinghouse, which then
forwards the proceeds to the Company, less a processing fee. With both direct
and third party billing and collection agreements, the Company reconciles its
call records with collections and write-offs on a regular basis. The entire
billing and collection cycle (including reconciliation) generally takes between
four and eight months after the call record is submitted to the LEC or to a
third party billing and collection clearinghouse by the Company.
The Company's specialized billing and bad-debt management system integrates
its direct billing arrangements with LECs with its call blocking, validation,
and customer inquiry procedures. Through the use of this system, which was
developed by Talton Telecommunications, the Company has experienced levels of
bad-debt expense that are generally lower than those experienced in the inmate
telecommunications industry. Management is currently implementing this system
throughout the Company's existing operations and intends to implement this
system in future acquired operations.
Long Distance and Local Exchange Costs
Effective January 1997, as a result of the increased telecommunications
traffic and greater market leverage obtained by the Company in connection with
its acquisitions of AmeriTel and Talton Telecommunications, the Company was
able to negotiate more favorable terms from its primary long distance carrier,
LDDS/Worldcom, which has reduced the Company's long distance expenses. The
Company expects to continue to benefit from this reduced long distance cost
structure and further reduce costs as the Company consummates additional
acquisitions and increases its long distance traffic. The Company also
maintains relationships with other long-distance carriers, including AT&T and
MCI.
The Company obtains local exchange services from LECs. The cost of local
exchange services is tariffed in certain jurisdictions. As the deregulation of
the telecommunications industry, including local exchange service, continues
the Company is exploring alternative sources for its local exchange service
requirements. Management believes that the deregulation of local exchange
service could result in additional cost savings to the Company.
OTHER OPERATIONS
The Company owns, operates, services, and maintains a system of
microprocessor controlled public pay telephones that are ancillary to its
inmate telecommunications business. The Company occasionally installs public
pay telephones as an accommodation to, or pursuant to a contract requirement
imposed by, its correctional facility customers. As of June 30, 1997, the
Company had 1,779 public pay telephones installed in 29 states. The Company
obtains contracts with location owners to operate public pay telephones at
locations such as shopping centers, convenience stores, service stations,
grocery stores, restaurants, and truck stops. Such contracts usually provide
for the payment of a commission by the Company to the location owner based on
revenues generated by the telephones.
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COMPETITION
In the inmate telecommunications business, the Company competes with numerous
independent providers of inmate telephone systems, LECs, and IXCs such as AT&T
and MCI. Many of the Company's competitors are larger and better capitalized
with significantly greater financial resources than the Company. The Company
believes that the principal competitive factors in the inmate
telecommunications industry are (i) system features and functionality; (ii)
system reliability and service; (iii) the ability to customize inmate call
processing systems to the specific needs of the particular correctional
facility; (iv) relationships with correctional facilities; and (v) rates of
commissions paid to the correctional facilities. The Company competes for
business on local, county, and state levels, and in privately managed
correctional facilities, and intends to compete for business at the federal
level on a selective basis.
Historically, federal and state correctional facilities, which are generally
bid on a system-wide basis, have been served by RBOCs, large LECs, and major
long distance companies, which are able to leverage their existing systems and
infrastructure to serve these large, high-volume customers without significant
additional capital expenditures. These same service providers, however, have
generally not focused on the smaller city and county correctional systems,
service contracts for which may be awarded on a facility-by-facility basis.
Because of the variance in the level of service required by these relatively
small facilities, service providers must maintain a more extensive service
infrastructure in order to compete within this segment of the corrections
industry. Due to greater costs associated with serving smaller facilities and
their lower volume of telecommunications traffic, management believes that
large service providers have historically found the smaller facilities less
attractive to serve. As a result, a significant portion of city and county
correctional facilities are served by independent inmate telephone and public
pay telephone companies. Management believes that the market for city and
county correctional facilities is fragmented and is occupied by a number of
competing service providers.
REGULATION
The inmate telephone industry is regulated at the federal level by the FCC
and at the state level by the public utility commissions of the various states.
In addition, from time to time, legislation may be enacted by Congress or the
various state legislatures that affects the telecommunications industry
generally and the inmate telephone industry specifically. Court decisions
interpreting applicable laws and regulations may also have a significant effect
on the inmate telephone industry. Changes in existing laws and regulations, as
well as the adoption of new laws and regulations applicable to the activities
of the Company or other telecommunications business, could have a material
adverse effect on the Company.
Federal Regulation
Prior to 1996, the federal government's role in the regulation of the inmate
telephone industry was limited. The enactment of the Telecom Act, however,
marked a significant change in the scope of federal regulation of inmate
telephone service. Section 276 of the Telecom Act directed the FCC to implement
rules to overhaul the regulation of the provision of pay telephone service,
which Congress defined to include the provision of inmate telephone service in
correctional institutions.
Before adoption of the Telecom Act, LECs generally included inmate telephone
operations as part of their regulated local exchange telephone company
operations. This allowed the LECs to pool revenue and expenses from their
monopoly local exchange operations with revenue and expenses from their inmate
telephone operations. This mingling of operations made possible the
subsidization of the LECs' inmate operations through other regulated revenues.
The LECs were also able to shift certain costs from their inmate operations to
their local exchange monopoly accounts. In particular, the LECs were able to
pool the bad debt from their inmate operations with their other bad debt.
Because inmate telephone providers act as their own carrier, they bear the risk
of fraudulent calling and uncollectible calls and other bad debt. Bad debt is
substantially higher in the inmate telephone industry than in other segments of
the telecommunications industry. The LECs' practice of pooling bad debt shifts
the high costs of bad debt from inmate telephone operations to the expense
accounts of other LEC operations, presenting a vehicle for the cross-
subsidization of the LECs' inmate operations, which, in turn,
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has allowed the LECs to offer commissions to correctional facilities that are
significantly higher than those that independent inmate telephone providers can
offer.
Section 276 directed the FCC to adopt regulations to end the LECs'
subsidization of their inmate telephone operations from regulated revenues.
Congress also directed the FCC to ensure that the LECs could not discriminate
in favor of their own operations to the competitive detriment of independent
inmate telephone providers. Finally, Congress required the FCC to ensure that
all inmate telephone providers were fairly compensated for "each and every"
call made from their telephones.
To carry out its Congressional mandate, the FCC adopted regulations requiring
all LECs to transfer their inmate telephone operations from their regulated
accounts to the LECs' unregulated accounts no later than April 15, 1997. While
the FCC's rules implementing Section 276 are designed to eliminate cross-
subsidization and cost-shifting, there are significant questions regarding
their ultimate effect. For example, it is unclear whether the FCC's rules will
fully prevent the shifting of bad debt from inmate operations to the LECs'
regulated accounts. Since the bad debt arises from the charges for collect
calls, which have traditionally been regulated carrier activities, the FCC has
not yet fully resolved exactly how the bad debt from inmate operations will be
allocated between regulated and unregulated accounts.
The FCC also addressed the one-time transfer of existing inmate telephone
operation assets from the LECs' regulated accounts to the unregulated accounts
established for inmate telephone operations. The FCC ordered the transfer of
those assets at their net book value rather than at their fair market value.
The inmate telecommunications industry had argued to the FCC that the transfer
should be accomplished at the assets' fair market value, including the value of
the contracts between the LECs' inmate operations and correctional facilities.
The net book value of those assets is much lower than their fair market value.
As a result of the below market valuation of the assets, the LECs' inmate
telephone operations may be able to post nominally higher returns on their
assets than they would otherwise be able to and hence relieve operating
pressures for returns on assets. This also could result in a competitive
advantage for the LECs with respect to access to capital markets vis-a-vis the
Company and other independent inmate telephone providers. While this issue may
be raised in a currently pending court challenge by the inmate
telecommunications industry of the FCC's decision, the prospects are uncertain
since the court has already ruled in the FCC's favor on this issue in an
interpretation of Section 276 that is the same as the one the FCC adopted
regarding inmate telephone operations.
To eliminate discrimination, the FCC required, among other things, that the
LECs' inmate telephone operations take any tariffed services from its regulated
operations at the tariffed rate for the service, rather than the actual cost of
the service. Before the Telecom Act, the LECs' inmate operations were able to
take these services at some variant of their underlying costs without regard to
the tariffed rate being charged to independent providers. Under the Telecom
Act, the LECs' inmate operations must take tariffed services on an arm's length
basis, at tariffed rates that are subject to regulatory approval. Further, the
rates for the tariffed services offered to both the LECs' inmate telephone
operations and independent inmate telephone providers must be developed on a
consistent basis. The test that the FCC has mandated for the pricing of
services to both independent inmate telephone providers and the LECs' own
inmate operations will require a reexamination of existing rates and may lead
to a rate reduction for services in some instances, while it is also possible
that the rate reexamination may result in some rate increases. In either event,
the requirement for a consistent methodology for developing rates should
substantially reduce LEC opportunities for unfavorable rate discrimination
against independent inmate telephone providers like the Company.
The FCC did allow the LECs to offer certain non-tariffed services, for
example, repair and installation services, to the LECs' inmate operations on a
cost-sharing basis, which could result in some cost advantage to the LECs'
inmate operations. The LECs are free to price these services at full market
rates to independent inmate telephone providers. Independent inmate telephone
providers are not, however, dependent on the LEC for these services, as they
are with telephone lines; independent inmate telephone providers can provide
services like repair and installation with their own staff or contractors.
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To ensure "fair compensation" for inmate telephone providers, the FCC held
that it was not required to prescribe compensation for collect calls because
inmate providers act as their own carriers and collect the revenue from those
calls directly from end users. The inmate telephone industry had argued to the
FCC, however, that because of state-mandated ceilings on the rates for
intrastate collect calls, inmate telephone providers could not recover adequate
revenue for those calls, and accordingly, had sought an "inmate system
compensation charge" in addition to the charges collected for carrying the
call. See "--State Regulation."
Because of continuing restrictions stemming from the 1984 divestiture of the
RBOCs by AT&T, the RBOCs are not able to carry long distance traffic. Prior to
the Telecom Act, the RBOCs were also precluded from choosing a long distance
carrier for calls originating from facilities where the RBOCs provided the
inmate telephone service and receiving commission revenue from that carrier.
Instead, carriers were selected by, and paid commissions directly to, the
individual correctional facilities being served by RBOCs.
Pursuant to the Telecom Act, the FCC decided that the RBOCs would be allowed
to choose their own carrier for their traffic from a given correctional
facility. As a result, the RBOCs may gain the ability to negotiate higher
commission rates to be paid to them from their contracted carrier by
aggregating traffic from several facilities into a single contract with the
carrier.
Many aspects of the FCC's rules implementing Section 276 are currently the
subject of requests for clarification or reconsideration by the FCC or in
collateral proceedings. In addition, several elements of the new rules are
subject to pending court challenges. The most significant is the FCC's decision
not to prescribe compensation for inmate collect calls. If the FCC is reversed
on that issue, the Company could potentially benefit from the ability to
collect additional revenue. It is not possible to predict the likelihood of the
success of the appeal, and the degree to which the Company could benefit, if at
all, would depend on the exact compensation scheme ultimately prescribed by the
FCC for inmate collect calls.
Because of the pending requests for clarification, reconsiderations,
collateral proceedings, and court challenges, and because the FCC is still in
the process of implementing its new rules, the ultimate effects of the rule
changes mandated by the Telecom Act are uncertain. In particular, whether the
FCC's rules designed to eliminate subsidization and discrimination by the LECs
prove to be effective will significantly affect the level of competition faced
by the Company in the inmate telecommunications market. Similarly, because the
rules have only recently been adopted, it is too early to assess the LECs'
competitive responses to them.
Apart from the FCC proceedings to implement the provisions of the Telecom
Act, there are other matters pending before the FCC that could potentially
affect the Company and its operations. In 1992, the FCC proposed a new plan for
operator assisted interstate calls, including collect calls. Collect calls are
the predominant method of calling from inmate telephones. Currently, the inmate
telephone provider generally acts as the carrier for these calls and receives
the revenues generated by the calls. Under the proposed new plan, known as
"Billed Party Preference" ("BPP"), those calls would be sent instead to the
pre-subscribed carrier of the called-party, thereby bypassing the opportunity
for the inmate telephone provider to carry, and receive revenues from, the
calls. Since the time that the FCC initially proposed BPP, opposition has
surfaced from virtually every industry segment, including large and small LECs,
IXCs, and independent providers of both pay telephone and inmate telephoned
services. The FCC has recognized that the substantial costs of implementing BPP
should lead to an examination of alternatives.
In response to the FCC's BPP proposal and its subsequent call for
alternatives, an inmate telephone providers industry group, along with other
telecommunications companies and trade associations, has proposed an
alternative plan that would set caps on the rates for interstate inmate collect
calls by tying those rates to the rates charged by the largest IXCs. The FCC is
also considering requiring carriers to disclose their rates to called parties
before completing inmate collect calls. These alternative approaches are
designed to address the FCC's concerns with regard to a small minority of
inmate telephone service providers that may be charging excessive rates, while
allowing the inmate telephone industry to receive a fair rate of return. As
with the underlying BPP proposal, the rate ceiling alternative and the
disclosure option are pending before the FCC, and the outcome or
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mix of remedies remains uncertain. Although a rate ceiling or disclosure regime
could be substantially less burdensome to the Company than BPP, the ultimate
effect on the Company's operations would depend on the levels at which the
ceilings were set or the nature of the disclosure.
If the BPP system were to be adopted, the Company could experience a
reduction in the revenues it now receives on inmate collect calls and,
accordingly, might be unable to continue to pay its present levels of
commissions to correctional facilities for accounts. Since the FCC has stated
that inmate service providers are to recover the "fair compensation" required
under the Telecom Act from revenues they earn on those calls, and BPP would
deprive them of that revenue, adoption of BPP would require the FCC to revisit
its decision not to prescribe such compensation. The outcome of such
proceedings is extremely uncertain.
State Regulation
The most significant state involvement in the regulation of inmate telephone
service is the limit on the maximum rates that can be charged for intrastate
collect calls set by most states, referred to as "rate ceilings." Since collect
calls are generally the only kind of calls that can be made by inmates in
correctional facilities, the state-imposed rate ceilings on those calls can
have a significant effect on the Company's business.
In many states, the rate ceilings on inmate collect calls within the
originating LEC's service area are tied to the rates charged by the LEC and
subject to state regulatory approval. Thus, where the LEC chooses not to raise
its rates, independent inmate telephone providers are precluded from raising
theirs. Prior to the passage of the Telecom Act, the LECs had less incentive to
raise their rates than independent inmate telephone providers because the LECs
were able to subsidize their inmate telephone operations and discriminate in
their favor, as described above. See "--Federal Regulation." It is possible
that as a result of the FCC's new rules designed to eliminate such subsidies,
some LECs may choose to file with their state commissions to raise their rates
for inmate collect calls. If this occurs, the Company and other independent
inmate telephone providers could also raise their rates. It is difficult to
predict the extent to which the LECs will raise their rates.
For calls going outside the originating LEC's service area, there may be
state rate ceilings tied to the rates of the largest IXCs. In some cases, these
rate ceilings can also make sufficient cost recovery difficult. In general, the
cost recovery problems that arise from rate ceilings tied to IXC rates are not
as severe as the difficulties created by rate ceilings tied to LEC rates.
In its rulemaking implementing the Telecom Act, the FCC declined to address
these state rate ceilings. The FCC ruled that inmate telephone providers must
first seek relief from the state rate ceilings at the state level. The outcome
of any such proceedings at the state level, if undertaken, is uncertain.
Further, it is uncertain whether the FCC would intervene or if so, how, in the
event a state failed to provide relief. This issue is also the subject of a
currently pending court challenge by the inmate telecommunications industry.
In addition to imposing rate caps, the states regulate other aspects of the
inmate calling industry. While the degree of regulatory oversight varies
significantly from state to state, state regulations generally establish
minimum technical and operating standards to ensure that public interest
considerations are met. Among other things, most states have established rules
that govern registration requirements, notice to end users of the identity of
the service provider in the form of postings or verbal announcements, and
requirements for rate quotes upon request. In some jurisdictions, in order for
the Company to operate its inmate telephones and public pay telephones, it is
necessary to become certificated and to file tariffs with the appropriate state
regulatory authority.
In connection with the Exchange Offer, the Company may be required to obtain
consents or approvals of the state regulatory authorities in certain states in
which the Company conducts a limited portion of its business. The Company does
not believe that the failure to obtain such consents or approvals, individually
or in the aggregate, would have a material adverse effect on the Company or its
operations.
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TRADENAMES
The Company has two registered trademarks, Security Telecom Corporation(R)
and STC(R) and has developed or acquired a number of additional unregistered
tradenames that it uses in its business. Although the use of these trademarks
and tradenames has created goodwill in certain markets, management does not
believe that the loss of these trademarks and tradenames would have a material
adverse effect on the Company's operations.
FACILITIES
The Company's principal executive offices are located in, and a portion of
its operations are conducted from, leased premises located at 1209 W. North
Carrier Parkway, Suite 300, Grand Prairie, Texas 75050. The Company also has
four additional facilities from which it conducts its operations located in
Selma, Alabama; Dublin, California; Louisville, Kentucky; and Lee's Summit,
Missouri, all of which are leased.
ENVIRONMENTAL
The Company is subject to certain federal, state, and local environmental
regulations. Management does not expect environmental compliance to have a
material impact on the Company's capital expenditures, earnings, or competitive
position in the foreseeable future.
EMPLOYEES
As of June 30, 1997, the Company had approximately 216 employees of which
approximately 44 were executive and administrative personnel, and approximately
172 were sales, marketing, technical, and other operations personnel.
LEGAL PROCEEDINGS
The Company is from time to time a party to legal proceedings that arise in
the ordinary course of business. Management does not believe that the
resolution of any threatened or pending legal proceedings will have a material
adverse affect on the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and ages (as of October 29, 1997)
and positions of each of the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Julius E. Talton (1),
(3).................... 68 Chairman of the Board
John A. Crooks, Jr...... 50 President and Chief Operating Officer
John R. Summers......... 41 Vice President, Chief Financial Officer, Secretary, and Treasurer
Julius E. Talton, Jr.... 37 Vice President
James E. Lumpkin........ 53 Vice President
Todd W. Follmer (1)..... 38 Vice President, Assistant Secretary, Assistant Treasurer, and Director
Gregg L. Engles......... 40 Director
Richard H. Hochman (1),
(3).................... 52 Director
Jay R. Levine (2)....... 41 Director
Nina E. McLemore (2).... 52 Director
Bruce I. Raben (l),
(3).................... 43 Director
David A. Sachs (2)...... 38 Director
Roger K. Sallee (3)..... 49 Director
Joseph P. Urso.......... 43 Director
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit and Finance Committee
(3) Member of the Compensation Committee
Julius E. Talton. Mr. Talton became Chairman of the Board in December 1996.
From December 1996 until June 1997, Mr. Talton served as President of the
Company. Mr. Talton founded Talton Telecommunications and served as its
Chairman of the Board, President, and Chief Executive Officer from 1973 until
December 1996. Mr. Talton served as President of Talton Outdoor Advertising
from 1976 until November 1996. Mr. Talton is a Director of the People's Bank
and Trust Company in Alabama.
John A. Crooks, Jr. Mr. Crooks became President and Chief Operating Officer
of the Company in June 1997. From 1990 until June 1997, Mr. Crooks served in
various capacities with MCI Telecommunications Corporation, most recently as
director of Enterprise Marketing for MCI's Business Services Division.
John R. Summers. Mr. Summers became Vice President, Chief Financial Officer,
Secretary, and Treasurer of the Company in December 1996. From April 1993 until
December 1996, Mr. Summers served as Vice President--Operations and Finance of
AmeriTel. Mr. Summers was a self-employed consultant with Summers and
Associates, a management and financial consulting firm, from January 1992 until
April 1993.
Julius E. Talton, Jr. Mr. Talton, Jr. became Vice President of the Company in
December 1996. Mr. Talton, Jr. served in various capacities with Talton
Telecommunications from 1986 until December 1996, most recently as Vice
President of Sales.
James E. Lumpkin. Mr. Lumpkin became Vice President of the Company in
December 1996. Mr. Lumpkin served in various capacities with Talton
Telecommunications from its founding in 1973 until December 1996, most recently
as Vice President, Technical Operations.
Todd W. Follmer. Mr. Follmer became Vice President, Assistant Secretary, and
Assistant Treasurer and was elected to the Company's Board of Directors in
December 1996. Mr. Follmer has been a principal of EUFCC since January 1996.
From January 1993 until December 1995, Mr. Follmer served as President of Gulf
Capital
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Partners Inc., a merchant banking firm. From May 1988 until December 1992, Mr.
Follmer served in various capacities with Donaldson, Lufkin & Jenrette
Securities Corporation, an investment banking firm.
Gregg L. Engles. Mr. Engles was elected to the Company's Board of Directors
in December 1996. Mr. Engles has served as Chairman and has been a principal of
EUFCC since January 1996. Mr. Engles has served as Chairman of the Board and
Chief Executive Officer of Suiza Foods Corporation since October 1994. Mr.
Engles has also served in various senior management positions with certain
subsidiaries of Suiza Foods since 1988. In addition, Mr. Engles has served as
President of Kaminski Engles Capital Corporation ("KECC") since May 1988 and as
President of Engles Management Corporation ("EMC") since February 1993. KECC
and EMC are investment banking and consulting firms. Mr. Engles was also
President of Engles Capital Corporation, an investment banking and consulting
firm, from May 1989 to October 1992. Mr. Engles is a director of Columbus
Realty Trust.
Richard H. Hochman. Mr. Hochman was elected to the Company's Board of
Directors in December 1996. Mr. Hochman has served as the Chairman of Regent
Capital Management Corp., a private investment firm, since January 1995. From
1990 to December 1994, Mr. Hochman was a Managing Director of PaineWebber,
Inc., an investment banking firm. Mr. Hochman is a director of Cablevision
Systems Corporation.
Jay R. Levine. Mr. Levine was elected to the Company's Board of Directors in
December 1996. Since April 1997, Mr. Levine has served as a Managing Director
of CIBC Wood Gundy Securities Corp., an investment banking firm. From September
1996 to April 1997, Mr. Levine served as President of PPMJ, Inc., an investment
banking and consulting firm. From January 1994 to June 1996, Mr. Levine served
as President of Springfield Services, Inc. ("Springfield"), a private
investment company. From August 1990 to January 1994, Mr. Levine served as Vice
President of Morningside/North America Limited, a private investment company
affiliated with Springfield.
Nina E. McLemore. Ms. McLemore was elected to the Company's Board of
Directors in December 1996. Ms. McLemore has been the President of Regent
Capital Management Corp. since January 1995. From 1990 until 1993, Ms. McLemore
served in various capacities with Liz Claiborne Accessories.
Bruce I. Raben. Mr. Raben was elected to the Company's Board of Directors in
December 1996. Since February 1996, Mr. Raben has served as a Managing Director
of CIBC Wood Gundy Securities Corp., an investment banking firm. From March
1990 to February 1996, Mr. Raben served as a Managing Director of Jefferies &
Co., an investment banking firm. Mr. Raben is a director of GT Parent Holdings,
L.D.C., Terex Corporation, Optical Security, Inc., and Equity Marketing, Inc.
David A. Sachs. Mr. Sachs was elected to the Company's Board of Directors in
December 1996. Since July 1994, Mr. Sachs has been a principal of Onyx
Partners, Inc., a merchant banking firm. From October 1990 until June 1994, Mr.
Sachs was employed at TMT-FW, Inc., an affiliate of Taylor & Co., a private
investment management firm. Mr. Sachs is a director of Terex Corporation.
Roger K. Sallee. Mr. Sallee was elected to the Company's Board of Directors
in December 1996. Mr. Sallee founded AmeriTel and served as its President and
Chief Executive Officer from July 1991 until December 1996.
Joseph P. Urso. Mr. Urso was elected to the Company's Board of Directors in
December 1996. Mr. Urso has served as President and has been a principal of
EUFCC since January 1996. Since March 1996, Mr. Urso has served as Chairman of
Interstate Engineering, a manufacturing firm located in California. Mr. Urso
was a shareholder of Stutzman & Bromberg, P.C. from January 1992 until June
1995.
The Company's Certificate of Incorporation divides the Board of Directors
into two classes, the "Class A/B Directors" and the "Class B Directors," with
each class serving a one-year term. The size of the Board of Directors depends
on the aggregate percentage ownership of all outstanding Common Stock held by
Gregg L.
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Engles, Joseph P. Urso, Todd W. Follmer, and their respective affiliates (the
"EUF Holders") and Onyx Talton Partners, L.P. and Sachs Investment Partners and
their respective affiliates (the "Onyx Holders").
The size of the Company's Board of Directors is currently eleven (11)
members, with the holders of Class A Common Stock and Class B Common Stock
entitled to elect six Class A/B Directors and the holders of Class B Common
Stock entitled exclusively to elect five Class B Directors. The Class A/B
Directors are Richard H. Hochman, Jay R. Levine, Nina E. McLemore, Bruce I.
Raben, and Julius E. Talton. There is one vacant Class A/B Director position on
the Board of Directors. The Class B Directors are Gregg L. Engles, Todd W.
Follmer, David A. Sachs, Roger K. Sallee, and Joseph P. Urso.
Each Class A/B Director is entitled, at all times, to one vote on any matter
voted on by the Board of Directors. The number of votes that each Class B
Director is entitled to on any matter voted on by the Board of Directors
depends on the aggregate percentage ownership of all outstanding Common Stock
held by the EUF Holders and the Onyx Holders. Each Class B Director is
currently entitled to a 0.6 director vote on any matter voted on by the Board
of Directors, resulting in the Class B Directors having an aggregate of three
(3) director votes as a class. As the EUF Holders' and the Onyx Holders'
ownership of the outstanding common stock decreases, the number of Class B
Directors that the EUF Holders have the right to designate, the aggregate
number of votes held by the remaining Class B Directors, and the size of the
Company's Board of Directors decrease (and the number of Class A/B Directors
increases), all as set forth in the Company's Certificate of Incorporation and
the Shareholders Agreement (as defined). Under the terms of the Certificate of
Incorporation and the Shareholders Agreement, the total number of votes on the
Board of Directors will remain at nine. See "Certain Relationships and Related
Transactions--Historic Relationships and Related Transactions--Acquisitions--
Shareholders Agreement" and "Description of Capital Stock."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth annual cash compensation paid or accrued by
the Company, AmeriTel, or Talton Telecommunications to the Company's Chief
Executive Officer and its other Executive Officers receiving total salary and
bonus in excess of $100,000 for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER ANNUAL SHARES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS (#) ($)
- --------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Julius E. Talton,
Chairman of the Board
and President.......... 1996 149,975 -- -- -- --
John R. Summers,
Vice President, Chief
Financial Officer,
Secretary, and
Treasurer.............. 1996 94,565 211,506(2) -- -- --
Julius E. Talton, Jr.,
Vice President......... 1996 101,926 -- -- -- --
James E. Lumpkin,
Vice President......... 1996 99,376 -- -- -- --
Terry C. Matlack,
Vice President(3)...... 1996 106,000 244,500(4) -- -- --
</TABLE>
- --------
(1) In each case, the aggregate value of perquisites and other personal benefit
does not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus report for the named executive officer.
(2) Includes special bonuses of $195,506 paid in connection with the Company's
acquisition of AmeriTel in December 1996.
(3) Mr. Matlack resigned as Vice President of the Company effective May 30,
1997.
(4) Consists of a special bonus paid in connection with the Company's
acquisition of AmeriTel in December 1996.
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Employment Agreements and Other Arrangements
In connection with the Company's acquisitions of AmeriTel and Talton
Telecommunications in December 1996, the Company entered into consulting or
employment agreements with each of Julius E. Talton, Julius E. Talton, Jr.,
Roger K. Sallee, James E. Lumpkin, and John R. Summers, each of whom was a
former stockholder of AmeriTel or Talton Telecommunications. See "Certain
Relationships and Related Transactions--Consulting and Employment Agreements."
In addition, the Company is a party to an employment agreement with John A.
Crooks, which is described below.
John A. Crooks joined the Company as President and Chief Operating Officer
in June 1997. The Company entered into a written employment agreement with Mr.
Crooks has an initial term expiring on December 31, 1998, with successive one-
year renewals thereafter unless earlier terminated by the Company or Mr.
Crooks. Mr. Crooks receives an annual base salary of $170,000 and a guaranteed
bonus of $50,000 payable on or before December 31, 1997. In addition, Mr.
Crooks received the right to purchase 165 shares of the Company's Class A
Common Stock at a price of $2,000 per share, and is eligible to receive
options to acquire an additional 330 shares of Class A Common Stock at a price
of $2,000 per share. The employment agreement provides for a severance payment
equal to one year's base salary if Mr. Crook's employment is terminated by the
Company without cause. The employment agreement also contains a non-
competition provision that covers the Company's existing markets and expansion
markets that apply during the term of the agreement and for a period of three
years and two years, respectively, after the expiration or earlier termination
of the agreement.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides, consistent with the
provisions of the Delaware General Corporation Law, that no director of the
Company will be personally liable to the Company or any of its stockholders
for monetary damages arising from the director's breach of fiduciary duty as a
director. This does not apply, however, with respect to any action for
unlawful payments of dividends, stock purchases, or redemptions, nor does it
apply if the director (i) has breached his duty of loyalty to the Company and
its stockholders; (ii) does not act or, in failing to act, has not acted in
good faith; (iii) has acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, has acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) has
derived an improper personal benefit. The provisions of the Certificate of
Incorporation eliminating liability of directors for monetary damages do not
affect the standard of conduct to which directors must adhere, nor do such
provisions affect the availability of equitable relief. In addition, such
limitations on personal liability do not affect the availability of monetary
damages under claims based on federal law.
The Company's By-laws provide for indemnification of its officers and
directors to the fullest extent permitted by the Delaware General Corporation
Law.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
capital stock as of September 30, 1997 by (i) each stockholder known by the
Company to beneficially own more than 5% of any class of the Company's
outstanding capital stock; (ii) each director of the Company; (iii) each
executive officer named in the Summary Compensation Table; and (iv) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF PERCENT SHARES OF
CLASS A CLASS B OF TOTAL SENIOR
COMMON PERCENT COMMON PERCENT OF VOTING PREFERRED PERCENT
NAME OF BENEFICIAL OWNER STOCK OF CLASS STOCK CLASS POWER(1) STOCK OF CLASS
- ------------------------ --------- -------- --------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Julius E. Talton(2)..... 2,062.5 13.8% -- -- % 12.5% 2,500.0 42.2%
John A. Crooks, Jr. .... -- -- -- -- -- -- --
Julius E. Talton,
Jr.(2)................. 1,237.5 8.3 -- -- 7.5 1,500.0 25.3
James E. Lumpkin(2)..... 825.0 5.5 -- -- 5.0 1,000.0 16.9
John R. Summers......... 100.0 * -- -- * -- --
Todd W. Follmer(3)...... -- -- 100.0 25.0 2.4 -- --
Gregg L. Engles(3)...... 150.0 1.0 100.0 25.0 3.3 -- --
Richard H. Hochman(4)... 2,000.0 13.4 -- -- 12.1 -- --
Jay R. Levine(5)........ -- -- -- -- -- -- --
Nina E. McLemore(6)..... 2,000.0 13.4 -- -- 12.1 -- --
Bruce I. Raben(5)....... -- -- -- -- -- -- --
David A. Sachs(7)....... 250.0 1.7 31.5 7.9 2.3 -- --
Roger K. Sallee......... 53.0 * -- -- -- 61.7 1.0
Joseph P. Urso(3)....... -- -- 100.0 25.0 2.4 -- --
CIBC Wood Gundy
Ventures, Inc.(8)...... 5,935.5 37.1 -- -- 33.8 -- --
Regent Capital Partners,
L.P.(9)................ 2,000.0 13.4 -- -- 12.1 -- --
Onyx Talton Partners,
L.P.(10)............... -- -- 100.0 25.0 2.4 -- --
Richard C. Green, Jr.... 250.0 1.7 -- -- 1.5 310.8 5.2
Robert K. Green......... 250.0 1.7 -- -- 1.5 310.8 5.2
Terry C. Matlack........ 125.0 * -- -- * -- --
William M. Ohland(11)... 900.0 5.7 -- -- 5.2 -- --
All executive officers
and directors as a
group (14 persons)..... 6,678.0 44.8 331.5 82.9 48.5 5,061.7 85.4
</TABLE>
- --------
* Less than 1.0%
(l) In calculating the percent of total voting power, the voting power of
shares of Class A Common Stock (one vote per share) and Class B Common
Stock (four votes per share) is aggregated. This calculation also assumes
that no shares of Senior Preferred Stock are converted into shares of
Class A Common Stock.
(2) The address for each of these stockholders is 720 Alabama Avenue, Selma,
Alabama 36701.
(3) The address for each of these stockholders is 3811 Turtle Creek Blvd.,
Suite 1300, Dallas, Texas 75219.
(4) Includes 2,000 shares of Class A Common Stock held by Regent Capital
Partners. Mr. Hochman, who is the chairman of Regent Capital Management
Corp., an affiliate of Regent Capital Partners, exercises voting and
investment power with respect to such shares. Mr. Hochman's address is 505
Park Avenue, 17th Floor, New York, New York 10022.
(5) Excludes shares of Class A Common Stock and warrants to acquire shares of
Class A Common Stock held by CIBC Ventures. Mr. Levine and Mr. Raben, who
are designees of CIBC Ventures to the Company's Board of Directors and who
are managing directors of CIBC Wood Gundy Securities Corp., an affiliate
of CIBC Ventures and CIBC, disclaim beneficial ownership of such shares.
(6) Includes 2,000 shares of Class A Common Stock held by Regent Capital
Partners. Ms. McLemore, who is the president of Regent Capital Management
Corp., an affiliate of Regent Capital Partners, exercises voting and
investment power with respect to such shares. Ms. McLemore's address is
505 Park Avenue, 17th Floor, New York, New York 10022.
(7) Consists of 250 shares of Class A Common Stock held by Sachs Investment
Partners and 31.5 shares of Class B Common Stock held by Onyx Talton
Partners, L.P. Mr. Sachs is a general partner of Sachs Investment Partners
and a principal shareholder of Onyx Talton Partners, Inc., the general
partner of Onyx
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Talton Class B Common Stock held by Onyx Talton Partners, L.P. Mr. Sachs is
a general partner of Sachs Partners, L.P., and exercises voting and
investment power with respect to such shares. Mr. Sachs disclaims
beneficial ownership of an additional 68.5 shares of Class B Common Stock
held by Onyx Talton Partners, L.P. Mr. Sachs' address is 9595 Wilshire
Blvd., Suite 700, Beverly Hills, California 90212.
(8) Includes 1,085.5 shares of Class A Common Stock subject to a warrant that
is exercisable within 60 days. CIBC Ventures' address is 425 Lexington
Avenue, Third Floor, New York, New York 10017.
(9) Includes 500 shares of Class A Common Stock held by Regent Capital Equity
Partners, L.P., an affiliate of Regent Capital Partners. Regent Capital
Partners' address is 505 Park Avenue, 17th Floor, New York, New York
10022.
(10) Onyx Talton Partners, L.P.'s address is 9595 Wilshire Blvd., Suite 700,
Beverly Hills, California 90212.
(11) Consists of shares issued to STC as part of the purchase price in the STC
Acquisition. Mr. Ohland owns all of the outstanding capital stock of STC.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CURRENT RELATIONSHIPS AND RELATED TRANSACTIONS
Repayment of Indebtedness
CIBC, an affiliate of CIBC Ventures, a principal stockholder of the Company,
and of CIBC Merchant Fund, a former holder of a portion of the Company's Senior
Subordinated Notes described below, is agent and a lender under the Existing
Credit Facility, and held $28.6 million and $4.7 million of the principal
amount outstanding under the term and revolving loan portions, respectively, of
the Existing Credit Facility at March 31, 1997. Upon completion of the
Offering, the Company repaid the entire principal amounts outstanding under the
term loan and revolving loan portions of the Existing Credit Facility, together
with accrued and unpaid interest. In addition to this repayment, CIBC received
a customary fee for banking services rendered to the Company in its capacity as
agent under the Existing Credit Facility in connection with the Senior Credit
Facility that closed following the Offering. At March 31, 1997, CIBC Merchant
Fund and Regent Capital Partners, a principal stockholder of the Company, held
$7.5 million and $1.0 million, respectively, of the Company's outstanding
Senior Subordinated Notes. Upon completion of the Offering, the Company repaid
the entire amount of the Senior Subordinated Notes, together with accrued and
unpaid interest. In addition, CIBC Wood Gundy Securities Corp. and Onyx
Partners, Inc. ("Onyx Partners") from time to time provide financial and
investment banking services to the Company for customary fees.
At March 31, 1997, Messrs. Talton, Talton, Jr., and Lumpkin held $2.5
million, $1.5 million, and $1.0 million, respectively, of the Talton
Subordinated Note. Upon completion of the Offering, the Company repaid the
entire amount of the Talton Subordinated Note, together with accrued and unpaid
interest.
Consulting and Strategic Services Agreement
In connection with the acquisitions of AmeriTel and Talton
Telecommunications, the Company entered into a Consulting and Strategic
Services Agreement with EUF Talton, a limited partnership controlled by Messrs.
Engles, Urso, and Follmer, pursuant to which the Company will pay to EUF Talton
an annual consulting fee of $300,000 for an initial term of three years ending
December 27, 1999. Pursuant to this agreement, EUF Talton will provide
management consulting services relating to strategic and financial matters,
including acquisitions, business strategies, and financial planning. The
Company also paid to EUF Talton a $200,000 refinancing fee upon the repayment
of the Senior Subordinated Notes and the Subordinated Talton Note upon the
closing of the Offering. The Company paid an acquisition fee of $357,000 to EUF
Talton upon the closing of the STC Acquisition. In addition, the Company has
agreed to pay to EUF Talton an acquisition fee of 1% of the gross acquisition
price of any acquisitions of assets or stock by the Company up to an aggregate
maximum of $1.25 million.
Consulting and Employment Agreements
In connection with the acquisitions of AmeriTel and Talton
Telecommunications, the Company entered into the agreements described below.
Each of the named persons was a former stockholder of AmeriTel or Talton.
The consulting agreement of Julius E. Talton provides that Mr. Talton will
serve as a director of the Company and will perform such duties related to the
business conducted by the Company as the Board of Directors may designate from
time to time. The consulting agreement has an initial term of two years, with
successive one-year renewal periods thereafter unless earlier terminated by the
Company or Mr. Talton. In addition to an aggregate of $10,000 payable in equal
monthly installments to Mr. Talton over the first twelve months of the
agreement, Mr. Talton will receive payments of $86,000 and $96,000 for the
first and second years of the initial term, respectively, and $120,000 for each
year thereafter that the agreement remains in effect. Mr. Talton's consulting
agreement contains a non-competition provision that applies during the term of
the agreement and for a period of two years after the expiration or earlier
termination of the agreement.
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Julius E. Talton, Jr.'s employment agreement provides that Mr. Talton, Jr.
will serve as an executive of the Company, performing such duties and holding
such positions as the Board of Directors or senior management of the Company
may direct. The employment agreement has an initial term of one year, with
successive one-year periods thereafter unless earlier terminated by the
Company or Mr. Talton, Jr. In addition to an aggregate of $25,000 payable in
equal monthly installments to Mr. Talton, Jr. over the first twelve months of
the agreement, Mr. Talton will receive an annual base salary of $100,000, a
guaranteed bonus of $25,000 which was paid, in accordance with the agreement,
upon closing of the Offering, and an incentive cash bonus of up to 37.5% of
base salary if certain performance goals established by the Board of Directors
are achieved. Mr. Talton Jr.'s employment agreement contains a non-competition
provision that applies during the term of the agreement and for a period of
two years after the expiration or earlier termination of the agreement. Mr.
Talton, Jr. is also expected to receive an option to purchase up to 247.5
shares of Class A Common Stock at an exercise price of $2,000 per share.
The consulting agreement of James E. Lumpkin provides that Mr. Lumpkin will
serve, if requested, as a director of the Company and will perform such duties
related to the business conducted by the Company as the chief executive
officer or the Board of Directors may designate from time to time. The
consulting agreement has an initial term of two years, with successive one-
year renewal periods thereafter unless earlier terminated by the Company or
Mr. Lumpkin. In addition to an aggregate of $10,000 payable in equal monthly
installments to Mr. Lumpkin over the first twelve months of the agreement, Mr.
Lumpkin will receive $62,000 and $72,000 for the first and second years of the
initial term, respectively. Mr. Lumpkin's consulting agreement contains a non-
competition provision that applies during the term of the agreement and for a
period of two years after the expiration or earlier termination of the
agreement.
The consulting agreement of Roger K. Sallee provides that Mr. Sallee will
serve as a director of the Company and will perform such duties related to the
business conducted by the Company as the chief executive officer or the Board
of Directors may designate from time to time. The consulting agreement has an
initial term of one year, with successive one-year renewal periods thereafter
unless earlier terminated by the Company or Mr. Sallee. In addition to a lump
sum payment of $5,000 paid on the effective date of the agreement, Mr. Sallee
will receive an annual consulting fee of $30,000 for each year that the
agreement remains in effect. Mr. Sallee's consulting agreement contains non-
competition provisions covering the Company's existing markets and expansion
markets that apply during the term of the agreement and for a period of three
years and two years, respectively, after the expiration or earlier termination
of the agreement.
The employment agreement of John R. Summers provides that Mr. Summers will
serve as an executive of the Company, performing such duties and holding such
positions as the Board of Directors or senior management of the Company may
direct. The employment agreement has an initial term of one year, with
successive one-year renewal periods thereafter unless earlier terminated by
the Company or Mr. Summers. In addition to a lump sum payment of $30,000 paid
on the effective date of the agreement, Mr. Summers received or will receive
an annual base salary of $100,000, a cash bonus of $20,000, which was paid, in
accordance with the agreement, upon closing of the Offering, and an incentive
cash bonus of up to 30.0% of base salary if certain performance goals
established by the Board of Directors are achieved. In addition, the agreement
provides that if the Company terminates Mr. Summers without cause, the Company
is required, upon request from Mr. Summers, to redeem shares of Class A Common
Stock purchased by Mr. Summers in connection with the Company's acquisition of
AmeriTel for $100,000, which redemption price is equal to the original
purchase price for such shares. Mr. Summers' employment agreement contains a
non-competition provision that applies during the term of the agreement and
for a period of three years after the expiration or earlier termination of the
agreement. Mr. Summers is also expected to receive an option to purchase up to
247.5 shares of Class A Common Stock at an exercise price of $2,000 per share.
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<PAGE>
Lease Agreement
In December 1996, Talton Telecommunications entered in a lease agreement
(the "Talton Lease") with Mr. Talton for office space located in Selma,
Alabama. The lease has a five-year term commencing January 1, 1997, with an
option to renew for an additional five-year term. Under the Talton Lease,
Talton Telecommunications will pay fixed annual rent of approximately
$109,000, $112,000, $90,000, $93,000, and $96,000, respectively, for the five
years of the initial term.
Financial Advisor
The Company and the Subsidiary Guarantors agreed to indemnify Onyx Partners
against certain liabilities in connection with the Offering, including
liabilities under the Securities Act.
The Offering
CIBC acted as Initial Purchaser in connection with the Offering, which was
completed on June 27, 1997. In such capacity, CIBC received an aggregate
discount of $3,852,500. In addition, the Company and the Subsidiary Guarantors
agreed to indemnify the Initial Purchaser against certain liabilities,
including liabilities under the Securities Act, in connection with the
Offering.
HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisitions
In December 1996, the Company acquired the outstanding capital stock of
AmeriTel for a purchase price of approximately $23.4 million. Terry C.
Matlack, a former executive officer of the Company, John R. Summers, an
executive officer of the Company, and Roger K. Sallee, a director of the
Company, were stockholders of AmeriTel and received an aggregate of
approximately $361,000, $354,000, and $1.4 million, respectively, of the
purchase price, and 125, 100, and 53 shares, respectively, of Class A Common
Stock in exchange for shares of AmeriTel capital stock held by each of them.
In addition, Mr. Sallee received 61.699 shares of Senior Preferred Stock.
Concurrently with its acquisition of AmeriTel, the Company acquired the
outstanding capital stock of Talton Telecommunications for an aggregate
purchase price of approximately $39.4 million, which included the issuance of
the $5.0 million Subordinated Talton Note. Julius E. Talton, the Chairman of
the Board of the Company, Julius E. Talton, Jr., and James E. Lumpkin, each of
whom is an executive officer of the Company, and Mr. Talton's daughter, were
stockholders of Talton Telecommunications and received an aggregate of
approximately $11.2 million (including $2.5 million of the Subordinated Talton
Note), $9.1 million (including $1.5 million of the Subordinated Talton Note),
$6.0 million (including $1.0 million of the Subordinated Talton Note), and
$4.0 million, respectively, of the purchase price. Messrs. Talton, Talton Jr.,
and Lumpkin also received 2,062.5 shares of Class A Common Stock and 2,500
shares of Senior Preferred Stock, 1,237.5 shares of Class A Common Stock and
1,500 shares of Senior Preferred Stock, and 825 shares of Class A Common Stock
and 1,000 shares of Senior Preferred Stock, respectively in exchange for
shares of Talton Telecommunications capital stock held by each of them.
The cash portions of the respective purchase prices for AmeriTel and Talton
Telecommunications were financed with the proceeds of the following: (i) the
issuance by the Company of an aggregate of 9,775 shares of Class A Common
Stock to the stockholders of the Company, including CIBC Ventures, an
affiliate of Regent Capital Partners, and Mr. Engles, a director of the
Company, for aggregate consideration of approximately $9.8 million; (ii) the
issuance by the Company of an aggregate of 400 shares of Class B Common Stock
and warrants to acquire an aggregate of 4,309.4488 shares of Class A Common
Stock to Onyx Talton Partners, L.P. ("Onyx Talton Partners") and to Messrs.
Follmer, Engles, and Urso, each of whom is an executive officer and/or
director of the Company, for aggregate consideration of $400,000; (iii) the
issuance of an aggregate of $8.5 million in Senior Subordinated Notes to CIBC
Merchant Fund and to Regent Capital Partners and related warrants for the
purchase of Class A Common Stock to CIBC Ventures and to Regent Equity
Partners, L.P.; (iv) the issuance of
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the $5.0 million Subordinated Talton Note (including related warrants) to
Messrs. Talton, Talton, Jr., and Lumpkin; and (v) an aggregate of $50.7
million of the proceeds from the term and revolving loan facilities under the
Existing Credit Facility. All stockholders of the Company, including the
executive officers and directors of the Company who hold shares of capital
stock of the Company, pledged the shares of capital stock of the Company held
by each of them to CIBC to secure the Company's obligations under the Existing
Credit Facility.
The holders of Class A Common Stock received registration rights with
respect to such shares pursuant to the terms of that certain registration
rights agreement (the "Equity Registration Rights Agreement"). In addition,
the Company and its stockholders entered into a Shareholders Agreement (the
"Shareholders Agreement"). The following summary of the warrants referred to
above, the Equity Registration Rights Agreement, and the Shareholders
Agreement are qualified in their entirety to the actual documents, which are
included in the Registration Statement.
CIBC Merchant Fund and Onyx Partners, Inc., the general partner of Onyx
Talton Partners, were reimbursed for expenses and received transaction fees
totaling approximately $852,000 and $635,000, respectively, and EUF Talton
received approximately $183,000 as reimbursement for its expenses, in December
1996 in connection with the acquisitions of AmeriTel and Talton
Telecommunications and the consummation of the related financing. CIBC, which
is the agent and a lender under the Existing Credit Facility, received a fee
of approximately $1.8 million in December 1996 for banking services rendered
to the Company in connection with the closing of the Existing Credit Facility.
Warrants
In connection with the acquisitions of AmeriTel and Talton
Telecommunications, the Company issued to CIBC Ventures a warrant to acquire
up to 1,085.5263 shares of Class A Common Stock (subject to certain
adjustments) with an exercise price of $0.01 per share. This warrant is
exercisable at any time, and unless exercised, will automatically expire on
December 26, 2006. The Company also issued to CIBC Ventures and Regent Equity
Partners warrants to acquire an aggregate of up to 1,199.9227 shares of Class
A Common Stock (subject to certain adjustments), with an exercise price of
$1,000 per share. These warrants expired by their terms upon closing of the
Offering. A portion of the net proceeds from the Offering were used to repay
the Senior Subordinated Notes, and upon such payment, such warrants
terminated.
The Company issued to Julius E. Talton, Julius E. Talton, Jr., and James E.
Lumpkin warrants to acquire up to 719.9536 shares of Class A Common Stock
(subject to certain adjustments) with an exercise price of $1,000 per share.
These warrants may only be exercised if the Subordinated Talton Note issued by
the Company to Messrs. Talton, Talton, Jr., and Lumpkin is not repaid on or
before September 30, 1997. A portion of the net proceeds from the Offering
were used to repay the Subordinated Talton Note, and upon such payments such
warrants terminated.
The Company issued to each of Messrs. Follmer, Urso, and Engles (i) a
warrant to acquire up to 448.6842 shares of Class A Common Stock (subject to
certain adjustments) with an exercise price per share of $1,000; (ii) a
warrant to acquire up to 336.5132 shares of Class A Common Stock (subject to
certain adjustments) with an exercise price per share of $2,000; and (iii) a
warrant to acquire up to 328.0769 shares of Class A Common Stock (subject to
certain adjustments) with an exercise price per share of $3,000. The Company
also issued to Onyx Talton Partners: (i) a warrant to acquire up to 390.7895
shares of Class A Common Stock (subject to certain adjustments) with an
exercise price per share of $1,000; (ii) a warrant to acquire up to 293.0920
shares of Class A Common Stock (subject to certain adjustments) with an
exercise price per share of $2,000; and (iii) a warrant to acquire up to
285.7444 shares of Class A Common Stock (subject to certain adjustments) with
an exercise price per share of $3,000. Each of these warrants is exercisable
upon the earlier to occur of the following dates: (i) December 27, 1999; (ii)
the date when a change in control notice (as defined in the warrant) is given;
(iii) the date the Consulting and Strategic Services Agreement with EUF Talton
is terminated; or (iv) the date
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upon which a registered public offering of equity interests in the Company is
made (but in no event earlier than June 27, 1998, if such offering occurs
prior to such date). Unless exercised, each of these warrants will
automatically expire on December 26, 2006.
Equity Registration Rights Agreement
The Equity Registration Rights Agreement applies to all currently
outstanding shares of Class A Common Stock, including shares issuable upon
exercise of the currently outstanding warrants or the conversion of the
currently outstanding Class B Common Stock or the Senior Preferred Stock
("Registrable Securities"), and grants to all holders of Registrable
Securities ("Holders") certain registration rights with respect to such
Registrable Securities.
Subject to certain special rights (the "CIBC Demand Rights") granted to CIBC
Ventures and its affiliates (the "CIBC Entities"), at any time after the
earlier to occur of (i) six months after the initial registered public
offering by the Company under the Securities Act of the Class A Common Stock
(the "Initial Public Offering"); or (ii) November 30, 1998, Initiating Holders
(defined below) are entitled to require the Company to effect up to three
registrations under the Securities Act of all or a part of the Registrable
Securities (each a "Demand Registration"), subject to certain limitations.
Initiating Holders are defined as (i) Holders of at least 25% (or 35% in
certain circumstances) of the Registrable Securities; or (ii) a combination of
Holders of Registrable Securities and Holders of warrants having an exercise
price less than or equal to the per share reported price for the Class A
Common Stock (the "Qualified Warrants") that in the aggregate hold at least
25% (or 35% in certain circumstances) of all Registrable Securities and
Qualified Warrants. Subject to the CIBC Demand Rights, Holders of Registrable
Securities also have the right to include such Registrable Securities in any
registration statement under the Securities Act filed by the Company for its
own account (other than a registration statement for securities to be offered
in a Rule 145 transaction under the Securities Act or to employees of the
Company pursuant to any employee benefit plan). So long as the CIBC Entities
hold Registrable Securities equaling at least 50% of their holdings of Common
Stock on December 27, 1996, the CIBC Entities have the following CIBC Demand
Rights: (i) one of the Demand Registrations is exclusively reserved for the
use and exercise by the CIBC Entities; (ii) the CIBC Entities have the right
at any time to require the Company to use its best efforts to effect an
Initial Public Offering; and (iii) the CIBC Entities have in certain
circumstances, a first priority to cause a portion of their Registrable
Securities to be registered prior to the registration of the Registrable
Securities of the other Holders.
The Company is also obligated to file and maintain a shelf registration
statement on Form S-3 pursuant to Rule 415 of the Securities Act for all
Registrable Securities as expeditiously as possible after it is eligible to do
so.
Shareholders Agreement
Both the Shareholders Agreement and the Certificate of Incorporation of the
Company initially establish an eleven member board of directors, consisting of
six Class A/B Directors with one vote per director and five Class B Directors
having three total votes (i.e., 0.6 vote per director). The Shareholders
Agreement provides that, subject to the adjustments described below, (i) the
CIBC Entities have the right to designate two Class A/B Directors; (ii) Regent
Capital Partners and its affiliates (the "Regent Entities") have the right to
designate two Class A/B Directors; (iii) Julius E. Talton, Julius E. Talton,
Jr., James E. Lumpkin, and their affiliates (the "Talton Holders") have the
right to designate one Class A/B Director; (iv) all other stockholders, except
the EUF Holders, the Talton Holders, the CIBC Entities, the AmeriTel Holders
(as defined in the Shareholders Agreement), and the Onyx Holders, have the
right to designate one Class A/B Director; and (v) the EUF Holders have the
right to designate five Class B Directors. The CIBC Entities and the Regent
Entities lose the right to designate one Class A/B Director if their
respective ownership of outstanding Common Stock falls below 7.5% (but remains
at or above 5%). The CIBC Entities, the Regent Entities, and the Talton
Holders each loses its right to designate any Class A/B Directors if their
respective ownership of outstanding Common Stock falls below 5%. If the EUF
Holders and the Onyx Holders collectively own less than 10% (but at least
7.5%) of the
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outstanding Common Stock, the EUF Holders lose the right to designate two
Class B Directors, the three Class B Directors that they remain entitled to
designate will have a total of two votes, and all the holders of the
outstanding Common Stock collectively acquire the right to designate one
additional Class A/B Director with one full vote so as to maintain the total
number of votes on the Board of Directors at nine (and the membership on the
Board of Directors will be reduced to ten). If the EUF Holders and the Onyx
Holders collectively own less than 7.5% (but at least 5%) of the outstanding
Common Stock, the EUF Holders lose the right to designate an additional two
Class B Directors, the Class B Director that they remain entitled to designate
will have one full vote, and all the holders of the outstanding Common Stock
collectively acquire the right to designate one additional Class A/B Director
with one full vote so as to maintain the total number of votes on the Board of
Directors at nine (and the membership on the Board of Directors will be
reduced to nine). If the EUF Holders and the Onyx Holders collectively own
less than 5% of the outstanding Common Stock, the EUF Holders lose the right
to designate any directors, and all the holders of the outstanding Common
Stock collectively acquire the right to designate one additional Class A/B
Director with one full vote so as to maintain the total number of votes on the
Board of Directors at nine (and the membership on the Board of Directors will
remain at nine). In determining the percentage ownership of the EUF Holders
and the Onyx Holders, the Class B Common Stock held by them is deemed to have
been converted into shares of Class A Common Stock, and if one of the director
designees of the EUF Holders is not a principal of the Onyx Holders, then the
Common Stock owned by the Onyx Holders is not considered in calculating the
ownership percentages. Director designation rights are generally not
assignable. However, in certain circumstances, the CIBC Entities may assign
its designation rights in connection with a transfer of its Common Stock.
Pursuant to the Shareholders Agreement, the Company has a right of first
refusal with respect to most transfers of Common Stock and rights, warrants,
options, convertible securities, or debt convertible into Common Stock (the
"Common Stock Equivalents"). To the extent the Company does not fully exercise
such right of first refusal, the stockholders generally have the right to
purchase the offered Common Stock or Common Stock Equivalents on a pro rata
basis. Transfers to affiliates, testamentary transfers, and intestate
succession are generally excluded from the Company's first refusal rights and
any stockholder acquisition rights. In addition, the Shareholders Agreement
establishes certain "tag-along" rights whereby if any holder of 10% or more of
the fully diluted Common Stock or any EUF Holder proposes to sell any of its
Common Stock, then the other stockholders have the right to require the
proposed buyer to purchase from each of them a proportionate number of shares
of Common Stock.
The Shareholders Agreement also provides for certain "drag along rights"
whereby any stockholder or group of stockholders owning Common Stock
representing 60% or more of the total amount of the outstanding Common Stock
and warrants having a value in excess of their exercise price proposes to
transfer all their Common Stock to any third party, such stockholders have the
right to require all other holders to sell all of their Common Stock and
Common Stock Equivalents to such third party. The Shareholders Agreement
further provides that if a third party offers to acquire 75% or more of all
outstanding Common Stock and all warrants having a value in excess of their
exercise price, and a holder or a group of holders owning 75% or more of the
outstanding Common Stock plus such warrants proposes to accept such offer,
then such holders desiring to accept such offer have the right to require all
other holders of Common Stock and such warrants to sell to the third party
their outstanding Common Stock and such warrants pro rata in accordance with
such offer.
The Shareholders Agreement terminates upon (i) the effective date of an
Initial Public Offering by the Company resulting in at least $20.0 million in
gross proceeds; (ii) the merger, consolidation, or reorganization of the
Company, or the sale of all or substantially all of the assets of the Company,
if, immediately following such transaction, the stockholders of the Company
immediately prior to such transaction own less than a majority of the combined
voting power to elect directors and the combined equity ownership interest in
the surviving entity, or such surviving entity has publicly traded common
stock not held by the parties to the Shareholders Agreement with a market
value in excess of $30.0 million; or (iii) the written consent of the CIBC
Entities, the Talton
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Holders, the Regent Entities, and the EUF Holders (but only so long as each
such party is entitled to designate at least one member of the Board of
Directors) and a majority in interest of the other stockholders; or (iv) with
respect to any party, when such party no longer owns any capital stock of the
Company.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000 shares of
common stock, par value $0.01 per share (the "Common Stock"), and 50,000 shares
of preferred stock, par value $0.01 per share (the "Preferred Stock"). The
Common Stock is divided into two classes. One class consists of 49,600 shares
and is designated "Class A Common Stock" and the other class consists of 400
shares and is designated "Class B Common Stock." The Preferred Stock is also
divided into two classes. One class consists of 6,000 shares and is designated
"Senior Preferred Stock" and the other class consists of 44,000 shares and is
designated "Junior Preferred Stock."
As of September 30, 1997, (i) 15,800 shares of Class A Common Stock were
issued and outstanding, (ii) 400 shares of Class B Common Stock were issued and
outstanding, (iii) 5,925 shares of Senior Preferred Stock were issued and
outstanding, (iv) 7,414.8514 shares of Class A Common Stock were reserved for
issuance pursuant to outstanding warrant agreements, and (v) 503.9213 shares of
Class A Common Stock were reserved for issuance in the event the holders of the
Senior Preferred Stock exercise their conversion rights. See "Certain
Relationships and Related Transactions--Historic Relationships and Related
Transactions--Acquisitions--Warrants." All outstanding shares of Common Stock
and Preferred Stock are duly authorized, validly issued, fully paid, and
nonassessable. There is currently no public trading market for the capital
stock of the Company.
COMMON STOCK
The holders of Class A Common Stock are entitled to one vote for each share
of Class A Common Stock, and the holders of Class B Common Stock are entitled
to four votes for each share of Class B Common Stock on all matters voted on by
the stockholders of the Company. The holders of both classes of Common Stock
are entitled to receive, pari passu, such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor, subject to the preferential dividend rights of the Senior Preferred
Stock and any preferential dividend rights that may be designated by the Board
of Directors with respect to the Junior Preferred Stock. See "--Preferred
Stock." In the event of the liquidation, dissolution, or winding up of the
Company, subject to the preferential liquidation rights of the Senior Preferred
Stock, and any preferential liquidation rights that may be designated by the
Board of Directors with respect to the Junior Preferred Stock, the holders of
Class A Common Stock are entitled to receive, prior to and in preference of any
distribution to the holders of Class B Common Stock, the amount of $1,000 per
share (as adjusted for any stock dividends, combinations, or splits), from all
assets of the Company available for distribution, and after payment in full
thereof, all remaining assets of the Company available for distribution are
distributed ratably among the holders of both classes of Common Stock.
In the event any additional shares of Class A Common Stock are issued, all
shares of Class B Common Stock may be converted, at the election of the holders
of a majority of the outstanding Class B Common Stock, into four shares of
Class A Common Stock for each share of Class B Common Stock. In addition, upon
the consummation of a "Major Event," each share of Class B Common Stock will be
automatically converted into four shares of Class A Common Stock. The
Certificate of Incorporation defines a Major Event as (i) a sale of all or
substantially all of the Company's assets or (ii) a registered public offering
of equity interests in the Company made pursuant to a registration statement on
Form S-1 or a successor form that yields gross proceeds of at least $20.0
million to the Company. The Certificate of Incorporation also provides for
adjustments to be made in the number of shares of Class A Common Stock into
which Class B Common Stock may be convened in order reflect any stock
dividends, splits, reclassification, combinations, or other changes affecting
the number of outstanding shares of Class A Common Stock. Upon the conversion
of Class B Common Stock into Class A Common Stock, the Class A Common Stock's
$1,000 per share liquidation preference will be eliminated.
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<PAGE>
PREFERRED STOCK
Senior Preferred Stock
The holders of the Senior Preferred Stock are entitled to receive dividends
at a rate of $80.00 per share (as adjusted for any stock dividends,
combinations, or splits) per annum, payable quarterly out of funds legally
available therefor. Dividends are payable only when, as, and if declared by the
Board of Directors and are cumulative, but do not bear or accrue any interest.
No dividends (other than those payable in Common Stock) may be paid on any
Common Stock unless full cumulative dividends for all Senior Preferred Stock
have been paid or declared and set aside by the Company. In the event of the
liquidation, dissolution, or winding up of the Company, the holders of the
Senior Preferred Stock are entitled to receive a liquidation preference of
$1,000 per share (as adjusted for any stock dividends, combinations or splits),
plus all accrued or declared but unpaid dividends.
Each share of Senior Preferred Stock is convertible into 0.08505 shares of
Class A Common Stock (as adjusted for any stock dividends, splits,
reclassifications, combinations, or other changes affecting the Class A Common
Stock) at any time at the option of the holder thereof.
Upon the occurrence of a Major Event or the exercise of the drag along rights
under the Shareholders Agreement, the Company is required to redeem all Senior
Preferred Stock unless the holders thereof elect to convert their shares into
Class A Common Stock. The redemption price for the Senior Preferred Stock is
$1,000 per share (as adjusted for any stock dividends, combinations, or
splits), plus all accrued or declared but unpaid dividends.
The Senior Preferred Stock is non-voting. There are no redemption or sinking
fund provisions applicable to the Senior Preferred Stock.
Junior Preferred Stock
The Certificate of Incorporation provides that the Board of Directors, acting
unanimously, has the authority to issue up to 44,000 shares of Junior Preferred
Stock in one or more series and to establish the number of shares constituting
any such series, the voting powers, designation, preferences, and relative
participation, option, or other special rights and qualifications, limitations,
or restrictions thereof, including the dividend rights and dividend rate,
redemption price, conversion rights, and liquidation preferences of the shares
constituting any series. Upon the unanimous consent of the Board of Directors,
the Company may issue to each holder of Class A Common Stock one share of
Junior Preferred Stock having a liquidation preference of $1,000 per share in
exchange for one share of Class A Common Stock held by such stockholder, and
each such stockholder has agreed under the Shareholders Agreement to such
exchange, provided that (i) issues of Junior Preferred Stock are made to all
stockholders of Class A Common Stock on a pro rata basis and are subject to the
rights of the parties under the Equity Registration Rights Agreement, and (ii)
no more than ninety percent (90%) of the Class A Common Stock may be exchanged
for Junior Preferred Stock. As of the date of this Prospectus, the Company has
not issued any Junior Preferred Stock and has no present intention to do so,
either pursuant to the terms of the Shareholders Agreement or otherwise.
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
Following the Offering, the Company amended and restated its Existing Credit
Facility with CIBC and First Source Financial LLP (collectively, the
"Lenders"). This amendment and restatement (i) repaid the existing term
facility from the net proceeds of the Offering and (ii) established a senior
secured revolving credit facility in the principal amount of $35.0 million. The
following summary is a description of the terms of the Senior Credit Facility,
as amended.
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The Company may use borrowings under the Senior Credit Facility for working
capital, capital expenditures, and general corporate purpose, and to fund
certain permitted acquisitions, as set forth in the Senior Credit Facility. In
addition to a $175,000 fee that was paid at the closing of the Senior Credit
Facility, the Company will pay an annual administrative fee and an annual
commitment fee of 0.5% of the unused portion of the facility.
Amounts borrowed under the Senior Credit Facility bear interest, at the
option of the Company, at either (i) the Base Rate (i.e. the higher of CIBC's
reference rate and the overnight federal funds rate plus 0.5%) plus a margin
that varies from 0.25% to 2.75%, depending on the Company's Total Debt to
EBITDA Ratio (as defined in the Senior Credit Facility), or (ii) the IBOR Rate
(as defined in the Senior Credit Facility) plus a margin that varies from 1.5%
to 4.0%, depending on the Company's Total Debt to EBITDA Ratio. The Senior
Credit Facility requires quarterly interest-only payments on Base Rate Loans,
and periodic interest-only payment based on the applicable interest period on
IBOR Rate loans, but at least quarterly, until maturity. The Senior Credit
Facility matures on December 31, 2000, at which time the outstanding principal
and all accrued and unpaid interest will be due.
The Senior Credit Facility requires mandatory prepayments from the proceeds
of certain asset sales by the Company and from the proceeds of permitted debt
and equity offerings. In addition, the Company is permitted to make certain
voluntary, prepayments, without penalty, and to reduce the size of the
commitment, subject to certain limitations.
Obligations under the Senior Credit Facility are guaranteed by all of the
Company's subsidiaries, and are secured by a perfected first priority security
interest in substantially all of the existing and after-acquired tangible and
intangible assets of the Company (including the capital stock of the Company
and its subsidiaries) and its subsidiaries.
The Senior Credit Facility contains a number of restrictive covenants,
including, among other things: (i) prohibitions on the incurrence of liens, the
incurrence of additional indebtedness, the payment of dividends, the repurchase
of equity, the redemption of other indebtedness, the consummation of certain
mergers and other fundamental changes (including change in control of the
Company), and the consummation of certain purchases and sales of assets or
stock; (ii) limitations on capital expenditures, leases, transactions with
affiliates, and management and advisory fees; and (iii) negative pledges.
The Senior Credit Facility requires the Company to comply with certain
financial covenants and ratios. These financial covenants and ratios include,
without limitation, that the Company will not permit;
(i) the Total Debt to EBITDA Ratio (as defined in the Senior Credit
Facility) at any time during any period set forth below to be greater than
the ratio set forth opposite such period:
<TABLE>
<CAPTION>
TOTAL DEBT
TO
PERIOD EBITDA RATIO
------ ------------
<S> <C>
07/30/97 to (and including) 06/29/98 6.0:1
06/30/98 to (and including) 12/30/98 5.5:1
12/31/98 to (and including) 12/30/99 5.0:1
12/31/99 and thereafter 4.5:1;
</TABLE>
(ii) the Senior Debt to EBITDA Ratio (as defined in the Senior Credit
Facility) at any time during any period set forth below to be greater than
the ratio set forth opposite such period:
<TABLE>
<CAPTION>
SENIOR DEBT
TO
PERIOD EBITDA RATIO
------ ------------
<S> <C>
07/30/97 to (and including) 12/30/98 3.5:1
12/30/98 and thereafter 3.0:1;
</TABLE>
(iii) the EBITDA to Cash Interest Expense Ratio (as defined in the Senior
Credit Facility) as at the last day of any quarter ending on a date set
forth below to be less than the ratio set forth opposite such date:
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<PAGE>
<TABLE>
<CAPTION>
EBITDA TO
CASH INTEREST
PERIOD EXPENSE RATIO
------ -------------
<S> <C>
07/30/97 to (and including) 12/31/97 1.5:1
01/01/98 and thereafter 1.75:1;
</TABLE>
(iv) the EBITDA to Fixed Charges Ratio (as defined in the Senior Credit
Facility) as at the last day of any quarter for the period comprising such
quarter and the immediately preceding three quarters to be less than
1.25:1.
The Senior Credit Facility also contains customary representations,
warranties, affirmative and negative covenants, and events of default for a
facility of this type.
The Company is also in discussions with its Lenders to obtain a separate
senior secured facility to be used for permitted acquisitions. The Company
believes that covenants substantially similar to those contained in the Senior
Credit Facility will be applicable to the acquisition facility. Borrowings
under the acquisition facility will be cross-collateralized and cross-defaulted
with the Senior Credit Facility. The acquisition facility would likely be
subject to mandatory prepayments over its term. There can be no assurance that
the Company will be successful in obtaining such an acquisition facility.
SUBORDINATED INDEBTEDNESS
In connection with the Offering, the Company repaid its obligations under the
Senior Subordinated Notes in the aggregate principal amount of $8.5 million and
its $5.0 million Subordinated Talton Note. See "Certain Relationships and
Related Transactions; Current Relationships and Related Transactions."
DESCRIPTION OF SENIOR NOTES
GENERAL
The New Notes, like the Old Notes, will be issued pursuant to the Indenture,
dated as of June 27, 1997 (the "Indenture") between the Company and U.S. Trust
Company of Texas, N.A., as trustee (the "Trustee"). The terms of the Senior
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). The terms of the New Notes are identical to the Old Notes in all
material respects (including interest rate and maturity), except that (i) the
New Notes will not be subject to the restrictions on transfer (other than with
respect to holders that are broker-dealers, persons who participated in the
distribution of the Old Notes, or affiliates of the Company), (ii) the
Registration Rights Agreement covenants regarding registration will have been
deemed satisfied, and (iii) there will be no right on the part of holders of
the New Notes to receive increased interest payments if registration is not
effected under the Securities Act. The Senior Notes are subject to all such
terms, and Holders of Senior Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture is subject to, and qualified in its entirety by
reference to, the provisions of Indenture, including the definitions therein of
certain terms used below. A copy of the form of Indenture is available as set
forth under "--Available Information." The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions." As
used in this Description of Senior Notes, the "Company" refers only to Talton
Holdings, Inc. and not to any of its Subsidiaries.
The Senior Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment with all other current and future
senior Indebtedness of the Company, including borrowings under the Senior
Credit Facilities, and senior to all subordinated Indebtedness of the Company.
The Senior Notes will be guaranteed on a senior unsecured basis by all of the
Company's current and future Restricted Subsidiaries. See "--Subsidiary
Guarantees." The Senior Notes will be effectively subordinated, however, to all
secured obligations of the Company and the Subsidiary Guarantors to the extent
of the assets securing such obligations,
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<PAGE>
including borrowings under the Senior Credit Facilities. The Indenture permits
the incurrence of additional Indebtedness, including additional secured
Indebtedness, under certain circumstances.
As of the date of this Prospectus, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
As of the date of this Prospectus, $115,000,000 principal amount of the Old
Notes was outstanding.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $115.0 million
and will mature on June 30, 2007. Interest on the Senior Notes accrues at the
rate of 11% per annum and is payable semi-annually in arrears on January 1 and
July 1, commencing on January 1, 1998, to Holders of record on the immediately
preceding December 15 and June 15. Interest on the Senior Notes accrues from
the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of,
premium, if any, and interest on the Senior Notes is payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders of the Senior Notes at their respective addresses
set forth in the register of Holders of the Senior Notes; provided that all
payments of principal, premium, and interest with respect to the Senior Notes
the Holders of which have given wire transfer instructions to the Company must
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company,
the Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Senior Notes are and will be issued in
denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Notes is jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary
Guarantors. The Subsidiary Guarantors are AmeriTel Pay Phones, Inc., Talton
Telecommunications Corporation, Talton Telecommunications of Carolina, Inc.,
Talton STC, Inc., and Talton Invision, Inc. The Subsidiary Guarantee of each
Subsidiary Guarantor is a general unsecured obligation of such Subsidiary
Guarantor, ranking pari passu in right of payment with all other senior
Indebtedness of such Subsidiary Guarantor and senior in right of payment to all
subordinated Indebtedness of such Subsidiary Guarantor. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee is limited so as not to
constitute a fraudulent conveyance under applicable law. As of the date of this
Prospectus there is aggregate indebtedness of $600,000 of the Company's
Subsidiaries that is effectively senior to the Senior Notes because the Company
is a holding company. See "Risk Factors--Holding Company Structure" and "Risk
Factors--Fraudulent Conveyance Risks."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another Person, whether or not affiliated with such Subsidiary
Guarantor, unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor, pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Senior Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) the Company would be permitted by virtue of
the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described below under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock."
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<PAGE>
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation,
or otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation, or otherwise, of all
of the capital stock of such Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all of the assets
of such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See "--Certain Covenants--Limitation on Asset Sales."
OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Company's option prior to June 30,
2002. Thereafter, the Senior Notes are subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on June
30 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.......................................................... 105.500
2003.......................................................... 103.667
2004.......................................................... 101.833
2005 and thereafter........................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time or from time to time on or prior
to June 30, 2000, the Company may redeem up to 30% of aggregate principal
amount of the Senior Notes originally issued under the Indenture on the
Issuance Date at a redemption price of 111% of the principal amount thereof, in
each case plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of one or more Equity Offerings; provided that
at least $80.0 million aggregate principal amount of the Senior Notes
originally issued remains outstanding immediately after the occurrence of each
such redemption; and provided, further, that any such redemption occurs within
90 days of the date of the closing of such Equity Offering.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of the Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not
so listed, on a pro rata basis, by lot or by such method as the Trustee deems
fair and appropriate (and in such manner as complies with applicable legal
requirements); provided that no Senior Notes of $1,000 or less will be redeemed
in part. Notices of redemption will be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of the
Senior Notes to be redeemed at its registered address. Notices of redemption
may not be conditional. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Note will state the portion of
the principal amount thereof to be redeemed. A new Senior Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Senior Note. Senior Notes
called for redemption become due and payable on the date fixed for redemption.
On and after the redemption date, unless the Company defaults in payment of the
redemption price, interest ceases to accrue on the Senior Notes or portions
thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Change of Control Offer" and "--Certain
Covenants--Limitation on Asset Sales," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Senior Notes.
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<PAGE>
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each Holder of the Senior Notes
will have the right to require the Company to repurchase all or any part equal
to $1,000 or an integral multiple thereof of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase (the "Change
of Control Payment"). Within 30 days following any Change of Control, the
Company will mail a notice to each Holder stating that (i) the Change of
Control Offer is being made pursuant to this covenant and all the Senior Notes
tendered will be accepted for payment; (ii) the purchase price and the purchase
date, which will be no earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"); (iii) any
Senior Note not tendered will continue to accrue interest; (iv) unless the
Company defaults in the payment of the Change of Control Payment, all Senior
Notes accepted for payment pursuant to the Change of Control Offer will cease
to accrue interest after the Change of Control Payment Date; (v) Holders
electing to have any Senior Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Senior Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Senior Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (vi) any Holder will be entitled to withdraw its election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission, or letter setting forth the name of the Holder, the
principal amount of the Senior Notes delivered for purchase, and a statement
that such Holder is withdrawing such Holder's election to have such Senior
Notes purchased; and (vii) Holders whose Senior Notes are being purchased only
in part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Senior Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered, and (iii) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of the Senior
Notes or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Senior Notes so tendered the Change of Control
Payment for such Senior Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Senior
Note equal in principal amount to any unpurchased portion of the Senior Notes
surrendered, if any; provided that each such new Senior Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Senior Notes to require that
the Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization, or similar transaction. In addition, the Company could enter
into certain transactions, including acquisitions, refinancings, or other
recapitalizations, that could affect the Company's capital structure or the
value of the Senior Notes, but that would not constitute a Change of Control.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the exercise by
the Holders of the Senior Notes of their right to require the Company to
repurchase the Senior Notes could cause a default under such other senior
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchases on the Company. The Company's ability to
repurchase the Senior Notes following a Change of Control may also be limited
by the Company's then existing financial resources.
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<PAGE>
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Senior Notes validly tendered and not withdrawn under
such Change of Control Offer.
A "Change of Control" is defined by the Indenture to include certain
dispositions of all or substantially all the assets of the Company; adoption of
a plan of dissolution or liquidation by the Company; consummation of certain
transactions that result in certain third parties acquiring beneficial
ownership of more than 50% of the Voting Stock (as defined) of the Company; or
a change in the membership of the Board of Directors of the Company resulting
in a majority of the directors of the Company not being Continuing Directors
(as defined). For a detailed description of "Change of Control" see
"Description of Senior Notes--Certain Definitions." Certain events involving a
Change of Control may result in an event of default under the Senior Credit
Facility and may result in an event of default under other indebtedness of the
Company that may be incurred in the future. An event of default under the
Senior Credit Facility or other indebtedness could result in an acceleration of
such indebtedness, in which case the Senior Notes would be effectively
subordinated to such other secured indebtedness to the extent of any liens
securing such other indebtedness. See "Description of Other Indebtedness--
Senior Credit Facility." Under New York law, which governs the Indenture, it is
not clear which transactions would constitute a sale of "all or substantially
all of the assets" of the Company. See "Risk Factors--Repurchase of Senior
Notes Upon a Change of Control." There can be no assurance that the Company
would have sufficient resources to repurchase the Senior Notes and pay its
obligations under the Senior Credit Facility or other indebtedness upon the
occurrence of a Change of Control.
CERTAIN COVENANTS
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem, or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease, or otherwise acquire or retire for value any Subordinated
Indebtedness, except a payment of principal or interest at Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness under the provisions of
the first paragraph of the covenant described below under the caption "--
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), and (v) (but only to the extent of the dividends
paid to the Company or its Wholly Owned Restricted Subsidiaries pursuant to
such clause (v)) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
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available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the Indenture;
(ii) so long as no Default or Event of Default has occurred and is
continuing, the redemption, repurchase, defeasance, retirement, or
other acquisition of any Subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
defeasance, retirement, or other acquisition will be excluded from
clause (c)(ii) of the preceding paragraph;
(iii) so long as no Default or Event of Default has occurred and is
continuing, the redemption, repurchase, defeasance, retirement, or
other acquisition of any Subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(iv) so long as no Default or Event of Default has occurred and is
continuing, the retirement of any shares of Disqualified Stock by
conversion into, or by exchange for, shares of Disqualified Stock, or
out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of
Disqualified Stock; provided that (a) such Disqualified Stock is not
subject to mandatory redemption earlier than the maturity of the Senior
Notes; (b) such Disqualified Stock is in an aggregate liquidation
preference that is equal to or less than the sum of (x) the aggregate
liquidation preference of the Disqualified Stock being retired, (y) the
amount of accrued and unpaid dividends, if any, and premiums owed, if
any, on the Disqualified Stock being retired, and (z) the amount of
customary fees, expenses, and costs related to the incurrence of such
Disqualified Stock; and (c) such Disqualified Stock is incurred by the
same Person that initially incurred the Disqualified Stock being
retired, except that the Company may incur Disqualified Stock to refund
or refinance Disqualified Stock of any Wholly Owned Subsidiary of the
Company;
(v) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its Equity Interests on a pro rata basis;
(vi) the payment of cash dividends on the Existing Preferred Stock
when such dividends are required to be paid in accordance with the
Certificate of Designation with respect to the Existing Preferred
Stock;
(vii) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption, or other acquisition or
retirement for value of any Equity Interests of the Company or any
Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant
to any management equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided that the
aggregate price paid for all such repurchased, redeemed, acquired, or
retired Equity Interests will not exceed $300,000 in any twelve-month
period:
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(viii) so long as no Default or Event of Default has occurred and is
continuing, repurchases of Equity Interests deemed to occur upon the
exercise of stock options or warrants upon surrender of Equity
Interests to pay the exercise price of such stock options or warrants;
and
(ix) so long as no Default or Event of Default has occurred and is
continuing, other Restricted Payments in an aggregate amount not to
exceed $1.0 million since the date of the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event will the business currently operated by AmeriTel or Talton
Telecommunications be transferred to or held by any Subsidiary other than a
Wholly Owned Restricted Subsidiary. For purposes of making such determination,
all outstanding Investments by the Company and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the first paragraph
of this covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the greatest of (x) the net book value of
such Investments at the time of such designation, (y) the fair market value of
such Investments at the time of such designation, and (z) the original fair
market value of such Investments at the time they were made. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment will be determined by the Board
of Directors, whose resolution with respect thereto will be set forth in an
Officer's Certificate delivered to the Trustee, such determination to be based
upon an opinion or appraisal issued by an accounting, appraisal, or investment
banking firm of national standing if such fair market value exceeds $5.0
million. Not later than the date of making any Restricted Payment, the Company
will deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed and
that no Default or Event of Default will result from making the Restricted
Payment, together with a copy of any fairness opinion or appraisal required by
the Indenture.
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee, or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if (A)
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least (x) 1.75
to 1.0 if the Indebtedness is incurred prior to December 31, 1998, (y) 2.0 to
1.0 if the Indebtedness is incurred prior to December 31, 1999, or (z) 2.5 to
1.0 if the Indebtedness is incurred on or after December 31, 1999, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period, and (B) no Default or Event of Default occurs and is
continuing at the time or as a consequence of the incurrence of such
Indebtedness or the issuance of such Disqualified Stock.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
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(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Senior Credit Facilities and the issuance and
creation of letters of credit and banker's acceptances thereunder (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Restricted Subsidiaries
thereunder) not to exceed an amount equal to $80.0 million outstanding at
any one time, less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the commitments with respect to such
Indebtedness pursuant to the covenant described below under the caption "--
Limitation on Asset Sales":
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Notes issued on the Issuance Date and the incurrence by the
Subsidiary Guarantors of the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance, or replace Indebtedness that was
permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Wholly Owned Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(i) if the Company or a Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness is unsecured and expressly subordinated to
the prior payment in full in cash of all Obligations with respect to the
Senior Notes and the Subsidiary Guarantees, respectively, and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary will be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (v);
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations in the ordinary course of business of the Company or
any of its Restricted Subsidiaries; provided that the notional principal
amount of such Hedging Obligation does not exceed the principal amount of
Indebtedness to which such Hedging Obligation relates;
(vii) the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or any of its Restricted Subsidiaries that was
permitted to be incurred by another provision of this covenant;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt; provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be
deemed to constitute an incurrence of Indebtedness (and Liens, if any,
securing such Indebtedness) by a Restricted Subsidiary of the Company; or
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance, or replace any
other Indebtedness incurred pursuant to this clause (ix), not to exceed
$5.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Indebtedness described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value, and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
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Limitation on Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet), of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Senior Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes, or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are immediately converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), will be
deemed to be cash for purposes of this clause (ii).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the
Company or any such Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to repay Indebtedness outstanding under the Senior Credit
Facilities (and to correspondingly reduce commitments with respect thereto), or
(b) to the acquisition of a controlling interest in another business, the
making of a capital expenditure, or the acquisition of other long-term assets,
in each case, in the same or a similar line of business as the Company was
engaged in on the date of the Indenture. Pending the final application of any
such Net Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce outstanding revolving credit borrowings, including borrowings under the
Senior Credit Facilities or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds."
Not later than 30 days after any date (an "Asset Sale Offer Trigger Date")
that the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company
will mail to each holder of the Senior Notes at such holder's registered
address a notice stating (i) that an Asset Sale Offer Trigger Date has occurred
and that the Company is offering to purchase the maximum principal amount of
the Senior Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase (the "Asset Sale Offer Purchase Date"),
which will be a business day, specified in such notice, that is not earlier
than 30 days or later than 60 days from the date such notice is mailed; (ii)
the amount of accrued and unpaid interest as of the Asset Sale Offer Purchase
Date; (iii) that any Senior Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the purchase price for
the Senior Notes payable pursuant to the Asset Sale Offer, any Senior Notes
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Offer Purchase Date; (v) the procedures,
consistent with the Indenture, to be followed by a holder of the Senior Notes
in order to accept an Asset Sale Offer or to withdraw such acceptance; and (vi)
such other information as may be required by the Indenture and applicable laws
and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of the Senior Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of Excess
Proceeds from such Asset Sale; (ii) deposit with the Paying Agent the aggregate
purchase price of all the Senior Notes or portions thereof accepted for payment
and any accrued and unpaid interest on such Senior Notes as of the Asset Sale
Offer Purchase Date; and (iii) deliver or cause to be delivered to the Trustee
all the Senior Notes tendered pursuant to the Asset Sale Offer. If less than
all the Senior Notes tendered pursuant to the Asset Sale Offer are accepted for
payment by the Company for any reason consistent with the Indenture, selection
of the Senior Notes to be purchased by the Company will be in compliance with
the requirements of the principal national securities exchange, if any, on
which the Senior Notes are listed or, if the Senior Notes are not so listed, on
a pro rata basis, by lot or by such method as the Trustee deems fair and
appropriate; provided that the Senior Notes accepted for payment in part will
only be purchased in integral multiples of $1,000. The
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paying agent will promptly mail to each holder of the Senior Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Senior Notes plus any accrued and unpaid interest thereon, and the Trustee will
promptly authenticate and mail to such holder of the Senior Notes accepted for
payment in part a new Senior Note equal in principal amount to any unpurchased
portion of the Senior Notes, and any Senior Note not accepted for payment in
whole or in part will be promptly returned to the holder of such Senior Note.
On and after an Asset Sale Offer Purchase Date, interest will cease to accrue
on the Senior Notes or portions thereof accepted for payment, unless the
Company defaults in the payment of the purchase price therefor. The Company
will announce the results of the Asset Sale Offer to holders of the Senior
Notes on or as soon as practicable after the Asset Sale Offer Purchase Date. To
the extent that the aggregate amount of the Senior Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of the Senior Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee will select the Senior Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
The Company will comply with the applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act, and all other applicable
securities laws and regulations in connection with any Asset Sale Offer.
Limitation on Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, or otherwise cause or suffer to
exist or become effective any Liens of any kind (other than Permitted Liens)
upon any property or assets of the Company or any such Restricted Subsidiary or
any shares of stock or debt of any such Restricted Subsidiary unless (i) if
such Lien secures Indebtedness that is pari passu with the Senior Notes, then
the Senior Notes are secured on an equal and ratable basis with the obligations
so secured until such time as such obligation is no longer secured by a Lien or
(ii) if such Lien secures Subordinated Indebtedness, any such Lien will be
subordinated to a Lien granted to the holders of the Senior Notes in the same
collateral as that securing such Lien to the same extent as such Subordinated
Indebtedness is subordinated to the Senior Notes.
Limitation on Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey, or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance, or other
disposition has been made is a corporation organized or existing under the laws
of the United States, any state thereof, or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance, or other disposition has been made assumes all the obligations of
the Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee and the obligations
under the Indenture will remain in full force and effect; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except
in the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance, or other disposition has been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Limitation
on Incurrence of Indebtedness and Issuance of Preferred Stock."
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In connection with any consolidation, merger, or transfer of assets
contemplated by this provision, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger, or transfer and the supplemental indenture in
respect thereto comply with this provision and that all conditions precedent
relating to such transaction or transactions have been complied with.
Limitation on Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer,
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, understanding, loan, advance, or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $500,000,
a resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal, or investment banking firm of national
standing; provided that the following shall not be deemed to be Affiliate
Transactions: (1) transactions pursuant to the Senior Credit Facilities; (2)
customary investment banking or financial advisory services rendered by CIBC
Wood Gundy Securities Corp. or Onyx Partners, Inc. or any of their respective
affiliates; (3) transactions under the Talton Lease (as such agreement may be
amended or replaced, so long as any amounts paid under such amended or
replacement agreement do not exceed the amounts payable under such agreement as
in effect on the Issuance Date); (4) payments made by the Company or any of its
Restricted Subsidiaries pursuant to the terms of the Consulting and Strategic
Services Agreement (as such agreement may be amended or replaced, so long as
any amounts paid under such amended or replacement agreement do not exceed the
amounts payable under such agreement as in effect on the Issuance Date); (5)
transactions pursuant to the Shareholders Agreement and the Equity Registration
Rights Agreement, each as in effect on the Issuance Date; (6) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary; (7) transactions between or among the
Company and/or its Restricted Subsidiaries; and (8) Restricted Payments and
Permitted Investments that are permitted by the provisions of the Indenture
described above under the caption "--Limitation on Restricted Payments."
Limitation on Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or such Restricted Subsidiary may enter into a sale
and leaseback transaction if (i) the Company or such Restricted Subsidiary
could have (a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under the caption "--Limitation on Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described under the caption "--
Limitation on Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificates
delivered to the Trustee) of the property that is the subject of such sale and
lease back transaction, and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company or such Restricted
Subsidiary applies the proceeds of such transaction in compliance with, the
covenant described under the caption "--Limitation on Asset Sales."
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Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries acquire or create another Restricted Subsidiary or designate an
Unrestricted Subsidiary to be a Restricted Subsidiary after the date of the
Indenture, then such newly acquired or created or designated Restricted
Subsidiary will execute a Subsidiary Guarantee and deliver an opinion of
counsel, in accordance with the terms of the Indenture.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to the Company or any of
its Restricted Subsidiaries; (ii) pay any Indebtedness owed to the Company or
any of its Restricted Subsidiaries; (iii) make loans or advances to the Company
or any of its Restricted Subsidiaries; (iv) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary of the Company; or (v) transfer any
of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the Indenture,
(b) the Senior Credit Facility, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements, or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement, or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Existing Credit Facility, (c)
any acquisition facility under the Senior Credit Facilities and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements, or refinancings thereof, provided that any such encumbrances or
restrictions in such acquisition facility or any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements, or
refinancings thereof are no more restrictive with respect to such dividend and
other payment restrictions than those contained in the Existing Credit
Facility, (d) the Indenture, the Senior Notes, and the Subsidiary Guarantees,
(e) applicable law, (f) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (g)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices, (h)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (v) above
on the property so acquired, or (i) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced.
Limitation on Capital Stock of Restricted Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit any
Restricted Subsidiary of the Company to, transfer, convey, sell, lease, pledge,
hypothecate, or otherwise dispose of any Capital Stock of any Restricted
Subsidiary of the Company to any Person (other than the Company or a wholly
Owned Restricted Subsidiary of the Company), other than Capital Stock of a
Restricted Subsidiary of the Company that holds property or assets acquired by
the Company and its Restricted Subsidiaries after the Issuance Date, and (ii)
will not permit any Restricted Subsidiary of the Company to issue any of its
Equity Interests to any Person other than to the Company or a wholly Owned
Restricted Subsidiary of the Company. The foregoing restrictions will not apply
to (a) an Asset Sale made in compliance with the covenant described under the
caption "--Limitation on Asset Sales" or (b) a pledge or hypothecation or other
Lien on Capital Stock of a Restricted Subsidiary otherwise permitted by the
covenant described under the caption "--Limitation on Liens."
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Reports
The Indenture provides that, whether or not the Company is then subject to
Section 13(a) or 15(d) of the Exchange Act, so long as any Senior Notes are
outstanding, the Company will furnish to the Trustee and all Holders of the
Senior Notes (i) all annual reports, quarterly reports and other periodic
reports which the Company would have been required to file with the Securities
and Exchange Commission (the "Commission") pursuant to Section 13(a) or 15(d)
of the Exchange Act if the Company were so subject. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission, on or prior to
the respective dates by which the Company would have been required to file such
documents if subject to Section 13(a) or 15(d) of the Exchange Act, for public
availability (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, the Company and the Subsidiary Guarantors have
agreed that, for so long as any Senior Notes remain outstanding, they will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest on the Senior
Notes;
(ii) default in payment when due of the principal of or premium, if any,
on the Senior Notes;
(iii) failure by the Company or any Subsidiary to comply with the
provisions described under the caption "Change of Control Offer," "--
Certain Covenants--Limitation on Asset Sales," "--Certain Covenants--
Limitation on Restricted Payments" or "Certain Covenants--Limitation on
Incurrence of Indebtedness";
(iv) failure by the Company or any Subsidiary for 60 days after receipt
of written notice given by the Trustee or the holders of at least 25% in
principal amount of the Senior Notes then outstanding to comply with any of
its other agreements in the Indenture or the Senior Notes;
(v) default under any mortgage, indenture, or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more, and such default has not been
cured, waived, or postponed pursuant to an agreement with the holders of
such Indebtedness within 30 days after written notice as provided in the
Indenture, or such acceleration is not rescinded or annulled within 10 days
after written notice as provided in the Indenture;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged, or stayed for a period of 60 days after their entry;
(vii) any holder (or person acting on its behalf) of at least $5.0
million in aggregate principal amount of Indebtedness of the Company or any
of its Restricted Subsidiaries, subsequent to the occurrence of a default
with respect to such Indebtedness and in accordance with the terms of the
document or agreement governing such Indebtedness, commences judicial
proceedings to foreclose upon assets of the Company or any of its
Restricted Subsidiaries having an aggregate fair market value in excess of
$5.0 million or exercises any rights under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure;
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(viii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary; and
(ix) except as permitted by the Indenture, any Subsidiary Guarantee is
held in any judicial proceeding to be unenforceable or invalid or ceases
for any reason to be in full force and effect or any Subsidiary Guarantor,
or any Person acting on behalf of any Subsidiary Guarantor, denies or
disaffirms its obligations under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary, all outstanding Senior Notes will become due and payable without
further action or notice. Holders of the Senior Notes may not enforce the
Indenture or the Senior Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Senior Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Senior Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Senior Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to June 30, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to June 30, 2002, then the
premium specified in the Indenture will also become immediately due and payable
to the extent permitted by law upon the acceleration of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may, on behalf of the Holders of all
of the Senior Notes, waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Senior Notes.
No Holder of any Senior Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy under the Indenture, unless
such holder has previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Senior Notes has made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as a
trustee, and unless the Trustee has not received from the holders of a majority
in aggregate principal amount of the outstanding Senior Notes, a direction
inconsistent with such request and has failed to institute such proceeding
within 60 days. However, such limitations do not apply to a suit instituted on
such Senior Note on or after the respective due dates expressed in such Senior
Note.
The Company is required to deliver to the Trustee on or before 100 days after
the end of the Company's fiscal year and on or before 50 days after the end of
the first three fiscal quarters in each year an Officers' Certificate regarding
compliance with the Indenture, and the Company is required, upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, or stockholder of the Company,
as such, will have any liability for any obligations of the Company under the
Senior Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Senior Notes,
by accepting a Senior Note, waives and releases all such liability. The waiver
and release are part of the consideration for issuance of
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the Senior Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost, or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties, and immunities of the Trustee, and
the Company's obligations in connection therewith, and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations will not constitute a Default or Event of Default with respect to
the Senior Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation, and insolvency
events) described under the caption "--Events of Default" will no longer
constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on, the outstanding
Senior Notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Company must specify whether the Senior Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company must deliver to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that
the Holders of the outstanding Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company must
deliver to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the Indenture)
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company must have
delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Senior Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying, or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of such
Senior Note for all purposes.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as to
all the Senior Notes issued thereunder, when either (a) all such Senior Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Senior Notes which have been replaced or paid and the Senior Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or (b) (i)
all such Senior Notes not theretofore delivered to the Trustee for cancellation
have become due and payable within one year and the Company or a Subsidiary
Guarantor, if any, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust an amount of money sufficient to pay and
discharge the entire Indebtedness on such Senior Notes not theretofore
delivered to the Trustee for cancellation for principal, premium, if any, and
accrued interest to the date of maturity or redemption; (ii) no Default or
Event of Default with respect to the Indenture or the Senior Notes has occurred
and is continuing on the date of such deposit or will occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company or a
Subsidiary Guarantor, is a party or by which the Company or a Subsidiary
Guarantor is bound; (iii) the Company or a Subsidiary Guarantor, has paid or
caused to be paid all sums payable by it under such Indenture; and (iv) the
Company has delivered irrevocable instructions to the Trustee under such
Indenture to apply the deposited money toward the payment of such Senior Notes
at maturity or the redemption date, as the case may be. In addition, the
Company must deliver an Officers' Certificate and an opinion of counsel to the
Trustee stating that all conditions precedent to satisfaction and discharge
have been satisfied.
AMENDMENT, SUPPLEMENT, AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Senior Notes, and the Registration Rights Agreement may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Senior Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Senior Notes), and any existing default or compliance
with any provision of the Indenture or the Senior Notes may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to the covenants
described above under the captions "--Change of Control Offer" and "--Certain
Covenants--Limitation on Asset Sales"); (iii) reduce the rate of or change the
time for payment of interest on any Senior Note; (iv) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest on
the Senior Notes (except a rescission of acceleration of the Senior Notes by
the Holders of at least a majority in aggregate principal amount of the Senior
Notes and a waiver of the payment default that resulted from such
acceleration); (v) make any Senior Note payable in money other than that stated
in the Senior Notes; (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Senior Notes
to receive payments of principal of or premium, if any, or interest on the
Senior Notes;
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(vii) waive a redemption payment with respect to any Senior Note (other than a
payment required by one of the covenants described above under the caption "--
Change of Control Offer" or "--Certain Covenants--Limitation on Asset Sales");
(viii) affect the ranking of the Senior Notes in a manner adverse to the
Holders of the Senior Notes; or (ix) make any change in the foregoing amendment
and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture, the
Senior Notes, and the Registration Rights Agreement to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Notes in addition
to or in place of certificated Senior Notes, to provide for the assumption of
the Company's obligations to Holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Senior Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue, or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method, and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (that is not cured), the Trustee is required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of the Senior Notes, unless such Holder has offered to the Trustee
security and indemnity satisfactory to it against any loss, liability, or
expense.
GOVERNING LAW
The Indenture, the Senior Notes, and the Subsidiary Guarantees are subject to
certain exceptions, governed by and construed in accordance with, the internal
laws of the State of New York, without regard to choice of law rules.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Talton Holdings,
Inc., 1209 W. North Carrier Parkway, Suite 300, Grand Prairie, Texas, 75050
Attention: Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used in this Prospectus for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "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 the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or equipment in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "change of
Control Offer" and/or the provisions described above under the caption "--
Certain Covenants--Limitation on Merger, Consolidation or Sale of Assets" and
not by the provisions described under the caption "--Certain Covenants--
Limitation on Asset Sales"), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $100,000 or
(b) for net proceeds in excess of $100,000 and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, whether in a single transaction or a series
of related transactions. Notwithstanding the foregoing: (i) any simultaneous
exchanges of telephones and related contracts and equipment of the Company or
any Restricted Subsidiaries for telephones and related contracts and equipment
of another Person with equivalent fair market value (provided that the fair
market value of telephones and related contracts and equipment so exchanged in
any fiscal year shall not exceed 10% of the total assets of the Company on a
consolidated basis); (ii) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary; (iii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary; and (iv) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Limitation on Restricted Payments", in each case, will not be deemed
to be an Asset Sale.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means: (i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (iii) in the case of a partnership or a limited liability
company, partnership or membership interests (whether general or limited); and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means: (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than 365
days from the date of acquisition; (iii) certificates of deposit and eurodollar
time deposits with maturities of 365 days or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 365 days and overnight bank
deposits, in each case with any commercial banking institution that is a lender
under the Senior Credit Facilities or a member of the Federal Reserve System
having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than 365 days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications
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specified in clause (iii) above; (v) commercial paper rated at least P-1 by
Moody's Investors Service, Inc. or at least A-1 by Standard & Poor's
Corporation and in each case maturing within nine months after the date of
acquisition; and (vi) money market funds which invest substantially all of
their assets in instruments of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties (as
defined below); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company; (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), other than the Principals and
their Related Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition) directly or
indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares); or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion of
such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period (to the
extent that such provision for taxes was included in computing such
Consolidated Net Income), plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expenses to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization of
a prepaid cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period (to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income), minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in
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accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a Wholly
Owned Restricted Subsidiary thereof that is a Subsidiary Guarantor, (ii) the
Net Income of any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders; (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, and (iv)
the cumulative effect of a change in accounting principles shall be excluded.
"Consulting and Strategic Services Agreement" means that certain Consulting
and Strategic Services Agreement between the Company and EUF Talton, L.P.,
dated as of December 27, 1996.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors for a period of two consecutive years or on the date of the Indenture
if less than two years have elapsed since the date of Indenture) or (ii) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof in whole or in part, on or prior to the
date that is 91 days after the date on which the Senior Notes mature, provided
that only the portion of Capital Stock which so matures or is mandatorily
redeemable, is so convertible or exchangeable or is so redeemable at the option
of the holder thereof prior to such final maturity date will be deemed to be
Disqualified Stock; provided, however, that preferred stock of the Company that
is issued with the benefit of provisions requiring a change of control offer to
be made for such Capital Stock in the event of a Change of Control of the
Company, which provisions have substantially the same effect as the provisions
of the Indenture described under "Change of Control Offer," will not be deemed
to be Disqualified Stock solely by virtue of such provisions.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred stock
by the Company (excluding Disqualified Stock) that is registered pursuant to
the Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, and (ii) any private issuance of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company, in each case generating
aggregate gross proceeds to the Company of at least $25.0 million.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Existing Credit Facility) [in
existence on the date of the Indenture], until such amounts are repaid.
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"Existing Preferred Stock" means the Company's Senior Preferred Stock issued
and outstanding as of the Issuance Date.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption. Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense (including
capitalized interest) of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Subsidiary Guarantee or Lien is
called upon) and (iii) the product of (A) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person, other than dividend
payments on Equity Interests payable solely in Equity Interests (other than
Disqualified Stock), times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Limitation on Restricted Payments." Investments
will exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issuance Date" means the closing date for the sale and original issuance of
the Old Notes under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however, (i) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss),
realized in connection with any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) and (ii) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other
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disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than indebtedness under the Senior Credit
Facilities or Acquisition Facility) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including and undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means (a) with respect to the Senior Notes, any
Indebtedness which ranks pari passu in right of payment to the Senior Notes and
(b) with respect to any Subsidiary Guarantee, any Indebtedness which ranks pari
passu in right of payment to such Subsidiary Guarantee.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary
Guarantor and that is engaged in the same or a similar line of business as the
Company and its Restricted Subsidiaries were engaged in on the date of the
Indenture; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company and a Subsidiary Guarantor that is engaged in the same or a similar
line of business as the Company and its Restricted Subsidiaries were engaged in
on the date of the Indenture or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company that is a Subsidiary Guarantor and that is engaged in
the same or a similar line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of the Indenture; (d) any Investment
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "--Certain Covenants--Limitation on Asset Sales"; (e) any
Investment in the same or substantially similar line of business as the Company
or any of its Restricted Subsidiaries acquired solely in exchange for Equity
Interests (other than Disqualified Stock) of the Company; (f) Hedging
Obligations permitted to be incurred under the covenant described above under
the caption "--Certain Covenants--Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock"; and (g) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (g) that are at the
time outstanding, not to exceed $2.0 million.
"Permitted Liens" means (i) Liens securing Senior Indebtedness of the Company
and any Subsidiary Guarantor that was permitted by the terms of the Indenture
to be incurred; (ii) Liens in favor of the Company or any Wholly Owned
Restricted Subsidiary of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the
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Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) purchase money
security interests on any property acquired by the Company or any Subsidiary in
the ordinary course of business, securing Indebtedness incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such
property; provided that (a) any such Lien attached to such property
concurrently with or within 90 days after the acquisition thereof, (b) such
Lien attaches solely to the property so acquired in such transaction, (c) the
principal amount of the Indebtedness secured thereby does not exceed 100% of
the cost of such property and (d) the Indebtedness secured by such purchase
money security interests is otherwise permitted by the covenant entitled "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock";
(vii) Liens existing on the date of the Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens on assets of Unrestricted Subsidiaries that
secure Non-Recourse Debt of Unrestricted Subsidiaries; and (x) Liens incurred
in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company with respect to obligations that do not exceed $2.0 million at
any one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of, such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Senior Notes on terms at least as favorable to the
Holders of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, except that the
Company may incur Permitted Refinancing Indebtedness to extend, refinance,
renew, replace, defease or refund, Indebtedness of any Wholly Owned Restricted
Subsidiary of the Company.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"preferred stock" means any Equity Interest with, preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principals" means (i) Gregg L. Engles, (ii) Joseph P. Urso, (iii) Todd W.
Follmer, (iv) David A. Sachs, (v) CIBC Wood Gundy Ventures, Inc., (vi) Onyx
Talton Partners, L.P., (vii) Regent Capital Equity Partners, L.P., (viii)
Julius E. Talton, or (ix) Julius E. Talton, Jr.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal, (B) or trust,
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corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A), or (C) the estate of such Principal
until such estate is distributed pursuant to such Principal's will or
applicable state law.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facilities" means, collectively, (i) that certain Senior
Credit Facility to be entered into on the terms described herein, and (ii) a
senior credit facility to be entered into subsequent to the [Issuance Date] for
permitted acquisitions by the Company or its Restricted Subsidiaries on the
terms described herein, in each case by and among the Company and the lenders
from time to time parties thereto and Canadian Imperial Bank of Commerce, as
agent for such lenders, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Senior Indebtedness" means all Indebtedness of the Company or any Subsidiary
Guarantors that is not, by its terms, subordinated in right of payment to the
Senior Notes.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means (a) with respect to the Senior Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Senior Notes and (b) with respect to any Subsidiary Guarantee,
any Indebtedness of the applicable Subsidiary Guarantor which by its terms is
subordinated in right of payment to such Subsidiary Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each of (i) AmeriTel Pay Phones, Inc., Talton
Telecommunications Corporation, Talton Telecommunications of Carolina, Inc.,
Talton STC, Inc., and Talton Invision, Inc., and (ii) any other subsidiary that
executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"Talton Lease" means the lease dated as of December 27, 1996 between Julius
E. Talton and Talton Telecommunications Corporation.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than AmeriTel or
Talton Telecommunications or any successor to any of them) that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which
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neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness
of the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under
the caption "--Certain Covenants--Limitation on Restricted Payments." If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness and
Liens of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness or any
such Lien is not permitted to be incurred as of such date under the covenant
described under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock" or the covenant described under
the caption "--Certain Covenants--Limitation on Liens," respectively, the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness and Liens by a Restricted Subsidiary of the Company
of any outstanding Indebtedness and Liens of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under the covenant described under the caption "--Certain Covenants--Limitation
on Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, (ii) such Liens are permitted under the covenant
described under the caption "--Certain Covenants--Limitation on Liens," and
(iii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth that will elapse between
such date and the making of such payment by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more wholly Owned Restricted
Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes will initially be
issued in the form of one or more registered notes in global form (the "New
Global Note," and together with the global notes representing the Old Notes,
the "Global Note"). The New Global Note will be deposited on the Exchange Date
with, or on behalf of, the Depositary and registered in the name of the Global
Note Holder. See "Exchange Offer."
DTC has advised the Company that DTC is a limited-purpose trust company that
was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in
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accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchaser), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of each actual
purchaser of each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or
by the Participants and the Indirect Participants (with respect to other owners
of beneficial interests in the Global Notes). Holders are advised that the laws
of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be limited
to such extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Payments in respect of the principal of and premium, and interest on a Global
Note registered in the name of DTC or its nominee will be payable by the
Trustee to DTC in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Senior Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised the Company that its current practice, upon receipt of any payment
in respect of securities such as the Senior Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interests in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants and
the Indirect Participants to the beneficial owners of Senior Notes will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of DTC, the Trustee or the Company. Neither the Company nor
the Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Senior Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED SENIOR NOTES
A Global Note is exchangeable for definitive Senior Notes in registered
certificated form if (i) DTC (a) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Senior Notes in certificated form or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of time
or both would be an Event of Default with respect to the
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<PAGE>
Senior Notes. In addition, beneficial interests in a Global Note may be
exchanged for certificated Senior Notes upon request but only upon at least 20
days prior written notice given to the Trustee by or on behalf of DTC in
accordance with its customary procedures. In all cases, certificated Senior
Notes delivered in exchange for any Global Note or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear a restrictive legend unless the Company determines
otherwise in compliance with applicable law.
EXCHANGE OF CERTIFICATED SENIOR NOTES FOR BOOK ENTRY NOTES
Senior Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Senior Notes as provided in the Indenture.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Senior Notes in
definitive certificated form, the Company will make all payments of principal,
premium, if any, and interest, by wire transfer of immediately available funds
to the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-houses or next-day funds. The Company expects
that secondary trading in the certificated notes will also be settled in
immediately available funds.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of the Old Notes for the New Notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the United States Internal Revenue Code of 1986, as
amended, (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS")
rulings and pronouncements and judicial decisions now in effect, all of which
are subject to change at any time by legislative, judicial or administrative
action. Any such changes may be applied retroactively in a manner that could
adversely affect a holder of the New Notes. The following discussion assumes
that holders hold the Old Notes and the New Notes as capital assets within the
meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of the Old Notes for the New Notes or that any
such position would not be sustained.
The tax treatment of a holder may vary depending on his or its particular
situation or status. This summary does not address the tax consequences to
taxpayers who are subject to special rules such as insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign entities
and individuals, persons holding Old Notes or New Notes as a part of a hedging
or conversion transaction or a straddle and holders whose "functional currency"
is not the U.S. dollar, or aspects of federal income taxation that may be
relevant to a
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<PAGE>
prospective investor based upon such investor's particular tax situation. In
addition, the description does not consider the effect of any applicable
foreign, state, local or other tax laws.
EACH HOLDER SHOULD CONSULT HIS OR ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE
The exchange of the New Notes for Old Notes will not constitute a recognition
event for federal income tax purposes. Consequently, no gain or loss will be
recognized by holders upon receipt of the New Notes. For purposes of
determining gain or loss upon the subsequent exchange of New Notes, a holder's
basis in the New Notes will be the same as a holder's basis in the Old Notes
exchanged therefor. Holders will be considered to have held the New Notes from
the time of their original acquisition of the Old Notes. As used herein, the
term "Senior Note" refers to both an Old Note and a New Note received in
exchange therefor.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as income for federal
income tax purposes interest earned on a New Note in accordance with the
holder's method of tax accounting. A holder of a New Note using the accrual
method of accounting for tax purposes is, as a general rule, required to
include interest in ordinary income as such interest accrues. A cash basis
holder must include interest in income when cash payments are received by (or
made available to) such holder.
MARKET DISCOUNT
If a holder acquired an Old Note at a market discount (i.e., at a price less
than the stated redemption price at maturity of the Old Note), the Old Note is
subject to the market discount rules of the Code unless the market discount is
de minimis. Market discount is de minimis if it is less than one quarter of one
percent of the principal amount of the Old Note multiplied by the number of
complete years to maturity after the holder acquired the Old Note. If the
holder exchanges an Old Note that has more than de minimis market discount for
a New Note, the New Note also will be subject to the market discount rules of
the Code. New Notes purchased by a subsequent purchaser also will be subject to
the market discount rules if the New Notes are purchased with more than a de
minimis amount of market discount. Notes that have more than de minimis market
discount are herein referred to as "Market Discount Notes."
Any gain recognized on the maturity or disposition of a Market Discount Note
will be treated as ordinary income to the extent that such gain does not exceed
the accrued market discount on the Market Discount Note. Alternatively, a
holder may elect to include market discount in income currently over the life
of the Market Discount Note. Such an election shall apply to all debt
instruments with market discount acquired by the holder on or after the first
day of the first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Market discount will accrue on a straight-line basis unless the holder elects
to accrue market discount on a constant yield to maturity basis. Such an
election shall apply only to the Market Discount Note with respect to which it
is made and may not be revoked without the consent of the IRS. A holder who
does not elect to include market discount in income currently generally will be
required to defer deductions for interest on borrowings allocable to a Market
Discount Note in an amount not exceeding the accrued market discount on the
Market Discount Note until the maturity or disposition of the Market Discount
Note.
AMORTIZABLE BOND PREMIUM
A holder that purchased an Old Note for an amount in excess of its principal
amount may elect to treat such excess as "amortizable bond premium," in which
case the amount required to be included in the holder's income
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<PAGE>
each year with respect to interest on the Old Note will be reduced by the
amount of amortizable bond premium allocable (based on the yield to maturity of
the Old Note) to such year. If a holder made an election to amortize bond
premium with respect to an Old Note and exchanges the Old Note for a New Note
pursuant to the Exchange Offer, the election will apply to the New Note. A
holder who exchanges an Old Note for which an election has not been made for a
New Note, and a subsequent purchaser of a New Note, may also elect to amortize
bond premium if the holder acquired the Note for an amount in excess of its
principal amount. Any election to amortize bond premium shall apply to all
bonds (other than bonds the interest on which is excludable from gross income)
held by the holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the holder, and is irrevocable
without the consent of the IRS.
DISPOSITION OF THE NOTES
Subject to the market discount rules discussed above, a holder of Senior
Notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of such securities equal to the difference between (i) the
amount of cash and the fair market value of the property received (except to
the extent attributable to the payment of accrued interest) and (ii) the
holder's adjusted tax basis in the securities. Gain or loss recognized will be
capital gain or loss provided the Notes are held as capital assets by the
holder, and will be subject to income tax at rates that may be lower than the
rate at which ordinary income is taxed, depending on the length of time that
the holder has held such securities (or is treated as having held such
securities).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders of the Senior Notes may be subject to backup withholding at a rate of
31% with respect to interest paid on the Senior Notes unless such holder (a) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Senior Notes and the IRS the
amount of any "reportable payment" for each calendar year and amount of tax
withheld, if any, with respect to payments on the Senior Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT OF THE
ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE SENIOR NOTES (INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus available to any
broker-dealer for use in connection with any such resale for a period of 365
days after the Expiration Date or until all participating broker-dealers have
so resold.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
112
<PAGE>
resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concession from any such broker-dealer and/or the purchasers of any New Notes.
Any broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker-dealer that participates
in a distribution of New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of New Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and to
the best of the Company's information and belief, each person participating in
the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes to be received in the Exchange Offer.
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed upon
for the Company by Hughes & Luce, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of Talton Holdings, Inc. as of December
3l, 1996 and for the one- month period from December 1, 1996 (date of
acquisition) to December 31, 1996; the financial statements of AmeriTel Pay
Phones Inc. as of November 30, 1996 and for the eleven months ended November
30, 1996; the consolidated financial statements of Talton Telecommunications
Corporation as of November 30, 1996 and for the eleven months ended November
30, 1996; and the consolidated financial statements of Security Telecom
Corporation as of June 30, 1997 and for the six months ended June 30, 1997
appearing in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of AmeriTel Pay Phones, Inc. as of December 31, 1995
and for each of the two years in the period ended December 31, 1995 included in
this Prospectus have been audited by Arthur Andersen LLP, independent auditors,
as stated in their reports herein and are included in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Talton Telecommunications Corporation as of
December 31, 1995 and for each of the two years in the period ended December
31, 1995 appearing in this Prospectus have been audited by Borland, Benefield,
Crawford & Webster, P.C., independent auditors, as stated in their report
appearing herein and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of Security Telecom Corporation as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 appearing in this Prospectus have been audited by Davis, Clark and
Company, P.C., independent auditors, as stated in their report appearing herein
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Correctional Communications Corporation as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus have been
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audited by Ginsberg, Weiss & Company, independent auditors, as stated in their
report appearing herein and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under "Prospectus Summary"; "Risk Factors"; "Pro Forma
Combined Financial Data"; "Management's Discussion and Analysis of Financial
Condition and Results of Operations"; "Business" and elsewhere in this Offering
Memorandum constitute forward-looking statements, which involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, levels of activity, performance or achievements of the Company, or
industry results, to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: general
economic and business conditions; the ability of the Company to implement its
business and acquisition strategy, including the ability to integrate recently
acquired businesses into the Company; the ability of the Company to meet its
debt service obligations and to obtain additional financing for general
corporate and other purposes; changes in the telecommunications industry;
competition; availability of key personnel; and changes in, or the failure to
comply with government regulations. See "Risk Factors." As a result of the
foregoing and other factors, no assurance can be given as to future results,
levels of activity and achievements and neither the Company nor any other
person assumes responsibility for the accuracy and completeness of these
statements.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TALTON HOLDINGS, INC.
Report of Independent Auditors--Deloitte & Touche LLP.................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statement of Stockholders' Equity........................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
AMERITEL PAY PHONES, INC.
Report of Independent Auditors--Deloitte & Touche LLP.................... F-17
Report of Independent Auditors--Arthur Andersen LLP...................... F-18
Balance Sheets........................................................... F-19
Statements of Income..................................................... F-20
Statements of Stockholders' Equity....................................... F-21
Statements of Cash Flows................................................. F-22
Notes to Financial Statements............................................ F-23
TALTON TELECOMMUNICATIONS CORPORATION
Report of Independent Auditors--Deloitte & Touche LLP.................... F-33
Report of Independent Auditors--Borland, Benefield, Crawford & Webster,
P.C. ................................................................... F-34
Consolidated Balance Sheets.............................................. F-35
Consolidated Statements of Operations.................................... F-36
Consolidated Statements of Stockholders' Equity.......................... F-37
Consolidated Statements of Cash Flows.................................... F-38
Notes to Consolidated Financial Statements............................... F-39
SECURITY TELECOM CORPORATION
Report of Independent Auditors--Deloitte & Touche LLP.................... F-45
Report of Independent Auditors--Davis, Clark and Company, P.C. .......... F-46
Consolidated Balance Sheets.............................................. F-47
Consolidated Statements of Income........................................ F-48
Consolidated Statements of Stockholders' Equity.......................... F-49
Consolidated Statements of Cash Flows.................................... F-50
Notes to Consolidated Financial Statements............................... F-51
CORRECTIONAL COMMUNICATIONS CORPORATION
Report of Independent Auditors--Ginsberg, Weiss & Company................ F-57
Balance Sheets........................................................... F-58
Statements of Income..................................................... F-59
Statements of Stockholders' Equity....................................... F-60
Statements of Cash Flows................................................. F-61
Notes to Financial Statements............................................ F-62
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Talton Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Talton
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the one-month period from December 1, 1996 (date of
acquisition) to December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Talton Holdings,
Inc. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the one-month period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 4, 1997
(October 6, 1997 as to Note 13)
F-2
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 294,494 $ 34,151,980
Accounts receivable.............................. 7,346,270 9,300,701
Refundable income taxes.......................... 601,842 515,715
Inventories...................................... 941,819 926,376
Prepaid expenses................................. 259,984 449,333
Deferred income tax asset........................ 673,259 495,189
------------ ------------
Total current assets........................... 10,117,668 45,839,294
PROPERTY AND EQUIPMENT............................. 7,969,134 10,508,609
INTANGIBLE AND OTHER ASSETS........................ 62,046,732 74,330,406
------------ ------------
TOTAL.......................................... $ 80,133,534 $130,678,309
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 1,369,697 $ 5,501,480
Accrued expenses................................. 6,021,241 8,716,331
Income taxes payable............................. 978,000 --
Current portion of long-term debt................ 3,150,000 60,365
------------ ------------
Total current liabilities...................... 11,518,938 14,278,176
LONG-TERM DEBT..................................... 60,164,500 115,551,627
DEFERRED INCOME TAXES.............................. 1,968,767 495,189
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 6,000 shares
authorized, 5,925 shares issued and outstanding
(cumulative liquidation value of $5,925,000).... 59 59
Common stock, $.01 par value; 50,000 shares
authorized, 15,300 shares and 16,200 shares
issued and outstanding as of December 31, 1996
and June 30, 1997, respectively................. 153 162
Additional paid-in capital....................... 21,610,972 22,510,963
Retained earnings (deficit)...................... (15,129,855) (22,157,867)
------------ ------------
Total stockholders' equity..................... 6,481,329 353,317
------------ ------------
TOTAL.......................................... $ 80,133,534 $130,678,309
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTH
ONE MONTH PERIOD
PERIOD ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUE.................................... $5,506,110 $30,082,290
OPERATING EXPENSES:
Telecommunication costs............................ 2,298,712 12,405,583
Facility commissions............................... 1,455,375 8,160,713
Field operations and maintenance................... 218,895 1,165,678
Selling, general and administrative................ 372,341 2,327,093
Depreciation....................................... 110,803 617,084
Amortization of intangibles........................ 741,032 4,738,419
---------- -----------
Total operating expense.......................... 5,197,158 29,414,570
---------- -----------
OPERATING INCOME..................................... 308,952 667,720
OTHER (INCOME) EXPENSE:
Interest expense, net.............................. 612,071 3,931,885
Other, net......................................... (20,490) (19,220)
---------- -----------
Total other (income) expense..................... 591,581 3,912,665
---------- -----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY LOSS ..... (282,629) (3,244,945)
INCOME TAX EXPENSE (BENEFIT)......................... (22,502) (849,614)
---------- -----------
LOSS BEFORE EXTRAORDINARY LOSS....................... $ (260,127) $(2,395,331)
EXTRAORDINARY LOSS ON DEBT EXTINGUISHMENT............ -- (4,395,681)
---------- -----------
NET LOSS............................................. $ (260,127) $(6,791,012)
Preferred Stock Dividends............................ -- (237,000)
---------- -----------
NET LOSS APPLICABLE TO COMMON STOCK.................. $ (260,127) $(7,028,012)
========== ===========
Primary Loss per Common Share:
Net Loss before extraordinary loss................... (14.38) (145.44)
Extraordinary loss................................... -- (242.87)
---------- -----------
Net Loss per common share............................ (14.38) (388.31)
========== ===========
Weighted average shares outstanding.................. 18,089 18,099
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
----------------- ------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
-------- ------- ------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF PREFERRED
STOCK.................. 5,925 $ 59 -- $-- $ 5,924,941 $ -- $ 5,925,000
ISSUANCE OF COMMON
STOCK.................. 15,300 153 15,686,031 15,686,184
PORTION OF ACQUISITION
CASH PAYMENTS TO
CONTINUING
STOCKHOLDERS, TREATED
AS A DIVIDEND.......... (14,869,728) (14,869,728)
NET LOSS................ (260,127) (260,127)
-------- ------ ------ ---- ----------- ------------ ------------
BALANCE, DECEMBER 31,
1996................... 5,925 $ 59 15,300 $153 $21,610,972 $(15,129,855) $ 6,481,329
PREFERRED DIVIDENDS
(UNAUDITED)............ (237,000) (237,000)
ISSUANCE OF COMMON
STOCK(UNAUDITED)....... 900 9 899,991 900,000
NET LOSS (UNAUDITED).... (6,791,012) (6,791,012)
-------- ------ ------ ---- ----------- ------------ ------------
BALANCE, JUNE 30, 1997
(UNAUDITED)............ 5,925 $ 59 16,200 $162 $22,510,963 $(22,157,867) $ 353,317
======== ====== ====== ==== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ONE-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $ (260,127) $ (6,791,012)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation..................................... 110,803 617,084
Amortization of intangible assets, including
deferred financing costs and bond discount...... 803,023 5,110,365
Extraordinary loss on debt extinguishment........ -- 4,395,681
Deferred income taxes............................ 160,512 (1,295,508)
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable............................. 44,823 (505,303)
Inventories..................................... 12,013 41,541
Prepaid expenses and other assets............... (166,096) (84,759)
Accounts payable................................ (1,010,795) 1,569,933
Accrued expenses................................ (718,313) (113,274)
Income taxes.................................... (394,963) (891,873)
------------ ------------
Net cash used in operating activities.......... (1,419,120) 2,052,875
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (268,801) (1,296,817)
Cash outflows for acquisitions.................... (46,983,442) (10,367,497)
------------ ------------
Net cash used in investing activities.......... (47,252,243) (11,664,314)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt................ 59,200,000 118,200,000
Repayment of advances............................. -- (1,188,671)
Repayment of debt................................. (15,912,706) (67,400,000)
Payments of deferred financing costs.............. (3,804,121) (6,142,404)
Proceeds from the issuance of common and preferred
stock, net of expenses........................... 9,482,684 --
------------ ------------
Net cash provided by financing activities...... 48,965,857 43,468,925
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS.............. 294,494 33,857,486
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... -- 294,494
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 294,494 $ 34,151,980
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 640,035 $ 3,734,387
============ ============
Cash paid for income taxes........................ $ 211,950 $ 1,192,215
============ ============
NONCASH TRANSACTION:
Issuance of subordinate notes, preferred stock and
common stock in the acquisition.................. $ 16,043,000 $ --
============ ============
Reduction of stockholders' equity to reflect
continuing shareholder interests................. $(14,869,728) $ --
============ ============
Dividends payable................................. $ -- $ 237,000
============ ============
Issuance of stock for acquisition of assets....... $ -- $ 900,000
============ ============
Issuance of debt for acquisition of assets........ $ -- $ 300,000
============ ============
Amounts payable for acquisition costs............. $ -- $ 3,240,355
============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Talton Holdings, Inc. (the "Company") was incorporated on November
20, 1996, and, effective December 1, 1996, acquired all of the outstanding
equity interests of Talton Telecommunications Corporation and AmeriTel Pay
Phones, Inc., as discussed in Note 2. Effective with the acquisitions, the
Company became a holding company to these two operating companies, which own,
operate and maintain telephone systems under contracts with correctional
facilities in 33 states, with the majority of their installations in the
Central and Southeastern United States.
The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through major local exchange
carriers ("LECs") or through third-party billing services for smaller volume
LECs, all of which are granted credit in the normal course of business with
terms of between 30 and 60 days. The Company performs ongoing credit
evaluations of its customers and maintains allowances for unbillable and
uncollectible losses based on historical experience.
PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
and reserves for unbillable and uncollectible chargebacks, that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, Talton Telecommunications Corporation and AmeriTel Pay Phones,
Inc. All significant intercompany balances and transactions are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and investments with a remaining
maturity at date of purchase of three months or less.
ACCOUNTS RECEIVABLE--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of advance payments received, and an
allowance for unbillable and uncollectible calls, based on historical
experience, for estimated chargebacks to be made by the LECs. Under account
advance agreements with various third-party billing services, advance payments
equal to a percentage of the outstanding billed receivables are remitted to
the Company when calls are submitted to the third-party billing service, and
the Company grants a lien to the third-party billing service on the related
accounts receivable for the advance. The remainder of the billed receivable is
paid to the Company, net of the advance amount, after the third-party billing
service has collected the amounts receivable from the respective LECs.
Interest is charged on the advance payment at varying rates.
INVENTORIES--Inventories are stated at the lower of cost, as determined
primarily using the weighted average cost method, or market. Inventory is
primarily composed of equipment for installation on new contracts and supplies
and parts for the telephone systems serviced by the Company.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the related assets. The following is a summary of
useful lives for major categories of property and equipment.
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -------------
<S> <C>
Leasehold improvements...................................... Term of lease
Telephone system equipment.................................. 7.5 years
Vehicles.................................................... 3 years
Office equipment............................................ 3 to 7 years
</TABLE>
F-7
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maintenance and repairs are expensed when incurred and major repairs which
extend an asset's useful life are capitalized. When items are retired or
disposed, the related carrying value and accumulated depreciation are removed
from the respective accounts, and the net difference less any amount realized
from the disposition is reflected in earnings.
INTANGIBLE AND OTHER ASSETS--Intangible and other assets primarily include
amounts allocated to acquired facility contracts, noncompete agreements,
goodwill and other intangible assets, which are stated at cost, along with the
long-term portion of customer advances. Amortization of intangible assets is
provided on a straight-line basis over the estimated useful lives of the
related assets. The following is a summary of useful lives for major
categories of intangible assets:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- --------------
<S> <C>
Acquired facility contracts................................ Contract term
Noncompete agreements...................................... Agreement term
Deferred loan costs........................................ Loan term
Other intangibles.......................................... 2 to 5 years
Goodwill................................................... 20 years
</TABLE>
Acquired facility contracts consist primarily of costs allocated to
locations acquired in acquisitions of facility contract rights from other
service providers, along with signing bonuses paid to the facilities under new
facility installations and other incremental direct costs paid to obtain the
facility contracts.
Other intangibles include organizational costs and licensing fees to obtain
state licenses to conduct business.
The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flow, undiscounted and without interest charges, to the
carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.
INCOME TAXES--The Company accounts for income taxes using the liability
method in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are provided for temporary differences
between the financial statement and tax bases of the assets and liabilities
using current tax rates.
REVENUE RECOGNITION--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long-distance charges, along with commissions payable to the
facilities and allowances for unbillable and uncollectible calls, based on
historical experience.
FACILITY COMMISSIONS--Under the terms of the Company's telephone system
contracts with correctional facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.
FINANCIAL INSTRUMENTS--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," includes
primarily cash and cash equivalents, accounts receivable, accounts payable and
long-term debt. The Company believes that the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and long-term debt are
a reasonable estimate of their fair
F-8
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value because of the short-term maturities of such instruments or, in the case
of long-term debt under the Senior Credit Agreement, because of the floating
interest rates on such long-term debt. In the case of the Company's senior
subordinated and subordinated notes, which bear fixed interest rates, subject
to scheduled increases, the Company believes that the interest rates on these
notes approximate fair value since they were established in December 1996.
LOSS PER SHARE--The Company computes earnings per share based on the
weighted average number of common shares outstanding during the year,
including common equivalent shares, when dilutive.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's balance sheet as of
June 30, 1997 and the statements of operations and cash flows for the six
months ended June 30, 1997, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position and
results of operations and cash flows of the Company as of June 30, 1997 and
for the six months ended June 30, 1997, have been made. The financial position
and results of operations for the interim period are not necessarily
indicative of the results to be expected for the full years.
2. ACQUISITIONS
Effective December 1, 1996, the Company acquired all of the outstanding
equity interests of Talton Telecommunications Corporation and AmeriTel Pay
Phones, Inc. The aggregate net purchase price was approximately $47.9 million,
which was funded with the net proceeds from the issuance of common and
preferred stock and the proceeds from the issuance of long-term debt.
The above acquisitions were accounted for using the purchase method of
accounting as of their respective acquisition dates and, accordingly, only the
results of operations of the acquired companies subsequent to their respective
acquisition dates are included in the consolidated financial statements of the
Company. At the acquisition date, the purchase price was allocated to assets
acquired, including identifiable intangibles, and liabilities assumed based on
their fair market values. The excess of the total purchase prices over the
fair value of the net assets acquired represents goodwill. In connection with
the acquisitions, assets were acquired and liabilities were assumed as
follows:
<TABLE>
<S> <C>
Purchase prices:
Net cash paid............................................. $ 46,983,442
Subordinated notes, preferred stock and common stock
issued to sellers, net of expenses....................... 15,768,624
Portion of purchase price for continuing stockholders,
treated as a dividend.................................... (14,869,728)
------------
Total net purchase prices................................ 47,882,338
Fair values of net assets acquired:
Fair values of assets acquired............................ 35,987,320
Liabilities assumed....................................... (27,864,398)
------------
Total net assets acquired................................ 8,122,922
------------
Goodwill................................................... $ 39,759,416
============
</TABLE>
Since certain of the stockholders of the Company held ownership interests in
the acquired companies, their continuing ownership interest in the Company has
been accounted for at their prior historical basis, which has resulted in a
reduction in stockholders' equity of approximately $14.9 million and a
corresponding reduction in the fair values assigned to tangible and
identifiable intangible assets, in accordance with the provisions of Emerging
Issue Task Force discussion No. 88-16, "Basis in Leveraged Buyout
Transactions."
F-9
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Trade accounts receivable, net of advance payments
received of $1,188,671 and $2,141,502 at December
31, 1996 and June 30, 1997, respectively............ $ 7,975,016 $10,491,430
Advance commissions receivable....................... 349,094 230,630
Amounts receivable from stockholders................. 135,627 172,148
Employees and other.................................. 11,556 95,275
----------- -----------
8,471,293 10,989,483
Less allowance for unbillable and uncollectible
chargebacks......................................... (1,125,023) (1,688,782)
----------- -----------
$ 7,346,270 $9,300,701
=========== ===========
</TABLE>
At December 31, 1996 and June 30, 1997, the Company had advanced commissions
to certain facilities of $835,641 and $596,255 (unaudited) which are
recoverable from such facilities as a reduction of earned commissions at
specified monthly amounts. Amounts included in accounts receivable represent
the estimated recoverable amounts during the next fiscal year with the
remaining balance recorded in other assets.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements................................ $ 432,036 $ 445,452
Telephone system equipment............................ 7,259,333 9,783,445
Vehicles.............................................. 123,977 142,422
Office equipment...................................... 264,591 865,177
---------- -----------
8,079,937 11,236,496
Less accumulated depreciation......................... (110,803) (727,887)
---------- -----------
$7,969,134 $10,508,609
========== ===========
</TABLE>
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Intangible assets:
Acquired telephone contracts..................... $18,440,124 $24,908,172
Noncompete agreements............................ 303,611 403,611
Deferred loan costs.............................. 3,804,121 5,839,642
Goodwill......................................... 39,759,416 47,836,580
Other intangibles................................ 55,936 453,160
----------- -----------
62,363,208 79,441,165
Less accumulated amortization..................... (803,023) (5,476,384)
----------- -----------
Total intangible assets............................ 61,560,185 73,964,781
Other assets--noncurrent portion of commission
advances to facilities............................ 486,547 365,625
----------- -----------
$62,046,732 $74,330,406
=========== ===========
</TABLE>
F-10
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Facility commissions.............................. $2,034,070 $2,390,454
Billing and collection fees....................... 455,517 311,545
Uncollectible call chargebacks.................... 840,000 840,000
Long-distance charges............................. 1,428,148 780,370
Accrued acquisition costs......................... 1,068,124 3,889,832
Accrued interest.................................. 9,946 103,973
Other............................................. 185,436 400,157
---------- ----------
$6,021,241 $8,716,331
========== ==========
</TABLE>
The accrual for uncollectible call chargebacks represents a reserve for
amounts collected from the various LECs or third-party billing services which
are expected to be charged back to the Company in future periods.
7. LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Senior Notes................................... $ -- $115,000,000
Senior Credit Agreement:
Revolving loan facility...................... 5,700,000
Term loan facility........................... 45,000,000
Senior subordinated notes...................... 8,500,000
Subordinated notes............................. 5,000,000
Other.......................................... 200,000 611,992
----------- ------------
64,400,000 115,611,992
Less unamortized discount...................... (1,085,500)
Less current portion of long-term debt......... (3,150,000) (60,365)
----------- ------------
$60,164,500 $115,551,627
=========== ============
</TABLE>
SENIOR CREDIT AGREEMENT--In December 1996, the Company entered into a Senior
Credit Agreement with a group of lenders, which included a revolving loan
facility and a term loan facility. Under the revolving loan facility, the
Company has availability of up to $10 million, subject to certain
restrictions. The revolving loan facility matures on December 27, 1998, and
requires quarterly interest payments beginning March 31, 1997.
The term loan facility is a $45 million facility, which requires quarterly
interest payments beginning on March 31, 1997, and quarterly principal
installments, beginning on September 30, 1997, of $1,575,000 through December
1997, decreasing to $1,462,500 on March 31, 1998, and increasing to $2,137,500
on March 31, 1999, $2,868,750 on March 31, 2000, and $3,993,750 on March 31,
2001, with the remaining unpaid balance due on December 27, 2001. These
scheduled payments under the term loan facility are subject to mandatory
prepayments beginning March 31, 1998, based on excess cash flows as defined in
the Senior Credit Agreement.
Amounts outstanding under both the revolving loan facility and the term loan
facility bear interest based on one of the following rates at the Company's
option: (i) a variable rate equal to the higher of the administrative agent's
established commercial lending rate or the federal funds rate plus 0.5% or
(ii) a variable rate based on
F-11
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the LIBO (London Interbank Offering) rate. The Company pays a commitment fee
to the lenders at the rate of 0.5% per annum on the average daily unused
portion of the commitment amounts for both the revolving loan and term loan
facilities.
Both the revolving and term loan facilities are collateralized by
substantially all the assets of the Company.
SENIOR SUBORDINATED NOTES--In connection with the acquisitions, the Company
issued $8.5 million of senior subordinated notes which mature on December 27,
2002, and accrue interest, payable quarterly, at an initial rate of 12% per
annum for the period from the date of issuance until March 27, 1997.
Thereafter, the interest rate increases 0.5% on a quarterly basis up to a
maximum rate of 19%. The interest rates on these notes are payable in
additional notes for interest paid in excess of 16%. In connection with the
issuance of the senior subordinated notes, stock purchase warrants to acquire
1,085 shares of the Company's Class A common stock at an exercise price of
$.01 per share were issued to certain note holders. As a result, the senior
subordinated notes were discounted from their face value by $1,085,500, which
represented the estimated value of the proceeds assigned to the warrants as
discussed in Note 9. This discount is being amortized as additional interest
expense over the term of the notes, resulting in an effective interest rate on
the senior subordinated notes of 13.76% as of December 31, 1996.
SUBORDINATED NOTES--In connection with the acquisitions, the Company issued
subordinated notes to three stockholders of the Company, which mature on
December 27, 2002, and accrue interest, payable quarterly, at an initial rate
of 12.5% per annum, for the period from the date of issuance through September
30, 1997. Thereafter, the interest rate increases 0.5% on a quarterly basis up
to a maximum rate of 19%.
COVENANTS AND OTHER--The Senior Credit Agreement contains financial and
operating covenants requiring, among other items, the maintenance of certain
financial ratios, as defined, including total debt to free cash flow, senior
debt to free cash flow and various other ratios of free cash flow to specified
minimums. In the event the Company fails to comply with the covenants and
other restrictions, as specified below, it could be in default under the
Senior Credit Agreement and substantially all of the Company's long-term
maturities could be accelerated.
In addition, the Senior Credit Agreement contains various covenants which,
among other things, limit the Company's ability to incur additional
indebtedness, restrict the Company's ability to invest in and divest of
assets, and restrict the Company's ability to pay dividends, redeem or
purchase its common stock or redeem or prepay principal and interest on its
subordinated debt.
At December 31, 1996, the scheduled maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1997........................................................... $ 3,150,000
1998........................................................... 11,550,000
1999........................................................... 8,750,000
2000........................................................... 11,475,000
2001........................................................... 15,975,000
Thereafter..................................................... 13,500,000
-----------
$64,400,000
===========
</TABLE>
F-12
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
A summary of the income tax benefit for the one-month period ended December
31, 1996, is as follows:
<TABLE>
<S> <C>
Refundable income taxes:
Federal........................................................ $(73,837)
State.......................................................... (10,260)
Deferred income taxes............................................ 61,595
--------
$(22,502)
========
</TABLE>
The Company has provided for income taxes during the six months ended June
30, 1997 using expected 1997 effective tax rates for each of its taxing
jurisdictions which have been allocated between current income taxes payable
and deferred income taxes based on anticipated 1997 temporary differences.
The income tax benefit differs from statutory rates primarily because of
permanent differences related to nondeductible goodwill amortization. The
following is a reconciliation of the income tax benefit reported in the
statement of operations:
<TABLE>
<S> <C>
Tax benefit at statutory rates.................................. $(96,094)
Effect of state income taxes.................................... (13,284)
Effect of nondeductible goodwill amortization................... 86,876
--------
$(22,502)
========
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
asset and liabilities were:
<TABLE>
<S> <C>
Deferred income tax asset:
Allowance for unbillable and uncollectible chargebacks..... $ 440,547
Reserves................................................... 232,712
-----------
673,259
Deferred income tax liabilities:
Depreciation and amortization.............................. (1,944,922)
Other...................................................... (23,845)
-----------
(1,968,767)
-----------
Net deferred income tax liability............................ $(1,295,508)
===========
</TABLE>
This net deferred income tax liability is classified in the consolidated
balance sheet as follows:
<TABLE>
<S> <C>
Current asset................................................. $ 673,259
Noncurrent liability.......................................... (1,968,767)
-----------
$(1,295,508)
===========
</TABLE>
9. STOCKHOLDERS' EQUITY
COMMON STOCK--The authorized common stock of the Company includes 49,600
shares of Class A common stock and 400 shares of Class B common stock. Holders
of the shares of Class A and Class B common stock have identical rights and
privileges except that holders of Class B common stock are entitled to four
votes per share as compared to one vote per share for holders of Class A
common stock.
F-13
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Issued and outstanding shares of common stock as of December 31, 1996
include 14,900 shares of Class A common stock and 400 shares of Class B common
stock. The Class B common stock is convertible into four shares of Class A
common stock upon the occurrence of a major event, as defined.
PREFERRED STOCK--In connection with the acquisitions as discussed in Note 2,
the Company issued 5,925 shares of senior preferred stock to former
stockholders of the acquired companies. The preferred stockholders have no
voting rights and are entitled to receive cumulative dividends at the rate of
$80 per share per annum, payable quarterly, when declared by the Board of
Directors. In the event of any liquidation, dissolution or winding up of the
Company (voluntary or involuntary), the holders of the preferred stock shall
be entitled to receive a preference over common shareholders in any
distribution of assets of the Company, equal to $1,000 per share plus
cumulative unpaid dividends. Upon the occurrence of a major event, which
includes (i) a sale of all or substantially all the assets of the Company or
(ii) a registered public offering of equity interests with gross proceeds of
at least $20 million under the Securities Act of 1933, as amended, the Company
is required to redeem the outstanding shares of preferred stock at a price
equal to $1,000 per share plus cumulative unpaid dividends. Each holder of
preferred stock is entitled to convert each preferred share into 0.08505
shares of Class A common stock, at the option of the holder, at any time after
the date of issuance and on or prior to the occurrence of a major event, as
defined.
In addition to the senior preferred stock discussed above, the Company is
authorized to issue up to 44,000 shares of junior preferred stock, of which no
shares have been issued as of December 31, 1996.
WARRANTS--At the acquisition date, the Company entered into a warrant
agreement with certain of its senior subordinated note holders, which granted
the note holders the right to purchase 1,085 shares of Class A common stock at
an exercise price of $.01 per share, which was below the market value of the
underlying shares at that date. Accordingly, as of December 31, 1996
approximately $1,085,500 of the proceeds of the senior subordinated note
borrowings have been allocated to these warrants and are recorded as
additional paid-in capital.
At the acquisition date, the Company also entered into various warrant
agreements with its other subordinated lenders along with its Class B common
shareholders which granted such holders the right to purchase 6,230 shares of
Class A common stock of the Company upon terms established by the Board of
Directors. These warrants are exercisable in whole or part, at various dates
through December 27, 2006, at warrant prices ranging from $1,000 to $3,000 per
share.
As of December 31, 1996, no warrant holders have exercised their warrants to
acquire additional shares of Class A common stock.
10. RELATED-PARTY TRANSACTIONS
A stockholder of the Company has personally guaranteed three of the
Company's operating leases, which have expiration dates ranging from March
1997 to September 1998. In addition, one of the Company's subsidiaries leased
office space from this stockholder under a month-to-month lease with monthly
rentals of $3,000. This lease expired on December 31, 1996. Subsequently, the
Company entered into a new lease agreement with the stockholder, which
requires monthly payments in 1997 of $9,083, and thereafter at agreed-upon
monthly rates through December 31, 2001, at which time the Company has an
option to extend the lease for an additional five years.
The Company entered into a management services and consulting agreement with
a company affiliated with certain stockholders, along with separate consulting
agreements with three stockholders who were formerly
F-14
<PAGE>
TALTON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
employees of the acquired companies. These agreements require the payment of
aggregate minimum annual consulting fees over the next three years in the
following amounts:
<TABLE>
<S> <C>
1997.............................................................. $478,000
1998.............................................................. $468,000
1999.............................................................. $300,000
</TABLE>
These agreements also provide for the reimbursement of direct expenses along
with future payments for transaction consulting services. One of the
agreements entitles an affiliate of certain stockholders to a 1% fee based on
the gross acquisition price for any asset or stock acquisitions by the
Company. This agreement, which expires in December 1999, limits the cumulative
acquisition fees paid to this consultant to an amount not to exceed $1,250,000
over the life of the agreement.
The management services and consulting agreement has a three-year term and
is cancelable at either party's discretion, with all consulting fees under the
remaining term of the agreement to be paid upon the date of termination. The
remaining consulting agreements are cancelable only at the option of the
consultants and expire over one- and two-year terms.
In connection with these agreements, the Company paid $102,000 during the
six months ended June 30, 1997, of which $75,000 was recorded as a prepaid
expense at June 30, 1997.
In conjunction with the formation of the Company and the consummation and
financing of the acquisitions, the Company paid transaction fees and expenses
of $1,670,000 to three companies affiliated with certain stockholders which
have been capitalized in the acquisitions.
11. BENEFIT PLAN
The Company's subsidiaries sponsor 401(k) savings plans for the benefit of
eligible full-time employees, which are qualified benefit plans in accordance
with the Employee Retirement Income Security Act (ERISA). Employees
participating in the plan can generally make contributions to the plan of up
to 15% of their compensation. The plans provide for discretionary matching
contributions by the Company of up to 50% of an eligible employee's
contribution. Total plan expense was $3,517 for the one month ended December
31, 1996. There was no plan expense during the unaudited six months ended June
30, 1997.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--The Company leases office furniture, office space and
vehicles under various operating lease agreements. Rent expense under these
operating lease agreements was $19,900 and $118,855, respectively, during the
one-month period ended December 31, 1996 and the unaudited six-month period
ended June 30, 1997. Minimum future rental payments under noncancelable
operating leases for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
December 31:
1997........................................................... $238,809
1998........................................................... 208,337
1999........................................................... 129,986
2000........................................................... 93,602
2001........................................................... 95,668
--------
Total minimum future rental payments............................. $766,402
========
</TABLE>
F-15
<PAGE>
OTHER--In connection with the acquisitions, the Company entered into
consulting agreements with certain shareholders, which are discussed in Note
10. Additionally, the Company entered into an employment agreement with one
stockholder who was formerly an employee of one of the acquired companies. The
employment agreement has an initial term of one year and requires payment of
an annual base salary of $100,000 along with a $25,000 payment to be paid in
equal monthly installments over the first twelve months of the agreement.
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business operations. In the opinion of management,
the amount of liability, if any, with respect to these actions would not
materially affect the financial position of the Company or its results of
operation.
13. SUBSEQUENT EVENTS
On April 4, 1997, the Company acquired substantially all of the net assets
of Tri-T, Inc. (d/b/a "Tataka") for cash of $0.6 million and a contingent
payment of $0.3 million, subject to certain performance related benchmarks to
be evaluated in the future.
On June 27, 1997, the Company acquired substantially all of the net assets
of Security Telecom Corporation for cash of $9.9 million and issuance of 900
shares of the Company's Common Stock. Approximately $2.5 million of additional
purchase price was withheld at closing, pending certain regulatory approvals
and final adjustments. On June 27, 1997, in conjunction with the acquisition
of Security Telecom Corporation, the Company entered into an agreement with an
employee of Security Telecom Corporation giving the employee the right to
purchase 100 shares of the Company's Class A common stock for $2,000 per
share. The employee may elect to exercise the options after December 31, 1997
or may elect to receive a $200,000 payment in cash. The options must be
exercised by June 30, 1999. The Company has recorded this liability in the
June 30, 1997 financial statements with a corresponding increase in goodwill
resulting from the Security Telecom Acquisition.
On June 27, 1997 the Company issued $115 million of 11% Senior Notes due
2007 in a private placement under Section 144A of the Securities Act of 1933.
A portion of the proceeds of the issuance was used to repay all of the debt
outstanding under the Senior Credit Agreement, the Senior Subordinated Notes
and the Subordinated Notes and to fund the purchase of Security Telecom
Corporation. As a result of the repayment of the outstanding debt, the Company
incurred an extraordinary loss of $4.4 million resulting from the write-off of
the unamortized deferred loan costs and the unamortized discount on the Senior
Subordinated Notes. In addition, on July 30, 1997 the Company's Senior Credit
Agreement was amended to provide the Company a $35 million revolving loan
commitment with interest rates similar to the prior revolving loan commitment
and a maturity date of December 31, 2000. All of the Company's subsidiaries
that have material business operations or assets (the "Subsidiary Guarantors")
are fully, unconditionally, and jointly and severally liable for the Notes.
The Subsidiary Guarantors are wholly owned and constitute all of the Company's
direct and indirect subsidiaries, except for certain subsidiaries that are not
consequential. The Company has not included separate financial statements of
its subsidiaries because (a) the aggregate assets, liabilities, earnings and
equity of such subsidiaries are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis, and
(b) the Company believes that separate financial statements and other
disclosures concerning such subsidiaries are not material to investors.
On July 31, 1997, the Company acquired all of the net assets of Correctional
Communications Corporation for a cash purchase price of $10.5 million. Of this
amount, $5.5 million is held in escrow serving as security for certain
representations and warranties made by the sellers. The acquisition agreement
also provides for a contingent payment of up to $1.5 million if certain
financial performance benchmarks are achieved in the future and grants the
sellers the right to acquire up to 267 shares of the Company's common stock at
a price of at least $3,000 per share.
On October 6, 1997, the Company entered into an agreement to purchase
substantially all of the net assets of the inmate pay-phone division of
Communications Central Inc. for $42 million subject to various adjustments as
defined in the agreement.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of AmeriTel Pay Phones, Inc.:
We have audited the accompanying balance sheet of AmeriTel Pay Phones, Inc.
(the "Company"), as of November 30, 1996, and the related statements of
income, stockholders' equity and cash flows for the eleven months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of AmeriTel Pay Phones, Inc., as of November
30, 1996, and the results of its income and its cash flows for the eleven
months then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche llp
Dallas, Texas
April 4, 1997
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of AmeriTel Pay Phones, Inc.:
We have audited the accompanying balance sheet of AmeriTel Pay Phones, Inc.
(a Missouri Corporation), as of December 31, 1995, and the related statements
of income, stockholders' equity and cash flows for each of the two years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriTel Pay Phones, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Kansas City, Missouri
March 22, 1996
F-18
<PAGE>
AMERITEL PAY PHONES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 891,026 $ 80,664
Accounts receivable................................ 1,754,777 5,546,304
Stock subscriptions receivable..................... 1,061,384
Refundable income taxes............................ 242,277 342,986
Inventories........................................ 1,056,724 785,438
Prepaid expenses................................... 79,526 34,646
Deferred tax asset................................. 253,893 396,752
------------ ------------
Total current assets............................. 4,278,223 8,248,174
PROPERTY AND EQUIPMENT............................... 3,671,940 4,521,521
INTANGIBLE AND OTHER ASSETS.......................... 10,635,478 14,114,958
------------ ------------
TOTAL............................................ $ 18,585,641 $ 26,884,653
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 337,485 $ 1,429,916
Accrued expenses................................... 1,702,786 3,289,957
Current maturities of long-term debt............... 220,592 1,824,907
------------ ------------
Total current liabilities........................ 2,260,863 6,544,780
LONG-TERM DEBT....................................... 11,469,408 13,019,811
DEFERRED INCOME TAXES................................ 318,354 425,689
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
authorized; 244,800 shares issued and outstanding
(liquidation value of $1,534,157 at November 30,
1996)............................................. 2,448 2,448
Common stock, $.01 par value, 10,000,000 shares
authorized; 3,233,854 and 3,519,315 shares issued
and outstanding as of December 31, 1995, and
November 30, 1996, respectively................... 32,338 35,193
Additional paid-in capital......................... 2,292,548 3,704,863
Retained earnings.................................. 2,209,682 3,151,869
------------ ------------
Total stockholders' equity....................... 4,537,016 6,894,373
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 18,585,641 $ 26,884,653
============ ============
</TABLE>
See notes to financial statements.
F-19
<PAGE>
AMERITEL PAY PHONES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
-------------------------- NOVEMBER 30, JUNE 30,
1994 1995 1996 1996
------------ ------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE....... $ 11,698,641 $ 20,371,388 $29,305,641 $14,561,944
OPERATING EXPENSES:
Telecommunication
costs................ 5,346,949 9,747,326 13,728,316 6,937,917
Facility commissions.. 1,861,154 3,497,488 6,086,469 2,827,348
Field operations and
maintenance.......... 507,460 863,901 1,166,063 599,315
Selling, general and
administrative....... 927,441 1,758,744 2,281,177 1,142,376
Depreciation.......... 194,413 384,277 536,264 273,970
Amortization of
intangibles.......... 595,268 1,224,071 1,624,017 856,923
Nonrecurring
expenses............. 684,320 --
------------ ------------ ----------- -----------
Total operating
expenses........... 9,432,685 17,475,807 26,106,626 12,637,849
------------ ------------ ----------- -----------
OPERATING INCOME........ 2,265,956 2,895,581 3,199,015 1,924,095
OTHER (INCOME) EXPENSE:
Interest income....... (8,637) (32,165) (20,816) (16,020)
Interest expense...... 572,618 1,059,860 1,375,701 726,577
Other, net............ 66,139 38,881 34,814
------------ ------------ ----------- -----------
Total other (income)
expense............ 563,981 1,093,834 1,393,766 745,371
------------ ------------ ----------- -----------
INCOME BEFORE INCOME
TAXES AND EXTRAORDINARY
LOSS................... 1,701,975 1,801,747 1,805,249 1,178,724
INCOME TAXES............ 734,363 693,001 471,490
------------ ------------ ----------- -----------
INCOME BEFORE
EXTRAORDINARY LOSS..... 1,701,975 1,067,384 1,112,248 707,234
EXTRAORDINARY LOSS FROM
EARLY EXTINGUISHMENT OF
DEBT................... 52,353 --
------------ ------------ ----------- -----------
NET INCOME.............. $ 1,701,975 $ 1,067,384 $ 1,059,895 $ 707,234
============ ============ =========== ===========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
AMERITEL PAY PHONES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PREFERRED --------------------- PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... $ -- 3,750 $ 3,750 $ 196,250 $ 269,865 $ 469,865
Issuance of common
stock................. 5,625 5,625 541,875 547,500
Net income for 1994.... 1,701,975 1,701,975
Distributions to
shareholders ($78 per
share)................ (734,575) (734,575)
------ --------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31,
1994................... -- 9,375 9,375 738,125 1,237,265 1,984,765
Stock split............ 3,054,377 3,054,377 (3,054,377) --
Change in par value.... (3,033,115) 3,033,115 --
Issuance of common
stock................. 173,370 1,734 130,891 132,625
Purchase and retirement
of treasury stock..... (3,268) (33) (14,967) (15,000)
Issuance of preferred
stock................. 2,400 1,414,842 1,417,242
Preferred stock
dividends ($.21 per
share)................ 48 29,952 (80,000) (50,000)
Net income for 1995.... 1,067,384 1,067,384
------ --------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31,
1995................... 2,448 3,233,854 32,338 2,292,548 2,209,682 4,537,016
Issuance of common
stock................. 285,461 2,855 1,412,315 1,415,170
Preferred stock
dividends ($0.48 per
share)................ (117,708) (117,708)
Net income for the
eleven months ended
November 30, 1996..... 1,059,895 1,059,895
------ --------- ---------- ---------- ---------- ----------
BALANCE, NOVEMBER 30,
1996................... $2,448 3,519,315 $ 35,193 $3,704,863 $3,151,869 $6,894,373
====== ========= ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-21
<PAGE>
AMERITEL PAY PHONES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
------------------------ NOVEMBER 30, JUNE 30,
1994 1995 1996 1996
------------ ------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 1,701,975 $ 1,067,384 $ 1,059,895 $ 707,234
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Extraordinary loss.... 52,353
Depreciation and
amortization......... 789,681 1,608,348 2,160,281 1,130,893
Deferred income
taxes................ 64,461 (35,524) 253,893
Changes in operating
assets and
liabilities:
Accounts receivable.. (605,975) (992,079) (3,803,925) (578,223)
Inventory............ (604,411) (299,555) 271,286 319,508
Prepaid expenses..... (30,619) (44,017) 44,880 (1,478,476)
Accounts payable..... (189,185) (135,633) 1,092,431 2,186,813
Accrued expenses..... 366,783 1,288,008 1,460,005 (1,561,821)
Income taxes......... (242,277) 266,149 242,277
------------ ------------ ----------- -----------
Net cash provided by
operating
activities......... 1,428,249 2,314,640 2,567,831 1,222,098
------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. (1,779,468) (2,051,111) (1,516,236) (582,851)
Cash outflows for
acquisition of
facility contracts... (6,770,292) (3,613,662) (4,698,468) (3,869,919)
Payments under
noncompete
agreements........... (55,000)
------------ ------------ ----------- -----------
Net cash used in
investing
activities......... (8,604,760) (5,664,773) (6,214,704) (4,452,770)
------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt
borrowings........... 12,305,000 11,890,000 5,600,000 3,200,000
Proceeds from
(payments on) advance
from related
parties.............. 480,742 (571,653)
Proceeds from issuance
of common stock...... 547,500 19,501
Proceeds from issuance
of preferred stock... 1,417,242
Purchase of treasury
stock................ (15,000)
Payments of long-term
debt................. (5,859,932) (8,200,510) (2,645,282) (819,465)
Dividends paid on
common and preferred
stock................ (256,735) (507,840) (137,708)
------------ ------------ ----------- -----------
Net cash provided by
financing
activities......... 7,216,575 4,012,239 2,836,511 2,380,535
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... 40,064 662,106 (810,362) (850,137)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 188,856 228,920 891,026 891,026
------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 228,920 $ 891,026 $ 80,664 $ 40,889
============ ============ =========== ===========
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for
interest............. $ 516,732 $ 930,906 $ 1,489,076 $ 726,577
============ ============ =========== ===========
Cash paid for income
tax.................. $ -- $ 912,479 $ 462,380 $ 250,207
============ ============ =========== ===========
Noncash transactions:
Issuance of common
stock upon exercise
of stock options in
exchange for stock
subscriptions
receivable, along
with the related tax
benefit.............. $ -- $ -- $ 1,395,669 $ --
============ ============ =========== ===========
Amounts payable for
acquisitions......... $ 354,839 $ -- $ 310,000 $ --
============ ============ =========== ===========
Issuance of common
stock upon conversion
of notes payable..... $ -- $ 123,500 $ -- $ --
============ ============ =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--AmeriTel Pay Phones, Inc. (the "Company"), which was incorporated
on June 6, 1991, owns, operates and maintains telephone systems under
contracts with correctional facilities in 30 states, with the majority of its
installations in Missouri, Kansas, Iowa, Indiana, Minnesota and Nebraska.
The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through major local exchange
carriers ("LECs") or through third-party billing services, all of which are
granted credit in the normal course of business with terms of between 30 and
60 days. The Company performs ongoing credit evaluations of its customers and
maintains allowances for unbillable and uncollectible losses based on
historical experience.
PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
for unbillable and uncollectible chargebacks, that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.
ACCOUNTS RECEIVABLE--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of advance payments received, and an
allowance for unbillable and uncollectible calls based on historical
experience for estimated chargebacks to be made by the LECs. Under account
advance agreements with various third-party billing services, advance payments
equal to a percentage of the outstanding billed receivables are remitted to
the Company when calls are submitted to the third-party billing service and
the Company grants a lien to the third-party billing service on the related
accounts receivable for the advance. The remainder of the billed receivable is
paid to the Company, net of the advance amount, after the third-party billing
service has collected the amounts receivable from the respective LECs.
Interest is charged on the advance payment at varying rates.
INVENTORIES--Inventories are stated at the lower of cost, as determined
using the weighted average cost method, or market. Inventory is primarily
composed of equipment available for installation on new contracts and supplies
and parts for the telephone systems serviced by the Company.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the related assets. The following is a summary of
useful lives for major categories of property and equipment:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- ---------------
<S> <C>
Leasehold improvements.................................... Term of lease
Telephone system equipment................................ 7.5 to 10 years
Vehicles.................................................. 5 years
Office equipment.......................................... 3 to 7 years
</TABLE>
Maintenance and repairs are expensed when incurred and major repairs which
extend an asset's useful life are capitalized. When items are retired or
disposed of, the related carrying value and accumulated depreciation are
removed from the respective accounts, and the net difference less any amount
realized from the disposition is reflected in earnings.
F-23
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INTANGIBLE AND OTHER ASSETS--Intangible and other assets primarily include
amounts allocated to acquired facility contracts, noncompete agreements,
goodwill and other intangible assets, which are stated at cost, along with the
long-term portion of customer advances. Amortization of intangible assets is
provided on a straight-line basis over the estimated useful lives of the
related assets. The following is a summary of useful lives for major
categories of intangible assets:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- --------------
<S> <C>
Acquired facility contracts................................ 7.5 years
Noncompete agreements...................................... Agreement term
Deferred loan costs........................................ Loan term
Other intangibles.......................................... 5 to 20 years
Goodwill................................................... 15 years
</TABLE>
Acquired facility contracts consist primarily of costs allocated to
locations acquired in acquisitions of facility contract rights from other
service providers, along with signing bonuses paid to the facilities under new
facility installations and other incremental direct costs paid to obtain the
facility contracts.
Other intangibles include organizational costs and licensing fees to obtain
state licenses to conduct business.
The Company began in 1996 to periodically assess the net realizable value of
its intangible assets, as well as all other assets, by comparing the expected
future net operating cash flow, undiscounted and without interest charges, to
the carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.
INCOME TAXES--Prior to 1995, the Company had elected to be treated as an S
corporation under certain provisions of the Internal Revenue Code.
Accordingly, the 1994 statement of income includes no provision for federal or
state income taxes since the taxable income of the Company is included in the
shareholders' individual income tax returns. Effective January 1, 1995, the
Company terminated its S corporation status.
The Company accounts for income taxes using the liability method in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are provided for temporary differences between the
financial statement and tax bases of the assets and liabilities using current
tax rates.
REVENUE RECOGNITION--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long distance charges, along with commissions payable to the
facilities and allowances for unbillable and uncollectible calls, based on
historical experience.
FACILITY COMMISSIONS--Under the terms of the Company's telephone system
contracts with correctional facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.
FINANCIAL INSTRUMENTS--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt.
The Company believes that the carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt are a reasonable
estimate of their fair value because of the short-
F-24
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
term maturities of such instruments or, in the case of the revolving credit
facility borrowings, because of the floating interest rates on such
borrowings. In the case of the subordinated promissory notes to related
parties, which bear a fixed interest rate, the Company believes that the
current interest rates on these notes approximate the rates which could be
currently negotiated with such related parties.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the presentation used in the 1996
financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's statements of income
and cash flows for the six months ended June 30, 1996, have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal, recurring adjustments) necessary to present fairly
the results of operations and cash flows of the Company for the six months
ended June 30, 1996, have been made. The results of operations for the interim
period are not necessarily indicative of the results to be expected for the
full year.
2. ACQUISITIONS
During the years ended December 31, 1994 and 1995, and the eleven months
ended November 30, 1996, the Company acquired facility contracts and the
related facility equipment from various other independent inmate phone
operators for purchase prices aggregating $7.2 million, $3.6 million and $5.0
million, respectively.
These acquisitions were each accounted for using the purchase method of
accounting as of their respective acquisition dates, and accordingly, only the
results of the operations of these facilities subsequent to their respective
acquisition dates are included in the financial statements of the Company. At
the acquisition dates, the purchase prices were allocated to the assets
acquired, including telephone system equipment, facility contracts and other
identifiable intangibles based on their fair market values. The excess of the
total purchase prices over the fair values of the assets acquired represented
goodwill. In connection with the acquisitions, assets were acquired and
liabilities were assumed as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, ELEVEN MONTHS
--------------------- ENDED
1994 1995 NOVEMBER 30, 1996
---------- ---------- -----------------
<S> <C> <C> <C>
Purchase prices:
Net cash paid.................. $6,825,292 $3,613,662 $4,698,468
Amounts payable to sellers..... 354,839 310,000
---------- ---------- ----------
Total purchase prices............ 7,180,131 3,613,662 5,008,468
Estimated fair values of tangible
and identifiable intangible
assets acquired................. 3,204,881 3,215,111 4,121,809
---------- ---------- ----------
Goodwill......................... $3,975,250 $ 398,551 $ 886,659
========== ========== ==========
</TABLE>
The following table presents unaudited pro forma results of operations of
the Company for the year ended December 31, 1995, and the eleven months ended
November 30, 1996, as if the 1995 and 1996 acquisitions had occurred at the
beginning of 1995.
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1996
----------- -----------
<S> <C> <C>
Net sales......................................... $32,770,086 $31,929,045
=========== ===========
Income before extraordinary loss.................. $ 1,430,165 $ 1,308,344
=========== ===========
Net income........................................ $ 1,430,165 $ 1,255,991
=========== ===========
</TABLE>
F-25
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
the acquisitions occurred at the beginning of the year, nor do they purport to
be indicative of the future results of operations of the Company.
In connection with four of the acquisitions in 1994 and two of the
acquisitions in 1996, the Company recorded amounts payable to the sellers of
$354,839 and $310,000, respectively, the payment of which was contingent upon
the fulfillment of certain stipulations which the Company believed were
probable of being met. In the event that the stipulations were not met and the
full balance was not paid by the Company, intangible assets previously
recorded on these acquisitions would be reduced. During 1995, certain of the
stipulations related to the 1994 acquisitions were not met and $171,500 of the
amounts payable to sellers recorded in 1994 was not paid, which was accounted
for as an adjustment to the purchase prices in 1995, thus reducing the amount
of goodwill originally recorded on these acquisitions.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Trade accounts receivable..................... $ 4,255,170 $ 6,895,904
Advance commissions receivable................ 111,211 353,378
Receivable related to an acquisition.......... 163,867
Employees and other........................... 22,621 50,670
----------- -----------
4,552,869 7,299,952
Less advances on receivables.................. (2,136,156) (719,093)
Less allowance for unbillable and uncollecti-
ble chargebacks.............................. (661,936) (1,034,555)
----------- -----------
$ 1,754,777 $ 5,546,304
=========== ===========
</TABLE>
At December 31, 1995, and November 30, 1996, the Company had advanced
commissions to certain facilities of $306,243 and $843,378, respectively,
which are recoverable from such facilities as a reduction of earned
commissions at specified monthly amounts. Amounts included in accounts
receivable represent the estimated recoverable amounts during the next fiscal
year with the remaining balance recorded in other assets.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Leasehold improvements......................... $ 66,156 $ 59,145
Telephone system equipment..................... 3,845,877 5,159,020
Vehicles....................................... 157,506 138,914
Office equipment............................... 263,558 334,543
---------- -----------
4,333,097 5,691,622
Less accumulated depreciation and amortiza-
tion.......................................... (661,157) (1,170,101)
---------- -----------
$3,671,940 $ 4,521,521
========== ===========
</TABLE>
Substantially all of the Company's property and equipment is collateral for
the Company's long-term debt.
F-26
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Intangible assets:
Acquired facility contracts................... $ 7,549,937 $11,432,435
Noncompete agreements......................... 455,000 375,000
Goodwill...................................... 4,202,301 5,088,960
Other intangibles............................. 199,819 100,945
----------- -----------
12,407,057 16,997,340
Less accumulated amortization................. (1,966,611) (3,372,382)
----------- -----------
Total intangible assets......................... 10,440,446 13,624,958
Other assets--noncurrent portion of commission
advances to facilities......................... 195,032 490,000
----------- -----------
$10,635,478 $14,114,958
=========== ===========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Billing and collection fees........................ $ 382,965 $ 420,338
Facility commissions............................... 326,613 722,769
Long-distance charges.............................. 740,006 1,399,180
Recurring and special bonuses...................... 521,875
Other.............................................. 253,202 225,795
---------- ----------
$1,702,786 $3,289,957
========== ==========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revolving credit facility advances................ $ 9,500,000 $12,600,000
Subordinated promissory note payable to a related
party, with interest at 10%, due on December 31,
2001............................................. 800,000 800,000
Subordinated promissory notes payable to a related
party, with interest of 10%, payable in quarterly
installments of $106,472 until maturity on March
31, 2000, collateralized by a security interest
in certain facility equipment and contracts...... 1,390,000 1,244,718
Amount payable in connection with a facility con-
tract acquisition, due in February 1999.......... 200,000
----------- -----------
11,690,000 14,844,718
Current maturities of long-term debt.............. (220,592) (1,824,907)
----------- -----------
$11,469,408 $13,019,811
=========== ===========
</TABLE>
F-27
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The revolving credit facility is a $20,000,000 revolving credit facility
with United Missouri Bank, N.A. and NBD Bank, with interest at a floating rate
based on either prime or LIBOR options plus applicable basis points based on
the Company's applicable coverage ratios. The outstanding balance at September
30, 1996, was converted into an installment note at that date, with the
remaining balance of the revolving credit facility available until September
30, 1998. The installment note is payable in quarterly installments of
$378,000 in 1997, increasing on an annual basis thereafter through September
30, 2001. The Company pays a commitment and facility fee of 0.5% on the
average daily unused portion of the revolving credit facility. The revolving
credit facility is collateralized by substantially all assets of the Company.
Scheduled principal maturities on long-term debt for the five years
subsequent to December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 1,824,907
1998........................................................... 2,374,490
1999........................................................... 3,194,374
2000........................................................... 3,122,947
2001........................................................... 4,328,000
-----------
$14,844,718
===========
</TABLE>
In conjunction with the sale of the Company as discussed in Note 14, all of
the outstanding debt was repaid.
8. INCOME TAXES
The provision for income taxes for the year ended December 31, 1995, and the
eleven months ended November 30, 1996, is as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current taxes payable:
Federal............................................... $553,459 $609,228
State................................................. 116,443 119,297
Deferred income taxes................................... 64,461 (35,524)
-------- --------
$734,363 $693,001
======== ========
</TABLE>
There was no provision for income taxes in 1994 because of the Company's
election to be treated as an S corporation during that period.
The Company has provided income tax expense during the six months ended June
30, 1996 using the effective tax rates for each of its taxing jurisdictions
which have been allocated between current income taxes payable and deferred
income taxes based on 1996 temporary differences.
The provision for income taxes differs from statutory rates primarily as a
result of state income taxes and permanent differences. The following is a
reconciliation of income taxes reported in the statement of operations:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Tax at statutory rates.................................. $612,594 $613,785
Effect of state income taxes............................ 78,919 102,487
Termination of S corporation status..................... 15,141
Other................................................... 27,709 (23,271)
-------- --------
$734,363 $693,001
======== ========
</TABLE>
F-28
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences giving rise to deferred income tax
asset and liabilities were:
<TABLE>
<CAPTION>
ELEVEN MONTHS
DECEMBER 31, ENDED
1995 NOVEMBER 30, 1996
------------ -----------------
<S> <C> <C>
Deferred tax asset:
Allowance for unbillable and
uncollectible chargebacks.............. $ 253,893 $ 396,752
Deferred tax liabilities:
Depreciation and amortization........... (313,584) (402,892)
Other................................... (4,770) (22,797)
--------- ---------
(318,354) (425,689)
--------- ---------
Net deferred income tax liability......... $ (64,461) $ (28,937)
========= =========
</TABLE>
This net deferred income tax liability is classified in the balance sheet as
follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
DECEMBER 31, ENDED
1995 NOVEMBER 30, 1996
------------ -----------------
<S> <C> <C>
Current asset............................... $ 253,893 $ 396,752
Noncurrent liability........................ (318,354) (425,689)
--------- ---------
$ (64,461) $ (28,937)
========= =========
</TABLE>
9. STOCKHOLDERS' EQUITY
STOCK SPLIT--On April 26, 1995, the Company's Board of Directors approved a
326.8-for-1 split of the Company's common stock, a change in the par value of
the stock from $1 to $.01 and a change in the number of authorized common
shares to 10,000,000 shares of common stock. All share amounts in the
financial statements have been restated for the stock split.
STOCK OPTIONS--On May 1, 1994, the Board of Directors of the Company adopted
a stock option agreement for certain employees and consultants of the Company.
On the same date, the Board of Directors granted options for 233,335 shares of
common stock at $.765 per share, the then-estimated fair market value per
share of common stock of the Company which were exercisable at any time for a
period of up to ten years from the date of grant.
On December 19, 1994, the Board of Directors of the Company adopted the 1995
Stock Option Plan (the "Plan") for the directors, officers and other key
employees of the Company, effective for fiscal year 1995. The maximum number
of shares that could be granted under the Plan was amended from 653,600 shares
to 446,248 shares on April 28, 1995. Under the provisions of the Plan, options
were to be granted at an exercise price per share not less than the fair
market value at the date of grant, as determined by the Compensation Committee
(the "Committee"), and were to be exercisable on the date of grant. The
Committee was also assigned responsibility for determining the term of each
option, which in no event could exceed ten years from the date of grant. A
total of 225,492 options were granted under the Plan during 1995 at a price of
$4.59 per share, the then estimated fair market value per share of common
stock of the Company.
F-29
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1996, no additional stock options were granted to employees, and
employees exercised all remaining unexercised options prior to the sale of the
Company, as discussed in Note 14. The following is a summary of changes in
stock options during 1995 and 1996:
<TABLE>
<CAPTION>
EXERCISE
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Granted during 1994............................. 233,339 $ .765
--------
Outstanding at December 31, 1994.................. 233,339 .765
Granted during 1995............................. 225,492 4.590
Exercised during 1995........................... (173,370) .765
--------
Outstanding at December 31, 1995.................. 285,461 3.790
Exercised during 1996........................... (285,461) 3.790
--------
Outstanding at November 30, 1996.................. --
========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans, and accordingly, no compensation has
been recognized since stock options granted under these plans were at exercise
prices which approximated market value at the grant date. Had the Company
implemented SFAS No. 123, the implementation would not have affected the net
income of the Company for the eleven months ending November 30, 1996, because
no options were granted during the period and because options granted prior to
1996 were fully vested. Had the Company implemented SFAS No. 123 in 1995, the
implementation would have increased the Company's compensation expense by
approximately $307,000 and the Company's pro forma net income, considering the
effect of implementing SFAS No. 123, net of tax effects, would have been
approximately $878,384.
In connection with the issuance of shares of the Company's common stock for
exercised options in 1996, the Company recognized, as increases in common
stock and additional paid-in capital, the aggregate exercise prices of
$1,080,885, along with the tax benefits related to such options of $334,285.
At November 30, 1996, the Company had recorded stock subscriptions receivable
of $1,061,384 from certain employees for unpaid exercise proceeds, which were
subsequently collected by the Company in December 1996.
PREFERRED STOCK--On May 1, 1995, the Company authorized the issuance of up
to 500,000 shares of preferred stock at $.01 par value. Subsequently, 244,800
shares were issued during 1995 (of which 4,800 were issued in the form of a
stock dividend), 208,000 of such shares were purchased by Kansas City Equity
Partners, L.P. The preferred stock accrues dividends at 8% for the one-year
period ending on the first anniversary of the original issue date, 10% until
the second anniversary date and 12% thereafter. The preferred stock dividend,
at the election of the Company, is payable in cash or additional shares of
preferred stock. The preferred stock is convertible any time into 244,800
shares of common stock on an after-stock-conversion basis. During 1996,
$137,708 of the cash dividends were paid on the preferred stock. During 1995,
$30,000 of dividends were paid on the preferred stock in the form of a stock
dividend, resulting in the issuance of an additional 4,800 preferred shares;
and $50,000 of cash dividends were paid on the preferred stock.
In conjunction with the sale of the Company, as discussed in Note 14, all
outstanding shares of preferred stock were redeemed.
10. RELATED PARTY TRANSACTIONS
In addition to the related party notes payable discussed in Note 7 and the
stock subscription receivables related to exercised stock options discussed in
Note 9, during 1995 and the eleven months ended November 30,
F-30
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1996, the Company paid an affiliate of its majority stockholders a consulting
fee of $57,005 and $37,500, respectively, and, in 1996, incurred certain legal
costs on behalf of its stockholders which are recorded as accounts receivable
from such stockholders.
In 1994 and 1995, the Company shared a common office facility with Green
Street Capital, Inc. ("Green Street"), which is owned by the two principal
shareholders of the Company. Rental payments received from Green Street in
1994 and 1995 were $12,000 and $7,750, respectively. There were no similar
arrangements in 1996.
In addition to the above shared facilities, the Company entered into several
other related party transactions with Green Street. A management fee of
$185,689 in 1994 and $40,000 through June 1995 was paid to Green Street for
reimbursement of services provided to the Company and is included in selling,
general and administrative expenses in the accompanying statements of income.
Subsequent to the termination of the management fee, certain salaries and
expenses of Green Street employees were billed and paid monthly by the Company
for services rendered. During 1994, an advance of $571,653 was received by the
Company, representing Company expenses paid by Green Street during the year.
The advance carried interest at 9.5% and was repaid by the Company in 1995.
Other related party transactions included the Company's purchase of
telephone contracts and equipment from Pay-Tel of America, Inc., an affiliate
of certain stockholders, for $3,978,216 and $770,000 in 1994 and 1995,
respectively; and during 1995, the Company paid Phone Bell Systems, Inc., an
affiliate of certain stockholders, $18,825 for billing services and purchased
the stock of this entity for $10,000.
11. BENEFIT PLAN
The Company sponsors a 401(k) savings plan for the benefit of eligible full-
time employees which is a qualified benefit plan in accordance with the
Employee Retirement Income Security Act ("ERISA"). The employees participating
in the plan can generally make contributions to the plan of up to 15% of their
compensation. The plan provides for discretionary matching contributions by
the Company of up to 50% of an eligible employee's contribution. No
significant contributions to this plan were made by the Company during 1994,
1995 and 1996.
12. OTHER COSTS
NONRECURRING COSTS--During 1996, the Company incurred costs of $250,000
related to the settlement of a lawsuit related to a prior acquisition, along
with special bonuses of $434,320 paid to key management at the date of the
sale of the Company, as discussed in Note 14. These special bonuses were
payable to key management upon the closing of the sale of the Company pursuant
to a transaction bonus agreement with such employees, due and payable only
upon the closing of the sale, a portion of which was attributable to the
buyout of existing employment contracts with such employees.
EXTRAORDINARY LOSS--In connection with the sale of the Company, all
outstanding long-term debt was repaid, resulting in the expensing of existing
unamortized debt issue costs of $52,353 (net of income tax benefit of
$32,573). This loss has been classified as an extraordinary loss in accordance
with the provisions of SFAS No. 4, "Reporting Gains and Losses From the Early
Extinguishment of Debt."
13. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE--The Company leases office space under an operating lease
agreement which expires on July 31, 1999. Rent expense under this and prior
operating lease agreements was $18,800, $102,484, $61,050, and $53,281 during
the fiscal years 1994, 1995, 1996, and the unaudited six months ended June 30,
1996,
F-31
<PAGE>
AMERITEL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
respectively. The total remaining future minimum lease payments for the
Company under the operating lease agreement is as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 66,600
1998.............................................................. 66,600
1999.............................................................. 38,850
--------
$172,050
========
</TABLE>
CONTINGENCIES--The Company is subject to various legal proceedings and
claims which arise in the ordinary course of business operations. In the
opinion of management, the amount of liability, if any, with respect to these
actions would not materially affect the financial position of the Company or
its results of operations.
14. SUBSEQUENT SALE OF COMPANY
On December 27, 1996, Talton Holdings, Inc. acquired all of the outstanding
common stock of the Company in a purchase business combination effective
December 1, 1996. In conjunction with this transaction, all of the outstanding
debt of the Company was repaid and all of the outstanding preferred stock was
redeemed.
* * * * * *
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Talton Telecommunications
Corporation:
We have audited the accompanying consolidated balance sheet of Talton
Telecommunications Corporation and subsidiary (the "Company") as November 30,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the eleven months then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Talton
Telecommunications Corporation and subsidiary as of November 30, 1996, and the
results of their income and their cash flows for the eleven months then ended,
in conformity with generally accepted accounting principles.
Deloitte & Touche llp
Dallas, Texas
April 4, 1997
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Talton Telecommunications
Corporation:
We have audited the accompanying consolidated balance sheet of Talton
Telecommunications Corporation and subsidiary (the "Company") as of December
31, 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1995, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Borland, Benefield, Crawford & Webster, P.C.
Birmingham, Alabama
March 4, 1996
F-34
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 401,737 $ 449,904
Accounts receivable................................ 2,054,141 2,388,958
Refundable income taxes............................ 489,652
Inventories........................................ 310,628 168,395
Prepaid expenses................................... 55,788
Deferred income tax asset.......................... 220,653 54,400
---------- ----------
Total current assets............................. 3,476,811 3,117,445
PROPERTY AND EQUIPMENT............................... 3,833,426 4,119,147
INTANGIBLE AND OTHER ASSETS.......................... 695,861 586,656
---------- ----------
TOTAL............................................ $8,006,098 $7,823,248
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 936,569 $ 950,576
Accrued expenses.................................... 3,148,445 3,205,027
Income taxes payable................................ 892,000
Current portion of debt............................. 1,848,716
---------- ----------
Total current liabilities........................ 5,933,730 5,047,603
LONG-TERM DEBT....................................... 1,535,078
DEFERRED INCOME TAXES................................ 223,869 308,605
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 5,000 shares
authorized, issued and outstanding................ 5,000 5,000
Retained earnings.................................. 308,421 2,462,040
---------- ----------
Total stockholders' equity....................... 313,421 2,467,040
---------- ----------
TOTAL............................................ $8,006,098 $7,823,248
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ELEVEN MONTHS SIX MONTHS
-------------------------- ENDED ENDED
1994 1995 NOVEMBER 30, 1996 JUNE 30, 1996
------------ ------------ ----------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE....... $ 12,192,640 $ 19,955,019 $24,357,473 $12,800,062
OPERATING EXPENSES:
Telecommunication
costs................ 6,413,500 8,926,090 9,588,482 5,403,077
Facility commissions.. 2,040,281 6,097,790 7,875,455 4,134,906
Field operations and
maintenance.......... 535,971 602,429 649,739 293,417
Selling, general and
administrative....... 1,642,976 2,329,970 1,639,827 857,524
Depreciation.......... 771,419 975,350 1,001,982 458,366
Amortization of
intangibles.......... 796,548 380,895 122,180 66,901
------------ ------------ ----------- -----------
Total operating
expense............ 12,200,695 19,312,524 20,877,665 11,214,191
------------ ------------ ----------- -----------
OPERATING INCOME
(LOSS)................. (8,055) 642,495 3,479,808 1,585,871
OTHER (INCOME) EXPENSE:
Interest income....... (111) (9,625) (55,268) (38,660)
Interest expense...... 181,521 341,461 169,789 127,171
Other, net............ (134,548) (118,095) (12,321) (10,381)
------------ ------------ ----------- -----------
Total other (income)
expense............ 46,862 213,741 102,200 78,130
------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... (54,917) 428,754 3,377,608 1,507,741
INCOME TAXES (BENEFIT).. (10,716) 157,339 1,223,989 53,300
------------ ------------ ----------- -----------
NET INCOME (LOSS)....... $ (44,201) $ 271,415 $ 2,153,619 $ 1,454,441
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 (As restated--
Note 2)................................. 5,000 $5,000 $ 81,207 $ 86,207
Net loss for 1994 (as restated)........ (44,201) (44,201)
----- ------ ---------- ----------
BALANCE, DECEMBER 31, 1994 (As restated--
Note 2)................................. 5,000 5,000 37,006 42,006
Net income for 1995 (as restated)...... 271,415 271,415
----- ------ ---------- ----------
BALANCE, DECEMBER 31, 1995 (As restated--
Note 2)................................. 5,000 5,000 308,421 313,421
Net income for the eleven months ended
November 30, 1996..................... 2,153,619 2,153,619
----- ------ ---------- ----------
BALANCE, NOVEMBER 30, 1996............... 5,000 $5,000 $2,462,040 $2,467,040
===== ====== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEARS ENDED DECEMBER 31, ENDED SIX MONTHS
-------------------------- NOVEMBER 30, ENDED
1994 1995 1996 JUNE 30, 1996
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ (44,201) $ 271,415 $ 2,153,619 $ 1,454,441
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 1,567,967 1,356,245 1,124,162 525,267
Deferred income
taxes................ (101,180) 354,884 250,989 (1,011)
Changes in operating
assets and
liabilities:
Accounts receivable... 608,077 (1,077,696) (180,563) (53,318)
Inventories........... (62,254) (174,715) 142,233 247,468
Prepaid expenses...... (7,217) 7,536 (55,788) (9,074)
Accounts payable...... 9,663 302,838 14,007 1,056,737
Accrued expenses...... 157,638 1,236,118 (97,672) (1,819,612)
Income taxes payable.. (111,272) (523,114) 1,381,652 399,063
------------ ------------ ----------- -----------
Net cash provided by
operating
activities......... 2,017,221 1,753,511 4,732,639 1,799,961
------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (1,443,911) (2,617,816) (1,287,703) (288,206)
Payments (refunds) for
intangible and other.. 72,179 260,767 (12,975)
------------ ------------ ----------- -----------
Net cash used in
investing
activities......... (1,371,732) (2,357,049) (1,300,678) (288,206)
------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt..... 400,000 2,000,225
Payments of long-term
debt.................. (949,488) (1,185,168) (3,383,794) (842,739)
------------ ------------ ----------- -----------
Net cash provided by
(used in) financing
activities......... (549,488) 815,057 (3,383,794) (842,739)
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 96,001 211,519 48,167 669,016
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 94,217 190,218 401,737 401,737
------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD.......... $ 190,218 $ 401,737 $ 449,904 $ 1,070,753
============ ============ =========== ===========
SUPPLEMENTAL
INFORMATION:
Interest paid.......... $ 181,521 $ 338,672 $ 172,578 66,222
============ ============ =========== ===========
Income taxes paid
(refunded)............ $ 201,736 $ 89,500 $ (408,652) $ --
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Talton Telecommunications Corporation (the "Company"), which was
incorporated in 1973, owns, operates and maintains telephone systems under
contracts with correctional facilities in Alabama, Mississippi, North Carolina
and South Carolina. The Company also operates and maintains public pay
telephone systems at various third-party property locations.
The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through major local exchange
carriers ("LECs") or through third-party billing services for smaller volume
LECs, all of which are granted credit in the normal course of business with
terms of between 30 and 60 days. The Company performs ongoing credit
evaluations of its customers and maintains allowances for unbillable and
uncollectible losses based on historical experience.
PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions, such as estimates of allowances
and reserves for unbillable and uncollectible chargebacks, that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Talton
Telecommunications of Carolina, Inc. All significant intercompany balances and
transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.
ACCOUNTS RECEIVABLE--Trade accounts receivable represent amounts billed for
calls placed through the Company's telephone systems to the various LECs or
third-party billing services, net of an allowance for unbillable and
uncollectible calls, based on historical experience, for estimated chargebacks
to be made by the LECs.
INVENTORIES--Inventories are stated at the lower of cost, as determined
using the first-in, first-out ("FIFO") method of valuation or market.
Inventory is primarily composed of equipment available for installation on new
contracts and supplies and parts for the telephone systems serviced by the
Company.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the related assets. The following is a summary of
useful lives for major categories of property and equipment:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- --------------
<S> <C>
Leasehold improvements..................................... 15 to 39 years
Telephone system equipment................................. 5 to 6 years
Vehicles................................................... 5 years
Office equipment........................................... 5 to 7 years
</TABLE>
Maintenance and repairs are expensed when incurred and major repairs which
extend an asset's useful life are capitalized. When items are retired or
disposed of, the related carrying value and accumulated depreciation are
removed from the respective accounts, and the net difference less any amount
realized from the disposition is reflected in earnings.
F-39
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTANGIBLE AND OTHER ASSETS--Intangible and other assets include amounts
allocated to acquired facility contracts, noncompete agreements, goodwill and
other intangible assets, which are stated at cost. Amortization of intangible
assets is provided on a straight-line basis over the estimated useful lives of
the related assets. The following is a summary of useful lives for major
categories of intangible assets:
<TABLE>
<CAPTION>
INTANGIBLE ASSET USEFUL LIFE
---------------- --------------
<S> <C>
Acquired facility contracts................................ Contract term
Noncompete agreements...................................... Agreement term
Goodwill................................................... 15 years
</TABLE>
Acquired facility contracts consist primarily of costs allocated to
locations acquired in acquisitions of facility contract rights from other
service providers, along with other incremental direct costs paid to obtain
the facility contracts.
The Company periodically assesses the net realizable value of its intangible
assets, as well as all other assets, by comparing the expected future net
operating cash flows, undiscounted and without interest charges, to the
carrying amount of the underlying assets. The Company would evaluate a
potential impairment if the recorded value of these assets exceeded the
associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating
cash flows, discounted at a rate commensurate with the risk involved.
INCOME TAXES--The Company accounts for income taxes using the liability
method in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are provided for temporary differences
between the financial statement and tax bases of the assets and liabilities
using current tax rates.
REVENUE RECOGNITION--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long distance charges, along with commissions payable to the
facilities and allowances for unbillable and uncollectible calls, based on
historical experience.
FACILITY COMMISSIONS--Under the terms of the Company's telephone system
contracts with correctional facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.
FINANCIAL INSTRUMENTS--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt.
The Company believes that the carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt are a reasonable
estimate of their fair value because of the short-term maturities of such
instruments or, in the case of long-term debt, because of the floating
interest rates on such long-term debt.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the presentation used in the 1996
financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's statements of income
and cash flows for the six months ended June 30, 1996, have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal, recurring adjustments) necessary to present fairly
the results of operations and cash flows of the Company for the six months
ended June 30, 1996, have been
F-40
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
made. The results of operations for the interim period are not necessarily
indicative of the results to be expected for the full year.
2. PRIOR-PERIOD ADJUSTMENTS
The Company has restated its previously issued consolidated financial
statements for the years ended December 31, 1994 and 1995, to correct for
certain errors principally related to the timing of when certain recurring
costs are recognized in the consolidated financial statements. These
corrections relate primarily to the capitalization of certain direct costs of
facility contract installations previously expensed, the recording of
allowances and reserves for unbillable and uncollectible chargebacks, the
recording of excise taxes and the recording of deferred income taxes, and
reduced previously reported retained earnings as of January 1, 1994, by
$396,209. The following table summarizes the impact of these corrections on
previously reported results of operations and retained earnings during 1994
and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995
------------ ------------
<S> <C> <C>
Income (loss) before income taxes:
As previously reported....................... $ (190,808) $ (24,716)
As restated.................................. (54,917) 428,754
Net income (loss):
As previously reported....................... (328,286) 154,670
As restated.................................. (44,201) 271,415
Retained earnings:
As previously reported....................... 149,130 303,800
As restated.................................. 37,006 308,421
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Trade accounts receivable...................... $2,159,660 $2,390,864
Amounts due from shareholders.................. -- 154,894
Other.......................................... 54,481 3,200
---------- ----------
2,214,141 2,548,958
Less allowance for unbillable and uncollectible
chargebacks................................... (160,000) (160,000)
---------- ----------
$2,054,141 $2,388,958
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Leasehold improvements........................ $ 430,346 $ 449,116
Telephone system equipment.................... 6,301,141 7,425,582
Vehicles...................................... 227,370 246,611
Office equipment.............................. 194,942 319,167
----------- -----------
7,153,799 8,440,476
Less accumulated depreciation and
amortization................................. (3,320,373) (4,321,329)
----------- -----------
$ 3,833,426 $ 4,119,147
=========== ===========
</TABLE>
F-41
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Acquired facility contracts.................... $ 1,562,906 $ 1,562,906
Noncompete agreement........................... 250,000 250,000
Goodwill....................................... 455,704 455,704
Other.......................................... 53,400 66,375
----------- -----------
2,322,010 2,334,985
Less accumulated amortization.................. (1,626,149) (1,748,329)
----------- -----------
$ 695,861 $ 586,656
=========== ===========
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Facility commissions............................. $1,293,030 $1,317,000
Uncollectible call chargebacks................... 840,000 840,000
Sales and excise taxes........................... 530,161 702,838
Payroll and benefits............................. 161,000 145,295
Other............................................ 324,254 199,894
---------- ----------
$3,148,445 $3,205,027
========== ==========
</TABLE>
The accrual for uncollectible call chargebacks represents a reserve for
amounts collected from the various LECs or third-party billing services which
are expected to be charged back to the Company in future periods.
7. LONG-TERM DEBT
The following table summarizes the Company's long-term debt at December 31,
1995. Since all of the outstanding debt was repaid by the Company during 1996,
there are no outstanding balances at November 30, 1996:
<TABLE>
<S> <C>
Notes payable, with interest of 8.5%, payable in monthly
installments of $110,000 until maturity in June 1997,
collateralized by equipment and personally guaranteed by the
majority stockholder........................................ $ 1,980,545
Note payable, with interest of 9.75%, payable in monthly
installments of $50,000 until maturity in December 1997,
collateralized by accounts receivable and certain equipment
and personally guaranteed by the majority stockholder....... 1,112,226
Note payable, with interest of 8.5%, payable in monthly
installments of $12,660 until maturity in January 1998,
collateralized by equipment and personally guaranteed by the
majority stockholder........................................ 291,023
-----------
3,383,794
Current maturities of long-term debt......................... (1,848,716)
-----------
$ 1,535,078
===========
</TABLE>
F-42
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a $750,000 line of credit arrangement with The Peoples Bank
and Trust Company. The line had no outstanding balance at either December 31,
1995, or November 30, 1996. The line of credit bears interest at the prime
rate, and is personally guaranteed by the majority stockholder.
8. INCOME TAXES
The provision for income taxes (benefit) for the years ended December 31,
1994 and 1995, and the eleven months ended November 30, 1996, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current taxes payable (refundable):
Federal................................ $ 82,306 $(181,387) $ 901,000
State.................................. 8,158 (16,158) 72,000
Deferred income taxes.................... (101,180) 354,884 250,989
--------- --------- ----------
$ (10,716) $ 157,339 $1,223,989
========= ========= ==========
</TABLE>
The Company has provided income tax expense during the six months ended June
30, 1996 using the effective tax rates for each of its taxing jurisdictions
which have been allocated between current income taxes payable and deferred
income taxes based on 1996 anticipated temporary differences.
The provision for income taxes (benefit) differs from statutory rates
primarily as a result of state income taxes and permanent differences. The
following is a reconciliation of income taxes reported in the statement of
operations:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, NOVEMBER 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rates............. $(18,672) $145,776 $1,148,387
Effect of state income taxes....... (1,593) 12,434 97,951
Tax penalties and other............ 9,549 (871) (22,349)
-------- -------- ----------
$(10,716) $157,339 $1,223,989
======== ======== ==========
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
asset and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Deferred income tax asset:
Allowance for unbillable and uncollectible
revenues.................................... $ 54,400 $ 54,400
Reserves..................................... 146,201 --
Other........................................ 20,052 --
--------- ---------
220,653 54,400
Deferred income tax liabilities:
Depreciation and amortization................ (222,821) (307,557)
Other........................................ (1,048) (1,048)
--------- ---------
(223,869) (308,605)
--------- ---------
Net deferred income tax liability.............. $ (3,216) $(254,205)
========= =========
</TABLE>
F-43
<PAGE>
TALTON TELECOMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
This net deferred income tax liability is classified in the consolidated
balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Current asset.................................... $ 220,653 $ 54,400
Noncurrent liability............................. (223,869) (308,605)
--------- ---------
$ (3,216) $(254,205)
========= =========
</TABLE>
9. BENEFIT PLAN
The Company sponsors a 401(k) savings plan for the benefit of eligible full-
time employees which is a qualified benefit plan in accordance with the
Employee Retirement Income Security Act ("ERISA"). The employees participating
in the plan can generally make contributions to the plan of between 5% and 10%
of their compensation. The plan provides for discretionary matching
contributions by the Company of up to 50% of an eligible employee's
contribution. Total plan expense was $19,029, $29,489 and $32,820 for the
years ended December 31, 1994 and 1995, and for the eleven months ended
November 30, 1996. There was no plan expense during the unaudited six months
ended June 30, 1996.
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment used in its operations
under operating lease agreements. Such leases, which are primarily for office
furniture, office space and vehicles, have lease terms ranging from one to
four years.
Future minimum lease payments for years ending December 31 under
noncancelable operating leases are summarized below:
<TABLE>
<S> <C>
1996 (one month)................................................. $ 10,848
1997............................................................. 63,209
1998............................................................. 30,187
1999............................................................. 960
2000............................................................. 720
--------
Total minimum future rental payments............................. $105,924
========
</TABLE>
Rent expense in connection with these leases totaled $152,815, $159,951 and
$107,158 for the years ended December 31, 1994 and 1995, and for the period
ended November 30, 1996, respectively, and $71,925 for the unaudited six
months ended June 30, 1996.
11. RELATED PARTY TRANSACTIONS
The Company's majority stockholder and president has personally guaranteed
three of the Company's operating leases, which have expiration dates ranging
from March 1997 to September 1998. Total payments under the guaranteed leases
for the year ended December 31, 1995, and for the eleven months ended
November 30, 1996, totaled $75,282 and $79,239, respectively.
During 1996, the Company's stockholders incurred $154,894 of legal expenses
which were paid by the Company and are recorded as amounts due from
stockholders in accounts receivable at November 30, 1996, pending
reimbursement from such stockholders.
12. SUBSEQUENT SALE OF COMPANY
On December 27, 1996, Talton Holdings, Inc. acquired all of the outstanding
common stock of the Company in a purchase business combination effective
December 1, 1996.
* * * * * *
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Security Telecom Corporation:
We have audited the accompanying consolidated balance sheet of Security
Telecom Corporation and subsidiary (the "Company") as of June 30, 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the six-month period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Security Telecom
Corporation and subsidiary as of June 30, 1997, and the results of their
operations and their cash flows for the six-month period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 10, 1997
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Security Telecom Corporation
We have audited the accompanying consolidated balance sheets of Security
Telecom Corporation and subsidiary (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Security Telecom Corporation and subsidiary as of December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Davis, Clark and Company, P.C.
Dallas, Texas
May 23, 1997
F-46
<PAGE>
SECURITY TELECOM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 11,601 $ 15,391 $ 14,381
Accounts receivable......................... 257,847 788,070 1,072,263
Prepaid expenses............................ 27,191 69,817 104,590
---------- ---------- ----------
Total current assets...................... 296,639 873,278 1,191,234
PROPERTY AND EQUIPMENT........................ 3,275,040 4,213,412 5,017,469
OTHER ASSETS.................................. 79,192 44,473 588,863
---------- ---------- ----------
TOTAL..................................... $3,650,871 $5,131,163 $6,797,566
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................ $1,139,488 $1,633,773 $2,572,702
Accrued expenses............................ 383,387 523,517 690,439
Current portion of long-term debt........... 963,069 1,692,647 2,615,419
---------- ---------- ----------
Total current liabilities................. 2,485,944 3,849,937 5,878,560
LONG-TERM DEBT................................ 567,538 758,513 560,782
DEFERRED INCOME TAXES......................... 87,125 106,915 113,396
MINORITY INTEREST............................. 156,546 175,352 163,818
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares
authorized, 105 and 70 shares,
respectively, issued and outstanding....... 2,857 1,905 1,905
Retained earnings........................... 350,861 238,541 79,105
---------- ---------- ----------
Total stockholders' equity................ 353,718 240,446 81,010
---------- ---------- ----------
TOTAL..................................... $3,650,871 $5,131,163 $6,797,566
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-47
<PAGE>
SECURITY TELECOM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ -------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE....... $8,091,728 $11,892,919 $15,281,621 $ 7,585,593 $ 10,576,209
OPERATING EXPENSES:
Telecommunication
costs................ 4,176,907 6,134,823 8,265,116 4,824,748 5,527,903
Facility commissions.. 1,814,997 2,590,813 3,246,247 1,684,973 2,690,984
Field operations and
maintenance.......... 483,012 632,178 1,055,506 642,798 805,400
Selling, general and
administrative....... 866,762 1,201,567 1,373,701 791,596 985,536
Depreciation and
amortization......... 255,324 442,952 868,265 379,086 513,695
---------- ----------- ----------- ----------- ------------
Total operating
expense............ 7,597,002 11,002,333 14,808,835 8,323,201 10,523,518
---------- ----------- ----------- ----------- ------------
OPERATING INCOME
(LOSS)................. 494,726 890,586 472,786 (737,608) 52,691
OTHER (INCOME) EXPENSE:
Interest income....... (29,040) (24,204) (13,643)
Interest expense...... 252,904 314,110 460,880 173,631 281,980
Minority interest..... 117,478 19,724 18,806 (49,080) (11,534)
Other, net............ (21,667) 20,544 (84,970) (37,433) (64,800)
---------- ----------- ----------- ----------- ------------
Total other (income)
expense............ 319,675 330,174 381,073 87,118 205,646
---------- ----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE
INCOME TAXES........... 175,051 560,412 91,713 (824,726) (152,955)
INCOME TAXES............ 66,730 13,548 21,609 3,371 6,481
---------- ----------- ----------- ----------- ------------
NET INCOME (LOSS)....... $ 108,321 $ 546,864 $ 70,104 $ (828,097) $ (159,436)
========== =========== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-48
<PAGE>
SECURITY TELECOM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------ --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................. 105 $2,857 $(304,324) $(301,467)
Net income.............................. 108,321 108,321
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1994................ 105 2,857 (196,003) (193,146)
Net income.............................. 546,864 546,864
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1995................ 105 2,857 350,861 353,718
Net income.............................. 70,104 70,104
Purchase and retirement of treasury
stock.................................. (35) (952) (117,359) (118,311)
Dividends............................... (65,065) (65,065)
--- ------ --------- ---------
BALANCE, DECEMBER 31, 1996................ 70 1,905 238,541 240,446
Net loss for the six months ended June
30, 1997............................... (159,436) (159,436)
--- ------ --------- ---------
BALANCE, JUNE 30, 1997.................... 70 $1,905 $ 79,105 $ 81,010
=== ====== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-49
<PAGE>
SECURITY TELECOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income..... $ 108,321 $ 546,864 $ 70,104 $ (828,097) $(159,436)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 255,324 442,952 868,265 379,086 513,695
Minority interest.... 117,478 19,724 18,806 (49,080) (11,534)
Deferred income
taxes............... 78,472 13,548 19,790 3,371 6,481
Changes in operating
assets and
liabilities:
Accounts receivable.. (283,405) (319,099) (1,096,079) (479,385) (699,870)
Prepaid expenses..... (27,191) (42,626) (13,273) (34,773)
Accounts payable..... 275,536 419,939 494,285 328,682 915,037
Accrued expenses..... 97,332 137,486 140,130 186,986 166,922
Other assets......... (18,251) 4,160 34,719 25,999 (44,731)
----------- ----------- ----------- ---------- ---------
Net cash provided by
(used in) operating
activities......... 630,807 1,238,383 507,394 (445,711) 651,791
----------- ----------- ----------- ---------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (1,522,914) (1,085,286) (1,687,649) (491,363) (749,791)
Cash outflows for
acquisitions......... -- -- -- -- (237,111)
Increase in
investments.......... (21,154)
----------- ----------- ----------- ---------- ---------
Net cash used in
investing
activities......... (1,544,068) (1,085,286) (1,687,649) (491,363) (986,902)
----------- ----------- ----------- ---------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Dividends paid........ (43,376)
Net proceeds from
advances on accounts
receivable........... 201,789 294,273 565,856 349,826 415,677
Proceeds from issuance
of long-term debt.... 1,065,723 158,763 1,006,955 1,052,451 825,487
Payments of long-term
debt................. (317,823) (634,769) (345,390) (468,755) (907,063)
----------- ----------- ----------- ---------- ---------
Net cash provided by
(used in) financing
activities......... 949,689 (181,733) 1,184,045 933,522 334,101
----------- ----------- ----------- ---------- ---------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... 36,428 (28,636) 3,790 (3,552) (1,010)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 3,809 40,237 11,601 11,601 15,391
----------- ----------- ----------- ---------- ---------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 40,237 $ 11,601 $ 15,391 $ 8,049 $ 14,381
=========== =========== =========== ========== =========
SUPPLEMENTAL
INFORMATION:
Interest paid......... $ 214,090 $ 295,204 $ 429,365 $ 192,537 $ 313,495
=========== =========== =========== ========== =========
SUPPLEMENTAL DISCLOSURE
OF NONCASH
TRANSACTIONS:
Purchase of fixed
assets through the
issuance of long-term
debt................. $ 194,999 $ 385,829 $ 118,988 $ 140,596 $ 400,508
=========== =========== =========== ========== =========
Purchase of treasury
stock through the
issuance of long-term
debt................. $ -- $ -- $ 118,311 $ -- $ --
=========== =========== =========== ========== =========
Dividends paid through
the issuance of long-
term debt............ $ -- $ -- $ 21,689 $ -- $ --
=========== =========== =========== ========== =========
Amounts payable for
acquisitions......... $ -- $ -- $ -- $ -- $ 430,000
=========== =========== =========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-50
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Security Telecom Corporation (the "Company" or "STC"), which was
incorporated on November 1, 1990, owns, operates and maintains telephone
systems under contracts with correctional facilities.
The Company accumulates call activity from its various installations and
bills its revenues related to this call activity through third-party billing
services to local exchange carriers ("LECs"), all of which are granted credit
in the normal course of business with terms of between 30 and 60 days. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for unbillable and uncollectible losses based on historical
experience.
In fulfilling its responsibility for the preparation of the Company's
financial statements and disclosures, Company management selects generally
accepted accounting principles and adopts methods for their application. The
application of accounting principles requires the estimating, matching and
timing of revenue and costs in the determination of income or loss. It is also
necessary for management to determine, measure and allocate Company resources
and obligations within the financial process according to those principles.
PRINCIPLES OF CONSOLIDATION--The financial statements include accounts of
the Company and its 25% owned subsidiary, Law Enforcement Technologies, Inc.
("LETI"). The Company consolidates LETI because of its ability to control the
operations of LETI pursuant to an exclusive marketing agreement with LETI
whereby STC is the primary customer of LETI. All material intercompany
transactions and balances have been eliminated in consolidation. In May 1997,
one of the Company's affiliates acquired the remaining outstanding Common
Stock of LETI.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.
ACCOUNTS RECEIVABLE--Trade accounts receivable represents amounts billed for
calls placed through the Company's telephone systems to the third-party
billing services, net of advance payments received, and an allowance for
unbillable and uncollectible calls based on historical experience for
estimated chargebacks to be made by the LECs. Under account advance agreements
with third-party billing services, advance payments equal to a percentage of
the outstanding billed receivables are remitted to the Company when calls are
submitted to the third-party billing service and the Company grants a lien to
the third-party billing service on the related accounts receivable for the
advance. The remainder of the billed receivable is paid to the Company, net of
the advance amount, after the third-party billing service has collected the
receivables from the respective LECs. Interest is charged on the advance
payment at varying rates.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization is provided on a straight-line basis over the
estimated lives of the related assets, or in the case of capital lease assets,
over the life of the leases. The following is a summary of useful lives for
major categories of property and equipment.
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -------------
<S> <C>
Leasehold improvements....................................... 2 to 10 years
Telephone system equipment................................... 5 to 10 years
Office equipment............................................. 5 to 7 years
</TABLE>
F-51
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maintenance and repairs are expensed when incurred and major repairs which
extend an asset's useful life are capitalized. When items are retired or
disposed of, the related carrying value and accumulated depreciation are
removed from the respective accounts, and the net differences less any amount
realized from the disposition is reflected in earnings.
The Company capitalizes internally developed software by its LETI subsidiary
based on the guidelines of Statement of Financial Accounting Standards
("SFAS") No. 86. Accordingly, cost incurred after technological feasibility
has been established for a product are expensed. Costs capitalized in 1994,
1995 and 1996 were $30,870, $103,863 and $119,826, respectively, and cost
capitalized during the six month period ended June 30, 1996 and 1997 were
$29,957 and $53,146, respectively. These costs are being amortized over 60
months. Amortization expense was $3,087, $16,560 and $38,930 in 1994, 1995 and
1996, respectively. Amortization expense for the six month period ended June
30, 1996 and 1997 were $21,810 and $25,456, respectively.
INCOME TAXES--The Company has elected to be treated as an S corporation
under certain provisions of the Internal Revenue Code and the Company's
subsidiary, LETI, is a C corporation. Accordingly, the statements of income
included a provision for federal income taxes only on the operations of LETI
since the taxable income of the Company is included in the shareholders'
individual income tax returns.
The Company's LETI subsidiary accounts for income taxes using the liability
method in accordance with the provisions of SFAS No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
provided for temporary differences between the financial statement and tax
bases of the assets and liabilities using current tax rates.
REVENUE RECOGNITION--Revenues are recognized during the period the calls are
made. In addition, during the same period, the Company accrues the related
telecommunication costs for validating, transmitting, billing and collection,
and line and long distance charges, along with commissions payable to the
facilities and allowance for unbillable and uncollectible calls, based on
historical experience.
FACILITY COMMISSIONS--Under the terms of the Company's telephone system
contracts with corrections facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.
FINANCIAL INSTRUMENTS--The Company's financial instruments under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," includes cash
and cash equivalents, accounts receivable, accounts payable and long-term
debt. The Company believes that the carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt are a
reasonable estimate of their fair value because of the short-term maturities
of such instruments or, in the case of long-term debt due after one year,
because the Company believes that the current interest rates on these notes
approximates the rates which could be currently negotiated with such lenders.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the presentation used in the 1996
financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's balance sheet as of
June 30, 1996 and the statement of income and cash flows for the six months
ended June 30, 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal, recurring
adjustments) necessary to present fairly the financial position and results of
operations and cash flows of the Company for the six months ended June 30,
1996 have been made. The financial position and the results of operations for
the interim period are not necessarily indicative of the results to be
expected for the full years.
F-52
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RELATED PARTIES
The Company purchases software and enters into other related transactions
with the Company's subsidiary, LETI, which are eliminated in consolidation.
The Company has also entered into financing arrangements with its shareholders
which are discussed in Note 6. At December 31, 1995 and 1996, and June 30,
1996 and 1997, the outstanding balances of these related party notes payable
were $534,848, $655,451, $170,427 and $1,384,243, respectively. Interest paid
or accrued to these related parties pursuant to these financing arrangements
was $46,704 in 1994, $43,007 in 1995, $55,576 in 1996, $5,144 in the six
months ended June 30, 1996 and $7,790 in the six month period ended June 30,
1997.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Trade accounts receivable.............. $ 1,530,663 $ 2,686,172 $ 3,287,247
Employee receivables................... 21,153 42,274 7,553
Other.................................. -- -- 73,632
----------- ----------- -----------
1,551,816 2,728,446 3,368,432
Less advances on receivables........... (1,159,969) (1,725,825) (1,950,705)
Less allowance for unbillable and
uncollectible chargebacks............. (134,000) (214,551) (345,464)
----------- ----------- -----------
$ 257,847 $ 788,070 $ 1,072,263
=========== =========== ===========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Leasehold improvements................. $ 2,000 $ 2,900 $ 50,194
Telephone systems equipment............ 3,789,729 5,429,727 6,567,000
Furniture and fixtures................. 292,005 449,175 542,676
----------- ----------- -----------
4,083,734 5,881,802 7,159,870
Less accumulated depreciation and
amortization.......................... (808,694) (1,668,390) (2,142,401)
----------- ----------- -----------
$ 3,275,040 $ 4,213,412 $ 5,017,469
=========== =========== ===========
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Billing and collection fees............ $ 89,410 $ 66,240 $ 64,506
Facility commissions................... 227,730 323,889 527,870
Other.................................. 66,247 133,388 98,063
----------- ----------- -----------
$ 383,387 $ 523,517 $ 690,439
=========== =========== ===========
</TABLE>
F-53
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
The Company's long-term debt is composed of the following:
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1996 1997
----------- -----------
<S> <C> <C>
Notes payable to Comerica Bank--Texas with interest
at 9.25%, payable in monthly principal installments
of $11,925, plus interest, through their maturity
at varying dates throughout 1997................... $ 382,428 $ 414,273
Notes payable to Lyon Credit with interest at
between 10.09% and 10.78%, payable in monthly
installments of $34,458, through their maturity on
April 1, 1999...................................... 826,377 705,581
Note payable to LDDS with interest at 9.5%, payable
in monthly installments of $21,538 through its
maturity on December 8, 1997....................... 245,630 105,177
Notes payable to Northern Trust Bank with interest
at between 10.25% and 10.76%, payable in monthly
installments of $11,429, through their maturity at
varying dates from May 21, 1997 through December
10, 1999........................................... 177,341 125,018
Note payable to North American Intelecom, Inc. with
interest at 8%, payable in monthly installments of
$25,430 through its maturity on August 1, 1998..... -- 340,770
Notes payable to shareholders:
Notes payable with interest at 5%, due at maturity
on November 28, 1997 and subordinated to
borrowings from Comerica Bank--Texas............. 515,451 1,265,451
Note payable with interest at 7.5%, payable in
monthly principal installments of $3,602, plus
interest, through December 6, 1999............... 140,000 118,792
Capital lease obligations and other................. 163,933 101,139
Less current portion of long-term debt.............. (1,692,647) (2,615,419)
----------- -----------
$ 758,513 $ 560,782
=========== ===========
</TABLE>
Substantially all of the Company's accounts receivable and equipment are
collateral for the above notes payable or the advances on accounts receivable
from third party billing services. In addition, the notes payable agreements
with Lyon Credit are subject to prepayment penalties of: 3% for prepayments
during the first twelve months of the loan; 2% for prepayments during the
second twelve months of the loan; and 1% for prepayments during the third
twelve months of the loan.
Future maturities of long-term debt as of June 30, 1997, including capital
lease obligations, for the six months ending December 31, 1997 and the years
ending December 31, 1998 and 1999 are as follows:
<TABLE>
<S> <C>
1997 (six months)............................................... $2,063,226
1998............................................................ 834,413
1999............................................................ 278,562
----------
Total......................................................... $3,176,201
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases certain telephone systems equipment under capital
lease agreements with lease terms of two to six years and leases certain
operating facilities under operating lease agreements with lease terms of one
to seven years. Total rent expense under operating lease agreements for 1994,
1995 and 1996 was $33,520, $64,240 and $50,797, respectively, and rent expense
under operating lease agreements for the unaudited six month period ended June
30, 1996 and the audited six month period ended June 30, 1997 was $30,383 and
$24,387, respectively.
F-54
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under capital and operating leases with terms
greater than one year as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year Ending
1997 (six months)....................................... $34,263 $ 23,113
1998.................................................... 50,629 50,455
1999.................................................... 37,309 56,377
2000.................................................... -- 30,303
------- --------
Total minimum future rental payments.................... 122,201 $160,248
========
Less amounts representing imputed interest.............. (21,062)
-------
Total capital lease obligations......................... 101,139
Less current portion.................................... (49,514)
-------
Long-term portion....................................... $51,625
=======
</TABLE>
CONTINGENCIES--The Company is a party to various claims, legal actions, and
complaints arising in the ordinary course of business. In the opinion of
management, the amount of liability, if any, with respect to these actions,
would not have a material effect on the financial position of the Company or
its results of operations.
9. STOCKHOLDERS' EQUITY
The Company has outstanding options and warrants which allow certain
individuals the right to acquire up to a 14% ownership interest in the Company
for nominal exercise prices including an option to acquire up to a 10%
ownership interest issued in 1989 to a consultant in consideration for certain
facility contract proposals and a warrant issued in 1996 to a stockholder to
acquire up to a 4% ownership interest in connection with this stockholder's
sale of common stock to the Company discussed below.
During 1996, the Company acquired 35 shares of common stock from a
stockholder for $118,311, which was retired by the Company resulting in a
reduction of common stock of $952 and retained earnings of $117,359.
10. INCOME TAXES
As discussed in Note 1, STC is organized as an S corporation and does not
pay tax at the corporate level, however, the Company's subsidiary, LETI, is
subject to income taxes at the corporate level. There are no material
permanent differences for LETI, and principal temporary differences between
book income and taxable income include capital leases which are reported on
the cash basis for tax purposes and capitalized software costs which are
expensed for tax purposes as research and development costs. The Company has
provided income tax expense during the six months ended June 30, 1996 using
the effective tax rates for each of its taxing jurisdictions which have been
allocated between current income taxes payable and deferred income taxes based
on 1996 anticipated temporary differences. The composition of deferred income
tax liabilities as of December 31, 1995 and 1996, and June 30, 1997, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Capital leases................................ $ 68,617 $ 50,616 36,444
Capitalized software.......................... 39,129 66,634 84,704
Other......................................... (20,621) (10,335) (7,752)
-------- -------- --------
Total....................................... $ 87,125 $106,915 $113,396
======== ======== ========
</TABLE>
F-55
<PAGE>
SECURITY TELECOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS
On June 27, 1997 substantially all of the net assets of the Company were
sold to Talton Holdings, Inc. for cash of $11.2 million and 900 shares of
Talton Holdings, Inc. common stock.
* * * * * *
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors of
Correctional Communications Corporation
We have audited the accompanying balance sheets of Correctional
Communications Corporation (the "Company") as of December 31, 1995 and 1996,
and the related statements of income, stockholders' equity and cash flows for
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Correctional
Communications Corporation at December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ginsberg, Weiss & Company
Pearl River, New York
June 27, 1997
(October 6, 1997 as to Note 10)
F-57
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 693,918 $ 643,742 $ 577,618
Accounts receivable, net................... 648,519 924,249 974,689
Inventories................................ 10,148 15,075 16,038
Other assets............................... 14,378 32,067
---------- ---------- ----------
Total current assets..................... 1,366,963 1,615,133 1,568,345
PROPERTY AND EQUIPMENT....................... 491,100 550,263 482,566
LOANS RECEIVABLE--STOCKHOLDER................ 95,289 95,139
OTHER ASSETS................................. 150,067 274,584 663,204
---------- ---------- ----------
TOTAL........................................ $2,008,130 $2,535,269 $2,809,254
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 684,915 $ 783,794 $1,096,641
Accrued expenses........................... 441,738 787,883 598,594
Current portion of long-term debt.......... 24,504 24,504
---------- ---------- ----------
Total current liabilities................ 1,126,653 1,596,181 1,719,739
LONG-TERM DEBT-- STOCKHOLDERS................ 442,880 442,880 442,880
LONG-TERM DEBT-- OTHER....................... 19,343 13,136
MINORITY INTEREST............................ 93,033 58,701 14,288
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000
shares authorized, 18,750 shares issued
and outstanding........................... 138,333 138,333 138,333
Retained earnings.......................... 207,231 279,831 480,878
---------- ---------- ----------
Total stockholders' equity............... 345,564 418,164 619,211
---------- ---------- ----------
TOTAL.................................... $2,008,130 $2,535,269 $2,809,254
========== ========== ==========
</TABLE>
See notes to financial statements.
F-58
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
-------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....... $4,190,994 $7,372,233 $9,563,648 $4,481,055 $5,427,756
OPERATING EXPENSES:
Telecommunication
costs................ 1,575,480 2,429,046 2,921,990 1,545,776 1,485,192
Facility commissions.. 1,533,120 2,761,862 3,668,035 1,615,844 2,202,279
Field operations and
maintenance.......... 171,460 174,676 289,173 141,527 168,221
Selling, general and
administrative....... 651,780 1,292,219 1,972,112 908,792 995,044
Depreciation and
amortization......... 156,704 242,500 332,938 160,774 203,478
---------- ---------- ---------- ---------- ----------
Total operating
expense............ 4,088,544 6,900,303 9,184,248 4,372,713 5,054,214
---------- ---------- ---------- ---------- ----------
OPERATING INCOME........ 102,450 471,930 379,400 108,342 373,542
OTHER (INCOME) EXPENSE:
Interest expense,
net.................. 74,940 51,631 39,564 18,377 13,579
Minority interest..... 23 73,298 117,236 44,953 58,916
---------- ---------- ---------- ---------- ----------
Total other (income)
expense............ 74,963 124,929 156,800 63,330 72,495
---------- ---------- ---------- ---------- ----------
NET INCOME.............. $ 27,487 $ 347,001 $ 222,600 $ 45,012 $ 301,047
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-59
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ -------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................. 15,000 $ 38,333 $(167,257) $(128,924)
Net income............................. 27,487 27,487
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1994............... 15,000 38,333 (139,770) (101,437)
Issuance of common stock............... 3,750 100,000 100,000
Net income............................. 347,001 347,001
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1995............... 18,750 138,333 207,231 345,564
Net income............................. 222,600 222,600
Dividends.............................. (150,000) (150,000)
------ -------- --------- ---------
BALANCE, DECEMBER 31, 1996............... 18,750 $138,333 $ 279,831 $ 418,164
Net income (unaudited)................. 301,047 301,047
Dividends (unaudited).................. (100,000) (100,000)
------ -------- --------- ---------
BALANCE, JUNE 30, 1997 (UNAUDITED)....... 18,750 $138,333 $ 480,878 $ 619,211
====== ======== ========= =========
</TABLE>
See notes to financial statements.
F-60
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income........... $ 27,487 $ 347,001 $ 222,600 $ 45,012 $ 301,047
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization...... 156,704 242,500 332,938 160,774 203,478
Minority interest.. 23 73,298 117,236 44,953 58,916
Changes in operating
assets and
liabilities:
Accounts
receivable........ (262,027) (126,460) (275,730) (376,860) (50,440)
Accounts payable... 146,981 91,097 98,879 58,418 312,847
Accrued expenses... 78,597 336,997 346,145 97,707 (189,290)
Other assets....... (10,857) (26,500) (26,143) (6,012) 31,104
--------- --------- --------- --------- ---------
Net cash provided
by operating
activities...... 136,908 937,933 815,925 23,992 667,662
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment....... (335,899) (170,705) (267,555) (198,299) (45,189)
Increase in
investments......... 75,000
Increase in note
receivable.......... (95,289) (50,225)
Additions to
intangibles......... (133,568) (55,321) (244,470) (269,587) (479,062)
Increase in
restricted cash..... (20,789) (1,066)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities...... (394,467) (246,815) (608,380) (518,111) (524,251)
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Dividends paid....... -- -- (150,000) -- (100,000)
Investments of
(distributions to)
limited partners.... (22,609) (96,146) (151,568) (55,203) (103,328)
Issuance of common
stock............... 100,000
Proceeds from
issuance of long-
term debt........... 408,000 61,654 22,915
Payments of long-term
debt................ (145,500) (17,807) (6,207)
--------- --------- --------- --------- ---------
Net cash provided
by (used in)
financing
activities...... 385,391 (141,646) (257,721) (32,288) (209,535)
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... 127,832 549,472 (50,176) (526,407) (66,124)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 16,614 144,446 693,918 693,918 643,742
--------- --------- --------- --------- ---------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 144,446 $ 693,918 $ 643,742 $ 167,511 $ 577,618
========= ========= ========= ========= =========
SUPPLEMENTAL
INFORMATION:
Cash paid for
interest............ $ 75,284 $ 68,082 $ 67,427 $ 31,057 $ 31,144
========= ========= ========= ========= =========
Cash paid for income
taxes............... $ 2,475 $ 7,600 $ 5,560 $ -- $ --
========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-61
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Correctional Communications Corporation and Subsidiaries (the
"Company") was incorporated on February 11, 1991, in the State of California.
The Company provides fully automated pay telephone services to jail inmates in
correctional facilities located in the western United States.
PREPARATION OF FINANCIAL STATEMENTS--The preparation of financial statements
in conformity with generally accepted accounting principles requires
management of the Company to make estimates and assumptions that affect the
amount reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The Company owns 50%, and is the general
partner, of MCJ Telephone Partners LP ("MCJ") and KCJ Telephone Partners LP
("KCJ") Each partnership was formed to own, in conjunction with third party
investors, and operate contracts providing telephone service. The financial
statements presented reflect 100% of the assets, liabilities, revenue and
expenses of MCJ and KCJ. The limited partners' interests are reflected as
minority interests in the joint venture. All significant intercompany balances
and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to a concentration of credit risk consist of accounts
receivable. These receivables are generated by collect calls made by inmates
at the correctional facilities which have contracted with the Company. The
credit risk relates to funds not being collected from the third party
recipients. The credit risk is mitigated by the large number of customers and
the limit on the amount of credit extended to any billing number.
The Company also has concentration of credit risk involving cash. The
Company maintains multiple cash account s with one bank. The uninsured amount
at December 31, 1996, is due to cash balances in excess of FDIC insurance
limits in the amount of $819,521.
CASH AND CASH EQUIVALENTS--For purposes of the statement of cash flows, cash
and cash equivalents include cash on hand and cash investments with a
remaining maturity at the date of purchase of three months or less.
ACCOUNTS RECEIVABLE--Accounts receivable at June 30, 1997 and December 31,
1996 and 1995, consists primarily of amounts due from billing and collection
clearing houses for non-coin calls placed through the Company's inmate pay
telephone systems. The amounts due are net of an allowance for uncollectible
accounts which is determined based upon rates established from historical
experience. The allowance for doubtful accounts was $260,417 as of June 30,
1997 and $246,940 and $144,438 as of December 31, 1996 and 1995. The balance
due from one billing and collection clearing house was $474,986, $515,555 and
$416,269 at June 30, 1997 December 31, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT--The Company's property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to five years.
Expenditures for major renewals and betterments that extend the useful lives
of assets are capitalized. Expenditures for repairs and maintenance are
charged to operations in the period incurred. Depreciation expense at June 30,
1997 and 1996, December 31, 1996, 1995 and 1994, is $112,886, $108,154,
$208,393, $181,214 and $122,524, respectively.
INTANGIBLE ASSETS--Intangible assets consist of signing bonuses paid to
correctional facilities at the inception of the contract term. These signing
bonuses have been capitalized and are being amortized over the life of the
contracts which range from three to five years. Amortization expense at
December 31, 1996, 1995 and
F-62
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1994 is $124,115, $60,498 and $32,052, respectively and $90,592 and $52,620
for the six months ended June 30, 1997 and 1996.
Organization expense has been capitalized and is being amortized over five
years using the straight-line method. Amortization expense at December 31,
1996, 1995 and 1994 is $430, $264 and $266, respectively.
INCOME TAXES--On February 11, 1991, the Company filed an election to be
taxed as an S Corporation under section 1361 of the Internal Revenue Code.
Taxes on income are payable by the individual stockholders. Accordingly, no
provision for federal corporation taxes based on income is recorded. The
Company, MCJ and KCJ file separate income tax returns and are all subject to
taxes in the State of California. Additionally, the Company is subject to tax
on income in the States of California and Arizona.
REVENUE RECOGNITION--Revenue is recognized when earned. Coin call and non-
coin call revenue is recognized at the time the call is made.
The Company occasionally requires certain customers to remit funds in
advance in order to guarantee payment of telephone service. Unearned advances
are recorded as a current liability in customer deposits. As calls are made by
these customers, the customer deposit account is reduced and revenue is
recognized.
FACILITY COMMISSIONS--Under the terms of the Company's telephone system
contracts with corrections facilities, the Company pays commissions to these
facilities generally based on call volume revenues which are accrued during
the period the revenues are generated.
FINANCIAL INSTRUMENTS--The Company's financial instruments under Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," includes cash and cash equivalents, accounts
receivable, accounts payable and long-term debt. The Company believes that the
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt are a reasonable estimate of their fair value
because of the short-term maturities of such instruments or, in the case of
long-term debt due after one year, because the Company believes that the
current interest rates on these notes approximates the rates which could be
currently negotiated with such lenders.
RESEARCH AND DEVELOPMENT--Costs related to research, design and development
of computer software are charged to operations as incurred, in accordance with
Statement of Financial Standards No. 86. For the six months ended June 30,
1997 and for the year ended December 31, 1996, $0 and $193,339 was charged to
current operations as research and development.
RECLASSIFICATION--Certain amounts for the prior years have been reclassified
to conform with the current year presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's balance sheet as of
June 30, 1997 and statements of income and cash flows for the six months ended
June 30, 1996 and 1997 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal, recurring
adjustments) necessary to present fairly the balance sheet of the Company as
of June 30, 1997 and the results of operations and cash flows of the Company
for the six months ended June 30, 1996 and 1997, have been made. The results
of operation for the interim period are not necessarily indicative of the
results to be expected for the full year.
2. RELATED PARTIES
Loans from stockholder of $95,289 and $95,139 as of December 31, 1996 and
June 30, 1997 reflects amounts advance at various times during 1996. These
notes are unsecured and non-interest bearing. Interest has been imputed at the
rate of prime plus 1% and totals $4,709 for the year ended December 31, 1996.
F-63
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Telephone systems equipment........... $ 796,926 $ 995,320 $1,028,188
Furniture and fixtures................ 95,347 103,623 114,444
Vehicles.............................. 61,655 61,655
--------- ---------- ----------
892,273 1,160,598 1,204,287
Less accumulated depreciation......... (401,173) (610,335) (721,721)
--------- ---------- ----------
$ 491,100 $ 550,263 $ 482,566
========= ========== ==========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Signing bonus............................ $218,891 $ 465,513 $ 910,958
Organization costs....................... 3,712 3,712 3,712
Restricted cash.......................... 20,789 21,855 22,198
Other.................................... 5,310 9,110 40,109
-------- --------- ---------
248,702 500,190 976,977
Less accumulation amortization........... (98,635) (225,606) (313,773)
-------- --------- ---------
$150,067 $ 274,584 $ 663,204
======== ========= =========
</TABLE>
Restricted cash consists of a certificate of deposit for $20,000 plus
accrued interest income of $343, $1,855 and $789 as of June 30, 1997, December
31, 1996 and December 31, 1995, respectively. By agreement with one of its
county facilities, the Company is obligated to maintain this certificate of
deposit in a segregated account for the duration of the contract period which
expires June 30, 1998.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Billing and collection fees................. $ 17,932 $ 43,702 $ 87,485
Facility commissions........................ 267,154 343,756 405,372
Profit sharing plan......................... 110,000
Telephone charges........................... 109,663 101,419 101,609
Other....................................... 46,989 189,006 4,127
-------- -------- --------
$441,738 $787,883 $598,593
======== ======== ========
</TABLE>
F-64
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
The Company's long-term debt is composed of the following as of December 31,
1996 and June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
8.75% note payable to Union Bank of California, due in
24 monthly installments of $1,091 including interest,
due March 15, 1998 secured by a vehicle.............. $15,466 $ 9,259
10.25% note payable to Patelco Credit Union, due in 36
monthly installments of $1,219 including interest,
due February 5, 1999, secured by a vehicle........... 28,381 28,381
------- -------
43,847 37,640
Less current portion of long-term debt................ 24,504 24,504
------- -------
$19,343 $13,136
======= =======
</TABLE>
Principal payments on long-term liabilities as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Years Ended December 31:
1997............................................................ $24,504
1998............................................................ 16,848
1999............................................................ 2,495
-------
$43,847
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases certain personal property under non-cancelable
operating leases. In addition, the Company has guaranteed certain monthly
commission payments to one of the counties that they contract with, which is
paid in addition to the contracted commission rate. The following is a
schedule by years of future minimum lease and contract payments at December
31, 1996.
<TABLE>
<S> <C>
Year Ending December 31,
1997.......................................................... $ 65,347
1998.......................................................... 68,101
1999.......................................................... 49,858
2000.......................................................... 22,619
--------
Total minimum future rental payments........................ $205,925
========
</TABLE>
RENT--The Company rents space for its administrative activities under a
lease which was signed effective June 1, 1995, for a two-year period. It calls
for monthly rent of $2,310. Effective October 1, 1996, the lease was extended
to September 30, 1999, at a monthly rent of $4,309. The future minimum rental
payments at December 31 are $51,705 for 1997, $51,705 for 1998 and $38,779 for
1999.
8. TRANSACTION WITH RELATED PARTY
The Company is indebted to its stockholders for loans aggregating $442,880.
The loans bear interest at rates that vary from 8% to 14%. Payments of
principal are determined as between the related parties. The loans are not
currently scheduled for repayment.
F-65
<PAGE>
CORRECTIONAL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLAN
The Company has adopted a qualified profit sharing plan covering all its
employees. The eligibility requirements for employees are as follows: They
must attain the age of 21, have 12 month of service and perform at least 1,000
hours of work within a plan year. Contributions are made at the discretion of
the Board of Directors. For the years ended December 31, 1996 and 1995, the
Company has made contributions of $110,000 and $100,000, respectively.
10. SUBSEQUENT EVENT
Subsequent to the balance sheet date, the Board of Directors declared a
dividend of $5.33 per share, payable on April 1, 1997.
On July 31, 1997, the Company signed an agreement with Talton Holdings, Inc.
to sell substantially all of the assets of the Company for cash of $11.5
million, subject to certain adjustments to be determined based on future
results of operations of the Company. No effect of this transaction has been
reflected in the accompanying financial statements.
F-66
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHROIZED BY THE COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OR EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OF-
FER OR SOLICITATION IS UNLAWFUL.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................................. 3
Corporate Structure.................................................................... 3
Prospectus Summary..................................................................... 4
Risk Factors........................................................................... 17
The Exchange Offer..................................................................... 24
Use of Proceeds........................................................................ 31
Capitalization......................................................................... 32
Pro Forma Financial Data............................................................... 33
Selected Financial Data................................................................ 40
Selected Historical Predecessor Financial Data......................................... 42
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 45
Business............................................................................... 54
Management............................................................................. 67
Principal Stockholders................................................................. 71
Certain Relationships and Related Transactions......................................... 73
Description of Capital Stock........................................................... 80
Description of Other Indebtedness...................................................... 81
Description of Senior Notes............................................................ 83
Certain Federal Income Tax Considerations.............................................. 110
Plan of Distribution................................................................... 112
Legal Matters.......................................................................... 113
Experts................................................................................ 113
Special Note Regarding Forward-Looking Information..................................... 114
Index to Financial Statements.......................................................... F-1
Independent Auditors' Report........................................................... F-2
</TABLE>
----------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING NEW
NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR THEIR OWN ACCOUNT. SEE
"PLAN OF DISTRIBUTION."
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$115,000,000
TALTON HOLDINGS, INC.
11% SERIES B SENIOR NOTES DUE 2007
----------------
PROSPECTUS
----------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides, consistent with the
provisions of the Delaware General Corporation Law, that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. This does not apply, however, with respect to any action for unlawful
payments of dividends, stock purchases or redemptions, nor does it apply if the
director (i) has breached his duty of loyalty to the Company and its
stockholders; (ii) does not act or, in failing to act, has not acted in good
faith; (iii) has acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, has acted in a manner involving
intentional misconduct or a knowing violation of law; or (iv) has derived an
improper personal benefit. The provisions of the Certificate of Incorporation
eliminating liability of directors for monetary damages do not affect the
standard of conduct to which directors must adhere, nor do such provisions
affect the availability of equitable relief. In addition, such limitations on
personal liability do not affect the availability of monetary damages under
claims based on federal law.
The Company's By-laws provide for indemnification of its officers and
directors to the fullest extent permitted by the Delaware General Corporation
Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1** Asset Purchase Agreement, dated as of August 21, 1997, among
the Company, Invision Telecom, Inc., and Communications
Central, Inc.
2.2** Contribution Agreement, dated as of December 20, 1996, among
the Company, Richard C. Green, Jr., Robert K. Green, T.R.
Thompson, Roger K. Sallee, and certain other stockholders,
and AmeriTel.
2.3** Contribution Agreement, dated as of December 20, 1996, among
the Company, Julius E. Talton, Julius E. Talton, Jr., and
James E. Lumpkin.
2.4** Stock Acquisition Agreement, dated as of December 20, 1996,
among the Company, Richard C. Green, Jr., Robert K. Green,
T.R. Thompson, Roger K. Sallee, and certain other
stockholders, and AmeriTel Pay Phones, Inc.
2.5** Stock Acquisition Agreement, dated as of December 20, 1996,
among the Company, Julius E. Talton, Julius E. Talton, Jr.,
James E. Lumpkin, Carrie T. Glover, Talton
Telecommunications Corporation, and Talton
Telecommunications of Carolina, Inc.
3.1** Certificate of Incorporation of Talton Holdings, Inc.
3.2** Bylaws of Talton Holdings, Inc.
3.3* Certificate of Incorporation of AmeriTel Pay Phones, Inc.
3.4* Bylaws of AmeriTel Pay Phones, Inc.
3.5* Certificate of Incorporation of Talton Telecommunications
Corporation.
3.6* Bylaws of Talton Telecommunications Corporation.
3.7* Certificate of Incorporation of Talton Telecommunications of
Carolina, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.8* Bylaws of Talton Telecommunications of Carolina, Inc.
3.9* Certificate of Incorporation of Talton STC, Inc.
3.10* Bylaws of Talton STC, Inc.
3.11* Certificate of Incorporation of Talton Invision, Inc.
3.12* Bylaws of Talton Invision, Inc.
4.1** Indenture, dated as of June 27, 1997, between the Company
and U.S. Trust Company of Texas, N.A.
4.2** Form of Note (contained in Indenture filed as Exhibit 4.1).
4.3** Form of Subsidiary Guaranty (contained in Indenture filed as
Exhibit 4.1).
4.4 + Registration Rights Agreement, dated as of June 27, 1997,
between the Company and the Initial Purchaser.
4.5** Registration Rights Agreement, dated as of December 27,
1996, by and among the Company and certain Holders named
therein.
4.6** Shareholders Agreement, dated as of December 27, 1996, by
and among the Company and certain Persons named therein.
4.7** Warrant Agreement, dated as of December 27, 1996, between
the Company and CIBC Wood Gundy Ventures, Inc.
4.8** Warrant Agreement, dated as of December 27, 1996, between
the Company and Gregg L. Engles.
4.9** Warrant Agreement, dated as of December 27, 1996, between
the Company and Gregg L. Engles.
4.10** Warrant Agreement, dated as of December 27, 1996, between
the Company and Gregg L. Engles.
4.11** Warrant Agreement, dated as of December 27, 1996, between
the Company and Onyx Talton Partners, L.P.
4.12** Warrant Agreement, dated as of December 27, 1996, between
the Company and Onyx Talton Partners, L.P.
4.13** Warrant Agreement, dated as of December 27, 1996, between
the Company and Onyx Talton Partners, L.P.
4.14** Warrant Agreement, dated as of December 27, 1996, between
the Company and Joseph P. Urso.
4.15** Warrant Agreement, dated as of December 27, 1996, between
the Company and Joseph P. Urso.
4.16** Warrant Agreement, dated as of December 27, 1996, between
the Company and Joseph P. Urso.
4.17** Warrant Agreement, dated as of December 27, 1996, between
the Company and Todd W. Follmer.
4.18** Warrant Agreement, dated as of December 27, 1996, between
the Company and Todd W. Follmer.
4.19** Warrant Agreement, dated as of December 27, 1996, between
the Company and Todd W. Follmer.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
5.1* Opinion of Hughes & Luce, L.L.P.
10.1 + Purchase Agreement dated as of June 27, 1997, between the
Company and the Initial Purchaser.
10.2 + Amended and Restated Credit Agreement, dated as of July 30,
1997, among the Company, Canadian Imperial Bank of Commerce,
CIBC Inc., and First Source Financial LLP.
10.3 + Asset Purchase Agreement, dated as of May 9, 1997, among the
Company, Security Telecom Corporation, and William H.
Ohland.
10.4 + First Amendment to Asset Purchase Agreement, dated as of
June 21, 1997, among the Company, Security Telecom
Corporation, and William H. Ohland.
10.5** Employment Agreement, dated as of June 2, 1997, between the
Company and John A. Crooks, Jr.
10.6** Consulting Agreement, dated as of December 27, 1996, between
the Company and
James E. Lumpkin.
10.7** Consulting Agreement, dated as of December 27, 1996, between
the Company and
Julius E. Talton.
10.8** Consulting and Strategic Services Agreement, dated as of
December 27, 1996, between
the Company and EUF Talton, L.P.
10.9** Employment Agreement, dated as of December 27, 1996, between
the Company and
Julius E. Talton, Jr.
10.10** Employment Agreement, dated as of December 27, 1996, between
the Company and
John R. Summers.
10.11** Stock Option Letter, dated as of June 2, 1997, from the
Company to John A. Crooks, Jr.
11.1** Statement re computation of per share earnings.
12.1** Computation of Ratio of Earnings to Fixed Charges.
21.1** Subsidiaries of the Company.
23.1* Consent of Hughes & Luce, L.L.P. (contained in its opinion
filed as Exhibit 5.1 hereto).
23.2** Consent of Deloitte & Touche LLP.
23.3** Consent of Arthur Andersen LLP.
23.4** Consent of Borland, Benefield, Crawford & Webster, P.C.
23.5** Consent of Davis, Clark and Company, P.C.
23.6** Consent of Ginsberg, Weiss & Company
24.1**+ Power of Attorney (appearing on Signature Page of
Registration Statement on Form S-4 filed August 14, 1997,
Registration No. 333-33639, except for Power of Attorney
with respect to Talton Invision, Inc., which is included on
the Signature Pages hereto).
25.1* Form T-1 Statement of Eligibility of Trustee.
27.1* Financial Data Schedule.
99.1+ Form of Letter of Transmittal.
99.2** Form of Broker, Dealer Letter.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
99.3** Form of Clients' Letter.
99.4** Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
+ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
The following are included in Part II of this Registration Statement:
Schedule II--Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the Prospectus pursuant to Item 4, 10(b),
11, or 13 of the Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first-class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed part of the
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at such
time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) ((S)230.424(b) of this
chapter), if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (3)(i) and (3)(ii) above do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed with or furnished to the Commission
by the registrants pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 5TH DAY OF NOVEMBER, 1997.
Talton Holdings, Inc.
/s/ John R. Summers
By: ---------------------------------
JOHN R. SUMMERS
VICE PRESIDENT, CHIEF
FINANCIAL OFFICER,
SECRETARY, AND
TREASURER OF THE
COMPANY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
*
- ------------------------------------- Director of Talton November 5,1997
GREGG L. ENGLES Holdings, Inc.
*
- ------------------------------------- Director of Talton November 5, 1997
RICHARD H. HOCHMAN Holdings, Inc.
*
- ------------------------------------- Director of Talton November 5, 1997
JAY R. LEVINE Holdings, Inc.
*
- ------------------------------------- Director of Talton November 5, 1997
ROGER K. SALLEE Holdings, Inc.
*
- ------------------------------------- Director of Talton November 5,1997
DAVID A. SACHS Holdings, Inc.
*
- ------------------------------------- Vice President, November 5, 1997
TODD W. FOLLMER Assistant Secretary,
Assistant Treasurer,
and Director of Talton
Holdings, Inc.
/s/ John R. Summers
*By: ___________________________ Vice President, Chief November 5, 1997
JOHN R. SUMMERS Financial Officer,
Attorney-in-fact Secretary, and
Treasurer of the
Company
*
- ------------------------------------- President and Chief November 5,1997
JOHN A. CROOKS, JR. Operating Officer of
the Company
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 5TH DAY OF NOVEMBER, 1997.
Ameritel Pay Phones, Inc.
/s/ John R. Summers
By: _________________________________
JOHN R. SUMMERS VICE-PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
* Director of AmeriTel November 5, 1997
- ------------------------------------- Pay Phones, Inc.
RICHARD H. HOCHMAN
* Director of AmeriTel November 5, 1997
- ------------------------------------- Pay Phones, Inc.
NINA E. MCLEMORE
* Director of AmeriTel November 5, 1997
- ------------------------------------- Pay Phones, Inc.
JULIUS E. TALTON, SR.
* Director of AmeriTel November 5, 1997
- ------------------------------------- Pay Phones, Inc.
DAVID A. SACHS
* Vice President and November 5, 1997
- ------------------------------------- Director of
TODD W. FOLLMER AmeriTel Pay
Phones, Inc.
*By: /s/ John R. Summers Vice President and November 5, 1997
-------------------------------- Chief Financial
JOHN R. SUMMERS Officer of AmeriTel
Attorney-in-fact Pay Phones, Inc.
(principal
executive officer,
principal financial
officer, and
principal
accounting officer)
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 5TH DAY OF NOVEMBER, 1997.
Talton Telecommunications of
Carolina, Inc.
/s/ Julius E. Talton, Sr.
By: _________________________________
JULIUS E. TALTON, SR. CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
* Director of Talton November 5, 1997
- ------------------------------------- Telecommunications
RICHARD H. HOCHMAN of Carolina, Inc.
*
- ------------------------------------- Director of Talton November 5, 1997
NINA E. MCLEMORE Telecommunications
of Carolina, Inc.
*
- ------------------------------------- Director of Talton November 5, 1997
DAVID A. SACHS Telecommunications
of Carolina, Inc.
*
- ------------------------------------- Vice President and November 5, 1997
TODD W. FOLLMER Director of Talton
Telecommunications
of Carolina, Inc.
*
- ------------------------------------- Chairman, Chief November 5, 1997
JULIUS E. TALTON, SR. Executive Officer
and Director of
Talton Telecommunications
of Carolina, Inc.
(principal
executive officer)
*
- ------------------------------------- Secretary of Talton November 5, 1997
TOM GLOVER Telecommunications
of Carolina, Inc.
(principal
financial officer
and principal
accounting
officer).
/s/ John R. Summers
*By: ___________________________ November 5, 1997
JOHN R. SUMMERS
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS
ON THE 5TH DAY OF NOVEMBER, 1997.
Talton Telecommunications Corporation
By: /s/ Julius E. Talton, Sr.
----------------------------------
JULIUS E. TALTON, SR. CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
* Director of Talton November 5, 1997
- ------------------------------------ Telecommunications
RICHARD H. HOCHMAN Corporation
* Director of Talton November 5, 1997
- ------------------------------------ Telecommunications
NINA E. MCLEMORE Corporation
* Director of Talton November 5, 1997
- ------------------------------------ Telecommunications
DAVID A. SACHS
* Vice President and November 5, 1997
- ------------------------------------ Director of Talton
TODD W. FOLLMER Telecommunications
Corporation
* Chairman, Chief November 5, 1997
- ------------------------------------ Executive Officer
JULIUS E. TALTON, SR. and Director of
Talton
Telecommunications
Corporation
(principal
executive officer)
* Secretary of Talton November 5, 1997
- ------------------------------------ Telecommunications
TOM GLOVER Corporation
(principal
financial officer,
principal
accounting
officer)
*By: /s/ John R. Summers
_______________________________ November 5, 1997
JOHN R. SUMMERS
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 5TH DAY OF NOVEMBER, 1997.
Talton STC, Inc.
/s/ John R. Summers
By: _________________________________
JOHN R. SUMMERS
VICE PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
*
- ------------------------------------- Director of Talton November 5, 1997
TODD W. FOLLMER STC, Inc
(principal
executive officer)
/s/ John R. Summers
*By: ___________________________ Vice President of November 5, 1997
JOHN R. SUMMERS Talton STC, Inc.
Attorney-in-fact (principal
financial officer
and principal
accounting officer)
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 5TH DAY OF NOVEMBER, 1997.
Talton Invision, Inc.
By: /s/ John R. Summers
_________________________________
JOHN R. SUMMERS
VICE PRESIDENT, SECRETARY, AND
TREASURER
POWER OF ATTORNEY
Know All Men By These Presents that each person whose signature appears
below constitutes and appoints John A. Crooks, Jr., Todd W. Follmer, and John
R. Summers, and each of them, such person's true and lawful attorneys-in-fact
and agents, with full power of substitution and revocation, for such person
and in such person's name, place and stead, in any and all amendments
(including post-effective amendments to this Registration Statement) and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorneys-on-fact and
agents or any of them, or their or his substitute of substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Todd W. Follmer President, Assistant November 5, 1997
- ------------------------------------- Secretary, and
TODD W. FOLLMER Director of Talton
Invision, Inc.
(principal
executive officer)
/s/ John R. Summers Vice President, November 5, 1997
- ------------------------------------- Secretary, and
JOHN R. SUMMERS Treasurer of Talton
Invision, Inc.
(principal
financial officer
and principal
accounting officer)
/s/ John A. Crooks, Jr. Vice President and November 5, 1997
- ------------------------------------- Assistant Secretary
JOHN A. CROOKS, JR. of Talton Invision,
Inc.
/s/ Brenda King Assistant Secretary November 5, 1997
- ------------------------------------- of Talton Invision,
BRENDA KING Inc.
II-11
<PAGE>
TALTON HOLDINGS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE MONTH ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSE DEDUCTIONS BALANCE
- ----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts........ 1,195 654 724 1,125
</TABLE>
II-12
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
TALTON HOLDINGS, INC.,
A DELAWARE CORPORATION
AND
INVISION TELECOM, INC.,
A GEORGIA CORPORATION
AND
COMMUNICATIONS CENTRAL INC.,
A GEORGIA CORPORATION
Dated as of August 21, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made as of August 21, 1997,
by and among TALTON HOLDINGS, INC., a Delaware corporation ("Buyer") and
INVISION TELECOM, INC., a Georgia corporation (the "Company" or the "Seller")
and COMMUNICATIONS CENTRAL, INC., a Georgia corporation ("CCI or "Parent
Entity").
RECITALS
WHEREAS, the Company is engaged in the business of providing inmate pay
telephone service and related and/or ancillary services or systems to jails and
other inmate or correctional facilities.
WHEREAS, CCI is the owner and holder of all the issued and outstanding
stock of the Company.
WHEREAS, for the consideration and on the terms set forth in this
Agreement, the Seller desires to sell, and Buyer desires to purchase, all of the
assets, rights, leases, fixtures and contracts used in the operation of the
Company, including, without limitation, those assets, rights, leases and
fixtures referred to in Section 3.6 hereof, but specifically excluding the
Excluded Assets described in Section 2.1(b) hereof.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, the parties intending to be
legally bound, do hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"BILLING AND COLLECTION AGREEMENT": any billing and collection agreement,
--------------------------------
local exchange company billing agreement or other Contract relating to the
provision of billing and collection services to the Company.
"BREACH": a "Breach" of a representation, warranty, covenant, obligation,
------
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been any
material inaccuracy in or breach of, or any material failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision.
"CONSENT": any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS": all of the transactions contemplated by this
-------------------------
Agreement, including: (a) the sale by the
1
<PAGE>
Seller to Buyer and the purchase (and payment therefor) by Buyer from the Seller
of the Company Assets; (b) the execution, delivery and performance of the Non-
Competition Agreement, the Employment Agreements and the Intellectual Property
Assignment; and (c) the performance by Buyer, the Parent Entity and the Seller
of their respective agreements, covenants and obligations under this Agreement,
including without limitation their obligations under Section 2 hereof.
"CONTRACT": any agreement, contract, license, obligation, promise or
--------
undertaking: (a) under which the Company has or may acquire any rights, (b)
under which the Company has or may become subject to any obligation or
liability, or (c) by which the Company or any of the assets owned or used by it
is or may become bound.
"ENCUMBRANCE": any charge, claim, community property interest, condition,
-----------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA": the Employee Retirement Income Security Act of 1974 or any
-----
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"GAAP": generally accepted United States accounting principles, applied on
----
a consistent basis.
"GOVERNMENTAL AUTHORIZATION": any approval, consent, license, permit,
--------------------------
waiver, tariff, or other written authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement. The term Governmental Authorization shall
not include Inmate Telephone Agreements.
"GOVERNMENTAL BODY": any: (a) nation, state, county, city, town, village,
-----------------
district, or other properly constituted local government; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal); (d) any properly constituted and
authorized body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature in the United States.
"HSR ACT": the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as
-------
amended) or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"INMATE TELEPHONES": any of the collect call only telephones, owned or
-----------------
operated by the Company, including any hardware, software or any other personal
property installed with any Inmate Telephone.
2
<PAGE>
"INMATE TELEPHONE AGREEMENTS": all written lease agreements, telephone
---------------------------
location agreements, telephone service agreements, license agreements, royalty
agreements or other contracts relating to the Installed Inmate Telephones
located in jails or other inmate or correctional facilities, which agreements
grant the right to the Company to install and operate the Installed Inmate
Telephones upon the premises set forth within any such document.
"INSTALLED INMATE TELEPHONE": an Inmate Telephone that is subject to an
--------------------------
Inmate Telephone Agreement, and is installed at the location provided for in its
related Inmate Telephone Agreement.
"INSTALLED LINE": any telephone lines and related facilities providing
--------------
telephone service to Installed Inmate Telephones, including those telephone
lines identified by installation, location and telephone number in EXHIBIT
-------
3.6(a)(ii).
- ----------
"INTELLECTUAL PROPERTY ASSETS": the Intellectual Property Assets,
----------------------------
Trademarks and Computer Systems as defined in the Intellectual Property
Assignment.
"INTELLECTUAL PROPERTY ASSIGNMENT": the Intellectual Property Assignment
--------------------------------
to be executed and delivered at Closing in the form attached hereto as EXHIBIT
-------
2.4(a)(ii).
- ----------
"IRC": the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
---
and, to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE": information known to a party without independent investigation
---------
beyond such party's officers and directors.
"LEGAL REQUIREMENT": any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, ruling, regulation, or statute (as to representations and warranties
set forth in this Agreement, such orders, constitutions, laws, ordinances,
rulings, regulations, or statutes in effect as of the date such representation
or warranty is made).
"LONG DISTANCE SERVICE AGREEMENTS": any long distance service provider
--------------------------------
agreement, telecommunications agreement or other Contract relating to provision
of long distance service or other similar services to the Company.
"MATERIAL ADVERSE EFFECT": any change or effect that when taken together
-----------------------
with all other such changes and effects has a material adverse effect on the
financial condition, results of operations, business or operations of the
Company taken as a whole.
3
<PAGE>
"ORDER": any award, decision, injunction, judgment, order, ruling,
-----
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS": an action taken by a Person will be deemed
---------------------------
to have been taken in the "Ordinary Course of Business" only if such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"ORGANIZATIONAL DOCUMENTS": (a) the articles or certificate of
------------------------
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter, articles of organization, shareholders agreement,
operating agreement or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and (e) any amendment to any
of the foregoing.
"PARTS AND SUPPLIES AGREEMENT": any Contract relating to the provision of
----------------------------
Inmate Telephone parts, inventory or equipment, or other parts, equipment or
services to the Company.
"PERSON": any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING": any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REPRESENTATIVE": with respect to a particular Person, any director,
--------------
officer, employee, agent, consultant, advisor, partner or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT": the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"SERVICE AGREEMENTS": any Long Distance Service Agreement, Billing and
------------------
Collection Agreement, Parts and Supplies Agreement, or similar agreement or
Contract relating to the provision of parts, equipment or services to or by the
Company.
"TAXES": any tax, charge, fee, duty, levy or other assessment related to
-----
the Company Assets, including all applicable penalties and interest.
4
<PAGE>
"TAX RETURN": any return (including any information return), report,
----------
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THREATENED": a claim, Proceeding, dispute, action, or other matter will
----------
be deemed to have been "Threatened" if to the knowledge of the Company any
demand or statement has been made (orally or in writing) or any notice has been
given (orally or in writing), or if to the knowledge of the Company any other
event has occurred or any other circumstances exist that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action, or other
matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future.
2. PURCHASE AND SALE OF ASSETS, CLOSING AND OTHER AGREEMENTS.
2.1 ASSETS.
------
(a) COMPANY ASSETS. Subject to the terms and conditions of this Agreement,
--------------
Seller shall grant, sell, convey, assign, transfer and deliver to the Buyer
(and/or, at Buyer's election, to an affiliate or subsidiary of Buyer), and the
Buyer shall purchase and acquire from the Seller, all the assets, rights,
leases, fixtures, accessions, claims and contracts of the Seller at the Closing
Date, including all of the following assets, rights, leases, fixtures,
accessions, claims and contracts: (a) those underlying the Interim Balance
Sheet (excluding all cash) with such changes to such assets as may occur from
the date thereof to the Closing Date in the Ordinary Course of Business; (b)
those located at the Seller's facilities in Louisville, Kentucky (the "Principal
Office") on the Closing Date; and (c) those otherwise substantially related to
the operation of the business of the Company on the Closing Date, including,
without limitation, the assets, or categories thereof, referred to in Section
3.6 hereof (all such assets, rights, leases, fixtures, accessions, claims and
contracts being hereinafter collectively referred to as the "Company Assets").
--------------
(b) EXCLUDED ASSETS. Notwithstanding anything to the contrary provided in
---------------
Section 2.1(a) hereof, none of the assets set forth on EXHIBIT 2.1(a) hereto
--------------
shall be included in the Company Assets to be purchased and sold hereunder.
2.2 PURCHASE PRICE.
--------------
(a) PURCHASE PRICE The aggregate purchase price (the "Purchase Price") for
--------------
the Company Assets will be (i) $42,000,000 cash, plus (ii) capital expenditures
paid or incurred by the Company under Inmate Telephone Agreements entered into
or renewed after August 1, 1997, less (iii) an amount equal the Company's EBITDA
(as calculated in accordance with GAAP and the Company's
5
<PAGE>
past practices) for the period beginning August 1, 1997 to the Closing Date.
In addition, Buyer shall assume the liabilities set forth on Exhibit 2.2 and
-----------
the Purchase Price shall be reduced by the amount of such liabilities so
assumed, such amount not to exceed $2,000,000.
(b) LIQUIDATION OF ACCOUNTS RECEIVABLE. The Company and Buyer agree to use
----------------------------------
good faith efforts to collect Accounts Receivable existing as of the Closing
Date in the Ordinary Course of Business, and to remit and pay to Buyer, if, as
and when collected, one-half of the amounts so collected until Buyer has
received an aggregate amount under this Section 2.2(b) equal to $1,200,000.
Thereafter, all proceeds of Accounts Receivable collected by the Company or
Buyer shall be the property of the Company.
2.3 CLOSING AND TRANSITION.
----------------------
(a) CLOSING The closing of the transactions contemplated by this
-------
Agreement (the "Closing") will take place at the offices of Buyer's counsel in
Dallas, Texas (or such other location within or outside of Dallas, Texas as
Buyer shall designate) at 10:00 a.m. (local time) on September 30, 1997, or
within five business days of the satisfaction or waiver of the last condition to
Closing contained in Articles 6 and 7, whichever is later (the "Closing Date").
(b) TRANSITION. At Closing, Buyer and Seller shall enter into a mutually
----------
satisfactory Transition Agreement whereby Seller agrees to make available its
employees to Buyer for a period of 90 days to assist in transition and Buyer
agrees to reimburse Seller for all costs associated with such employees,
including salary, wages and fringe benefits.
2.4 CLOSING OBLIGATIONS.
-------------------
At the Closing:
(a) Seller or the Parent Entity, as applicable, will deliver or cause to be
delivered to Buyer:
(i) such bills of sale, endorsements, consents, assignments, and other
good and sufficient instruments of conveyance and assignment as shall be
reasonably required by the Buyer and its counsel and as shall be effective
to vest in the Buyer good and marketable title in and to all the Company
Assets, together with copies of all the contracts, agreements, commitments,
books, records, files, computer data, computer disks, electronic storage
media, documents and the like relating to the Company Assets.
(ii) the Intellectual Property Assignment in the form attached hereto
as EXHIBIT 2.4(a)(ii).
------------------
6
<PAGE>
(iii) separate Employment Agreements for each of the employees listed on
Exhibit 2.4(a)(iii)-1 and in the form attached hereto as Exhibit
--------------------- -------
2.4(a)(iii)-2 (the "Employment Agreements");
-------------
(iv) the Non-Competition Agreement in the form attached hereto as
EXHIBIT 2.4(a)(iv) (the "Non-Competition Agreement");
------------------
(v) a certificate executed by Seller and the Parent Entity
representing and warranting to Buyer that each of Seller's and the Parent
Entity's representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the Closing Date
(the "Seller's Closing Certificate");
(vi) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.4(a)(vi); and
-----------------
(vii) such other documents as Buyer may reasonably request for the
purpose of (1) enabling its counsel to provide the opinion referred to in
Section 2.4(b), (2) evidencing the accuracy of any of Seller's and/or the
Parent Entity's representations and warranties, (3) evidencing the
performance by Seller of, or the compliance by Seller with, any covenant or
obligation required to be performed or complied with by the Seller, or (4)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
(b) Buyer will deliver to the Seller (or to such other Persons designated
below):
(i) the cash portion of the Purchase Price and appropriate agreements
evidencing the assumption of certain liabilities (as provided in Sections
2.2(a) and 2.5 below);
(ii) the Non-Competition Agreement and the Employment Agreements, all
executed by Buyer;
(iii) a certificate executed by Buyer representing and warranting to the
Seller and the Parent Entity that each of Buyer's representations and
warranties in this Agreement was accurate in all material respects as of
the date of this Agreement and is accurate in all material respects as of
the Closing Date as if made on the Closing Date (the "Buyer's Closing
Certificate").
(iv) opinion(s) of counsel, dated the Closing Date, in the form of
Exhibit 2.4(b)(iv); and
(v) such other documents as Seller may reasonably request for the
purpose of (1) enabling its counsel to provide the opinion referred to in
Section 2.4(a), (2) evidencing the
7
<PAGE>
accuracy of any representation or warranty of Buyer, (3) evidencing the
performance by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, or (4)
otherwise facilitating the consummation of the Contemplated Transactions.
2.5 TREATMENT OF CERTAIN MATTERS AND ADJUSTMENTS.
--------------------------------------------
(a) Seller shall discharge on or at Closing, and Buyer will acquire the
Company Assets free of all the Company's loans, lines of credit, installment or
conditional sale agreements, capital leases, financing and other indebtedness.
(b) Seller shall also discharge on or at Closing, all obligations or
liabilities to third parties or Seller's employees which may vest or become
payable as a result of the sale of or change of ownership or control of the
Company Assets, including, without limitation, any liability arising out of or
triggered by the Contemplated Transactions.
(c) As additional consideration for the purchase of the Company Assets, the
Buyer assumes, and agrees to pay, perform and discharge when due, the following
liabilities and obligations of the Seller: all obligations arising from and
after the Closing Date under the terms of the Inmate Telephone Agreements, the
Installed Lines, the Services Agreements and the other Contracts listed on
EXHIBIT 3.6(a)(i)-(iii) AND (ix).
- --------------------------------
(d) Notwithstanding anything in this Agreement to the contrary, except as
expressly provided in Section 2.5(c), the Buyer shall not assume any, and the
Seller shall retain and be responsible for all, of the liabilities and
obligations of the Seller and its affiliates.
2.6 NAME CHANGE. On the Closing Date, the Company will cease using the
-----------
name "Invision" and/or any name similar thereto, and will assign to the Buyer
all rights in and to the name "Invision".
2.7 ALLOCATION. The Purchase Price shall be allocated among the Company
----------
Assets in such a manner as shall be agreed upon by Seller and Buyer prior to the
Closing consistent with Section 1060 of the IRC. The parties agree to use such
allocations with respect to all filings with the IRS relating to the purchase
and sale of Company Assets.
2.8 REGULATORY. In the event at the time of Closing, Buyer has not
----------
obtained the Governmental Authorizations (as contemplated in Section 6.1 hereof)
from the appropriate Governmental Bodies necessary to consummate the
Contemplated Transactions without causing a breach of applicable Legal
Requirements, the following provisions shall apply:
8
<PAGE>
(a) Buyer shall provide at Closing a list of the states where such
Governmental Authorizations have not been obtained (the "Remaining States").
----------------
(b) [Intentionally deleted]
(c) The Inmate Telephone Agreements applicable to facilities located in the
Remaining States (collectively, the "Remaining Inmate Telephone Agreements")
shall be retained by Seller and shall not be transferred to Buyer at Closing.
(d) Buyer shall diligently and in good faith seek to obtain all necessary
Governmental Authorizations from the appropriate Governmental Bodies in the
Remaining States. As soon as reasonably practicable after such Governmental
Authorizations are obtained, Seller shall assign and transfer to Buyer, the
Remaining Inmate Telephone Agreements (and related Company Assets) applicable to
facilities located in such Remaining States.
(e) Until the necessary Consents and Governmental Authorizations are
obtained as aforesaid, the Remaining Inmate Telephone Agreements shall continue
to be owned by Seller but operated under a Management Agreement in the form
attached hereto as Exhibit 2.8(e), which the parties will enter into at Closing.
--------------
2.9 HSR ACT. The Buyer and the Seller shall, in cooperation with each
-------
other, file (or cause to be filed) with each of the Department of Justice
("DOJ") and the Federal Trade Corporation ("FTC") any reports or notifications
that may be required to be filed by them under the HSR Act in connection with
the transactions contemplated by this Agreement. The Buyer and the Seller shall
promptly comply with all requests for further documents and information made by
the DOJ or the FTC, and shall furnish to the others all such information in its
possession as may be necessary for the completion of the reports or
notifications to be filed by the others. All fees due from any party to the FTC
or the DOJ under the HSR Act in connection with the filing of any of those
reports or notifications shall be borne by the party making such filing.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller and the Parent Entity represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING.
------------------------------
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under the Contracts. The Company is
duly qualified to do business as a foreign corporation and is in
9
<PAGE>
good standing under the laws of the states in which the nature of the activities
conducted by it requires such qualification except where the failure to be so
qualified would not have a Material Adverse Effect. The Company does not have
and never has had any subsidiaries.
(b) The Company's principal place of business is, and has been for the last
five (5) years or if it has not done business for five (5) years, for the entire
period that it has done business, in Louisville, Kentucky and the Company has
not had any other offices, other corporate names or done business in any other
names during said five (5) year period.
3.2 AUTHORITY; NO CONFLICT.
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Seller and the Parent Entity enforceable against the Seller and the Parent
Entity in accordance with its terms except as such enforcement may be limited by
applicable bankruptcy laws and principles of equity. Upon the execution and
delivery of the Employment Agreements, the Non-Competition Agreement, the
Intellectual Property Assignment, the Management Agreement, and Seller's Closing
Certificate (collectively, the "Seller's Closing Documents"), the Seller's
Closing Documents will constitute the legal, valid, and binding obligations of
the parties (other than Buyer) enforceable against each of them in accordance
with their respective terms except as such enforcement may be limited by
applicable bankruptcy laws. The Seller and the Parent Entity have the absolute
and unrestricted right, power, authority, and capacity to execute and deliver
this Agreement and the Seller's Closing Documents to which each is a party and
to perform their obligations under this Agreement and the Seller's Closing
Documents to which each is a party.
(b) Neither the execution, delivery or performance of this Agreement nor
any other consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company or the Parent
Entity, (B) any resolution adopted by the board of directors or the
stockholders of the Company or the Parent Entity, (C) any duty owed by the
Company or the Parent Entity to any Person (except as contemplated by
Section 8.3), or (D) any Legal Requirement, any Governmental Authorization
or any Order to which the Company or the Parent Entity, or any of the
Company Assets may be subject, except for regulatory approvals required in
connection with the Contemplated Transactions; or
(ii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to
10
<PAGE>
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Contract, or any contract or other agreement to the Parent
Entity or Seller is a party, except as contemplated by Section 8.3.
3.3 OPTIONS.
-------
There are no options, warrants, rights of first refusal or other rights to
acquire all or any portion of the Company Assets.
3.4 FINANCIAL STATEMENTS.
--------------------
The Company has delivered to Buyer: (a) audited balance sheets of the
Company as at June 30, in each of the years 1995 and 1996, and the related
audited statements of income, changes in stockholders' equity, and cash flow for
each of the fiscal years then ended, and (b) an unaudited balance sheet of the
Company as at June 30, 1997 (the "Interim Balance Sheet") and the related
unaudited statements of income and cash flow. The Company shall deliver to
Buyer such other balance sheets, statements of income, cash flow and other
financial statements of the Company as Buyer may reasonably request. All such
financial statements and notes fairly present the financial condition and the
results of operations, and cash flow of the Company as at the respective dates
of and for the periods referred to in such financial statements, all in
accordance with GAAP, subject, in the case of Interim Balance Sheet, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes. The financial
statements referred to in this Section 3.4 reflect the consistent application of
such accounting principles throughout the periods involved, except as disclosed
in the notes to such financial statements. No financial statements of any
Person other than the Company are required by GAAP to be included in the
financial statements of the Company.
3.5 BOOKS AND RECORDS.
-----------------
The books of account, ledgers, financial data and other records of the
Company, all of which have been made available to Buyer, are complete and
correct in all material respects. At the Closing, all of such books of account
and records will be delivered to Buyer to the extent that they relate to the
Company Assets.
3.6 COMPANY ASSETS.
--------------
(a) COMPANY ASSETS. On the Closing Date, the Company shall convey, and the
--------------
Buyer shall own and have, good and marketable title, without Encumbrance, to all
of the Company Assets (which assets are accurately reflected in the Company's
Interim Balance Sheet) including, without limitation:
(i) all rights and interest of the Company in and under the Inmate
Telephone Agreements listed on Exhibit 3.6(a)(i)
11
<PAGE>
and any Inmate Telephone Agreements, entered into by the Company after the
date hereof;
(ii) all Installed Lines listed on Exhibit 3.6(a)(ii);
(iii) all rights and interests of the Company in and under the Service
Agreements listed on Exhibit 3.6(a)(iii);
(iv) all uninstalled Inmate Telephones, parts, hardware and equipment
listed on Exhibit 3.6(a)(iv) (subject to turn over of inventory in the
Ordinary Course of Business);
(v) all vehicles listed on Exhibit 3.6(a)(v);
(vi) [Intentionally Deleted];
(vii) all Installed Inmate Telephones;
(viii) all Intellectual Property Assets;
(ix) all rights and interest of the Company in the office lease
agreements listed on Exhibit 3.6(a)(ix) pertaining to the Principal Office;
(x) all other furniture, fixtures, equipment, personalty or intangibles
of any kind used by the Company in the operation of its business, including
without limitation, each of those items listed on Exhibit 3.6(a)(x); and
(xi) all tariffs and Governmental Authorizations that relate to the
business of, or to any assets of the Company including those listed on
Exhibit 3.12 except as may be limited by applicable law.
3.7 ACCOUNTS RECEIVABLE.
-------------------
All accounts receivable of the Company that are reflected on the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business.
3.8 RELATIONSHIPS WITH RELATED PERSONS.
----------------------------------
Except as set forth in EXHIBIT 3.8 hereof, neither the Parent Entity nor
-----------
any Person related or affiliated with the Parent Entity or the Company is a
party to any Contract with, or has any claim or right against, the Company.
Neither the Parent Entity nor any Person related or affiliated with the Parent
Entity owns, directly or indirectly, any interest in any person or entity that
is a competitor, customer or supplier of the Company, that otherwise has any
business dealings with the Company or that is engaged in the same or similar
business as the Company.
12
<PAGE>
3.9 TAXES.
-----
(a) The Company has filed or caused to be filed all Tax Returns that are or
were required to be filed by it, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Seller has made
available to Buyer copies of all Tax Returns, filed since 1996 (including the
Tax Returns for the year ended June 30, 1996). The Company has paid, or made
provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by the Company, except such Taxes, if any, as are listed in EXHIBIT 3.9
-----------
hereof and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Interim Balance
Sheet. All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct and complete in all material respects.
(b) To the knowledge of the Company, there exists no proposed tax
assessment against the Company and/or the Company Assets except as disclosed in
the Interim Balance Sheet or in EXHIBIT 3.9 hereof. All Taxes that the Company
-----------
is or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
3.10 NO MATERIAL ADVERSE CHANGE.
--------------------------
Except as set forth on EXHIBIT 3.10, since the date of the Interim Balance
------------
Sheet, there has not been any material adverse change in the business, client
relations, operations, or assets of the Company, and to the knowledge of the
Seller and the Parent Entity, no event has occurred or circumstance exists that
may result in such a material adverse change. Without in any way limiting the
generality of the foregoing, to the knowledge of the Company and subject to
general economic and regulatory conditions, there exists no actual or threatened
terminations, cancellations or limitations of, or any modification or change in
(i) the current business relationship of the Company with any material customer
or group of customers whose business is material to the operation of the
Company's business; or (ii) the current business relationship of the Company
with any supplier, and the Company has no reason to believe that any such
customers or suppliers shall not continue a business relationship with Buyer
subsequent to the Closing on a basis no less favorable to Buyer than that
heretofore conducted (except where such change would not have a material adverse
effect on the Company); and (iii) there exists no other condition or state of
facts or circumstances which would materially adversely affect the Company's
business or prevent Buyer from conducting such business after the Closing on a
basis not materially adversely less favorable to Buyer than that of which it has
heretofore been conducted by the Company.
13
<PAGE>
3.11 EMPLOYEE BENEFITS.
-----------------
(a) The term "Employee Benefit Plan" means any "employee benefit plan" (as
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any plan or policy providing for "fringe benefits" (including but
not limited to vacation, paid holidays, personal leave, employee discount,
educational benefit or similar programs), and any other bonus, incentive,
compensation, profit-sharing, stock, severance, retirement, health, life,
disability, group insurance, employment, fringe benefit, or any other similar
plan, agreement, policy or understanding (whether written or oral, qualified or
nonqualified), and any trust, escrow, or other agreement related thereto.
Except as set forth on EXHIBIT 3.11, the Company maintains no Employee Benefit
------------
Plans. Each Employee Benefit Plan set forth on EXHIBIT 3.11 has been operated
------------
in compliance, in all material respects, with ERISA, applicable tax
qualification requirements and all other applicable laws.
(b) Notwithstanding any provision in this Agreement to the contrary, Buyer
has not agreed to, and shall not, assume, adopt or succeed to, or have any
liability or responsibility with respect to, any Employee Benefit Plan
maintained or formerly maintained by Seller or any affiliate, or any obligations
under any such plans, and Seller shall indemnify Buyer to the extent Buyer
incurs any liability with respect to any such plans.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS AND
-------------------------------------------------------------------
ORDERS.
- ------
(a) The Company is, and at all times has been, in compliance with each
Legal Requirement, Governmental Authorization and Order that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets, and no event has occurred or circumstance exists
that (with or without notice or lapse of time) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to comply
with, any Legal Requirement, Governmental Authorization or Order, except for any
such non-compliance or violation as would not have a Material Adverse Effect.
(b) EXHIBIT 3.12 contains a complete and accurate list of each material
------------
Governmental Authorization that relates to the business of, or to any of the
assets used in the operation of the Company. Each Governmental Authorization of
the Company is valid and in full force and effect. The Company has all of the
Governmental Authorizations necessary to permit the Company to lawfully conduct
and operate the business of the Company in the manner they currently conduct and
operate such business and to permit the Company to own and use the assets used
in the operation of the Company in the manner in which they currently own and
use such assets. A true and complete copy of each Governmental Authorization
listed in EXHIBIT 3.12 has been made available to Buyer.
------------
14
<PAGE>
3.13 LEGAL PROCEEDINGS.
-----------------
(a) Except as set forth in EXHIBIT 3.13(a) hereof, there is no pending
---------------
Proceeding: (i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, the Company; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions or any Contract. Except as set forth in EXHIBIT
-------
3.13(a) hereof, to the best knowledge of the Seller and the Parent Entity, no
- -------
such Proceeding has been Threatened, and no event has occurred or circumstance
exists that may reasonably be expected to give rise to or serve as a basis for
the commencement of any such Proceeding. The Proceedings listed in EXHIBIT
-------
3.13(a) hereof will not have a material adverse effect on the business,
- -------
operations or assets of the Company.
(b) All Proceedings in which the Company has been named or otherwise
involved since 1996 are listed on EXHIBIT 3.13(b). Seller has made available to
---------------
Buyer true and complete copies of all material pleadings and other documentation
relating to each Proceeding listed on EXHIBIT 3.13(b).
---------------
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS.
-------------------------------------
Except as set forth in EXHIBIT 3.14 hereof, since the date of the Interim
------------
Balance Sheet, the Company has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business or financial condition of the Company or its
business;
(b) termination of, or receipt of notice of termination of any material
Contract;
(c) sale (other than sales in the Ordinary Course of Business), lease, or
other disposition of any asset or property of the Company or mortgage, pledge,
or imposition of any lien or other encumbrance on any material asset or property
of the Company;
(d) material change in the accounting methods used by the Company;
(e) material change in the financial condition, assets, liabilities or
business of the Company;
(f) material change in the method of collecting accounts receivable or
acceleration in the collection of accounts receivable;
15
<PAGE>
(g) material failure to pay expenses incurred in connection with the
operation of the Company on a timely basis.
3.15 CONTRACTS; NO DEFAULTS.
----------------------
(a) Seller has made available to Buyer true and complete copies of the
Contracts referred to in Section 3.6;
(b) Except as set forth in EXHIBIT 3.15(b) hereof, with respect to each
---------------
Contract referred to in Section 3.6:
(i) such Contract is in full force and effect and is valid and
enforceable in accordance with its terms;
(ii) the Company is, and at all times since the later of 1996 or the
Contract's date of inception, has been, in compliance with all applicable
terms and requirements of such Contract except where the failure to be in
substantial compliance has not had and would not reasonably be expected to
have a Material Adverse Effect on the Company;
(iii) each other Person that has or had any obligation or liability under
such Contract is, and at all times since the later of 1996 or the
Contract's date of inception, has been, in substantial compliance with all
applicable terms and requirements of such Contract except where the failure
to be in substantial compliance has not had and would not reasonably be
expected to have a Material Adverse Effect on the Company;
(iv) no event has occurred or circumstance exists (including without
limitation, the Contemplated Transaction) that (with or without notice or
lapse of time) may contravene, conflict with, or result in a violation or
breach of, or give the Company or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any such Contract
except for any such event, the occurrence of which would not have a
Material Adverse Effect on the Company;
(v) neither the Company nor the Parent Entity has given to or received
from any other Person, at any time since the later of 1996 or the
Contract's date of inception, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential
violation or breach by the Company of, or default by the Company under such
Contract except for any such violation, breach or default that would not
have a Material Adverse Effect on the Company;
(vi) to the best knowledge of the Parent Entity and the Company, there
are no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to the Company under such
Contracts with any Person (and, no such Person has made written demand for
such renegotiation) where the effect of such renegotiation
16
<PAGE>
would have a material adverse effect on the Company or its operations;
(vii) such Contracts constitute the sole and entire agreement among the
parties thereto with respect to the subject matter thereof, and there are
no other enforceable agreements among the parties which in any way pertain
to or otherwise affect such Contracts.
3.16 INSURANCE.
---------
Seller has delivered or made available to Buyer true and complete copies of
all policies of insurance to which the Company is a party or under which the
Company is or has been covered at any time since 1996. All such policies: (i)
are valid, outstanding, and enforceable; (ii) taken together, provide in the
reasonable judgment of the Company and the Parent Entity adequate insurance
coverage for the assets and the operations of the Company; (iii) are sufficient
for compliance with all Legal Requirements and Contracts to which the Company is
a party or by which it is bound; and (iv) will continue in full force and effect
following the consummation of the Contemplated Transactions with respect to
losses or claims accruing or arising prior to the Closing Date.
3.17 ENVIRONMENTAL MATTERS.
---------------------
(a) The Company and the Company Assets are, and at all times have been, in
material compliance with, and have not been and are not in violation of or
liable under, any Environmental Laws.
(b) The Company has not generated, handled, manufactured, processed,
treated, stored, used, transferred, released, disposed of or otherwise conducted
any hazardous process or activity with respect to (collectively, "Hazardous
Activities") any hazardous substances, hazardous wastes, hazardous wastes
constituents and reaction by-products, hazardous materials, pesticides, oil and
other petroleum products, pollutants, and/or toxic substances, including
asbestos and polychlorinated biphenyls as those terms are defined pursuant to
Environmental Laws (collectively, "Hazardous Substances"), except in full
compliance with Environmental Laws, or where any alleged noncompliance is not
material.
(c) To the best of the Company's and the Parent Entity's knowledge, neither
the Parent Entity nor the Company has any basis to expect, nor has any of them
or any other Person for whose conduct they are or may be held to be responsible
received, any actual or Threatened Order, notice, or other communication from
any Person that relates to Hazardous Activities, Hazardous Substances, or any
alleged actual or potential violation or failure to comply with any
Environmental Law with respect to any properties or assets (whether real,
personal, or mixed) in which the Company has or had an interest.
17
<PAGE>
(d) For purposes hereof, Environmental Laws shall mean all Legal
Requirements that relate or pertain to environmental matters, pollution and/or
public health, safety or welfare, including without limitation, the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), as amended, the
------
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
9601 et seq.), as amended, the Federal Clean Water Act (33 U.S.C. 1251 et seq.),
------ ------
as amended, and state and federal environmental clean up programs.
3.18 EMPLOYEES.
---------
(a) EXHIBIT 3.18 hereof contains a complete and accurate list of the
------------
following information for each employee of the Company: name; job title; current
compensation paid or payable and any change in compensation since January 1,
1997; vacation accrued; service credited for purposes of vesting and eligibility
to participate under any Employee Benefit Plan; severance pay; vacation pay; and
any other employee benefit.
(b) Notwithstanding anything to the contrary contained herein, Buyer shall
have no liability for or obligation to (i) hire or offer employment to any
employee or officer of the Company, (ii) assume or otherwise honor any
employment agreement, contract or arrangement with any employee or officer of
the Company, or (iii) assume or pay any severance or other benefit payable to
any employee of the Company.
(c) Except as set forth in EXHIBIT 3.18, to the best knowledge of the
------------
Parent Entity and the Company, no employee of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee and any
other Person ("Proprietary Rights Agreement") that in any way adversely affects
or will affect the conduct of the Company's business (either before or after the
consummation of the Contemplated Transactions).
3.19 LABOR RELATIONS; COMPLIANCE.
---------------------------
Since 1996, the Company has not been nor is a party to any collective
bargaining or other labor Contract. Since 1996, there has not been, there is
not presently pending or existing, and to the best knowledge of Seller and the
Parent Entity, there is not Threatened, (a) any strike, slowdown, picketing,
work stoppage, or employee grievance process, (b) any Proceeding against or
affecting the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Company or their premises, or (c) any application for
certification of a collective bargaining agent.
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<PAGE>
3.20 INTELLECTUAL PROPERTY.
---------------------
The representations and warranties set forth in Section 3 of the
Intellectual Property Assignment, when agreed to by the parties as contemplated
in Section 11.15 hereof, shall be incorporated herein and shall be made a part
hereof, and shall be made and affirmed by Seller and the Parent Entity as of the
date hereof.
3.21 CERTAIN PAYMENTS.
----------------
Since 1996, neither the Company nor any director, officer, agent, or
employee of the Company, nor any Representative, has, to the knowledge of the
Company, directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the Company, or (iv)
in violation of any Legal Requirement, and/or (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
3.22 BROKERS OR FINDERS.
------------------
Except as set forth in EXHIBIT 3.23, Seller and its agents have incurred no
------------
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING.
------------------------------
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the state of its incorporation. Buyer is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of the states in which the nature of the activities conducted by it
requires such qualification.
4.2 AUTHORITY; NO CONFLICT.
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, the Non-
Competition Agreement, the Intellectual Property Assignment, the Management
Agreement, and the Buyer's Closing Certificate (collectively, the "Buyer's
Closing Documents"), the Buyer's Closing Documents will constitute the legal,
valid, and binding obligations of Buyer, enforceable against Buyer in accordance
with their respective terms. Buyer has the
19
<PAGE>
absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and the Buyer's Closing Documents and to perform its obligations
under this Agreement and the Buyer's Closing Documents.
(b) Except for any filings or approvals in order to comply with Legal
Requirements, including obtaining appropriate Governmental Authorizations (as
contemplated in Section 6.1), neither the execution and delivery of this
Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Order to which Buyer may be subject; or
(iv) any contract to which Buyer is a party or by which Buyer may be
bound.
Except for any filings or approvals in order to comply with Legal
Requirements, including obtaining appropriate Governmental Authorizations (as
contemplated in Section 6.1), Buyer is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 CERTAIN PROCEEDINGS.
-------------------
There is no pending or Threatened Proceeding that has been commenced
against Buyer and that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
4.4 BROKERS OR FINDERS.
------------------
Except as set forth in EXHIBIT 4.4, Buyer and its officers and agents have
-----------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
4.5 FINANCING.
---------
Buyer has the financing capability sufficient to consummate the
Contemplated Transactions.
20
<PAGE>
5. COVENANTS OF THE SELLER PRIOR TO/ON CLOSING DATE.
5.1 REQUIRED APPROVALS.
------------------
As promptly as practicable after the date of this Agreement, Seller will
use its good faith efforts to make all filings required by Legal Requirements to
be made by them in order to consummate the Contemplated Transactions. Between
the date of this Agreement and the Closing Date, Seller will cooperate with
Buyer with respect to all filings and approvals that Buyer elects to make or
seek or is required by Legal Requirements to make or seek in connection with the
Contemplated Transactions (and/or the financing thereof).
5.2 CURRENT INFORMATION AND ACCESS.
------------------------------
(a) During the period from the date of this Agreement to the Closing Date,
the Company shall cause one or more of its Representatives to confer on a
regular and frequent basis with Representatives of Buyer to report on the
general status of the ongoing operations of the Company. The Company shall
promptly notify Buyer of any material change in the normal course of its
business or in the operation of its properties and of any governmental
complaints, investigations, or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving such party, and will keep Buyer fully informed with respect
to such events.
(b) Between the date of this Agreement and the Closing Date, the Company
will, and will cause their Representatives during reasonable business hours and
as coordinated with the Company's management, to, (a) afford Buyer and its
Representatives and advisors (collectively, "Buyer's Advisors") reasonable
access to all Company employees and personnel and to all Company Contracts,
books and records, and other documents and data, (b) make available to Buyer and
Buyer's Advisors copies of all such Contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) make
available to Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.3 OPERATIONS PRIOR TO CLOSING DATE.
--------------------------------
(a) In addition to any other express obligation under this Agreement,
between the date of this Agreement and the Closing Date, the Company will do
each of the following, and the Company also represents that from the date of the
Interim Balance Sheet to the date of this Agreement the Company has done the
following:
(i) conduct the business of the Company only in the usual, regular and
ordinary manner, on a basis consistent with past practice, maintain the
Company's books, accounts and records in the usual, regular and ordinary
manner, on a basis
21
<PAGE>
consistent with past practices, maintain and comply in all material
respects with the terms of all licenses, permits and other Legal
Requirements, and otherwise conduct the business of the Company only in the
Ordinary Course of Business;
(ii) use its reasonable efforts to preserve intact the current
organization of the Company, keep available the services of the current
officers, employees, and agents of the current organization of the Company,
and maintain the relations and good will with all suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Company;
(iii) conduct the business and affairs of the Company in a manner so that
all representations and warranties herein will be true and correct at
Closing in all material respects;
(iv) maintain all of the Company Assets in good repair, order and
condition, and perform all of the Company's obligations under the Contracts
in all material respects; and
(v) pay all expenses and accounts payable incurred in connection with
the operation of the Company's business in the Ordinary Course of Business
on a basis consistent with past practice.
(b) Except as set forth in EXHIBIT 3.14, the Company agrees that during the
------------
period from the date of this Agreement to and including the Closing Date,
without the prior written consent of Buyer, it will not do any of the following
and the Company also represents that from the date of the Interim Balance Sheet
to the date of this Agreement the Company has not done any of the following:
(i) permit any of the Company Assets to be subjected to any
Encumbrance;
(ii) sell, transfer or otherwise dispose of any Company Assets except in
the Ordinary Course of Business;
(iii) write off as uncollectible any note or accounts receivable, except
write-offs in the Ordinary Course of Business charged to applicable
reserves, which individually or in the aggregate are not material to the
Company;
(iv) accelerate the collection of any accounts receivable or other
amounts payable to the Company other than in the Ordinary Course of
Business;
(v) cancel or waive any claims or rights of substantial value; or
(vi) make any material change in any method of accounting or auditing
practice.
22
<PAGE>
5.4 NO NEGOTIATION.
--------------
(a) Until such time, if any, as this Agreement is terminated pursuant to
Section 9, the Parent Entity and the Company will not, and will not permit any
of their Representatives to, directly or indirectly solicit, initiate or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company ("Acquisition Proposal"), except that nothing
contained in this Section 5.4 or any other provision hereof shall prohibit the
Company or the Parent Entity or the Board of Directors of the Parent Entity from
(i) taking and disclosing to the Parent Entity's shareholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act, or (ii) making such disclosure as,
in the good faith judgment of the Board of Directors of the Parent Entity, after
receiving advice from outside counsel, is required under applicable law;
provided that, except as permitted by this Section 5.4, neither the Board of
Directors of the Parent Entity nor any Committee thereof shall (x) approve or
recommend or propose to approve or recommend any Acquisition Proposal, (y) enter
into any agreement with respect to any Acquisition Proposal, or (z) withdraw or
modify, in a manner adverse to the Buyer, the approval or recommendation by such
Board of Directors or any such committee of this Agreement. The Company will
immediately cease any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
(b) Notwithstanding the foregoing, the Company or the Parent Entity may
furnish information concerning its business, properties or assets to any
corporation, partnership, person or other entity or group pursuant to
appropriate confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group concerning an Acquisition
Proposal if (x) such entity or group has on an unsolicited basis submitted a
bona fide written proposal to the Company relating to any such transaction which
the Board of Directors of the Parent Entity determines in good faith, after
receiving advice from a nationally recognized investment banking firm,
represents a superior transaction to the Contemplated Transactions and which the
Board of Directors determines in good faith can be financed and (y) in the
opinion of the Board of Directors of the Parent Entity, only after receipt of
advice from outside counsel to the Parent Entity, the failure to provide such
information or access or to engage in such discussions or negotiations could
reasonably be expected to cause the Board of Directors of the Parent Entity to
violate its fiduciary duties to the shareholders of the Parent Entity under
applicable law (an Acquisition Proposal which satisfies clauses (x) and (y)
being referred to herein as a "Superior Proposal"). The Company shall
23
<PAGE>
within two business days following receipt of a Superior Proposal notify the
Buyer of the receipt of the same. The Company shall promptly provide to the
Buyer any material non-public information regarding the Company provided to any
other party which was not previously provided to Buyer. At any time after two
business days following notification to Buyer of the Company's intent to do so
(which notification shall include the identity of the bidder and the material
terms and conditions of the proposal) and if the Company has otherwise complied
with the terms of this Section 5.4(b), the Board of Directors of the Parent
Entity may withdraw or modify its approval or recommendation of the Contemplated
Transaction.
(c) In the event of a Superior Proposal, the Company may enter into an
agreement with respect to such Superior Proposal no sooner than three days after
giving the Buyer written notice of its intention to enter into such agreement;
provided that the Buyer has not, prior to the expiration of such three-day
period, advised the Company, in writing, of its intention to increase the
Purchase Price to exceed the value of such Superior Proposal. Upon expiration
of such three-day period without such action by the Buyer, the Company may enter
into an agreement with respect to such Superior Proposal (with the bidder and on
terms no less favorable than those specified in such notification), provided it
shall concurrently with entering into such agreement pay or cause to be paid to
the Buyer the amount specified in Section 9.1(v) hereof.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
6.1 APPROVALS OF GOVERNMENTAL BODIES.
--------------------------------
As promptly as practicable after the date of this Agreement, Buyer will use
its good faith efforts to make all filings and seek all approvals required by
Legal Requirements and obtain all Governmental Authorizations necessary or
advisable to consummate the Contemplated Transactions (including, without
limitation, those filings, approvals and authorizations necessary or advisable
for the Buyer's financing of the Contemplated Transactions). Between the date
of this Agreement and the Closing Date, Buyer will cooperate with Seller with
respect to all filings that Seller is required by Legal Requirements to make in
connection with the Contemplated Transactions.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Company Assets and to take the other
actions required to be taken by Buyer at the Closing are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
24
<PAGE>
7.1 ACCURACY OF REPRESENTATIONS.
---------------------------
All of the representations and warranties of the Parent Entity and the
Company in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
materially accurate as of the date of this Agreement, and must be materially
accurate as of the Closing Date as if made on the Closing Date.
7.2 PERFORMANCE.
-----------
(a) All of the covenants and obligations that the Parent Entity and the
Company are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of these covenants
and obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered by Seller pursuant to Section
2.4 must have been delivered.
7.3 [Intentionally deleted]
7.4 NO PROHIBITION.
--------------
Neither the consummation nor the performance of any of the Contemplated
Transactions (or the financing thereof) will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise formally proposed by or before any
Governmental Body.
7.5 MATERIAL ADVERSE CHANGE.
-----------------------
There shall not have occurred any change in the Company's financial
condition, business or property nor shall have there occurred any change in the
business condition of the Company's customers or suppliers which in the judgment
of Buyer materially adversely affects the Company, the business of the Company
or the condition (financial or otherwise) of the Company.
In the event that each and every one of these conditions precedent to the
obligations of Buyer shall not have been satisfied prior to or at the Closing,
then Buyer may (but shall not be obligated to) waive such unsatisfied condition
or extend the Closing Date to allow additional time for such condition to be
satisfied. Any such waiver or extension shall be without prejudice to any other
rights and remedies Buyer may have hereunder or at law or in equity.
25
<PAGE>
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Company Assets and to take the other
actions required to be taken by Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Seller, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS.
---------------------------
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been materially accurate as of the date of this
Agreement and must be materially accurate as of the Closing Date as if made on
the Closing Date.
8.2 BUYER'S PERFORMANCE.
-------------------
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Each of the documents required to be delivered by Buyer pursuant to
Section 2.4 must have been delivered and Buyer must have made the cash payments
required to be made by Buyer pursuant to Section 2.4.
8.3 OTHER CONDITIONS.
----------------
(a) Seller shall have received the opinion of an investment banking firm,
dated as of or prior to the Closing Date, to the effect that the consideration
to be received pursuant to the terms and conditions of this Agreement is fair
from a financial point of view.
(b) Seller shall have obtained all approvals, consents, releases and other
documents from First Union National of Georgia (or an affiliate thereof)
necessary to allow Seller and Parent Entity to consummate the transactions
contemplated by this Agreement and to transfer the Company Assets without
Encumbrance.
9. TERMINATION.
9.1 TERMINATION.
-----------
(a) This Agreement may be terminated:
(i) by Buyer, if a Breach of any provision of this Agreement has been
committed by Seller and/or any Parent Entity and such Breach has not been
waived;
26
<PAGE>
(ii) by Seller, if a Breach of any provision of this Agreement has been
committed by Buyer and such Breach has not been waived;
(iii) by Buyer: if any of the conditions in Section 7 have not been
satisfied as of October 31, 1997; or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before October 31, 1997;
(iv) by Seller: if any of the conditions in Section 8 have not been
satisfied as of October 31, 1997; or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply
with their obligations under this Agreement) and Seller has not waived such
condition on or before October 31, 1997; or
(v) by Seller, under the circumstances contemplated by Section 5.4,
provided that contemporaneously with such termination, the Seller pays to
-------- ----
the Buyer a termination fee of $1,500,000 plus actual, reasonable out-of-
pocket fees and expenses of the Buyer not to exceed $150,000.
(v) by mutual consent of Buyer and Seller.
(b) If this Agreement is terminated pursuant to Section 9.1(a), all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Section 11.3 will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, then the
terminating party's right to seek damages will survive such termination
unimpaired.
(c) The aforesaid right of termination shall be in addition to, and not in
lieu of, any other legal or equitable remedy, including specific performance.
10. INDEMNIFICATION; REMEDIES.
10.1 SURVIVAL.
--------
All representations, warranties, covenants, and obligations in this
Agreement, the certificates delivered pursuant to Section 2.4(a) and (b), and
any other certificate or document delivered pursuant to this Agreement shall
survive the Closing for the following periods after the Closing Date:
(a) The representations and warranties set forth in Sections 3.9 and 3.13
shall survive until one (1) day after the expiration of the applicable statute
of limitations; and
27
<PAGE>
(b) All other representations and warranties of Buyer, Seller and Parent
Entity shall survive for a period of eighteen (18) months after the Closing
Date.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER.
------------------------------------------------
(a) The Company and the Parent Entity, jointly and severally, will
indemnify and hold harmless Buyer and its respective Representatives,
stockholders, controlling persons, and affiliates (collectively, the
"Indemnified Persons") for, and will pay to the Indemnified Persons the amount
of, any loss, liability, claim, damage (including incidental and consequential
damages), or expense (including costs of investigation and defense and
reasonable attorneys' fees), whether or not involving a third-party claim
(collectively, "Damages"), arising or resulting from, directly or indirectly,
from or in connection with:
(i) any Breach of any representation or warranty made by the Company or
the Parent Entity in this Agreement or any other certificate or document
delivered by the Company or the Parent Entity pursuant to this Agreement;
(ii) [Intentionally deleted]; or
(iii) third party claims or causes of action asserted against Buyer based
upon the operation, management or ownership of the Company Assets, arising
or related to the period on or prior to the Closing Date (whether known or
unknown on the Closing Date), but excluding those matters expressly to be
assumed by Buyer under Section 2.5(c) hereof; or
(iv) any noncompliance with any bulk transfer or bulk sales law
applicable to the Contemplated Transaction.
(b) With respect to the aforesaid indemnification obligation, the parties
agree as follows:
(i) The aggregate amount of Damages that Buyer may recover from Seller
and the Parent Entity, collectively, with respect to indemnification under
Section 10.2(a)(i)above, shall not exceed the aggregate sum of Six Hundred
Thousand Dollars ($600,000), provided that the aggregate amount of Damages
that Buyer may recover from Seller and the Parent Entity shall not exceed
the Purchase Price as computed in accordance with Section 2.2(a): (x) with
respect to indemnification under Sections 10.2(a)(iii) or (iv) above, or
(y) in connection with any Breach of the representations and warranties set
forth in Section 3.9 and 3.13, or (z) in connection with any fraudulent
misrepresentation by Seller or Parent Entity.
28
<PAGE>
(ii) Buyer shall not be entitled to assert any right to indemnification
under Section 10(a)(i) above against Seller or the Parent Entity until all
Damages for which Seller or the Parent Entity would otherwise be required
to indemnify Buyer hereunder exceeds the aggregate amount of $200,000,
whereupon Seller and the Parent Entity shall thereafter pay to Buyer all
further Damages in excess of such amount (subject to the limitation
described in subpart (i) above.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER.
-----------------------------------------------
Buyer will indemnify and hold harmless the Seller and its respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Seller's Indemnified Persons"), and will pay to Seller's
Indemnified Persons the amount of any Damages arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement.
(b) [Intentionally deleted]
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
-------------------------------------------------
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3 of notice of the commencement of any Proceeding against it or of notice
that such Proceeding has been Threatened against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim or
threatened Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action or the ability of the indemnifying party to
obtain otherwise available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.4(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will not, as long
as it
29
<PAGE>
diligently conducts such defense, be liable to the indemnified party under this
Section 10 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (ii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
materially adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party, and
following a good faith attempt to consult with the indemnifying party, assume
the exclusive right to defend, compromise, or settle such Proceeding, but the
indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS.
-------------------------------------------
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
11. GENERAL PROVISIONS.
11.1 EXPENSES.
--------
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants.
30
<PAGE>
11.2 SELLER'S OBLIGATIONS AND DECISIONS.
----------------------------------
Any and all representations, warranties, covenants, obligations and or
agreements of the Seller contained herein are made and given jointly and
severally by the Seller and the Parent Entity, and each of the Seller and the
Parent Entity shall be jointly and severally liable for all such
representations, warranties, covenants, obligations and agreements.
11.3 CONFIDENTIALITY.
---------------
(a) Prior to Closing, no party or affiliate of a party hereto will issue or
cause publication of any press release or other announcement or public
communications with respect to the Contemplated Transactions, including without
limitation a general announcement to such party's employees, without the prior
consent of the other parties hereto, which consent will not be unreasonably
withheld; provided, however, that nothing herein will prohibit any party (or
affiliate) from issuing or causing publication of any such press release,
announcement or public communication to the extent that such party (or
affiliate) reasonably determines such action to be required by law, any
regulatory agency or the rules of any national stock exchange or association
applicable to it, in which case the party (or affiliate) making such
determination will use reasonable efforts to allow the other party reasonable
time to comment on such release or announcement in advance of its issuance or to
make any disclosure necessary to obtain any consents required or deemed
appropriate by Buyer.
(b) Buyer, Seller and Parent Entity agree that each will use their best
efforts to maintain the confidentiality of the information and materials
delivered to them or made available for their inspection in connection with this
Agreement. In the event the Closing does not occur, Buyer, Seller and Parent
Entity will as soon as practicable return all material of or concerning Buyer,
Seller or Parent Entity obtained from such other party then in its possession
and hereby covenant to keep confidential any information concerning the other
party and ascertained in connection with this Agreement for a period of three
(3) years commencing upon the termination of this Agreement, provided, however,
that the foregoing shall not apply to any information (a) in the public domain
not as a result of the violation of Buyer's, Seller's or Parent Entity's
undertaking herein, (b) available to Buyer, Seller or Parent Entity on a non-
confidential basis without regard to the disclosure by Buyer, Seller or Parent
Entity, or (c) available to Buyer, Seller or Parent Entity from a source other
than the other party (provided that such source in so acting is not violating
any duty or agreement of confidentiality).
11.4 NOTICES.
-------
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been
31
<PAGE>
duly given when (a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of receipt), provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Buyer:
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 528-7247
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
With a copy to:
Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: Carl C. Christoff
If to any Seller and/or CCI:
Communications Central Inc.
1150 Northmeadow Parkway
Suite 118
Roswell, Georgia 30076
Telephone: (770) 442-7300
Facsimile: (770) 751-9082
Attention: President
With copy to:
Hunton & Williams
NationsBank Plaza
Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Telephone: (404) 888-4045
Facsimile: (404) 888-4188
Attention: J. Stephen Hufford
11.5 FURTHER ASSURANCES.
------------------
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other
32
<PAGE>
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.6 WAIVER.
------
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.7 ENTIRE AGREEMENT AND MODIFICATION.
---------------------------------
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
11.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.
--------------------------------------------------
No party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that Buyer may assign this Agreement
and/or any of its rights under this Agreement to (i) any affiliate of Buyer, or
(ii) any bank, financial institution and/or other party providing any loans or
financing to Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the
33
<PAGE>
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
11.9 SEVERABILITY.
------------
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.10 SECTION HEADINGS, CONSTRUCTION.
------------------------------
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. The
parties, in acknowledgment that all of them have been represented by counsel and
that this Agreement has been carefully negotiated, agree that the construction
and interpretation of this Agreement and other documents entered into in
connection herewith shall not be affected by the identity of the party or
parties under whose direction or at whose expense this Agreement and such
documents were prepared or drafted.
11.11 TIME OF ESSENCE.
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.12 GOVERNING LAW.
-------------
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
11.13 COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
11.14 CURE.
----
Notwithstanding anything to the contrary set forth in this Agreement, no
party shall be entitled to (i) terminate this Agreement pursuant to Section 9
hereof, or (ii) indemnification pursuant to Section 10 hereof, if such breaching
or indemnifying party, within 30 days after its receipt of notice from the
terminating or indemnified party, cures or corrects the set of
34
<PAGE>
facts from which the basis for such termination or indemnification arose.
11.15 EXHIBITS.
--------
Buyer, Seller and the Parent Entity agree that as of the date of the
execution and delivery of this Agreement, the Exhibits have not been agreed to
by the parties. The parties agree that they shall use their good faith efforts
to finalize and complete all Exhibits on or before September 5, 1997. At such
time, the Exhibits will be attached hereto and be deemed a part hereof,
effective as of the date hereof.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
BUYER: SELLER:
- ----- ------
TALTON HOLDINGS, INC., INVISION TELECOM, INC.,
a Delaware corporation a Georgia corporation
By: /s/ TODD W. FOLLMER By: /s/ RODGER L. JOHNSON
------------------------ --------------------------
Name: Todd W. Follmer Name: Rodger L. Johnson
Title: Vice President Title: President
CCI:
---
COMMUNICATIONS CENTRAL INC.,
a Georgia corporation
By: /s/ RODGER L. JOHNSON
--------------------------
Name: Rodger L. Johnson
Title: President
36
<PAGE>
LIST OF EXHIBITS*
----------------
Exhibit 2.1(a): Excluded Assets
Exhibit 2.4(a)(ii): Intellectual Property Assignment
Exhibit 2.4(a)(iii)-1: List of employees signing Employment Agreements
Exhibit 2.4(a)(iii)-2: Employment Agreement
Exhibit 2.4(a)(iv): Non-Competition Agreement
Exhibit 2.4(a)(vi): Legal Opinion - Seller's counsel
Exhibit 2.4(b)(iv): Legal Opinion - Buyer's counsel
Exhibit 2.8(e): Management Agreement
Exhibit 3.6(a)(i): Inmate Telephone Agreements
Exhibit 3.6(a)(ii): Installed Lines
Exhibit 3.6(a)(iii): Service Agreements
Exhibit 3.6(a)(iv): Inventory
Exhibit 3.6(a)(v): Vehicles
Exhibit 3.6(a)(ix): Office Lease
Exhibit 3.6(a)(x): Furniture, Fixtures and Equipment
Exhibit 3.7: Accounts Receivable
Exhibit 3.8: Related Party Contracts
Exhibit 3.9: Contested Taxes and Proposed Assessments
Exhibit 3.10: Material Adverse Change
Exhibit 3.11: Employee Benefit Plans
Exhibit 3.12: Governmental Authorizations
Exhibit 3.13(a): Pending Proceedings
Exhibit 3.13(b) Past Proceedings
Exhibit 3.14: Events outside the Ordinary Course of Business
Exhibit 3.15(b): Contract Defaults
Exhibit 3.18: List of Employees
Exhibit 3.23: Seller's Brokers
Exhibit 4.4: Buyer's Brokers
LIST OF EXHIBITS - Page 1 of 1
- --------
*These items have been omitted. A copy will be provided to the Commission upon
request.
<PAGE>
EXHIBIT 2.2
CONTRIBUTION AGREEMENT
by and among
Talton Holdings, Inc., a Delaware corporation,
and Richard C. Green, Jr., Robert K. Green,
T.R. Thompson, Roger K. Sallee
and certain other stockholders, and
AmeriTel Pay Phones, Inc.,
a Missouri corporation
Dated December 20, 1996
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT ("Agreement") is made as of December 20, 1996, by
Talton Holdings, Inc., a Delaware corporation ("THI"), Richard C. Green, Jr.
("R.C. Green"), Robert K. Green ("R.K. Green"), T.R. Thompson ("T.R. Thompson"),
Roger K. Sallee ("R.K. Sallee") and certain other stockholders listed on Exhibit
A attached hereto (collectively, the "Stockholders"), and AmeriTel Pay Phones,
Inc., a Missouri corporation (the "Company"). R.C. Green, R.K. Green, T.R.
Thompson, R.K. Sallee and the Stockholders are sometimes referred to herein
individually as a "Shareholder" and collectively as "Shareholders."
RECITALS
WHEREAS, R.C. Green, R.K. Green, T.R. Thompson, R.K. Sallee and the
Stockholders own shares of the common stock of the Company (the "Shares"); and
WHEREAS, the Shareholders, together with certain other investors desire to
form and fund THI at the Closing (as defined herein), and will be in control of
THI as of the Closing; and
WHEREAS, each of these investors contributing assets to THI at the Closing is
concurrently entering into an agreement reflecting the terms upon which the
assets are to be contributed to THI; and
WHEREAS, the Shareholders desire to contribute to THI the Shares set forth on
Schedule 1 attached hereto and hereby made a part hereof (the "Contributed
Shares") in exchange for shares of THI's Class A common stock, $.01 par value
("THI Common") and THI's preferred stock, $.01 par value ("THI Preferred"), all
on the terms set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, the parties intending to be
legally bound, do hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ADJUSTMENT AMOUNT": (i) the Company's Net Liability Amount as reflected on
-----------------
the Closing Date Balance Sheet minus (ii) the Company's Net Liability Amount as
reflected on the Interim Balance Sheet (as defined in Section 3.4), but only to
the extent the Adjustment Amount causes or would cause the Funding Requirement
at Closing to exceed $40,250,000 (any lesser amount to be reflected by a cash
adjustment to the Purchase Price under
-1-
<PAGE>
the Stock Acquisition Agreement). An example of the calculation of the
Adjustment Amount is attached as Exhibit 1(a) and the Funding Requirement at
Closing.
"BILLING AND COLLECTION AGREEMENT": any billing and collecting agreement,
--------------------------------
local exchange company billing agreement or other Contract relating to the
provision of billing and collection services to the Company.
"BREACH": a "Breach" of a representation, warranty, covenant, obligation, or
------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any material
inaccuracy in or breach of, or any material failure to perform or comply with,
such representation, warranty, covenant, obligation, or other provision.
"CONSENT": any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS": all of the transactions contemplated by this
-------------------------
Agreement, including: (a) the contributions by the Shareholders to THI and the
acquisition by THI from the Shareholders of the Contributed Shares and the
contemporaneous issuance by THI to Shareholders of certain THI Common and THI
Preferred; (b) the execution, delivery and performance of the Shareholder
Documents; and (c) the performance by THI, the Company and Shareholders of their
respective covenants and obligations under this Agreement, including without
limitation their obligations under Section 2 hereof.
"CONTRACT": any agreement, contract, license obligation, promise or
--------
undertaking presently in effect, (a) under which the Company has or may acquire
any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"ENCUMBRANCE": any charge, claim, community property interest, condition,
-----------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA": the Employee Retirement Income Security Act of 1974 or any successor
-----
law, and regulations and rules issued pursuant to that Act or any successor law.
"FUNDING REQUIREMENT AT CLOSING": the sum of (i) the Aggregate Price (as
------------------------------
adjusted at Closing) as determined in the Stock Acquisition Agreement, (ii) the
Company's outstanding long term debt as shown on the Closing Date Balance Sheet,
and (iii) the aggregate $100,000 Non-Competition Payments or Separate Payments
required to be made under the Non-Competition
-2-
<PAGE>
Agreements, the Consulting Agreements and Employment Agreements at Closing (as
provided in the Stock Acquisition Agreement) less (iv) the OAN Receivable.
"GAAP": generally accepted United States accounting principles, applied on a
----
consistent basis.
"GOVERNMENTAL AUTHORIZATION": any approval, consent, license, permit, waiver,
--------------------------
tariff, or other written authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY": any: (a) nation, state, county, city, town, village,
-----------------
district, or other properly constituted local government; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal); (d) any properly constituted and
authorized body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature in the United States.
"HSR ACT": the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
-------
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSTALLED TELEPHONE": a Telephone that is in good working order and
-------------------
operable, is subject to a Telephone Operating and License Agreement, is
installed at the location provided for in its related Telephone Operating and
License Agreement and is not co-located with any pay telephone not owned by the
Company.
"INSTALLED TELEPHONE LINE": any telephone lines and related facilities
------------------------
providing telephone service to Installed Telephones, including those Telephone
lines identified by installation, location and telephone number in EXHIBIT
-------
3.6(a)(ii).
- ----------
"INTELLECTUAL PROPERTY ASSETS": any patents, patent applications, inventions,
----------------------------
trademarks, tradenames, business names, service marks, copyrights, trade
secrets,know-how, customer lists, software, technical information, plans,
drawings, blue prints or other intellectual property used in the operation of
the Company's business.
"IRC": the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
---
and, to the extent relevant, the United States Department of the Treasury.
-3-
<PAGE>
"KNOWLEDGE": in the case of Shareholders, information known to the
---------
Shareholders without independent investigation beyond the Company's officers and
directors; in the case of the Company, information known by the Company's
officers and directors.
"LEGAL REQUIREMENT": any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, ruling, regulation, or statute (as to representations and warranties
set forth in this Agreement, such orders, constitutions, laws, ordinances,
rulings, regulations, or statutes in effect as of the date such representation
or warranty is made).
"LONG DISTANCE SERVICE AGREEMENTS": any long distance service provider
--------------------------------
agreement, telecommunications agreement or other Contract relating to provision
of long distance service or other similar services to the Company.
"NET LIABILITY AMOUNT": the Company's current assets less (i) the OAN
--------------------
Receivable, (ii) the Company's current liabilities, and (iii) the Company's long
term debt, all as shown on the Interim Balance Sheet or the Closing Date Balance
Sheet, as applicable.
"OAN RECEIVABLE": the receivable (net of reserves) shown as the OAN
--------------
Receivable on the Interim Balance Sheet and Closing Date Balance Sheet, as
applicable.
"OPERATOR SERVICE AGREEMENT": any agreement or other Contract relating to the
--------------------------
provision of operator or other telephone services to the Company.
"ORDER": any award, decision, injunction, judgment, order, ruling, subpoena,
-----
or verdict entered, issued, made, or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS": an action taken by a Person will be deemed to
---------------------------
have been taken in the "Ordinary Course of Business" only if: (a) such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority).
"ORGANIZATIONAL DOCUMENTS": (a) the articles or certificate of incorporation
------------------------
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (d) any
charter, articles of organization, shareholders agreement, operating agreement
or similar document adopted or
-4-
<PAGE>
filed in connection with the creation, formation, or organization of a Person;
and (e) any amendment to any of the foregoing.
"PARTS AND SUPPLIES AGREEMENT": any Contract relating to the provision of
----------------------------
Telephones, Telephone parts, inventory or equipment, or other parts, equipment
or services to the Company.
"PERSON": any individual, corporation (including any non-profit corporation),
------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PRELIMINARY ADJUSTMENT AMOUNT": (i) the Company's Net Liability Amount as
-----------------------------
reflected on the Pro Forma Balance Sheet, minus (ii) the Company's Net Liability
Amount as reflected on the Interim Balance Sheet but only to the extent that the
Preliminary Adjustment Amount causes or would cause the Funding Requirement at
Closing to exceed $40,250,000 (any lesser amount to be reflected by a cash
adjustment to the Purchase Price under the Stock Acquisition Agreement).
"PROCEEDING": any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REPRESENTATIVE": with respect to a particular Person, any director, officer,
--------------
employee, agent, consultant, advisor, partner or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT": the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"SERVICE AGREEMENTS": any Long Distance Service Agreement, Billing and
------------------
Collection Agreement, Parts and Supplies Agreement, Operator Service Agreement
or similar agreement or Contract relating to the provision of parts, equipment
or services to the Company.
"STOCK ACQUISITION AGREEMENT": that certain Stock Acquisition Agreement of
---------------------------
even date herewith by and among THI, the Company and the shareholders of the
Company pursuant to which THI will acquire certain common and preferred shares
of the Company.
"TAXES": any tax, charge, fee, duty, levy or other assessment, including,
-----
without limitation, income, gross receipts, net proceeds, ad valorem, turnover,
real and personal property (tangible and intangible), sales, use, franchise,
excise, value added, license, payroll, unemployment, environmental, customs
duties, capital stock, disability, stamp, leasing, lease, user, transfer, fuel,
excess profits,
-5-
<PAGE>
occupational and interest equalization, windfall profits, severance and
employees' income withholding and Social Security taxes imposed by the United
States or any foreign country or by any state, municipality, subdivision or
instrumentality of the United States or of any foreign country or by any other
tax authority, including all applicable penalties and interest, and such term
shall include any interest, penalties or additions to tax attributable to such
taxes.
"TAX RETURN": any return (including any information return), report,
----------
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"TELEPHONE OPERATING AND LICENSE AGREEMENTS": all written lease agreements,
------------------------------------------
telephone location agreements, telephone service agreements, license agreements,
royalty agreements or other contracts relating to the Installed Telephones,
which agreements grant the exclusive right to the Company to install and operate
the Installed Telephones upon the premises set forth within any such document.
"TELEPHONES": any of the coin, credit card operated or collect call only
----------
telephones, owned or operated by the Company, including any hardware, enclosure,
pedestal or any other personal property installed with any Telephone.
"THREATENED": a claim, Proceeding, dispute, action, or other matter will be
----------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist that would lead
a prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
2. TRANSFER OF SHARES, CLOSING AND OTHER AGREEMENTS
2.1 THI COMMON Subject to the terms and conditions of this Agreement, at the
----------
Closing, Shareholders will contribute the Contributed Shares to THI, and THI
will issue 1,000 shares (based on a $1,000 issue price) (or such other number of
shares equal to $1,000,000 divided by the issue price per share applicable to
the cash investors in THI) of THI Common in exchange therefor. The THI Common
will be issued to the Shareholders as set forth in instructions to be provided
by the Shareholders' Representative prior to Closing.
-6-
<PAGE>
2.2 THI PREFERRED
-------------
(a) At Closing, for each $1000.00 of the Preliminary Adjustment Amount (if
any) THI will issue one share of THI Preferred to the Shareholders in proportion
to the Shareholders relative ownership in the Company immediately prior to the
Closing up to a maximum number of shares which when multiplied by the issue
price per share equals $1,000,000. Any adjustments because of differences in
the Preliminary Adjustment Amount and the Adjustment Amount shall be handled
through cash payments to or from the Post-Closing Escrow Fund established
pursuant to the Stock Acquisition Agreement.
(b) PRELIMINARY ADJUSTMENT AMOUNT Prior to the Closing Date, Shareholders
-----------------------------
shall prepare and deliver to THI (i) a pro forma balance sheet (together with
related notes and appropriate supporting schedules and work papers) of the
Company estimated as of the Closing Date prepared in accordance with generally
accepted accounting principles applied on a basis consistent with that used in
preparation of the Company's balance sheet (the "Pro Forma Balance Sheet"), and
(ii) a statement of the Preliminary Adjustment Amount, accompanied by a
certificate of the Company to the effect that such statement has been prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with that used in the preparation of the Company's balance sheet and
the terms of this Agreement (the "Pre-Closing Certificate").
(c) ADJUSTMENT AMOUNT As soon as possible after the Closing and in any event
-----------------
within 60 days following the Closing Date, THI shall prepare and deliver to the
Shareholders' Representative (as defined in Section 11.2) (i) a balance sheet of
the Company as of the Closing Date audited by Deloitte & Touche prepared in
accordance with generally accepted accounting principles consistent with past
practices of the THI (the "Closing Date Balance Sheet") and (ii) a statement of
the Adjustment Amount as of the Closing Date (the "Post-Closing Certificate").
(d) DISPUTES REGARDING THE ADJUSTMENT AMOUNT Shareholders (through the
----------------------------------------
Shareholders' Representative) shall notify THI in writing ("Shareholders'
Dispute Notice") within ten days after receiving the Post-Closing Certificate if
Shareholders disagree with THI's calculation of the Adjustment Amount as set
forth in the Post-Closing Certificate, which notice shall set forth in
reasonable detail the basis for such disagreement, the dollar amounts involved
and the Shareholders' calculation of the Adjustment Amount. THI will give
Shareholders access during the normal business hours of the Company to the
personnel, books and records of the Company to assist Shareholders in the
analysis of any such disagreement. In the event of such a disagreement, THI and
Shareholders shall negotiate in good faith to resolve any dispute with respect
to the Post-Closing Certificate. If no
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<PAGE>
Shareholders' Dispute Notice is received by THI within such ten day period,
THI's calculation of the Adjustment Amount as set forth in the Post-Closing
Certificate shall be final and binding upon the parties hereto.
2.3 CLOSING
-------
The closing of the transactions contemplated by this Agreement (the "Closing")
will take place at the offices of THI's counsel in Dallas, Texas (or such other
location within or outside of Dallas, Texas as THI shall designate) at 10:00
a.m. (local time) on a date not more than ten (10) business days after the
satisfaction or waiver of all conditions to Closing (but in no event earlier
than December 20, 1996 unless approval of the transaction contemplated in that
certain Stock Acquisition Agreement and that certain Contribution Agreement both
relating to the acquisition of shares of Talton Telecommunications Corporation
by Buyer has been obtained from regulatory authorities of the States of
Mississippi and North Carolina, and in no event later than January 31, 1997).
Notwithstanding any of the foregoing, if Closing occurs, the Closing shall be
effective as of November 30, 1996.
2.4 CLOSING OBLIGATIONS
-------------------
At the Closing:
(a) Shareholders or the Company, as applicable, will deliver or cause to be
delivered to THI:
(i) certificates representing the Contributed Shares, duly endorsed
(or accompanied by duly executed stock powers), with signatures of
Shareholders in attendance at Closing notarized at Closing, and signatures of
Shareholders not in attendance guaranteed by a commercial bank or by a member
firm of the New York Stock Exchange, for transfer to THI;
(ii) the Investor Representation Letter and Questionnaire, the
Subscription Documents, the Shareholders Agreement, the Registration Rights
Agreement each in the form of Exhibits 2.4(a)(i) - (iv), the Investor Pledge
--------
Agreement and any other documents required to be executed by the Shareholders
in connection with the issuance of the THI Common and/or the THI Preferred
(collectively, the "Shareholder Documents");
(iii) a certificate executed by Shareholders and the Company
representing and warranting to THI that (A) there have been no material
changes, amendments or modifications of or to the then current Organizational
Documents of the Company since the date of each of the Organizational
Documents; and (B) each of Shareholders'
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<PAGE>
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date (the
"Shareholders' Closing Certificate");
(iv) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.4(a)(v) and an additional opinion of counsel that all Government
-----------------
Authorizations necessary for Closing, including without limitation those of
the State of Missouri or its subdivisions or instrumentalities have been
satisfied, in the form and substance reasonably acceptable to THI; and
(v) such other documents as THI may reasonably request for the purpose
of (1) enabling its counsel to provide the opinion referred to in Section
2.4(b), (2) evidencing the accuracy of any of Shareholders' representations
and warranties, (3) evidencing the performance by Shareholders of, or the
compliance by Shareholders with, any covenant or obligation required to be
performed or complied with by the Shareholders, or (4) otherwise facilitating
the consummation or performance of any of the Contemplated Transactions.
(b) THI will deliver to each Shareholder (or to such other Persons designated
below):
(i) shares of the THI Common and THI Preferred (if any) as provided in
Sections 2.1 and 2.2 above;
(ii) the Shareholder Documents requiring THI's execution;
(iii) a certificate executed by THI to the effect that, except as
otherwise stated in such certificate, each of THI's representations and
warranties in this Agreement was accurate in all material respects as of the
date of this Agreement and is accurate in all material respects as of the
Closing Date as if made on the Closing Date (the "THI's Closing Certificate").
(iv) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.4(b)(v); and
-----------------
(v) such other documents as Shareholders may reasonably request for
the purpose of (1) enabling its counsel to provide the opinion referred to in
Section 2.4(a), (2) evidencing the accuracy of any representation or warranty
of THI, (3) evidencing the performance by THI of, or the compliance by THI
with, any covenant or obligation required to be performed or
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<PAGE>
complied with by THI, or (4) otherwise facilitating the consummation of the
Contemplated Transactions.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders and the Company represent and warrant to THI as follows:
3.1 ORGANIZATION AND GOOD STANDING
------------------------------
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under the Contracts. The Company is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of the states listed in EXHIBIT 3.1(a)-1 hereof, which are all of
----------------
the states which the nature of the activities conducted by it requires such
qualification. The Company does not have and never has had any subsidiaries.
The Company has not been a party to any merger other than those listed on
EXHIBIT 3.1(a)-2.
- ----------------
(b) Shareholders have delivered to THI copies of the Organizational Documents
of the Company. The Company's principal place of business is, and has been for
the last five (5) years or if it has not done business for five (5) years, for
the entire period that it has done business, in Lee's Summit, Missouri and the
Company has not had any other offices, other corporate names or done business in
any other names during said five (5) year period other than as disclosed on
EXHIBIT 3.1(b).
- --------------
3.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Shareholders and the Company, enforceable against each of the Shareholders
and the Company in accordance with its terms except as such enforcement may be
limited by applicable bankruptcy laws. Upon the execution and delivery of the
Post-Closing Escrow Agreement and Shareholder's Closing Certificate
(collectively, the "Shareholders' Closing Documents"), the Shareholders' Closing
Documents will constitute the legal, valid, and binding obligations of the
parties (other than THI) enforceable against each of them in accordance with
their respective terms except as such enforcement may be limited by applicable
bankruptcy laws. Each of the Shareholders and the Company has the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and the Shareholders' Closing Documents to which each is a party and
to perform their obligations under this Agreement and the Shareholders' Closing
Documents to which each is a party.
-10-
<PAGE>
(b) Except as set forth in EXHIBIT 3.2.(b), neither the execution, delivery
---------------
or performance of this Agreement nor any other consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, (B) any resolution
adopted by the board of directors or the stockholders of the Company, (C) any
duty owed by any of the Shareholders or the Company to any Person, or (D) any
Legal Requirement, any Governmental Authorization or any Order to which the
Company or the Shareholders, or any of the assets owned or used by the Company
or the Shareholders, may be subject; or
(ii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract, or any contract or other
agreement to which any Shareholder is a party.
(c) Except for notices or Consents described on EXHIBIT 3.2.(b) hereof, none
---------------
of Shareholders nor the Company is or will be required to give any notice to or
obtain any Consent from any Person, in connection with the execution, delivery
or performance of this Agreement or the consummation or other performance of any
of the Contemplated Transactions, the absence of which notice or Consent would
cause to occur or result in the occurrence of any of the events described in
Section 3.2(b)(i) and (ii).
3.3 CAPITALIZATION
--------------
(a) The authorized equity securities of the Company consist of: (i)
10,000,000 Common Shares, par value $.01 per share, of which 3,259,345 Common
Shares are issued and outstanding, and (ii) 500,000 Preferred Shares, par value
$.01 per share, of which 244,800 Preferred Shares are issued and outstanding.
Shareholders are and will be on the Closing Date the record and beneficial
owners and holders of the Contributed Shares, free and clear of all
Encumbrances. On the date hereof and on the Closing Date, the Contributed
Shares are and will be owned as set forth on Exhibit 3.3(a).
--------------
(b) Except as listed in Exhibit 3.3(b)-1, no legend or other reference to any
purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as listed on Exhibit 3.3(b)-2, there are no contracts or
other agreements relating to the issuance, sale, or transfer of any equity
securities or other securities of the Company. None of the outstanding equity
securities or other
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<PAGE>
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own and does not have any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business
(c) Except as listed on Exhibit 3.3(c), there are no options, warrants or
other rights to acquire an interest in the Company or in its shares.
3.4 FINANCIAL STATEMENTS
--------------------
Shareholders have delivered to THI: (a) audited balance sheets of the Company
as at December 31, in each of the years 1994 and 1995, and the related audited
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the fiscal years then ended, and (b) an unaudited balance sheet
of the Company as at September 30, 1996, a copy of which is attached as Exhibit
-------
3.4, (the "Interim Balance Sheet") and the related unaudited consolidated
- ---
statements of income, and cash flow for the eight months then ended, including
in each case the notes thereto. Shareholders shall deliver to THI such other
balance sheets, statements of income, cash flow and other financial statements
of the Company as THI may reasonably request. All such financial statements and
notes fairly present the financial condition and the results of operations, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the December 31, 1995 balance sheet).
The financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Company are required by GAAP to be
included in the consolidated financial statements of the Company.
-12-
<PAGE>
3.5 BOOKS AND RECORDS
-----------------
The books of account, minute books, stock record books, and other records of
the Company, all of which have been made available to THI, are complete and
correct in all material respects. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the boards of directors, and committees of the
boards of directors of the Company, and no meeting of any such stockholders,
board of directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 BALANCE SHEETS ON THE CLOSING DATE
----------------------------------
(a) COMPANY ASSETS. Except as shown on Exhibit 3.6(a), on the Closing Date
-------------- --------------
assuming satisfaction of that certain Revolving Credit Agreement dated September
22, 1995 by and among the Company, UMB Bank N.A., NBD Bank and UMB Bank, N.A.,
as agent for the lenders and the payment of other long term debt included in the
calculation of Net Liability Amount, the Company shall own and have good title,
without Encumbrance, to all of the assets currently owned and used in
conjunction with the operation of the Company's business (which assets are
reflected in the Company's Interim Balance Sheet) (the "Company Assets"),
including, without limitation:
(i) all rights and interest of the Company in and under the Telephone
Operating and License Agreements listed on Exhibit 3.15(a);
---------------
(ii) all Installed Telephone Lines listed on EXHIBIT 3.6(a)(ii);
------------------
(iii) all rights and interests of the Company in and under the Service
Agreements listed on Exhibit 3.15(a);
---------------
(iv) all uninstalled Telephones, parts, hardware and equipment listed
on EXHIBIT 3.6(a)(iv) (subject to turn over of inventory in the Ordinary
------------------
Course of Business);
(v) all vehicles listed on EXHIBIT 3.6(a)(v); and
-----------------
(vi) all other furniture, fixtures, equipment, personalty or
intellectual property of any kind used by the Company in the operation of its
business, including without limitation, each of those items having a value in
excess of $1,000 listed on EXHIBIT 3.6(a)(vi).
------------------
(b) LIABILITIES. Other than the liabilities and obligations listed on
-----------
EXHIBIT 3.6(b), (the "Continuing
- --------------
-13-
<PAGE>
Liabilities"), the Company shall have no other obligations or liabilities as of
the Closing Date.
3.7 ACCOUNTS RECEIVABLE
-------------------
(a) All accounts receivable of the Company that are reflected on the Interim
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. The reserves reflected in the Interim Balance
Sheet have been calculated consistent with past practices and, to Shareholder's
best knowledge, are adequate. Except as set forth in EXHIBIT 3.7, there is no
-----------
contest, claim, or right of set-off, other than returns in the Ordinary Course
of Business, under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. EXHIBIT 3.7
-----------
hereof contains a complete and accurate list of all Accounts Receivable as of
the date of the Interim Balance Sheet, which list sets forth the aging of such
Accounts Receivable.
(b) Shareholders represent and warrant that from and after the date of the
Interim Balance Sheet (as defined in Section 3.4) through the Closing Date: (i)
the Company has collected all sums and amounts due the Company, whether
evidenced in writing, on account, designated as a receivable or otherwise
(collectively, "Pre-Closing Receivables"), only in its usual, regular and
ordinary manner, on a basis consistent with past practices (and otherwise in the
Ordinary Course of Business); and (ii) the Company has not and will not
accelerate collection of the Pre-Closing Receivables.
3.8 NO UNDISCLOSED LIABILITIES
--------------------------
Except as set forth in EXHIBIT 3.8 hereof, the Company has no liabilities or
-----------
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Interim Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date thereof.
3.9 TAXES
-----
(a) The Company has filed or caused to be filed all Tax Returns that are or
were required to be filed by or with respect to any of them, either separately
or as a member of a group of corporations, pursuant to applicable Legal
Requirements. Shareholders have delivered to THI copies of, and EXHIBIT 3.9
-----------
hereof contains a complete and accurate list of, all federal income Tax Returns,
filed since 1990 (including the Tax Returns for 1990). The Company has paid, or
made provision for the payment of, all Taxes that have or may have become due
pursuant
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<PAGE>
to those Tax Returns or otherwise, or pursuant to any assessment received by
Shareholders or the Company, except such Taxes, if any, as are listed in EXHIBIT
-------
3.9 hereof and are being contested in good faith and as to which adequate
- ---
reserves (determined in accordance with GAAP) have been provided in the Interim
Balance Sheet.
(b) The United States federal income Tax Returns of the Company subject to
such Taxes have been audited by the IRS or relevant state tax authorities for
1994. EXHIBIT 3.9 contains a complete and accurate list of all audits of all
-----------
such Tax Returns, including a reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a result of such audits
have been paid, reserved against, settled, or, as described in EXHIBIT 3.9
-----------
hereof, are being contested in good faith by appropriate proceedings. EXHIBIT
-------
3.9 hereof describes all adjustments to the United States federal income Tax
- ---
Returns filed by the Company or any group of corporations including the Company
for all taxable years since 1991, and the resulting deficiencies proposed by the
IRS. Except as described in EXHIBIT 3.9, no Shareholder nor the Company has
-----------
given or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of the Company or for which the
Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in accordance with
GAAP) and the Company's liability for Taxes through the Closing Date shall not
be not greater than $10,000 more than such charges, accruals and reserves.
There exists no proposed tax assessment against the Company except as disclosed
in the Interim Balance Sheet or in EXHIBIT 3.9 hereof. All Taxes that the
-----------
Company is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement.
3.10 NO MATERIAL ADVERSE CHANGE
--------------------------
Except as set forth on EXHIBIT 3.10, since the date of the Interim Balance
------------
Sheet, there has not been any material adverse change in the business, client
relations, operations, or assets of the Company, and no event has occurred or
circumstance exists that may result in such a material adverse change. Without
in any way limiting the generality of the foregoing, there exists no actual or
threatened terminations, cancellations or limitations of, or any modification or
change in (i) the current business relationship of the Company with any material
customer or group
-15-
<PAGE>
of customers whose business is material to the operation of the Company's
business; or (ii) the current business relationship of the Company with any
supplier, and the Company has no reason to believe that any such customers or
suppliers shall not continue a business relationship with THI subsequent to the
Closing on a basis no less favorable to THI than that heretofore conducted
(except where such change would not have a material adverse effect on the
Company); and (iii) there exists no other condition or state of facts or
circumstances which would materially adversely affect the Company's business or
prevent THI from conducting such business after the Closing on a basis not
materially adversely less favorable to THI than that of which it has heretofore
been conducted by the Company.
3.11 EMPLOYEE BENEFITS
-----------------
(a) As used in this Agreement, the term "Employees of the Company" means, (i)
all active or former employees or directors of the Company, (ii) all employees
of the Company who, as of the Closing Date, are on workers' compensation,
military leave, other approved leaves of absences, long-term or short-term
disability, non-occupational disability and employees on layoff with recall
rights, (iii) all individuals who are covered under any "Employee Benefit Plan"
(as such terms is hereinafter defined) as a result of previously being described
in (i) or (ii) above, and (iv) beneficiaries or dependents under any Employee
Benefit Plan of anyone described in (i) through (iii) above.
(b) EXHIBIT 3.11 sets forth a list of each "employee benefit plan" (as
------------
defined by Section 3(3) of ERISA, and any other bonus, profit sharing pension,
compensation, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, disability, sick leave,
vacation, individual employment, commission, bonus, payroll practice, retention,
or other plan, agreement, policy, trust fund or arrangement, whether written or
oral (each such plan, agreement, policy, trust fund or arrangement is referred
to herein as an "Employee Benefit Plan", and collectively, the "Employee Benefit
Plans") that is currently in effect, or which has been approved before the date
hereof but is not yet effective, for the benefit of any Employee of the Company
or with respect to which the Company has or has had any obligation, and any
Employee Benefit Plan that was maintained since the organization of the Company
with respect to which the Company has any obligation. Except as disclosed on
EXHIBIT 3.11, there are no other benefits to which any Employee of the Company
- ------------
is entitled or for which the Company has any obligation.
(c) The Company has delivered to THI with respect to each Employee Benefit
Plan, true and complete copies of (i) the documents embodying and relating to
the plan, including, without limitation, the current plan documents and
documents creating any trust maintained pursuant thereto, all amendments,
investment management agreements, administrative service contracts, group
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<PAGE>
annuity contracts, insurance contracts, collective bargaining agreements, the
most recent summary plan description with each summary of material modification,
if any, and employee handbooks, (ii) annual reports including but not limited to
Forms 5500, 990 and 1041 for the last three (3) years for the plan and any
related trust, (iii) actuarial valuation reports and financial statements for
the last three years, and (iv) each communication involving the plan or any
related trust to or from the IRS, Department of Labor ("DOL"), Pension Benefit
Guaranty Corporation ("PBGC") or any other governmental authority including,
without limitation, the most recent determination letter received from the IRS
pertaining to any Employee Benefit Plan intended to qualify under Sections
401(a) or 501(c)(9) of the Code.
(d) Except as set forth on EXHIBIT 3.11, the Company has no obligation to
------------
contribute to or provide benefits pursuant to, nor has it ever maintained or
contributed to, and it has no other liability of any kind with respect to, (i) a
"multiple employer welfare arrangement" (within the meaning of Section 3(40) of
ERISA), (ii) a "plan maintained by more than one employer" (within the meaning
of Section 413(c) of the Code), (iii) a plan intended to be, or represented to
be, described in Section 401(a) of the Code, (iv) a "multiemployer plan" (within
the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the Code), or
(v) a plan subject to Parts 2, 3 or 4 of Subtitle B of Title I of ERISA. No
"ERISA Affiliate" (as that term is hereinafter defined) has any obligation to
contribute to or provide benefits pursuant to, or has any other liability of any
kind with respect to, a multiemployer plan or a plan subject to Section 412 of
the Code, Part 3 of Subtitle B of Title I of ERISA or Title IV of ERISA. As
used in this Agreement the term "ERISA Affiliate" means any trade or business
(other than the Company) whether or not incorporated, which has employees who
are or have been at any date of determination occurring within the preceding six
(6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section 414
of the Code as employees of a single employer which includes the Company.
(e) The Company is not liable for, and after the Closing Date, THI shall not
be liable for, any contribution, tax, lien, penalty, costs, interest, claim,
loss, action, suit, damage, cost assessment or other similar type of liability
or expense of any ERISA Affiliate (including predecessors thereof) with regard
to any Employee Benefit Plan maintained, sponsored or contributed to by an ERISA
Affiliate (if a like definition of Employee Benefit Plan were applicable to the
ERISA Affiliate in the same manner as it applies to the Company).
(f) EXHIBIT 3.11 lists the name of each Employee of the Company who has
------------
experienced a "Qualifying Event" (as defined in Section 4980B of the Code and
Section 601, et seq. of ERISA) (such statutory provisions and predecessors
thereof are referred to herein collectively as "COBRA") with respect to an
Employee Benefit Plan who is eligible for "Continuation Coverage" (as
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<PAGE>
defined in COBRA) and whose maximum period for Continuation Coverage required by
COBRA has not expired. Included in such list are the current address for each
such individual, the date and type of each Qualifying Event, whether the
individual who has not yet elected Continuation Coverage, the date on which such
individual was notified of his or her rights to elect Continuation Coverage.
(g) With respect to each Employee Benefit Plan and except as otherwise set
forth on EXHIBIT 3.11:
------------
(i) no claim, lawsuit, arbitration or other action (other than routine
claims for benefits made in accordance with the terms of the Employee Benefit
Plan) has been asserted or instituted or threatened in writing against the
Employee Benefit Plan, any trustee or fiduciaries thereof, the Company, any
Employee of the Company or any of the assets of the Employee Benefit Plan or
any related trust;
(ii) the Employee Benefit Plan complies with and has been maintained
and operated in all material respects in accordance with its respective terms
and the terms and the provisions of applicable law, including, without
limitation, ERISA and the IRC;
(iii) the Employee Benefit Plan is not under audit or investigation by
the IRS or the DOL or any other governmental authority, and no such completed
audit, if any, has resulted in the imposition of any tax, interest or penalty;
and
(iv) each Employee Benefit Plan may be unilaterally terminated by the
Company on not more than ninety (90) days written notice with no further
liability to the Company.
(h) Except as set forth on the EXHIBIT 3.11, the consummation of the
------------
Contemplated Transactions will not give rise to any liability for any employee
benefits, including, without limitation, liability for severance pay,
unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any Employee of the Company. No amounts payable under any
Employee Benefit Plan will fail to be deductible for federal income tax purposes
by virtue of Section 280G of the Code.
(i) Except as set forth on EXHIBIT 3.11, no Employee Benefit Plan in any way
------------
provides for any benefits of any kind whatsoever (other than under COBRA, the
Federal Social Security Act or any Employee Benefit Plan qualified under Section
401(a) of the Code) to any Employee of the Company who, at the time the benefit
is to be provided, is a former director or employee of, or other provider of
services to, the Company or an ERISA Affiliate (or a beneficiary of any such
person), or any other
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<PAGE>
Employee of the Company, nor have any representations, agreements, covenants or
commitments been made to provide such benefits.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS AND
-------------------------------------------------------------------
ORDERS
- ------
(a) Except as set forth in EXHIBIT 3.12 hereof, to the best knowledge of the
------------
Shareholders and the Company:
(i) The Company is, and at all times has been, in material compliance
with each Legal Requirement, Governmental Authorization and Order that is or
was applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a violation by the
Company of, or a failure on the part of the Company to comply with, any Legal
Requirement, Governmental Authorization or Order, or (B) may give rise to any
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature; and
(iii) Neither the Shareholders nor the Company has received, at any time
since 1991, any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of the Company, or failure by the Company to
comply with, any Legal Requirement, Governmental Authorization or Order, which
violation or failure has not been corrected or complied with, or (B) any
actual, alleged, possible, or potential obligation on the part of the Company
to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
(b) EXHIBIT 3.12 hereof, to the best knowledge of the Shareholders and the
------------
Company, contains a complete and accurate list of each Governmental
Authorization that relates to the business of, or to any of the assets used in
the operation of the Company. Each Governmental Authorization of the Company is
valid and in full force and effect. The Governmental Authorizations listed in
EXHIBIT 3.12 hereof collectively constitute all of the Governmental
- ------------
Authorizations necessary to permit the Company to lawfully conduct and operate
the business of the Company in the manner they currently conduct and operate
such business and to permit the Company to own and use the assets used in the
operation of the Company in the manner in which they currently own and use such
assets. A true and complete copy of each Governmental Authorization listed in
EXHIBIT 3.12 has been delivered to THI.
- ------------
-19-
<PAGE>
3.13 LEGAL PROCEEDINGS
-----------------
(a) Except as set forth in EXHIBIT 3.13(a) hereof, there is no pending
---------------
Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions or any Contract.
To the best knowledge of the Shareholders and the Company, no such Proceeding
has been Threatened, and no event has occurred or circumstance exists that may
reasonably be expected to give rise to or serve as a basis for the commencement
of any such Proceeding. The Proceedings listed in EXHIBIT 3.13(a) hereof will
---------------
not have a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) All Proceedings in which the Company has been named or otherwise involved
since 1991, and all Proceedings relating to the Company in which any Shareholder
has been named or otherwise involved since 1991, are listed on EXHIBIT 3.13(b).
---------------
Shareholders have delivered to THI true and complete copies of all material
pleadings and other documentation relating to each Proceeding listed on EXHIBIT
3.13(b).
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
-------------------------------------
Except as set forth in EXHIBIT 3.14 hereof, since the date of the Interim
------------
Balance Sheet, the Company has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by the Company
of any shares of any such capital stock; or declaration or payment of any
dividend or other distribution or payment in respect of shares of capital
stock;
(b) payment or increase of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or
similar Contract with any director, officer, or Employee of the Company;
-20-
<PAGE>
(c) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any Employees of the
Company;
(d) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects
of the Company;
(e) other than the entry into new Telephone Operating and Licensing
Agreements in the ordinary course of business, entry into, termination of, or
receipt of notice of termination of (i) any license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or (ii) any
Contract or transaction involving a total remaining commitment by or to the
Company of at least $50,000;
(f) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company;
(g) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(h) material change in the accounting methods used by the Company;
(i) material change in the financial condition, assets, liabilities or
business of the Company;
(j) adverse Order affecting the Company or the Company's business;
(k) change in the method of collecting accounts receivable or
acceleration in the collection of accounts receivable;
(l) failure to pay expenses incurred in connection with the operation
of the Company on a timely basis; or
(m) agreement, whether oral or written, by the Company to do any of
the foregoing.
3.15 CONTRACTS; NO DEFAULTS
----------------------
(a) Shareholders have delivered to THI true and complete copies of and
Exhibits 3.15(a)(i) - (vii) hereof contain a complete and accurate list, of the
- ---------------------------
following:
-21-
<PAGE>
(i) each Telephone Operating and License Agreement is described on
EXHIBIT 3.15(a)(i);
------------------
(ii) each Service Agreement is described on EXHIBIT 3.15(a)(ii);
-------------------
(iii) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any real
or personal property is described on EXHIBIT 3.15(a)(iii); provided however,
--------------------
that Exhibit 3.15(a)(iii) does not include personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $5,000 and with terms of less than one year if
the aggregate value or payments of or under such leases and agreements does
not exceed $10,000;
(iv) each licensing agreement or other Contract with respect to the
Intellectual Property Assets is described in EXHIBIT 3.15(a)(iv);
-------------------
(v) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person is described on EXHIBIT 3.15(a)(v);
------------------
(vi) each Contract not otherwise listed in Exhibits 3.15(a)(i)-(v)
above that (1) provides for payments to or by any Person based on sales,
purchases, or profits, other than direct payments for goods, in excess of
$5,000, or (2) involves performance of services or delivery of goods or
materials by the Company of an amount or value in excess of $5,000 or (3)
involves expenditures or receipts by the Company in excess of $5,000, is
described on EXHIBIT 3.15(a)(vi); and
-------------------
(vii) each power of attorney that is currently effective and outstanding
is described on EXHIBIT 3.15(a)(vii).
--------------------
Exhibits 3.15(a)(i) - (vii) hereof set forth reasonably complete details
---------------------------
concerning such Contracts, including the date of the Contracts and the parties
to the Contracts. Additionally, EXHIBIT 3.15(a)(i) separately classifies the
------------------
Telephone Operating and License Agreement under the subcategories inmate phones
[and other pay phones,] and EXHIBIT 3.15(a)(ii) separately classifies the
-------------------
Service Agreements under the subcategories Long Distance Service Agreements,
Billing and Collection Agreements, Parts and Supplies Agreements and Operator
Service Agreements.
(b) Except as set forth in EXHIBIT 3.15(b) hereof:
---------------
-22-
<PAGE>
(i) neither the Shareholders (nor any Person related or affiliated
with the Shareholders) has or may acquire any rights under, and neither the
Shareholders (nor any Person related or affiliated with them) has or may
become subject to any obligation or liability under, any Contract that relates
to the business of, or any of the assets used in the operation of the Company;
and
(ii) neither the Company nor any officer, director, agent, employee,
consultant, or contractor of the Company is bound by any contract or agreement
that purports to limit the ability of the Company or such officer, director,
agent, employee, consultant, or contractor to engage in or continue any
conduct, activity, or practice relating to the business of the Company.
(c) Except as set forth in EXHIBIT 3.15(c) hereof, with respect to each
---------------
Contract identified or required to be identified in EXHIBIT 3.15(a) hereof
---------------
(and/or any other material Contract by which the Company is bound even if not so
identified):
(i) such Contract is in full force and effect and is valid and
enforceable in accordance with its terms [provided, however, with respect to
Telephone Operating License Agreements, Shareholders and Company have assumed
with THI's approval in making this representation and warranty that the person
executing such agreement on behalf of the customer was the appropriate person
under applicable law to execute the agreement];
(ii) the Company is, and at all times since the later of 1991 or the
Contract's date of inception, has been, in substantial compliance with all
applicable terms and requirements of such Contract;
(iii) each other Person that has or had any obligation or liability
under such Contract is, and at all times since the later of 1991 or the
Contract's date of inception, has been, in substantial compliance with all
applicable terms and requirements of such Contract;
(iv) to the best knowledge of Shareholders and the Company, no event
has occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with, or result in a violation or breach of, or
give the Company or other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any such Contract; and
(v) neither the Company nor Shareholders has given to or received from
any other Person, at any time since the later of 1991 or the Contract's date
of inception, any notice or other communication (whether oral or written)
-23-
<PAGE>
regarding any actual, alleged, possible, or potential material violation or
breach by the Company of, or default by the Company under, such Contract.
(vi) to the best knowledge of Shareholders and the Company, there are
no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to the Company under such
Contracts with any Person (and, no such Person has made written demand for
such renegotiation) where the effect of such renegotiation would have a
material adverse effect on the Company or its operations.
(vii) such Contracts have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
(viii) such Contracts constitute the sole and entire agreement among the
parties thereto with respect to the subject matter thereof, and there are no
other agreements or understandings among the parties which in any way pertain
to or otherwise affect such Contracts.
3.16 INSURANCE
---------
(a) Shareholders have delivered to THI true and complete copies of and
EXHIBIT 3.16(a) contains a complete and accurate list of all policies of
- ---------------
insurance to which the Company is a party or under which the Company, or any
director of the Company in his capacity as director of the Company, is or has
been covered at any time since 1991;
(b) EXHIBIT 3.16(b) hereof sets forth, by year, for the current policy year
---------------
and each of the two preceding policy years (i) a summary of the loss experience
under each policy; (ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000; and (iii) a statement describing the
loss experience for all claims that were self-insured, including the number and
aggregate cost of such claims.
(c) Except as set forth on EXHIBIT 3.16(c) hereof:
---------------
(i) All policies to which the Company is a party or that provide
coverage to Shareholders, the Company, or any director or officer of the
Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide in the judgment of the Company and
Shareholders adequate insurance
-24-
<PAGE>
coverage for the assets and the operations of the Company;
(C) are sufficient for compliance with all Legal Requirements and
Contracts to which the Company is a party or by which any of them is
bound;
(D) will continue in full force and effect following the
consummation of the Contemplated Transactions with respect to losses or
claims accruing or arising prior to the Closing Date; and
(E) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
(ii) No Shareholder nor the Company has received with respect to the
Company (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not willing
or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to which the
Company is a party or that provides coverage to the Company or a director
thereof.
(iv) The Company has given notice to the insurer of all material claims
that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS
---------------------
Except as set forth in EXHIBIT 3.17:
------------
(a) The Company and the Company Assets are, and at all times have been, in
material compliance with, and have not been and are not in violation of or
liable under, any Environmental Laws.
(b) The Company has not generated, handled, manufactured, processed, treated,
stored, used, transferred, released, disposed of or otherwise conducted any
hazardous process or activity with respect to (collectively, "Hazardous
Activities") any hazardous substances, hazardous wastes, hazardous wastes
constituents and reaction by-products, hazardous materials, pesticides, oil and
other petroleum products, pollutants, and/or toxic substances, including
asbestos and polychlorinated biphenyls as those terms are defined pursuant to
Environmental Laws (collectively, "Hazardous Substances"), except in full
compliance with Environmental Laws, or where any alleged noncompliance is not
material.
-25-
<PAGE>
(c) To the best of Shareholders' knowledge, neither Shareholders nor the
Company has any basis to expect, nor has any of them or any other Person for
whose conduct they are or may be held to be responsible received, any actual or
Threatened Order, notice, or other communication from any Person that relates to
Hazardous Activities, Hazardous Substances, or any alleged actual or potential
violation or failure to comply with any Environmental Law with respect to any
properties or assets (whether real, personal, or mixed) in which the Company has
or had an interest.
(d) Neither Shareholders, the Company nor any other Person for whose conduct
they are or may be held to be responsible, has any existing liability,
obligations or other responsibility that would have a material adverse effect on
the Company arising from or under Environmental Laws, and neither Shareholders
nor the Company have any basis to expect such liability, obligations or
responsibilities to arise or occur.
(e) For purposes hereof, Environmental Laws shall mean all Legal Requirements
that relate or pertain to environmental matters, pollution and/or public health,
safety or welfare, including without limitation, the Resource Conservation and
Recovery Act (42 U.S.C. 6901 et seq.), as amended, the Comprehensive
------
Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.),
------
as amended, the Federal Clean Water Act (33 U.S.C. 1251 et seq.), as amended,
------
and state and federal environmental clean up programs.
3.18 EMPLOYEES
---------
(a) EXHIBIT 3.18(a) hereof contains a complete and accurate list of the
---------------
following information for each employee or director of the Company, including
each employee on leave of absence or layoff status: name; job title; current
compensation paid or payable and any change in compensation since January 1,
1996; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(b) Except as set forth on EXHIBIT 3.18(b), to the best knowledge of the
---------------
Shareholders and the Company, no employee, officer or director of the Company is
a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, noncompetition, or proprietary rights agreement, between
such officer or director and any other Person ("Proprietary Rights Agreement")
that in any way adversely
-26-
<PAGE>
affects or will affect (i) the performance of his duties as an employee, officer
or director of the Company, or (ii) the ability of the Company to conduct its
business, including any Proprietary Rights Agreement with Shareholders or the
Company by any such employee, officer or director. Except as set forth on
EXHIBIT 3.18(b), to the best knowledge of the Shareholders and the Company, no
- ---------------
director or officer involved in the business or operations of the Company
intends to terminate his/her employment with the Company prior to December 31,
1997.
(c) EXHIBIT 3.18(c)-1 hereof contains a complete and accurate list of all
-----------------
employment agreements, employment contracts, compensation arrangements and/or
any other Contract pertaining to employment related matters between the Company
and any of its employees (the "Employment Agreements"). The Shareholders have
delivered to THI true and complete copies of all Employment Agreements. Except
those employees with Employment Agreements, that provide to the contrary, all
employees of the Company are employees at will and their employment may be
terminated at any time by the Company without fee, penalty, severance
compensation or benefits.
(d) EXHIBIT 3.18(d) hereof contains a complete and accurate list of the
---------------
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.19 LABOR RELATIONS; COMPLIANCE
---------------------------
Since 1991, the Company has not been nor is a party to any collective
bargaining or other labor Contract. Since 1991, there has not been, there is
not presently pending or existing, and to the best knowledge of Shareholders and
the Company, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Company or their premises, or (c) any application for
certification of a collective bargaining agent. There is no lockout of any
employees by the Company, and no such action is contemplated by the Company.
The Company has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing. The Company
is not liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts,
-27-
<PAGE>
however designated, for failure to comply with any of the foregoing Legal
Requirements.
3.20 INTELLECTUAL PROPERTY
---------------------
(a) Shareholders have delivered to THI true and complete copies of, and
EXHIBIT 3.20 hereof contains a complete and accurate list of, all Contracts
- ------------
relating to the Intellectual Property Assets.
(b) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company
is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use, without payment to a third party, all of the Intellectual Property Assets.
(c) The Intellectual Property Assets and the use thereof by the Company does
not nor does the subject matter of any of the Intellectual Property Assets
infringe or is alleged to infringe any rights of any third party or is a
derivative work based on the work of a third party.
3.21 BANK ACCOUNTS
-------------
EXHIBIT 3.21 contains a complete and accurate list of each bank or financial
------------
institution in which the Company has an account or safe deposit box, including
address, account number and the names of persons authorized to draw thereon or
to have access thereto.
3.22 CERTAIN PAYMENTS
----------------
Since 1991, neither the Company nor any director, officer, agent, or employee
of the Company, nor any Representative, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company, or (iv) in violation of any Legal Requirement, and/or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.23 COMPANY REVENUES
----------------
The Company revenues, as measured by GAAP on a consolidated basis, from
Telephone and Operating License Agreements during the fiscal year ended 1995 was
not less than $20,000,000. The Company revenues, as measured by GAAP on a
consolidated basis,
-28-
<PAGE>
from Telephone and Operating License Agreements during the two fiscal quarters
ending June 30, 1996, was not less than $14,500,000.
3.24 DISCLOSURE
----------
No representation or warranty of Shareholders in this Agreement omits to state
a material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
----------------------------------
Except as set forth in EXHIBIT 3.25 hereof, neither any of the Shareholders
------------
nor any Person related or affiliated with any Shareholder or the Company is a
party to any Contract with, or has any claim or right against, the Company.
Neither any of the Shareholders nor any Person related or affiliated with any of
the Shareholders owns, directly or indirectly, any material interest in any
person or entity that is a competitor, customer or supplier of the Company, that
otherwise has any business dealings with the Company or that is engaged in the
same or similar business as the Company.
3.26 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 3.26, Shareholders and their agents have
------------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
3.27 HSR ACT
-------
Company is the "acquired person" within the meaning of the HSR Act and has for
the purposes of the "size of person" test under the HSR Act less than
$100,000,000 in annual net sales or total assets.
4. REPRESENTATIONS AND WARRANTIES OF THI
THI represents and warrants to Shareholders as follows:
4.1 ORGANIZATION AND GOOD STANDING
------------------------------
THI is a corporation duly organized, validly existing, and in good standing
under the laws of the state of its incorporation.
4.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
THI, enforceable against THI in accordance with its terms. Upon the execution
and delivery by THI of the Post-Closing Escrow Agreement and THI's Closing
Certificate
-29-
<PAGE>
(collectively, the "THI's Closing Documents"), THI's Closing Documents will
constitute the legal, valid, and binding obligations of THI, enforceable against
THI in accordance with their respective terms. THI has the absolute and
unrestricted right, power, and authority to execute and deliver this Agreement
and the THI's Closing Documents and to perform its obligations under this
Agreement and the THI's Closing Documents.
(b) Except as set forth in EXHIBIT 4.2, neither the execution and delivery of
------------
this Agreement by THI nor the consummation or performance of any of the
Contemplated Transactions by THI will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of THI's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of THI;
(iii) any Legal Requirement or Order to which THI may be subject; or
(iv) any contract to which THI is a party or by which THI may be bound.
Except as set forth in EXHIBIT 4.2, THI is not and will not be required to
-----------
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
-----------------
THI is acquiring the Contributed Shares for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act.
4.4 CERTAIN PROCEEDINGS
-------------------
There is no pending or Threatened Proceeding that has been commenced against
THI and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
4.5 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 4.5, THI and its officers and agents have
-----------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Shareholders harmless from any such
payment alleged to be due by or through THI as a result of the action of THI or
its officers or agents.
-30-
<PAGE>
4.6 HSR ACT
-------
THI is the "acquiring person" within the meaning of the HSR Act and has for
the purposes of the "size of person" test under the HSR Act less than
$100,000,000 in annual net sales or total assets.
5. COVENANTS OF SHAREHOLDERS AND THE COMPANY PRIOR TO/ON CLOSING DATE
5.1 REQUIRED APPROVALS
------------------
As promptly as practicable after the date of this Agreement, Shareholders
will, and will cause the Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date,
Shareholders will, and will cause the Company to, (a) cooperate with THI with
respect to all filings that THI elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with THI in obtaining all Consents identified in EXHIBIT 4.2.
-----------
5.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the board of directors of the Company.
5.3 CURRENT INFORMATION
-------------------
During the period from the date of this Agreement to the Closing Date, the
Company shall cause one or more of its Representatives to confer on a regular
and frequent basis with Representatives of THI to report on the general status
of the ongoing operations of the Company. The Company shall promptly notify THI
of any material change in the normal course of its business or in the operation
of its properties and of any governmental complaints, investigations, or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving such party, and
will keep THI fully informed with respect to such events.
5.4 OPERATIONS PRIOR TO CLOSING DATE
--------------------------------
(a) In addition to any other express obligation under this Agreement, between
the date of this Agreement and the Closing Date, the Company will do, and the
Shareholders shall cause the Company to do each of the following, and each of
the Company and the Shareholders also represents that from the date of the
Interim Balance Sheet to the date of this Agreement the Company has done the
following:
-31-
<PAGE>
(i) conduct the business of the Company only in the usual, regular and
ordinary manner, on a basis consistent with past practice, maintain the
Company's books, accounts and records in the usual, regular and ordinary
manner, on a basis consistent with past practices, maintain and comply with
the terms of all licenses, permits and other Legal Requirements, and otherwise
conduct the business of the Company only in the Ordinary Course of Business;
(ii) use their best efforts to preserve intact the current organization
of the Company, keep available the services of the current officers,
employees, and agents of the current organization of the Company, and maintain
the relations and good will with all suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
the Company;
(iii) conduct the business and affairs of the Company in a manner so
that all representations and warranties herein will be true and correct at
Closing;
(iv) maintain all of the Company Assets in good repair, order and
condition, and perform all of the Company's obligations under the Contracts;
and
(v) pay all expenses and accounts payable incurred in connection with
the operation of the Company's business in the usual, regular and ordinary
manner on a basis consistent with past practice.
(b) Except as set forth in EXHIBIT 3.14, the Company agrees that during the
------------
period from the date of this Agreement to and including the Closing Date,
without the prior written consent of THI, it will not do any of the following
and the Company and Shareholders also represent that from the date of the
Interim Balance Sheet to the date of this Agreement the Company has not done any
of the following:
(i) incur any liability or obligation of any material nature (whether
accrued, absolute, contingent or otherwise), except in the Ordinary Course of
Business;
(ii) permit any of the Company Assets to be subjected to any
Encumbrance;
(iii) sell, transfer or otherwise dispose of any Company Assets except
in the Ordinary Course of Business;
(iv) make any capital expenditure or commitment therefor, except in the
Ordinary Course of Business;
(v) redeem, purchase or otherwise acquire any shares of its capital
stock or any option, warrant or other right to purchase or acquire any such
shares;
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(vi) except in the Ordinary Course of Business, borrow money or make
any loan to any Person;
(vii) write off as uncollectible any note or accounts receivable, except
write-offs in the Ordinary Course of Business charged to applicable reserves,
which individually or in the aggregate are not material to the Company;
(viii) accelerate the collection of any accounts receivable or other
amounts payable to the Company;
(ix) except as disclosed on Exhibit 5.4(b)(ix), grant any increase in
the rate of wages, salaries, bonuses or other remuneration of any executive
employees or other employees;
(x) cancel or waive any claims or rights of substantial value;
(xi) make any change in any method of accounting or auditing practice;
(xii) agree, whether or not in writing, to do any of the foregoing;
(xiii) cause the Shareholders or the Company to, without the prior
consent of THI, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 3.16 is likely to occur.
5.5 ACCESS AND INVESTIGATION
------------------------
Between the date of this Agreement and the Closing Date, Shareholders and the
Company will, and will cause their Representatives during reasonable business
hours and as coordinated with the Company's management, to, (a) afford THI and
its Representatives and advisors (collectively, "THI's Advisors") full and free
access to all Company employees and personnel and to all Company Contracts,
books and records, and other documents and data, (b) furnish THI and THI's
Advisors with copies of all such Contracts, books and records, and other
existing documents nd data as THI may reasonably request, and (c) furnish THI
and THI's Advisors with such additional financial, operating, and other data and
information as THI may reasonably request.
5.6 NOTIFICATION; AMENDMENT OF EXHIBITS
-----------------------------------
(a) Between the date of this Agreement and the Closing Date, the Shareholders
and the Company will promptly notify THI in writing if a Shareholder or the
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of representations and warranties of Shareholders or the Company
as
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<PAGE>
of the date of this Agreement and before Closing, or if a Shareholder or the
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. During the same period, each Shareholder
will promptly notify THI of the occurrence of any Breach of any covenant of
Shareholders in this Section 5 or of the occurrence of any event that may make
the satisfaction of the conditions in Section 7 impossible or unlikely.
(b) Shareholders may in good faith, based upon circumstances not known to
Shareholders on the date of this Agreement, update the Exhibits to this
Agreement prior to Closing, in which case THI is under no obligation to close.
If the Closing occurs, Shareholders' representations will be deemed amended
based on the updated exhibits.
(c) Seller may in good faith update EXHIBIT 3.2(b) based on change of advice
--------------
of counsel up to the date shown on that Exhibit, in which case Buyer is under no
obligation to close (except to the extent that additional required consents are
covered by the Regulatory Escrow Fund established under the Stock Acquisition
Agreement.
5.7 NO NEGOTIATION
--------------
Until such time, if any, as this Agreement is terminated pursuant to Section
9, Shareholders and the Company will not, and will not permit any of their
Representatives to, directly or indirectly solicit, initiate, respond to or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than THI) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
6. COVENANTS OF THI PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
--------------------------------
As promptly as practicable after the date of this Agreement, THI will make all
filings required by Legal Requirements to be made by them to consummate the
Contemplated Transactions. The THI shall use its best efforts to satisfy all
the conditions precedent to its and all other parties' obligations under this
Agreement. Between the date of this Agreement and the Closing Date, THI will
cooperate with Shareholders with respect to all filings that Shareholders are
required by Legal Requirements to
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make in connection with the Contemplated Transactions, and cooperate with
Shareholders in obtaining all consents identified in EXHIBIT 3.2(c) hereof.
--------------
6.2 NOTIFICATION
------------
Between the date of this Agreement and the Closing Date, THI will promptly
notify the Shareholders and the Company in writing if THI becomes aware of any
fact or condition that causes or constitutes a Breach of any of representations
and warranties of THI as of the date of this Agreement and before Closing, or if
THI becomes aware of the occurrence after the date of this Agreement of any fact
or condition that would (except as expressly contemplated by this Agreement)
cause or constitute a Breach of any such representation or warranty by THI had
such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. During the same period, THI will promptly
notify the Shareholders and the Company of the occurrence of any Breach of any
covenant of THI in this Section 6 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 8 impossible or unlikely.
7. CONDITIONS PRECEDENT TO THI'S OBLIGATION TO CLOSE
THI's obligation to acquire the Shares and to take the other actions required
to be taken by THI at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
THI, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of the representations and warranties of Shareholders and the Company in
this Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been materially accurate as of
the date of this Agreement, and must be materially accurate as of the Closing
Date as if made on the Closing Date.
7.2 PERFORMANCE
-----------
(a) All of the covenants and obligations that Shareholders and the Company
are required to perform or to comply with pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered.
(c) All of the agreements, other documents or certificates, or actions
required to be entered into, delivered and/or taken at or prior to the Closing
in accordance with Section 2 hereof,
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<PAGE>
including actions or deliveries of Persons not a party hereto, shall have been
entered into, delivered and or taken, as applicable.
7.3 CONSENTS
--------
Except for those regulatory and contractual consents as to which a cash
deposit is permitted to be deposited in the Regulatory Escrow Fund identified in
Section 2.3(b) of the Stock Acquisition Agreement, (i) each of the Consents
identified in Sections 3.2, and 4.2 must have been obtained and must be in full
force and effect and (ii) THI must have received an opinion of counsel in form
and substance reasonably acceptable to THI that all Government Authorizations
necessary to Closing have been obtained, including, without limitation, those of
the State of Missouri or its subdivisions or instrumentalities.
7.4 NO PROCEEDINGS
--------------
Since the date of this Agreement, there must not have been commenced or
Threatened against THI, or against any Person affiliated with THI, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise materially
interfering with any of the Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
---------------------------------------------------
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, the Company, or (b) is entitled to all
or any portion of the Purchase Price payable for the Shares.
7.6 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause THI or any Person affiliated with THI to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
7.7 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in the Company's financial condition,
business, property or prospects nor shall have there occurred any change in the
business condition of the
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Company's customers or suppliers nor any change in the regulatory or competitive
environment, which in the judgment of THI materially adversely affects the
Company, the business of the Company or the condition (financial or otherwise)
of the Company.
In the event that each and every one of these conditions precedent to the
obligations of THI shall not have been satisfied prior to or at the Closing,
then THI may (but shall not be obligated to) waive such unsatisfied condition or
extend the Closing Date to allow additional time for such condition to be
satisfied. Any such waiver or extension shall be without prejudice to any other
rights and remedies THI may have hereunder or at law or in equity.
7.8 RELATED CONTRACTS Each of (i) the Stock Acquisition Agreement, (ii) that
-----------------
certain Stock Acquisition Agreement of even date herewith for the acquisition of
shares of Talton Telecommunications Corporation and (iii) that certain
Contribution Agreement of even date herewith pertaining to the contribution of
shares of Talton Telecommunications Corporation Subscription Agreements with
certain other investors must be consummated in accordance with their respective
terms contemporaneously with the Closing.
8. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATION TO CLOSE
Shareholders' obligation to transfer the Shares and to take the other actions
required to be taken by Shareholders at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Shareholders, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of THI's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been materially accurate as of the date of this
Agreement and must be materially accurate as of the Closing Date as if made on
the Closing Date.
8.2 THI'S PERFORMANCE
-----------------
(a) All of the covenants and obligations that THI is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) THI must have delivered each of the documents required to be delivered by
THI pursuant to Section 2.4 and must have made the cash payments required to be
made by THI pursuant to Sections 2.4(b)(i) and 2.4(b)(ii).
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<PAGE>
8.3 NO VIOLATION OF ORDER
---------------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will result in a material violation of any Order.
8.4 RELATED CONTRACTS Each of (i) the Stock Acquisition Agreement, (ii) that
-----------------
certain Stock Acquisition Agreement of even date herewith for the acquisition of
shares of Talton Telecommunications Corporation and (iii) that certain
Contribution Agreement of even date herewith pertaining to the contribution of
shares of Talton Telecommunications Corporation Subscription Agreements with
certain other investors must be consummated in accordance with their respective
terms contemporaneously with the Closing.
9. TERMINATION
9.1 TERMINATION EVENTS
------------------
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either THI or Shareholders if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
(b) by THI: if any of the conditions in Section 7 have not been
satisfied as of January 31, 1997; or if satisfaction of such a condition is or
becomes impossible (other than through the failure of THI to comply with its
obligations under this Agreement) and THI has not waived such condition on or
before January 31, 1997;
(c) by Shareholders: if any of the conditions in Section 8 have not
been satisfied as of January 31, 1997; or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Shareholders to
comply with their obligations under this Agreement) and Shareholders have not
waived such condition on or before January 31, 1997; or
(d) by mutual consent of THI and Shareholders; or
(e) by either THI or Shareholders if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before January 31, 1997, or such later date as the parties may agree upon.
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<PAGE>
9.2 EFFECT OF TERMINATION
---------------------
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL
--------
Subject to the limitations described in this Section 10.1, all
representations, warranties, covenants, and obligations in this Agreement, the
certificates delivered pursuant to Section 2.4(a) and (b), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing as follows: (i) all representations, warranties, covenants and
obligations, other than any representation or warranty contained in Section 3.9,
3.13 or any claim based upon a fraudulent misrepresentation, shall survive the
Closing until May 31, 1998, and shall thereupon expire together with any right
to indemnification (except to the extent a written notice asserting a claim for
breach of any such representation or warranty shall have been given prior to
such date to the party which made such representation and warranty), (ii) all
representations or warranties contained in Section 3.13 shall survive the
Closing until three (3) years from the Closing Date and shall thereupon expire
together with any right to indemnification (except to the extent a written
notice asserting a claim for breach of any such representation or warranty shall
have been given prior to such date to the party which made such representation
and warranty), and (iii) all representations or warranties contained in Section
3.9 and all claims based upon a fraudulent misrepresentation shall survive the
Closing indefinitely.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SHAREHOLDERS
------------------------------------------------------
(a) Subject to the limitations described herein, Shareholders severally, and
not jointly, will indemnify and hold harmless THI, the Company and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage
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(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising or resulting from, directly or indirectly, from or in connection with:
(i) any Breach of any representation or warranty made by Shareholders
in this Agreement or the Stock Acquisition Agreement, or any other certificate
or document delivered by Shareholders pursuant to this Agreement or the Stock
Acquisition Agreement;
(ii) any Breach by Shareholders of any covenant or obligation of
Shareholders in this Agreement or the Stock Acquisition Agreement, or in any
Shareholders' Closing Documents or any other document delivered by
Shareholders pursuant to this Agreement or the Stock Acquisition Agreement;
(iii) regardless of whether it may also constitute a Breach under
Section 10.2 (a) or (b) above, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) arising from or
relating to the operation, management or ownership of the Company, arising or
related to the period on or prior to the Closing Date (whether known or
unknown on the Closing Date).
provided, however, that (i) except as provided in (ii) below, the aggregate
- -------- -------
amount of Damages for which any Shareholder shall indemnify THI hereunder for
any Breach of a representation, warranty, covenant or other obligation contained
in this Agreement or the Stock Acquisition Agreement shall not exceed each
Shareholder's pro rata share (based upon his or her ownership in the Company at
Closing) of the amount in the Post-Closing Escrow Fund as established pursuant
to the Stock Acquisition Agreement (such indemnification to be provided by the
Post-Closing Escrow Fund); (ii) the aggregate amount of Damages for which the
Shareholders shall indemnify THI hereunder for any Breach of a representation or
warranty contained in Section 3.9 and 3.13 or for any claim based upon a
fraudulent misrepresentation (to the extent of Damages incurred as a result)
shall not exceed each Shareholder's pro rata share of the Purchase Price as
established pursuant to the Stock Acquisition Agreement (such indemnification to
be provided first by the Post-Closing Escrow Fund)and the shares of THI Common
and THI Preferred issued hereunder to such Shareholder and all rights of
distribution and/or dividends thereunder; and (iii) THI shall not be entitled to
assert any right to indemnification hereunder against the Shareholders until
THI's good faith estimate of all Damages for which the Shareholders indemnify
THI hereunder and/or under the Stock Acquisition Agreement exceeds $100,000 (the
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"Indemnification Threshold") at which time THI shall be entitled to
indemnification for all Damages which exceed the Indemnification Threshold
(subject to the limitations described above).
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THI
---------------------------------------------
THI will indemnify and hold harmless Shareholders and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Shareholders' Indemnified Persons"), and will pay to
Shareholders' Indemnified Persons the amount of any Damages arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by THI in this
Agreement or the Stock Acquisition Agreement, or in any certificate delivered
by THI pursuant to this Agreement or the Stock Acquisition Agreement; or
(b) any Breach by THI of any covenant or obligation of THI in this
Agreement or the Stock Acquisition Agreement.
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
-------------------------------------------------
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3, of notice of the commencement of any Proceeding against it or of notice
that such Proceeding has been Threatened against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim or
threatened Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action or the ability of the indemnifying party to
obtain otherwise available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.4(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
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indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding, (i) no compromise or
settlement of such claims may be effected by the indemnifying party without the
indemnified party's consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may materially
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, and following a good
faith attempt to consult with the indemnifying party, assume the exclusive right
to defend, compromise, or settle such Proceeding, but the indemnifying party
will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
-------------------------------------------
A claim for indemnification for any matter not involving a third-party claim
may be asserted by notice to the party from whom indemnification is sought.
10.6 SOLE REMEDY; EFFECT OF REMEDIES AVAILABLE UNDER STOCK ACQUISITION
-----------------------------------------------------------------
AGREEMENT.
- ---------
(a) After Closing, a claim for indemnification under this Section 10 will be
a party's sole remedy for breach of this Agreement.
(b) The parties intend for the indemnification obligations under this
Agreement and the Stock Acquisition Agreement to operate together and without
duplication so that a Shareholder's
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(or Seller's) aggregate liability under both documents is limited to (i) his or
her pro rata share of the Post Closing Escrow Fund or (ii) the Purchase Price
under the Stock Acquisition Agreement plus the shares (and the rights to
distributions or dividends thereunder) and all other right or interest in Buyer
acquired by such Seller (as a contributing Shareholder) under this Agreement, as
applicable.
11. GENERAL PROVISIONS
11.1 EXPENSES
--------
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.2 SHAREHOLDERS' OBLIGATIONS AND DECISIONS
---------------------------------------
(a) Subject to the limitations contained in Section 10.2 hereof, any and all
representations, warranties, covenants, obligations and or agreements of the
Shareholders contained herein are made and given jointly and severally by the
Shareholders, and each of the Shareholders shall be jointly and severally liable
for with all such representations, warranties, covenants, obligations and
agreements. Whenever any decision, consent, waiver, determination and/or
exercise of any right or remedy (collectively, a "Decision") is required or may
be made, taken or given by the Shareholders hereunder, such Decision may only be
----
made, taken or given by John R. Baker (as provided in the Shareholder
Representative Agreement among the Shareholders) (the "Shareholders'
Representative"). The Shareholders' Representative may only be changed by a
Majority in Interest of the Shareholders. Any Decision made, taken or given by
the Shareholders' Representatives shall be binding upon all Shareholders. For
purposes hereof, Majority in Interest of the Shareholders shall mean
Shareholders holding a majority of the outstanding Common Shares.
11.3 CONFIDENTIALITY
---------------
All information and documentation furnished to THI shall be covered by that
certain agreement dated _____________, 1996 (the "Confidentiality Agreement").
Prior to Closing, no party or affiliate of a party hereto or to the
Confidentiality Agreement will issue or cause publication of any press release
or other announcement or public communications with respect to the Contemplated
Transactions, including without limitation a general
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announcement to such party's employees, without the prior consent of the other
parties hereto, which consent will not be unreasonably withheld; provided,
however, that nothing herein will prohibit any party (or affiliate) from issuing
or causing publication of any such press release, announcement or public
communication to the extent that such party (or affiliate) reasonably determines
such action to be required by law, any regulatory agency or the rules of any
national stock exchange or association applicable to it, in which case the party
(or affiliate) making such determination will use reasonable efforts to allow
the other party reasonable time to comment on such release or announcement in
advance of its issuance or to make any disclosure necessary to obtain any
consents required or deemed appropriate by THI.
11.4 NOTICES
-------
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
If to THI:
c/o Engles Urso Follmer Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
With a copy to:
Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: Carl C. Christoff
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If to any Shareholder and/or the Company:
c/o AmeriTel Pay Phones, Inc.
611 Southwest 3rd Street
Lee's Summit, Missouri 64063
Telephone: (816) 525-4151
Facsimile: (816) 525-3006
Attention: Roger K. Sallee
With a copy to Shareholders' Representative:
John R. Baker
205 Oxford Lane
Lee's Summit, Missouri 64063
With a copy to:
Blackwell Sanders Matheny Weary & Lombardi L.C.
Suite 1100
Two Pershing Square
Kansas City, Missouri 64108
Telephone: (816) 274-6800
Facsimile: (816) 274-6914
Attention: Robert E. Marsh
11.5 JURISDICTION; SERVICE OF PROCESS
--------------------------------
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Texas, County of Dallas, or, if it has or can
acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any
action or proceeding referred to in the preceding sentence may be served on any
party anywhere in the world.
11.6 FURTHER ASSURANCES
------------------
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
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11.7 WAIVER
------
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
---------------------------------
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and together with the Stock Acquisition Agreement
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
--------------------------------------------------
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that THI may assign this Agreement
and/or any of its rights under this Agreement to (i) any affiliate of THI,
Engles Urso Capital Corporation and/or their respective principals, or (ii) any
bank, financial institution and/or other party providing any loans or financing
to THI. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
-46-
<PAGE>
11.10 SEVERABILITY
------------
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.11 SECTION HEADINGS, CONSTRUCTION
------------------------------
The headings of Sections in this Agreement are provided for convenience only
and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. The
parties, in acknowledgment that all of them have been represented by counsel and
that this Agreement has been carefully negotiated, agree that the construction
and interpretation of this Agreement and other documents entered into in
connection herewith shall not be affected by the identity of the party or
parties under whose direction or at whose expense this Agreement and such
documents were prepared or drafted.
11.12 TIME OF ESSENCE
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.13 GOVERNING LAW
-------------
This Agreement will be governed by the laws of the State of Texas without
regard to conflicts of laws principles.
11.14 COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
-47-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
Talton Holdings, Inc.
a Delaware corporation
By: /s/ TODD W. FOLLMER
--------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
/s/ RICHARD C. GREEN, JR.
--------------------------------------
RICHARD C. GREEN, JR.
/s/ ROBERT K. GREEN
--------------------------------------
ROBERT K. GREEN
/s/ T. RANDALL THOMPSON
--------------------------------------
T.R. THOMPSON
/s/ ROGER K. SALLEE
--------------------------------------
ROGER K. SALLEE
AMERITEL PAY PHONES, INC.
a Missouri corporation
By: /s/ TERRY MATLACK
-----------------------------------
Name: Terry Matlack
Title: President
/s/ TERRY MATLACK
--------------------------------------
TERRY C. MATLACK
/s/ DAVID P. LORENZ
--------------------------------------
DAVID P. LORENZ
/s/ JOHN C. DUNN
--------------------------------------
JOHN DUNN
-48-
<PAGE>
/s/ JOHN R. SUMMERS
--------------------------------------
JOHN SUMMERS
/s/ JOHN R. BAKER
--------------------------------------
JOHN R. BAKER
-49-
<PAGE>
LIST OF EXHIBITS*
TO
AMERITEL CONTRIBUTION AGREEMENT
Schedule 1 AmeriTel Shareholder Allocations
Exhibit A List of AmeriTel Stockholders
Exhibit 1(a) Example Calculation of Adjustment Amount,
Purchase Price and Funding Requirement
Exhibit 1-b Agreements
Exhibit 2.3(a) Escrow Agreement
Exhibit 2.3(b) Regulatory Escrow Agreement
Exhibit 2.4(a) Sallee Consulting Agreement
Exhibit 2.4(a)(iii)-1 Matlack Employment Agreement
Exhibit 2.4(a)(iii)-2 Summers Employment Agreement
Exhibit 2.4(a)(v) Form of Sellers' Counsel Legal Opinion
Exhibit 2.4(a)(vi)-1 Green, Jr. Non-Competition Agreement
Exhibit 2.4(a)(vi)-2 Green Non-Competition Agreement
Exhibit 2.4(a)(vi)-3 Thompson Non-Competition Agreement
Exhibit 2.4(b)(v) Form of Buyers Counsel Legal Opinion
Exhibit 2.5(d) Pre-Closing Escrow Agreement-NOT APPLICABLE
Exhibit 3.1(a)-1 States of Operation
Exhibit 3.1(a)-2 Mergers
Exhibit 3.1(b) Corporate Names and Addresses
Exhibit 3.2(b) Consents
Exhibit 3.3(a) Ownership of Shares
Exhibit 3.3(b)-1 Legends and other Encumbrances on Stock
Exhibit 3.3(b)-2 Contracts or Other Agreements relating to
Issuance, Sale or Transfer of any Stock
Exhibit 3.3(c) Options
Exhibit 3.4 Interim Financial Statements
Exhibit 3.6(a) Encumbrances
Exhibit 3.6(a)[sic] Exceptions to Full Title
Exhibit 3.6(a)(ii) Installed Telephone Lines
Exhibit 3.6(a)(iv) Uninstalled Telephones, Parts, Hardware and
Equipment
Exhibit 3.6(a)(v) Vehicles
Exhibit 3.6(a)(vi) Furniture, Fixtures, Equipment, Personalty or
Intellectual Property Valued in excess of $1000
Exhibit 3.6(b) Continuing Liabilities
Exhibit 3.7 Accounts Receivable
Exhibit 3.8 Undisclosed Liabilities
Exhibit 3.9 List of Tax Returns and other Tax Matters
Exhibit 3.10 Material Adverse Changes
Exhibit 3.11 Employee Benefit Plans
Exhibit 3.12 Governmental Authorizations
Exhibit 3.13(a) and
Exhibit 3.13(b) Litigation
Page 1 of 2
<PAGE>
Exhibit 3.14 Changes and Events
Exhibit 3.15(a)(i) Telephone Operating and License Agreement
Description
Exhibit 3.15(a)(ii) Service Agreement Description
Exhibit 3.15(a)(iii) Leases, Rental and Occupancy Agreements over
$5000 and 12 months
Exhibit 3.15(a)(iv) Licensing Agreements and/or Contracts with
respect to Intellectual Property Assets
Exhibit 3.15(a)(v) Joint Venture, Partnership or Contracts
involving Sharing of Profits, Losses, Costs or
Liabilities
Exhibit 3.15(a)(vi) Other Contracts ($5000 or more)
Exhibit 3.15(a)(vii) Power of Attorney List
Exhibit 3.15(b) Rights, Obligations and/or Liabilities of Seller
Exhibit 3.15(c) Contract Compliance
Exhibit 3.16(a) Insurance Policies
Exhibit 3.16(b) Insurance Summary
Exhibit 3.16(c) Insurance Statement
Exhibit 3.17 Environmental Statement
Exhibit 3.18(a) Employee Information
Exhibit 3.18(b) Officers/Directors Terminating Employment prior
to December 31, 1997
Exhibit 3.18(c)-1 Employee, Consultant and Contract Labor
Agreements
Exhibit 3.18(d) Retired Employee, Director, Director's
Dependents List of Benefits
Exhibit 3.20 Intellectual Property Asset Contracts
Exhibit 3.21 List of Bank Accounts
Exhibit 3.25 Relationships with Related Persons
Exhibit 3.26 Brokers or Finders (Sellers)
Exhibit 4.2 List of Consents-Buyer
Exhibit 4.5 Brokers or Finders (Buyer)
Exhibit 5.4(b)(ix) Disclosure of remuneration increases
___________________
* These items have been omitted. A copy will be provided to the Commission upon
request.
Page 2 of 2
<PAGE>
EXHIBIT 2.3
CONTRIBUTION AGREEMENT
by and among
Talton Holdings, Inc., a Delaware corporation
and Julius E. Talton, Julius E. Talton, Jr.,
and James E. Lumpkin
Dated: December 20, 1996
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT ("Agreement") is made as of December 20, 1996,
---------
by TALTON HOLDINGS, INC., a Delaware corporation ("THI"), JULIUS E. TALTON
---
("Talton"), JULIUS E. TALTON, JR. ("Talton Jr."), and JAMES E. LUMPKIN
------ ----------
("Lumpkin"). Talton, Talton Jr. and Lumpkin are sometimes referred to herein
-------
individually as a "Shareholder" and collectively as "Shareholders."
RECITALS
WHEREAS, the Shareholders own outstanding shares of the capital stock (the
"Shares") of Talton Telecommunications Corporation, an Alabama corporation
------
("TTC"), and TTC owns all the shares of the capital stock of Talton
---
Telecommunications of Carolina, Inc., an Alabama corporation ("TT Carolina").
-----------
Whenever the term "Company" is used herein, it shall refer to and shall be
construed to mean, in each instance, TTC and TT-Carolina, individually, as well
as TTC and TT-Carolina, collectively as a group.
WHEREAS, the Shareholders, together with certain other investors desire to
fund THI at the Closing (as defined herein), and will be in control of THI as of
the Closing; and
WHEREAS, each of the investors contributing assets to THI at the Closing is
concurrently entering into an agreement reflecting the terms upon which the
assets are to be contributed to THI; and
WHEREAS, the Shareholders desire to contribute to THI, the Shares set forth
in Schedule I attached hereto and hereby made a part hereof (the "Contributed
-----------
Shares") in exchange for shares of THI's Class A common stock, $.01 par value
- ------
("THI Common") and THI's preferred stock $.01 par value ("THI Preferred"), all
---------- -------------
on the terms set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, the parties intending to be
legally bound, do hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"BILLING AND COLLECTION AGREEMENT": any billing and collecting agreement,
--------------------------------
local exchange company billing agreement or other Contract relating to the
provision of billing and collection services to the Company.
"BREACH": a "Breach" of a representation, warranty, covenant, obligation,
------
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have
-1-
<PAGE>
occurred if there is or has been any material inaccuracy in or breach of, or any
material failure to perform or comply with, such representation, warranty,
covenant, obligation, or other provision.
"CONSENT": any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS": all of the transactions contemplated by this
-------------------------
Agreement, including: (a) contributions by the Shareholders of the Contributed
Shares and the contemporaneous issuance by THI to Shareholders of certain THI
Common and THI Preferred shares; (b) the execution, delivery and performance of
the Shareholder Documents; and (c) the performance by THI and Shareholders of
their respective covenants and obligations under this Agreement, including
without limitation their obligations under Section 2 hereof.
"CONTRACT": any agreement, contract, license obligation, promise or
--------
undertaking presently in effect, (a) under which the Company has or may acquire
any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"ENCUMBRANCE": any charge, claim, community property interest, condition,
-----------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA": the Employee Retirement Income Security Act of 1974 or any
-----
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"GAAP": generally accepted United States accounting principles, applied on
----
a consistent basis.
"GOVERNMENTAL AUTHORIZATION": any approval, consent, license, permit,
--------------------------
waiver, tariff, or other written authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"GOVERNMENTAL BODY": any: (a) nation, state, county, city, town, village,
-----------------
district, or other properly constituted local government; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or (d) any properly constituted and
authorized body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature in the United States.
-2-
<PAGE>
"INSTALLED TELEPHONE": a Telephone that is subject to a Telephone Operating
-------------------
and License Agreement, and is installed at the location provided for in its
related Telephone Operating and License Agreement, including, without
limitation, those Installed Telephones Lines identified by installation location
and telephone number in EXHIBIT 3.6(a)(ii)-1 (with any Telephones co-located
--------------------
with any pay telephones not owned by the Company being specifically identified
on said EXHIBIT 3.6(a)(ii)-1).
--------------------
"INSTALLED TELEPHONE LINE": any telephone lines and related facilities
------------------------
providing telephone service to Installed Telephones, including those Telephone
lines identified by installation, location and telephone number in EXHIBIT
-------
3.6(a)(ii)-2.
- ------------
"INTELLECTUAL PROPERTY ASSETS": any patents, patent applications,
----------------------------
inventions, trademarks, tradenames, business names, service marks, copyrights,
trade secrets,know-how, customer lists, software, technical information, plans,
drawings, blue prints or other intellectual property used in the operation of
the Company's business.
"IRC": the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
---
and, to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE": in the case of Shareholders, information known to the
---------
Shareholders without independent investigation beyond the Company's officers and
directors.
"LEGAL REQUIREMENT": any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, ruling, regulation or statute (as to representations and warranties
set forth in this Agreement, such orders, constitutions, laws, ordinances,
rulings, regulations or statutes in effect as of the date such representation or
warranty is made).
"LONG DISTANCE SERVICE AGREEMENTS": any long distance service provider
--------------------------------
agreement, telecommunications agreement or other Contract relating to provision
of long distance service or other similar services to the Company.
"OPERATOR SERVICE AGREEMENT": any agreement or other Contract relating to
--------------------------
the provision of operator or other telephone services to the Company.
"ORDER": any award, decision, injunction, judgment, order, ruling,
-----
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
-3-
<PAGE>
"ORDINARY COURSE OF BUSINESS": an action taken by a Person will be deemed
---------------------------
to have been taken in the "Ordinary Course of Business" only if: (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority).
"ORGANIZATIONAL DOCUMENTS": (a) the articles or certificate of
------------------------
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter, articles of organization, shareholders agreement,
operating agreement or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and (e) any amendment to any
of the foregoing.
"PARTS AND SUPPLIES AGREEMENT": any Contract relating to the provision of
----------------------------
Telephones, Telephone parts, inventory or equipment, or other parts, equipment
or services to the Company.
"PERSON": any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING": any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REPRESENTATIVE": with respect to a particular Person, any director,
--------------
officer, employee, agent, consultant, advisor, partner or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT": the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"SERVICE AGREEMENTS": any Long Distance Service Agreement, Billing and
------------------
Collection Agreement, Parts and Supplies Agreement, Operator Service Agreement
or similar agreement or Contract relating to the provision of parts, equipment
or services to the Company.
"STOCK ACQUISITION AGREEMENT": that certain Stock Acquisition Agreement of
---------------------------
even date herewith by and among THI, the Company, the Shareholders and Carrie T.
Glover pursuant to which THI will acquire certain common shares of the Company.
-4-
<PAGE>
"TAX RETURN": any return (including any information return), report,
----------
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"TELEPHONE OPERATING AND LICENSE AGREEMENTS": all written lease agreements,
------------------------------------------
telephone location agreements, telephone service agreements, license agreements,
royalty agreements or other contracts relating to the Installed Telephones,
which agreements grant the right to the Company to install and operate the
Installed Telephones upon the premises set forth within any such document.
"TELEPHONES": any of the coin, credit card operated or collect call only
----------
telephones, owned or operated by the Company, including any hardware, enclosure,
pedestal or any other personal property installed with any Telephone.
"THREATENED": a claim, Proceeding, dispute, action, or other matter will be
----------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist that would lead
a prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
2. TRANSFER OF SHARES, CLOSING AND OTHER AGREEMENTS
2.1 SHARES Upon the terms and subject to the conditions of this Agreement,
------
at the Closing, Shareholders shall contribute the Contributed Shares to THI, and
THI will issue 4,125 shares of THI Common and 5,000 shares of THI Preferred in
exchange thereof. The THI Common and THI Preferred will be issued to the
Shareholders as set forth in EXHIBIT 2.1 hereof.
-----------
2.2 CLOSING The closing of the transactions contemplated by this Agreement
-------
(the "Closing") will take place at the offices of THI's counsel in Dallas, Texas
-------
(or such other location within or outside of Dallas, Texas as THI shall
designate after giving reasonable advance notice to Shareholders; provided,
however, that the Closing will not take place in any jurisdiction which would
impose a stock transfer or similar tax on the Shareholders) at 10:00 a.m. (local
time) on a date (the "Closing Date") not less than ten (10) business days from
------------
and after the granting of regulatory approval by regulatory authorities of the
State of Missouri with respect to the transactions contemplated in that certain
Stock Acquisition Agreement and that certain Contribution Agreement both
relating to the Acquisition of Shares of Ameritel Pay Phones, Inc. by THI (but
in no event earlier than December 20, 1996 unless approval of the transactions
contemplated herein has
-5-
<PAGE>
been obtained from regulatory authorities of the States of Mississippi and North
Carolina and in no event later than January 31, 1997). Not withstanding the
foregoing, THI shall have the right, in its sole discretion, to waive the
condition that the aforesaid Missouri regulatory approval be obtained prior to
Closing.
2.3 CLOSING OBLIGATIONS
-------------------
At the Closing:
(a) Shareholders or the Company, as applicable, will deliver or cause
to be delivered to THI:
(i) certificates representing the Contributed Shares, duly
endorsed (or accompanied by duly executed stock powers), with
signatures of Shareholders in attendance at Closing, notarized at
Closing, and signatures of Shareholders not in attendance guaranteed by
a commercial bank or by a member firm of the New York Stock Exchange,
for transfer to THI;
(ii) The Shareholders agreement, the Registration Rights Agreement
and other agreements associated with THI's Common Stock and/or THI's
Preferred Stock in the forms attached hereto as EXHIBIT 2.3(a)(ii)
------------------
(collectively, the "Shareholder Documents") and investor pledge
---------------------
agreements relating to Shareholders' shares of THI Common and THI
Preferred;
(iii) a certificate executed by Shareholders representing and
warranting to THI that, except as otherwise stated in such certificate,
each of Shareholders' representations and warranties in this Agreement
was accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date subject, however, to any limitations expressly set forth
herein (the "Shareholders' Closing Certificate");
---------------------------------
(iv) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.3(a)(iv); and
------------------
(vii) such other documents as THI may reasonably request for the
purpose of (1) enabling its counsel to provide the opinion referred to
in Section 2.3(b), (2) evidencing the accuracy of any of Shareholders'
representations and warranties, (3) evidencing the performance by
Shareholders of, or the compliance by shareholders with, any covenant
or obligation required to be performed or complied with by the
Shareholders at or prior to Closing, or (4) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions in
accordance with this Agreement.
-6-
<PAGE>
(b) THI will deliver to each Shareholder (or to such other Persons
designated below):
(i) shares of the THI Common and THI Preferred as provided in
Section 2.1 above;
(ii) a certificate executed by THI to the effect that, except as
otherwise stated in such certificate, each of THI's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date subject, however, to any
limitations expressly set forth herein ("THI's Closing Certificate");
-------------------------
(iii) opinion(s) of counsel, dated the Closing Date, in the form
of EXHIBIT 2.3(b)(iii); and
-------------------
(vi) such other documents as Shareholders may reasonably request
for the purpose of (1) enabling its counsel to provide the opinion
referred to in Section 2.3(a), (2) evidencing the accuracy of any
representation or warranty of THI, (3) evidencing the performance by
THI of, or the compliance by THI with, any covenant or obligation
required to be performed or complied with by THI, or (4) otherwise
facilitating the consummation of the Contemplated Transactions.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Shareholders represent and warrant to THI as follows:
3.1 ORGANIZATION AND GOOD STANDING
------------------------------
(a) Each of TTC and TT-Carolina are corporations duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under the Contracts.
TTC is duly qualified to do business as a foreign corporation and is in good
standing under the laws of the states listed in EXHIBIT 3.1(a)-1 hereof, which
----------------
are all of the states which the nature of the activities conducted by it
requires such qualification (unless the failure to so qualify would not have a
material adverse effect on its financial condition or operations or impair its
right to enforce any material agreement to which it is a party). TT-Carolina is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of the states listed in EXHIBIT 3.1(a)-2 hereof, which are all of
----------------
the states which the nature of the activities conducted by it requires such
qualification (unless the failure to so qualify would not have a material
adverse effect on its financial condition or operations or
-7-
<PAGE>
impair its right to enforce any material agreement to which it is a party).
Neither TTC nor TT-Carolina has been a party to a merger. TTC has no and has
never had any subsidiaries, other than TT-Carolina. TT-Carolina has no and has
never had any subsidiaries.
(b) Shareholders have delivered to THI copies of the Organizational
Documents of TTC and TT-Carolina. TTC's and TT-Carolina's principal place of
business is, and has been for the last five (5) years or if it has not done
business for five (5) years, for the entire period that it has done business, in
Dallas County, Alabama and neither TTC nor TT-Carolina has had any other
offices, other corporate names or done business in any other names during said
five (5) year period other than as disclosed on EXHIBIT 3.1(b).
--------------
3.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Shareholders, enforceable against each of the Shareholders in accordance
with its terms except as such enforcement may be limited by bankruptcy,
insolvency, and other similar laws affecting the rights and remedies of
creditors generally and general principles of equity, whether applied by a court
of law or equity. Upon the execution and delivery of the Shareholder Documents
(the "Shareholders' Closing Documents"), the Shareholders' Closing Documents
-------------------------------
will constitute the legal, valid, and binding obligations of the parties (other
than THI) enforceable against each of them in accordance with their respective
terms except as such enforcement may be limited by bankruptcy, insolvency, and
other similar laws affecting the rights and remedies of creditors generally and
general principles of equity, whether applied by a court of law or equity. Each
of the Shareholders has the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and the Shareholders' Closing
Documents to which each is a party and to perform their obligations under this
Agreement and the Shareholders' Closing Documents to which each is a party.
(b) Except as set forth in EXHIBIT 3.2.(b), neither the execution, delivery
---------------
or performance of this Agreement nor any other consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, (B) any resolution
adopted by the board of directors or the stockholders of the Company, (C)
any duty owed by any of the Shareholders or the Company to any Person, or
(D) any Legal Requirement, any Governmental Authorization or any Order to
which the Company or the Shareholders, or any of the assets owned or used by
the Company or the Shareholders, may be subject;
-8-
<PAGE>
(ii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Contract to which the Company is a
party, or any contract or other agreement to which any Shareholder is a
party, where such violation or breach would have any material adverse effect
on the Company.
(b) Except for notices or Consents described on EXHIBIT 3.2.(b) hereof,
---------------
neither any of Shareholders nor the Company is or will be required to give any
notice to or obtain any Consent from any Person, in connection with the
execution, delivery or performance of this Agreement or the consummation or
other performance of any of the Contemplated Transactions, the absence of which
notice or Consent would cause to occur or result in the occurrence of any of the
events described in Section 3.2(b)(i) and (ii).
(c) Each Shareholder is acquiring the THI Common and Preferred shares for
his own account and not with a view to its distribution within the meaning of
Section 2(ii) of the Securities Act. Each Shareholder is an "accredited
investor" as such term is defined in Rule 501(a) under the Securities Act.
3.3 CAPITALIZATION
--------------
(a) The authorized equity securities of TTC consist of 5,000 shares of
voting common stock, par value $1.00 per share, of which 5,000 shares are issued
and outstanding. Sellers are and will be on the Closing Date the record and
beneficial owners and holders of the Contributed Shares, free and clear of all
Encumbrances. Talton owns 580 of such shares, Lumpkin owns 232 of such Shares,
and Talton Jr. owns 348 of such Shares.
(b) The authorized equity securities of TT-Carolina consist of 5,000
shares of common stock, par value $1.00 per share, of which 1,000 shares are
issued and outstanding. TTC owns all such shares.
(c) No legend or other reference to any purported Encumbrance appears
upon any certificate representing equity securities of TTC or TT-Carolina other
than customary legends restricting transfers under applicable securities laws.
All of the outstanding equity securities of TTC and TT-Carolina have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no contracts or other agreements relating to the issuance, sale, or transfer of
any equity securities or other securities of TTC or TT-Carolina. None of the
outstanding equity securities or other securities of TTC or TT-Carolina was
issued in violation of the Securities Act or any other Legal Requirement.
Neither TTC or TT-Carolina owns, nor has any Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity
or ownership interest in any other business
-9-
<PAGE>
(d) Except as provided in the Stock Acquisition Agreement, there are no
options, warrants or rights to acquire an interest in the Company or in its
shares.
3.4 FINANCIAL STATEMENTS
--------------------
Shareholders have delivered to THI: (a) the audited balance sheet of the
Company as at December 31, 1995, and the related audited consolidated statement
of income, changes in stockholders' equity, and cash flow for such fiscal year
then ended, and (b) an unaudited balance sheet of the Company as at October 31,
1996 (the "Interim Balance Sheet") and the related unaudited consolidated
---------------------
statement of income, changes in stockholders' equity, and cash flow for the 10
months then ended, including in the case of (a) the notes thereto (EXHIBIT 3.4).
-----------
Shareholders shall deliver to THI such other balance sheets, statements of
income, changes in stockholders' equity, cash flow and other financial
statements of the Company as THI may reasonably request. All such financial
statements and notes fairly present the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Company as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and the
absence of notes (that, if presented, would not differ materially from those
included in the December 31, 1995 balance sheet) and subject to the disclosures
set forth in EXHIBIT 3.4. The financial statements referred to in this Section
-----------
3.4 reflect the consistent application of such accounting principles throughout
the periods involved, except as disclosed in the notes to such financial
statements. No financial statements of any Person other than TTC and TT-
Carolina are required by GAAP to be included in the consolidated financial
statements of the Company.
3.5 BOOKS AND RECORDS
-----------------
The books of account, minute books, stock record books, and other records of
the Company, all of which have been made available to THI, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, and no meeting of the stockholders has been held for which minutes
have not been prepared and are not contained in such minute books. The minute
books of the Company contain accurate records of meetings held by the Board of
Directors, and no meetings by the Board of Directors have been held for which
minutes have not been prepared and contained in such minute books, where actions
taken at any such meetings would be required by law to be formally approved by
the Board of Directors and included in the minutes. At
-10-
<PAGE>
the Closing, all of those books and records will be in the possession of the
Company.
3.6 BALANCE SHEETS ON THE CLOSING DATE
----------------------------------
(a) COMPANY ASSETS. Except as shown on EXHIBIT 3.6(a), on the Closing
-------------- --------------
Date, the Company shall own and have good title, without Encumbrance, to all of
the assets currently owned and used in conjunction with the operation of the
Company's business (which assets are reflected in the Company's Interim Balance
Sheet) (the "Company Assets"), including, without limitation:
--------------
(i) all rights and interest of the Company in and under the Telephone
Operating and License Agreements listed on EXHIBIT 3.15(a);
---------------
(ii) all Installed Telephones listed on EXHIBIT 3.6(a)(ii)-1 and all
--------------------
Installed Telephone Lines listed on EXHIBIT 3.6(a)(ii)-2;
--------------------
(iii) all rights and interests of the Company in and under the Service
Agreements listed on EXHIBIT 3.15(a);
---------------
(iv) all uninstalled Telephones, parts, hardware and equipment listed
on EXHIBIT 3.6(a)(iv) (subject to turn over of inventory in the
------------------
Ordinary Course of Business);
(v) all vehicles listed on EXHIBIT 3.6(a)(v); and
-----------------
(vi) all other furniture, fixtures, equipment, personalty or
intellectual property of any kind used by the Company in the
operation of its business, including without limitation, each of
those items having a value in excess of $1,000 listed on EXHIBIT
-------
3.6(a)(vi).
----------
(b) LIABILITIES. Other than the liabilities listed on EXHIBIT 3.6(b), (the
----------- --------------
"Continuing Liabilities"), the Company shall have no liabilities as of the
----------------------
Closing Date.
3.7 ACCOUNTS RECEIVABLE
-------------------
(a) Except as may be otherwise reflected on EXHIBIT 3.7, all accounts
-----------
receivable of the Company that are reflected on the Interim Balance Sheet or on
the accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
-------------------
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Interim Balance Sheet or on the accounting records of the
Company as of the Closing Date (which reserves are adequate and calculated
consistent
-11-
<PAGE>
with past practice and, in the case of the reserve as of the Closing Date, will
not represent a greater percentage of the Accounts Receivable as of the Closing
Date than the reserve reflected in the Interim Balance Sheet does of the
Accounts Receivable reflected therein and will not represent a material adverse
change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off, within ninety days after the day
on which it first becomes due and payable. There is no contest or claim, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. EXHIBIT 3.7 hereof contains a complete and accurate list
-----------
of all Accounts Receivable as of the date of the Interim Balance Sheet, which
list sets forth the aging of such Accounts Receivable.
(b) Shareholders represent and warrant that from and after the date of the
Interim Balance Sheet (as defined in Section 3.4) through the Closing Date: (i)
the Company has collected all sums and amounts due the Company, whether
evidenced in writing, on account, designated as a receivable or otherwise
(collectively, "Pre-Closing Receivables"), only in its usual, regular and
-----------------------
ordinary manner, on a basis consistent with past practices (and otherwise in the
Ordinary Course of Business); and (ii) the Company has not and will not
accelerate collection of the Pre-Closing Receivables.
3.8 NO UNDISCLOSED LIABILITIES
--------------------------
Except as set forth hereinafter in EXHIBIT 3.9 hereof, the Company has no
-----------
material liabilities of any nature (whether absolute, accrued, contingent, or
otherwise) and Shareholders know of no basis for assertion against the Company
of any such material liability, except for liabilities reflected or reserved
against in the Interim Balance Sheet and current liabilities incurred in the
Ordinary Course of Business since the date thereof.
3.9 TAXES
-----
(a) Except as set forth in EXHIBIT 3.9, the Company has filed or caused to
-----------
be filed all Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Shareholders have
delivered to THI copies of, and EXHIBIT 3.9 hereof contains a complete and
-----------
accurate list of, all federal and state income tax returns, filed by the Company
since 1991. The Company has paid, or made provision for the payment of, all
taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Shareholders or the
Company, except such Taxes, if any, as are listed in EXHIBIT 3.9 hereof and are
-----------
being contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Interim Balance Sheet.
Notwithstanding the foregoing, Shareholders shall have no responsibility for
federal and state income taxes for calendar year 1996.
-12-
<PAGE>
(b) EXHIBIT 3.9 contains a complete and accurate list of all audits of all
-----------
such Tax Returns. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in EXHIBIT 3.9 hereof,
-----------
are being contested in good faith by appropriate proceedings. EXHIBIT 3.9
-----------
hereof describes all adjustments to the United States federal income Tax Returns
filed by the Company or any group of corporations including the Company for all
taxable years since 1991, and the resulting deficiencies proposed by the IRS.
Except as described in EXHIBIT 3.9, no Shareholder nor the Company has given or
-----------
been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or for which the Company may be
liable.
(c) There exists no proposed tax assessment against the Company except as
disclosed in the Interim Balance Sheet or in EXHIBIT 3.9 hereof. Except as
-----------
shown on EXHIBIT 3.9, all taxes that the Company is or was required by Legal
-----------
Requirements to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement. The
Company is not, nor within the five-year period preceding the Closing Date has
been, an "S" corporation.
3.10 NO MATERIAL ADVERSE CHANGE
--------------------------
Since the date of the Company's Interim Balance Sheet, there has not been
any material adverse change in the business, client relations, operations,
assets of the Company, and to the best Knowledge of Shareholders, no event has
occurred or circumstance exists that may result in such a material adverse
change. Without in any way limiting the generality of the foregoing, there
exists no actual or threatened terminations, cancellations or limitations of, or
any modification or change in (i) the current business relationship of the
Company with any material customer or group of customers whose business is
material to the operation of the Company's business; or (ii) the current
business relationship of the Company with any supplier, and the Company has no
reason to believe that any such customers or suppliers shall not continue a
business relationship with THI subsequent to the Closing on a basis no less
favorable to THI than that heretofore conducted; and (iii) to the best Knowledge
of Shareholders, there exists no other condition or state of facts or
circumstances which would adversely affect the Company's business or prevent THI
from conducting such
-13-
<PAGE>
business after the Closing on a basis no less favorable to THI than that of
which it has heretofore been conducted by the Company.
3.11 EMPLOYEE BENEFITS
-----------------
(a) As used in this Agreement, the term "Employees of the Company" means,
(i) all active or former employees or directors of the Company, (ii) all
employees of the Company who, as of the Closing Date, are on workers'
compensation, military leave, other approved leaves of absences, long-term or
short-term disability, non-occupational disability and employees on layoff with
recall rights, (iii) all individuals who are covered under any "Employee Benefit
Plan" (as such terms is hereinafter defined) as a result of previously being
described in (i) or (ii) above, and (iv) beneficiaries or dependents under any
Employee Benefit Plan of anyone described in (i) through (iii) above.
(b) EXHIBIT 3.11 sets forth a list of each "employee benefit plan" (as
------------
defined by Section 3(3) of ERISA, and any other bonus, profit sharing pension,
compensation, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, disability, sick leave,
vacation, individual employment, commission, bonus, payroll practice, retention,
or other plan, agreement, policy, trust fund or arrangement, whether written or
oral (each such plan, agreement, policy, trust fund or arrangement is referred
to herein as an "Employee Benefit Plan", and collectively, the "Employee Benefit
----------------
Plans") that is currently in effect, or which has been approved before the date
- -----
hereof but is not yet effective, for the benefit of any Employee of the Company
or with respect to which the Company has or has had any obligation, and any
Employee Benefit Plan that was maintained since the organization of the Company
with respect to which the Company has any obligation. Except as disclosed on
EXHIBIT 3.11, there are no other benefits to which any Employee of the Company
- ------------
is entitled or for which the Company has any obligation.
(c) The Company has delivered to THI with respect to each Employee Benefit
Plan, true and complete copies of (i) the documents embodying and relating to
the plan, including, without limitation, the current plan documents and
documents creating any trust maintained pursuant thereto, all amendments,
investment management agreements, administrative service contracts, group
annuity contracts, insurance contracts, collective bargaining agreements, the
most recent summary plan description with each summary of material modification,
if any, and employee handbooks, (ii) annual reports including but not limited to
Forms 5500, 990 and 1041 for the last three (3) years for the plan and any
related trust, (iii) actuarial valuation reports and financial statements for
the last three years, and (iv) each communication involving the plan or any
related trust to or from the IRS, Department of Labor ("DOL"), Pension Benefit
---
Guaranty Corporation ("PBGC") or any other governmental authority including,
----
without limitation, the most recent determination letter received from the IRS
pertaining to any
-14-
<PAGE>
Employee Benefit Plan intended to qualify under Sections 401(a) or 501(c)(9) of
the Code.
(d) The Company has no obligation to contribute to or provide benefits
pursuant to, nor has it ever maintained or contributed to, and it has no other
liability of any kind with respect to, (i) a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), (ii) a "plan
maintained by more than one employer" (within the meaning of Section 413(c) of
the Code), (iii) a plan intended to be, or represented to be, described in
Section 401(a) of the Code, (iv) a "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA or Section 414(f) of the Code), or (v) a plan
subject to Parts 2, 3 or 4 of Subtitle B of Title I of ERISA. No "ERISA
Affiliate" (as that term is hereinafter defined) has any obligation to
contribute to or provide benefits pursuant to, or has any other liability of any
kind with respect to, a multiemployer plan or a plan subject to Section 412 of
the Code, Part 3 of Subtitle B of Title I of ERISA or Title IV of ERISA. As
used in this Agreement the term "ERISA Affiliate" means any trade or business
(other than the Company) whether or not incorporated, which has employees who
are or have been at any date of determination occurring within the preceding six
(6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section 414
of the Code as employees of a single employer which includes the Company.
(e) The Company is not liable for, and after the Closing Date, THI shall
not be liable for, any contribution, tax, lien, penalty, costs, interest, claim,
loss, action, suit, damage, cost assessment or other similar type of liability
or expense of any ERISA Affiliate (including predecessors thereof) with regard
to any Employee Benefit Plan maintained, sponsored or contributed to by an ERISA
Affiliate (if a like definition of Employee Benefit Plan were applicable to the
ERISA Affiliate in the same manner as it applies to the Company).
(f) EXHIBIT 3.11 lists the name of each Employee of the Company who has
------------
experienced a "Qualifying Event" (as defined in Section 4980B of the Code and
Section 601, et seq. of ERISA) (such statutory provisions and predecessors
thereof are referred to herein collectively as "COBRA") with respect to an
-----
Employee Benefit Plan who is eligible for "Continuation Coverage" (as defined in
COBRA) and whose maximum period for Continuation Coverage required by COBRA has
not expired. Included in such list are the current address for each such
individual, the date and type of each Qualifying Event, whether the individual
who has not yet elected Continuation Coverage, the date on which such individual
was notified of his or her rights to elect Continuation Coverage.
(g) With respect to each Employee Benefit Plan and except as otherwise set
forth on EXHIBIT 3.11:
------------
(i) no claim, lawsuit, arbitration or other action has been asserted or
instituted or threatened in writing against
-15-
<PAGE>
the Employee Benefit Plan, any trustee or fiduciaries thereof, the Company,
any Employee of the Company or any of the assets of the Employee Benefit
Plan or any related trust;
(ii) the Employee Benefit Plan complies with and has been maintained
and operated in accordance with its respective terms and the terms and the
provisions of applicable law, including, without limitation, ERISA and the
IRC;
(iii) the Employee Benefit Plan is not under audit or investigation by
the IRS or the DOL or any other governmental authority, and no such
completed audit, if any, has resulted in the imposition of any tax, interest
or penalty; and
(iv) each Employee Benefit Plan may be unilaterally terminated by the
Company on not more than ninety (90) days written notice with no further
liability to the Company.
(h) The consummation of the Contemplated Transactions will not give rise to
any liability for any employee benefits, including, without limitation,
liability for severance pay, unemployment compensation, termination pay or
withdrawal liability, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any Employee of the Company. No
amounts payable under any Employee Benefit Plan will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(i) Except as set forth on EXHIBIT 3.11, no Employee Benefit Plan in any
------------
way provides for any benefits of any kind whatsoever (other than under COBRA,
the Federal Social Security Act or any Employee Benefit Plan qualified under
Section 401(a) of the Code) to any Employee of the Company who, at the time the
benefit is to be provided, is a former director or employee of, or other
provider of services to, the Company or an ERISA Affiliate (or a beneficiary of
any such person), or any other Employee of the Company, nor have any
representations, agreements, covenants or commitments been made to provide such
benefits.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS AND
-------------------------------------------------------------------
ORDERS
- ------
(a) Except as set forth in EXHIBIT 3.12 hereof to the best knowledge of
------------
Shareholders:
(i) The Company is, and at all times has been, in compliance in all
material respects with each Legal Requirement, Governmental Authorization
and Order that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists that in any material
respect (with or without notice or lapse of time) (A) may constitute or
result in a violation by the Company of,
-16-
<PAGE>
or a failure on the part of the Company to comply with, any Legal
Requirement, Governmental Authorization or Order, or (B) may give rise to
any obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature; and
(iii) Neither the Shareholders nor the Company has received, at any
time since 1991, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of the Company, or failure by the
Company to comply with, any Legal Requirement, Governmental Authorization or
Order, which violation or failure has not been corrected or complied with,
or (B) any actual, alleged, possible, or potential obligation on the part of
the Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) EXHIBIT 3.12 to the best knowledge of Shareholders (i) contains a
------------
complete and accurate list of each Governmental Authorization that relates to
the business of, or to any of the assets used in the operation of the Company;
(ii) each Governmental Authorization of the Company is valid and in full force
and effect; and (iii) the Governmental Authorizations listed in EXHIBIT 3.12
------------
hereof collectively constitute all of the Governmental Authorizations necessary
to permit the Company to lawfully conduct and operate the business of the
Company in the manner they currently conduct and operate such business and to
permit the Company to own and use the assets used in the operation of the
Company in the manner in which they currently own and use such assets. A true
and complete copy of each Governmental Authorization listed in EXHIBIT 3.12 has
------------
been delivered to THI.
3.13 LEGAL PROCEEDINGS
-----------------
(a) Except as set forth in EXHIBIT 3.13(a) hereof, there is no pending
---------------
Proceeding:
(i) that has been commenced by or against the Company; or
(ii) to the best of Shareholders' Knowledge, that may materially
affect the business of the Company or any of the assets owned or used by the
Company; or
(iii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions or any Contract.
To the best Knowledge of Shareholders, no such Proceeding has been
Threatened, and no event has occurred or circumstance exists that may reasonably
be expected to give rise to or serve as a basis for the commencement of any such
Proceeding. The Proceedings listed in EXHIBIT 3.13(a) hereof will not have a
---------------
material adverse
-17-
<PAGE>
effect on the business, operations, assets, condition, or prospects of the
Company.
(b) All material Proceedings in which the Company has been named since 1991
(other than those Proceedings involving only the ordinary course of business of
the Company), and all material Proceedings relating to the Company in which any
Shareholder has been named since 1991 (other than those Proceedings involving
only the ordinary course of the business of the Company) are listed on EXHIBIT
-------
3.13(b). Shareholders have delivered to THI true and complete copies of all
- -------
material pleadings and other documentation relating to each Proceeding listed on
EXHIBIT 3.13(b) which were requested by Buyer.
- ---------------
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
-------------------------------------
Except as set forth in EXHIBIT 3.14 hereof, since the date of the Interim
------------
Balance Sheet, the Company has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock; issuance of any
security convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) increase of any bonuses, salaries, or other compensation to any
stockholder, director, officer, or (except in the Ordinary Course of Business)
employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(c) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(d) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the
Company;
(e) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction having any
material adverse effect on the business, financial condition or prospects of the
Company;
(f) sale (other than sales of inventory and accounts receivable in the
Ordinary Course of Business), lease, or other disposition of any asset or
property of the Company or mortgage,
-18-
<PAGE>
pledge, or imposition of any lien or other encumbrance on any material asset or
property of the Company;
(g) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(h) material change in the accounting methods used by the Company; or
(i) material adverse change in the financial condition, assets, liabilities
or business of the Company;
(j) adverse Order delivered or served upon the Company or entered in a
proceeding to which the Company is a party or is otherwise known by Sellers or
Company which has a material adverse effect on the business of the Company;
(k) except as disclosed in EXHIBIT 3.14(k), change in the method of
---------------
collecting accounts receivable or acceleration in the collection of accounts
receivable;
(l) failure to pay expenses incurred in connection with the operation of
the Company on a timely basis;
(m) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.15 CONTRACTS; NO DEFAULTS
----------------------
(a) Shareholders have delivered to THI true and complete copies of and
EXHIBITS 3.15(a)(i) - (vii) hereof contain a complete and accurate list, of the
- ---------------------------
following:
(i) each Telephone Operating and License Agreement is described on
EXHIBIT 3.15(a)(i);
------------------
(ii) each Service Agreement is described on EXHIBIT 3.15(a)(ii);
-------------------
(iii) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and installment
and conditional sales agreements having a value per item or aggregate
payments of less than $5,000 and with terms of less than one year) is
described on EXHIBIT 3.15(a)(iii);
--------------------
(iv) each licensing agreement or other Contract with respect to the
Intellectual Property Assets is described in EXHIBIT 3.15(a)(iv);
-------------------
-19-
<PAGE>
(v) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person is described on EXHIBIT 3.15(a)(v);
------------------
(vi) each Contract not otherwise listed in Exhibits 3.15(a)(i)-(v)
above that (1) provides for payments to or by any Person based on sales,
purchases, or profits, other than direct payments for goods, in excess of
$5,000, or (2) involves performance of services or delivery of goods or
materials by the Company of an amount or value in excess of $5,000 or (3)
involves expenditures or receipts by the Company in excess of $5,000, is
described on EXHIBIT 3.15(a)(vi);
-------------------
(vii) each power of attorney that is currently effective and
outstanding is described on EXHIBIT 3.15(a)(vii);
--------------------
EXHIBITS 3.15(a)(i) - (vii) hereof set forth reasonably complete details
---------------------------
concerning such Contracts, including the date of the Contracts, the parties to
the Contracts and the material terms of the Contracts. Additionally, EXHIBIT
-------
3.15(a)(i) separately classifies the Telephone Operating and License Agreement
- ----------
under the subcategories inmate phones and pay phones, and EXHIBIT 3.15(a)(ii)
-------------------
separately classifies the Service Agreements under the subcategories Long
Distance Service Agreements, Billing and Collection Agreements, Parts and
Supplies Agreements and Operator Service Agreements.
(b) Except as set forth in EXHIBIT 3.15(b) hereof:
---------------
(i) neither the Shareholders (nor any Person related or affiliated
with the Shareholders) has or may acquire any rights under, and neither the
Shareholders (nor any Person related or affiliated with them) has or may
become subject to any obligation or liability under, any Contract that
relates to the business of, or any of the assets used in the operation of
the Company; and
(ii) to the best Knowledge of Shareholders, neither the Company nor
any officer, director, agent, employee, consultant, or contractor of the
Company is bound by any contract or agreement that purports to limit the
ability of the Company or such officer, director, agent, employee,
consultant, or contractor to engage in or continue any conduct, activity, or
practice relating to the business of the Company.
(c) Except as set forth in EXHIBIT 3.15(c) hereof, with respect to each
---------------
Contract identified or required to be identified in EXHIBIT 3.15(a) hereof
---------------
(and/or any other material Contract by which the Company is bound even if not so
identified):
(i) such Contract is in full force and effect and is valid and
enforceable in accordance with its terms;
-20-
<PAGE>
(ii) the Company is, and at all times since the later of 1991 or the
inception of the Contract, has been, in material compliance with all
applicable terms and requirements of such Contract;
(iii) each other Person that has or had any obligation or liability
under such Contract is, and at all times since the later of 1991 or the
inception of the Contract, has been, in material compliance with all
applicable terms and requirements of such Contract;
(iv) to the best Knowledge of Shareholders, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give
the Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any such Contract; and
(v) neither the Company nor Shareholders has given to or received
from any other Person, at any time since the later of 1991 or the inception
of the Contract, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach by
the Company of, or default by the Company under, such Contract where such
notice or communication, or the Contract involved therein, would have any
material adverse effect on the Company.
(vi) except as set forth in EXHIBIT 3.15(c)(vi), to the best Knowledge
-------------------
of Shareholders, there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
the Company under such Contracts with any Person and, no such Person has
made written demand for such renegotiation.
(vii) such Contracts have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone
or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
(viii) such Contracts constitute the sole and entire agreement among
the parties thereto with respect to the subject matter thereof, and there
are no other agreements or understandings among the parties which in any way
pertain to or otherwise materially affect such Contracts.
3.16 INSURANCE
---------
(a) Shareholders have delivered to THI true and complete copies of and
EXHIBIT 3.16(a) contains a complete and accurate list of all policies of
- ---------------
insurance to which the Company is a party or
-21-
<PAGE>
under which the Company, or any director of the Company, is covered.
(b) EXHIBIT 3.16(b) hereof sets forth, by year, for the current policy year
---------------
and each of the two preceding policy years (i) a summary of the loss experience
under each policy; (ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000; and (iii) a statement describing the
loss experience for all claims that were self-insured, including the number and
aggregate cost of such claims.
(c) Except as set forth on EXHIBIT 3.16(c) hereof:
---------------
(i) All policies to which the Company is a party or that provide
coverage to Sellers, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is to the best of knowledge of
Shareholders financially sound and reputable;
(C) taken together, are deemed by the Company to be adequate
insurance coverage for the assets and the operations of the Company;
(D) are sufficient for compliance with all Legal Requirements and
Contracts to which the Company is a party or by which any of them is
bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions with respect to losses or
claims accruing or arising prior to the Closing Date; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company, except
with respect to Workmen's Compensation insurance.
(ii) No Shareholder nor the Company has received with respect to the
Company (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or
any other indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to which
the Company is a party or that provides coverage to the Company or a
director thereof.
-22-
<PAGE>
(iv) The Company has given notice to the insurer of all material
claims that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS
---------------------
Except as set forth in EXHIBIT 3.17:
------------
(a) The Company and the Company Assets are, and at all times have been, in
full compliance with, and have not been and are not in violation of or liable
under, any Environmental Laws.
(b) The Company has not generated, handled, manufactured, processed,
treated, stored, used, transferred, released, disposed of or otherwise conducted
any hazardous process or activity with respect to (collectively, "Hazardous
---------
Activities") any hazardous substances, hazardous wastes, hazardous wastes
- ----------
constituents and reaction by-products, hazardous materials, pesticides, oil and
other petroleum products, pollutants, and/or toxic substances, including
asbestos and polychlorinated biphenyls as those terms are defined pursuant to
Environmental Laws (collectively, "Hazardous Substances"), except in full
--------------------
compliance with Environmental Laws.
(c) Neither Shareholders nor the Company has any basis to expect, nor has
any of them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened Order, notice, or other
communication from any Person that relates to Hazardous Activities, Hazardous
Substances, or any alleged actual or potential violation or failure to comply
with any Environmental Law with respect to any properties or assets (whether
real, personal, or mixed) in which the Company has or had an interest.
(d) Neither Shareholders, the Company nor any other Person for whose
conduct they are or may be held to be responsible, has any existing liability,
obligations or other responsibility arising from or under Environmental Laws
that would have a material adverse effect on the Company, and neither
Shareholders nor the Company have any basis to expect such liability,
obligations or responsibilities to arise or occur.
(e) For purposes hereof, Environmental Laws shall mean all Legal
Requirements that relate or pertain to environmental matters, pollution and/or
public health, safety or welfare, including without limitation, the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), as amended, the
------
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
9601 et seq.), as amended, the Federal Clean Water Act (33 U.S.C. 1251 et seq.),
------ ------
as amended, and state and federal environmental clean up programs.
(f) Except for leasehold interests as lessee, Company owns no interest (and
has never owned any interest) in real property.
-23-
<PAGE>
3.18 EMPLOYEES
---------
(a) EXHIBIT 3.18(a) hereof contains a complete and accurate list of the
---------------
following information for each employee or director of the Company, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1996; vacation accrued; and service credited for purposes of vesting
and eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(b) No officer or director of the Company and to the Shareholders' best
knowledge no employee of the Company is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such officer or director and any other
Person ("Proprietary Rights Agreement") that in any way adversely affects or
----------------------------
will affect (i) the performance of his duties as an employee, officer or
director of the Company, or (ii) the ability of the Company to conduct its
business, including any Proprietary Rights Agreement with Shareholders or the
Company by any such employee, officer or director. Neither the Company nor the
Shareholders has knowledge that any director or officer involved in the business
or operations of the Company intends to terminate his/her employment with the
Company prior to December 31, 1997, except to the extent that the Consulting
Agreement may vary the employment of Talton.
(c) EXHIBIT 3.18(c) hereof contains a complete and accurate list of all
---------------
employment agreements, employment contracts, compensation arrangements and/or
any other Contract pertaining to employment related matters between the Company
and any of its employees (the "Employment Agreements"). The Shareholders have
---------------------
delivered to THI true and complete copies of all Employment Agreements. The
Employment Agreements may be terminated by the Company at any time without fee,
penalty or severance compensation or benefits. All employees of the Company are
employees at will and their employment may be terminated at any time by the
Company without fee, penalty, severance compensation or benefits, subject to any
applicable state or federal laws pertaining to terminations.
(d) EXHIBIT 3.18(d) hereof contains a complete and accurate list of the
---------------
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
-24-
<PAGE>
3.19 LABOR RELATIONS; COMPLIANCE
---------------------------
Since 1991, the Company has not been nor is a party to any collective
bargaining or other labor Contract. Since 1991, there has not been, there is
not presently pending or existing, and there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any
Proceeding against or affecting the Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting any of the Company or their premises, or
(c) any application for certification of a collective bargaining agent. No
event has occurred or circumstance exists that could provide the basis for any
work stoppage or other labor dispute. There is no lockout of any employees by
the Company, and no such action is contemplated by the Company. The Company has
complied in all respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing. The Company is not
liable for the payment of any compensation, damages, taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
3.20 INTELLECTUAL PROPERTY
---------------------
(a) Shareholders have delivered to THI true and complete copies of, and
EXHIBIT 3.20 hereof contains a complete and accurate list of, all Contracts
- ------------
relating to the Intellectual Property Assets.
(b) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company
is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use, without payment to a third party, all of the Intellectual Property Assets.
(c) The Intellectual Property Assets and the use thereof by the Company
does not nor does the subject matter of any of the Intellectual Property Assets
infringe or is alleged to infringe any rights of any third party or is a
derivative work based on the work of a third party.
3.21 BANK ACCOUNTS
-------------
EXHIBIT 3.21 contains a complete and accurate list of each bank or financial
------------
institution in which the Company has an account or
-25-
<PAGE>
safe deposit box, including address, account number and the names of persons
authorized to draw thereon or to have access thereto.
3.22 CERTAIN PAYMENTS
----------------
Since 1991, neither the Company nor any director or officer, nor to
Shareholders' best knowledge any agent or employee of the Company, nor any
Representative, has directly or indirectly (a) made any illegal contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other illegal
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company, or (iv) in violation of any Legal Requirement, and/or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.23 COMPANY REVENUES
----------------
The Company revenues, as measured by GAAP on a consolidated basis, from
Telephone and Operating License Agreements during the fiscal year ended 1995 was
not less than $19,000,000. The Company revenues, as measured by GAAP on a
consolidated basis, from Telephone and Operating License Agreements during the
ten month period ended October 31, 1996, was not less than $21,000,000.
3.24 DISCLOSURE
----------
No representation or warranty of Shareholders in this Agreement omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
----------------------------------
Except as set forth in EXHIBIT 3.25 hereof, neither any of the Shareholders
------------
nor, to the best knowledge of Shareholders, any Person related or affiliated
with any Shareholder or the Company is a party to any Contract with, or has any
claim or right against, the Company. Neither any of the Shareholders nor, to
the best knowledge of Shareholders, any Person related or affiliated with any of
the Shareholders owns, directly or indirectly, any interest in any person or
entity that is a competitor, customer or supplier of the Company, that otherwise
has any business dealings with the Company (except as set forth in EXHIBIT 3.25)
------------
or that is engaged in the same or similar business as the Company.
3.26 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 3.26, Shareholders and their agents have
------------
incurred no obligation or liability, contingent or
-26-
<PAGE>
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.27 AMENDMENTS OF REPRESENTATIONS AND WARRANTIES. Shareholders shall have
--------------------------------------------
the right to amend their representations and warranties contained in this
Agreement (and/or to amend the exhibits attached hereto) to the extent
appropriate to reflect changes occurring after the date of this Agreement and/or
events or circumstances becoming known to Shareholders after the date of this
Agreement and prior to the Closing. Any such amendment(s) shall not constitute
a Breach of this Agreement by Shareholders nor give rise to any obligations of
indemnity on the part of the Shareholders. In the event any such amendments are
proposed by Shareholders which amendments are not approved by THI, then THI
shall have no further obligations to close and consummate the transactions
contemplated herein.
4. REPRESENTATIONS AND WARRANTIES OF THI
THI represents and warrants to Shareholders as follows:
4.1 ORGANIZATION AND GOOD STANDING
------------------------------
THI is a corporation duly organized, validly existing, and in good standing
under the laws of the state of its incorporation.
4.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
THI, enforceable against THI in accordance with its terms. Upon the execution
and delivery by THI of THI's Closing Certificate THI's Closing Certificate will
constitute the legal, valid, and binding obligation of THI, enforceable against
THI in accordance with its terms. THI has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and THI's Closing
Certificate and to perform its obligations under this Agreement and THI's
Closing Certificate.
(b) Except as set forth in EXHIBIT 4.2, neither the execution and delivery
------------
of this Agreement by THI nor the consummation or performance of any of the
Contemplated Transactions by THI will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of THI's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of THI;
(iii) any Legal Requirement or Order to which THI may be subject; or
(iv) any contract to which THI is a party or by which THI may be
bound.
-27-
<PAGE>
Except as set forth in EXHIBIT 4.2, THI is not and will not be required to
-----------
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
-----------------
THI is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
-------------------
There is no pending or Threatened Proceeding that has been commenced against
THI and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions.
4.5 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 4.5, THI and its officers and agents have
-----------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Shareholders harmless from any such
payment alleged to be due by or through THI as a result of the action of THI or
its officers or agents.
4.6 CAPITALIZATION
--------------
(a) Capitalization of THI, including all shares of common stock, preferred
stock, and outstanding warrants, is as shown on EXHIBIT 4.6(a), and a general
--------------
description of such capitalization and securities are as shown on EXHIBIT
-------
4.6(a). THI shall have on or at Closing paid in capital of not less than
$15,300,000.
(b) Capitalization at Closing will be in accordance with the certificate
regarding capitalization attached as EXHIBIT 4.6(b).
--------------
4.7 LIABILITY
---------
The liabilities of THI are set forth on EXHIBIT 4.7, and THI shall have no
-----------
other outstanding liabilities at or immediately subsequent to Closing.
4.8 CONTRACTUAL OBLIGATIONS
-----------------------
THI has no material contractual obligations, including, without limitation,
any employment, management, or consulting agreements, except as are reflected in
this Agreement, or as otherwise described on EXHIBIT 4.8.
-----------
-28-
<PAGE>
5. COVENANTS OF SHAREHOLDERS PRIOR TO/ON CLOSING DATE
5.1 REQUIRED APPROVALS
------------------
Except as otherwise reflected in EXHIBIT 2.3(b), as promptly as practicable
--------------
after the date of this Agreement, Shareholders will, and will cause the Company
to, make all filings required by Legal Requirements to be made by them in order
to consummate the Contemplated Transactions. The foregoing requirement shall
not apply to filings required to be made in the states of Florida, Georgia and
Tennessee. Between the date of this Agreement and the Closing Date,
Shareholders will, and will cause the Company to, (a) cooperate with THI with
respect to all filings that THI elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with THI in obtaining all Consents identified in EXHIBIT 4.2.
-----------
5.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the shareholders and board of directors of the Company.
5.3 CURRENT INFORMATION
-------------------
During the period from the date of this Agreement to the Closing Date,
Shareholders shall cause the Company to cause one or more of its Representatives
to confer on a regular and frequent basis with Representatives of THI to report
on the general status of the ongoing operations of the Company. The
Sharesholders shall cause the Company to promptly notify THI of any material
change in the normal course of its business or in the operation of its
properties and of any governmental complaints, investigations, or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of material litigation involving such party, and to keep THI fully
informed with respect to such events.
5.4 SECURITIES LAWS COMPLIANCE
--------------------------
THI and Shareholders shall use their best efforts to cause THI's Common
Stock and THI's Preferred Stock to be issued to Shareholders exempt from
registration under the Securities Act in valid reliance upon the private
placement exemption provisions of section 4(2) of the securities Act and, at
THI's option, Rules 505 and/or 506 of the SEC promulgated pursuant to Section
3(b) and 4(2) of the Securities Act.
5.5 OPERATIONS PRIOR TO CLOSING DATE
--------------------------------
(a) In addition to any other express obligation under this Agreement,
between the date of this Agreement and the Closing Date, Shareholders shall
cause the Company to do each of the following, and Shareholders also represent
that from the date of the Interim
-29-
<PAGE>
Balance Sheet to the date of this Agreement the Company has done the following:
(i) conduct the business of the Company only in the usual, regular
and ordinary manner, on a basis consistent with past practice, maintain the
Company's books, accounts and records in the usual, regular and ordinary
manner, on a basis consistent with past practices, maintain and comply with
the terms of all licenses, permits and other Legal Requirements, and
otherwise conduct the business of the Company only in the Ordinary Course of
Business;
(ii) use their best efforts to preserve intact the current
organization of the Company, keep available the services of the current
officers, employees, and agents of the current organization of the Company,
and maintain the relations and good will with all suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Company;
(iii) conduct the business and affairs of the Company in a manner so
that all representations and warranties herein will be true and correct at
Closing;
(iv) maintain all of the Company Assets in good repair, order and
condition, and perform all of the Company's obligations under the Contracts;
and
(v) pay all expenses and accounts payable incurred in connection with
the operation of the Company's business in the usual, regular and ordinary
manner on a basis consistent with past practice.
(b) Shareholders agree that during the period from the date of this
Agreement to and including the Closing Date, without the prior written consent
of THI, they will not permit Company to do any of the following and Shareholders
also represent that from the date of the Interim Balance Sheet to the date of
this Agreement the Company has not done any of the following:
(i) incur any liability or obligation of any material nature
(whether accrued, absolute, contingent or otherwise), except in the Ordinary
Course of Business;
(ii) permit any of the Company Assets to be subjected to any
Encumbrance;
(iii) sell, transfer or otherwise dispose of any Company Assets except
in the Ordinary Course of Business;
(iv) make any capital expenditure or commitment therefor, except in
the Ordinary Course of Business;
-30-
<PAGE>
(v) redeem, purchase or otherwise acquire any shares of its capital
stock or any option, warrant or other right to purchase or acquire any such
shares;
(vi) except in the Ordinary Course of Business, borrow money or make
any loan to any Person;
(vii) write off as uncollectible any note or accounts receivable,
except write-offs in the Ordinary Course of Business charged to applicable
reserves, which individually or in the aggregate are not material to the
Company;
(viii) accelerate the collection of any accounts receivable or other
amounts payable to the Company;
(ix) grant any increase in the rate of wages, salaries, bonuses or
other remuneration of any executive employees or other employees;
(x) cancel or waive any claims or rights of substantial value;
(xi) make any change in any method of accounting or auditing
practice;
(xii) agree, whether or not in writing, to do any of the foregoing;
(xiii) cause the Shareholders or the Company to, without the prior
consent of THI, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes
or events listed in Section 3.16 is likely to occur.
5.6 ACCESS AND INVESTIGATION
------------------------
Between the date of this Agreement and the Closing Date, Shareholders will,
and will cause Company and their Representatives to, (a) afford THI and its
Representatives and advisors (collectively, "THI's Advisors") full and free
--------------
access to all Company employees and personnel and to all Company Contracts,
books and records, and other documents and data, (b) furnish THI and THI's
Advisors with copies of all such Contracts, books and records, and other
existing documents and data as THI may reasonably request, and (c) furnish THI
and THI's Advisors with such additional financial, operating, and other data and
information as THI may reasonably request.
5.7 NOTIFICATION
------------
Between the date of this Agreement and the Closing Date, the Shareholders
will, and will cause Company to, promptly notify THI in writing if a Shareholder
or the Company becomes aware of any fact or condition that causes or constitutes
a Breach of any of
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<PAGE>
representations and warranties of Shareholders as of the date of this Agreement
and before Closing, or if a Shareholders or the Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Shareholder will promptly notify THI of
the occurrence of any Breach of any covenant of Shareholders in this Section 5
or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.8 NO NEGOTIATION
--------------
Until such time, if any, as this Agreement is terminated pursuant to Section
9, Shareholders will not, and will not permit Company or any of their
Representatives to, directly or indirectly solicit, initiate, respond to or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than THI) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
6. COVENANTS OF THI PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
--------------------------------
As promptly as practicable after the date of this Agreement, THI will make
all filings required by Legal Requirements to be made by them to consummate the
Contemplated Transactions. THI shall use its best efforts to satisfy all the
conditions precedent to its and all other parties' obligations under this
Agreement. Between the date of this Agreement and the Closing Date, THI will
cooperate with Shareholders with respect to all filings that Shareholders are
required by Legal Requirements to make in connection with the Contemplated
Transactions, and cooperate with Shareholders in obtaining all consents
identified in EXHIBIT 3.2(c) hereof.
--------------
6.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the Board of Directors of THI.
6.3 NOTIFICATION
------------
Between the date of this Agreement and the Closing Date, THI will promptly
notify the Shareholders in writing if THI becomes aware of any fact or condition
that causes or constitutes a Breach of any of representations and warranties of
THI as of the date of this Agreement and before Closing, or if THI becomes aware
of the
-32-
<PAGE>
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty by THI had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, THI will promptly notify the Shareholders of
the occurrence of any Breach of any covenant of THI in this Section 6 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 8 impossible or unlikely.
7. CONDITIONS PRECEDENT TO THI'S OBLIGATION TO CLOSE
THI's obligation to acquire the Shares and to take the other actions
required to be taken by THI at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by THI, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of the representations and warranties of Shareholders in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have materially been accurate as of the date of
this Agreement, and must be materially accurate as of the Closing Date as if
made on the Closing Date.
7.2 PERFORMANCE
-----------
(a) All of the covenants and obligations that Shareholders are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered.
(c) All of the agreements, other documents or certificates, or actions
required to be entered into, delivered and/or taken at or prior to the Closing
in accordance with Section 2 hereof, including actions or deliveries of Persons
not a party hereto, shall have been entered into, delivered and or taken, as
applicable.
7.3 CONSENTS
--------
Except as set forth in Section 2.3(b) and EXHIBIT 2.3(b), each of the
--------------
Consents identified in Sections 3.2, and 4.2 must have been obtained and must be
in full force and effect.
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7.4 NO PROCEEDINGS
--------------
Since the date of this Agreement, there must not have been commenced or
Threatened against THI, or against any Person affiliated with THI, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR CONSIDERATION TO BE RECEIVED
------------------------------------------------------------------
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) except for Carrie T. Glover, is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest
in, the Company, or (b) is entitled to all or any portion of the consideration
to be received for the Contributed Shares.
7.6 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause THI or any Person affiliated with THI to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
7.7 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in the Company's financial
condition, business, property or prospects nor shall have there occurred any
change in the business condition of the Company's customers or suppliers nor any
change in the regulatory or competitive environment, which in the judgment of
THI adversely affects the Company, the business of the Company or the condition
(financial or otherwise) of the Company. In the event that each and every one
of these conditions precedent to the obligations of THI shall not have been
satisfied prior to or at the Closing, then THI may (but shall not be obligated
to) waive such unsatisfied condition or extend the Closing Date to allow
additional time for such condition to be satisfied. Any such waiver or
extension shall be without prejudice to any other rights and remedies THI may
have hereunder or at law or in equity.
7.8 RELATED CONTRACTS Each of (i) the Stock Acquisition Agreement, (ii)
-----------------
that certain Stock Acquisition Agreement of even date herewith for the
acquisition of shares of AmeriTel Pay Phones, Inc. and (iii) that certain
Contribution Agreement of even date
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<PAGE>
herewith pertaining to the contribution of shares of AmeriTel Pay Phones, Inc.
must be consummated in accordance with their respective terms contemporaneously
with the Closing.
7.9 REGULATORY OPINION
------------------
THI shall have received an opinion of counsel acceptable to THI to the
effect that all required approvals of the Contemplated Transactions have been
obtained from state regulatory agencies (other than approvals required by the
states of Mississippi, North Carolina, Tennessee, Georgia and Florida).
8. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATION TO CLOSE
Shareholders' obligation to transfer the Shares and to take the other
actions required to be taken by Shareholders at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Shareholders, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of THI's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been materially accurate as of the date of this
Agreement and must be materially accurate as of the Closing Date as if made on
the Closing Date.
8.2 THI'S PERFORMANCE
-----------------
(a) All of the covenants and obligations that THI is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with.
(b) THI must have delivered the shares of THI Common and THI Preferred and
the documents required to be delivered by THI pursuant to Section 2.4.
8.3 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transaction will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause the Shareholders or any Person affiliated with the
Shareholders to suffer any material adverse consequence under any applicable
Legal Requirement or Order. The provisions of this Section 8.3 shall not apply
to and shall not include any consents or other approvals required to be given by
any state regulatory agencies with respect to the Contemplated Transactions.
-35-
<PAGE>
8.4 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in THI's financial condition,
business, property, or prospects which in the judgment of Shareholders would
materially adversely affect THI's ability to consummate the contemplated
transactions.
In the event that each and every one of these conditions precedent to the
obligations of Shareholders shall not have been satisfied prior to or at the
Closing, then Shareholders may (but shall not be obligated to) waive such
unsatisfied condition or extend the Closing Date to allow additional time for
such condition to be satisfied. Any such waiver or extension shall be without
prejudice to any other rights and remedies Shareholders may have hereunder or at
law or in equity.
8.5 TAX OPINION
-----------
Shareholders shall have received an opinion satisfactory to Shareholders to
the effect that the receipt of stock by the Shareholders will not constitute a
taxable event for Federal income tax purposes. Shareholders and Shareholders'
tax counsel shall have received THI's certificate regarding capitalization in
the form attached as EXHIBIT 4.6(b).
--------------
9. TERMINATION
9.1 TERMINATION EVENTS
------------------
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either THI or Shareholders if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) by THI: if any of the conditions in Section 7 have not been satisfied
as of the Closing Date; or if satisfaction of such a condition is or becomes
impossible (other than through the failure of THI to comply with its obligations
under this Agreement) and THI has not waived such condition on or before the
Closing Date;
(c) by Shareholders: if any of the conditions in Section 8 have not been
satisfied of the Closing Date; or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Shareholders to comply
with their obligations under this Agreement) and Shareholders have not waived
such condition on or before the Closing Date; or
(d) by mutual consent of THI and Shareholders; or
(e) by either THI or Shareholders if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under
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<PAGE>
this Agreement) on or before January 31, 1997, or such later date as the parties
may agree upon in writing.
9.2 EFFECT OF TERMINATION
---------------------
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
------------------------------------------------------------
Subject to the limitations described herein, all representations,
warranties, covenants, and obligations in this Agreement, the certificates
delivered pursuant to Section 2.4(a) and (b), and any other certificate or
document delivered pursuant to this Agreement will survive the Closing as
follows: (i) all representations, warranties, covenants and obligations, other
than any representation or warranty contained in Section 3.9, 3.13 or any claim
based upon an intentional fraudulent misrepresentation, shall survive the
Closing until May 31, 1998, and shall thereupon expire together with any right
to indemnification (except to the extent a written notice asserting a claim for
breach of any such representation or warranty shall have been given prior to
such date to the party which made such representation and warranty), (ii) all
representations or warranties contained in Section 3.13 shall survive the
Closing until three (3) years from the Closing Date and shall thereupon expire
together with any right to indemnification (except to the extent a written
notice asserting a claim for breach of any such representation or warranty shall
have been given prior to such date to the party which made such representation
and warranty), (iii) all claims based upon an intentional fraudulent
misrepresentations shall survive the Closing until four (4) years from the
Closing Date and shall thereupon expire together with any right to
indemnification (except to the extent a written notice asserting a claim for
breach of any such representation shall have been given prior to such date to
the party which made such representation), and (iv) all representations or
warranties contained in Section 3.9 shall survive the Closing indefinitely. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and
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<PAGE>
obligations shall not be precluded by any knowledge actually acquired by THI
before the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation.
The waiver in writing of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, shall preclude any right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SHAREHOLDERS
------------------------------------------------------
Subject to the limitations described herein, Shareholders severally, and not
jointly, will indemnify and hold harmless THI, the Company and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
-------------------
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising or resulting
-------
from, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Shareholders
in this Agreement or the Stock Acquisition Agreement, or any other
certificate or document delivered by Shareholders pursuant to this Agreement
or the Stock Acquisition Agreement;
(b) any Breach by Shareholders of any covenant or obligation of
Shareholders in this Agreement or the Stock Acquisition Agreement, or any
other document delivered by Shareholders pursuant to this Agreement or the
Stock Acquisition Agreement;
(c) regardless of whether it may also constitute a Breach under
Section 10.2 (a) or (b) above, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) arising from or
relating to the operation, management or ownership of the Company, arising
or related to the period on or prior to the Closing Date (whether known or
unknown on the Closing Date).
provided, however, that (i) except as provided in (ii) below, the aggregate
- -------- -------
amount of Damages for which the Shareholders shall indemnify THI hereunder shall
not exceed each Shareholder's pro rata share of the amount in the Post-Closing
Escrow Fund as established pursuant to the Stock Acquisition Agreement (such
indemnification to be provided by the Post-Closing Escrow Fund); (ii) the
aggregate amount of Damages for which the Shareholders shall indemnify THI
hereunder for any Breach of a representation or
-38-
<PAGE>
warranty contained in Section 3.9 and 3.13 or for any claim based solely upon
an intentionally fraudulent misrepresentation of a material fact shall not
exceed each Shareholder's pro rata share of the Purchase Price as established
pursuant to the Stock Acquisition Agreement (such indemnification to be provided
first by the Post-Closing Escrow Fund) and the shares of THI Common and THI
Preferred issued hereunder; (iii) in no event shall the aggregate amount of any
Shareholder's Damages under both this Agreement and the Stock Acquisition
Agreement exceed the limitations on Damages set forth in the Stock Acquisition
Agreement plus the Shareholder's then interest in the stock acquired pursuant to
this Agreement plus the proceeds of any prior sales of such stock and (iv) THI
shall not be entitled to assert any right to indemnification hereunder against
the Shareholders until THI's good faith estimate of all Damages for which the
Shareholders indemnify THI hereunder and/or under the Stock Acquisition
Agreement exceeds $100,000 (the "Indemnification Threshold") at which time THI
-------------------------
shall be entitled to indemnification for all Damages which exceed the
Indemnification Threshold (subject to the limitations described above).
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THI
---------------------------------------------
THI will indemnify and hold harmless Shareholders and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Shareholders' Indemnified Persons"), and will pay to
---------------------------------
Shareholders' Indemnified Persons the amount of any Damages arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by THI in this
Agreement or the Stock Acquisition Agreement, or in any certificate
delivered by THI pursuant to this Agreement or the Stock Acquisition
Agreement; or
(b) any Breach by THI of any covenant or obligation of THI in this
Agreement or the Stock Acquisition Agreement or in any certificate or
document delivered by THI pursuant to this Agreement or the Stock
Acquisition Agreement.
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
-------------------------------------------------
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3, of notice of the commencement of any Proceeding against it or of notice
that such Proceeding has been Threatened against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim or
threatened Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action or the ability of the indemnifying party to
obtain otherwise available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.
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<PAGE>
(b) If any Proceeding referred to in Section 10.4(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding, (i) no compromise or
settlement of such claims may be effected by the indemnifying party without the
indemnified party's consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
materially adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party, and
following a good faith attempt to consult with the indemnifying party, assume
the exclusive right to defend, compromise, or settle such Proceeding, but the
indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
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<PAGE>
10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
-------------------------------------------
A claim for indemnification for any matter not involving a third-party claim
may be asserted by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 EXPENSES
--------
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Notwithstanding the foregoing, any obligation to pay
the fees and expenses of Weinstein, Boldt, Racine & Halfhide incurred in
connection with the Contemplated Transactions shall be the obligation of THI and
Shareholders shall have no liability with respect thereto. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2 SHAREHOLDERS' OBLIGATIONS AND DECISIONS
---------------------------------------
(a) Subject to the limitations contained in Section 10.2, any and all
representations, warranties, covenants, obligations and/or agreements of the
Shareholders contained herein are made and given jointly and severally by the
Shareholders, and each of the Shareholders shall be jointly and severally liable
for the accuracy, performance and/or compliance with all such representations,
warranties, covenants, obligations and agreements.
(b) Whenever any decision, consent, waiver, determination and/or exercise
of any right or remedy (collectively, a "Decision") is required or may be made,
--------
taken or given by the Shareholders hereunder, such Decision may only be made,
----
taken or given by Julius E. Talton (the "Shareholders' Representative"). The
----------------------------
Shareholders' Representative may only be changed by a Majority in Interest of
the Shareholders. Any Decision made, taken or given by the Shareholders'
Representative shall be binding upon all Shareholders. For purposes hereof,
Majority in Interest of the Shareholders shall mean Shareholders holding a
majority of the Contributed Shares.
11.3 CONFIDENTIALITY
---------------
Prior to Closing, no party or affiliate of a party hereto will issue or
cause publication of any press release or other announcement or public
communications with respect to the Contemplated Transactions, including without
limitation a general announcement to such party's employees, without the prior
consent
-41-
<PAGE>
of the other parties hereto, which consent will not be unreasonably withheld;
provided, however, that nothing herein will prohibit any party (or affiliate)
from issuing or causing publication of any such press release, announcement or
public communication to the extent that such party (or affiliate) reasonably
determines such action to be required by law, any regulatory agency or the rules
of any national stock exchange or association applicable to it, in which case
the party (or affiliate) making such determination will use reasonable efforts
to allow the other party reasonable time to comment on such release or
announcement in advance of its issuance or to make any disclosure necessary to
obtain any consents required or deemed appropriate by THI.
11.4 NOTICES
-------
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to THI:
c/o Engles Urso Follmer Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
With a copy to:
Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: Carl C. Christoff
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<PAGE>
If to any Shareholder and/or the Company:
c/o Talton Telecommunications Corporation
720 Alabama Avenue
Selma, Alabama 36702
Telephone: (800) 844-6500
Facsimile: (334) 875-1405
Attention: Julius E. Talton
With a copy to:
Gamble, Gamble, Calame & Wilson L.L.C.
P. O. Box 345
807 Selma Avenue
Selma, Alabama 36701
Telephone: (334) 875-7810
Facsimile: (334) 874-4975
Attention: Harry W. Gamble, Jr.
With a copy to:
John E. Pilcher
P. O. Box 1346
28 Broad Street
Selma, Alabama 36701
Telephone: (334) 872-6211
Facsimile: (334) 872-7654
11.5 WAIVER OF RIGHT TO JURY TRIAL: ATTORNEYS' FEES
-----------------------------------------------
Each of the parties hereto, to the extent legally possible, waives its right
to a trial by jury and the parties agree that in the event of litigation
involving the subject matter hereof the prevailing party(ies) shall be entitled
to recover fees and expenses of counsel and other out-of-pocket litigation
costs.
11.6 FURTHER ASSURANCES
------------------
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
------
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will
-43-
<PAGE>
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents referred to
in this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
---------------------------------
(a) This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between THI and
Shareholders dated July 11, 1996, as amended by letter dated October 23, 1996)
and constitutes (along with the Stock Acquisition Agreement and the documents
referred to therein and in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
(b) Neither the Shareholders, THI, nor any Representative of the
Shareholders has made any representation or warranty, express or implied,
regarding the accuracy or completeness of any information regarding the Company
which is not expressly set forth herein. Except as expressly provided herein,
neither the Shareholders nor any other person or Representative of the
Shareholders shall have or be subject to any liability to THI or any other
person resulting from THI's use of or reliance on such information. Without
limiting the foregoing, THI acknowledges and agrees that, except as expressly
set forth herein, the Shareholders and their Representatives have not made any
representations or warranties with respect to any financial, business, or other
projections or forecasts provided to THI. THI acknowledges that it has had the
full opportunity to review the books and records of the Company, and has
performed such due diligence as it has deemed necessary or advisable with
respect to the Company and the acquisition of shares of the Company on the terms
set forth herein.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
--------------------------------------------------
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that THI may assign any of its rights
under this Agreement to any affiliate of THI and/or to CIBC Wood Gundy
Securities Corp. and its affiliates.
-44-
<PAGE>
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
11.10 SEVERABILITY
------------
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.11 SECTION HEADINGS, CONSTRUCTION
------------------------------
The headings of Sections in this Agreement are provided for convenience only
and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. The
parties, in acknowledgment that all of them have been represented by counsel and
that this Agreement has been carefully negotiated, agree that the construction
and interpretation of this Agreement and other documents entered into in
connection herewith shall not be affected by the identity of the party or
parties under whose direction or at whose expense this Agreement and such
documents were prepared or drafted.
11.12 TIME OF ESSENCE
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.13 GOVERNING LAW
-------------
This Agreement will be governed by the laws of the State of Texas without
regard to conflicts of laws principles.
11.14 COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
-45-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
THI: SHAREHOLDERS:
- ---
TALTON HOLDINGS, INC., /s/ JULIUS E. TALTON
a Delaware corporation -----------------------------------
JULIUS E. TALTON
By: /s/ TODD W. FOLLMER /s/ JULIUS E. TALTON, JR.
------------------------- -----------------------------------
Name: Todd W. Follmer JULIUS E. TALTON, JR.
Title: Chief Executive Officer
/s/ JAMES E. LUMPKIN
-----------------------------------
JAMES E. LUMPKIN
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<PAGE>
LIST OF EXHIBITS*
TO
TALTON CONTRIBUTION AGREEMENT
Exhibit 2.1 Talton Shareholder Allocations
Exhibit 2.2 Aggregate Purchase Price
Exhibit 2.3(a) Post-Closing Escrow Agreement
Exhibit 2.3(b) Regulatory Approval and Set-Off Provisions
Exhibit 2.5(a)(ii)-1 Talton Consulting Agreement
Exhibit 2.5(a)(ii)-2 Lumpkin Consulting Agreement
Exhibit 2.5(a)(iii) Jr. Employment Agreement
Exhibit 2.5(a)(iv) Form of Sellers' Counsel Legal Opinion
Exhibit 2.5(b)(i) Respective Amounts of Cash
Exhibit 2.5(b)(ii) Buyer's Subordinated Note and Assoc Documents
Exhibit 2.5(b)(iv) Form of Buyer's Counsel Legal Opinion
Exhibit 2.6(a)-1 List of Outstanding Leases
Exhibit 2.6(a)-2 List of Long Term Debts
Exhibit 2.6(b) Pre-Closing Payables
Exhibit 2.8 Lease Agreement
Exhibit 3.1(a)-1 TTC States of Operation
Exhibit 3.1(a)-2 TC States of Operation
Exhibit 3.1(b) Corporate Names and Addresses
Exhibit 3.2(b) List of Consents - Seller
Exhibit 3.4 Financial Statements
Exhibit 3.6(a) Company Assets-Encumbrances
Exhibit 3.6(a)(ii)-1 Installed Telephone List
Exhibit 3.6(a)(ii)-2 Installed Telephone Line List
Exhibit 3.6(a)(iv) October 96 Inventory List
Exhibit 3.6(a)(v) List of Vehicles
Exhibit 3.6(a)(vi) Furniture, Fixtures, Equipment, Personalty and
Intellectual Property
Exhibit 3.6(b) Continuing Liabilities
Exhibit 3.7 Accounts Receivable
Exhibit 3.9 Taxes
Exhibit 3.11 Employee Benefit Plans
Exhibit 3.12 Governmental Authorizations
Exhibit 3.13(a) and
Exhibit 3.13(b) Litigation
Exhibit 3.14 Changes and Events
Exhibit 3.14(k) Changes in Collection of Accounts Receivable
Exhibit 3.15(a)(i) Telephone Operating and License Agreement
Description
Exhibit 3.15(a)(ii) Service Agreement Description
Exhibit 3.15(a)(iii) Leases, Rental and Occupancy Agreements over
$5000 and 12 months
Exhibit 3.15(a)(iv) Licensing Agreements and/or Contracts with
respect to Intellectual Property Assets
Page 1 of 2
<PAGE>
Exhibit 3.15(a)(v) Joint Venture, Partnership or Contracts
involving Sharing of Profits, Losses, Costs or
Liabilities
Exhibit 3.15(a)(vi) Other Contracts ($5000 or more)
Exhibit 3.15(a)(vii) Power of Attorney List
Exhibit 3.15(b) Rights, Obligations and/or Liabilities of Seller
Exhibit 3.15(c) Contract Compliance
Exhibit 3.15(c)(vi) Renegotiations
Exhibit 3.16(a) Insurance Policies
Exhibit 3.16(b) Insurance Summary
Exhibit 3.16(c) Insurance Statement
Exhibit 3.17 Environmental Statement
Exhibit 3.18(a) Employee Information
Exhibit 3.18(c) Employee, Consultant and Contract Labor
Agreements
Exhibit 3.18(d) Retired Employee, Director, Director's
Dependents List of Benefits
Exhibit 3.20 Intellectual Property Asset Contracts
Exhibit 3.21 List of Bank Accounts
Exhibit 3.25 Relationships with Related Persons
Exhibit 3.26 Brokers or Finders (Sellers)
Exhibit 4.2 List of Consents-Buyer
Exhibit 4.5 Brokers or Finders (Buyer)
Exhibit 4.6(a) Capitalization-Common, Preferred & Warrants
(Securities)
Exhibit 4.6(b) Form of Certificate Regarding Capitalization
Exhibit 4.7 Liabilities-Buyers
Exhibit 4.8 Contractual Obligations of Buyer
__________________
* These items have been omitted. A copy will be provided to the Commission upon
request.
Page 2 of 2
<PAGE>
EXHIBIT 2.4
STOCK ACQUISITION AGREEMENT
by and among
Talton Holdings, Inc., a Delaware corporation,
and Richard C. Green, Jr., Robert K. Green,
T.R. Thompson, Roger K. Sallee
and certain other stockholders, and
AmeriTel Pay Phones, Inc.,
a Missouri corporation
Dated December 20, 1996
<PAGE>
STOCK ACQUISITION AGREEMENT
THIS STOCK ACQUISITION AGREEMENT ("Agreement") is made as of December 20,
1996, by Talton Holdings, Inc., a Delaware corporation ("Buyer"), Richard C.
Green, Jr. ("R.C. Green"), Robert K. Green ("R.K. Green"), T.R. Thompson ("T.R.
Thompson"), Roger K. Sallee ("R.K. Sallee") and other stockholders listed on
Exhibit A attached hereto (collectively, the "Stockholders"), and AmeriTel Pay
Phones, Inc., a Missouri corporation (the "Company"). R.C. Green, R.K. Green,
T.R. Thompson, R.K. Sallee, the Green Trust, KCEP and the Stockholders are
sometimes referred to herein individually as a "Seller" and collectively as
"Sellers."
RECITALS
WHEREAS, R.C. Green, R.K. Green, T.R. Thompson, R.K. Sallee and the
Stockholders at Closing will own all the shares of the common stock of the
Company (the "Shares").
WHEREAS, the Sellers desire to transfer, and Buyer desires to acquire the
Shares set forth on Schedule 1 attached hereto and hereby made a part hereof
(the "Acquired Shares") for the consideration and on the terms set forth in this
Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, the parties intending to be
legally bound, do hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ADJUSTMENT AMOUNT": (i) the Company's Net Liability Amount as reflected on
-----------------
the Closing Date Balance Sheet minus (ii) the Company's Net Liability Amount as
reflected on the Interim Balance Sheet (as defined in Section 3.4), provided,
however, the Adjustment Amount may not exceed an amount equal to the amount
which would cause the Funding Requirement at Closing to exceed $40,250,000 (with
any excess amount to be paid in preferred stock as provided in the Contribution
Agreement). An example of the calculation of the Adjustment Amount and is
attached as Exhibit 1(a).
"BILLING AND COLLECTION AGREEMENT": any billing and collecting agreement,
--------------------------------
local exchange company billing agreement or other Contract relating to the
provision of billing and collection services to the Company.
"BREACH": a "Breach" of a representation, warranty, covenant, obligation, or
------
other provision of this Agreement or any
-1-
<PAGE>
instrument delivered pursuant to this Agreement will be deemed to have occurred
if there is or has been any material inaccuracy in or breach of, or any material
failure to perform or comply with, such representation, warranty, covenant,
obligation, or other provision.
"CONSENT": any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS": all of the transactions contemplated by this
-------------------------
Agreement, including: (a) the transfer by the Sellers to Buyer and the
acquisition (and payment therefor) by Buyer from the Sellers of the Acquired
Shares; (b) the execution, delivery and performance of the Consulting Agreement,
the Non-Competition Agreements, , the Employment Agreements, the Post-Closing
Escrow Agreement and the Regulatory Escrow Agreement; and (c) the performance by
Buyer, the Company and Sellers of their respective covenants and obligations
under this Agreement, including without limitation their obligations under
Section 2 hereof.
"CONTRACT": any agreement, contract, license obligation, promise or
--------
undertaking presently in effect, (a) under which the Company has or may acquire
any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"ENCUMBRANCE": any charge, claim, community property interest, condition,
-----------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA": the Employee Retirement Income Security Act of 1974 or any successor
-----
law, and regulations and rules issued pursuant to that Act or any successor law.
"FUNDING REQUIREMENT AT CLOSING": the sum of (i) the Aggregate Price, as
------------------------------
adjusted at Closing, (ii) the Company's outstanding long term debt as shown on
the Closing Date Balance Sheet, (iii) the aggregate $100,000 of non-Competition
Payments or Separate Payments required to be made under the Non-Competition
Agreements, the Consulting Agreements and Employment Agreements as listed on
EXHIBIT 1-b, less (iv) the OAN Receivable.
- -----------
"GAAP": generally accepted United States accounting principles, applied on a
----
consistent basis.
"GOVERNMENTAL AUTHORIZATION": any approval, consent, license, permit, waiver,
--------------------------
tariff, or other written authorization issued, granted, given, or otherwise made
available by or under
-2-
<PAGE>
the authority of any Governmental Body or pursuant to any Legal Requirement.
"GOVERNMENTAL BODY": any: (a) nation, state, county, city, town, village,
-----------------
district, or other properly constituted local government; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal); (d) any properly constituted and
authorized body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature in the United States.
"HSR ACT": the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
-------
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INSTALLED TELEPHONE": a Telephone that is in good working order and
-------------------
operable, is subject to a Telephone Operating and License Agreement, is
installed at the location provided for in its related Telephone Operating and
License Agreement and is not co-located with any pay telephone not owned by the
Company.
"INSTALLED TELEPHONE LINE": any telephone lines and related facilities
------------------------
providing telephone service to Installed Telephones, including those Telephone
lines identified by installation, location and telephone number in EXHIBIT
-------
3.6(a)(ii).
- ----------
"INTELLECTUAL PROPERTY ASSETS": any patents, patent applications, inventions,
----------------------------
trademarks, tradenames, business names, service marks, copyrights, trade
secrets,know-how, customer lists, software, technical information, plans,
drawings, blue prints or other intellectual property used in the operation of
the Company's business.
"IRC": the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
---
and, to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE": in the case of Sellers, information known to the Sellers without
---------
independent investigation beyond the Company's officers and directors; in the
case of the Company, information known by the Company's officers and directors.
"LEGAL REQUIREMENT": any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, ruling, regulation, or statute (as to representations and warranties
set forth in this Agreement, such orders, constitutions, laws, ordinances,
rulings,
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<PAGE>
regulations, or statutes in effect as of the date such representation or
warranty is made).
"LONG DISTANCE SERVICE AGREEMENTS": any long distance service provider
--------------------------------
agreement, telecommunications agreement or other Contract relating to provision
of long distance service or other similar services to the Company.
"NET LIABILITY AMOUNT": the Company's current assets less (i) the OAN
--------------------
Receivable, (ii) the Company's current liabilities, and (iii) the Company's long
term debt, all as shown on the Interim Balance Sheet or the Closing Date Balance
Sheet, as applicable.
"OAN RECEIVABLE": the receivable (net of reserves) shown as the OAN
--------------
Receivable on the Interim Balance Sheet and Closing Date Balance Sheet, as
applicable.
"OPERATOR SERVICE AGREEMENT": any agreement or other Contract relating to the
--------------------------
provision of operator or other telephone services to the Company.
"ORDER": any award, decision, injunction, judgment, order, ruling, subpoena,
-----
or verdict entered, issued, made, or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS": an action taken by a Person will be deemed to
---------------------------
have been taken in the "Ordinary Course of Business" only if: (a) such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority).
"ORGANIZATIONAL DOCUMENTS": (a) the articles or certificate of incorporation
------------------------
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (d) any
charter, articles of organization, shareholders agreement, operating agreement
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PARTS AND SUPPLIES AGREEMENT": any Contract relating to the provision of
----------------------------
Telephones, Telephone parts, inventory or equipment, or other parts, equipment
or services to the Company.
"PERSON": any individual, corporation (including any non-profit corporation),
------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
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<PAGE>
"PRELIMINARY ADJUSTMENT AMOUNT": (i) the Company's Net Liability Amount as
-----------------------------
reflected on the Pro Forma Balance Sheet, minus (ii) the Company's Net Liability
Amount as reflected on the Interim Balance Sheet, provided, however, the
Preliminary Adjustment Amount may not exceed an amount equal to the amount which
would cause the Funding Requirement at Closing to exceed $40,250,000 (with any
excess amounts to be paid in preferred stock as provided in the Contribution
Agreement).
"PROCEEDING": any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REPRESENTATIVE": with respect to a particular Person, any director, officer,
--------------
employee, agent, consultant, advisor, partner or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT": the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"SERVICE AGREEMENTS": any Long Distance Service Agreement, Billing and
------------------
Collection Agreement, Parts and Supplies Agreement, Operator Service Agreement
or similar agreement or Contract relating to the provision of parts, equipment
or services to the Company.
"TAXES": any tax, charge, fee, duty, levy or other assessment, including,
-----
without limitation, income, gross receipts, net proceeds, ad valorem, turnover,
real and personal property (tangible and intangible), sales, use, franchise,
excise, value added, license, payroll, unemployment, environmental, customs
duties, capital stock, disability, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational and interest equalization, windfall profits,
severance and employees' income withholding and Social Security taxes imposed by
the United States or any foreign country or by any state, municipality,
subdivision or instrumentality of the United States or of any foreign country or
by any other tax authority, including all applicable penalties and interest, and
such term shall include any interest, penalties or additions to tax attributable
to such taxes.
"TAX RETURN": any return (including any information return), report,
----------
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration,
-5-
<PAGE>
implementation, or enforcement of or compliance with any Legal Requirement
relating to any Tax.
"TELEPHONE OPERATING AND LICENSE AGREEMENTS": all written lease agreements,
------------------------------------------
telephone location agreements, telephone service agreements, license agreements,
royalty agreements or other contracts relating to the Installed Telephones,
which agreements grant the exclusive right to the Company to install and operate
the Installed Telephones upon the premises set forth within any such document.
"TELEPHONES": any of the coin, credit card operated or collect call only
----------
telephones, owned or operated by the Company, including any hardware, enclosure,
pedestal or any other personal property installed with any Telephone.
"THREATENED": a claim, Proceeding, dispute, action, or other matter will be
----------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist that would lead
a prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
2. TRANSFER OF SHARES, CLOSING AND OTHER AGREEMENTS
2.1 SHARES Subject to the terms and conditions of this Agreement, at the
------
Closing, Sellers will convey and transfer the Acquired Shares to Buyer, and
Buyer will acquire the Acquired Shares from Sellers.
2.2 PURCHASE PRICE; ADJUSTMENT OF PURCHASE PRICE. The Purchase Price under
--------------------------------------------
this Stock Acquisition Agreement of $24,161,708 plus the value of the stock
----------
acquired by certain Sellers pursuant to the Contribution Agreement of $1,000,000
totals $25,161,708 (the "Aggregate Price"), subject to the Adjustment Amount and
----------
Additional Adjustment modifications.
(a) PURCHASE PRICE The purchase price (the "Purchase Price") for the
--------------
Acquired adjustment, as applicable, by the Adjustment Amount together with an
amount equals to five percent per annum on the Aggregate Price from December 1,
1996 through and including the Closing Dates and the Additional Adjustment. The
Purchase Price, as adjusted by the Preliminary Adjustment Amount and the
Additional Adjustment, shall be paid by Buyer on the Closing Date. Any
difference between the Preliminary Adjustment Amount and the Adjustment Amount
shall be handled by payments to or from the Post-Closing Escrow Fund (the
"Additional Amount") provided that the maximum amount of cash payable by Buyer
to the Post-Closing Fund shall be $100,000, with any excess amount paid in
Buyer's preferred stock (to be applied to any
-6-
<PAGE>
claims before cash and to be delivered if at all only to Shareholders under the
Contribution Agreement).
(b) PRELIMINARY ADJUSTMENT AMOUNT Prior to the Closing Date, Sellers shall
-----------------------------
prepare and deliver to Buyer (i) a pro forma balance sheet (together with
related notes and appropriate supporting schedules and work papers) of the
Company estimated as of the Closing Date prepared in accordance with generally
accepted accounting principles applied on a basis consistent with that used in
preparation of the Company's balance sheet (the "Pro Forma Balance Sheet"), and
(ii) a statement of the Preliminary Adjustment Amount, accompanied by a
certificate of the Company to the effect that such statement has been prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with that used in the preparation of the Company's balance sheet and
the terms of this Agreement (the "Pre-Closing Certificate"). A Preliminary
Adjustment Amount greater than one shall increase the Purchase Price and a
Preliminary Adjustment Amount less than one shall reduce the Purchase Price.
(c) ADJUSTMENT AMOUNT As soon as possible after the Closing and in any event
-----------------
within 60 days following the Closing Date, Buyer shall prepare and deliver to
the Sellers' Representative (as defined in Section 11.2) (i) a balance sheet of
the Company as of the Closing Date reviewed by Deloitte & Touche and prepared in
accordance with generally accepted accounting principles consistent with past
practices of the Buyer (the "Closing Date Balance Sheet") and (ii) a statement
of the Adjustment Amount as of the Closing Date (the "Post-Closing
Certificate"). An Adjustment Amount greater than one shall increase the Purchase
Price (as earlier adjusted by the Preliminary Adjustment Amount) and an
Adjustment Amount less than one shall reduce the Purchase Price (as earlier
adjusted by the Preliminary Adjustment Amount).
(d) DISPUTES REGARDING THE ADJUSTMENT AMOUNT Sellers (through the Sellers'
----------------------------------------
Representative) shall notify Buyer in writing ("Sellers' Dispute Notice") within
ten days after receiving the Post-Closing Certificate if Sellers disagree with
Buyer's calculation of the Adjustment Amount as set forth in the Post-Closing
Certificate, which notice shall set forth in reasonable detail the basis for
such disagreement, the dollar amounts involved and the Sellers' calculation of
the Adjustment Amount. Buyer will give Sellers access during the normal business
hours of the Company to the personnel, books and records of the Company to
assist Sellers in the analysis of any such disagreement. In the event of such a
disagreement, Buyer and Sellers shall negotiate in good faith to resolve any
dispute with respect to the Post-Closing Certificate. If no Sellers' Dispute
Notice is received by Buyer within such ten day period, Buyer's calculation of
the Adjustment Amount as set forth in the Post-Closing Certificate shall be
final and binding upon the parties hereto.
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<PAGE>
2.3 DEPOSIT; POST-CLOSING ESCROW FUND; SATISFACTION OF DEBT AND CLOSING
-------------------------------------------------------------------
(a) POST-CLOSING ESCROW FUND At the Closing, Sellers shall deliver One
------------------------
Million Dollars ($1,000,000) to Texas Commerce Bank, National Association as
escrow agent for deposit in a fund (the "Post-Closing Escrow Fund") created
pursuant to the Post-Closing Escrow Agreement to be executed at the Closing by
Buyer and the Sellers' Representative on behalf of the Sellers, which is hereby
authorized by Sellers.
(b) REGULATORY ESCROW FUND In the event at the time of Closing, Sellers or
the Company have not obtained the regulatory or contractual consents necessary
to consummate the Contemplated Transactions without causing a breach of
applicable legal Requirements or contractual requirements, the Sellers shall
deliver an amount of cash equal to the "Regulatory Escrow Amount" to Texas
Commerce Bank, National Association as escrow agent for deposit in a fund (the
"Regulatory Escrow Fund") created pursuant to the Regulatory Escrow Agreement
attached hereto as EXHIBIT 2.3(b). For purposes hereof, the Regulatory Escrow
--------------
Amount shall be determined as follows: multiply $50,000,000 by a fraction, the
numerator of which equals the revenues derived from the states and/or contracts
where the regulatory or contractual consents have not been obtained and the
denominator of which shall be the total revenue of the Company (in each
instance, with revenue based on the results of the most recent quarter).
Notwithstanding anything to the contrary contained herein, the Regulatory Escrow
Amount may not exceed $7,500,000. However, in the event the Regulatory Escrow
Amount would exceed $7,500,000 but for the aforesaid limitation, Buyer shall not
be obligated to close the Contemplated Transactions. Buyer, however, may waive
this condition in its sole discretion.
(c) CLOSING The closing of the transactions contemplated by this Agreement
-------
(the "Closing") will take place at the offices of Buyer's counsel in Dallas,
Texas (or such other location within or outside of Dallas, Texas as Buyer shall
designate) at 10:00 a.m. (local time) on a date not less than ten (10) business
days after the satisfaction or waiver of all conditions to Closing (but in no
event earlier than December 20, 1996 unless approval of the transactions
contemplated in that certain Stock Acquisition Agreement and that certain
Contribution Agreement both relating to the acquisition of shares of Talton
Telecommunications Corporation by Buyer has been obtained from regulatory
authorities of the States of Mississippi and North Carolina, and in no event
later than January 31, 1997). Notwithstanding any of the foregoing, if Closing
occurs, the Closing shall be effective as of November 30, 1996.
2.4 CLOSING OBLIGATIONS
-------------------
At the Closing:
-8-
<PAGE>
(a) Sellers or the Company, as applicable, will deliver or cause to
be delivered to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures of
Sellers in attendance at Closing notarized at Closing, and signatures
of Sellers not in attendance guaranteed by a commercial bank or by a
member firm of the New York Stock Exchange, for transfer to Buyer;
[(ii) the Consulting Agreements executed by Roger K. Sallee in
the form attached hereto as EXHIBIT 2.4(a) (the "Consulting
--------------
Agreement");]
[(iii) separate Employment Agreements for Terry C. Matlack and
John R. Summers and in the form attached hereto as EXHIBIT
-------
2.4(a)(iii) (the "Employment Agreements");]
-----------
(iv) a certificate executed by Sellers and the Company
representing and warranting to Buyer that (A) there have been no
material changes, amendments or modifications of or to the then
current Organizational Documents of the Company since the date of
each of the Organizational Documents; and (B) each of Sellers'
representations and warranties in this Agreement was accurate in all
material respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the
Closing Date (the "Sellers' Closing Certificate");
(v) opinion(s) of counsel, dated the Closing Date, in the form
of EXHIBIT 2.4(a)(v) and an additional opinion of counsel that all
-----------------
Government Authorizations necessary for Closing have been obtained,
including without limitation those of the State of Missouri or its
subdivisions or instrumentalities in form and substance reasonably
acceptable to Buyer; and
(vi) separate Non-Competition Agreements executed by Richard C.
Green, Jr., Robert K. Green, and T.R. Thompson in the form attached
hereto as EXHIBIT 2.4(a)(vi) (the "Non-Competition Agreements"); and
(vii) such other documents as Buyer may reasonably request for
the purpose of (1) enabling its counsel to provide the opinion
referred to in Section 2.4(b), (2) evidencing the accuracy of any of
Sellers' representations and warranties, (3) evidencing the
performance by Sellers of, or the compliance by Sellers with, any
covenant or obligation required to be performed or complied with
-9-
<PAGE>
by the Sellers, or (4) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
(b) Buyer will deliver to each Seller (or to such other Persons
designated below):
(i) such Seller's share of the Purchase Price as set forth in
instructions to be provided by Sellers together with the Pro Forma
Balance Sheet.
(ii) any consulting fees or other compensation required to be
paid at Closing pursuant to the terms of the Consulting Agreement,
the Non-Competition Agreements and/or the Employment Agreements;
(iii) the Consulting Agreement, the Non-Competition Agreements
and the Employment Agreements, all executed by Buyer;]
(iv) a certificate executed by Buyer to the effect that, except
as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in all
material respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the
Closing Date (the "Buyer's Closing Certificate").
(v) opinion(s) of counsel, dated the Closing Date, in the form
of EXHIBIT 2.4(b)(v); and
-----------------
(vi) such other documents as Sellers may reasonably request for
the purpose of (1) enabling its counsel to provide the opinion
referred to in Section 2.4(a), (2) evidencing the accuracy of any
representation or warranty of Buyer, (3) evidencing the performance
by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer, or (4)
otherwise facilitating the consummation of the Contemplated
Transactions.
2.5 TREATMENT OF CERTAIN MATTERS AND ADJUSTMENTS.
--------------------------------------------
(a) Buyer shall pay the outstanding balance of and discharge that certain
Revolving Credit Agreement dated September 22, 1995 by and among the Company,
UMB Bank N.A., NBD Bank and UMB Bank, N.A., as agent for the lenders,
contemporaneously with the Closing.
(b) Sellers shall discharge or shall cause the Company to discharge, on or
at Closing, all severance or other liabilities to employees which may vest or
become payable on the sale of or
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<PAGE>
change of ownership or control of the Company or of its assets, including
without limitation any liability arising out of or triggered by the Contemplated
Transactions.
(c) The Company shall use its reasonable efforts to collect (on behalf of
Sellers) the OAN Receivable and to deposit in the Post Closing Escrow Fund, the
first $958,000 recovered thereunder (in excess of collection costs associated
therewith reasonably approved by Sellers). Any additional amounts collected on
the OAN Receivable shall be retained by Buyer and the Company.
(d) In the event, the Closing has not been consummated on or before
December 20, 1996 (other than by reason of the failure of Sellers to comply with
their obligations hereunder or to satisfy any of the Buyer's conditions to
closing), Buyer shall deliver One Hundred and Twenty-Five Thousand ($125,000)
(the "Deposit") to Texas Commerce Bank National Association, as escrow agent, to
be held under the terms of the Pre-Closing Escrow Agreement attached hereto as
EXHIBIT 2.5(d) (the "Pre-Closing Escrow Agreement").
- --------------
At the Closing, any available funds included in the Deposit shall be
applied to the payment of the Purchase Price pursuant to the terms of the Pre-
Closing Escrow Agreement or if Buyer fails to proceed with the Closing on or
before January 31, 1997, or within five business days of the satisfaction or
waiver of all conditions to Closing, which ever is earlier, (other than by
reason of the failure of Sellers to comply with their obligations hereunder or
to satisfy any of Buyer's conditions to Closing), Sellers shall have the right
to terminate this Agreement as provided in Section 9 below and to retain the
Deposit (and interest thereon) as liquidated damages, in lieu of all other
damages of any nature whatsoever. The parties acknowledge that Sellers' damages
due to such default are difficult to ascertain and agree that the amount of the
Deposit represents a reasonable estimate of the damages that would be incurred
by Sellers.
(e) Prior to Closing (or contemporaneously therewith), Company shall
redeem all its issued and outstanding preferred stock.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers and the Company represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
------------------------------
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to
-11-
<PAGE>
perform all its obligations under the Contracts. The Company is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of the states listed in EXHIBIT 3.1(a)-1 hereof, which are all of the states
----------------
which the nature of the activities conducted by it requires such qualification.
The Company does not have and never has had any subsidiaries. The Company has
not been a party to any merger other than those listed on EXHIBIT 3.1(a)-2.
----------------
(b) Sellers have delivered to Buyer copies of the Organizational Documents
of the Company. The Company's principal place of business is, and has been for
the last five (5) years or if it has not done business for five (5) years, for
the entire period that it has done business, in Lee's Summit, Missouri and the
Company has not had any other offices, other corporate names or done business in
any other names during said five (5) year period other than as disclosed on
EXHIBIT 3.1(b).
- --------------
3.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Sellers and the Company, enforceable against each of the Sellers and the
Company in accordance with its terms except as such enforcement may be limited
by applicable bankruptcy laws. Upon the execution and delivery of the
Consulting Agreement, the Employment Agreements, the Non-Competition Agreements,
the Post-Closing Escrow Agreement, the Regulatory Escrow Agreement and Seller's
Closing Certificate (collectively, the "Sellers' Closing Documents"), the
Sellers' Closing Documents will constitute the legal, valid, and binding
obligations of the parties (other than Buyer) enforceable against each of them
in accordance with their respective terms except as such enforcement may be
limited by applicable bankruptcy laws. Each of the Sellers and the Company has
the absolute and unrestricted right, power, authority, and capacity to execute
and deliver this Agreement and the Sellers' Closing Documents to which each is a
party and to perform their obligations under this Agreement and the Sellers'
Closing Documents to which each is a party.
(b) Except as set forth in EXHIBIT 3.2.(b), neither the execution,
---------------
delivery or performance of this Agreement nor any other consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, (B) any
resolution adopted by the board of directors or the stockholders of the
Company, (C) any duty owed by any of the Sellers or the Company to any
Person, or (D) any Legal Requirement, any Governmental Authorization or
any Order to which the Company or the Sellers, or any of
-12-
<PAGE>
the assets owned or used by the Company or the Sellers, may be subject; or
(ii) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance
of, or to cancel, terminate, or modify, any Contract, or any contract or
other agreement to which any Seller is a party.
(c) Except for notices or Consents described on EXHIBIT 3.2.(b) hereof,
---------------
none of Sellers nor the Company is or will be required to give any notice to or
obtain any Consent from any Person, in connection with the execution, delivery
or performance of this Agreement or the consummation or other performance of any
of the Contemplated Transactions, the absence of which notice or Consent would
cause to occur or result in the occurrence of any of the events described in
Section 3.2(b)(i) and (ii).
3.3 CAPITALIZATION
--------------
(a) The authorized equity securities of the Company consist of: (i)
10,000,000 Common Shares, par value $.01 per share, of which 3,259,345 Common
Shares are issued and outstanding, and (ii) 500,000 Preferred Shares, par value
$.01 per share, of which 244,800 Preferred Shares are issued and outstanding.
Sellers are and will be on the Closing Date the record and beneficial owners and
holders of the Acquired Shares, free and clear of all Encumbrances. On the date
hereof and on the Closing Date, the Acquired Shares are and will be owned as set
forth on EXHIBIT 3.3(a).
--------------
(b) Except as listed in EXHIBIT 3.3(b)-1, no legend or other reference to
----------------
any purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except as listed on EXHIBIT 3.3(b)-2, there are no contracts or
----------------
other agreements relating to the issuance, sale, or transfer of any equity
securities or other securities of the Company. None of the outstanding equity
securities or other securities of the Company was issued in violation of the
Securities Act or any other Legal Requirement. The Company does not own and
does not have any Contract to acquire, any equity securities or other securities
of any Person or any direct or indirect equity or ownership interest in any
other business
(c) Except as listed on EXHIBIT 3.3(c), there are no options, warrants or
--------------
other rights to acquire an interest in the Company or in its shares.
-13-
<PAGE>
3.4 FINANCIAL STATEMENTS
--------------------
Sellers have delivered to Buyer: (a) audited balance sheets of the Company
as at December 31, in each of the years 1994 and 1995, and the related audited
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the fiscal years then ended, and (b) an unaudited balance sheet
of the Company as at September 30, 1996 (the "Interim Balance Sheet"), a copy of
which is attached as EXHIBIT 3.4 and the related unaudited consolidated
-----------
statements of income, and cash flow for the eight months then ended, including
in each case the notes thereto. Sellers shall deliver to Buyer such other
balance sheets, statements of income, cash flow and other financial statements
of the Company as Buyer may reasonably request. All such financial statements
and notes fairly present the financial condition and the results of operations,
and cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the December 31, 1995 balance sheet).
The financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Company are required by GAAP to be
included in the consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
-----------------
The books of account, minute books, stock record books, and other records
of the Company, all of which have been made available to Buyer, are complete and
correct in all material respects. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the boards of directors, and committees of the
boards of directors of the Company, and no meeting of any such stockholders,
board of directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 BALANCE SHEETS ON THE CLOSING DATE
----------------------------------
(a) COMPANY ASSETS. Except as shown on EXHIBIT 3.6(a), on the Closing
-------------- --------------
Date assuming satisfaction of the UMB Debt as provided in Section 2.5(a), and
the payment of other long term debt included in the calculation of Net Liability
Amount, the Company shall own and have good title, without Encumbrance, to all
of the assets currently owned and used in conjunction with the operation of the
Company's business (which assets are
-14-
<PAGE>
reflected in the Company's Interim Balance Sheet) (the "Company Assets"),
including, without limitation:
(i) all rights and interest of the Company in and under the
Telephone Operating and License Agreements listed on EXHIBIT
-------
3.15(a);
-------
(ii) all Installed Telephone Lines listed on EXHIBIT 3.6(a)(ii);
------------------
(iii) all rights and interests of the Company in and under the
Service Agreements listed on EXHIBIT 3.15(a);
---------------
(iv) all uninstalled Telephones, parts, hardware and equipment listed
on EXHIBIT 3.6(a)(iv) (subject to turn over of inventory in the
------------------
Ordinary Course of Business);
(v) all vehicles listed on EXHIBIT 3.6(a)(v); and
-----------------
(vi) all other furniture, fixtures, equipment, personalty or
intellectual property of any kind used by the Company in the
operation of its business, including without limitation, each of
those items having a value in excess of $1,000 listed on EXHIBIT
-------
3.6(a)(vi).
----------
(b) LIABILITIES. Other than the liabilities and obligations listed on
-----------
EXHIBIT 3.6(b), (the "Continuing Liabilities"), the Company shall have no other
- --------------
obligations or liabilities as of the Closing Date.
3.7 ACCOUNTS RECEIVABLE
-------------------
(a) All accounts receivable of the Company that are reflected on the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. The reserves reflected
in the Interim Balance Sheet have been calculated consistent with past practices
and, to Seller's best knowledge, are adequate. Except as set forth in EXHIBIT
-------
3.7, there is no contest, claim, or right of set-off, other than returns in the
- ---
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
EXHIBIT 3.7 hereof contains a complete and accurate list of all Accounts
- -----------
Receivable as of the date of the Interim Balance Sheet, which list sets forth
the aging of such Accounts Receivable.
(b) Sellers represent and warrant that from and after the date of the
Interim Balance Sheet (as defined in Section 3.4)
-15-
<PAGE>
through the Closing Date: (i) the Company has collected all sums and amounts
due the Company, whether evidenced in writing, on account, designated as a
receivable or otherwise (collectively, "Pre-Closing Receivables"), only in its
usual, regular and ordinary manner, on a basis consistent with past practices
(and otherwise in the Ordinary Course of Business); and (ii) the Company has not
and will not accelerate collection of the Pre-Closing Receivables.
3.8 NO UNDISCLOSED LIABILITIES
--------------------------
Except as set forth in EXHIBIT 3.8 hereof, the Company has no liabilities
-----------
or obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Interim Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date thereof.
3.9 TAXES
-----
(a) The Company has filed or caused to be filed all Tax Returns that are
or were required to be filed by or with respect to any of them, either
separately or as a member of a group of corporations, pursuant to applicable
Legal Requirements. Sellers have delivered to Buyer copies of, and EXHIBIT 3.9
-----------
hereof contains a complete and accurate list of, all federal income Tax Returns,
filed since 1990 (including the Tax Returns for 1990). The Company has paid, or
made provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Sellers or the Company, except such Taxes, if any, as are listed in
EXHIBIT 3.9 hereof and are being contested in good faith and as to which
- -----------
adequate reserves (determined in accordance with GAAP) have been provided in the
Interim Balance Sheet.
(b) The United States federal and state income Tax Returns of the Company
subject to such Taxes have been audited by the IRS or relevant state tax
authorities for 1994. EXHIBIT 3.9 contains a complete and accurate list of all
-----------
audits of all such Tax Returns, including a reasonably detailed description of
the nature and outcome of each audit. All deficiencies proposed as a result of
such audits have been paid, reserved against, settled, or, as described in
EXHIBIT 3.9 hereof, are being contested in good faith by appropriate
- -----------
proceedings. EXHIBIT 3.9 hereof describes all adjustments to the United States
-----------
federal income Tax Returns filed by the Company or any group of corporations
including the Company for all taxable years since 1991, and the resulting
deficiencies proposed by the IRS. Except as described in EXHIBIT 3.9, no Seller
-----------
nor the Company has given or been requested to give waivers or extensions (or is
or would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of the Company or for
which the Company may be liable.
-16-
<PAGE>
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in accordance with
GAAP) and the Company's liability for Taxes through the Closing Date shall not
be not greater than $10,000 more than such charges, accruals and reserves.
There exists no proposed tax assessment against the Company except as disclosed
in the Interim Balance Sheet or in EXHIBIT 3.9 hereof. All Taxes that the
-----------
Company is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement.
3.10 NO MATERIAL ADVERSE CHANGE
--------------------------
Except as set forth on EXHIBIT 3.10, since the date of the Interim Balance
------------
Sheet, there has not been any material adverse change in the business, client
relations, operations, or assets of the Company, and no event has occurred or
circumstance exists that may result in such a material adverse change. Without
in any way limiting the generality of the foregoing, there exists no actual or
threatened terminations, cancellations or limitations of, or any modification or
change in (i) the current business relationship of the Company with any material
customer or group of customers whose business is material to the operation of
the Company's business; or (ii) the current business relationship of the Company
with any supplier, and the Company has no reason to believe that any such
customers or suppliers shall not continue a business relationship with Buyer
subsequent to the Closing on a basis no less favorable to Buyer than that
heretofore conducted (except where such change would not have a material adverse
effect on the Company); and (iii) there exists no other condition or state of
facts or circumstances which would materially adversely affect the Company's
business or prevent Buyer from conducting such business after the Closing on a
basis not materially adversely less favorable to Buyer than that of which it has
heretofore been conducted by the Company.
3.11 EMPLOYEE BENEFITS
-----------------
(a) As used in this Agreement, the term "Employees of the Company" means,
(i) all active or former employees or directors of the Company, (ii) all
employees of the Company who, as of the Closing Date, are on workers'
compensation, military leave, other approved leaves of absences, long-term or
short-term disability, non-occupational disability and employees on layoff with
recall rights, (iii) all individuals who are covered under any "Employee Benefit
Plan" (as such terms is hereinafter defined) as a result of previously being
described in (i) or (ii) above, and (iv)
-17-
<PAGE>
beneficiaries or dependents under any Employee Benefit Plan of anyone described
in (i) through (iii) above.
(b) EXHIBIT 3.11 sets forth a list of each "employee benefit plan" (as
------------
defined by Section 3(3) of ERISA, and any other bonus, profit sharing pension,
compensation, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, disability, sick leave,
vacation, individual employment, commission, bonus, payroll practice, retention,
or other plan, agreement, policy, trust fund or arrangement, whether written or
oral (each such plan, agreement, policy, trust fund or arrangement is referred
to herein as an "Employee Benefit Plan", and collectively, the "Employee Benefit
Plans") that is currently in effect, or which has been approved before the date
hereof but is not yet effective, for the benefit of any Employee of the Company
or with respect to which the Company has or has had any obligation, and any
Employee Benefit Plan that was maintained since the organization of the Company
with respect to which the Company has any obligation. Except as disclosed on
EXHIBIT 3.11, there are no other benefits to which any Employee of the Company
- ------------
is entitled or for which the Company has any obligation.
(c) The Company has delivered to Buyer with respect to each Employee
Benefit Plan, true and complete copies of (i) the documents embodying and
relating to the plan, including, without limitation, the current plan documents
and documents creating any trust maintained pursuant thereto, all amendments,
investment management agreements, administrative service contracts, group
annuity contracts, insurance contracts, collective bargaining agreements, the
most recent summary plan description with each summary of material modification,
if any, and employee handbooks, (ii) annual reports including but not limited to
Forms 5500, 990 and 1041 for the last three (3) years for the plan and any
related trust, (iii) actuarial valuation reports and financial statements for
the last three years, and (iv) each communication involving the plan or any
related trust to or from the IRS, Department of Labor ("DOL"), Pension Benefit
Guaranty Corporation ("PBGC") or any other governmental authority including,
without limitation, the most recent determination letter received from the IRS
pertaining to any Employee Benefit Plan intended to qualify under Sections
401(a) or 501(c)(9) of the Code.
(d) Except as set forth on EXHIBIT 3.11, the Company has no obligation to
------------
contribute to or provide benefits pursuant to, nor has it ever maintained or
contributed to, and it has no other liability of any kind with respect to, (i) a
"multiple employer welfare arrangement" (within the meaning of Section 3(40) of
ERISA), (ii) a "plan maintained by more than one employer" (within the meaning
of Section 413(c) of the Code), (iii) a plan intended to be, or represented to
be, described in Section 401(a) of the Code, (iv) a "multiemployer plan" (within
the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the Code), or
(v) a plan subject to Parts 2, 3 or 4 of Subtitle B of Title I of
-18-
<PAGE>
ERISA. No "ERISA Affiliate" (as that term is hereinafter defined) has any
obligation to contribute to or provide benefits pursuant to, or has any other
liability of any kind with respect to, a multiemployer plan or a plan subject to
Section 412 of the Code, Part 3 of Subtitle B of Title I of ERISA or Title IV of
ERISA. As used in this Agreement the term "ERISA Affiliate" means any trade or
business (other than the Company) whether or not incorporated, which has
employees who are or have been at any date of determination occurring within the
preceding six (6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or
Section 414 of the Code as employees of a single employer which includes the
Company.
(e) The Company is not liable for, and after the Closing Date, Buyer shall
not be liable for, any contribution, tax, lien, penalty, costs, interest, claim,
loss, action, suit, damage, cost assessment or other similar type of liability
or expense of any ERISA Affiliate (including predecessors thereof) with regard
to any Employee Benefit Plan maintained, sponsored or contributed to by an ERISA
Affiliate (if a like definition of Employee Benefit Plan were applicable to the
ERISA Affiliate in the same manner as it applies to the Company).
(f) EXHIBIT 3.11 lists the name of each Employee of the Company who has
------------
experienced a "Qualifying Event" (as defined in Section 4980B of the Code and
Section 601, et seq. of ERISA) (such statutory provisions and predecessors
thereof are referred to herein collectively as "COBRA") with respect to an
Employee Benefit Plan who is eligible for "Continuation Coverage" (as defined in
COBRA) and whose maximum period for Continuation Coverage required by COBRA has
not expired. Included in such list are the current address for each such
individual, the date and type of each Qualifying Event, whether the individual
who has not yet elected Continuation Coverage, the date on which such individual
was notified of his or her rights to elect Continuation Coverage.
(g) With respect to each Employee Benefit Plan and except as otherwise set
forth on EXHIBIT 3.11:
------------
(i) no claim, lawsuit, arbitration or other action (other than
routine claims for benefits made in accordance with the terms of the
Employee Benefit Plan) has been asserted or instituted or threatened in
writing against the Employee Benefit Plan, any trustee or fiduciaries
thereof, the Company, any Employee of the Company or any of the assets of
the Employee Benefit Plan or any related trust;
(ii) the Employee Benefit Plan complies with and has been maintained
and operated in all material respects in accordance with its respective
terms and the terms and the provisions of applicable law, including,
without limitation, ERISA and the IRC;
-19-
<PAGE>
(iii) the Employee Benefit Plan is not under audit or investigation
by the IRS or the DOL or any other governmental authority, and no such
completed audit, if any, has resulted in the imposition of any tax,
interest or penalty; and
(iv) each Employee Benefit Plan may be unilaterally terminated by the
Company on not more than ninety (90) days written notice with no further
liability to the Company.
(h) Except as set forth on the EXHIBIT 3.11, the consummation of the
------------
Contemplated Transactions will not give rise to any liability for any employee
benefits, including, without limitation, liability for severance pay,
unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any Employee of the Company. No amounts payable under any
Employee Benefit Plan will fail to be deductible for federal income tax purposes
by virtue of Section 280G of the Code.
(i) Except as set forth on EXHIBIT 3.11, no Employee Benefit Plan in any
------------
way provides for any benefits of any kind whatsoever (other than under COBRA,
the Federal Social Security Act or any Employee Benefit Plan qualified under
Section 401(a) of the Code) to any Employee of the Company who, at the time the
benefit is to be provided, is a former director or employee of, or other
provider of services to, the Company or an ERISA Affiliate (or a beneficiary of
any such person), or any other Employee of the Company, nor have any
representations, agreements, covenants or commitments been made to provide such
benefits.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
------------------------------------------------
AUTHORIZATIONS AND ORDERS
- -------------------------
(a) Except as set forth in EXHIBIT 3.12 hereof, to the best knowledge of
------------
the Sellers and the Company:
(i) The Company is, and at all times has been, in material compliance
with each Legal Requirement, Governmental Authorization and Order that is
or was applicable to it or to the conduct or operation of its business or
the ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to
comply with, any Legal Requirement, Governmental Authorization or Order,
or (B) may give rise to any obligation on the part of the Company to
undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
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<PAGE>
(iii) Neither the Sellers nor the Company has received, at any time
since 1991, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of the Company, or failure by
the Company to comply with, any Legal Requirement, Governmental
Authorization or Order, which violation or failure has not been corrected
or complied with, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) EXHIBIT 3.12 hereof, to the best knowledge of the Sellers and the
------------
Company, contains a complete and accurate list of each Governmental
Authorization that relates to the business of, or to any of the assets used in
the operation of the Company. Each Governmental Authorization of the Company is
valid and in full force and effect. The Governmental Authorizations listed in
EXHIBIT 3.12 hereof collectively constitute all of the Governmental
- ------------
Authorizations necessary to permit the Company to lawfully conduct and operate
the business of the Company in the manner they currently conduct and operate
such business and to permit the Company to own and use the assets used in the
operation of the Company in the manner in which they currently own and use such
assets. A true and complete copy of each Governmental Authorization listed in
EXHIBIT 3.12 has been delivered to Buyer.
- ------------
3.13 LEGAL PROCEEDINGS
-----------------
(a) Except as set forth in EXHIBIT 3.13(a) hereof, there is no pending
---------------
Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions or any Contract.
To the best knowledge of the Sellers and the Company, no such Proceeding
has been Threatened, and no event has occurred or circumstance exists that may
reasonably be expected to give rise to or serve as a basis for the commencement
of any such Proceeding. The Proceedings listed in EXHIBIT 3.13(a) hereof will
---------------
not have a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) All Proceedings in which the Company has been named or otherwise
involved since 1991, and all Proceedings relating to the Company in which any
Seller has been named or otherwise involved since 1991, are listed on EXHIBIT
-------
3.13(b). Sellers have
- -------
-21-
<PAGE>
delivered to Buyer true and complete copies of all material pleadings and other
documentation relating to each Proceeding listed on Exhibit 3.13(b).
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
-------------------------------------
Except as set forth in EXHIBIT 3.14 hereof, since the date of the Interim
------------
Balance Sheet, the Company has conducted its business only in the Ordinary
Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock; issuance of any
security convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) payment or increase of any bonuses, salaries, or other compensation to
any stockholder, director, officer, or (except in the Ordinary Course of
Business) employee or entry into any employment, severance, or similar Contract
with any director, officer, or Employee of the Company;
(c) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any Employees of the
Company;
(d) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the
Company;
(e) other than the entry into new Telephone Operating and Licensing
Agreements in the ordinary course of business, entry into, termination of, or
receipt of notice of termination of (i) any license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or (ii) any
Contract or transaction involving a total remaining commitment by or to the
Company of at least $50,000;
(f) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company;
(g) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
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<PAGE>
(h) material change in the accounting methods used by the Company;
(i) material change in the financial condition, assets, liabilities or
business of the Company;
(j) adverse Order affecting the Company or the Company's business;
(k) change in the method of collecting accounts receivable or acceleration
in the collection of accounts receivable;
(l) failure to pay expenses incurred in connection with the operation of
the Company on a timely basis; or
(m) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.15 CONTRACTS; NO DEFAULTS
----------------------
(a) Sellers have delivered to Buyer true and complete copies of and
Exhibits 3.15(a)(i) - (vii) hereof contain a complete and accurate list, of the
- ---------------------------
following:
(i) each Telephone Operating and License Agreement is described on
EXHIBIT 3.15(a)(i);
------------------
(ii) each Service Agreement is described on EXHIBIT 3.15(a)(ii);
-------------------
(iii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property is described on EXHIBIT
-------
3.15(a)(iii); provided however, that EXHIBIT 3.15(a)(iii) does not include
------------ -------------------
personal property leases and installment and conditional sales agreements
having a value per item or aggregate payments of less than $5,000 and with
terms of less than one year if the aggregate value or payments of or under
such leases and agreements does not exceed $10,000;
(iv) each licensing agreement or other Contract with respect to the
Intellectual Property Assets is described in EXHIBIT 3.15(a)(iv);
-------------------
(v) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by
the Company with any other Person is described on EXHIBIT 3.15(a)(v);
------------------
(vi) each Contract not otherwise listed in EXHIBITS 3.15(a)(i)-(v)
-----------------------
above that (1) provides for payments to or by any Person based on sales,
purchases, or profits, other
-23-
<PAGE>
than direct payments for goods, in excess of $5,000, or (2) involves
performance of services or delivery of goods or materials by the Company
of an amount or value in excess of $5,000 or (3) involves expenditures or
receipts by the Company in excess of $5,000, is described on EXHIBIT
-------
3.15(a)(vi); and
-----------
(vii) each power of attorney that is currently effective and
outstanding is described on EXHIBIT 3.15(a)(vii).
--------------------
EXHIBITS 3.15(a)(i) - (vii) hereof set forth reasonably complete details
---------------------------
concerning such Contracts, including the date of the Contracts and the parties
to the Contracts. Additionally, EXHIBIT 3.15(a)(i) separately classifies the
------------------
Telephone Operating and License Agreement under the subcategories inmate phones
[and other pay phones,] and EXHIBIT 3.15(a)(ii) separately classifies the
-------------------
Service Agreements under the subcategories Long Distance Service Agreements,
Billing and Collection Agreements, Parts and Supplies Agreements and Operator
Service Agreements.
(b) Except as set forth in EXHIBIT 3.15(b) hereof:
---------------
(i) neither the Sellers (nor any Person related or affiliated with
the Sellers) has or may acquire any rights under, and neither the Sellers
(nor any Person related or affiliated with them) has or may become subject
to any obligation or liability under, any Contract that relates to the
business of, or any of the assets used in the operation of the Company;
and
(ii) neither the Company nor any officer, director, agent, employee,
consultant, or contractor of the Company is bound by any contract or
agreement that purports to limit the ability of the Company or such
officer, director, agent, employee, consultant, or contractor to engage in
or continue any conduct, activity, or practice relating to the business of
the Company.
(c) Except as set forth in EXHIBIT 3.15(c) hereof, with respect to each
---------------
Contract identified or required to be identified in EXHIBIT 3.15(a) hereof
---------------
(and/or any other material Contract by which the Company is bound even if not so
identified):
(i) such Contract is in full force and effect and is valid and
enforceable in accordance with its terms [provided, however, with respect
to Telephone Operating License Agreements, Sellers and Company have
assumed with Buyer's approval in making this representation and warranty
that the person executing such agreement on behalf of the customer was the
appropriate person under applicable law to execute the agreement];
-24-
<PAGE>
(ii) the Company is, and at all times since the later of 1991 or the
Contract's date of inception, has been, in substantial compliance with all
applicable terms and requirements of such Contract;
(iii) each other Person that has or had any obligation or liability
under such Contract is, and at all times since the later of 1991 or the
Contract's date of inception, has been, in substantial compliance with all
applicable terms and requirements of such Contract;
(iv) to the best knowledge of Sellers and the Company, no event has
occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with, or result in a violation or breach
of, or give the Company or other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance
of, or to cancel, terminate, or modify, any such Contract; and
(v) neither the Company nor Sellers has given to or received from any
other Person, at any time since the later of 1991 or the Contract's date
of inception, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential material violation
or breach by the Company of, or default by the Company under, such
Contract.
(vi) to the best knowledge of Sellers and the Company, there are no
renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to the Company under such
Contracts with any Person (and, no such Person has made written demand for
such renegotiation) where the effect of such renegotiation would have a
material adverse effect on the Company or its operations.
(vii) such Contracts have been entered into in the Ordinary Course
of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
(viii) such Contracts constitute the sole and entire agreement among
the parties thereto with respect to the subject matter thereof, and there
are no other agreements or understandings among the parties which in any
way pertain to or otherwise affect such Contracts.
3.16 INSURANCE
---------
(a) Sellers have delivered to Buyer true and complete copies of and
EXHIBIT 3.16(a) contains a complete and accurate
- ---------------
-25-
<PAGE>
list of all policies of insurance to which the Company is a party or under which
the Company, or any director of the Company in his capacity as director of the
Company, is or has been covered at any time since 1991;
(b) EXHIBIT 3.16(b) hereof sets forth, by year, for the current policy
---------------
year and each of the two preceding policy years (i) a summary of the loss
experience under each policy; (ii) a statement describing each claim under an
insurance policy for an amount in excess of $25,000; and (iii) a statement
describing the loss experience for all claims that were self-insured, including
the number and aggregate cost of such claims.
(c) Except as set forth on EXHIBIT 3.16(c) hereof:
---------------
(i) All policies to which the Company is a party or that provide
coverage to Sellers, the Company, or any director or officer of the
Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide in the judgment of the Company and
Sellers adequate insurance coverage for the assets and the operations
of the Company;
(C) are sufficient for compliance with all Legal Requirements
and Contracts to which the Company is a party or by which any of them
is bound;
(D) will continue in full force and effect following the
consummation of the Contemplated Transactions with respect to losses
or claims accruing or arising prior to the Closing Date; and
(E) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
(ii) No Seller nor the Company has received with respect to the
Company (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or
any other indication that any insurance policy is no longer in full force
or effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to which
the Company is a party or that provides coverage to the Company or a
director thereof.
-26-
<PAGE>
(iv) The Company has given notice to the insurer of all material
claims that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS
---------------------
Except as set forth in EXHIBIT 3.17:
------------
(a) The Company and the Company Assets are, and at all times have been, in
material compliance with, and have not been and are not in violation of or
liable under, any Environmental Laws.
(b) The Company has not generated, handled, manufactured, processed,
treated, stored, used, transferred, released, disposed of or otherwise conducted
any hazardous process or activity with respect to (collectively, "Hazardous
Activities") any hazardous substances, hazardous wastes, hazardous wastes
constituents and reaction by-products, hazardous materials, pesticides, oil and
other petroleum products, pollutants, and/or toxic substances, including
asbestos and polychlorinated biphenyls as those terms are defined pursuant to
Environmental Laws (collectively, "Hazardous Substances"), except in full
compliance with Environmental Laws, or where any alleged noncompliance is not
material.
(c) To the best of Sellers' knowledge, neither Sellers nor the Company has
any basis to expect, nor has any of them or any other Person for whose conduct
they are or may be held to be responsible received, any actual or Threatened
Order, notice, or other communication from any Person that relates to Hazardous
Activities, Hazardous Substances, or any alleged actual or potential violation
or failure to comply with any Environmental Law with respect to any properties
or assets (whether real, personal, or mixed) in which the Company has or had an
interest.
(d) Neither Sellers, the Company nor any other Person for whose conduct
they are or may be held to be responsible, has any existing liability,
obligations or other responsibility that would have a material adverse effect on
the Company arising from or under Environmental Laws, and neither Sellers nor
the Company have any basis to expect such liability, obligations or
responsibilities to arise or occur.
(e) For purposes hereof, Environmental Laws shall mean all Legal
Requirements that relate or pertain to environmental matters, pollution and/or
public health, safety or welfare, including without limitation, the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), as amended, the
------
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
9601 et seq.), as amended, the Federal Clean Water Act (33 U.S.C. 1251 et seq.),
------ ------
as amended, and state and federal environmental clean up programs.
-27-
<PAGE>
3.18 EMPLOYEES
---------
(a) EXHIBIT 3.18(a) hereof contains a complete and accurate list of the
---------------
following information for each employee or director of the Company, including
each employee on leave of absence or layoff status: name; job title; current
compensation paid or payable and any change in compensation since January 1,
1996; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(b) Except as set forth on Exhibit 3.18(b), to the best knowledge of the
Sellers and the Company, no employee, officer or director of the Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
officer or director and any other Person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of his duties as
an employee, officer or director of the Company, or (ii) the ability of the
Company to conduct its business, including any Proprietary Rights Agreement with
Sellers or the Company by any such employee, officer or director. Except as set
forth on EXHIBIT 3.18(b), to the best knowledge of the Sellers and the Company,
---------------
no director or officer involved in the business or operations of the Company
intends to terminate his/her employment with the Company prior to December 31,
1997.
(c) EXHIBIT 3.18(c)-1 hereof contains a complete and accurate list of all
-----------------
employment agreements, employment contracts, compensation arrangements and/or
any other Contract pertaining to employment related matters between the Company
and any of its employees (the "Employment Agreements"). The Sellers have
delivered to Buyer true and complete copies of all Employment Agreements.
Except those employees with Employment Agreements, that provide to the contrary,
all employees of the Company are employees at will and their employment may be
terminated at any time by the Company without fee, penalty, severance
compensation or benefits.
(d) EXHIBIT 3.18(d) hereof contains a complete and accurate list of the
---------------
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
-28-
<PAGE>
3.19 LABOR RELATIONS; COMPLIANCE
---------------------------
Since 1991, the Company has not been nor is a party to any collective
bargaining or other labor Contract. Since 1991, there has not been, there is
not presently pending or existing, and to the best knowledge of Sellers and the
Company, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Company or their premises, or (c) any application for
certification of a collective bargaining agent. There is no lockout of any
employees by the Company, and no such action is contemplated by the Company.
The Company has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing. The Company
is not liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements.
3.20 INTELLECTUAL PROPERTY
---------------------
(a) Sellers have delivered to Buyer true and complete copies of, and
EXHIBIT 3.20 hereof contains a complete and accurate list of, all Contracts
- ------------
relating to the Intellectual Property Assets.
(b) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company
is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use, without payment to a third party, all of the Intellectual Property Assets.
(c) The Intellectual Property Assets and the use thereof by the Company
does not nor does the subject matter of any of the Intellectual Property Assets
infringe or is alleged to infringe any rights of any third party or is a
derivative work based on the work of a third party.
3.21 BANK ACCOUNTS
-------------
EXHIBIT 3.21 contains a complete and accurate list of each bank or
------------
financial institution in which the Company has an account
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<PAGE>
or safe deposit box, including address, account number and the names of persons
authorized to draw thereon or to have access thereto.
3.22 CERTAIN PAYMENTS
----------------
Since 1991, neither the Company nor any director, officer, agent, or
employee of the Company, nor any Representative, has directly or indirectly (a)
made any contribution, gift, bribe,rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company, or (iv) in violation of any Legal Requirement, and/or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.23 COMPANY REVENUES
----------------
The Company revenues, as measured by GAAP on a consolidated basis, from
Telephone and Operating License Agreements during the fiscal year ended 1995 was
not less than $20,000,000. The Company revenues, as measured by GAAP on a
consolidated basis, from Telephone and Operating License Agreements during the
two fiscal quarters ending June 30, 1996, was not less than $14,500,000.
3.24 DISCLOSURE
----------
No representation or warranty of Sellers in this Agreement omits to state
a material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
----------------------------------
Except as set forth in EXHIBIT 3.25 hereof, neither any of the Sellers nor
------------
any Person related or affiliated with any Seller or the Company is a party to
any Contract with, or has any claim or right against, the Company. Neither any
of the Sellers nor any Person related or affiliated with any of the Sellers
owns, directly or indirectly, any material interest in any person or entity that
is a competitor, customer or supplier of the Company, that otherwise has any
business dealings with the Company or that is engaged in the same or similar
business as the Company.
3.26 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 3.26, Sellers and their agents have
------------
incurred no obligation or liability, contingent or
-30-
<PAGE>
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.27 HSR ACT
-------
Company is the "acquired person" within the meaning of the HSR Act and has
for the purposes of the "size of person" test under the HSR Act less than
$100,000,000 in annual net sales or total assets.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
------------------------------
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the state of its incorporation.
4.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of [the Consulting Agreement, the Employment
Agreement, the Non-Competition Agreements] and the Buyer's Closing Certificate
(collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents
will constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms. Buyer has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement and the Buyer's Closing Documents and to perform its obligations under
this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in EXHIBIT 4.2, neither the execution and delivery
------------
of this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
or
(iv) any contract to which Buyer is a party or by which Buyer may be
bound.
-31-
<PAGE>
Except as set forth in EXHIBIT 4.2, Buyer is not and will not be required
-----------
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
-----------------
Buyer is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
-------------------
There is no pending or Threatened Proceeding that has been commenced
against Buyer and that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
4.5 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 4.5, Buyer and its officers and agents have
-----------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through Buyer as a result of the action of Buyer
or its officers or agents.
4.6 HSR ACT
-------
Buyer is the "acquiring person" within the meaning of the HSR Act and has
for the purposes of the "size of person" test under the HSR Act less than
$100,000,000 in annual net sales or total assets.
5. COVENANTS OF SELLERS AND THE COMPANY PRIOR TO/ON CLOSING DATE
5.1 REQUIRED APPROVALS
------------------
As promptly as practicable after the date of this Agreement, Sellers will,
and will cause the Company to, make all filings required by Legal Requirements
to be made by them in order to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to, (a) cooperate with Buyer with respect to all filings that
Buyer elects to make or is required by Legal Requirements to make in connection
with the Contemplated Transactions, and (b) cooperate with Buyer in obtaining
all Consents identified in EXHIBIT 4.2.
-----------
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<PAGE>
5.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the board of directors of the Company.
5.3 CURRENT INFORMATION
-------------------
During the period from the date of this Agreement to the Closing Date, the
Company shall cause one or more of its Representatives to confer on a regular
and frequent basis with Representatives of Buyer to report on the general status
of the ongoing operations of the Company. The Company shall promptly notify
Buyer of any material change in the normal course of its business or in the
operation of its properties and of any governmental complaints, investigations,
or hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving such party, and
will keep Buyer fully informed with respect to such events.
5.4 OPERATIONS PRIOR TO CLOSING DATE
--------------------------------
(a) In addition to any other express obligation under this Agreement,
between the date of this Agreement and the Closing Date, the Company will do,
and the Sellers shall cause the Company to do each of the following, and each of
the Company and the Sellers also represents that from the date of the Interim
Balance Sheet to the date of this Agreement the Company has done the following:
(i) conduct the business of the Company only in the usual, regular
and ordinary manner, on a basis consistent with past practice, maintain
the Company's books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with past practices, maintain and
comply with the terms of all licenses, permits and other Legal
Requirements, and otherwise conduct the business of the Company only in
the Ordinary Course of Business;
(ii) use their best efforts to preserve intact the current
organization of the Company, keep available the services of the current
officers, employees, and agents of the current organization of the
Company, and maintain the relations and good will with all suppliers,
customers, landlords, creditors, employees, agents, and others having
business relationships with the Company;
(iii) conduct the business and affairs of the Company in a manner so
that all representations and warranties herein will be true and correct at
Closing;
(iv) maintain all of the Company Assets in good repair, order and
condition, and perform all of the Company's obligations under the
Contracts; and
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<PAGE>
(v) pay all expenses and accounts payable incurred in connection with
the operation of the Company's business in the usual, regular and ordinary
manner on a basis consistent with past practice.
(b) Except as set forth in EXHIBIT 3.14, the Company agrees that during
------------
the period from the date of this Agreement to and including the Closing Date,
without the prior written consent of Buyer, it will not do any of the following
and the Company and Sellers also represent that from the date of the Interim
Balance Sheet to the date of this Agreement the Company has not done any of the
following:
(i) incur any liability or obligation of any material nature (whether
accrued, absolute, contingent or otherwise), except in the Ordinary Course
of Business;
(ii) permit any of the Company Assets to be subjected to any
Encumbrance;
(iii) sell, transfer or otherwise dispose of any Company Assets
except in the Ordinary Course of Business;
(iv) make any capital expenditure or commitment therefor, except in
the Ordinary Course of Business;
(v) redeem, purchase or otherwise acquire any shares of its capital
stock or any option, warrant or other right to purchase or acquire any
such shares;
(vi) except in the Ordinary Course of Business, borrow money or make
any loan to any Person;
(vii) write off as uncollectible any note or accounts receivable,
except write-offs in the Ordinary Course of Business charged to applicable
reserves, which individually or in the aggregate are not material to the
Company;
(viii) accelerate the collection of any accounts receivable or other
amounts payable to the Company;
(ix) except as disclosed on EXHIBIT 5.4(b)(ix), grant any increase in
------------------
the rate of wages, salaries, bonuses or other remuneration of any
executive employees or other employees;
(x) cancel or waive any claims or rights of substantial value;
(xi) make any change in any method of accounting or auditing
practice;
-34-
<PAGE>
(xii) agree, whether or not in writing, to do any of the foregoing;
(xiii) cause the Sellers or the Company to, without the prior
consent of Buyer, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of
the changes or events listed in Section 3.16 is likely to occur.
5.5 ACCESS AND INVESTIGATION
------------------------
Between the date of this Agreement and the Closing Date, Sellers and the
Company will, and will cause their Representatives during reasonable business
hours and as coordinated with the Company's management, to, (a) afford Buyer and
its Representatives and advisors (collectively, "Buyer's Advisors") full and
free access to all Company employees and personnel and to all Company Contracts,
books and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such Contracts, books and records, and other
existing documents nd data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
5.6 NOTIFICATION
------------
(a) Between the date of this Agreement and the Closing Date, the
Sellers and the Company will promptly notify Buyer in writing if a Seller or the
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of representations and warranties of Sellers or the Company as of
the date of this Agreement and before Closing, or if a Seller or the Company
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, each Seller will promptly
notify Buyer of the occurrence of any Breach of any covenant of Sellers in this
Section 5 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 7 impossible or unlikely.
(b) Seller may in good faith, based upon circumstances not known to
Sellers on the date of this Agreement, update the Exhibits to this Agreement
prior to Closing, in which case Buyer is under no obligation to close. If the
Closing occurs, Sellers' representations will be deemed amended based on the
updated exhibits.
(c) Seller may in good faith update EXHIBIT 3.2(b) based on change of
--------------
advice of counsel up to the date shown that Exhibit, in which case Buyer is
under no obligation to close
-35-
<PAGE>
(except to the extent that additional required consents are covered by the
Regulatory Escrow Fund).
5.7 NO NEGOTIATION
--------------
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, Sellers and the Company will not, and will not permit any of their
Representatives to, directly or indirectly solicit, initiate, respond to or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
--------------------------------
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required by Legal Requirements to be made by them to consummate
the Contemplated Transactions. The Buyer shall use its best efforts to satisfy
all the conditions precedent to its and all other parties' obligations under
this Agreement. Between the date of this Agreement and the Closing Date, Buyer
will cooperate with Sellers with respect to all filings that Sellers are
required by Legal Requirements to make in connection with the Contemplated
Transactions, and cooperate with Sellers in obtaining all consents identified in
EXHIBIT 3.2(c) hereof.
- --------------
6.2 NOTIFICATION; AMENDMENT OF EXHIBITS
-----------------------------------
(a) Between the date of this Agreement and the Closing Date, Buyer
will promptly notify the Sellers and the Company in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
representations and warranties of Buyer as of the date of this Agreement and
before Closing, or if Buyer becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty by Buyer had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition.
During the same period, Buyer will promptly notify the Sellers and the Company
of the occurrence of any Breach of any covenant of Buyer in this Section 6 or of
the occurrence of any event that may make the satisfaction of the conditions in
Section 8 impossible or unlikely.
-36-
<PAGE>
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to acquire the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of the representations and warranties of Sellers and the Company in
this Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been materially accurate as of
the date of this Agreement, and must be materially accurate as of the Closing
Date as if made on the Closing Date.
7.2 PERFORMANCE
-----------
(a) All of the covenants and obligations that Sellers and the Company are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered.
(c) All of the agreements, other documents or certificates, or actions
required to be entered into, delivered and/or taken at or prior to the Closing
in accordance with Section 2 hereof, including actions or deliveries of Persons
not a party hereto, shall have been entered into, delivered and or taken, as
applicable.
7.3 CONSENTS
--------
Except for those regulatory and contractual consents as to which cash is
permitted to be deposited in the Regulatory Escrow Fund identified in Section
2.3(b), (i) each of the Consents identified in Sections 3.2, and 4.2 must have
been obtained and must be in full force and effect and (ii) Buyer must have
received an opinion of counsel, in form and substance reasonably acceptable to
Buyer that all Government Authorizations necessary to Closing have been
obtained, including without limitation those of State of Missouri or its
Subdivisions or instrumentalities.
7.4 NO PROCEEDINGS
--------------
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of
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the Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise materially interfering with any of the
Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
---------------------------------------------------
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.6 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
7.7 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in the Company's financial
condition, business, property or prospects nor shall have there occurred any
change in the business condition of the Company's customers or suppliers nor any
change in the regulatory or competitive environment, which in the judgment of
Buyer materially adversely affects the Company, the business of the Company or
the condition (financial or otherwise) of the Company.
In the event that each and every one of these conditions precedent to the
obligations of Buyer shall not have been satisfied prior to or at the Closing,
then Buyer may (but shall not be obligated to) waive such unsatisfied condition
or extend the Closing Date to allow additional time for such condition to be
satisfied. Any such waiver or extension shall be without prejudice to any other
rights and remedies Buyer may have hereunder or at law or in equity.
7.8 RELATED CONTRACTS Each of (i) that certain Contribution Agreement
-----------------
(the "Contribution Agreement") of even date herewith among Buyer, the Company
and certain of the Sellers, (ii) that certain Stock Acquisition Agreement of
even date herewith for the acquisition of shares of Talton Telecommunications
Corporation and (iii) that certain Contribution Agreement of even date herewith
pertaining to the contribution of shares of Talton Telecommunications
Corporation
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must be consummated in accordance with their respective terms contemporaneously
with the Closing.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to transfer the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been materially accurate as of the date of
this Agreement and must be materially accurate as of the Closing Date as if made
on the Closing Date.
8.2 BUYER'S PERFORMANCE
-------------------
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash payments
required to be made by Buyer pursuant to Sections 2.4(b)(i) and 2.4(b)(ii).
8.3 NO VIOLATION OF ORDER
---------------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will result in a material violation of any Order.
8.4 RELATED CONTRACTS Each of (i) that certain Contribution Agreement
-----------------
(the "Contribution Agreement") of even date herewith among Buyer, the Company
and certain of the Sellers, (ii) that certain Stock Acquisition Agreement of
even date herewith for the acquisition of shares of Talton Telecommunications
Corporation and (iii) that certain Contribution Agreement of even date herewith
pertaining to the contribution of shares of Talton Telecommunications
Corporation must be consummated in accordance with their respective terms
contemporaneously with the Closing.
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<PAGE>
9. TERMINATION
9.1 TERMINATION EVENTS
------------------
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) by Buyer: if any of the conditions in Section 7 have not been
satisfied as of January 31, 1997; or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before January 31, 1997;
(c) by Sellers: if any of the conditions in Section 8 have not been
satisfied as of January 31, 1997; or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Sellers to comply with
their obligations under this Agreement) and Sellers have not waived such
condition on or before January 31, 1997; or
(d) by mutual consent of Buyer and Sellers; or
(e) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before January 31, 1997,
or such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION
---------------------
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL
--------
Subject to the limitations described in this Section 10.1, all
representations, warranties, covenants, and obligations in this Agreement, the
certificates delivered pursuant to Section 2.4(a) and (b), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing as follows: (i) all representations, warranties, covenants and
obligations, other than any representation or warranty contained in Section 3.9,
3.13 or any claim based upon a fraudulent misrepresentation, shall survive the
Closing until May 31, 1998, and shall thereupon expire together with any right
to indemnification (except to the extent a written notice asserting a claim for
breach of any such representation or warranty shall have been given prior to
such date to the party which made such representation and warranty), (ii) all
representations or warranties contained in Section 3.13 shall survive the
Closing until three (3) years from the Closing Date and shall thereupon expire
together with any right to indemnification (except to the extent a written
notice asserting a claim for breach of any such representation or warranty shall
have been given prior to such date to the party which made such representation
and warranty), and (iii) all representations or warranties contained in Section
3.9 and all claims based upon a fraudulent misrepresentation shall survive the
Closing indefinitely.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
-------------------------------------------------
(a) Subject to the limitations described herein, Sellers severally, and
not jointly, will indemnify and hold harmless Buyer, the Company and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising or resulting
from, directly or indirectly, from or in connection with:
(i) any Breach of any representation or warranty made by Sellers in
this Agreement or the Contribution Agreement, or any other certificate or
document delivered by Sellers pursuant to this Agreement or the
Contribution Agreement;
(ii) any Breach by Sellers of any covenant or obligation of Sellers
in this Agreement or the Contribution Agreement, or in any Sellers'
Closing Documents or any other document delivered by Sellers pursuant to
this Agreement or the Contribution Agreement;
-41-
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(iii) regardless of whether it may also constitute a Breach under
Section 10.2 (a) or (b) above, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs
of investigation and defense and reasonable attorneys' fees) arising from
or relating to the operation, management or ownership of the Company,
arising or related to the period on or prior to the Closing Date (whether
known or unknown on the Closing Date).
provided, however, that (i) except as provided in (ii) below, the aggregate
- -------- -------
amount of Damages for which any Seller shall indemnify Buyer hereunder for any
Breach of a representation, warranty, covenant or other obligation contained in
this Agreement or the Contribution Agreement shall not exceed each Seller's pro
rata share (based upon his or her ownership in the Company at Closing) of the
amount in the Post-Closing Escrow Fund (such indemnification to be provided by
the Post-Closing Escrow Fund); (ii) the aggregate amount of Damages for which
the Sellers shall indemnify Buyer hereunder for any Breach of a representation
or warranty contained in Section 3.9 and 3.13 or for any claim based upon a
fraudulent misrepresentation (to the extent of Damages incurred as a result)
shall not exceed each Seller's pro rata share of the Purchase Price and all of
such Seller's shares in Buyer acquired in connection with the Contribution
Agreement of even date herewith (such indemnification to be provided first by
the Post-Closing Escrow Fund); and (iii) Buyer shall not be entitled to assert
any right to indemnification hereunder against the Sellers until Buyer's good
faith estimate of all Damages for which the Sellers indemnify Buyer hereunder
exceeds $100,000 (the "Indemnification Threshold") at which time Buyer shall be
entitled to indemnification for all Damages which exceed the Indemnification
Threshold (subject to the limitations described above). Each Seller's several
obligation under this Section shall be calculated by multiplying the indemnified
Damages by the Seller's percentage ownership of the Company as of the Closing.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
-----------------------------------------------
Buyer will indemnify and hold harmless Sellers and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Sellers' Indemnified Persons"), and will pay to Sellers'
Indemnified Persons the amount of any Damages arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by Buyer in
this Agreement or the Contribution Agreement, or in any certificate
delivered by Buyer pursuant to this Agreement or the Contribution
Agreement; or
(b) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement or the Contribution Agreement.
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<PAGE>
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
-------------------------------------------------
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3, of notice of the commencement of any Proceeding against it or of notice
that such Proceeding has been Threatened against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim or
threatened Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action or the ability of the indemnifying party to
obtain otherwise available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.4(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding, (i) no compromise or
settlement of such claims may be effected by the indemnifying party without the
indemnified party's consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any
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<PAGE>
determination made in such Proceeding or any compromise or settlement effected
by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
materially adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party, and
following a good faith attempt to consult with the indemnifying party, assume
the exclusive right to defend, compromise, or settle such Proceeding, but the
indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
-------------------------------------------
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
10.6 SOLE REMEDY; EFFECT OF REMEDIES AVAILABLE UNDER CONTRIBUTION
------------------------------------------------------------
AGREEMENT
- ---------
(a) After Closing, a claim for indemnification under this Section 10 will
be a party's sole remedy for breach of this Agreement.
(b) The parties intend for the indemnification obligations under this
Agreement and the Contribution Agreement to operate together and without
duplication so that a Seller's (or Shareholder's) aggregate liability under both
documents is limited to (i) his or her pro rata share of the Post Closing Escrow
Fund or (ii) the Purchase Price, and the shares of Buyer acquired by such Seller
(as a Shareholder) under the Contribution Agreement, as applicable.
11. GENERAL PROVISIONS
11.1 EXPENSES
--------
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
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11.2 SELLERS' OBLIGATIONS AND DECISIONS
----------------------------------
Subject to the limitations contained in Section 10.2 hereof, any and all
representations, warranties, covenants, obligations and or agreements of the
Sellers contained herein are made and given severally by the Sellers, and each
of the Sellers shall be severally liable for with all such representations,
warranties, covenants, obligations and agreements. Whenever any decision,
consent, waiver, determination and/or exercise of any right or remedy
(collectively, a "Decision") is required or may be made, taken or given by the
Sellers hereunder, such Decision may only be made, taken or given by John R.
----
Baker (as provided in the Shareholder Representative Agreement among the
Sellers) (the "Sellers' Representative"). The Sellers' Representative may only
be changed by a Majority in Interest of the Sellers. Any Decision made, taken
or given by the Sellers' Representatives shall be binding upon all Sellers. For
purposes hereof, Majority in Interest of the Sellers shall mean Sellers holding
a majority of the outstanding Shares.
11.3 CONFIDENTIALITY
---------------
All information and documentation furnished to Buyer shall be covered by
that certain agreement dated ____________________, 1996 (the "Confidentiality
Agreement"). Prior to Closing, no party or affiliate of a party hereto or to
the Confidentiality Agreement will issue or cause publication of any press
release or other announcement or public communications with respect to the
Contemplated Transactions, including without limitation a general announcement
to such party's employees, without the prior consent of the other parties
hereto, which consent will not be unreasonably withheld; provided, however, that
nothing herein will prohibit any party (or affiliate) from issuing or causing
publication of any such press release, announcement or public communication to
the extent that such party (or affiliate) reasonably determines such action to
be required by law, any regulatory agency or the rules of any national stock
exchange or association applicable to it, in which case the party (or affiliate)
making such determination will use reasonable efforts to allow the other party
reasonable time to comment on such release or announcement in advance of its
issuance or to make any disclosure necessary to obtain any consents required or
deemed appropriate by Buyer.
11.4 NOTICES
-------
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the
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appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):
If to Buyer:
c/o Engles Urso Follmer Capital
Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
With a copy to:
Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: Carl C. Christoff
If to any Seller and/or the Company:
c/o AmeriTel Pay Phones, Inc.
611 Southwest 3rd Street
Lee's Summit, Missouri 64063
Telephone: (816) 525-4151
Facsimile: (816) 525-3006
Attention: Roger K. Sallee
With a copy to Seller's Representative:
John R. Baker
205 Oxford Lane
Lee Summit, Missouri 64063
And with a copy to:
Blackwell Sanders Matheny Weary &
Lombardi L.C.
Suite 1100
Two Pershing Square
Kansas City, Missouri 64108
Telephone: (816) 274-6800
Facsimile: (816) 274-6914
Attention: Robert E. Marsh
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11.5 JURISDICTION; SERVICE OF PROCESS
--------------------------------
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Texas, County of Dallas, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any
action or proceeding referred to in the preceding sentence may be served on any
party anywhere in the world.
11.6 FURTHER ASSURANCES
------------------
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
------
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
---------------------------------
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and together with the Contribution Agreement
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by
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a written agreement executed by the party to be charged with the amendment.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
--------------------------------------------------
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, except that Buyer may assign this
Agreement and/or any of its rights under this Agreement to (i) any affiliate of
Buyer, Engles Urso Capital Corporation and/or their respective principals, or
(ii) any bank, financial institution and/or other party providing any loans or
financing to Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement
and all of its provisions and conditions are for the sole and exclusive benefit
of the parties to this Agreement and their successors and assigns.
11.10 SEVERABILITY
------------
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.11 SECTION HEADINGS, CONSTRUCTION
------------------------------
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. The
parties, in acknowledgment that all of them have been represented by counsel and
that this Agreement has been carefully negotiated, agree that the construction
and interpretation of this Agreement and other documents entered into in
connection herewith shall not be affected by the identity of the party or
parties under whose direction or at whose expense this Agreement and such
documents were prepared or drafted.
11.12 TIME OF ESSENCE
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
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11.13 GOVERNING LAW
-------------
This Agreement will be governed by the laws of the State of Texas without
regard to conflicts of laws principles.
11.14 COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Talton Holdings, Inc., /s/ RICHARD C. GREEN, JR.
a Delaware corporation ---------------------------------------
RICHARD C. GREEN, JR.
By: /s/ JOSEPH P. URSO /s/ ROBERT K. GREEN
------------------------ ---------------------------------------
Name: Joseph P. Urso ROBERT K. GREEN
Title: President
/s/ T. RANDALL THOMPSON
---------------------------------------
T.R. THOMPSON
/s/ ROGER K. SALLEE
---------------------------------------
ROGER K. SALLEE
RNG INVESTMENTS LP
By: /s/ RICHARD C. GREEN, JR.
------------------------------------
Name: Richard C. Green, Jr.
Title: General Partner
/s/ T. RANDALL THOMPSON
---------------------------------------
Randy Thompson
RJG INVESTMENTS LP
By: /s/ ROBERT K. GREEN
------------------------------------
Name: Robert K. Green
Title: General Partner
/s/ ROBERT K. GREEN
---------------------------------------
Robert K. Green
/s/ ROGER K. SALLEE
---------------------------------------
Roger Sallee
/s/ RICHARD C. GREEN, JR.
---------------------------------------
Richard C. Green, Jr.
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/s/ TERRY MATLACK
---------------------------------------
Terry Matlack
/s/ PETE LORENZ
---------------------------------------
Pete Lorenz
/s/ JOHN C. DUNN
---------------------------------------
John Dunn
/s/ JOHN R. SUMMERS
---------------------------------------
John Summers
/s/ JOHN R. BAKER
---------------------------------------
Jack Baker
/s/ JIM MACLAUGHLIN
---------------------------------------
Jim MacLaughlin
ANN G. MAHURIN TRUST
By: /s/ ANN G. MAHURIN
------------------------------------
Name: Ann G. Mahurin
Title: Trustee
/s/ MARK VANMETER
---------------------------------------
Mark VanMeter
/s/ SCOTT MOORE
---------------------------------------
Scott Moore
/s/ KAY NORRIS
---------------------------------------
Kay Norris
/s/ GARY VANBUSKIRK
---------------------------------------
Gary VanBuskirk
/s/ GENE DARNELL
---------------------------------------
Gene Darnell
JACK MAHURIN TRUST
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By: /s/ JACK L. MAHURIN
------------------------------------
Name: Jack L. Mahurin
Title: Trustee
/s/ JAMES A. HAYES
---------------------------------------
James A. Hayes
/s/ LOIS SWADLEY
---------------------------------------
Lois Swadley
/s/ ZELIA O. BELL
---------------------------------------
Zelia Bell
/s/ KEVIN M. JACKSON
---------------------------------------
Kevin Jackson
/s/ LARRY KREMEIER
---------------------------------------
Larry Kremeier
/s/ BRENDA KING
---------------------------------------
Brenda King
/s/ DENIS RHODES
---------------------------------------
Denis Rhodes
AMERITEL PAY PHONES, INC.
a Missouri corporation
By: /s/ TERRY MATLACK
------------------------------------
Name: Terry Matlack
Title: President
-52-
<PAGE>
LIST OF EXHIBITS*
TO
AMERITEL STOCK ACQUISITION AGREEMENT
Schedule 1 List of Acquired Shares
Exhibit 1(a) Example Calculation of Adjustment Amount,
Purchase Price and Funding Requirement
Exhibit 1-b Agreements
Exhibit 2.3(a) Escrow Agreement
Exhibit 2.3(b) Regulatory Escrow Agreement
Exhibit 2.4(a) Sallee Consulting Agreement
Exhibit 2.4(a)(iii)-1 Matlack Employment Agreement
Exhibit 2.4(a)(iii)-2 Summers Employment Agreement
Exhibit 2.4(a)(v) Form of Sellers' Counsel Legal Opinion
Exhibit 2.4(a)(vi)-1 Green, Jr. Non-Competition Agreement
Exhibit 2.4(a)(vi)-2 Green Non-Competition Agreement
Exhibit 2.4(a)(vi)-3 Thompson Non-Competition Agreement
Exhibit 2.4(b)(v) Form of Buyers Counsel Legal Opinion
Exhibit 2.5(d) Pre-Closing Escrow Agreement-NOT APPLICABLE
Exhibit 3.1(a)-1 States of Operation
Exhibit 3.1(a)-2 Mergers
Exhibit 3.1(b) Corporate Names and Addresses
Exhibit 3.2(b) Consents
Exhibit 3.3(a) Ownership of Shares
Exhibit 3.3(b)-1 Legends and other Encumbrances on Stock
Exhibit 3.3(b)-2 Contracts or Other Agreements relating to
Issuance, Sale or Transfer of any Stock
Exhibit 3.3(c) Options
Exhibit 3.4 Interim Financial Statements
Exhibit 3.6(a) Encumbrances
Exhibit 3.6(a)[sic] Exceptions to Full Title
Exhibit 3.6(a)(ii) Installed Telephone Lines
Exhibit 3.6(a)(iv) Uninstalled Telephones, Parts, Hardware and
Equipment
Exhibit 3.6(a)(v) Vehicles
Exhibit 3.6(a)(vi) Furniture, Fixtures, Equipment, Personalty or
Intellectual Property Valued in excess of $1000
Exhibit 3.6(b) Continuing Liabilities
Exhibit 3.7 Accounts Receivable
Exhibit 3.8 Undisclosed Liabilities
Exhibit 3.9 List of Tax Returns and other Tax Matters
Exhibit 3.10 Material Adverse Changes
Exhibit 3.11 Employee Benefit Plans
Exhibit 3.12 Governmental Authorizations
Exhibit 3.13(a) and
Exhibit 3.13(b) Litigation
Exhibit 3.14 Changes and Events
Page 1 of 2
<PAGE>
Exhibit 3.15(a)(i) Telephone Operating and License Agreement
Description
Exhibit 3.15(a)(ii) Service Agreement Description
Exhibit 3.15(a)(iii) Leases, Rental and Occupancy Agreements over
$5000 and 12 months
Exhibit 3.15(a)(iv) Licensing Agreements and/or Contracts with
respect to Intellectual Property Assets
Exhibit 3.15(a)(v) Joint Venture, Partnership or Contracts
involving Sharing of Profits, Losses, Costs or
Liabilities
Exhibit 3.15(a)(vi) Other Contracts ($5000 or more)
Exhibit 3.15(a)(vii) Power of Attorney List
Exhibit 3.15(b) Rights, Obligations and/or Liabilities of Seller
Exhibit 3.15(c) Contract Compliance
Exhibit 3.16(a) Insurance Policies
Exhibit 3.16(b) Insurance Summary
Exhibit 3.16(c) Insurance Statement
Exhibit 3.17 Environmental Statement
Exhibit 3.18(a) Employee Information
Exhibit 3.18(b) Officers/Directors Terminating Employment prior
to December 31, 1997
Exhibit 3.18(c)-1 Employee, Consultant and Contract Labor
Agreements
Exhibit 3.18(d) Retired Employee, Director, Director's
Dependents List of Benefits
Exhibit 3.20 Intellectual Property Asset Contracts
Exhibit 3.21 List of Bank Accounts
Exhibit 3.25 Relationships with Related Persons
Exhibit 3.26 Brokers or Finders (Sellers)
Exhibit 4.2 List of Consents-Buyer
Exhibit 4.5 Brokers or Finders (Buyer)
Exhibit 5.4(b)(ix) Disclosure of remuneration increases
_________________
* These items have been omitted. A copy will be provided to the Commission upon
request.
Page 2 of 2
<PAGE>
EXHIBIT 2.5
STOCK ACQUISITION AGREEMENT
by and among
Talton Holdings, Inc., a Delaware corporation
and Julius E. Talton, Julius E. Talton, Jr.,
James E. Lumpkin, Carrie T. Glover,
Talton Telecommunications Corporation,
an Alabama corporation, and
Talton Telecommunications of Carolina, Inc.,
an Alabama corporation
Dated December 20, 1996
<PAGE>
STOCK ACQUISITION AGREEMENT
THIS STOCK ACQUISITION AGREEMENT ("Agreement") is made as of December 20,
1996, by TALTON HOLDINGS, INC., a Delaware corporation ("Buyer"), JULIUS E.
TALTON ("Talton"), JULIUS E. TALTON, JR. ("Talton Jr."), JAMES E. LUMPKIN
("Lumpkin"), CARRIE T. GLOVER ("Glover"), TALTON TELECOMMUNICATIONS CORPORATION,
an Alabama corporation ("TTC") and TALTON TELECOMMUNICATIONS OF CAROLINA, INC.,
an Alabama corporation ("TT-Carolina"). Talton, Talton Jr., Lumpkin and Glover
are sometimes referred to herein individually as a "Seller" and collectively as
"Sellers." Whenever the term "Company" is used herein, it shall refer to and
shall be construed to mean, in each instance, TTC and TT-Carolina, individually,
as well as TTC and TT-Carolina, collectively as a group.
RECITALS
WHEREAS, the Sellers own all the outstanding shares of the capital stock of
TTC (the "Outstanding Shares"), and TTC owns all the shares of the capital stock
of TT-Carolina.
WHEREAS, the Sellers desire to transfer, and Buyer desires to acquire 3,840
of the Outstanding Shares (the "Shares") for the consideration and on the terms
set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, the parties intending to be
legally bound, do hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"BILLING AND COLLECTION AGREEMENT": any billing and collecting agreement,
--------------------------------
local exchange company billing agreement or other Contract relating to the
provision of billing and collection services to the Company.
"BREACH": a "Breach" of a representation, warranty, covenant, obligation,
------
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been any
material inaccuracy in or breach of, or any material failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision.
"CASH EFFECTIVE CLOSING DATE": Close of business of Company on December 2,
---------------------------
1996 (being the first business day after November 30, 1996).
-1-
<PAGE>
"CONSENT": any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS": all of the transactions contemplated by this
-------------------------
Agreement, including: (a) the transfer by the Sellers to Buyer and the
acquisition (and payment therefor) by Buyer from the Sellers of the Shares; (b)
the execution, delivery and performance of the Consulting Agreements, and the
Employment Agreement; and (c) the performance by Buyer, the Company and Sellers
of their respective covenants and obligations under this Agreement, including
without limitation their obligations under Section 2 hereof.
"CONTRACT": any agreement, contract, license obligation, promise or
--------
undertaking presently in effect, (a) under which the Company has or may acquire
any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"CONTRIBUTION AGREEMENT": that certain Contribution Agreement of even date
----------------------
herewith by and among Buyer and certain of the Sellers pursuant to which Buyer
will acquire certain common shares of the Company.
"ENCUMBRANCE": any charge, claim, community property interest, condition,
-----------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA": the Employee Retirement Income Security Act of 1974 or any successor
-----
law, and regulations and rules issued pursuant to that Act or any successor law.
"GAAP": generally accepted United States accounting principles, applied on a
----
consistent basis.
"GOVERNMENTAL AUTHORIZATION": any approval, consent, license, permit, waiver,
--------------------------
tariff, or other written authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY": any: (a) nation, state, county, city, town, village,
-----------------
district, or other properly constituted local government; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or (d) any properly constituted and
authorized body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature in the United States.
-2-
<PAGE>
"INSTALLED TELEPHONE": a Telephone that is subject to a Telephone Operating
-------------------
and License Agreement, and is installed at the location provided for in its
related Telephone Operating and License Agreement, including, without
limitation, those Installed Telephones Lines identified by installation location
and telephone number in EXHIBIT 3.6(a)(ii)-1 (with any Telephones co-located
--------------------
with any pay telephones not owned by the Company being specifically identified
on said EXHIBIT 3.6(a)(ii)-1).
--------------------
"INSTALLED TELEPHONE LINE": any telephone lines and related facilities
------------------------
providing telephone service to Installed Telephones, including those Telephone
lines identified by installation, location and telephone number in EXHIBIT
3.6(a)(ii)-2.
- ------------
"INTELLECTUAL PROPERTY ASSETS": any patents, patent applications, inventions,
----------------------------
trademarks, tradenames, business names, service marks, copyrights, trade
secrets,know-how, customer lists, software, technical information, plans,
drawings, blue prints or other intellectual property used in the operation of
the Company's business.
"IRC": the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
---
and, to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE": in the case of Sellers, information known to the Sellers without
---------
independent investigation beyond the Company's officers and directors; in the
case of the Company, information known by the Company's officers and directors.
"LEGAL REQUIREMENT": any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, ruling, regulation or statute (as to representations and warranties
set forth in this Agreement, such orders, constitutions, laws, ordinances,
rulings, regulations or statutes in effect as of the date such representation or
warranty is made).
"LONG DISTANCE SERVICE AGREEMENTS": any long distance service provider
--------------------------------
agreement, telecommunications agreement or other Contract relating to provision
of long distance service or other similar services to the Company.
"OPERATOR SERVICE AGREEMENT": any agreement or other Contract relating to the
--------------------------
provision of operator or other telephone services to the Company.
"ORDER": any award, decision, injunction, judgment, order, ruling, subpoena,
-----
or verdict entered, issued, made, or rendered
-3-
<PAGE>
by any court, administrative agency, or other Governmental Body or by any
arbitrator.
"ORDINARY COURSE OF BUSINESS": an action taken by a Person will be deemed to
---------------------------
have been taken in the "Ordinary Course of Business" only if: (a) such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority).
"ORGANIZATIONAL DOCUMENTS": (a) the articles or certificate of incorporation
------------------------
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (d) any
charter, articles of organization, shareholders agreement, operating agreement
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PARTS AND SUPPLIES AGREEMENT": any Contract relating to the provision of
----------------------------
Telephones, Telephone parts, inventory or equipment, or other parts, equipment
or services to the Company.
"PERSON": any individual, corporation (including any non-profit corporation),
------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PROCEEDING": any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REPRESENTATIVE": with respect to a particular Person, any director, officer,
--------------
employee, agent, consultant, advisor, partner or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT": the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"SERVICE AGREEMENTS": any Long Distance Service Agreement, Billing and
------------------
Collection Agreement, Parts and Supplies Agreement, Operator Service Agreement
or similar agreement or Contract relating to the provision of parts, equipment
or services to the Company.
"TAX RETURN": any return (including any information return), report,
----------
statement, schedule, notice, form, or other
-4-
<PAGE>
document or information filed with or submitted to, or required to be filed with
or submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
"TELEPHONE OPERATING AND LICENSE AGREEMENTS": all written lease agreements,
------------------------------------------
telephone location agreements, telephone service agreements, license agreements,
royalty agreements or other contracts relating to the Installed Telephones,
which agreements grant the right to the Company to install and operate the
Installed Telephones upon the premises set forth within any such document.
"TELEPHONES": any of the coin, credit card operated or collect call only
----------
telephones, owned or operated by the Company, including any hardware, enclosure,
pedestal or any other personal property installed with any Telephone.
"THREATENED": a claim, Proceeding, dispute, action, or other matter will be
----------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist that would lead
a prudent Person to conclude that such a claim, Proceeding, dispute, action, or
other matter is likely to be asserted, commenced, taken, or otherwise pursued in
the future.
2. TRANSFER OF SHARES, CLOSING AND OTHER AGREEMENTS
2.1 SHARES Upon the terms and subject to the conditions of this Agreement,
------
each Seller agrees to sell to Buyer and Buyer agrees to purchase from each
Seller the Shares in the proportions listed on EXHIBIT 2.1.
-----------
2.2 PURCHASE PRICE The aggregate purchase price (the "Purchase Price") for
--------------
the Shares will be $25,175,000 cash, plus Buyer's subordinated note in the
amount of $5,000,000 ("Buyer's Subordinated Note"), payable to each Seller in
the amounts shown on EXHIBIT 2.2.
-----------
The cash portion of the Purchase Price shall be paid to the Sellers as
follows: (a) the sum of $11,450,000 shall be paid on the Closing Date; (b) the
sum of $11,725,000 shall be paid on January 2, 1997, or on the Closing Date,
whichever is later; and (c) the sum of $2,000,000, representing the amount of
the Post-Closing Escrow Fund as set forth in Section 2.3(a) herein, which shall
be payable at Closing to the Escrow Agent and shall be due and payable on the
Termination Date of the Post-Closing Escrow Fund, together with interest
accumulated in the Post-Closing Escrow Fund, less any deductions therefrom as
provided for in the Escrow Agreement. The above sums payable under (b) and (c)
above shall be increased or decreased by any Adjustments to the
-5-
<PAGE>
Purchase Price as provided for in Section 2.7. In the event the Closing occurs
before January 2, 1997, the sum of $11,725,000 due to the Sellers under (b)
above, as adjusted, shall not be paid in cash, but rather shall be evidenced by
a promissory note. Such promissory note shall mature on January 2, 1997, shall
bear interest at the rate of five percent (5%) per annum from the Closing Date
until paid, and shall be secured by an irrevocable Stand-by Letter of Credit
from a bank in a form satisfactory to Sellers.
2.3 DEPOSITS; POST-CLOSING ESCROW FUND; REGULATORY SET-OFF
------------------------------------------------------
(a) POST-CLOSING ESCROW FUND At the Closing, Buyer shall, together with any
------------------------
amounts required pursuant to Section 2.7(a), deposit Two Million Dollars
($2,000,000) with South Trust Bank of Alabama as escrow agent for deposit in a
fund (the "Post-Closing Escrow Fund") created pursuant to the Post-Closing
Escrow Agreement attached hereto as EXHIBIT 2.3(a).
--------------
(b) REGULATORY SET-OFF At Closing, in the event that regulatory approvals
------------------
have not been obtained from any state such lack of approval will not be deemed
to be a Breach of this Agreement, and the transaction will close, subject to the
Regulatory Set-off Provisions attached as EXHIBIT 2.3(b).
--------------
2.4 CLOSING The closing of the transactions contemplated by this Agreement
-------
(the "Closing") will take place at the offices of Buyer's counsel in Dallas,
Texas (or such other location within or outside of Dallas, Texas as Buyer shall
designate after giving reasonable advance notice to Sellers; provided, however,
that the Closing will not take place in any jurisdiction which would impose a
stock transfer or similar tax on the Sellers) at 10:00 a.m. (local time) on
December 27, 1996 (or such later date as Buyer and Seller may mutually agree
upon but in no event later than January 31, 1997).
2.5 CLOSING OBLIGATIONS
-------------------
At the Closing:
(a) Sellers or the Company, as applicable, will deliver or cause to be
delivered to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures of Sellers in
attendance at Closing, notarized at Closing, and signatures of Sellers not in
attendance guaranteed by a commercial bank or by a member firm of the New York
Stock Exchange, for transfer to Buyer;
(ii) the Consulting Agreements executed by Talton in the form
attached hereto as EXHIBIT 2.5(a)(ii)-1 (the "Talton Consulting Agreement") and
--------------------
by Lumpkin in the form attached hereto as EXHIBIT 2.5(a)(ii)-2 (the "Lumpkin
--------------------
Consulting Agreement");
-6-
<PAGE>
(iii) the Employment Agreement for Julius E. Talton, Jr. in the
form attached hereto as EXHIBIT 2.5(a)(iii)-1 (the "Employment Agreement");
---------------------
(iv) [Intentionally Deleted];
(v) a certificate executed by Sellers and the Company
representing and warranting to Buyer that, except as otherwise stated in such
certificate, each of Sellers' representations and warranties in this Agreement
was accurate in all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing Date subject,
however, to any limitations expressly set forth herein (the "Sellers' Closing
Certificate").
(vi) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.5(a)(vi);
- ------------------
(vii) such other documents as Buyer may reasonably request for the
purpose of (1) enabling its counsel to provide the opinion referred to in
Section 2.5(b), (2) evidencing the accuracy of any of Sellers' representations
and warranties, (3) evidencing the performance by Sellers of, or the compliance
by Sellers with, any covenant or obligation required to be performed or complied
with by the Sellers at or prior to Closing, or (4) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions in
accordance with this Agreement; and
(viii) a lease in the form of EXHIBIT 2.8 executed by Julius E.
-----------
Talton, as lessor.
(b) Buyer will deliver to each Seller (or to such other Persons
designated below):
(i) the respective amounts of cash as set forth on EXHIBIT
-------
2.5(b)(i);
- ---------
(ii) Buyer's executed Subordinated Note and all associated
documents in the forms attached hereto as EXHIBIT 2.5(b)(ii) (collectively, the
------------------
"Subordinated Note Documents").
(iii) any consulting fees or other compensation required to be paid
at Closing pursuant to the terms of the Consulting Agreements and/or the
Employment Agreement;
(iv) the Consulting Agreements and the Employment Agreement, all
executed by Buyer;
(v) a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is
-7-
<PAGE>
accurate in all respects as of the Closing Date as if made on the Closing Date
subject, however, to any limitations expressly set forth herein (the "Buyer's
Closing Certificate").
(vi) opinion(s) of counsel, dated the Closing Date, in the form of
EXHIBIT 2.5(b)(vi);
- ------------------
(vii) such other documents as Sellers may reasonably request for
the purpose of (1) enabling its counsel to provide the opinion referred to in
Section 2.5(a), (2) evidencing the accuracy of any representation or warranty of
Buyer, (3) evidencing the performance by Buyer of, or the compliance by Buyer
with, any covenant or obligation required to be performed or complied with by
Buyer, or (4) otherwise facilitating the consummation of the Contemplated
Transactions; and
(viii) the lease in the form of EXHIBIT 2.8 executed by the named
-----------
lessee therein.
2.6 TREATMENT OF CERTAIN LIABILITIES, REVENUES AND ADJUSTMENTS
----------------------------------------------------------
(a) Except as otherwise provided herein, Sellers shall discharge or shall
cause the Company to discharge, on or at Closing, and Buyers will acquire the
Company free of all the Company's loans, lines of credit, and interest bearing
indebtedness, whether secured or unsecured. This obligation shall not include,
however, the prepayment of any lease obligations for vehicles, equipment, or
other properties under lease which are listed on EXHIBIT 2.6(a)-1. A specific
----------------
list of the obligations of the Sellers for the payment of loans, lines of credit
and interest bearing debt since December 31, 1995, the payment of which has or
will occur on or prior to the Closing, is attached as EXHIBIT 2.6(a)-2.
----------------
Notwithstanding any other provisions of this Agreement, the payment of the debts
and obligations listed in EXHIBIT 2.6(a)-2, even if they are outside of the
----------------
Ordinary Course of Business, and even if they constitute a material change in
the operation of the business, shall not constitute a Breach of this Agreement
by the Sellers, nor a Breach of any representations, warranties, or covenants
made by the Sellers herein. To the extent that the obligations of the Sellers
as defined in this paragraph, or otherwise included on EXHIBIT 2.6(a)-2, remain
----------------
outstanding as of the Closing Date, any cash on hand in the Company at the Cash
Effective Closing Date shall be deemed applied to any such obligations, and any
remaining balance of such obligations not so satisfied shall reduce the Purchase
Price as provided in Paragraph 2.7(b).
(b) Sellers shall also discharge or shall cause the Company to fully
discharge, on or at Closing all operating and administrative expenses of the
Company arising or related to the period prior to the Closing Date, including,
without limitation, accounts payable, insurance premiums, fees, lease payments,
tariffs and assessments related to the period up to the Closing
-8-
<PAGE>
Date (collectively, "Pre-Closing Payables"), provided, however, Sellers shall
not be required to discharge or caused to be discharged, and Buyer will acquire
the Company subject to, Pre-Closing Payables which were incurred by the Company
in the usual, regular and ordinary manner, on a basis consistent with past
practices (and otherwise in the Ordinary Course of Business) which, except as
otherwise provided in EXHIBIT 2.6(b), are not more than thirty (30) days past
--------------
due. Sellers shall not be responsible for federal and state income taxes for
the Company for calendar year 1996 and accrued employee bonuses.
(c) Sellers shall also discharge or shall cause the Company to fully
discharge, on or at Closing, all severance or other liabilities to employees
which may vest or become payable on the sale of or change of ownership or
control of the Company or of its assets, including without limitation any
liability arising out of or triggered by the Contemplated Transactions.
2.7 ADJUSTMENTS TO PURCHASE PRICE
-----------------------------
(a) Sellers shall be responsible for payments of all past-due sales taxes and
penalties thereon owed by the Company as of the Closing Date, including, without
limitation, the taxes, penalties and interest set forth in EXHIBIT 3.9. Any
-----------
such taxes and any interest and penalties thereon shall reduce the Purchase
Price by that amount. The estimated amount of such taxes, interest and
penalties is $628,060.42, which shall be the Purchase Price Adjustment at
Closing. To the extent that any such taxes, penalties and interest exceed the
estimated amount, such excess shall be reimbursed from the Post-Closing Escrow
Fund, and to the extent that the estimated amount is less than such liabilities,
the Sellers shall be reimbursed by the Buyer. To the extent that the Company
has not paid such past-due sales taxes, interest and penalties prior to Closing,
Buyer agrees to cause the Company to pay such past-due sales taxes, interest and
penalties up to a total of the estimated amount of $628,060.42.
(b) To the extent that the Sellers have not caused the Company to discharge
on or before Closing, the loans and other interest-bearing indebtedness as set
forth in Paragraph 2.6(a), the cash proceeds in the Company as of the Cash
Effective Closing Date shall be applied to reduce such indebtedness. To the
extent that any such indebtedness remains unsatisfied after such application of
the cash balances of the Company, the Purchase Price shall be decreased by the
amount of any such remaining obligation, and the Buyer shall satisfy such
indebtedness on or at the Closing. In the event the cash on hand in the Company
at the Cash Effective Closing Date exceeds the amount of any obligation required
to be discharged under Section 2.6(a), the Purchase Price shall be increased by
the amount of any such excess which excess shall be paid to Sellers at closing
as an adjustment to the Purchase Price.
-9-
<PAGE>
(c) In the event the Closing does not occur on or prior to December 2, 1996,
the Purchase Price shall be increased by an amount equal to 5% per annum on
$30,175,000 for the period commencing on December 3, 1996 and continuing until
and including the day of the Closing which additional amount shall be paid in
cash to Sellers at the Closing.
2.8 HEADQUARTERS
------------
At Closing a lease in the form attached hereto as EXHIBIT 2.8 shall be
-----------
executed and delivered by the parties thereto.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers and the Company represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
------------------------------
(a) Each of TTC and TT-Carolina are corporations duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under the Contracts.
TTC is duly qualified to do business as a foreign corporation and is in good
standing under the laws of the states listed in EXHIBIT 3.1(a)-1 hereof, which
----------------
are all of the states which the nature of the activities conducted by it
requires such qualification (unless the failure to so qualify would not have a
material adverse effect on its financial condition or operations or impair its
right to enforce any material agreement to which it is a party). TT-Carolina is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of the states listed in EXHIBIT 3.1(a)-2 hereof, which are all of
----------------
the states which the nature of the activities conducted by it requires such
qualification (unless the failure to so qualify would not have a material
adverse effect on its financial condition or operations or impair its right to
enforce any material agreement to which it is a party). Neither TTC nor TT-
Carolina has been a party to a merger. TTC has no and has never had any
subsidiaries, other than TT-Carolina. TT-Carolina has no and has never had any
subsidiaries.
(b) Sellers have delivered to Buyer copies of the Organizational Documents of
TTC and TT-Carolina. TTC's and TT-Carolina's principal place of business is,
and has been for the last five (5) years or if it has not done business for five
(5) years, for the entire period that it has done business, in Dallas County,
Alabama and neither TTC nor TT-Carolina has had any other offices, other
corporate names or done business in any other names during said five (5) year
period other than as disclosed on EXHIBIT 3.1(b).
--------------
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<PAGE>
3.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Sellers and the Company, enforceable against each of the Sellers and the
Company in accordance with its terms except as such enforcement may be limited
by bankruptcy, insolvency, and other similar laws affecting the rights and
remedies of creditors generally and general principles of equity, whether
applied by a court of law or equity. Upon the execution and delivery of the
Consulting Agreements and the Employment Agreement (collectively, the "Sellers'
Closing Documents"), the Sellers' Closing Documents will constitute the legal,
valid, and binding obligations of the parties (other than Buyer) enforceable
against each of them in accordance with their respective terms except as such
enforcement may be limited by bankruptcy, insolvency, and other similar laws
affecting the rights and remedies of creditors generally and general principles
of equity, whether applied by a court of law or equity. Each of the Sellers and
the Company has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the Sellers' Closing
Documents to which each is a party and to perform their obligations under this
Agreement and the Sellers' Closing Documents to which each is a party.
(b) Except as set forth in EXHIBIT 3.2.(b), neither the execution, delivery
---------------
or performance of this Agreement nor any other consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, (B) any resolution
adopted by the board of directors or the stockholders of the Company, (C) any
duty owed by any of the Sellers or the Company to any Person, or (D) any Legal
Requirement, any Governmental Authorization or any Order to which the Company or
the Sellers, or any of the assets owned or used by the Company or the Sellers,
may be subject;
(ii) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Contract to which the Company is a party, or any
contract or other agreement to which any Seller is a party, where such violation
or breach would have any material adverse effect on the Company.
(c) Except for notices or Consents described on EXHIBIT 3.2.(b) hereof,
---------------
neither any of Sellers nor the Company is or will be required to give any notice
to or obtain any Consent from any Person, in connection with the execution,
delivery or performance of this Agreement or the consummation or other
performance of any of the Contemplated Transactions, the absence of which notice
or
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<PAGE>
Consent would cause to occur or result in the occurrence of any of the events
described in Section 3.2(b)(i) and (ii).
3.3 CAPITALIZATION
--------------
(a) The authorized equity securities of TTC consist of 5,000 shares of voting
common stock, par value $1.00 per share, of which 5,000 shares are issued and
outstanding. Sellers are and will be on the Closing Date the record and
beneficial owners and holders of the Shares, free and clear of all Encumbrances.
Talton owns 2,000 Shares, Lumpkin owns 1,000 Shares, Glover owns 500 Shares, and
Talton Jr. owns 1,500 Shares.
(b) The authorized equity securities of TT-Carolina consist of 5,000 shares
of common stock, par value $1.00 per share, of which 1,000 shares are issued and
outstanding. TTC owns all such shares.
(c) No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of TTC or TT-Carolina other than
customary legends restricting transfers under applicable securities laws. All
of the outstanding equity securities of TTC and TT-Carolina have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no contracts or other agreements relating to the issuance, sale, or transfer of
any equity securities or other securities of TTC or TT-Carolina. None of the
outstanding equity securities or other securities of TTC or TT-Carolina was
issued in violation of the Securities Act or any other Legal Requirement.
Neither TTC or TT-Carolina owns, nor has any Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business
(d) There are no options, warrants or rights to acquire an interest in the
Company or in its shares.
3.4 FINANCIAL STATEMENTS
--------------------
Sellers have delivered to Buyer: (a) the audited balance sheet of the Company
as at December 31, 1995, and the related audited consolidated statement of
income, changes in stockholders' equity, and cash flow for such fiscal year then
ended, and (b) an unaudited balance sheet of the Company as at October 31, 1996
(the "Interim Balance Sheet") and the related unaudited consolidated statement
of income, changes in stockholders' equity, and cash flow for the 10 months then
ended, including in the case of (a) the notes thereto (EXHIBIT 3.4). Sellers
-----------
shall deliver to Buyer such other balance sheets, statements of income, changes
in stockholders' equity, cash flow and other financial statements of the Company
as Buyer may reasonably request. All such financial statements and notes fairly
present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the
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<PAGE>
Company as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP, subject, in the case of
interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the December 31, 1995 balance sheet) and
subject to the disclosures set forth in EXHIBIT 3.4. The financial statements
-----------
referred to in this Section 3.4 reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
other than TTC and TT-Carolina are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
-----------------
The books of account, minute books, stock record books, and other records of
the Company, all of which have been made available to Buyer, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, and no meeting of the stockholders has been held for which minutes
have not been prepared and are not contained in such minute books. The minute
books of the Company contain accurate records of meetings held by the Board of
Directors, and no meetings by the Board of Directors have been held for which
minutes have not been prepared and contained in such minute books, where actions
taken at any such meetings would be required by law to be formally approved by
the Board of Directors and included in the minutes. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 BALANCE SHEETS ON THE CLOSING DATE
----------------------------------
(a) COMPANY ASSETS. Except as shown on EXHIBIT 3.6(a), on the Closing Date,
-------------- --------------
the Company shall own and have good title, without Encumbrance, to all of the
assets currently owned and used in conjunction with the operation of the
Company's business (which assets are reflected in the Company's Interim Balance
Sheet) (the "Company Assets"), including, without limitation:
(i) all rights and interest of the Company in and under the Telephone
Operating and License Agreements listed on EXHIBIT 3.15(a)(i);
------------------
(ii) all Installed Telephones listed on EXHIBIT 3.6(a)(ii)-1 and all
--------------------
Installed Telephone Lines listed on EXHIBIT 3.6(a)(ii)-2;
--------------------
(iii) all rights and interests of the Company in and under the Service
Agreements listed on EXHIBIT 3.15(a);
---------------
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<PAGE>
(iv) all uninstalled Telephones, parts, hardware and equipment listed on
EXHIBIT 3.6(a)(iv) (subject to turn over of inventory in the Ordinary Course of
- ------------------
Business);
(v) all vehicles listed on EXHIBIT 3.6(a)(v); and
-----------------
(vi) all other furniture, fixtures, equipment, personalty or
intellectual property of any kind used by the Company in the operation of its
business, including without limitation, each of those items having a value in
excess of $1,000 listed on EXHIBIT 3.6(a)(vi).
------------------
(b) LIABILITIES. Other than the liabilities listed on EXHIBIT 3.6(b), (the
----------- --------------
"Continuing Liabilities"), the Company shall have no liabilities as of the
Closing Date.
3.7 ACCOUNTS RECEIVABLE
-------------------
(a) Except as may be otherwise reflected on EXHIBIT 3.7, all accounts
-----------
receivable of the Company that are reflected on the Interim Balance Sheet or on
the accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Interim Balance Sheet or on the accounting records of the
Company as of the Closing Date (which reserves are adequate and calculated
consistent with past practice and, in the case of the reserve as of the Closing
Date, will not represent a greater percentage of the Accounts Receivable as of
the Closing Date than the reserve reflected in the Interim Balance Sheet does of
the Accounts Receivable reflected therein and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of
aging). Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any set-off, within ninety days after
the day on which it first becomes due and payable. There is no contest or
claim, other than returns in the Ordinary Course of Business, under any Contract
with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. EXHIBIT 3.7 hereof contains a complete and accurate
-----------
list of all Accounts Receivable as of the date of the Interim Balance Sheet,
which list sets forth the aging of such Accounts Receivable.
(b) Sellers represent and warrant that from and after the date of the Interim
Balance Sheet (as defined in Section 3.4) through the Closing Date: (i) the
Company has collected all sums and amounts due the Company, whether evidenced in
writing, on account, designated as a receivable or otherwise (collectively,
"Pre-Closing Receivables"), only in its usual, regular and ordinary manner, on a
basis consistent with past practices (and
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<PAGE>
otherwise in the Ordinary Course of Business); and (ii) the Company has not and
will not accelerate collection of the Pre-Closing Receivables.
3.8 NO UNDISCLOSED LIABILITIES
--------------------------
Except as set forth hereinafter in EXHIBIT 3.9 hereof, the Company has no
-----------
material liabilities of any nature (whether absolute, accrued, contingent, or
otherwise) and Sellers know of no basis for assertion against the Company of any
such material liability, except for liabilities reflected or reserved against in
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the date thereof.
3.9 TAXES
-----
(a) Except as set forth in EXHIBIT 3.9, the Company has filed or caused to be
-----------
filed all Tax Returns that are or were required to be filed by or with respect
to any of them, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements. Sellers have delivered to Buyer
copies of, and EXHIBIT 3.9 hereof contains a complete and accurate list of, all
-----------
federal and state income tax returns, filed by the Company since 1991. The
Company has paid, or made provision for the payment of, all taxes that have or
may have become due pursuant to those Tax Returns or otherwise, or pursuant to
any assessment received by Sellers or the Company, except such Taxes, if any, as
are listed in EXHIBIT 3.9 hereof and are being contested in good faith and as to
-----------
which adequate reserves (determined in accordance with GAAP) have been provided
in the Interim Balance Sheet. Notwithstanding the foregoing, Sellers shall have
no responsibility for federal and state income taxes for calendar year 1996.
(b) EXHIBIT 3.9 contains a complete and accurate list of all audits of all
-----------
such Tax Returns. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in EXHIBIT 3.9 hereof,
-----------
are being contested in good faith by appropriate proceedings. EXHIBIT 3.9
-----------
hereof describes all adjustments to the United States federal income Tax Returns
filed by the Company or any group of corporations including the Company for all
taxable years since 1991, and the resulting deficiencies proposed by the IRS.
Except as described in EXHIBIT 3.9, no Seller nor the Company has given or been
-----------
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of the Company or for which the Company may be liable.
(c) There exists no proposed tax assessment against the Company except as
disclosed in the Interim Balance Sheet or in EXHIBIT 3.9 hereof. Except as
-----------
shown on EXHIBIT 3.9, all taxes that the Company is or was required by Legal
-----------
Requirements to withhold or collect have been duly withheld or collected and, to
-15-
<PAGE>
the extent required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement. The
Company is not, nor within the five-year period preceding the Closing Date has
been, an "S" corporation.
3.10 NO MATERIAL ADVERSE CHANGE
--------------------------
Since the date of the Company's Interim Balance Sheet, there has not been any
material adverse change in the business, client relations, operations, assets of
the Company, and to the best Knowledge of Sellers and Company, no event has
occurred or circumstance exists that may result in such a material adverse
change. Without in any way limiting the generality of the foregoing, there
exists no actual or threatened terminations, cancellations or limitations of, or
any modification or change in (i) the current business relationship of the
Company with any material customer or group of customers whose business is
material to the operation of the Company's business; or (ii) the current
business relationship of the Company with any supplier, and the Company has no
reason to believe that any such customers or suppliers shall not continue a
business relationship with Buyer subsequent to the Closing on a basis no less
favorable to Buyer than that heretofore conducted; and (iii) to the best
Knowledge of Sellers and Company, there exists no other condition or state of
facts or circumstances which would adversely affect the Company's business or
prevent Buyer from conducting such business after the Closing on a basis no less
favorable to Buyer than that of which it has heretofore been conducted by the
Company.
3.11 EMPLOYEE BENEFITS
-----------------
(a) As used in this Agreement, the term "Employees of the Company" means, (i)
all active or former employees or directors of the Company, (ii) all employees
of the Company who, as of the Closing Date, are on workers' compensation,
military leave, other approved leaves of absences, long-term or short-term
disability, non-occupational disability and employees on layoff with recall
rights, (iii) all individuals who are covered under any "Employee Benefit Plan"
(as such terms is hereinafter defined) as a result of previously being described
in (i) or (ii) above, and (iv) beneficiaries or dependents under any Employee
Benefit Plan of anyone described in (i) through (iii) above.
(b) EXHIBIT 3.11 sets forth a list of each "employee benefit plan" (as
------------
defined by Section 3(3) of ERISA, and any other bonus, profit sharing pension,
compensation, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, disability, sick leave,
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<PAGE>
vacation, individual employment, commission, bonus, payroll practice, retention,
or other plan, agreement, policy, trust fund or arrangement, whether written or
oral (each such plan, agreement, policy, trust fund or arrangement is referred
to herein as an "Employee Benefit Plan", and collectively, the "Employee Benefit
Plans") that is currently in effect, or which has been approved before the date
hereof but is not yet effective, for the benefit of any Employee of the Company
or with respect to which the Company has or has had any obligation, and any
Employee Benefit Plan that was maintained since the organization of the Company
with respect to which the Company has any obligation. Except as disclosed on
EXHIBIT 3.11, there are no other benefits to which any Employee of the Company
- ------------
is entitled or for which the Company has any obligation.
(c) The Company has delivered to Buyer with respect to each Employee Benefit
Plan, true and complete copies of (i) the documents embodying and relating to
the plan, including, without limitation, the current plan documents and
documents creating any trust maintained pursuant thereto, all amendments,
investment management agreements, administrative service contracts, group
annuity contracts, insurance contracts, collective bargaining agreements, the
most recent summary plan description with each summary of material modification,
if any, and employee handbooks, (ii) annual reports including but not limited to
Forms 5500, 990 and 1041 for the last three (3) years for the plan and any
related trust, (iii) actuarial valuation reports and financial statements for
the last three years, and (iv) each communication involving the plan or any
related trust to or from the IRS, Department of Labor ("DOL"), Pension Benefit
Guaranty Corporation ("PBGC") or any other governmental authority including,
without limitation, the most recent determination letter received from the IRS
pertaining to any Employee Benefit Plan intended to qualify under Sections
401(a) or 501(c)(9) of the Code.
(d) The Company has no obligation to contribute to or provide benefits
pursuant to, nor has it ever maintained or contributed to, and it has no other
liability of any kind with respect to, (i) a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), (ii) a "plan
maintained by more than one employer" (within the meaning of Section 413(c) of
the Code), (iii) a plan intended to be, or represented to be, described in
Section 401(a) of the Code, (iv) a "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA or Section 414(f) of the Code), or (v) a plan
subject to Parts 2, 3 or 4 of Subtitle B of Title I of ERISA. No "ERISA
Affiliate" (as that term is hereinafter defined) has any obligation to
contribute to or provide benefits pursuant to, or has any other liability of any
kind with respect to, a multiemployer plan or a plan subject to Section 412 of
the Code, Part 3 of Subtitle B of Title I of ERISA or Title IV of ERISA. As
used in this Agreement the term "ERISA Affiliate" means any trade or business
(other than the Company) whether or not incorporated, which has employees who
are or have been at any date of determination
-17-
<PAGE>
occurring within the preceding six (6) years, treated pursuant to Section
4001(a)(14) of ERISA and/or Section 414 of the Code as employees of a single
employer which includes the Company.
(e) The Company is not liable for, and after the Closing Date, Buyer shall
not be liable for, any contribution, tax, lien, penalty, costs, interest, claim,
loss, action, suit, damage, cost assessment or other similar type of liability
or expense of any ERISA Affiliate (including predecessors thereof) with regard
to any Employee Benefit Plan maintained, sponsored or contributed to by an ERISA
Affiliate (if a like definition of Employee Benefit Plan were applicable to the
ERISA Affiliate in the same manner as it applies to the Company).
(f) EXHIBIT 3.11 lists the name of each Employee of the Company who has
------------
experienced a "Qualifying Event" (as defined in Section 4980B of the Code and
Section 601, et seq. of ERISA) (such statutory provisions and predecessors
thereof are referred to herein collectively as "COBRA") with respect to an
Employee Benefit Plan who is eligible for "Continuation Coverage" (as defined in
COBRA) and whose maximum period for Continuation Coverage required by COBRA has
not expired. Included in such list are the current address for each such
individual, the date and type of each Qualifying Event, whether the individual
who has not yet elected Continuation Coverage, the date on which such individual
was notified of his or her rights to elect Continuation Coverage.
(g) With respect to each Employee Benefit Plan and except as otherwise set
forth on EXHIBIT 3.11:
------------
(i) no claim, lawsuit, arbitration or other action has been asserted or
instituted or threatened in writing against the Employee Benefit Plan, any
trustee or fiduciaries thereof, the Company, any Employee of the Company or any
of the assets of the Employee Benefit Plan or any related trust;
(ii) the Employee Benefit Plan complies with and has been maintained and
operated in accordance with its respective terms and the terms and the
provisions of applicable law, including, without limitation, ERISA and the IRC;
(iii) the Employee Benefit Plan is not under audit or investigation by
the IRS or the DOL or any other governmental authority, and no such completed
audit, if any, has resulted in the imposition of any tax, interest or penalty;
and
(iv) each Employee Benefit Plan may be unilaterally terminated by the
Company on not more than ninety (90) days written notice with no further
liability to the Company.
(h) The consummation of the Contemplated Transactions will not give rise to
any liability for any employee benefits, including, without limitation,
liability for severance pay,
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<PAGE>
unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any Employee of the Company. No amounts payable under any
Employee Benefit Plan will fail to be deductible for federal income tax purposes
by virtue of Section 280G of the Code.
(i) Except as set forth on EXHIBIT 3.11, no Employee Benefit Plan in any way
------------
provides for any benefits of any kind whatsoever (other than under COBRA, the
Federal Social Security Act or any Employee Benefit Plan qualified under Section
401(a) of the Code) to any Employee of the Company who, at the time the benefit
is to be provided, is a former director or employee of, or other provider of
services to, the Company or an ERISA Affiliate (or a beneficiary of any such
person), or any other Employee of the Company, nor have any representations,
agreements, covenants or commitments been made to provide such benefits.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS AND
-------------------------------------------------------------------
ORDERS
- ------
(a) Except as set forth in EXHIBIT 3.12 hereof to the best knowledge of
------------
Sellers and Company:
(i) The Company is, and at all times has been, in compliance in all
material respects with each Legal Requirement, Governmental Authorization and
Order that is or was applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists that in any material
respect (with or without notice or lapse of time) (A) may constitute or result
in a violation by the Company of, or a failure on the part of the Company to
comply with, any Legal Requirement, Governmental Authorization or Order, or (B)
may give rise to any obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature; and
(iii) Neither the Sellers or the Company has received, at any time since
1991, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of the Company, or failure by the Company to
comply with, any Legal Requirement, Governmental Authorization or Order, which
violation or failure has not been corrected or complied with, or (B) any actual,
alleged, possible, or potential obligation on the part of the Company to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
(b) EXHIBIT 3.12 to the best knowledge of Sellers and Company (i) contains a
------------
complete and accurate list of each
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<PAGE>
Governmental Authorization that relates to the business of, or to any of the
assets used in the operation of the Company; (ii) each Governmental
Authorization of the Company is valid and in full force and effect; and (iii)
the Governmental Authorizations listed in EXHIBIT 3.12 hereof collectively
------------
constitute all of the Governmental Authorizations necessary to permit the
Company to lawfully conduct and operate the business of the Company in the
manner they currently conduct and operate such business and to permit the
Company to own and use the assets used in the operation of the Company in the
manner in which they currently own and use such assets. A true and complete
copy of each Governmental Authorization listed in EXHIBIT 3.12 has been
------------
delivered to Buyer.
3.13 LEGAL PROCEEDINGS
-----------------
(a) Except as set forth in EXHIBIT 3.13(a) hereof, there is no pending
---------------
Proceeding:
(i) that has been commenced by or against the Company; or
(ii) to the best of Sellers' Knowledge, that may materially affect the
business of the Company or any of the assets owned or used by the Company; or
(iii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions or any Contract.
To the best Knowledge of Sellers and Company, no such Proceeding has been
Threatened, and no event has occurred or circumstance exists that may reasonably
be expected to give rise to or serve as a basis for the commencement of any such
Proceeding. The Proceedings listed in EXHIBIT 3.13(a) hereof will not have a
---------------
material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
(b) All material Proceedings in which the Company has been named since 1991
(other than those Proceedings involving only the ordinary course of business of
the Company), and all material Proceedings relating to the Company in which any
Seller has been named since 1991 (other than those Proceedings involving only
the ordinary course of the business of the Company) are listed on EXHIBIT
-------
3.13(b). Sellers have delivered to Buyer true and complete copies of all
- -------
material pleadings and other documentation relating to each Proceeding listed on
EXHIBIT 3.13(b) which were requested by Buyer.
- ---------------
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
-------------------------------------
Except as set forth in EXHIBIT 3.14 hereof, since the date of the Interim
------------
Balance Sheet, the Company has conducted its
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<PAGE>
business only in the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock; issuance of any
security convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) increase of any bonuses, salaries, or other compensation to any
stockholder, director, officer, or (except in the Ordinary Course of Business)
employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(c) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of the Company;
(d) damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the Company;
(e) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction having any
material adverse effect on the business, financial condition or prospects of the
Company;
(f) sale (other than sales of inventory and accounts receivable in the
Ordinary Course of Business), lease, or other disposition of any asset or
property of the Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Company;
(g) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(h) material change in the accounting methods used by the Company; or
(i) material adverse change in the financial condition, assets, liabilities
or business of the Company;
(j) adverse Order delivered or served upon the Company or entered in a
proceeding to which the Company is a party or is otherwise known by Sellers or
Company which has a material adverse effect on the business of the Company;
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<PAGE>
(k) except as disclosed in EXHIBIT 3.14(k), change in the method of
---------------
collecting accounts receivable or acceleration in the collection of accounts
receivable;
(l) failure to pay expenses incurred in connection with the operation of the
Company on a timely basis;
(m) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.15 CONTRACTS; NO DEFAULTS
----------------------
(a) Sellers have delivered to Buyer true and complete copies of and EXHIBITS
--------
3.15(a)(i)-(vii) hereof contain a complete and accurate list, of the following:
- ----------------
(i) each Telephone Operating and License Agreement is described on
EXHIBIT 3.15(a)(i);
- ------------------
(ii) each Service Agreement is described on EXHIBIT 3.15(a)(ii);
-------------------
(iii) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any real or
personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments of
less than $5,000 and with terms of less than one year) is described on EXHIBIT
-------
3.15(a)(iii);
- ------------
(iv) each licensing agreement or other Contract with respect to the
Intellectual Property Assets is described in EXHIBIT 3.15(a)(iv);
-------------------
(v) each joint venture, partnership, and other Contract (however named)
involving a sharing of profits, losses, costs, or liabilities by the Company
with any other Person is described on EXHIBIT 3.15(a)(v);
------------------
(vi) each Contract not otherwise listed in EXHIBITS 3.15(a)(i)-(v) above
-----------------------
that (1) provides for payments to or by any Person based on sales, purchases, or
profits, other than direct payments for goods, in excess of $5,000, or (2)
involves performance of services or delivery of goods or materials by the
Company of an amount or value in excess of $5,000 or (3) involves expenditures
or receipts by the Company in excess of $5,000, is described on EXHIBIT
-------
3.15(a)(vi);
- -----------
(vii) each power of attorney that is currently effective and outstanding
is described on EXHIBIT 3.15(a)(vii);
--------------------
-22-
<PAGE>
EXHIBITS 3.15(a)(i)-(vii) hereof set forth reasonably complete details
-------------------------
concerning such Contracts, including the date of the Contracts, the parties to
the Contracts and the material terms of the Contracts. Additionally, EXHIBIT
-------
3.15(a)(i) separately classifies the Telephone Operating and License Agreement
- ----------
under the subcategories inmate phones and pay phones, and EXHIBIT 3.15(a)(ii)
-------------------
separately classifies the Service Agreements under the subcategories Long
Distance Service Agreements, Billing and Collection Agreements, Parts and
Supplies Agreements and Operator Service Agreements.
(b) Except as set forth in EXHIBIT 3.15(b) hereof:
---------------
(i) neither the Sellers (nor any Person related or affiliated with the
Sellers) has or may acquire any rights under, and neither the Sellers (nor any
Person related or affiliated with them) has or may become subject to any
obligation or liability under, any Contract that relates to the business of, or
any of the assets used in the operation of the Company; and
(ii) to the best knowledge of Sellers and Company, neither the Company
nor any officer, director, agent, employee, consultant, or contractor of the
Company is bound by any contract or agreement that purports to limit the ability
of the Company or such officer, director, agent, employee, consultant, or
contractor to engage in or continue any conduct, activity, or practice relating
to the business of the Company.
(c) Except as set forth in EXHIBIT 3.15(c) hereof, with respect to each
---------------
Contract identified or required to be identified in EXHIBIT 3.15(a) hereof
---------------
(and/or any other material Contract by which the Company is bound even if not so
identified):
(i) such Contract is in full force and effect and is valid and
enforceable in accordance with its terms;
(ii) the Company is, and at all times since the later of 1991 or the
inception of the Contract, has been, in material compliance with all applicable
terms and requirements of such Contract;
(iii) each other Person that has or had any obligation or liability under
such Contract is, and at all times since the later of 1991 or the inception of
the Contract, has been, in material compliance with all applicable terms and
requirements of such Contract;
(iv) to the best knowledge of Sellers and Company, no event has occurred
or circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give the
Company or other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any such Contract; and
-23-
<PAGE>
(v) neither the Company nor Sellers has given to or received from any
other Person, at any time since the later of 1991 or the inception of the
Contract, any notice or other communication (whether oral or written) regarding
any actual, alleged, possible, or potential violation or breach by the Company
of, or default by the Company under, such Contract where such notice or
communication or the Contract involved therein, would have any material adverse
effect on the Company.
(vi) except as set forth in EXHIBIT 3.15(c)(vi), to the best knowledge
-------------------
of Sellers and Company, there are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to the
Company under such Contracts with any Person and, no such Person has made
written demand for such renegotiation.
(vii) such Contracts have been entered into in the Ordinary Course of
Business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
(viii) such Contracts constitute the sole and entire agreement among the
parties thereto with respect to the subject matter thereof, and there are no
other agreements or understandings among the parties which in any way pertain to
or otherwise materially affect such Contracts.
3.16 INSURANCE
---------
(a) Sellers have delivered to Buyer true and complete copies of and EXHIBIT
-------
3.16(a) contains a complete and accurate list of all policies of insurance to
- -------
which the Company is a party or under which the Company, or any director of the
Company, is covered.
(b) EXHIBIT 3.16(b) hereof sets forth, by year, for the current policy year
---------------
and each of the two preceding policy years (i) a summary of the loss experience
under each policy; (ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000; and (iii) a statement describing the
loss experience for all claims that were self-insured, including the number and
aggregate cost of such claims.
(c) Except as set forth on EXHIBIT 3.16(c) hereof:
---------------
(i) All policies to which the Company is a party or that provide
coverage to Sellers, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable;
-24-
<PAGE>
(B) are issued by an insurer that is to the best of knowledge of
Sellers financially sound and reputable;
(C) taken together, are deemed by the Company to be adequate
insurance coverage for the assets and the operations of the Company;
(D) are sufficient for compliance with all Legal Requirements and
Contracts to which the Company is a party or by which any of them is bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions with respect to losses or claims
accruing or arising prior to the Closing Date; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company, except with
respect to Workmen's Compensation insurance.
(ii) No Seller nor the Company has received with respect to the Company
(A) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to which the
Company is a party or that provides coverage to the Company or a director
thereof.
(iv) The Company has given notice to the insurer of all material claims
that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS
---------------------
Except as set forth in EXHIBIT 3.17:
------------
(a) The Company and the Company Assets are, and at all times have been, in
full compliance with, and have not been and are not in violation of or liable
under, any Environmental Laws.
(b) The Company has not generated, handled, manufactured, processed, treated,
stored, used, transferred, released, disposed of or otherwise conducted any
hazardous process or activity with respect to (collectively, "Hazardous
Activities") any hazardous substances, hazardous wastes, hazardous wastes
constituents and reaction by-products, hazardous materials, pesticides, oil and
other petroleum products, pollutants, and/or toxic substances, including
asbestos and polychlorinated biphenyls as those terms are defined pursuant to
Environmental Laws (collectively,
-25-
<PAGE>
"Hazardous Substances"), except in full compliance with Environmental Laws.
(c) Neither Sellers nor the Company has any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened Order, notice, or other
communication from any Person that relates to Hazardous Activities, Hazardous
Substances, or any alleged actual or potential violation or failure to comply
with any Environmental Law with respect to any properties or assets (whether
real, personal, or mixed) in which the Company has or had an interest.
(d) Neither Sellers, the Company nor any other Person for whose conduct they
are or may be held to be responsible, has any existing liability, obligations or
other responsibility arising from or under Environmental Laws that would have a
material adverse effect on the Company, and neither Sellers nor the Company have
any basis to expect such liability, obligations or responsibilities to arise or
occur.
(e) For purposes hereof, Environmental Laws shall mean all Legal Requirements
that relate or pertain to environmental matters, pollution and/or public health,
safety or welfare, including without limitation, the Resource Conservation and
Recovery Act (42 U.S.C. 6901 et seq.), as amended, the Comprehensive
------
Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.),
------
as amended, the Federal Clean Water Act (33 U.S.C. 1251 et seq.), as amended,
------
and state and federal environmental clean up programs.
(f) Except for leasehold interests as lessee, Company owns no interest (and
has never owned any interest) in real property.
3.18 EMPLOYEES
---------
(a) EXHIBIT 3.18(a) hereof contains a complete and accurate list of the
---------------
following information for each employee or director of the Company, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1996; vacation accrued; and service credited for purposes of vesting
and eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(b) No officer or director of the Company and to the Sellers' best knowledge
no employee of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including
-26-
<PAGE>
any confidentiality, noncompetition, or proprietary rights agreement, between
such officer or director and any other Person ("Proprietary Rights Agreement")
that in any way adversely affects or will affect (i) the performance of his
duties as an employee, officer or director of the Company, or (ii) the ability
of the Company to conduct its business, including any Proprietary Rights
Agreement with Sellers or the Company by any such employee, officer or director.
Neither the Company nor the Sellers has knowledge that any director or officer
involved in the business or operations of the Company intends to terminate
his/her employment with the Company prior to December 31, 1997, except to the
extent that the Consulting Agreement may vary the employment of Talton.
(c) EXHIBIT 3.18(c) hereof contains a complete and accurate list of all
---------------
employment agreements, employment contracts, compensation arrangements and/or
any other Contract pertaining to employment related matters between the Company
and any of its employees (the "Employment Agreements"). The Sellers have
delivered to Buyer true and complete copies of all Employment Agreements. The
Employment Agreements may be terminated by the Company at any time without fee,
penalty or severance compensation or benefits. All employees of the Company are
employees at will and their employment may be terminated at any time by the
Company without fee, penalty, severance compensation or benefits, subject to any
applicable state or federal laws pertaining to terminations.
(d) EXHIBIT 3.18(d) hereof contains a complete and accurate list of the
---------------
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.19 LABOR RELATIONS; COMPLIANCE
---------------------------
Since 1991, the Company has not been nor is a party to any collective
bargaining or other labor Contract. Since 1991, there has not been, there is
not presently pending or existing, and there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any
Proceeding against or affecting the Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting any of the Company or their premises, or
(c) any application for certification of a collective bargaining agent. No
event has occurred or circumstance exists that could provide the basis for any
work stoppage or other labor dispute. There is no lockout of any employees by
the Company, and no such action is contemplated by
-27-
<PAGE>
the Company. The Company has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.20 INTELLECTUAL PROPERTY
---------------------
(a) Sellers have delivered to Buyer true and complete copies of, and EXHIBIT
-------
3.20 hereof contains a complete and accurate list of, all Contracts relating to
- ----
the Intellectual Property Assets.
(b) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company
is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use, without payment to a third party, all of the Intellectual Property Assets.
(c) The Intellectual Property Assets and the use thereof by the Company does
not nor does the subject matter of any of the Intellectual Property Assets
infringe or is alleged to infringe any rights of any third party or is a
derivative work based on the work of a third party.
3.21 BANK ACCOUNTS
-------------
EXHIBIT 3.21 contains a complete and accurate list of each bank or financial
------------
institution in which the Company has an account or safe deposit box, including
address, account number and the names of persons authorized to draw thereon or
to have access thereto.
3.22 CERTAIN PAYMENTS
----------------
Since 1991, neither the Company nor any director or officer, nor to Sellers'
best knowledge any agent or employee of the Company, nor any Representative, has
directly or indirectly (a) made any illegal contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other illegal payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company, or
(iv) in violation of any Legal Requirement, and/or
-28-
<PAGE>
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.23 COMPANY REVENUES
----------------
The Company revenues, as measured by GAAP on a consolidated basis, from
Telephone and Operating License Agreements during the fiscal year ended 1995 was
not less than $19,000,000. The Company revenues, as measured by GAAP on a
consolidated basis, from Telephone and Operating License Agreements during the
ten month period ended October 31, 1996, was not less than $21,000,000.
3.24 DISCLOSURE
----------
No representation or warranty of Sellers in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
----------------------------------
Except as set forth in EXHIBIT 3.25 hereof, neither any of the Sellers nor, to
------------
the best knowledge of Sellers, any Person related or affiliated with any Seller
or the Company is a party to any Contract with, or has any claim or right
against, the Company. Neither any of the Sellers nor, to the best knowledge of
Sellers and Company, any Person related or affiliated with any of the Sellers
owns, directly or indirectly, any interest in any person or entity that is a
competitor, customer or supplier of the Company, that otherwise has any business
dealings with the Company (except as set forth in EXHIBIT 3.25) or that is
------------
engaged in the same or similar business as the Company.
3.26 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 3.26, Sellers and their agents have incurred no
------------
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
3.27 AMENDMENTS OF REPRESENTATIONS AND WARRANTIES. Sellers and Company shall
--------------------------------------------
have the right to amend their representations and warranties contained in this
Agreement (and/or to amend the exhibits attached hereto) to the extent
appropriate to reflect changes occurring after the date of this Agreement and/or
events or circumstances becoming known to Sellers or Company after the date of
this Agreement and prior to the Closing. Any such amendment(s) shall not
constitute a Breach of this Agreement by Sellers or Company nor give rise to any
obligations of indemnity on the part of the Seller or Company. In the event any
such amendments are proposed by Sellers and/or Company which amendments are not
approved by Buyer, then Buyer shall have no
-29-
<PAGE>
further obligation to close and consummate the transactions contemplated herein.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
------------------------------
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the state of its incorporation.
4.2 AUTHORITY; NO CONFLICT
----------------------
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Consulting Agreements, the Employment
Agreement and the Buyer's Closing Certificate (collectively, the "Buyer's
Closing Documents"), the Buyer's Closing Documents will constitute the legal,
valid, and binding obligations of Buyer, enforceable against Buyer in accordance
with their respective terms. Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and the Buyer's
Closing Documents and to perform its obligations under this Agreement and the
Buyer's Closing Documents.
(b) Except as set forth in EXHIBIT 4.2, neither the execution and delivery of
------------
this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any contract to which Buyer is a party or by which Buyer may be
bound.
Except as set forth in EXHIBIT 4.2, Buyer is not and will not be required to
-----------
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
-30-
<PAGE>
4.3 INVESTMENT INTENT
-----------------
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
-------------------
There is no pending or Threatened Proceeding that has been commenced against
Buyer and that challenges, or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
4.5 BROKERS OR FINDERS
------------------
Except as set forth in EXHIBIT 4.5, Buyer and its officers and agents have
-----------
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through Buyer as a result of the action of Buyer
or its officers or agents.
4.6 CAPITALIZATION
--------------
(a) Capitalization of the Buyer, including all shares of common stock,
preferred stock, and outstanding warrants, is as shown on EXHIBIT 4.6(a), and a
--------------
general description of such capitalization and securities are as shown on
EXHIBIT 4.6(a). The Buyer shall have on or at Closing paid in capital of not
- --------------
less than $15,300,000.
(b) Capitalization at Closing will be in accordance with the certificate
regarding capitalization attached as EXHIBIT 4.6(b).
--------------
4.7 LIABILITY
---------
The liabilities of the Buyer are set forth on EXHIBIT 4.7, and the Buyer shall
-----------
have no other outstanding liabilities at or immediately subsequent to Closing.
4.8 CONTRACTUAL OBLIGATIONS
-----------------------
Buyer has no material contractual obligations, including, without limitation,
any employment, management, or consulting agreements, except as are reflected in
this Agreement, or as otherwise described on EXHIBIT 4.8.
-----------
-31-
<PAGE>
5. COVENANTS OF SELLERS AND THE COMPANY PRIOR TO/ON CLOSING DATE
5.1 REQUIRED APPROVALS
------------------
Except as otherwise reflected in EXHIBIT 2.3(b), as promptly as practicable
--------------
after the date of this Agreement, Sellers will, and will cause the Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. The foregoing requirement shall not
apply to filings required to be made in the states of Florida, Georgia and
Tennessee. Between the date of this Agreement and the Closing Date, Sellers
will, and will cause the Company to, (a) cooperate with Buyer with respect to
all filings that Buyer elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b) cooperate with
Buyer in obtaining all Consents identified in EXHIBIT 4.2.
-----------
5.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the shareholders and board of directors of the Company.
5.3 CURRENT INFORMATION
-------------------
During the period from the date of this Agreement to the Closing Date, the
Company shall cause one or more of its Representatives to confer on a regular
and frequent basis with Representatives of Buyer to report on the general status
of the ongoing operations of the Company. The Company shall promptly notify
Buyer of any material change in the normal course of its business or in the
operation of its properties and of any governmental complaints, investigations,
or hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving such party, and
will keep Buyer fully informed with respect to such events.
5.4 [Intentionally Deleted]
5.5 OPERATIONS PRIOR TO CLOSING DATE
--------------------------------
(a) In addition to any other express obligation under this Agreement, between
the date of this Agreement and the Closing Date, the Company will do, and the
Sellers shall cause the Company to do each of the following, and the Company and
Sellers also represents that from the date of the Interim Balance Sheet to the
date of this Agreement the Company has done the following:
(i) conduct the business of the Company only in the usual, regular and
ordinary manner, on a basis consistent with past practice, maintain the
Company's books, accounts and records in the usual, regular and ordinary
manner, on a basis consistent with past practices, maintain and comply with the
-32-
<PAGE>
terms of all licenses, permits and other Legal Requirements, and otherwise
conduct the business of the Company only in the Ordinary Course of Business;
(ii) use their best efforts to preserve intact the current organization
of the Company, keep available the services of the current officers, employees,
and agents of the current organization of the Company, and maintain the
relations and good will with all suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company;
(iii) conduct the business and affairs of the Company in a manner so that
all representations and warranties herein will be true and correct at Closing;
(iv) maintain all of the Company Assets in good repair, order and
condition, and perform all of the Company's obligations under the Contracts; and
(v) pay all expenses and accounts payable incurred in connection with
the operation of the Company's business in the usual,
regular and ordinary manner on a basis consistent with past practice.
(b) The Company agrees that during the period from the date of this
Agreement to and including the Closing Date, without the prior written consent
of Buyer, it will not do any of the following and the Company and Sellers also
represent that from the date of the Interim Balance Sheet to the date of this
Agreement the Company has not done any of the following:
(i) incur any liability or obligation of any material nature (whether
accrued, absolute, contingent or otherwise), except in the Ordinary Course of
Business;
(ii) permit any of the Company Assets to be subjected to any
Encumbrance;
(iii) sell, transfer or otherwise dispose of any Company Assets except in
the Ordinary Course of Business;
(iv) make any capital expenditure or commitment therefor, except in the
Ordinary Course of Business;
(v) redeem, purchase or otherwise acquire any shares of its capital
stock or any option, warrant or other right to purchase or acquire any such
shares;
(vi) except in the Ordinary Course of Business, borrow money or make any
loan to any Person;
(vii) write off as uncollectible any note or accounts receivable, except
write-offs in the Ordinary Course of Business
-33-
<PAGE>
charged to applicable reserves, which individually or in the aggregate are not
material to the Company;
(viii) accelerate the collection of any accounts receivable or other
amounts payable to the Company;
(ix) grant any increase in the rate of wages, salaries, bonuses or
other remuneration of any executive employees or other employees;
(x) cancel or waive any claims or rights of substantial value;
(xi) make any change in any method of accounting or auditing practice;
(xii) agree, whether or not in writing, to do any of the foregoing;
(xiii) cause the Sellers or the Company to, without the prior consent of
Buyer, take any affirmative action, or fail to take any reasonable action within
their or its control, as a result of which any of the changes or events listed
in Section 3.16 is likely to occur.
5.6 ACCESS AND INVESTIGATION
------------------------
Between the date of this Agreement and the Closing Date, Sellers and the
Company will, and will cause their Representatives to, (a) afford Buyer and its
Representatives and advisors (collectively, "Buyer's Advisors") full and free
access to all Company employees and personnel and to all Company Contracts,
books and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such Contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
5.7 NOTIFICATION
------------
Between the date of this Agreement and the Closing Date, the Sellers and the
Company will promptly notify Buyer in writing if a Seller or the Company becomes
aware of any fact or condition that causes or constitutes a Breach of any of
representations and warranties of Sellers or the Company as of the date of this
Agreement and before Closing, or if a Seller or the Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Seller will promptly notify Buyer of
the occurrence of any Breach of any
-34-
<PAGE>
covenant of Sellers in this Section 5 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 7 impossible or unlikely.
5.8 NO NEGOTIATION
--------------
Until such time, if any, as this Agreement is terminated pursuant to Section
9, Sellers and the Company will not, and will not permit any of their
Representatives to, directly or indirectly solicit, initiate, respond to or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
--------------------------------
As promptly as practicable after the date of this Agreement, Buyer will make
all filings required by Legal Requirements to be made by them to consummate the
Contemplated Transactions. The Buyer shall use its best efforts to satisfy all
the conditions precedent to its and all other parties' obligations under this
Agreement. Between the date of this Agreement and the Closing Date, Buyer will
cooperate with Sellers with respect to all filings that Sellers are required by
Legal Requirements to make in connection with the Contemplated Transactions, and
cooperate with Sellers in obtaining all consents identified in EXHIBIT 3.2(c)
--------------
hereof.
6.2 COMPANY APPROVAL
----------------
This Agreement and the Contemplated Transactions have been voted upon and
approved by the Board of Directors of Buyer.
6.3 NOTIFICATION
------------
Between the date of this Agreement and the Closing Date, Buyer will promptly
notify the Sellers and the Company in writing if Buyer becomes aware of any fact
or condition that causes or constitutes a Breach of any of representations and
warranties of Buyer as of the date of this Agreement and before Closing, or if
Buyer becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
by Buyer had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. During the same period,
Buyer will promptly notify the Sellers and the Company of the
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occurrence of any Breach of any covenant of Buyer in this Section 6 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 8 impossible or unlikely.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to acquire the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of the representations and warranties of Sellers and the Company in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have materially been accurate as of
the date of this Agreement, and must be materially accurate as of the Closing
Date as if made on the Closing Date.
7.2 PERFORMANCE
-----------
(a) All of the covenants and obligations that Sellers and the Company are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered.
(c) All of the agreements, other documents or certificates, or actions
required to be entered into, delivered and/or taken at or prior to the Closing
in accordance with Section 2 hereof, including actions or deliveries of Persons
not a party hereto, shall have been entered into, delivered and or taken, as
applicable.
7.3 CONSENTS
--------
Except as set forth in Section 2.3(b) and EXHIBIT 2.3(b), each of the Consents
--------------
identified in Sections 3.2, and 4.2 must have been obtained and must be in full
force and effect.
7.4 NO PROCEEDINGS
--------------
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of
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preventing, delaying, making illegal, or otherwise interfering with any of the
Contemplated Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
---------------------------------------------------
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, the Company, or (b) is entitled to all
or any portion of the Purchase Price payable for the Shares.
7.6 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
7.7 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in the Company's financial condition,
business, property or prospects nor shall have there occurred any change in the
business condition of the Company's customers or suppliers nor any change in the
regulatory or competitive environment, which in the judgment of Buyer adversely
affects the Company, the business of the Company or the condition (financial or
otherwise) of the Company. In the event that each and every one of these
conditions precedent to the obligations of Buyer shall not have been satisfied
prior to or at the Closing, then Buyer may (but shall not be obligated to) waive
such unsatisfied condition or extend the Closing Date to allow additional time
for such condition to be satisfied. Any such waiver or extension shall be
without prejudice to any other rights and remedies Buyer may have hereunder or
at law or in equity.
7.8 RELATED CONTRACTS Each of (i) that certain Contribution Agreement (the
-----------------
"Contribution Agreement") of even date herewith among Buyer, the Company and
certain of the Sellers, (ii) that certain Stock Acquisition Agreement of even
date herewith for the acquisition of shares of AmeriTel Pay Phones, Inc. and
(iii) that certain Contribution Agreement of even date herewith pertaining to
the contribution of shares of AmeriTel Pay Phones, Inc. must be consummated in
accordance with their respective terms contemporaneously with the Closing.
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7.9 REGULATORY OPINION
------------------
Buyer shall have received an opinion of counsel acceptable to Buyer to the
effect that all required approvals of the Contemplated Transactions have been
obtained from state regulatory agencies (other than approvals required by the
states of Mississippi, North Carolina, Tennessee, Georgia and Florida).
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to transfer the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
---------------------------
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been materially accurate as of the date of this
Agreement and must be materially accurate as of the Closing Date as if made on
the Closing Date.
8.2 BUYER'S PERFORMANCE
-------------------
(a) All of the covenants and obligations that Buyer is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with.
(b) Buyer must have delivered each of the documents required to be delivered
by Buyer pursuant to Section 2.4 and must have made the cash payments required
to be made by Buyer pursuant to Sections 2.4(b)(i) and 2.4(b)(ii).
8.3 NO PROHIBITION
--------------
Neither the consummation nor the performance of any of the Contemplated
Transaction will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause the Sellers, the Company or any Person affiliated with
the Sellers or the Company to suffer any material adverse consequence under any
applicable Legal Requirement or Order. The provisions of this Section 8.3 shall
not apply to and shall not include any consents or other approvals required to
be given by any state regulatory agencies with respect to the Contemplated
Transactions.
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8.4 MATERIAL ADVERSE CHANGE
-----------------------
There shall not have occurred any change in the Buyer's financial condition,
business, property, or prospects which in the judgment of Sellers would
materially adversely affect Buyer's ability to consummate the contemplated
transactions.
In the event that each and every one of these conditions precedent to the
obligations of Sellers shall not have been satisfied prior to or at the Closing,
then Sellers may (but shall not be obligated to) waive such unsatisfied
condition or extend the Closing Date to allow additional time for such condition
to be satisfied. Any such waiver or extension shall be without prejudice to any
other rights and remedies Sellers may have hereunder or at law or in equity.
8.5 TAX OPINION
-----------
Sellers shall have received an opinion satisfactory to Sellers to the effect
that the receipt of stock by certain of the Sellers pursuant to the Contribution
Agreement will not constitute a taxable event for Federal income tax purposes.
Sellers and Sellers' tax counsel shall have received Buyer's certificate
regarding capitalization in the form attached as EXHIBIT 4.6(b).
--------------
9. TERMINATION
9.1 TERMINATION EVENTS
------------------
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
(b) by Buyer: if any of the conditions in Section 7 have not been satisfied
as of the Closing Date; or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date;
(c) by Sellers: if any of the conditions in Section 8 have not been satisfied
of the Closing Date; or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Sellers to comply with their
obligations under this Agreement) and Sellers have not waived such condition on
or before the Closing Date; or
(d) by mutual consent of Buyer and Sellers; or
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(e) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before January 31, 1997,
or such later date as the parties may agree upon in writing.
9.2 EFFECT OF TERMINATION
---------------------
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
------------------------------------------------------------
Subject to the limitations described herein, all representations, warranties,
covenants, and obligations in this Agreement, the certificates delivered
pursuant to Section 2.4(a) and (b), and any other certificate or document
delivered pursuant to this Agreement will survive the Closing as follows: (i)
all representations, warranties, covenants and obligations, other than any
representation or warranty contained in Section 3.9, 3.13 or any claim based
upon an intentional fraudulent misrepresentation, shall survive the Closing
until May 31, 1998, and shall thereupon expire together with any right to
indemnification (except to the extent a written notice asserting a claim for
breach of any such representation or warranty shall have been given prior to
such date to the party which made such representation and warranty), (ii) all
representations or warranties contained in Section 3.13 shall survive the
Closing until three (3) years from the Closing Date and shall thereupon expire
together with any right to indemnification (except to the extent a written
notice asserting a claim for breach of any such representation or warranty shall
have been given prior to such date to the party which made such representation
and warranty), (iii) all claims based upon an intentional fraudulent
misrepresentations shall survive the Closing until four (4) years from the
Closing Date and shall thereupon expire together with any right to
indemnification (except to the extent a written notice asserting a claim for
breach of any such representation shall have been given prior to such date to
the party which made
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such representation), and (iv) all representations or warranties contained in
Section 3.9 shall survive the Closing indefinitely. The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations shall not be precluded
by any knowledge actually acquired by Buyer before the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver in writing of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, shall preclude any
right to indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
-------------------------------------------------
Subject to the limitations described herein, Sellers severally, and not
jointly, will indemnify and hold harmless Buyer, the Company and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising or resulting
from, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in this
Agreement or the Contribution Agreement, or any other certificate or document
delivered by Sellers pursuant to this Agreement or the Contribution Agreement;
(b) any Breach by Sellers of any covenant or obligation of Sellers in this
Agreement or the Contribution Agreement, or any other document delivered by
Sellers pursuant to this Agreement or the Contribution Agreement;
(c) regardless of whether it may also constitute a Breach under Section 10.2
(a) or (b) above, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) arising from or relating to the operation,
management or ownership of the Company, arising or related to the period on or
prior to the Closing Date (whether known or unknown on the Closing Date).
provided, however, that (i) except as provided in (ii) below, the aggregate
- -------- -------
amount of Damages for which the Sellers shall indemnify Buyer hereunder shall
not exceed each Seller's pro rata share of the amount in the Post-Closing Escrow
Fund (such indemnification to be provided by the Post-Closing Escrow Fund); (ii)
the
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aggregate amount of Damages for which the Sellers shall indemnify Buyer
hereunder for any Breach of a representation or warranty contained in Section
3.9 and 3.13 or for any claim based solely upon an intentional fraudulent
misrepresentation of a material fact shall not exceed each Seller's pro rata
share of the cash Purchase Price plus each Seller's pro rata share of the
principal of the Subordinated Note to the extent the Seller receives payment in
cash of such principal and, to the extent the seller is not so paid, such
Damages shall constitute a set-off against the remaining balance due the Seller
on the Subordinated Note (such indemnification to be provided first by the Post-
Closing Escrow Fund); and (iii) Buyer shall not be entitled to assert any right
to indemnification hereunder against the Sellers until Buyer's good faith
estimate of all Damages for which the Sellers indemnify Buyer hereunder exceeds
$100,000 (the "Indemnification Threshold") at which time Buyer shall be entitled
to indemnification for all Damages which exceed the Indemnification Threshold
(subject to the limitations described above).
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
-----------------------------------------------
Buyer will indemnify and hold harmless Sellers and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Sellers' Indemnified Persons"), and will pay to Sellers'
Indemnified Persons the amount of any Damages arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by Buyer in this
Agreement or the Contribution Agreement, or in any certificate delivered by
Buyer pursuant to this Agreement or the Contribution Agreement; or
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement or the Contribution Agreement or in any certificate or document
delivered by Buyer pursuant to this Agreement or the Contribution Agreement.
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
-------------------------------------------------
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3, of notice of the commencement of any Proceeding against it or of notice
that such Proceeding has been Threatened against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim or
threatened Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action or the ability of the indemnifying party to
obtain otherwise available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.
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(b) If any Proceeding referred to in Section 10.4(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding, (i) no compromise or
settlement of such claims may be effected by the indemnifying party without the
indemnified party's consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may materially
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, and following a good
faith attempt to consult with the indemnifying party, assume the exclusive right
to defend, compromise, or settle such Proceeding, but the indemnifying party
will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
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10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
-------------------------------------------
A claim for indemnification for any matter not involving a third-party claim
may be asserted by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 EXPENSES
--------
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Notwithstanding the foregoing, any obligation to pay
the fees and expenses of Weinstein, Boldt, Racine & Halfhide incurred in
connection with the Contemplated Transactions shall be the obligation of Buyer
and Sellers shall have no liability with respect thereto. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2 SELLERS' OBLIGATIONS AND DECISIONS
----------------------------------
(a) Subject to the limitations contained in Section 10.2, any and all
representations, warranties, covenants, obligations and/or agreements of the
Sellers contained herein are made and given jointly and severally by the
Sellers, and each of the Sellers shall be jointly and severally liable for the
accuracy, performance and/or compliance with all such representations,
warranties, covenants, obligations and agreements.
(b) Whenever any decision, consent, waiver, determination and/or exercise of
any right or remedy (collectively, a "Decision") is required or may be made,
taken or given by the Sellers hereunder, such Decision may only be made, taken
----
or given by Julius B. Talton (the "Sellers' Representative"). The Sellers'
Representative may only be changed by a Majority in Interest of the Sellers.
Any Decision made, taken or given by the Sellers' Representatives shall be
binding upon all Sellers. For purposes hereof, Majority in Interest of the
Sellers shall mean Sellers holding a majority of the outstanding Common Shares.
11.3 CONFIDENTIALITY
---------------
Prior to Closing, no party or affiliate of a party hereto will issue or cause
publication of any press release or other announcement or public communications
with respect to the Contemplated Transactions, including without limitation a
general announcement to such party's employees, without the prior consent of the
other parties hereto, which consent will not be unreasonably withheld; provided,
however, that nothing herein
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will prohibit any party (or affiliate) from issuing or causing publication of
any such press release, announcement or public communication to the extent that
such party (or affiliate) reasonably determines such action to be required by
law, any regulatory agency or the rules of any national stock exchange or
association applicable to it, in which case the party (or affiliate) making such
determination will use reasonable efforts to allow the other party reasonable
time to comment on such release or announcement in advance of its issuance or to
make any disclosure necessary to obtain any consents required or deemed
appropriate by Buyer.
11.4 NOTICES
-------
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
If to Buyer:
c/o Engles Urso Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
With a copy to:
Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: Carl C. Christoff
If to any Seller and/or the Company:
c/o Talton Telecommunications Corporation
720 Alabama Avenue
Selma, Alabama 36702
Telephone: (800) 844-6500
Facsimile: (334) 875-1405
Attention: Julius E. Talton
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With a copy to:
Gamble, Gamble, Calame & Wilson L.L.C.
P. O. Box 345
807 Selma Avenue
Selma, Alabama 36701
Telephone: (334) 875-7810
Facsimile: (334) 874-4975
Attention: Harry W. Gamble, Jr.
With a copy to:
John E. Pilcher
P. O. Box 1346
28 Broad Street
Selma, Alabama 36701
Telephone: (334) 872-6211
Facsimile: (334) 872-7654
11.5 WAIVER OF RIGHT TO JURY TRIAL: ATTORNEYS' FEES
-----------------------------------------------
Each of the parties hereto, to the extent legally possible, waives its right
to a trial by jury and the parties agree that in the event of litigation
involving the subject matter hereof the prevailing party(ies) shall be entitled
to recover fees and expenses of counsel and other out-of-pocket litigation
costs.
11.6 FURTHER ASSURANCES
------------------
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
------
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or
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renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
---------------------------------
(a) This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
Sellers dated July 11, 1996, as amended by letter dated October 23, 1996) and
constitutes (along with the Contribution Agreement and the documents referred to
therein and in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
(b) Neither the Sellers, the Company, nor any Representative of the Sellers
or the Company has made any representation or warranty, express or implied,
regarding the accuracy or completeness of any information regarding the Company
which is not expressly set forth herein. Except as expressly provided herein,
neither the Sellers nor any other person or Representative of Sellers shall have
or be subject to any liability to the Buyer or any other person resulting from
the Buyer's use of or reliance on such information. Without limiting the
foregoing, the Buyer acknowledges and agrees that, except as expressly set forth
herein, the Sellers and their Representatives have not made any representations
or warranties with respect to any financial, business, or other projections or
forecasts provided to the Buyer. The Buyer acknowledges that it has had the
full opportunity to review the books and records of the Company, and has
performed such due diligence as it has deemed necessary or advisable with
respect to the Company and the purchase of shares of the Company on the terms
set forth herein.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
--------------------------------------------------
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that Buyer may assign any of its
rights under this Agreement to any affiliate of Buyer and/or to CIBC Wood Gundy
Securities Corp. and its affiliates. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
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Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
11.10 SEVERABILITY
------------
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
11.11 SECTION HEADINGS, CONSTRUCTION
------------------------------
The headings of Sections in this Agreement are provided for convenience only
and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. The
parties, in acknowledgment that all of them have been represented by counsel and
that this Agreement has been carefully negotiated, agree that the construction
and interpretation of this Agreement and other documents entered into in
connection herewith shall not be affected by the identity of the party or
parties under whose direction or at whose expense this Agreement and such
documents were prepared or drafted.
11.12 TIME OF ESSENCE
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.13 GOVERNING LAW
-------------
This Agreement will be governed by the laws of the State of Texas without regard
to conflicts of laws principles.
11.14 COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
-48-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first written above.
BUYER: SELLERS:
- -----
TALTON HOLDINGS, INC., /s/ JULIUS E. TALTON
a Delaware corporation -------------------------------
JULIUS E. TALTON
By: /s/ TODD W. FOLLMER /s/ JULIUS E. TALTON, JR.
------------------------ -------------------------------
Name: Todd W. Follmer JULIUS E. TALTON, JR.
Title: Chief Executive Officer
/s/ JAMES E. LUMPKIN
-------------------------------
JAMES E. LUMPKIN
/s/ CARRIE T. GLOVER
-------------------------------
CARRIE T. GLOVER
TALTON TELECOMMUNICATIONS
CORPORATION, an Alabama corporation
By: /s/ JULIUS E. TALTON
---------------------------
Name:
Title:
TALTON TELECOMMUNICATIONS OF
CAROLINA, INC., an Alabama
corporation
By: /s/ JULIUS E. TALTON
----------------------------
Name:
Title:
-49-
<PAGE>
LIST OF EXHIBITS*
TO
TALTON STOCK ACQUISITION AGREEMENT
Exhibit 2.1 Shares in Proportion
Exhibit 2.2 Aggregate Purchase Price
Exhibit 2.3(a) Post-Closing Escrow Agreement
Exhibit 2.3(b) Regulatory Approval and Set-Off Provisions
Exhibit 2.5(a)(ii)-1 Talton Consulting Agreement
Exhibit 2.5(a)(ii)-2 Lumpkin Consulting Agreement
Exhibit 2.5(a)(iii) Jr. Employment Agreement
Exhibit 2.5(a)(iv) Form of Sellers' Counsel Legal Opinion
Exhibit 2.5(b)(i) Respective Amounts of Cash
Exhibit 2.5(b)(ii) Buyer's Subordinated Note and Assoc Documents
Exhibit 2.5(b)(iv) Form of Buyer's Counsel Legal Opinion
Exhibit 2.6(a)-1 List of Outstanding Leases
Exhibit 2.6(a)-2 List of Long Term Debts
Exhibit 2.6(b) Pre-Closing Payables
Exhibit 2.8 Lease Agreement
Exhibit 3.1(a)-1 TTC States of Operation
Exhibit 3.1(a)-2 TC States of Operation
Exhibit 3.1(b) Corporate Names and Addresses
Exhibit 3.2(b) List of Consents - Seller
Exhibit 3.4 Financial Statements
Exhibit 3.6(a) Company Assets-Encumbrances
Exhibit 3.6(a)(ii)-1 Installed Telephone List
Exhibit 3.6(a)(ii)-2 Installed Telephone Line List
Exhibit 3.6(a)(iv) October 96 Inventory List
Exhibit 3.6(a)(v) List of Vehicles
Exhibit 3.6(a)(vi) Furniture, Fixtures, Equipment, Personalty and
Intellectual Property
Exhibit 3.6(b) Continuing Liabilities
Exhibit 3.7 Accounts Receivable
Exhibit 3.9 Taxes
Exhibit 3.11 Employee Benefit Plans
Exhibit 3.12 Governmental Authorizations
Exhibit 3.13(a) and
Exhibit 3.13(b) Litigation
Exhibit 3.14 Changes and Events
Exhibit 3.14(k) Changes in Collection of Accounts Receivable
Exhibit 3.15(a)(i) Telephone Operating and License Agreement
Description
Exhibit 3.15(a)(ii) Service Agreement Description
Exhibit 3.15(a)(iii) Leases, Rental and Occupancy Agreements over
$5000 and 12 months
Exhibit 3.15(a)(iv) Licensing Agreements and/or Contracts with
respect to Intellectual Property Assets
Page 1 of 2
<PAGE>
Exhibit 3.15(a)(v) Joint Venture, Partnership or Contracts
involving Sharing of Profits, Losses, Costs or
Liabilities
Exhibit 3.15(a)(vi) Other Contracts ($5000 or more)
Exhibit 3.15(a)(vii) Power of Attorney List
Exhibit 3.15(b) Rights, Obligations and/or Liabilities of Seller
Exhibit 3.15(c) Contract Compliance
Exhibit 3.15(c)(vi) Renegotiations
Exhibit 3.16(a) Insurance Policies
Exhibit 3.16(b) Insurance Summary
Exhibit 3.16(c) Insurance Statement
Exhibit 3.17 Environmental Statement
Exhibit 3.18(a) Employee Information
Exhibit 3.18(c) Employee, Consultant and Contract Labor
Agreements
Exhibit 3.18(d) Retired Employee, Director, Director's
Dependents List of Benefits
Exhibit 3.20 Intellectual Property Asset Contracts
Exhibit 3.21 List of Bank Accounts
Exhibit 3.25 Relationships with Related Persons
Exhibit 3.26 Brokers or Finders (Sellers)
Exhibit 4.2 List of Consents-Buyer
Exhibit 4.5 Brokers or Finders (Buyer)
Exhibit 4.6(a) Capitalization-Common, Preferred & Warrants
(Securities)
Exhibit 4.6(b) Form of Certificate Regarding Capitalization
Exhibit 4.7 Liabilities-Buyers
Exhibit 4.8 Contractual Obligations of Buyer
__________________
* These items have been omitted. A copy will be provided to the Commission upon
request.
Page 2 of 2
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
TALTON HOLDINGS, INC.
TALTON HOLDINGS, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
FIRST: The original Certificate of Incorporation of Talton Holdings, Inc. was
filed with the Secretary of State of Delaware on November 12, 1996.
SECOND: The Restated Certificate of Incorporation of Talton Holdings, Inc. in
the form attached hereto as Exhibit A has been duly adopted in accordance with
the provisions of Sections 245 and 228 of the General Corporation Law of the
State of Delaware by the directors and stockholders of the Corporation, and
prompt written notice was duly given pursuant to Section 228 of the General
Corporation Law of the State of Delaware to those stockholders who did not
approve the Restated Certificate of Incorporation, as so amended, by written
consent.
THIRD: The Restated Certificate of Incorporation so adopted reads in full as
set forth in Exhibit A attached hereto and is hereby incorporated herein by this
reference.
IN WITNESS WHEREOF, Talton Holdings, Inc. has caused this Certificate to be
signed by the President and the Secretary this 20th day of December, 1996.
TALTON HOLDINGS, INC.
By: /s/ JOSEPH P. URSO
-----------------------
Joseph P. Urso
President
ATTEST:
By: /s/ TODD W. FOLLMER
--------------------------
Todd W. Follmer
Assistant Secretary
<PAGE>
EXHIBIT A
---------
RESTATED CERTIFICATE OF INCORPORATION
OF
TALTON HOLDINGS, INC.
FIRST: The name of this Corporation (hereinafter called the or this
"Corporation") is TALTON HOLDINGS, INC.
SECOND: The address of the registered office of this Corporation in the State
of Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle.
The name of the registered agent of this Corporation in the State of Delaware at
such address is CORPORATION SERVICE COMPANY.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of stock which the Corporation shall have
authority to issue is 100,000 shares (the "Capital Stock") of which 50,000
shares shall be common stock, par value $0.01 per share (the "Common Stock"),
and 50,000 shares shall be preferred stock, par value $0.01 per share (the
"Preferred Stock"). The Common Stock shall be divided into two classes. The
first class shall consist of 49,600 shares and is designated Class A Common
Stock ("Class A Common"). The second class shall consist of 400 shares and is
designated Class B Common Stock ("Class B Common"). The Preferred Stock shall
be divided into two classes. The first class shall consist of 6,000 shares and
is designated Senior Preferred Stock ("Senior Preferred"). The second class
shall consist of 44,000 shares and is designated Junior Preferred Stock ("Junior
Preferred").
B. The Junior Preferred may be issued in one or more series, from time to
time, with each such series to consist of such number of shares and to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issue of such series adopted
unanimously by the Board of Directors of the Corporation, and the Board of
Directors is hereby expressly vested with authority, to the full extent now or
hereafter provided by law, to unanimously adopt any such resolution or
resolutions, subject to the provisions of this Certificate.
-1-
<PAGE>
C. The powers, preferences, rights, restrictions, and other matters
relating to the Class A Common, Class B Common and Senior Preferred are as
follows:
1. DIVIDENDS
The holders of the Senior Preferred shall be entitled to receive dividends
at the rate of $80.00 per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares) per annum, respectively,
payable quarterly out of funds legally available therefor. Such dividends shall
be payable only when, as, and if declared by the Board of Directors and shall be
cumulative. No dividends (other than those payable solely in the Common Stock of
the Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends in the total amount of $80.00 per
share (as adjusted for any stock dividends, combinations or splits with
respect to such shares) on the Senior Preferred shall have been paid or declared
and set apart during that fiscal year and any prior year in which dividends
accumulated but remain unpaid. Except for the fact that the dividends shall be
cumulative, no further right shall accrue to holders of shares of Senior
Preferred in the event that dividends on said shares are not declared in any
prior year, nor shall any undeclared or unpaid dividend bear or accrue any
interest.
2. LIQUIDATION PREFERENCE
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Senior
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
$1,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares), plus an amount equal to all accrued or declared
but unpaid dividends on such share for each share of Senior Preferred then held
by them. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Senior Preferred shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Senior
Preferred in proportion to the preferential amount each such holder is otherwise
entitled to receive.
(b) Subject to Sections 6 (c) and (d) below, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, and subject to the payment in full of the liquidation preferences
with respect to the Senior Preferred as provided in subparagraph (a) of this
Section and any preference established by the Board of Directors with respect to
the Junior Preferred, the holders of the Class A Common shall be entitled to
receive, prior and in preference to any further
-2-
<PAGE>
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Class B Common by reason of their ownership thereof, the amount
of $1,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) for each share of Class A Common then held by them.
Subject to the payment in full of the liquidation preferences with respect to
the Senior Preferred as provided in subparagraph (a) of this Section and any
preference established by the Board of Directors with respect to the Junior
Preferred, if upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class A Common shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amount,
then the entire remaining assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Class A
Common in proportion to the number of shares of Class A Common then held by
them.
(c) Subject to any preference established by the Board of Directors with
respect to the Junior Preferred, after payment to the holders of the Senior
Preferred and the Class A Common of the amounts set forth in Sections (a) and
(b) above, the entire remaining assets and funds of the Corporation legally
available for distribution, if any, shall be distributed ratably among the
holders of both classes of the Common Stock in proportion to the number of
shares of both classes of the Common Stock then held by them.
(d) Whenever the distribution provided by or pursuant to this Section shall
be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors.
3. WARRANT RIGHTS TO CLASS B COMMON
The persons or entities who become holders of the Class B Stock in
connection with the initial issuance of Class B Common on or about December 27,
1996 shall also be issued warrants to purchase Class A Common upon terms to be
established by the Board of Directors.
4. REDEMPTION
(a) Upon the occurrence of a Major Event (hereinafter defined in Section
4(d) below), this Corporation shall redeem the Senior Preferred from any source
of funds legally available therefor, after repayments required under the terms
of the Corporation's then outstanding debt facilities, unless prior to the
Redemption Date (hereinafter defined) the holders thereof elected to convert the
shares of Senior Preferred as provided in Section 6(a) below. Such redemption
shall occur on the date (the "Redemption Date") upon which the Major Event is
consummated. The Corporation shall effect such redemption on the Redemption Date
by paying in cash in redemption of the shares of Senior
-3-
<PAGE>
Preferred to be redeemed a sum equal to $1,000 per share of Senior Preferred (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus an amount equal to all declared or accrued but unpaid dividends on
such shares ("Redemption Price").
(b) Prior to the Redemption Date, written notice shall be mailed, first
class postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Senior
Preferred to be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except in the event such
holder has previously converted his shares (as provided in Section 6(a) below),
on or after the Redemption Date, each holder of Senior Preferred called for
redemption shall surrender to this Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(c) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of shares
of Senior Preferred (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Senior Preferred on the Redemption Date are insufficient to redeem the
total number of shares of Senior Preferred to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares to be redeemed
based upon their holdings of Senior Preferred. The shares of Senior Preferred
not redeemed shall remain outstanding and entitled to all rights and preferences
provided herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Senior Preferred such
funds will promptly be used to redeem the balance of the shares which the
Corporation has become obliged to redeem on any Redemption Date, but which it
has not redeemed.
(d) For purposes hereof, Major Event shall mean: (i) a sale of all or
substantially all of the assets of the Corporation, or (ii) a registered public
offering under the
<PAGE>
Securities Act of 1933, as amended, of equity interests in the Corporation which
public offering is made pursuant to a registration statement on Form S-1 or a
successor form and which yields gross proceeds to the Corporation of at least
$20,000,000, and for purposes of this Section 4 only, Major Event shall also
mean (subject to the terms and conditions set forth in that certain Shareholders
Agreement (the "Shareholders Agreement"), dated as of December 27, 1996, by and
among the Corporation and all its shareholders and warrant holders, which such
provisions are hereby incorporated herein by reference):
(i) A holder or a certain group of holders owning Common Stock
representing sixty percent (60%) or more of the total amount of the
outstanding Common Stock plus In the Money Warrants (as defined below),
proposes to transfer all of its or their Common Stock to any third party
who is not a holder or an Affiliate (as defined in Section 5 below) of a
holder (each, a "Drag-Along Group"), and the Drag Along Group exercises the
right to require all other holders (the "Compelled Holders") to sell to the
third party all of their Capital Stock subject to and in accordance with
the terms and conditions set forth in the Shareholders Agreement.
(ii) A third party offer (the terms and conditions thereof to be set
forth in the Shareholders Agreement) is extended contemplating the
acquisition of seventy-five percent (75%) or more of all outstanding Common
Stock and all In the Money Warrants, and a holder or a group of holders (as
such groups are defined in the Shareholders Agreement) owning Common Stock
representing seventy-five percent (75%) or more of the outstanding Common
Stock plus In the Money Warrants proposes to accept such Third Party Offer
(again, each a "Drag-Along Group"); and the Drag Along Group exercises the
----------------
right to require all holders of Common Stock and In the Money Warrants
(which for purposes of this Section shall include the Drag Along Group)
(the "Compelled Holders") to sell to the third party their outstanding
------------------
Common Stock and In the Money Warrants in accordance with such third party
offer subject to and in accordance with the terms and conditions set forth
in the Shareholders Agreement. For purposes of this Section, "In the Money
Warrants" shall refer to Warrants having a strike price less than the per
share price at which the third party proposes to purchase the Common Stock.
5. VOTING RIGHTS AND POWERS
Each holder of Class A Common shall be entitled to one (1) vote for each
share of Class A Common held. Each holder of Class B Common shall be entitled to
four (4) votes for each share of Class B Common held. The Senior Preferred shall
be non-voting.
Except as otherwise provided in this Certificate, the number of directors
constituting the entire Board of Directors shall be not less than 2 nor more
than 11 as fixed from time to time by
-5-
<PAGE>
vote of the Board of Directors; provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office, and provided, further, that the number of directors constituting the
entire Board of Directors initially shall be 2 and such directors shall be
Joseph P. Urso and Todd W. Follmer until their successors have been duly elected
as provided in this Certificate and the Shareholders Agreement.
Immediately following the consummation of the Corporation's senior secured
debt financing and subordinated debt financing anticipated to occur on or about
December 27, 1996 (the "Acquisition Financing"), the authorized number of
---------------------
members of the Board of Directors shall initially consist of eleven (11)
directors or such number as unanimously agreed to by the Board of Directors and
as provided in this Certificate and the Shareholders Agreement. The following
procedure will be utilized with respect to the election of certain directors and
the voting power of each director (capitalized terms shall have the meaning set
forth in this Certificate):
Class A/B Directors. Immediately following the consummation of the
-------------------
Acquisition Financing, the holders of Class A Common and the holders of Class B
Common, collectively, shall be entitled to elect six (6) directors (the "Class
-----
A/B Directors"), subject to and in the manner provided in this Certificate and
- -------------
the Shareholders Agreement. Each Class A/B Director shall have one (1) vote on
any matter voted on by the Board of Directors.
Class B Directors. Immediately following the consummation of the
-----------------
Acquisition Financing, the holders of Class B Common shall be entitled
exclusively to elect five (5) directors (the "Class B Directors"), subject to
-----------------
and in the manner provided in this Certificate and the Shareholders Agreement.
Pursuant to the Shareholders Agreement, the holders of Class B Common have
designated the EUFCC Holders (defined below) to vote their shares of Class B
Common in connection with the election of Class B Directors. The Class B
Directors shall be entitled to the number of votes, or fraction thereof,
hereinafter set forth.
Voting Powers of Certain Directors When Ownership of Less Than a Certain
------------------------------------------------------------------------
Percentage of Shares Occurs With Respect to Certain Shareholders. At the time
- ----------------------------------------------------------------
the EUFCC Holders and the Onyx Holders (defined below) collectively shall own
less than ten percent (10%) of all outstanding Common Stock, the holders of
Class B Common shall have the exclusive right to elect only three (3) directors
who shall have the voting powers described below in this Section 5 and the
holders of Class A Common and the holders of Class B Common, collectively, shall
acquire the right to elect one (1) additional Class A/B Director (for a total of
7) with one (1) full vote so as to maintain the total number of votes entitled
to be cast by members of the Board of Directors at nine (9) (and the authorized
number of members of the Board of Directors shall be reduced to ten (10)), all
subject to and in the manner provided in the Shareholders Agreement. At the
time
-6-
<PAGE>
the EUFCC Holders and the Onyx Holders collectively shall own less than seven
and one-half percent (7.5%) of the outstanding Common Stock, the holders of
Class B Common shall have the exclusive right to elect one (1) director who
shall have the voting powers described below in this Section 5, and the holders
of Class A Common and the holders of Class B Common, collectively, shall acquire
the right to elect one (1) additional Class A/B Director (for a total of 8) with
one (1) full vote so as to maintain the total number of votes entitled to be
cast by members of the Board of Directors at nine (9) (and the authorized number
of members of the Board of Directors shall be reduced to nine (9)), all subject
to and in the manner provided in the Shareholders Agreement. At the time the
EUFCC Holders and the Onyx Holders collectively shall own less than five percent
(5%) of the outstanding Common Stock, the Holders of Class B Common shall have
no further right to elect any directors and the holders of Class A Common and
the holders of Class B Common, collectively, shall acquire the right to elect
one (1) additional Class A/B Director with one (1) full vote so as to maintain
the total number of votes entitled to be case by members of the Board of
Directors at nine (9) (and the authorized number of members of the Board of
Directors shall remain at nine (9)), all subject to and in the manner provided
in the Shareholders Agreement. Whenever the number of directors that the
holders of Class B Common have a right to elect is reduced pursuant to this
Section 5, the number of directors constituting the Board of Directors shall
automatically and immediately be reduced therewith and the holders of Class B
Common shall determine which directors shall continue and the directorships
which shall be terminated. In determining the percentage of ownership of
outstanding Common Stock owned by of the EUFCC Holders and the Onyx Holders for
purposes of this Section 5, the Class B Common held by them will be deemed to
have been converted into the appropriate number of shares of Class A Common as
provided in this Certificate, provided, however, that if one of the Class B
Directors is not also a principal owing 30% or more of the shares of Onyx
Partners, Inc. as provided in the Shareholders Agreement, then the Common Stock
owned by the Onyx Holders shall not be considered in calculating the percentages
pursuant to this Paragraph. As used in this Certificate, the following terms
shall have the meanings hereinafter set forth:
"AFFILIATE" with respect to any Person shall mean (a) any other Person that
---------
directly, or indirectly, through one or more intermediaries, Controls, or is
Controlled by, or under common Control with such Person, (b) any director,
officer, or partner of such Person, or (c) any father, mother, brother, sister
or descendant of such Person. For purposes of this definition, none of the
EUFCC Holders, Talton Holders, CIBC or any of their respective Affiliates shall
be deemed to be an Affiliate of the Corporation. As used in this definition,
Control means with respect to any Person the ability to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. As used herein,
Talton Holders means Julius E.
-7-
<PAGE>
Talton, Sr., Julius E. Talton, Jr., James E. Lumpkin, and their respective
Affiliates, and CIBC means CIBC Wood Gundy Ventures, Inc., and its Affiliates.
"EUFCC HOLDERS" shall mean Gregg L. Engles, Todd W. Follmer, Joseph P.
-------------
Urso, and their respective Affiliates.
"ONYX HOLDERS" means Onyx Talton Partners, L.P. and Sachs Investment
------------
Partners and their respective Affiliates.
"PERSON" means an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
Class B - Designation of Directors and Number of Votes. For so long as the
------------------------------------------------------
holders of Class B Common shall have the right under this Certificate and the
Shareholders Agreement to elect five (5) Class B Directors, each Class B
director elected by the holders of Class B Common shall have a 0.6 director vote
on any matter voted on by the Board of Directors (thus, the Class B Directors
would have a combined three (3) director votes, or 0.6 x 5 = 3). For so long as
the holders of Class B Common shall have the right under this Certificate and
the Shareholders Agreement to elect three (3) Class B Directors, each Class B
Director shall have a 0.667 director vote on any matter voted on by the Board of
Directors (thus, the Class B Directors would have a combined two (2) director
votes, or 0.667 x 3 = 2). For so long as the holders of Class B Common shall
have the right under this Certificate and the Shareholders Agreement to elect
one (1) Class B Director, such Class B Director shall have one (1) vote on any
matter voted on by the Board of Directors. Upon the conversion of the Class B
Common into Class A Common, each director thereafter elected by the holders of
Class A Common shall be entitled to one (1) vote and the election of such
directors shall be governed by the Shareholders Agreement.
6. CONVERSION
(a) Right to Convert Senior Preferred. Each share of Senior Preferred
---------------------------------
shall be convertible into 0.08505 fully paid and nonassessable shares of Class A
Common (as adjusted as provided below), at the option of the holder thereof, at
any time after the date of issuance of such share and on or prior to the
Redemption Date, at the office of the Corporation or any transfer agent for such
stock.
(b) Mechanics of Conversion of Senior Preferred.
-------------------------------------------
(i) Before any holder of Senior Preferred shall be entitled to convert
the same into shares of Class A Common, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for such stock, and shall give written notice to the
Corporation
-8-
<PAGE>
at such office that he elects to convert the same and shall state therein
the name or names in which he wishes the certificate or certificates for
shares of Class A Common to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Senior Preferred, a certificate or certificates for the number of shares of
Class A Common to which he shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of business
on the date of surrender of the shares of Senior Preferred to be converted,
and the person or person entitled to receive the shares of Class A Common
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Class A Common on such date.
(ii) If the conversion is in connection with a Major Event, the
conversion may, at the option of any holder tendering shares of Senior
Preferred for conversion, be conditioned upon the closing of the Major
Event, in which event the person(s) entitled to receive the Class A Common
upon conversion of the Senior Preferred shall not be deemed to have
converted such Senior Preferred until immediately prior to the closing of
such Major Event.
(c) Automatic Conversion of Class B Common. In connection with the
--------------------------------------
consummation of a Major Event, each share of Class B Common shall automatically
(without any action on the part of the Corporation or any holder) be converted
into four (4) fully paid and nonassessable shares of Class A Common (as adjusted
as provided below). Upon the automatic conversion of the Class B Common, Class
A Common shall not have the liquidation preference provided for in Section 2
above.
(d) Optional Conversion of Class B Common. In the event any additional
-------------------------------------
shares of Class A Common are issued after the consummation of the Acquisition
Financing, all shares of Class B Common may, at the election of the holders of a
majority of the outstanding Class B Common shares, be converted into four (4)
fully paid and nonassessable shares of Class A Common for each share of Class B
Common (as adjusted as provided below). Upon the conversion of the Class B
Common as provided herein, Class A Common shall not have the liquidation
preference provided for in Section 2 above.
(e) Adjustments. In the event that this Corporation at any time or from
-----------
time to time after the consummation of the Acquisition Financing, shall declare
or pay, without consideration, any dividend on the Common Stock payable in
Common Stock or in any right to acquire Common Stock for no consideration, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split, reclassification or
otherwise than by
-9-
<PAGE>
payment of a dividend in Common Stock or in any right to acquire Common Stock),
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the number of shares of Class A Common into which Senior
Preferred and Class B Common may be converted (as set forth above) which is in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate to reflect such event. In the event that this Corporation shall
declare or pay any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) Adjustments for Reclassification and Reorganization. If the Class A
---------------------------------------------------
Common issuable upon conversion of the Senior Preferred or Class B Common shall
be changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than by reason of a Major Event), the number of shares of Class
A Common into which Senior Preferred and Class B Common may be converted (as set
forth above) which is then in effect shall, concurrently with the effectiveness
of such reorganization or reclassification, be proportionately adjusted so that
the Senior Preferred and Class B Common shall be convertible into, in lieu of
the number of shares of Class A Common which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Class A Common that would have been
subject to receipt by the holders upon conversion of the Senior Preferred or
Class B Common immediately before that change.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
---------------------------------------------
all times reserve and keep available out of its authorized but unissued shares
of Class A Common, solely for the purpose of effecting the conversion of the
shares of the Senior Preferred and Class B Common, such number of its shares of
Class A Common as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Senior Preferred and Class B Common; and if at
any time the number of authorized but unissued shares of Class A Common shall
not be sufficient to effect the conversion of all then outstanding shares of the
Senior Preferred and Class B Common, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Class A Common to such number of shares as
shall be sufficient for such purpose, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Certificate.
-10-
<PAGE>
7. RESTRICTIONS AND LIMITATIONS
(a) In addition to any other vote required by law, the affirmative vote of
the holders of 75% of the affected class of Preferred Stock shall be required to
amend this Certificate if such amendment would change any of the rights, powers,
preferences or privileges provided for herein for the benefit of any shares of
such class of Preferred Stock. Additionally, in addition to any other vote
required by law, the affirmative vote of the holders of 75% of the Class A
Common shall be required to amend this Certificate if such amendment would
change any of the rights, powers, preferences or privileges provided for herein
for the benefit of any shares of Class A Common.
(b) In addition to any other vote required by law, the affirmative vote of
the holders of at least 66-2/3% of the Common Stock shall be required to effect
a merger, consolidation or reorganization of the Corporation, or the sale of all
or substantially all of the assets of the Corporation, or to amend, repeal or
otherwise alter the Bylaws.
(c) Any action required or permitted to be taken at any annual or special
meeting of the holders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of 75% or more of the outstanding Common
Stock and shall be delivered (by hand) or by certified or registered mail,
return receipt requested) to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
minutes of holders are recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those holders who have not consented in writing.
8. INCREASING COMMON STOCK
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by an affirmative vote of the holders of a majority of the Common Stock of the
Corporation.
FIFTH:
(a) The business and affairs of the Corporation shall be managed by a Board
of Directors.
(b) In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors shall have the power, both before and after receipt of
any payment for any of the Corporation's capital stock, by the affirmative vote
of the members having 75% or more of all director votes, to adopt, amend, repeal
or otherwise alter the Bylaws of the Corporation without any action on the part
of the stockholders; provided,
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<PAGE>
however, that the grant of such power to the Board of Directors shall not divest
the stockholders of nor limit their power to adopt, amend, repeal or otherwise
alter the Bylaws.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH: The Corporation reserves the right to adopt, repeal, rescind or
amend in any respect any provisions contained in this Restated Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
EIGHTH: A director of the Corporation shall, to the full extent permitted by
the Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article EIGHTH, nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this Article EIGHTH,
shall eliminate or reduce the effect of this Article EIGHTH in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article EIGHTH, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
-12-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TALTON HOLDINGS, INC.
ARTICLE I
OFFICES
-------
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
--------- ----------------
be in the County of Dallas, State of Texas.
SECTION 2. OTHER OFFICES. The Corporation also may have offices at such
--------- -------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
SECTION 1. TIME AND PLACE OF MEETING. Meetings of the stockholders shall be
--------- -------------------------
held at such times and at such places, within or without the State of Delaware,
as shall be determined by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held on
--------- ---------------
the second Friday of the first month of each fiscal year if not a legal holiday,
and if a legal holiday, then on the next secular day following at 10:00 A.M., at
which they shall elect a Board of Directors, and transact such other business as
may properly be brought before the meeting. The date of the annual meeting of
the stockholders may be held on a date different than that given above if the
Board so determines, and so states in the notice of the meeting or in a duly
executed waiver thereof.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may be
--------- ----------------
called at any time by the Chief Executive Officer, President or the Board of
Directors, and shall be called by the President or the Secretary at the request
in writing of a majority of the Board of Directors, or at the request in writing
of the holders of not less than 25% of all the shares issued, outstanding and
entitled to vote at the meeting. Such request shall state the purpose
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<PAGE>
or purposes of the proposed meeting. Business transacted at special meetings
shall be confined to the purposes stated in the notice of the meeting.
SECTION 4. NOTICE OF MEETINGS. Whenever stockholders are required or
--------- ------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Restated Certificate of
Incorporation, as amended or restated from time to time (the "Certificate of
--------------
Incorporation"), or these Bylaws, the written notice of any meeting shall be
- -------------
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
SECTION 5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order
--------- -------------------------------------------------------
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not (unless otherwise provided
for herein) precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty (60) nor less than ten (10) days before the date of such meeting; (2) in
the case of determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be more than ten (10)
days from the date upon which the resolution fixing the record date is adopted
by the Board of Directors; and (3) in the case of any other action, shall not be
more than sixty (60) days prior to such other action. If no record date is
fixed: (1) the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; (2) the
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<PAGE>
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting when no prior action of the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, that the
Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
--------- -------------------------------------
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or proxy at
any meeting of stockholders.
SECTION 7. QUORUM. The holders of issued and outstanding shares of capital
--------- ------
stock entitled to cast a majority of all votes, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by the Certificate of
Incorporation or by the General Corporation Law of the State of Delaware (herein
Page 3 of 20
<PAGE>
called the "Act"). If, however, such quorum shall not be present or represented
---
at any meeting of the stockholders, the stockholders entitled to vote, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. Once a quorum
is constituted, the stockholders present or represented by proxy at a meeting
may continue to transact business until adjournment, notwithstanding the
subsequent withdrawal therefrom of such number of stockholders as to leave less
than a quorum.
SECTION 8. VOTING. When a quorum is present at any meeting, a majority of
--------- ------
votes cast by the holders of the shares present or represented by proxy at such
meeting and entitled to vote shall unless otherwise provided for in the
Certificate of Incorporation or in the Shareholders Agreement (as defined in
Article X) be the act of the stockholders.
Except as otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share having voting power held by such
stockholder. At each election for directors every stockholder shall be entitled
to vote, in person or by proxy, the number of votes represented by shares owned
by him for as many persons as there are directors to be elected and for whose
election he has a right to vote. Cumulative voting is prohibited by the
Certificate of Incorporation. Every proxy must be executed in writing by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided
therein. Each proxy shall be revocable unless expressly provided therein to be
irrevocable or unless otherwise made irrevocable by law.
Shares registered in the name of another corporation may be voted by such
officer, agent, or proxy as the Bylaws of such corporation may prescribe or, in
the absence of such provisions, as the Board of Directors of such corporation
may determine.
Shares held by an administrator, executor, guardian, or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be
Page 4 of 20
<PAGE>
entitled to vote shares held by him without a transfer of such shares into his
name as trustee.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without being transferred into his name, if such authority is contained in an
appropriate order of the court that appointed the receiver.
A stockholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
SECTION 9. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATION EQUIPMENT.
--------- --------------------------------------------------------
Stockholders may be present at a meeting of stockholders in person or by proxy
(and, if present by proxy, may participate in such meeting of stockholders by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other).
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER OF DIRECTORS. Subject to the terms of the Certificate of
--------- -------------------
Incorporation, the number of directors of the Corporation shall be fixed from
time to time by resolution of the Board of Directors, but in no case shall the
number of directors be less than 2 or more than 11. Until otherwise fixed by
resolution of the Board of Directors, the number of directors shall be as stated
in the Certificate of Incorporation of the Corporation. Except as otherwise
provided in the Certificate of Incorporation, no decrease in the number of
directors shall have the effect of reducing the term of any incumbent director.
Directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article III, and each director shall hold office
until (i) his successor is elected and qualified, (ii) he dies, (iii) he
resigns, or (iv) he is removed. Directors need not be residents of the State of
Delaware or stockholders of the Corporation.
Page 5 of 20
<PAGE>
SECTION 2. VACANCIES. Subject to other provisions of this Section and the
--------- ---------
Shareholders Agreement (as defined in Article XI) the following provisions shall
apply. Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 10 of this Article III. A director elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by unanimous vote of the existing directors.
SECTION 3. GENERAL POWERS. The business of the Corporation shall be managed
--------- --------------
by its Board of Directors, which may exercise all powers of the Corporation and
do all such lawful acts and things, as are not by the Act, the Certificate of
Incorporation, the Shareholders Agreement or these Bylaws directed or required
to be exercised or done by the stockholders.
SECTION 4. PLACE OF MEETINGS. The Board of Directors of the Corporation may
--------- -----------------
hold meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. ANNUAL MEETINGS. The first meeting of each newly elected Board of
--------- ---------------
Directors shall be held, without further notice, immediately following the
annual meeting of stockholders at which such directors were elected, provided a
quorum shall be present. In the event such meeting is not held immediately
following the annual meeting, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
of notice signed by all of the directors.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
--------- ----------------
shall be held without special notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may
--------- ----------------
be called by or at the request of the Chairman of the Board of Directors or the
President, and shall be called by the Secretary on the written request of three
of the incumbent directors. The person or persons authorized to call special
meetings of the Board of Directors may fix the place for holding any special
meeting of the Board of Directors called by them.
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<PAGE>
SECTION 8. NOTICE OF SPECIAL MEETINGS. Notice of any special meetings shall
--------- --------------------------
be given at least 2 Business Days previous thereto if given either personally
(including written notice delivered personally or telephone notice) or by
telegram. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting. For purposes hereof, "Business Day" shall mean any day on which
------------
commercial banks are not authorized or required to close in New York, New York,
and shall also include any legal holiday on which the National Market System of
the National Association of Securities Dealers Automated Quotation System is
open for trading on a regular basis.
SECTION 9. WAIVER OF NOTICE. Any director may waive notice of any meeting,
--------- ----------------
as provided in Article IV, Section 2, of these Bylaws. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 10. QUORUM AND VOTING.
---------- -----------------
(a) At all meetings of the Board of Directors, the presence of a majority of
the number of directors fixed by Article III, Section 1, of these Bylaws
shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the affirmative vote of at least a majority of
the directors present at any meeting at which there is a quorum shall be
the act of the Board of Directors, except as may be otherwise specifically
provided by the Act, the Certificate of Incorporation, these Bylaws, or as
otherwise provided in Section 10(b) below. If a quorum shall not be
present at any meeting of directors, a majority of the directors present
thereat may adjourn the meeting from time to time without notice other than
announcement at the meeting, until a quorum shall be present.
(b) As expressly provided in the Shareholders Agreement, for so long as the
CIBC Holders (as defined in the Shareholders Agreement) shall have the
right under the Shareholders Agreement to designate any directors, in
regard to a meeting of the Board of Directors, a quorum of the Board of
Directors shall not be deemed to exist unless at least one (1) director
designated by CIBC is a part of such quorum; provided, however, if there
would have otherwise been a quorum but for the absence of a CIBC-designated
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<PAGE>
director, a majority of directors present for such meeting may adjourn the
meeting and send a special notice to the CIBC-designated director(s) and
the other directors not in attendance at the meeting setting a date for
reconvening the meeting of the Board of Directors at least three (3)
Business Days after the meeting as to which no quorum existed by virtue of
the absence of a CIBC-designated director was adjourned, and the Board of
Directors may reconvene at such time and conduct business if a quorum is
otherwise present, regardless of whether a CIBC-designated director is in
attendance. Notwithstanding the foregoing, this Section 10(b) shall not be
applicable to a meeting of the Board of Directors to consider a Selling
Party's Notice (as defined in the Shareholders Agreement) pursuant to
Section 3(b) of the Shareholders Agreement.
SECTION 11. CHAIRMAN OF THE BOARD. The Board of Directors may elect a
---------- ---------------------
Chairman of the Board at each annual meeting of the Board of Directors. The
Chairman of the Board shall be a director of the Corporation and shall hold
office until the annual meeting of the Board of Directors following his election
or until his successor is elected and qualified. The Chairman of the Board
shall preside at all meetings of the Board of Directors, and, in the absence of
the President, at all meetings of the stockholders.
SECTION 12. COMMITTEES. The Board of Directors by resolution passed by a
---------- ----------
majority of the whole Board may designate an Executive Committee, to consist of
two or more directors, one of whom shall be designated as Chairman, who shall
preside at all meetings of such Committee. At any meeting of the Committee a
majority of the members of the Committee shall constitute a quorum for the
transaction of business, and the act of a majority of the members present at any
meeting at which a quorum is present shall be the act of the Committee. To the
extent provided in the resolution of the Board of Directors, the Executive
Committee shall have and may exercise all of the authority of the Board of
Directors, and shall have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. The designation of such Executive
Committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law. Meetings of the Executive Committee may be called and
notices given in the same manner as calling and giving notice of special
meetings of the Board of Directors. Any member of the Executive Committee may
be removed, for or without cause, by the affirmative vote of a majority of the
whole Board of Directors. If any vacancy or vacancies occur in the Executive
Committee, such vacancy or vacancies shall be
Page 8 of 20
<PAGE>
filled by the affirmative vote of a majority of the whole Board of Directors.
The Board of Directors by resolution passed by a majority of the whole Board
may designate an Audit Committee to consist of two or more directors, one of
whom shall be designated as Chairman, who shall preside at all meetings of such
Committee, which Committee shall be responsible for selecting any investment
banking firm engaged by the Corporation, and shall perform such other functions
as may be provided in such resolutions. The Board of Directors by resolution
passed by a majority of the whole Board may designate other committees, each
committee to consist of two or more directors, one of whom shall be designated
as Chairman and shall preside at all meetings of such committee, which
committees shall have such power and authority and shall perform such functions
as may be provided in such resolution. At any meeting of a committee a majority
of the members of such committee shall constitute a quorum for the transaction
of business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of the committee. Such committee or
committees shall have such name or names as may be designated by the Board of
Directors.
The Executive Committee and all other such committees shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
SECTION 13. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive
---------- -------------------------
any stated salary for their services, but by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of any committee may, by resolution of the Board of
Directors, be allowed like compensation for attending meetings.
SECTION 14. ACTION BY UNANIMOUS CONSENT. Any action required or permitted to
---------- ---------------------------
be taken at any meeting of the Board of Directors or of a committee designated
by the Board of Directors may be taken without a meeting if a written consent,
setting forth the action so taken, is signed by all the members of the Board of
Directors or the committee, as the case may be, and such consent shall have the
same force and effect as a unanimous vote at a meeting. Any and all parties
dealing with the Corporation shall be entitled to
Page 9 of 20
<PAGE>
rely on a copy or facsimile of any such written consent rather than an original
thereof.
SECTION 15. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATION EQUIPMENT.
---------- --------------------------------------------------------
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors may participate in and hold a meeting of such board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE IV
NOTICES
-------
SECTION 1. FORM OF NOTICE. Whenever, under the provisions of the Act, the
--------- --------------
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, and no provision is made as to how such notice
shall be given, such notice shall be given in writing, by mail, postage prepaid,
addressed to such director or stockholder at such address as appears on the
books of the Corporation, provided, that such notice as is required to be given
to any director also may be given either personally (including written notice
delivered personally or telephone notice) or by telegram. Any notice required
or permitted to be given by mail shall be deemed to be given at the time when
the same be thus deposited in the United States mail addressed in the above-
specified manner, with postage thereon prepaid.
SECTION 2. WAIVER. Whenever any notice is required to be given to any
--------- ------
director or stockholder of the Corporation under the provisions of the Act, the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be equivalent to the giving of such notice.
ARTICLE V
OFFICERS
--------
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<PAGE>
SECTION 1. GENERAL. The elected officers of the Corporation shall be a Chief
--------- -------
Executive Officer, a President, one or more Vice Presidents, with or without
such descriptive titles as the Board of Directors shall deem appropriate, a
Secretary and a Treasurer. The Board of Directors by resolution may also
appoint one or more Assistant Secretaries, Assistant Treasurers and such other
officers and assistant officers and agents as from time to time may appear to be
necessary or advisable in the conduct of the affairs of the Corporation. Any
two or more offices may be held by the same person, and the offices of President
and Secretary may be held by the same person.
SECTION 2. ELECTION. The Board of Directors at its first meeting after each
--------- --------
annual meeting of the stockholders shall elect and appoint the officers to fill
the positions designated in Section 1 of this Article V. The Board of Directors
may appoint such other officers and agents as it shall deem necessary and may
determine the salaries of all officers and agents from time to time. The
officers shall hold office until their successors are chosen and qualified. Any
officer elected or appointed by the Board of Directors may be removed, for or
without cause, at any time by a majority vote of the whole Board when in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointments of an officer or agent shall not of itself
create contract rights. Any vacancy occurring in any office of the Corporation
by death, resignation, removal or otherwise shall be filled by the Board of
Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER AND PRESIDENT. The Chief Executive
--------- -------------------------------------
Officer shall have the powers of chief executive officer of the Corporation, and
as chief executive officer shall have general supervision of the affairs of the
Corporation and shall have general and active control of all of its business.
The Chief Executive Officer shall preside at all meetings of the stockholders
and Board of Directors. He shall have authority to execute bonds, deeds,
contracts in the name of the Corporation and to affix the corporate seal
thereto; to sign stock certificates; to cause the employment or appointment of
such employees and agents of the Corporation as the proper conduct of operations
may require, and to fix their compensation, subject to the provisions of these
Bylaws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend for cause, pending final action by the authority which shall
Page 11 of 20
<PAGE>
have supervisory power over him, any officer subordinate to the Chief Executive
Officer, and, in general, to exercise all the powers usually appertaining to the
office of Chief Executive Officer of a corporation, except as otherwise provided
in these Bylaws.
The President may be Chief Executive Officer if so designated by the Board of
Directors. If not, he shall have such powers and perform such duties as are
prescribed by the Chief Executive Officer or by the Board of Directors and, in
the absence or disability of the Chief Executive Officer, he shall have the
powers and perform the duties of the Chief Executive Officer, except to the
extent that the Board of Directors shall have otherwise provided.
SECTION 4. VICE PRESIDENTS. The Vice President or, if there be more than
--------- ---------------
one, the Vice Presidents, shall perform all such duties and services as shall be
assigned to or required of them from time to time by the Board of Directors, the
Executive Committee, and the President.
SECTION 5. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend
--------- -----------------------------------
all meetings of the Board of Directors and all meetings of the stockholders and
record all proceedings of the meetings of the stockholders of the Corporation
and of the Board of Directors in a book to be kept for that purpose, and shall
perform like duties for the Executive Committee when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
meetings of the Board of Directors. The Secretary shall have charge of the seal
of the Corporation and have authority to affix the same to any instrument
requiring it, and when so affixed, it shall be attested by the Secretary's
signature or by the signature of the Treasurer or an Assistant Secretary or
Assistant Treasurer, which may be in facsimile. The Secretary shall keep and
account for all books, documents, papers and records of the Corporation except
those for which some other officer or agent is properly accountable. He shall
have authority to sign stock certificates, and shall generally perform all the
duties usually appertaining to the office of the Secretary of a corporation.
Assistant Secretaries, in the order of their seniority, unless otherwise
determined by the Board of Directors, shall assist the Secretary, and in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary. They shall perform such other duties and have such
other powers as the Board of Directors may prescribe from time to time.
Page 12 of 20
<PAGE>
SECTION 6. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be the
--------- ----------------------------------
chief financial officer of the Corporation and shall have active control of and
shall be responsible for all matters pertaining to the finances of the
Corporation. The Treasurer shall have the care and custody of all monies, funds
and securities of the Corporation and shall deposit all monies and other
valuable effects in the name of and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer
shall cause to be recorded a statement of all receipts and disbursements of the
Corporation in order that proper entries may be made in the books of account.
The Treasurer shall have the power to sign stock certificates, to endorse for
deposit or collection, or otherwise, all checks, drafts, notes, bills of
exchange or other commercial paper payable to the Corporation, and to give
proper receipts or discharges for all payments to the Corporation. He shall be
responsible for all terms of credit granted by the Corporation and for the
collection of all its accounts. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property or whatever
kind in his possession or under his control belonging to the Corporation.
Assistant Treasurers, in the order of their seniority, unless otherwise
determined by the Board of Directors, shall assist the Treasurer, and in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. They shall perform such other duties and have such
other powers deemed necessary in order to assist the Treasurer, and in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. They shall perform such other duties and have such
other powers as the Board of Directors may prescribed from time to time.
SECTION 7. BONDING. If required by the Board of Directors, all or certain of
--------- -------
the officers shall give the Corporation a bond in such form, in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors,
for the faithful performance of the duties of their office and for the
restoration to the Corporation, in case of their death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
Page 13 of 20
<PAGE>
property of whatever kind in their possession or under their control belonging
to the Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
SECTION 1. FORM OF CERTIFICATES. The Corporation shall deliver certificates
--------- --------------------
representing all shares to which stockholders are entitled. Certificates
representing shares of the Corporation shall be in such form as shall be
determined by the Board of Directors and shall be numbered consecutively and
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof that the Corporation is organized under the laws
of the State of Delaware; the name of the registered holder; the number, class
of shares and the designation of the series, if any, which said certificate
represents; and either the par value of the shares or a statement that the
shares are without par value. Each certificate shall also set forth on the back
thereof, a full or summary statement of matters required by the Act or the
Certificate of Incorporation to be described on certificates representing
shares, and shall contain a statement on the face thereof referring to the
matters set forth on the back thereof. Certificates shall be signed by the
Chief Executive Officer, President or any Vice President and the Secretary or
any Assistant Secretary, and may be sealed with the seal of the Corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent or
registered by a registrar, either of which is other than the Corporation or an
employee of the Corporation, the signatures of the Corporation's officers may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on such certificate or certificates,
shall cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or certificates have
been delivered by the Corporation or its agents, such certificate or
certificates may be adopted, nevertheless, by the Corporation and be issued and
delivered as though the person or persons who signed the certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Corporation.
SECTION 2. RESTRICTIONS ON TRANSFERABILITY OF SHARES. In the event any
--------- -----------------------------------------
restriction on the transfer, or registration of the transfer of shares, shall be
imposed or agreed to, by the Corporation, as permitted by law, each
Page 14 of 20
<PAGE>
certificate representing shares so restricted shall conspicuously set forth a
full or summary statement of the restriction on the face of the certificate, or
shall set forth such statement on the back of the certificate and conspicuously
state on the face or back of the certificate that such restriction exists
pursuant to a specified document and that the Corporation will furnish to the
holder of the certificate without charge upon written request to the Corporation
at its principal place of business or registered office a copy of the specified
document.
SECTION 3. LOST CERTIFICATES. The Corporation may direct that a new
--------- -----------------
certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost or destroyed. When authorizing the issuance of a new
certificate or certificates, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of the lost
or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and give the Corporation a
bond in such form, in such sum, and with such surety or sureties as the
Corporation may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 4. TRANSFER OF SHARES. Shares of stock shall be transferable on the
--------- ------------------
books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Subject to any restrictions on transfer set forth in the
Certificate of Incorporation of the Corporation, these Bylaws or any agreement
among stockholders to which the Corporation is a party or has notice, upon
surrender to the Corporation or to the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
--------- -----------------------
recognize the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have
Page 15 of 20
<PAGE>
express or other notice thereof, except as otherwise provided by law.
ARTICLE VII
INDEMNIFICATION
---------------
The Corporation shall indemnify any person (and the heirs, executors and
administrators of such person) who was or is an officer or director of the
Corporation or was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
The Corporation shall indemnify any person who was or is an officer or
director of the Corporation or was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the
Page 16 of 20
<PAGE>
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
The terms "liability" and "all expenses" shall include, but shall not be
--------- ------------
limited to, legal fees and disbursements and amounts of judgments, fines or
penalties against, and amounts paid in settlement by, a director, officer or
employee. Any expenses incurred by a director, officer or employee with respect
to any claim, action, suit or proceeding of the character described above may be
advanced prior to the final disposition thereof upon receipt of an agreement by
or on behalf of the recipient to repay such amount unless it shall ultimately be
determined that he is entitled to indemnification under the provisions of this
Article VII.
Any director or officer (and the heirs, executors and administrators of such
director or officer) who has been wholly successful, on the merits or otherwise,
with respect to any claim, action, suit or proceeding of the character described
above shall be entitled to indemnification as a matter of right. Any
indemnification hereunder (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstance because
he has met the applicable standard of conduct described above. Such
determination shall be made if permitted by the General Corporation Law of the
State of Delaware upon the receipt from the person seeking indemnification of
his written affirmation that he has met the requisite standard of conduct
necessary for indemnification and his written understanding that he will repay
such advanced sums if it is ultimately determined that he has not met those
requirements. If not permitted by the General Corporation Law of the State of
Delaware, by a vote of the directors who are not parties to such action, suit or
proceeding even though less than a quorum or if there are no such directors, or
if such directors so direct, by independent legal counsel in a written opinion.
The Corporation shall pay the expenses incurred by any person in defending any
proceeding in advance of its final disposition; provided, however, that the
payment of expenses
Page 17 of 20
<PAGE>
incurred in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking to repay all amounts advanced if it should
be ultimately determined that such person is not entitled to be indemnified
under this Article VII or otherwise.
If a claim for indemnification for payment of expenses under this Article VII
is not paid in full within sixty days after a written claim therefor has been
received by the Corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action, the
Corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article VII shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
The Corporation's obligation to indemnify any person who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or non-profit entity shall be
reduced by any amount such person may collect as indemnification from such other
corporation, partnership, joint venture, trust, enterprise or non-profit entity.
The Corporation shall have the power to purchase and maintain insurance on
behalf of any director, officer, employee or agent against all liability and
expense that may be incurred by him in such capacity and in any other capacity
in which he served at the request of the Corporation, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VII.
The rights of indemnification provided for in this Article VII shall be in
addition to any rights to which any such director or officer may be entitled
under the General Corporation Law of the State of Delaware, including any
agreement, vote of stockholders and the Certificate of Incorporation.
ARTICLE VIII
GENERAL PROVISIONS
------------------
Page 18 of 20
<PAGE>
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the
--------- ---------
Corporation, subject to the provisions of the Act, the Certificate of
Incorporation and any agreements or obligations of the Corporation, if any, may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
Corporation, provided that all such declarations and payments of dividends shall
be in strict compliance with all applicable laws and the Certificate of
Incorporation. The Board of Directors may fix in advance a record date for the
purpose of determining stockholders entitled to receive payment of any dividend,
such record date to be not more than 20 Business Days prior to the payment of
such dividend. In the absence of any action by the Board of Directors, the date
upon which the Board of Directors adopts the resolution declaring such dividend
shall be the record date.
SECTION 2. RESERVES. There may be created by a resolution of the Board of
--------- --------
Directors out of the earned surplus of the Corporation such reserve or reserves
as the Board of Directors from time to time, in its absolute discretion, deems
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other proper purposes as
the Board of Directors shall deem beneficial to the Corporation, and the Board
of Directors may modify or abolish any reserve in the same manner in which it
was created.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
--------- -----------
resolution of the Board of Directors.
SECTION 4. SEAL. The Corporation shall have a seal which may be used by
--------- ----
causing it or a facsimile thereof to be impressed on, affixed to, or in any
manner reproduced upon, instruments of any nature required to be executed by its
proper officers.
SECTION 5. ANNUAL STATEMENT. The Board of Directors shall present at each
--------- ----------------
annual meeting and when called for by vote of the stockholders at any special
meeting of the stockholders, a full and clear statement of the business and
condition of the Corporation.
SECTION 6. CHECKS. All checks or demands for money and notes of the
--------- ------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may designate from time to time.
Page 19 of 20
<PAGE>
SECTION 7. VOTING SECURITIES OWNED BY CORPORATION. Voting securities in any
--------- --------------------------------------
other corporation held by this Corporation shall be voted by the President or
any Vice President, unless the Board of Directors confers authority to vote with
respect thereto, which may be general or confined to specific investments, upon
some other person or officer. Any person authorized to vote securities shall
have the power to appoint proxies with the general power of substitution.
SECTION 8. RESIGNATION. Any director, officer, employee or agent of the
--------- -----------
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
--------------------
These Bylaws may be altered, amended, modified or repealed, or new Bylaws may
be adopted by the affirmative vote of the directors having 75% or more of all
director votes, provided however, that the grant of such power to the Board of
Directors shall not divest the stockholders of nor limit their power to adopt,
amend, repeal or otherwise alter these Bylaws.
ARTICLE X
SHAREHOLDERS AGREEMENT AND RESTATED CERTIFICATE
-----------------------------------------------
Reference is hereby made to that certain Shareholders Agreement (herein so
called) dated December 27, 1996 by and among the Corporation and its
stockholders and warrant holders and the Certificate of Incorporation. In the
event of a conflict or inconsistency between the terms of these Bylaws and the
terms of the Shareholders Agreement, the terms of the Shareholders Agreement
shall control. In the event of a conflict or inconsistency between the terms of
these Bylaws and the terms of the Certificate of Incorporation, the terms of the
Certificate of Incorporation shall control.
Page 20 of 20
<PAGE>
EXHIBIT 4.1
================================================================================
TALTON HOLDINGS, INC.
AS ISSUER
AMERITEL PAY PHONES, INC.
TALTON TELECOMMUNICATIONS CORPORATION
TALTON TELECOMMUNICATIONS OF CAROLINA, INC.
AND
TALTON STC, INC.
AS SUBSIDIARY GUARANTORS
________________________________________
$115,000,000
11% SENIOR NOTES DUE 2007
SERIES A AND SERIES B
________________________________________
___________________
INDENTURE
DATED AS OF JUNE 27, 1997
___________________
U.S. Trust Company of Texas, N.A.
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)................................................ 7.10
(a)(2)................................................ 7.10
(a)(3)................................................ N.A.
(a)(4)................................................ N.A.
(a)(5)................................................ 7.10
(b)................................................... 7.03; 7.10
(c)................................................... N.A.
311 (a)................................................... 7.11
(b)................................................... 7.11
(c)................................................... N.A.
312 (a)................................................... 2.05
(b)................................................... 11.03
(c)................................................... 11.03
313 (a)................................................... 7.06
(b)(1)................................................ N.A.
(b)(2)................................................ 7.06; 7.07
(c)................................................... 7.06; 11.02
(d)................................................... 7.06
314 (a)................................................... 4.03; 11.05
(b)................................................... N.A.
(c)(1)................................................ 11.04
(c)(2)................................................ 11.04
(c)(3)................................................ N.A.
(d)................................................... N.A.
(e)................................................... 11.05
(f)................................................... N.A.
315 (a)................................................... 7.01
(b)................................................... 7.05, 11.02
(c)................................................... 7.01
(d)................................................... 7.01
(e)................................................... 6.11
316 (a)(last sentence).................................... 2.09
(a)(1)(A)............................................. 6.05
(a)(1)(B)............................................. 6.04
(a)(2)................................................ N.A.
(b)................................................... 6.07
(c)................................................... N.A.
317 (a)(1)................................................ 6.08
(a)(2)................................................ 6.09
(b)................................................... 2.04
318 (a)................................................... 11.01
(b)................................................... N.A.
(c)................................................... 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions.......................................14
Section 1.03. Incorporation by Reference of Trust Indenture Act.......15
Section 1.04. Rules of Construction...................................15
ARTICLE 2
THE SENIOR NOTES
Section 2.01. Form and Dating.........................................15
Section 2.02. Execution and Authentication............................17
Section 2.03. Registrar and Paying Agent..............................18
Section 2.04. Paying Agent to Hold Money in Trust.....................18
Section 2.05. Holder Lists............................................18
Section 2.06. Transfer and Exchange...................................19
Section 2.07. Replacement Senior Notes................................26
Section 2.08. Outstanding Senior Notes................................26
Section 2.09. Treasury Senior Notes...................................27
Section 2.10. Temporary Senior Notes..................................27
Section 2.11. Cancellation............................................27
Section 2.12. Defaulted Interest......................................28
Section 2.13. Record Date.............................................28
Section 2.14. Computation of Interest.................................28
Section 2.15. CUSIP Number............................................28
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee......................................28
Section 3.02. Selection of Senior Notes to be Redeemed or Purchased...29
Section 3.03. Notice of Redemption....................................29
Section 3.04. Effect of Notice of Redemption..........................30
Section 3.05. Deposit of Redemption or Purchase Price.................30
Section 3.06. Senior Notes Redeemed in Part...........................31
Section 3.07. Optional Redemption.....................................31
Section 3.08. Mandatory Redemption....................................31
Section 3.09. Repurchase Offers.......................................31
ARTICLE 4
COVENANTS
Section 4.01. Payment of Senior Notes.................................33
Section 4.02. Maintenance of Office or Agency.........................34
<PAGE>
Section 4.03. SEC Reports.............................................34
Section 4.04. Compliance Certificate..................................35
Section 4.05. Taxes...................................................35
Section 4.06. Stay, Extension and Usury Laws..........................36
Section 4.07. Limitation on Restricted Payments.......................36
Section 4.08. Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock...........................38
Section 4.09. Limitation on Asset Sales...............................40
Section 4.10. Limitation on Liens.....................................41
Section 4.11. Limitation on Transactions With Affiliates..............41
Section 4.12. Limitation on Sale and Leaseback Transactions...........41
Section 4.13. Limitation on Dividends and Other Payment
Restrictions Subsidiaries.............................42
Section 4.14. Limitation on Capital Stock of Restricted Subsidiaries..42
Section 4.15. Offer to Purchase Upon Change of Control................43
Section 4.16. Corporate Existence.....................................43
Section 4.17. Additional Subsidiary Guarantees........................44
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets.................44
Section 5.02. Successor Corporation Substituted.......................45
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.......................................45
Section 6.02. Acceleration............................................47
Section 6.03. Other Remedies..........................................48
Section 6.04. Waiver of Past Defaults.................................48
Section 6.05. Control by Majority.....................................48
Section 6.06. Limitation on Suits.....................................48
Section 6.07. Rights of Holders of Senior Notes to Receive Payment....49
Section 6.08. Collection Suit by Trustee..............................49
Section 6.09. Trustee May File Proofs of Claim........................49
Section 6.10. Priorities..............................................50
Section 6.11. Undertaking for Costs...................................50
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.......................................50
Section 7.02. Rights of Trustee.......................................51
Section 7.03. Individual Rights of Trustee............................52
Section 7.04. Trustee's Disclaimer....................................53
Section 7.05. Notice of Defaults......................................53
Section 7.06. Reports by Trustee to Holders of the Senior Notes.......53
Section 7.07. Compensation and Indemnity..............................53
Section 7.08. Replacement of Trustee..................................54
Section 7.09. Successor Trustee by Merger, etc........................55
ii
<PAGE>
Section 7.10. Eligibility; Disqualification...........................55
Section 7.11. Preferential Collection of Claims Against The Company...55
Section 7.12. Other Capacities........................................56
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance............................................56
Section 8.02. Legal Defeasance and Discharge..........................56
Section 8.03. Covenant Defeasance.....................................56
Section 8.04. Conditions to Legal or Covenant Defeasance..............57
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.........58
Section 8.06. Repayment to The Company................................59
Section 8.07. Reinstatement...........................................59
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Senior Notes..........60
Section 9.02. With Consent of Holders of Senior Notes.................60
Section 9.03. Compliance with Trust Indenture Act.....................62
Section 9.04. Revocation and Effect of Consents.......................62
Section 9.05. Notation on or Exchange of Senior Notes.................62
Section 9.06. Trustee to Sign Amendments, etc.........................62
ARTICLE 10
GUARANTEE OF SENIOR NOTES
Section 10.01. Subsidiary Guarantees...................................63
Section 10.02. Execution and Delivery of Subsidiary Guarantee..........64
Section 10.03. Subsidiary Guarantors May Consolidate, etc.,
on Certain Terms......................................64
Section 10.04. Releases Following Sale of Assets.......................65
Section 10.05. Limitation on Subsidiary Guarantor Liability............65
Section 10.06. "Trustee" to Include Paying Agent.......................65
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls............................66
Section 11.02. Notices.................................................66
Section 11.03. Communication by Holders of Senior Notes with
Other Holders of Senior Notes.........................67
Section 11.04. Certificate and Opinion as to Conditions Precedent......67
Section 11.05. Statements Required in Certificate or Opinion...........67
Section 11.06. Rules by Trustee and Agents.............................68
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders............................68
Section 11.08. Governing Law...........................................68
Section 11.09. No Adverse Interpretation of Other Agreements...........68
Section 11.10. Successors..............................................68
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Section 11.11. Severability............................................68
Section 11.12. Counterpart Originals...................................68
Section 11.13. Table of Contents, Headings, etc........................69
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INDENTURE, dated as of June 27, 1997, among Talton Holdings, Inc., a
Delaware corporation (the "Company"), AmeriTel Pay Phones, Inc., a Missouri
corporation ("AmeriTel"), Talton Telecommunications Corporation, an Alabama
corporation ("Talton Telecommunications"), Talton Telecommunications of
Carolina, Inc., an Alabama corporation ("Talton of Carolina"), Talton STC, Inc.,
a Delaware corporation ("Talton STC") (each of AmeriTel, Talton
Telecommunications, Talton of Carolina and Talton STC, a "Subsidiary Guarantor"
and together, the "Subsidiary Guarantors"), and U.S. Trust Company of Texas,
N.A., as trustee (the "Trustee").
The Company, the Subsidiary Guarantors and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the holders
of the Company's 11% Senior Notes due 2007, Series A (the "Series A Senior
Notes") and the Company's 11% Senior Notes due 2007, Series B (the "Series B
Senior Notes" and, together with the Series A Senior Notes, the "Senior Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a permanent global senior note that contains the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 3 to the form of the Senior Note attached hereto as Exhibit A-1, and
-----------
that is deposited with the Senior Note Custodian and registered in the name of
the Depository, representing a series of Senior Notes sold to U.S. Persons in
reliance on Rule 144A and to Institutional Accredited Investors in reliance on
another exemption from the registration requirements of the Securities Act.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Interest" means all additional interest then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "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 the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent, co-registrar, authenticating
agent or Senior Note Custodian.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial interests in a Global Note, the rules and procedures of the
Depository that apply to such transfer and exchange.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or equipment in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of Section 4.15 hereof, and/or the provisions of Section 5.01 hereof
and not by the provisions of Section 4.09 hereof), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $100,000 or (b) for net proceeds in excess of $100,000, and
(ii) the issue or sale by the Company or any of its Restricted Subsidiaries of
Equity Interests of any of the Company's Restricted Subsidiaries whether in a
single transaction or a series of related transactions. Notwithstanding the
foregoing: (i) any simultaneous exchanges of telephones and related contracts
and equipment of the Company or any Restricted Subsidiaries for telephones and
related contracts and equipment of another Person with equivalent fair market
value (provided that the fair market value of telephones and related contracts
and equipment so exchanged in any fiscal year shall not exceed 10% of the total
assets of the Company on a consolidated basis), (ii) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to
the Company or to another Wholly Owned Restricted Subsidiary, and (iv) a
Restricted Payment that is permitted by Section 4.07 hereof, in each case, will
not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited), and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than 365
days from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of 365 days or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 365 days and overnight bank
deposits, in each case with any commercial banking institution that is a lender
under the Senior Credit Facilities or a member of the Federal Reserve System
having capital and surplus in excess of $500 million, (iv) repurchase
obligations with a term of not more than 365 days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial
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institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper rated at least P-1 by Moody's Investors Service, Inc. or at
least A-1 by Standard & Poor's Corporation and in each case maturing within nine
months after the date of acquisition, and (vi) money market funds which invest
substantially all of their assets in instruments of the types described in
clauses (i) through (v) above.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties; (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares); or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors. For purposes of this
definition, any transfer of an equity interest of an entity that was formed for
the purpose of acquiring Voting Stock of the Company will be deemed to be a
transfer of such portion of such Voting Stock as corresponds to the portion of
the equity of such entity that has been so transferred.
"Commission" means the Securities and Exchange Commission.
"Company" means Talton Holdings, Inc., a Delaware corporation.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period (to the
extent that such provision for taxes was included in computing such Consolidated
Net Income), plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expenses to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period (to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income), minus (v)
non-cash items increasing such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash expenses of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion) that
the Net Income of such Subsidiary
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was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consulting and Strategic Services Agreement" means that certain Consulting
and Strategic Services Agreement between the Company and EUF Talton, L.P., dated
as of December 27, 1996.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors for a period of two consecutive years (or on the date of this
Indenture if less than two years have elapsed since the date of Indenture) or
(ii) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 2001 Ross
Avenue, Suite 2700, Dallas, Texas, Attention: Corporate Trust Department.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Definitive Senior Notes" means Senior Notes that are in the form of
Exhibit A-1 attached hereto (but without including the text referred to in
- -----------
footnotes 1 and 3 thereto).
"Depository" means, with respect to the Senior Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depository with respect to the Senior Notes, until a successor shall have
been appointed and become such pursuant to Section 2.06 of this Indenture, and,
thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature; provided that only the
portion of Capital Stock which so matures or is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such final maturity date will be deemed to be Disqualified
Stock; provided, however, that preferred stock of the Company that is
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issued with the benefit of provisions requiring a change of control offer to be
made for such Capital Stock in the event of a Change of Control of the Company,
which provisions have substantially the same effect as the provisions of Section
4.15 hereof will not be deemed to be Disqualified Stock solely by virtue of such
provisions.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred stock
by the Company (excluding Disqualified Stock) that is registered pursuant to the
Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, and (ii) any private issuance of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company, in each case generating
aggregate gross proceeds to the Company of at least $25.0 million.
"Euroclear" means Morgan Guaranty Trust Company of New York, the Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer by the Company to Holders to exchange
Series B Senior Notes for Series A Senior Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Existing Credit Facility" means that certain Credit Agreement, dated as of
December 27, 1996, among the Company and the lenders from time to time parties
thereto and Canadian Imperial Bank of Commerce, as agent for such lenders,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended or
modified through the date hereof.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Existing Credit Facility) in
existence on the date hereof, until such amounts are repaid.
"Existing Preferred Stock" means the Company's Senior Preferred Stock
issued and outstanding as of the Issuance Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense (including
capitalized interest) of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Subsidiary Guarantee or Lien is called upon) and (iii) the
product of (A) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock), times (B) a
fraction, the numerator of which is one
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and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
"Global Note" means, individually and collectively, the Regulation S
Temporary Global Note, the Regulation S Permanent Global Note and the 144A
Global Note.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Senior Note is registered.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Initial Purchaser" means CIBC Wood Gundy Securities Corp.
"Institutional Accredited Investor" means an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of Section 4.07 hereof. Investments will exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the principal corporate
trust office of the Trustee is located or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment shall be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
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(i) any gain (but not loss), together with any related provision for taxes on
such gain (but not loss), realized in connection with any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
and (ii) any extraordinary gain or loss, together with any related provision for
taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than indebtedness under the Senior Credit Facilities) secured by a Lien
on the asset or assets that were the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offer and sale of the Senior Notes as contemplated by
the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum, dated June 24, 1997,
relating to the Company's offering and placement of the Senior Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Section 11.04
hereof.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pari Passu Indebtedness" means (a) with respect to the Senior Notes, any
Indebtedness which ranks pari passu in right of payment to the Senior Notes and
(b) with respect to any Subsidiary Guarantee, any Indebtedness which ranks pari
passu in right of payment to such Subsidiary Guarantee.
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"Participant" means, with respect to DTC, Euroclear or Cedel, a Person who
has an account with DTC, Euroclear or Cedel, respectively (and, with respect to
DTC, shall include Euroclear and Cedel).
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary Guarantor
and that is engaged in the same or a similar line of business as the Company and
its Restricted Subsidiaries were engaged in on the date hereof; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company and a Subsidiary Guarantor that is engaged in the same or a similar line
of business as the Company and its Restricted Subsidiaries were engaged in on
the date hereof or (ii) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company that is a Subsidiary Guarantor and that is engaged in the same or a
similar line of business as the Company and its Restricted Subsidiaries were
engaged in on the date hereof; (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with Section 4.09 hereof; (e) any Investment in the same or
substantially similar line of business as the Company or any of its Restricted
Subsidiaries acquired solely in exchange for Equity Interests (other than
Disqualified Stock) of the Company; (f) Hedging Obligations permitted to be
incurred under the covenant described above under Section 4.08 hereof; and (g)
other Investments in any Person having an aggregate fair market value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (g) that are at the time outstanding, not to exceed
$2.0 million.
"Permitted Liens" means (i) Liens securing Senior Indebtedness of the
Company and any Subsidiary Guarantor that was permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company or any Wholly Owned
Restricted Subsidiary of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) purchase money security
interests on any property acquired by the Company or any Subsidiary in the
ordinary course of business, securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such property;
provided that (a) any such Lien attached to such property concurrently with or
within 90 days after the acquisition thereof, (b) such Lien attaches solely to
the property so acquired in such transaction, (c) the principal amount of the
Indebtedness secured thereby does not exceed 100% of the cost of such property
and (d) the Indebtedness secured by such purchase money security interests is
otherwise permitted by Section 4.08 hereof; (vii) Liens existing on the date of
this Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (x) Liens arising under this Indenture in favor of the Trustee or
any predecessor Trustee; and (xi) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $2.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of,
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, except that the Company may incur Permitted
Refinancing Indebtedness to extend, refinance, renew, replace, defease or
refund, Indebtedness of any Wholly Owned Restricted Subsidiary of the Company.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Principals" means (i) Gregg L. Engles; (ii) Joseph P. Urso; (iii) Todd W.
Follmer; (iv) David A. Sachs; (v) CIBC Wood Gundy Ventures, Inc.; (vi) Onyx
Talton Partners, L.P.; (vii) Regent Capital Equity Partners, L.P.; (viii) Julius
E. Talton; or (ix) Julius E. Talton, Jr.
"Private Placement Legend" means the legend initially set forth on the
Senior Notes in the form set forth in Section 2.06(f) hereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, by and among the Company, the Subsidiary Guarantors
and the Initial Purchaser.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global senior note
that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in footnote 3 to the form of the Senior Note attached
hereto as Exhibit A-1, and that is deposited with the Senior Note Custodian and
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registered in the name of the Depository, representing a series of Senior Notes
sold in reliance on Regulation S.
"Regulation S Temporary Global Note" means a single temporary global senior
note in the form of the Senior Note attached hereto as Exhibit A-2 that is
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deposited with the Senior Note Custodian and registered in the name of the
Depository, representing a series of Senior Notes sold in reliance on Regulation
S.
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"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal; (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A); or (C) the estate of the Principal
until such estate is distributed pursuant to such Principal's will or applicable
state law.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Beneficial Interest" means any beneficial interest of a
Participant or Indirect Participant in the 144A Global Note or the Regulation S
Global Note.
"Restricted Global Notes" means the 144A Global Note and the Regulation S
Global Note, each of which shall bear the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facilities" means, collectively, (i) that certain revolving
senior credit facility to be entered into subsequent to the date hereof on the
terms described in the Offering Memorandum (sometimes hereinafter referred to as
the "Senior Credit Facility"), and (ii) a senior credit facility to be entered
into subsequent to the date hereof for permitted acquisitions by the Company or
its Restricted Subsidiaries on the terms described in the Offering Memorandum,
in each case, by and among the Company, the subsidiary guarantors named therein
and the lenders from time to time parties thereto and Canadian Imperial Bank of
Commerce, as agent for such lenders, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
"Senior Indebtedness" means all Indebtedness of the Company or any
Subsidiary Guarantors that is not, by its terms, subordinated in right of
payment to the Notes.
"Senior Notes" means the Series A Senior Notes and the Series B Senior
Notes.
"Senior Note Custodian" means the Trustee, as custodian for the Depository
with respect to the Senior Notes in global form, or any successor entity
thereto.
"Series A Senior Notes" means the Company's 11% Senior Notes due 2007,
Series A.
"Series B Senior Notes" means the Company's 11% Senior Notes due 2007,
Series B.
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"Shareholders Agreement" means that certain Shareholders Agreement dated as
of December 27, 1996 among the Company and the stockholders of the Company named
therein.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Registration Rights Agreement" means that certain
Registration Rights Agreement dated as of December 27, 1996 among the Company
and the stockholders of the Company named therein.
"Subordinated Indebtedness" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary Guarantee, any
Indebtedness of the applicable Subsidiary Guarantor which by its terms is
subordinated in right of payment to such Subsidiary Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantor" means each of (i) AmeriTel, Talton
Telecommunications, Talton of Carolina and Talton STC, and (ii) any other
Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of Section 4.17, 5.01 or 10.03 hereof, and their respective
successors and assigns.
"Talton Lease" means that certain lease dated as of December 27, 1996,
between Julius E. Talton and Talton Telecommunications Corporation.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date hereof.
"Transfer Restricted Securities" means Senior Notes or beneficial interests
therein that bear or are required to bear the Private Placement Legend.
"Trustee" means U.S. Trust Company of Texas, N.A. until a successor
replaces it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes that do not and
are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than AmeriTel,
Talton Telecommunications, Talton of Carolina or Talton STC or any successor to
any of them) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless
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the terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness and Liens of such Subsidiary shall be deemed to
be incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness or any such Lien is not permitted to be incurred as of such
date under Section 4.08 hereof or Section 4.10 hereof, respectively, the Company
shall be in default of such covenant). The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness and Liens by a Restricted Subsidiary of the Company of any
outstanding Indebtedness and Liens of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.08 hereof calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, (ii) such Liens
are permitted under Section 4.10 hereof, and (iii) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
Section 1.02. Other Definitions.
Defined in
Term Section
"Acceleration Notice"................ 6.02
"Affiliate Transaction".............. 4.11
"Asset Sale Offer"................... 4.09
"Asset Sale Offer Triggering Event".. 4.09
"Change of Control Offer"............ 4.15
"Change of Control Payment".......... 4.15
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"Change of Control Payment Date"..... 4.15
"Covenant Defeasance"................ 8.03
"Event of Default"................... 6.01
"Excess Proceeds".................... 4.09
"Legal Defeasance"................... 8.02
"Offer Amount"....................... 3.09
"Offer Period"....................... 3.09
"Paying Agent"....................... 2.03
"Payment Default".................... 6.01
"Permitted Indebtedness"............. 4.08
"Purchase Date"...................... 3.09
"Registrar".......................... 2.03
"Repurchase Offer"................... 3.09
"Restricted Payments"................ 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Senior Notes;
"indenture security holder" means a Holder of a Senior Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Senior Notes means the Company, each Subsidiary
Guarantor and any successor obligor upon the Senior Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them therein.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
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(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement or successor sections or
rules adopted by the Commission from time to time.
ARTICLE 2
THE SENIOR NOTES
Section 2.01. Form and Dating.
The Senior Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 or Exhibit A-2 attached hereto. The
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Senior Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Senior Note shall be dated the date of its
authentication. The Senior Notes initially shall be issued in denominations of
$1,000 and integral multiples thereof.
The terms and provisions contained in the Senior Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) Global Notes. Senior Notes offered and sold to QIBs in reliance
on Rule 144A shall, and to Institutional Accredited Investors who are not QIBs
at the request of each such Institutional Accredited Investor may, be issued
initially in the form of 144A Global Notes, which shall be deposited on behalf
of the purchasers of the Senior Notes represented thereby with a custodian of
the Depository, and registered in the name of the Depository or a nominee of the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the 144A Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depository or its nominee as hereinafter
provided.
Senior Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global Note, which
shall be deposited on behalf of the purchasers of the Senior Notes represented
thereby with the Trustee, as custodian for the Depository, and registered in the
name of the Depository or the nominee of the Depository for the accounts of
designated agents holding on behalf of Euroclear or Cedel, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The "40-day
restricted period" (as defined in Regulation S) shall be terminated upon the
receipt by the Trustee of (i) a written certificate from the Depository,
together with copies of certificates from Euroclear and Cedel certifying that
they have received certification of non-United States beneficial ownership of
100% of the aggregate principal amount of the Regulation S Temporary Global Note
(except to the extent of any beneficial owners thereof who acquired an interest
therein pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a 144A Global
Note, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company. Following the termination of the 40-day
restricted period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depository or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding Senior Notes
as shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Senior Notes from time to time endorsed thereon
and that the aggregate amount of outstanding Senior Notes represented thereby
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may from time to time be reduced or increased, as appropriate, to reflect
exchanges, redemptions and transfers of interests. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the amount of
outstanding Senior Notes represented thereby shall be made by the Trustee or the
Senior Note Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel shall be applicable to
interests in the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes that are held by Participants through Euroclear or Cedel.
The Trustee shall have no obligation to notify Holders of any such procedures or
to monitor or enforce compliance with the same.
Except as set forth in Section 2.06 hereof, the Global Notes may be
transferred, in whole but not in part, only to another nominee of the Depository
or to a successor of the Depository or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to
144A Global Notes and Regulation S Permanent Global Notes deposited with or on
behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.01(b), authenticate and deliver the Global Notes that (i) shall
be registered in the name of the Depository or the nominee of the Depository and
(ii) shall be delivered by the Trustee to the Depository or pursuant to the
Depository's instructions or held by the Trustee as custodian for the
Depository.
Participants shall have no rights either under this Indenture with
respect to any Global Note held on their behalf by the Depository or by the
Senior Note Custodian as custodian for the Depository or under such Global Note,
and the Depository may be treated by the Company, the Trustee and any agent of
the Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or impair, as between the Depository and its
Participants, the operation of customary practices of such Depository governing
the exercise of the rights of an owner of a beneficial interest in any Global
Note.
(c) Definitive Senior Notes. Senior Notes issued in certificated form
shall be substantially in the form of Exhibit A-1 attached hereto (but without
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including the text referred to in footnotes 1 and 3 thereto).
Section 2.02. Execution and Authentication.
Two Officers shall sign the Senior Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Senior Note no longer holds that
office at the time a Senior Note is authenticated, the Senior Note shall
nevertheless be valid.
A Senior Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Senior Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Senior Notes shall be
substantially as set forth in Exhibit A-1 or Exhibit A-2 hereto.
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The Trustee shall, upon a written order of the Company signed by two
Officers directing the Trustee to authenticate the Senior Notes and certifying
that all conditions precedent to the issuance of the Senior Notes contained
herein have been complied with, authenticate Senior Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Senior Notes.
The Trustee shall, upon written order of the Company signed by two Officers,
authenticate Series B Senior Notes for original issuance in exchange for a like
principal amount of Series A Senior Notes exchanged in the Exchange Offer or
otherwise exchanged for Series A Senior Notes pursuant to the terms of the
Registration Rights Agreement. The aggregate principal amount of Senior Notes
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.
The Trustee may (at the Company's expense) appoint an authenticating
agent acceptable to the Company to authenticate Senior Notes. An authenticating
agent may authenticate Senior Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain (i) an office or agency where Senior Notes may
be presented for registration of transfer or for exchange ("Registrar") and (ii)
an office or agency where Senior Notes may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Senior Notes and of their
transfer and exchange. The Company may appoint one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company shall notify the Trustee in writing of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such. The Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Senior Note Custodian with respect to the Global
Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent shall hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, interest or Additional Interest, if any, on the Senior Notes,
and shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
the occurrence of events specified in Section 6.01(viii) and 6.01(ix) hereof,
the Trustee shall serve as Paying Agent for the Senior Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the
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Trustee is not the Registrar, the Company and/or the Subsidiary Guarantors shall
furnish to the Trustee at least seven (7) Business Days before each interest
payment date and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders of Senior Notes and the Company and the
Subsidiary Guarantors shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Beneficial
interests in a Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in the same Global Note in
accordance with the transfer restrictions set forth in the legend in subsection
(g) of this Section 2.06. Transfers of beneficial interests in the Global Notes
to Persons required to take delivery thereof in the form of an interest in
another Global Note shall be permitted as follows:
(i) 144A Global Note to Regulation S Global Note. If, at any time,
an owner of a beneficial interest in a 144A Global Note deposited
with the Depository (or the Trustee as custodian for the
Depository) wishes to transfer its beneficial interest in such
144A Global Note to a Person who is required or permitted to take
delivery thereof in the form of an interest in a Regulation S
Global Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest for
an equivalent beneficial interest in a Regulation S Global Note
as provided in this Section 2.06(a)(i). Upon receipt by the
Trustee of (1) instructions given in accordance with the
Applicable Procedures from a Participant directing the Trustee to
credit or cause to be credited a beneficial interest in the
Regulation S Global Note in an amount equal to the beneficial
interest in the 144A Global Note to be exchanged, (2) a written
order given in accordance with the Applicable Procedures
containing information regarding the Participant account of the
Depository and the Euroclear or Cedel account to be credited with
such increase, and (3) a certificate in the form of Exhibit B-1
-----------
hereto given by the owner of such beneficial interest stating
that the transfer of such interest has been made in compliance
with the transfer restrictions applicable to the Global Notes and
pursuant to and in accordance with Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct the
Depository to reduce or cause to be reduced the aggregate
principal amount at maturity of the applicable 144A Global Note
and to increase or cause to be increased the aggregate principal
amount at maturity of the applicable Regulation S Global Note by
the principal amount at maturity of the beneficial interest in
the 144A Global Note to be exchanged or transferred, to credit or
cause to be credited to the account of the Person specified in
such instructions, a beneficial interest in the Regulation S
Global Note equal to the reduction in the aggregate principal
amount at maturity of the 144A Global Note, and to debit, or
cause to be debited, from the account of the Person making such
exchange or transfer the beneficial interest in the 144A Global
Note that is being exchanged or transferred.
(ii) Regulation S Global Note to 144A Global Note. If, at any time,
after the expiration of the 40-day restricted period, an owner of
a beneficial interest in a Regulation S Global Note deposited
with the Depository or with the Trustee as custodian for the
Depository wishes to transfer its beneficial interest in such
Regulation S Global Note
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to a Person who is required or permitted to take delivery thereof
in the form of an interest in a 144A Global Note, such owner
shall, subject to the Applicable Procedures, exchange or cause
the exchange of such interest for an equivalent beneficial
interest in a 144A Global Note as provided in this Section
2.06(a)(ii). Upon receipt by the Trustee of (1) instructions from
Euroclear or Cedel, if applicable, and the Depository, directing
the Trustee, as Registrar, to credit or cause to be credited a
beneficial interest in the 144A Global Note equal to the
beneficial interest in the Regulation S Global Note to be
exchanged, such instructions to contain information regarding the
Participant account with the Depository to be credited with such
increase, (2) a written order given in accordance with the
Applicable Procedures containing information regarding the
participant account of the Depository and (3) a certificate in
the form of Exhibit B-2 attached hereto given by the owner of
-----------
such beneficial interest stating (A) if the transfer is pursuant
to Rule 144A, that the Person transferring such interest in a
Regulation S Global Note reasonably believes that the Person
acquiring such interest in a 144A Global Note is a QIB and is
obtaining such beneficial interest in a transaction meeting the
requirements of Rule 144A and any applicable blue sky or
securities laws of any state of the United States, (B) that the
transfer complies with the requirements of Rule 144 under the
Securities Act, (C) if the transfer is to an Institutional
Accredited Investor that such transfer is in compliance with the
Securities Act and a certificate in the form of Exhibit C
attached hereto and, if such transfer is in respect of an
aggregate principal amount of less than $100,000, an Opinion of
Counsel acceptable to the Company that such transfer is in
compliance with the Securities Act or (D) if the transfer is
pursuant to any other exemption from the registration
requirements of the Securities Act, that the transfer of such
interest has been made in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and
in accordance with the requirements of the exemption claimed,
such statement to be supported by an Opinion of Counsel from the
transferee or the transferor in form reasonably acceptable to the
Company and to the Registrar and in each case, in accordance with
any applicable securities laws of any state of the United States
or any other applicable jurisdiction, then the Trustee, as
Registrar, shall instruct the Depository to reduce or cause to be
reduced the aggregate principal amount at maturity of such
Regulation S Global Note and to increase or cause to be increased
the aggregate principal amount at maturity of the applicable 144A
Global Note by the principal amount at maturity of the beneficial
interest in the Regulation S Global Note to be exchanged or
transferred, and the Trustee, as Registrar, shall instruct the
Depository, concurrently with such reduction, to credit or cause
to be credited to the account of the Person specified in such
instructions a beneficial interest in the applicable 144A Global
Note equal to the reduction in the aggregate principal amount at
maturity of such Regulation S Global Note and to debit or cause
to be debited from the account of the Person making such transfer
the beneficial interest in the Regulation S Global Note that is
being exchanged or transferred.
(b) Transfer and Exchange of Definitive Senior Notes. When Definitive
Senior Notes are presented by a Holder to the Registrar with a request to
register the transfer of the Definitive Senior Notes or to exchange such
Definitive Senior Notes for an equal principal amount of Definitive Senior Notes
of other authorized denominations, the Registrar shall register the transfer or
make the exchange as requested only if the Definitive Senior Notes are presented
or surrendered for registration of transfer or exchange, are endorsed and
contain a signature guarantee or accompanied by a written instrument of transfer
in form satisfactory to the Registrar duly executed by such Holder or by his
attorney and contains a signature guarantee, duly
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authorized in writing and the Registrar received the following documentation
(all of which may be submitted by facsimile):
(i) in the case of Definitive Senior Notes that are Transfer
Restricted Securities, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of
such Holder, without transfer, or such Transfer Restricted
Security is being transferred to the Company or any of its
Subsidiaries, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
-----------
or
(B) if such Transfer Restricted Security is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
-----------
or
(C) if such Transfer Restricted Security is being transferred
to a Non-U.S. Person in an offshore transaction in
accordance with Rule 904 under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto); or
-----------
(D) if such Transfer Restricted Security is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the
Securities Act other than those listed in subparagraphs (B)
or (C) above, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto), a
-----------
certification substantially in the form of Exhibit C
---------
hereto, and, if such transfer is in respect of an aggregate
principal amount of Senior Notes of less than $100,000, an
Opinion of Counsel acceptable to the Company that such
transfer is in compliance with the Securities Act; or
(E) if such Transfer Restricted Security is being transferred
in reliance on any other exemption from the registration
requirements of the Securities Act, a certification to that
effect from such Holder (in substantially the form of
Exhibit B-3 hereto) and an Opinion of Counsel from such
-----------
Holder or the transferee reasonably acceptable to the
Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a 144A Global Note or Regulation
S Permanent Global Note for a Definitive Senior Note.
(i) Any Person having a beneficial interest in a 144A Global Note or
Regulation S Permanent Global Note may upon request, subject to
the Applicable Procedures, exchange such beneficial interest for
a Definitive Senior Note. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary
for the Depository (or Euroclear or Cedel, if applicable), from
the Depository or its nominee on behalf of any Person having a
beneficial interest in a 144A Global Note
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or Regulation S Permanent Global Note, and, in the case of a
Transfer Restricted Security, the following additional
information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B-4 hereto);
-----------
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance
with Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act,
a certification to that effect from the transferor (in
substantially the form of Exhibit B-4 hereto);
-----------
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, pursuant to a private
placement exemption from the registration requirements of
the Securities Act (and based on an Opinion of Counsel if
the Company so requests), a certification to that effect
from such Holder (in substantially the form of Exhibit B-4
-----------
hereto) and a certification from the applicable transferee
(in substantially the form of Exhibit C hereto); or
---------
(D) if such beneficial interest is being transferred in
reliance on any other exemption from the registration
requirements of the Securities Act, a certification to that
effect from the transferor (in substantially the form of
Exhibit B-4 hereto) and an Opinion of Counsel from the
-----------
transferee or the transferor reasonably acceptable to the
Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act, in which
case the Trustee or the Senior Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the
Depository and the Senior Note Custodian, cause the
aggregate principal amount of 144A Global Notes or
Regulation S Permanent Global Notes, as applicable, to be
reduced accordingly and, following such reduction, the
Company shall execute and, the Trustee shall authenticate
and deliver to the transferee a Definitive Senior Note in
the appropriate principal amount.
(ii) Definitive Senior Notes issued in exchange for a beneficial
interest in a 144A Global Note or Regulation S Permanent Global
Note, as applicable, pursuant to this Section 2.06(c) shall be
registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or
Indirect Participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver such Definitive Senior Notes to the
Persons in whose names such Senior Notes are so registered.
Following any such issuance of Definitive Senior Notes, the
Trustee, as Registrar, shall instruct the Depository to reduce or
cause to be reduced the aggregate principal amount at maturity of
the applicable Global Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provision of this Indenture (other than the provisions set forth in
subsection (f) of this Section 2.06), a Global Note may not be transferred as a
whole except by the Depository to a nominee of the
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Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(e) Authentication of Definitive Senior Notes in Absence of Depository.
If at any time:
(i) the Depository for the Senior Notes notifies the Company
that the Depository is unwilling or unable to continue as
Depository for the Global Notes and a successor Depository
for the Global Notes is not appointed by the Company within
90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of
Definitive Senior Notes under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Senior Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(f) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Senior Note certificate evidencing Global Notes and
Definitive Senior Notes (and all Senior Notes issued in exchange
therefor or substitution thereof) shall bear the legend (the
"Private Placement Legend") in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE
THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF THE
SECURITIES ACT), THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE)
AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SENIOR NOTES LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE
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COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Senior Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a Definitive Senior Note that does not bear
the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted
Security upon receipt of a certification from the
transferring holder substantially in the form of Exhibit B-
---------
4 hereto; and
-
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall
not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of
Section 2.06(a) and (b) hereof; provided, however, that
with respect to any request for an exchange of a Transfer
Restricted Security that is represented by a Global Note
for a Definitive Senior Note that does not bear the legend
set forth in (i) above, which request is made in reliance
upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant
to Rule 144 (such certification to be substantially in the
form of Exhibit B-4 hereto).
-----------
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions
pursuant to Rule 144A or Rule 144 under the Securities Act) in
which the Holder or the transferee provides an Opinion of
Counsel to the Company and the Registrar in form and substance
reasonably acceptable to the Company and the Registrar (which
Opinion of Counsel shall also state that the transfer
restrictions contained in the legend are no longer applicable):
(A) in the case of any Transfer Restricted Security that is a
Definitive Senior Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a Definitive Senior Note that does not bear
the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall
not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of
Section 2.06(a) and (b) hereof.
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(iv) Notwithstanding the foregoing, upon the occurrence of the
Exchange Offer in accordance with the Registration Rights
Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate (i) one or more Unrestricted Global
Notes in aggregate principal amount equal to the principal amount
of the Restricted Beneficial Interests tendered for acceptance by
Persons that are not (x) broker-dealers, (y) Persons
participating in the distribution of the Series B Senior Notes or
(z) Persons who are affiliates (as defined in Rule 144) of the
Company and accepted for exchange in the Exchange Offer and (ii)
Definitive Senior Notes that do not bear the Private Placement
Legend in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Senior Notes accepted for
exchange in the Exchange Offer. Concurrently with the issuance
of such Senior Notes, the Trustee shall cause the aggregate
principal amount of the applicable Restricted Global Notes to be
reduced accordingly and the Company shall execute and the Trustee
shall authenticate and deliver to the Persons designated by the
Holders of Definitive Senior Notes so accepted Definitive Senior
Notes in the appropriate principal amount.
(g) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Senior Notes, redeemed, repurchased or cancelled, all Global Notes shall be
returned to or retained and cancelled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for Definitive Senior Notes, redeemed, repurchased
or cancelled, the principal amount of Senior Notes represented by such Global
Note shall be reduced accordingly and an endorsement shall be made on such
Global Note, by the Trustee or the Senior Notes Custodian, at the direction of
the Trustee, to reflect such reduction.
(h) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Global Notes and Definitive Senior Notes at the Registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any stamp or
transfer tax or similar governmental charge payable in
connection therewith (other than any such stamp or transfer
taxes or similar governmental charge payable upon exchange
or transfer pursuant to Sections 2.10, 3.06, 4.09, 4.15 and
9.05 hereto).
(iii) All Global Notes and Definitive Senior Notes issued upon
any registration of transfer or exchange of Global Notes or
Definitive Senior Notes shall be the valid obligations of
the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Global Notes or
Definitive Senior Notes surrendered upon such registration
of transfer or exchange.
(iv) The Registrar shall not be required: (A) to issue, to
register the transfer of or to exchange Senior Notes during
a period beginning at the opening of fifteen (15) Business
Days before the day of any selection of Senior Notes for
redemption under Section 3.02 hereof and ending at the
close of business on the day of selection, (B) to register
the transfer of or to
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<PAGE>
exchange any Senior Note so selected for redemption in
whole or in part, except the unredeemed portion of any
Senior Note being redeemed in part, or (C) to register the
transfer of or to exchange a Senior Note between a record
date and the next succeeding interest payment date.
(v) Prior to due presentment for the registration of a transfer
of any Senior Note, the Trustee, any Agent and the Company
may deem and treat the Person in whose name any Senior Note
is registered as the absolute owner of such Senior Note for
the purpose of receiving payment of principal of and
interest on such Senior Notes and for all other purposes,
and neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and Definitive
Senior Notes in accordance with the provisions of Section
2.02 hereof.
Section 2.07. Replacement Senior Notes.
If any mutilated Senior Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Senior Note, the Company shall issue and the Trustee, upon the
written order of the Company signed by two Officers of the Company, shall
authenticate a replacement Senior Note if the Trustee's requirements are met.
If required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee and any Agent from any loss that any of them
may suffer if a Senior Note is replaced. The Company and the Trustee may charge
for their expenses in replacing a Senior Note.
Every replacement Senior Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Senior Notes duly issued hereunder.
Section 2.08. Outstanding Senior Notes.
The Senior Notes outstanding at any time are all the Senior Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09 hereof, a Senior Note does not cease to be outstanding because the
Company or any Subsidiary Guarantor or an Affiliate of the Company or any
Subsidiary Guarantor holds the Senior Note.
If a Senior Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Senior Note is held by a bona fide purchaser.
If the principal amount of any Senior Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Senior Notes payable on that date, then on and after that date such
Senior Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
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Section 2.09. Treasury Senior Notes.
In determining whether the Holders of the required principal amount of
Senior Notes have concurred in any direction, waiver or consent, Senior Notes
owned by the Company or any Subsidiary Guarantor, or by any Affiliate of the
Company or any Subsidiary Guarantor shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Senior Notes as to which a Responsible Officer of the Trustee has received
written notice are so owned shall be so considered. Notwithstanding the
foregoing, Senior Notes that are to be acquired by the Company or any Subsidiary
Guarantor or an Affiliate of the Company or any Subsidiary Guarantor pursuant to
an exchange offer, tender offer or other agreement shall not be deemed to be
owned by such entity until legal title to such Senior Notes passes to such
entity.
Section 2.10. Temporary Senior Notes.
Until Definitive Senior Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Senior Notes upon a written
order of the Company signed by two Officers of the Company. Temporary Senior
Notes shall be substantially in the form of Definitive Senior Notes but may have
variations that the Company considers appropriate for temporary Senior Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall upon
receipt of a written order of the Company signed by two Officers authenticate
Definitive Senior Notes in exchange for temporary Senior Notes.
Holders of temporary Senior Notes shall be entitled to all of the benefits
of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver to the Trustee for cancellation any
Senior Notes previously authenticated and delivered hereunder or which the
Company may have acquired in any manner whatsoever, and all Senior Notes so
delivered shall be promptly cancelled by the Trustee. All Senior Notes
surrendered for registration of transfer, exchange or payment, if surrendered to
any Person other than the Trustee, shall be delivered to the Trustee. The
Trustee and no one else shall cancel all Senior Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation.
Subject to Section 2.07 hereof, the Company may not issue new Senior Notes to
replace Senior Notes that it has redeemed or paid or that have been delivered to
the Trustee for cancellation. All cancelled Senior Notes held by the Trustee
shall be disposed of as directed by a written order signed by two Officers of
the Company, or in accordance with the Trustee's usual practice.
Section 2.12. Defaulted Interest.
If the Company or any Subsidiary Guarantor defaults in a payment of
interest on the Senior Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to the Persons who are Holders on a subsequent special record date, which date
shall be at the earliest practicable date but in all events at least five (5)
Business Days prior to the payment date, in each case at the rate provided in
the Senior Notes and in Section 4.01 hereof. The Company shall fix or cause to
be fixed each such special record date and payment date, and shall promptly
thereafter, notify the Trustee of any such date. At least fifteen (15) days
before the special record date, the Company (or the Trustee, in the name and at
the expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
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Section 2.13. Record Date.
The record date for purposes of determining the identity of Holders of the
Senior Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA (S) 316 (c).
Section 2.14. Computation of Interest.
Interest on the Senior Notes shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Section 2.15. CUSIP Number.
The Company in issuing the Senior Notes may use a "CUSIP" number, and if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Senior Notes and that reliance may be
placed only on the other identification numbers printed on the Senior Notes.
The Company shall promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Senior Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee) an Officers' Certificate setting
forth (i) the Section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Senior Notes to
be redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Senior Notes
pursuant to Section 4.09 or 4.15 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before the scheduled purchase date
(unless a shorter period is acceptable to the Trustee), an Officers' Certificate
setting forth (i) the section of this Indenture pursuant to which the offer to
purchase shall occur, (ii) the terms of the offer, (iii) the principal amount of
Senior Notes to be purchased, (iv) the purchase price, (v) the purchase date and
(vi) and further setting forth a statement to the effect that (a) the Company or
one its Subsidiaries has affected an Asset Sale and there are Excess Proceeds
aggregating more than $10.0 million or (b) a Change of Control has occurred, as
applicable.
Section 3.02. Selection of Senior Notes to be Redeemed or Purchased.
If less than all of the Senior Notes are to be redeemed at any time,
selection of the Senior Notes for redemption shall be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee deems
fair and appropriate; provided that no Senior Notes with a principal amount of
$1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company in writing of the Senior
Notes selected for redemption and, in the case of any Senior Note selected for
partial purchase or redemption, the principal amount thereof
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to be redeemed. Senior Notes and portions of Senior Notes selected shall be in
amounts of $1,000 or integral multiples of $1,000; except that if all of the
Senior Notes of a Holder are to be purchased or redeemed, the entire outstanding
amount of Senior Notes held by such Holder, even if not a multiple of $1,000,
shall be redeemed. Except as provided in the preceding sentence, provisions of
this Indenture that apply to Senior Notes called for redemption also apply to
portions of Senior Notes called for redemption.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed by first class mail, a notice of
redemption to each Holder whose Senior Notes are to be redeemed.
The notice shall identify the Senior Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price for the Senior Notes and accrued interest,
and Additional Interest, if any;
(3) if any Senior Note is being redeemed in part, the portion of the
principal amount of such Senior Notes to be redeemed and that,
after the redemption date, upon surrender of such Senior Note, a
new Senior Note or Senior Notes in principal amount equal to the
unredeemed portion shall be issued upon surrender of the original
Senior Note;
(4) the name and address of the Paying Agent;
(5) that Senior Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest and Additional Interest, if any, on Senior
Notes called for redemption ceases to accrue on and after the
redemption date;
(7) the paragraph of the Senior Notes and/or Section of this
Indenture pursuant to which the Senior Notes called for
redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on
the Senior Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (or such shorter period as shall be acceptable to the Trustee),
an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in the notice as provided in the
preceding paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Senior Note shall not affect the validity of the
proceeding for the redemption of any other Senior Note.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Senior Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price plus accrued
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and unpaid interest and Additional Interest, if any, to such date. A notice of
redemption may not be conditional.
Section 3.05. Deposit of Redemption or Purchase Price.
On or before 10:00 a.m. (New York City time) on each redemption date or the
date on which Senior Notes must be accepted for purchase pursuant to Section
4.09 or 4.15, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued and unpaid
interest and Additional Interest, if any, on all Senior Notes to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall promptly return
to the Company upon its written request any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of (including any applicable premium), accrued interest and
Additional Interest, if any, on all Senior Notes to be redeemed or purchased.
If Senior Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, unpaid and accrued interest and Additional Interest, if any, on all Senior
Notes to be redeemed or purchased, on and after the redemption or purchase date
interest and Additional Interest, if any, shall cease to accrue on the Senior
Notes or the portions of Senior Notes called for redemption or tendered and not
withdrawn in an Asset Sale Offer or Change of Control Offer (regardless of
whether certificates for such securities are actually surrendered). If a Senior
Note is redeemed or purchased on or after an interest record date but on or
prior to the related interest payment date, then any accrued and unpaid interest
and Additional Interest, if any, shall be paid to the Person in whose name such
Senior Note was registered at the close of business on such record date. If any
Senior Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal and Additional
Interest, if any, from the redemption or purchase date until such principal and
Additional Interest, if any, is paid, and to the extent lawful on any interest
not paid on such unpaid principal, in each case, at the rate provided in the
Senior Notes and in Section 4.01 hereof.
Section 3.06. Senior Notes Redeemed in Part.
Upon surrender of a Senior Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Senior Note equal in
principal amount to the unredeemed portion of the Senior Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in the next paragraph, Senior Notes shall not be
redeemable at the Company's option prior to June 30, 2002. Thereafter, the
Senior Notes shall be subject to redemption at any time at the option of the
Company, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus any accrued and unpaid interest and
Additional Interest, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on June 30 of the years
indicated below:
Year Percentage
---- ----------
2002................................................ 105.500%
2003................................................ 103.667%
2004................................................ 101.833%
2005 and thereafter................................. 100.000%
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(b) Notwithstanding the foregoing, at any time prior to June 30, 2000, the
Company may on any one or more occasions redeem up to 30% of the original
aggregate principal amount of Senior Notes at a redemption price of 111.0% of
the principal amount thereof, plus accrued and unpaid interest and Additional
Interest, if any, to the redemption date, with the net proceeds of an Equity
Offering of the Company; provided that at least $80.0 million aggregate
principal amount of Senior Notes originally issued remain outstanding
immediately after the occurrence of any such redemption; and provided, further,
that such redemption shall occur within 90 days of the date of the closing of
any such Equity Offering.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 3.09, 4.09 and 4.15 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Senior Notes.
Section 3.09. Repurchase Offers.
In the event that the Company shall be required to commence an offer to all
Holders to repurchase Senior Notes (a "Repurchase Offer") pursuant to Section
4.09 hereof, an "Asset Sale Offer," or pursuant to Section 4.15 hereof, a
"Change of Control Offer," the Company shall follow the procedures specified
below.
A Repurchase Offer shall commence no later than thirty (30) days after a
Change of Control (unless the Company is not required to make such offer
pursuant to Section 4.15 hereof) or an Asset Sale Offer Triggering Event (as
defined below), as the case may be, and remain open for a period of twenty (20)
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five (5) Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Senior
Notes required to be purchased pursuant to Section 4.09 hereof, in the case of
an Asset Sale Offer, or 4.15 hereof, in the case of a Change of Control Offer
(the "Offer Amount") or, if less than the Offer Amount has been tendered, all
Senior Notes tendered in response to the Repurchase Offer. Payment for any
Senior Notes so purchased shall be made in the same manner as interest payments
are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Additional Interest, if any, shall be paid to the Person in whose name a Senior
Note is registered at the close of business on such record date, and no
additional interest or Additional Interest, if any, shall be payable to Holders
who tender Senior Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Senior Notes pursuant to such
Repurchase Offer. The Repurchase Offer shall be made to all Holders. The
notice, which shall govern the terms of the Repurchase Offer, shall describe the
transaction or transactions that constitute the Change of Control or Asset Sale
Offer Triggering Event, as the case may be and shall state:
(a) that the Repurchase Offer is being made pursuant to this Section 3.09
and Section 4.09 or 4.15 hereof, as the case may be, and the length of
time the Repurchase Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Senior Note not tendered or accepted for payment shall
continue to accrue interest;
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(d) that, unless the Company defaults in making such payment, any Senior
Note accepted for payment pursuant to the Repurchase Offer shall cease
to accrue interest and Additional Interest, if any, after the Purchase
Date;
(e) that Holders electing to have a Senior Note purchased pursuant to a
Repurchase Offer shall be required to surrender the Senior Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Senior Note, duly completed, or transfer by book-entry
transfer, to the Company, the Depository, or the Paying Agent at the
address specified in the notice not later than the close of business
on the last day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if the
Company, the Depository or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Senior Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Senior Note purchased;
(g) that, if the aggregate principal amount of Senior Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Senior
Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Company so that only Senior Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(h) that Holders whose Senior Notes were purchased only in part shall be
issued new Senior Notes equal in principal amount to the unpurchased
portion of the Senior Notes surrendered (or transferred by book-entry
transfer).
On or before 10:00 a.m. (New York City time) on each Purchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Senior Notes equal to the Offer Amount, together with
accrued and unpaid interest and Additional Interest, if any, thereon, to be held
for payment in accordance with the terms of this Section 3.09. On the Purchase
Date, the Company shall, to the extent lawful, (i) accept for payment, on a pro
rata basis to the extent necessary, the Offer Amount of Senior Notes or portions
thereof tendered pursuant to the Repurchase Offer, or if less than the Offer
Amount has been tendered, all Senior Notes tendered, (ii) deliver or cause the
Paying Agent or Depository, as the case may be, to deliver to the Trustee Senior
Notes so accepted and (iii) deliver to the Trustee an Officers' Certificate
stating that such Senior Notes or portions thereof were accepted for payment by
the Company in accordance with the terms of this Section 3.09. The Company, the
Depository or the Paying Agent, as the case may be, shall promptly (but in any
case not later than three (3) Business Days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Senior Notes tendered by such Holder and accepted by the Company for purchase,
plus any accrued and unpaid interest and Additional Interest, if any, thereon,
and the Company shall promptly issue a new Senior Note, and the Trustee, shall
authenticate and mail or deliver such new Senior Note, to such Holder, equal in
principal amount to any unpurchased portion of such Holder's Senior Notes
surrendered. Any Senior Note not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce in a newspaper of general circulation or in a press release provided to
a nationally recognized financial wire service the results of the Repurchase
Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Senior Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Senior Notes on the dates and in the manner provided in
the Senior Notes. The Company shall pay all Additional Interest, if any, in the
same manner on the dates and in the amounts set forth in the Registration Rights
Agreement. Principal, premium, if any, and interest, and Additional Interest,
if any, shall be considered paid for all purposes hereunder on the date the
Paying Agent if other than the Company or a Subsidiary thereof holds, as of
10:00 a.m. (New York City time) money deposited by the Company in immediately
available funds and designated for and sufficient to pay all such principal,
premium, if any, and interest and Additional Interest, if any, then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Senior Notes
to the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Additional Interest (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee or Registrar) where Senior Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Senior Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Senior Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the New York office of United States Trust
Company of New York, an affiliate of the Trustee, as one such office or agency
of the Company in accordance with Section 2.03 hereof.
Section 4.03. SEC Reports.
From and after the earlier of the effective date of the Exchange Offer
Registration Statement or the effective date of the Shelf Registration
Statement, whether or not required by the rules and regulations of the
Commission, so long as any Senior Notes are outstanding, the Company shall
furnish to the Holders of Senior Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
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current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company shall
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) within the
time periods that would have been applicable had the Company been subject to
such rules and regulations and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Senior Notes remain outstanding, it shall
furnish to the Holders, to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act. The Company shall at all times comply with
TIA (S) 314(a).
The financial information to be distributed to Holders of Senior Notes
shall be filed with the Trustee and mailed to the Holders at their addresses
appearing in the register of Senior Notes maintained by the Registrar, within 90
days after the end of the Company's fiscal years and within 45 days after the
end of each of the first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient number of copies of
all reports and other documents and information and, if requested by the
Company, the Trustee will deliver, at the Company's expense, such reports to the
Holders under this Section 4.03.
Section 4.04. Compliance Certificate.
The Company shall deliver to the Trustee, within 100 days after the end of
each fiscal year and within 50 days after the end of each of the first three
fiscal quarters in each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year or fiscal quarter, as applicable, has been made under the
supervision of the signing Officers with a view to determining whether each has
kept, observed, performed and fulfilled its obligations under this Indenture
(including, with respect to any Restricted Payments made during such period, the
basis upon which the calculations required by Section 4.07 hereof were computed,
which calculations may be based on the Company's latest available financial
statements), and further stating, as to each such Officer signing such
certificate, that, to the best of his or her knowledge, each entity has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that, to the best of his or her
knowledge, no event has occurred and remains in existence by reason of which
payments on account of the principal of, or interest or Additional Interest, if
any, on the Senior Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, in connection with the year-end
financial statements delivered pursuant to Section 4.03 hereof, the Company
shall use its best efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of established national
reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company has
violated any provisions of Article Four or Section 5.01 hereof or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that such written statement of the Company's
independent public accountants cannot be obtained, the Company shall deliver an
Officers' Certificate certifying that it has used its best efforts to obtain
such statements and was unable to do so.
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The Company shall, so long as any of the Senior Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency all material taxes, assessments and governmental levies,
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
Section 4.06. Stay, Extension and Usury Laws.
The Company and each Subsidiary Guarantor covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each Subsidiary Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.07. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company; (iii) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Subordinated Indebtedness, except a payment of interest
or principal at Stated Maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.08
hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries on or
after the date hereof (excluding Restricted Payments permitted by clauses
(ii), (iii), (iv) and (v) (but only to the extent of the dividends paid to
the Company or its Wholly Owned Restricted Subsidiaries pursuant to such
clause (v)) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the
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period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date hereof to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date hereof of Equity Interests of
the Company (other than Disqualified Stock) or Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date hereof is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return
of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investment.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions hereof; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase, defeasance, retirement or other acquisition of any
Subordinated Indebtedness or Equity Interests of the Company in exchange for, or
out of the net cash proceeds of, the substantially concurrent sale (other than
to a Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, defeasance,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iii) so long as no Default or Event of Default shall have
occurred and be continuing, the redemption, repurchase, defeasance, retirement
or other acquisition of any Subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) so long as no
Default or Event of Default shall have occurred and be continuing, the
retirement of any shares of Disqualified Stock by conversion into, or by
exchange for, shares of Disqualified Stock, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Disqualified Stock; provided that (a) such Disqualified Stock is
not subject to mandatory redemption earlier than the maturity of the Notes, (b)
such Disqualified Stock is in an aggregate liquidation preference that is equal
to or less than the sum of (x) the aggregate liquidation preference of the
Disqualified Stock being retired, (y) the amount of accrued and unpaid
dividends, if any, and premiums owed, if any, on the Disqualified Stock being
retired and (z) the amount of customary fees, expenses and costs related to the
incurrence of such Disqualified Stock and (c) such Disqualified Stock is
incurred by the same Person that initially incurred the Disqualified Stock being
retired, except that the Company may incur Disqualified Stock to refund or
refinance Disqualified Stock of any Wholly Owned Subsidiary of the Company; (v)
the payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its Equity Interests on a pro rata basis; (vi) the payment of cash
dividends on the Existing Preferred Stock when such dividends are required to be
paid in accordance with the Certificate of Designation with respect to the
Existing Preferred Stock; (vii) so long as no Default or Event of Default shall
have occurred and be continuing, the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement in effect as of the date
hereof; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $300,000 in any
twelve-month period; (viii) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases of Equity Interests deemed to occur upon
the exercise of stock options or warrants upon surrender of Equity Interests to
pay the exercise price of such stock options or warrants; and (ix) so long as no
Default or Event of Default shall have occurred and be continuing, other
Restricted Payments in an aggregate amount not to exceed $1.0 million since the
date hereof.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated
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by AmeriTel, Talton Telecommunications, Talton of Carolina or Talton STC be
transferred to or held by any Subsidiary other than a Wholly Owned Restricted
Subsidiary. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors of the
Company, whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, and that no Default or Event of Default will result from making the
Restricted Payment, together with a copy of any fairness opinion or appraisal
required by this Indenture.
Section 4.08. Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Indebtedness) and
that the Company shall not issue any Disqualified Stock and shall not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Company may incur Indebtedness (including Acquired Indebtedness) or
issue shares of Disqualified Stock if (A) the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least (x) 1.75 to 1.0 if the Indebtedness is incurred prior to
December 31, 1998, (y) 2.0 to 1.0 if the Indebtedness is incurred prior to
December 31, 1999 or (z) 2.5 to 1.0 if the Indebtedness is incurred on or after
December 31, 1999, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period, and (B) no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence of
the incurrence of such Indebtedness or the issuance of such Disqualified Stock.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness under the Senior Credit Facilities and the issuance and
creation of letters of credit and banker's acceptances thereunder
(with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) not to exceed an amount equal to $80.0
million outstanding at any one time, less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently reduce the
commitments with respect to such Indebtedness pursuant to Section 4.09
below;
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(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Notes and the incurrence by the Subsidiary Guarantors of the
Subsidiary Guarantees, respectively;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace any
Indebtedness that was permitted by this Indenture to be incurred;
(v) the incurrence by the Company or any of its Wholly Owned Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries;
provided, however, that (i) if the Company or a Subsidiary Guarantor
is the obligor on such Indebtedness, such Indebtedness is unsecured
and expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Senior Notes and the Subsidiary
Guarantees, respectively, and (ii) (A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly
Owned Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (v);
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations in the ordinary course of business of the
Company or any of its Restricted Subsidiaries; provided that the
notional principal amount of such Hedging Obligation does not exceed
the principal amount of Indebtedness to which such Hedging
Obligation relates;
(vii) the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or any of its Restricted Subsidiaries
that was permitted to be incurred by another provision of this
covenant;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness
(and Liens, if any, securing such Indebtedness) by a Restricted
Subsidiary of the Company; or
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, including
all Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any other Indebtedness incurred pursuant to this clause
(ix), not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (ix) above
or is entitled to be incurred pursuant to the first paragraph of this Section
4.08, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.08 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness will not be deemed to be an incurrence of Indebtedness
for purposes of this Section 4.08.
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Section 4.09. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Senior
Notes or any Subsidiary Guarantee thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this clause (ii).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to repay Indebtedness outstanding under the Senior Credit Facilities
(and to correspondingly reduce commitments with respect thereto), or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long term assets, in each case,
in the same or a similar line of business as the Company was engaged in on the
date hereof. Pending the final application of any such Net Proceeds, the
Company or such Restricted Subsidiary may temporarily reduce outstanding
revolving credit borrowings, including borrowings under the Senior Credit
Facilities, or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $10.0 million (the "Asset Sale Offer Triggering Event"), the
Company will be required to make an offer to all Holders of Senior Notes (an
"Asset Sale Offer") to purchase the maximum principal amount of Senior Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Additional Interest thereon, if any, to the date of purchase, in
accordance with the procedures set forth in Section 3.09 hereof. The Company
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior Notes
in any Asset Sales Offer. To the extent that the aggregate amount of Senior
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Senior Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Notes to be purchased on a pro rata basis. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Section 4.10. Limitation on Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or assets of the Company or any such Restricted Subsidiary or any shares of
stock or debt of any such Restricted Subsidiary unless (i) if such Lien secures
Indebtedness which is pari passu with the Senior Notes, then the Senior Notes
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Subordinated Indebtedness, any such Lien will be subordinated to a Lien
granted to the holders of the Senior Notes in the same collateral as that
securing such Lien to the same extent as such Subordinated Indebtedness is
subordinated to the Senior Notes.
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Section 4.11. Limitation on Transactions With Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $500,000, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the Company and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that the following shall not be deemed Affiliate
Transactions: (1) transactions pursuant to the Senior Credit Facilities; (2)
customary investment banking or financial advisory services rendered by CIBC
Wood Gundy Securities Corp. or Onyx Partners, Inc. or any of their respective
affiliates; (3) transactions under the Talton Lease (as such agreement may be
amended or replaced, so long as any amounts paid under such amended or
replacement agreement do not exceed the amounts payable under such agreement as
in effect on the Issuance Date); (4) payments made by the Company or any of its
Restricted Subsidiaries pursuant to the terms of the Consulting and Strategic
Services Agreement (as such agreement may be amended or replaced, so long as any
amounts paid under such amended or replacement agreement do not exceed the
amounts payable under such agreement as in effect on the Issuance Date); (5)
transactions pursuant to the Shareholders Agreement and the Registration Rights
Agreement, each as in effect on the Issuance Date; (6) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary, (7) transactions between or among the Company
and/or its Restricted Subsidiaries, and (8) Restricted Payments and Permitted
Investments that are permitted by the provisions of Section 4.07.
Section 4.12. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Restricted Subsidiary may enter into a sale and leaseback
transaction if: (i) the Company or such Restricted Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.08 hereof and (b) incurred a
Lien to secure such Indebtedness pursuant to Section 4.10 hereof; (ii) the gross
cash proceeds of such sale and leaseback transaction are at least equal to the
fair market value (as determined in good faith by the Board of Directors of the
Company and set forth in an Officers' Certificate delivered to the Trustee) of
the property that is the subject of such sale and leaseback transaction; and
(iii) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Company or such Restricted Subsidiary applies the proceeds of such
transaction in compliance with, Section 4.09 hereof.
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Section 4.13. Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
(ii) pay any indebtedness owed to the Company or any of its Restricted
Subsidiaries, (iii) make loans or advances to the Company or any of its
Restricted Subsidiaries (iv) guarantee any Indebtedness of the Company or any
other Restricted Subsidiary of the Company or (v) transfer any of its properties
or assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date hereof, (b) the Senior Credit Facility and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Existing
Credit Facility, (c) any acquisition facility under the Senior Credit Facilities
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that any
such encumbrances or restrictions in such acquisition facility or any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof are no more restrictive with
respect to such dividend and other payment restrictions than those contained in
the Existing Credit Facility, (d) this Indenture, the Senior Notes and the
Subsidiary Guarantees, (e) applicable law, (f) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms hereof to be
incurred, (g) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business and consistent with past
practices, (h) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(v) above on the property so acquired, or (i) Permitted Refinancing
Indebtedness; provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Section 4.14. Limitation on Capital Stock of Restricted Subsidiaries.
The Company (i) shall not, and shall not permit any Restricted Subsidiary
of the Company to, transfer, convey, sell, lease, pledge, hypothecate or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), other than Capital Stock of a Restricted Subsidiary
of the Company which holds property or assets acquired by the Company and its
Restricted Subsidiaries after the date hereof, and (ii) will not permit any
Restricted Subsidiary of the Company to issue any of its Equity Interests to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company. The foregoing restrictions shall not apply to (x) an Asset Sale made in
compliance with Section 4.09 hereof or (y) a pledge or hypothecation or other
Lien on Capital Stock of a Restricted Subsidiary otherwise permitted by Section
4.10 hereof.
Section 4.15. Offer to Purchase Upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and
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Additional Interest, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Senior Notes on
the date specified in such notice, which date shall be no earlier than 30 days
and no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by Section 3.09
hereof and described in such notice. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result of
a Change of Control.
The Change of Control Offer shall remain open from the time of mailing
until the Business Day preceding the Change of Control Payment Date.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
herein applicable to a Change of Control Offer made by the Company and purchases
all Senior Notes validly tendered and not withdrawn under such Change of Control
Offer.
Section 4.16. Corporate Existence.
Subject to Section 4.15 and Article 5 hereof, as the case may be, the
Company and each Subsidiary Guarantor shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate, partnership or other existence of each of its Subsidiaries in
accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided that the Company shall not be required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any of its Subsidiaries, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders
of the Senior Notes.
Section 4.17. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries shall after the date
hereof, acquire or create another Restricted Subsidiary or designate an
Unrestricted Subsidiary to be a Restricted Subsidiary then the Company shall
cause such newly acquired or created or designated Restricted Subsidiary to (A)
execute and deliver to the Trustee a supplemental indenture in form and
substance substantially similar to Exhibit E hereto pursuant to which such
---------
Restricted Subsidiary shall unconditionally Guarantee all of the Company's
obligations
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under the Senior Notes on the terms set forth in such supplemental indenture and
(B) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the
Trustee that such supplemental indenture has been duly executed and delivered by
such Restricted Subsidiary.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Senior Notes and this Indenture pursuant to a supplemental indenture
in a form substantially similar to Exhibit E hereto; (iii) immediately after
---------
such transaction no Default or Event of Default exists; (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.08 hereof; and (v) each Subsidiary Guarantor,
unless it is the other party to the transactions described above, shall have by
supplemental indenture in a form substantially similar to Exhibit E hereto
---------
confirmed that its Subsidiary Guarantee shall apply to the Company's or the
surviving Person's obligations under this Indenture and the Senior Notes.
In connection with any consolidation, merger or transfer of assets
contemplated by this Section 5.01, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01 hereof, the successor corporation formed
by such consolidation or into or with which the Company is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for (so that from and after the date of
such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and shall exercise every
right and power of the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Subsidiaries shall be
included only for periods subsequent to the effective time of such merger,
consolidation,
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combination or transfer of assets; and (ii) in the case of any sale, assignment,
transfer, lease, conveyance, or other disposition of less than all of the assets
of the predecessor Company, the predecessor Company shall not be released or
discharged from the obligation to pay the principal of or interest and
Additional Interest, if any, on the Senior Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on, or
Additional Interest, if any, with respect to the Senior Notes;
(ii) default in payment when due of principal of or premium, if any, on
the Senior Notes;
(iii) failure by the Company or any Subsidiary to comply with the
provisions described under Sections 3.09, 4.07, 4.08, 4.09 or 4.15
or Article 5 hereof;
(iv) failure by the Company or any Subsidiary for 60 days after receipt
of written notice given by the Trustee or the holders of at least
25% in principal amount of Senior Notes then outstanding to comply
with its other agreements in this Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date
hereof, which default (A) (i) is caused by a failure to pay when due
at final stated maturity (giving effect to any grace period related
thereto) any principal of or premium, if any, or interest on such
Indebtedness (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and
(B) in each case, the principal amount of any such Indebtedness as
to which a Payment Default shall have occurred, together with the
principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more and such default has
not been cured, waived or postponed pursuant to an agreement with
the holders of such Indebtedness within 30 days after written notice
as provided in this Indenture, or such acceleration shall not be
rescinded or annulled within 10 days after written notice as
provided in this Indenture;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed within 60 days after
their entry;
(vii) any holder (or person acting on its behalf) of at least $5.0 million
in aggregate principal amount of Indebtedness of the Company or any
of its Restricted Subsidiaries shall, subsequent to the occurrence
of a default with respect to such Indebtedness and in accordance
with the terms of the document or agreement governing such
Indebtedness, commence judicial proceedings to foreclose upon assets
of the Company or any of its Restricted Subsidiaries having an
aggregate fair market value in excess of $5.0 million or shall have
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exercised any rights under applicable law or applicable security
documents to take ownership of any such assets in lieu of
foreclosure;
(viii) the Company or any Restricted Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor,
(iii) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) admits in writing its inability generally to pay its debts as
the same become due;
(ix) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted
Subsidiaries in an involuntary case in which it is the debtor,
(ii) appoints a custodian of the Company or any of its Restricted
Subsidiaries or for all or substantially all of the property
of the Company or any of its Restricted Subsidiaries, or
(iii) orders the liquidation of the Company or any of its Restricted
Subsidiaries, and the order or decree contemplated in clauses
(i), (ii) or (iii), remains unstayed and in effect for 60
consecutive days; or
(x) the termination of the Subsidiary Guarantee of any Subsidiary
Guarantor for any reason not permitted by this Indenture, or the
denial of any Person acting on behalf of any such Subsidiary
Guarantor of its Obligations under any such Subsidiary Guarantee.
To the extent that the last day of the period referred to in clauses (i),
(iii), (iv) or (vi) of the immediately preceding paragraph is not a Business
Day, then the first Business Day following such day shall be deemed to be the
last day of the period referred to in such clauses. Any "day" will be deemed to
end as of 11:59 p.m., New York City time.
Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default with respect to the
Company specified in clauses (viii) and (ix) of Section 6.01 hereof) occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Notes may declare the unpaid principal of, premium,
if any, interest and Additional Interest, if any, on all the Senior Notes to be
due and payable by notice in writing to the Company (and the Trustee, if given
by the Holders) specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same shall become
immediately due and payable. If an Event of Default with respect to the Company
or any Restricted Subsidiary specified in clauses (viii) or (ix) of Section 6.01
hereof occurs, all outstanding Senior Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
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The Holders of a majority in principal amount of the then outstanding Senior
Notes by written notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
[In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Senior Notes
pursuant to the optional redemption provisions of Section 3.07(a) hereof, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Senior Notes. If an Event
of Default occurs prior to June 30, 2002 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Senior Notes prior to June 30,
2002, then the amount payable in respect of such Senior Notes for purposes of
this paragraph for each of the twelve-month periods beginning on June 30 of the
years indicated below shall be as set forth below, expressed as percentages of
the principal amount that would otherwise be due but for the provisions of this
sentence, plus accrued and unpaid interest and Additional Interest, if any, to
the date of payment:
Year Percentage
---- ----------
1997.................................................. 114.667%
1998.................................................. 112.833%
1999.................................................. 111.000%
2000.................................................. 109.167%
2001.................................................. 107.333%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, interest
and Additional Interest, if any, on the Senior Notes or to enforce the
performance of any provision of the Senior Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Senior Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Senior Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for Senior Notes), by notice to the Trustee, may on behalf of the
Holders of all of the Senior Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of principal of or premium, if any, or interest or Additional
Interest, if any, on the Senior Notes. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
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Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Senior
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Senior Notes or that may involve
the Trustee in personal liability. The Trustee may take any other action which
it deems proper which is not inconsistent with any such direction.
Section 6.06. Limitation on Suits.
A Holder of a Senior Note may pursue a remedy with respect to this
Indenture, the Senior Notes or the Subsidiary Guarantees only if:
(a) the Holder of a Senior Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice from
the Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Senior Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Senior Note or Holders of Senior Notes offer and, if
requested, provide to the Trustee security and indemnity satisfactory
to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Senior Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Senior Note may not use this Indenture to prejudice the
rights of another Holder of a Senior Note or to obtain a preference or priority
over another Holder of a Senior Note.
Section 6.07. Rights of Holders of Senior Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Senior Note to receive payment of principal, premium, if any, and
interest, and Additional Interest, if any, on the Senior Note, on or after the
respective due dates expressed in the Senior Note (including in connection with
an offer to purchase), or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Additional Interest, if any, and interest remaining
unpaid on the Senior Notes and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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Section 6.09. Trustee May File Proofs of Claim.
The Trustee (which term as used in this Section 6.09 shall include any
predecessor Trustee) is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim under Section 7.07 for the compensation, fees,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Senior Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Senior Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other securities or property payable or deliverable upon the
conversion or exchange of the Senior Notes or on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, fees, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a perfected Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise, and such Lien in favor of a predecessor Trustee, if
any, shall be senior to the Lien in favor of the current Trustee. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Senior
Notes or the rights of any Holder, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Senior Notes for amounts due and unpaid on the
Senior Notes for principal, premium, if any, interest, and Additional Interest,
if any, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Senior Notes for principal, premium, if any, and
interest, and Additional Interest, if any, respectively;
Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Senior Notes; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess
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reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder of a Senior Note pursuant to
Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Senior Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing of which it has
knowledge, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in
this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holders shall
have offered and, if requested, provided, to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense
that might be incurred by it in compliance with such request,
direction or exercise.
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(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money
held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely on the truth of the statements and
correctness of the opinions contained in, and shall be protected from
acting or refraining from acting upon, any document believed by it to
be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
Prior to taking, suffering or admitting any action, the Trustee may
consult with counsel of the Trustee's own choosing and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company or any Subsidiary
Guarantor shall be sufficient if signed by an Officer of the Company
or Subsidiary Guarantor, as applicable.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered and, if
requested, provided, to the Trustee security or indemnity satisfactory
to the Trustee against the costs, expenses and liabilities that might
be incurred by it in compliance with such request, direction or
exercise.
(g) The permissive right of the Trustee to act hereunder shall not be
construed as a duty.
(h) Whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officers' Certificate.
(i) Except with respect to Section 4.01 hereof, the Trustee shall have no
duty to inquire as to the performance of the Company's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event
of Default occurring pursuant to Sections 6.01(i) and 6.01(ii) hereof
or (ii) any Default or Event
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of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
(j) The Trustee shall not be deemed to have notice or knowledge of any
matter unless a Responsible Officer has actual knowledge thereof or
unless written notice thereof is received by the Trustee at its
Corporate Trust Office and such notice references the Senior Notes
generally, the Company or this Indenture.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner of
Senior Notes and may otherwise deal with the Company, the Subsidiary Guarantors
or any Affiliate of the Company or any Subsidiary Guarantor with the same rights
it would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign.
Any Agent may do the same with like rights and duties. The Trustee is also
subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Subsidiary Guarantees or the
Senior Notes, it shall not be accountable for the Company's use of the proceeds
from the Senior Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Senior Notes or any other document in connection with the
sale of the Senior Notes or pursuant to this Indenture other than its
certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to Holders of Senior Notes a notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment on any Senior Note pursuant to Section 6.01(i) or (ii) hereof, the
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Senior Notes.
Section 7.06. Reports by Trustee to Holders of the Senior Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Senior Notes remain outstanding, the
Trustee shall mail to the Holders of the Senior Notes a brief report dated as of
such reporting date that complies with TIA (S) 313(a) (but if no event
described in TIA (S) 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA (S) 313(b). The Trustee shall also transmit by mail all reports as
required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of Senior
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange, if any, on which the Company has informed the Trustee in writing
the Senior Notes are listed in accordance with TIA (S) 313(d). The Company
shall promptly notify the Trustee when the Senior Notes are listed on any stock
exchange and of any delisting thereof.
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Section 7.07. Compensation and Indemnity.
The Company and the Subsidiary Guarantors shall pay to the Trustee from
time to time compensation as agreed upon by the Trustee and the Company, and, in
the absence of any such agreement, reasonable compensation for its acceptance of
this Indenture and services hereunder. To the extent permitted by law, the
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company and the Subsidiary Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Company and the Subsidiary Guarantors (including this Section 7.07)
and defending itself against any claim (whether asserted by the Company, the
Subsidiary Guarantors or any Holder or any other person) or liability in
connection with, relating to, or arising out of (i) the exercise or performance
of any of its powers or duties hereunder or in connection herewith, and (ii) the
validity, invalidity, adequacy or inadequacy of this Indenture, the Subsidiary
Guarantees, the Senior Notes, the Registration Rights Agreement or the Offering
Memorandum, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company and the Subsidiary Guarantors promptly of any claim for which it may
seek indemnity. Failure by the Trustee to so notify the Company and the
Subsidiary Guarantors shall not relieve the Company and the Subsidiary
Guarantors of their obligations hereunder. The Company and the Subsidiary
Guarantors shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company and the
Subsidiary Guarantors shall pay the reasonable fees and expenses of such
counsel. The Company and the Subsidiary Guarantors need not pay for any
settlement made without their consent, which consent shall not be unreasonably
withheld.
The obligations of the Company and the Subsidiary Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Subsidiary Guarantors' payment obligations
in this Section 7.07, the Trustee (and each predecessor Trustee) shall have a
perfected Lien prior to the Senior Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, interest
and Additional Interest, if any, on particular Senior Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture and the resignation or
removal of the Trustee. Such Lien in favor of a predecessor Trustee, if any,
shall be senior to the Lien in favor of the current Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(viii) or (ix) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Senior Notes
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may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may, by resolution of its Board of Directors, remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Senior Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Senior
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Senior Note who
has been a bona fide Holder of a Senior Note for at least six months, fails to
comply with Section 7.10 hereof, such Holder of a Senior Note may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and the duties of the Trustee under
this Indenture. The successor Trustee shall mail a notice of its succession to
the Holders of the Senior Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided that all
sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or any Agent, as applicable.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities, and that has, or in the case of a corporation included in a bank
holding company system the related bank holding company has, a combined capital
and surplus of at least $100.0 million as set forth in its most recent annual
report of condition.
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This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against The Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
Section 7.12 Other Capacities.
All references in this Indenture to the Trustee shall be deemed to refer to
the Trustee in its capacity as Trustee and in its capacities as any Agent, to
the extent acting in such capacities, and every provision of this Indenture
relating to the conduct or affecting the liability or offering protection,
immunity or indemnity to the Trustee shall be deemed to apply with the same
force and effect to the Trustee acting in its capacities as any Agent.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company and the Subsidiary Guarantors may, at the option of their
respective Boards of Directors evidenced by a resolution set forth in an
Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03
hereof be applied to all outstanding Senior Notes and Subsidiary Guarantees upon
compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Subsidiary Guarantor
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from their respective obligations with
respect to all outstanding Senior Notes and Subsidiary Guarantees on the date
the conditions set forth below are satisfied (hereinafter, "Legal Defeasance").
For this purpose, Legal Defeasance means that the Company and each Subsidiary
Guarantor shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Senior Notes and Subsidiary Guarantees, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.05 hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all their respective other obligations under such
Senior Notes and Subsidiary Guarantees and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders
of outstanding Senior Notes to receive payments in respect of the principal of,
premium, if any, and interest and Additional Interest, if any, on such Senior
Notes when such payments are due from the trust referred to in Section 8.04(a);
(b) the Company's obligations with respect to such Senior Notes under Sections
2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10 and 4.02 hereof; (c) the rights,
powers, trusts, duties and immunities of the Trustee or any Agent, including,
without limitation, under Sections 7.07, 8.05 and 8.07 hereof and the Company's
and the Subsidiary Guarantors' obligations in connection therewith and (d) the
provisions of this Article 8. Subject to compliance with this Article 8, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
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Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Subsidiary Guarantor
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from its obligations under the covenants contained in
Sections 3.09, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.17
hereof with respect to the outstanding Senior Notes and Subsidiary Guarantees on
and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Senior Notes and Subsidiary Guarantees shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Senior Notes and Subsidiary Guarantees shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Senior Notes and Subsidiary Guarantees, the Company
or any of its Subsidiaries may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant
listed above, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Senior Notes and Subsidiary Guarantees shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(v) through 6.01(vii)
and Section 6.01(x) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Senior Notes and Subsidiary Guarantees:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Senior Notes, (i) cash in United
States dollars, (ii) non-callable Government Securities which through
the scheduled payment of principal, premium, if any, and interest and
Additional Interest, if any, in respect thereof in accordance with
their terms will provide, not later than one day before the due date
of payment, cash in United States dollars in an amount, or (iii) a
combination thereof, in such amounts as shall be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge the principal of, premium, if any,
interest and Additional Interest, if any, on the outstanding Senior
Notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Company must specify whether the Senior Notes
are being defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the
United States acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date hereof, there
has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of the outstanding Senior Notes shall
not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and shall be subject to federal
income tax on the same amounts, in the same manner and at the same
time as would have been the case if such Legal Defeasance had not
occurred;
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(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the
United States acceptable to the Trustee confirming that the Holders of
the outstanding Senior Notes shall not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant
Defeasance and shall be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default of Event or Default
resulting from the borrowing of funds to be applied to such deposit)
or insofar as Sections 6.01(viii) and (ix) hereof are concerned, at
any time in the period ending on the 91st day after the date of
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that after the 91st day following the deposit, the trust
funds shall not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Senior Notes over the other
creditors of the Company with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with; and
(i) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Company Act of 1940.
(j) the Trustee shall have received such other documents and assurances as
the Trustee shall have reasonably required.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Senior
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Senior Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as Paying
Agent) as the Trustee may determine, to the Holders of such Senior Notes of all
sums due and to become due thereon in respect of principal, premium, if any,
interest and Additional Interest, if any, but such money need not be segregated
from other funds except to the extent required by law.
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The Company and the Subsidiary Guarantors shall jointly and severally pay
and indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the cash or non-callable Government Securities deposited
pursuant to Section 8.04 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the outstanding Senior Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the written request
of the Company and be relieved of all liability with respect to any money or
non-callable Government Securities held by it as provided in Section 8.04 hereof
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to The Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any,
interest or Additional Interest, if any, on any Senior Note and remaining
unclaimed for one year after such principal, and premium, if any, or interest or
Additional Interest, if any, has become due and payable shall be paid to the
Company on its written request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Senior Note shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and the Subsidiary Guarantors
under this Indenture, the Senior Notes and the Subsidiary Guarantees shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, interest or Additional Interest, if any, on any
Senior Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Senior Notes to receive such
payment from the money held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Senior Notes.
Notwithstanding Section 9.02 of this Indenture, without the consent of any
Holder of Senior Notes, the Company and the Trustee may amend or supplement this
Indenture, the Senior Notes or the Subsidiary Guarantees:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Notes in addition to or in place
of certificated Senior Notes;
(c) to provide for the assumption of the Company's or a Subsidiary
Guarantor's obligations to the Holders of the Senior Notes in the case
of a merger, or consolidation pursuant to Article 5 or Article 10
hereof, as applicable;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Notes or that does not adversely
affect the legal rights hereunder of any Holder of the Senior Notes;
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to allow any Subsidiary Guarantor to guarantee the Senior Notes.
Upon the written request of the Company accompanied by a resolution of its
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company and
the Subsidiary Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
Section 9.02. With Consent of Holders of Senior Notes.
Except as provided below in this Section 9.02, this Indenture, the
Senior Notes or the Subsidiary Guarantees may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
Senior Notes then outstanding (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer, for Senior
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, or premium, if any, or interest or Additional Interest, if any, on
the Senior Notes, except a payment default resulting from an acceleration that
has been rescinded) or compliance with any provision of this Indenture, the
Senior Notes or the Subsidiary Guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Senior Notes
(including consents obtained in connection with a purchase of, or a tender offer
or exchange offer for, the Senior Notes).
Upon the request of the Company accompanied by a resolution of its Board of
Directors of the Company authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Senior Notes as
aforesaid,
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and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in
the execution of such amended or supplemental Indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may, but shall not
be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Senior Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of each Senior Note
affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such amended
or supplemental Indenture or waiver.
Subject to Sections 6.02, 6.04 and 6.07 hereof, the Holders of a majority
in aggregate principal amount of the Senior Notes then outstanding may waive
compliance in a particular instance by the Company or the Subsidiary Guarantors
with any provision of this Indenture, the Senior Notes or the Subsidiary
Guarantees. However, without the consent of each Holder affected, an amendment
or waiver may not (with respect to any Senior Note or Subsidiary Guarantee held
by a non-consenting Holder):
(a) reduce the principal amount of Senior Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Senior
Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to Sections 3.09, 4.09
and 4.15 hereof);
(c) reduce the rate of or change the time for payment of interest or
Additional Interest, if any, on any Senior Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or Additional Interest, if any, on the
Senior Notes (except a rescission of acceleration of the Senior Notes
by the Holders of at least a majority in aggregate principal amount of
the Senior Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Senior Note payable in money other than that stated in the
Senior Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption or repurchase payment with respect to any Senior
Note (other than a payment required by Section 4.09 or 4.15 hereof);
(h) make any change affecting the ranking of the Senior Notes in any
manner adverse to the Holders of the Senior Notes;
(i) make any change in the amendment and waiver provisions of this Article
9; or
(j) except as provided in Sections 8.02, 8.03 and 10.04 hereof, release
any of the Subsidiary Guarantors from their obligations under the
Subsidiary Guarantees or make any change in the Subsidiary Guarantees
that would adversely affect the Holders.
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Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture, the Subsidiary Guarantees
or the Senior Notes shall be set forth in a amended or supplemental Indenture
that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Senior Note is a continuing consent by the Holder and every
subsequent Holder of a Senior Note or portion of a Senior Note that evidences
the same debt as the consenting Holder's Senior Note, even if notation of the
consent is not made on any Senior Note. However, any such Holder or subsequent
Holder of a Senior Note may revoke the consent as to its Senior Note if the
Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders of the Senior Notes must consent to such amendment,
supplement or waiver. If the Company fixes a record date, the record date shall
be fixed at (i) the later of 30 days prior to the first solicitation of such
consent or the date of the most recent list of Holders of Senior Notes furnished
for the Trustee prior to such solicitation pursuant to Section 2.05 hereof or
(ii) such other date as the Company shall designate.
Section 9.05. Notation on or Exchange of Senior Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Note thereafter authenticated. The Company
in exchange for all Senior Notes may issue and the Trustee shall authenticate
new Senior Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company and the Subsidiary Guarantors may not sign an amendment or supplemental
Indenture until their respective Boards of Directors approve it. In signing or
refusing to sign any amended or supplemental indenture the Trustee shall be
entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
11.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture, that it is not inconsistent herewith, and that it
will be valid and binding upon the Company and the Subsidiary Guarantors in
accordance with its terms.
ARTICLE 10
GUARANTEE OF SENIOR NOTES
Section 10.01. Subsidiary Guarantees.
Subject to Section 10.06 hereof, each of the Subsidiary Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Senior
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the
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Senior Notes and the Obligations of the Company hereunder and thereunder, that:
(a) the principal of, premium, if any, interest and Additional Interest, if any,
on the Senior Notes will be promptly paid in full when due, subject to any
applicable grace period, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal, premium, if any, (to the
extent permitted by law) interest on any interest, if any, and Additional
Interest, if any, on the Senior Notes, and all other payment Obligations of the
Company to the Holders or the Trustee hereunder or thereunder will be promptly
paid in full and performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Senior
Notes or any of such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
subject to any applicable grace period, whether at stated maturity, by
acceleration, redemption or otherwise. Failing payment when so due of any amount
so guaranteed or any performance so guaranteed for whatever reason the
Subsidiary Guarantors will be jointly and severally obligated to pay the same
immediately. An Event of Default under this Indenture or the Senior Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders to accelerate the Obligations of the Subsidiary Guarantors
hereunder in the same manner and to the same extent as the Obligations of the
Company. The Subsidiary Guarantors hereby agree that their Obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Senior Notes or this Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Subsidiary Guarantor.
Each Subsidiary Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that this Subsidiary
Guarantee will not be discharged except by complete performance of the
Obligations contained in the Senior Notes and this Indenture. If any Holder or
the Trustee is required by any court or otherwise to return to the Company, the
Subsidiary Guarantors, or any Senior Note Custodian, Trustee, liquidator or
other similar official acting in relation to either the Company or the
Subsidiary Guarantors, any amount paid by the Company or any Subsidiary
Guarantor to the Trustee or such Holder, this Subsidiary Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it shall not be entitled to, and hereby
waives, any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as
between the Subsidiary Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the Obligations guaranteed
hereby may be accelerated as provided in Article 6 hereof for the purposes of
its Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed thereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article 6 hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by the Subsidiary
Guarantor for the purpose of its Subsidiary Guarantee. The Subsidiary Guarantors
shall have the right to seek contribution from any non-paying Subsidiary
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Subsidiary Guarantees.
Section 10.02. Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 10.01 hereof,
each Subsidiary Guarantor hereby agrees that a notation of such Subsidiary
Guarantee substantially in the form of Exhibit D hereto shall be endorsed by
---------
manual or facsimile signature by an Officer of such Subsidiary Guarantor on each
Senior Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of such Subsidiary Guarantor, by manual or facsimile
signature, by an Officer of such Subsidiary Guarantor.
Each Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee set
forth in Section 10.01 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Senior Note a notation of such
Subsidiary Guarantee.
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If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Senior Note on which a Subsidiary Guarantee is endorsed, the Subsidiary
Guarantee shall be valid nevertheless.
The delivery of any Senior Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set
forth in this Indenture on behalf of the Subsidiary Guarantors.
Section 10.03. Subsidiary Guarantors May Consolidate, etc., on Certain Terms
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Indenture shall prohibit a merger between a Subsidiary Guarantor and
another Subsidiary Guarantor or a merger between a Subsidiary Guarantor and the
Company.
(b) No Subsidiary Guarantor shall consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person whether or not affiliated with such Subsidiary Guarantor unless, other
than with respect to a merger between a Subsidiary Guarantor and another
Subsidiary Guarantor or a merger between a Subsidiary Guarantor and the Company,
(i) subject to the provisions of Section 10.04 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to
a supplemental indenture substantially in the form of Exhibit E hereto, under
---------
the Senior Notes and this Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists; and (iii) the Company
would be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.08 hereof.
(c) In the case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and substantially in the form of Exhibit E hereto,
---------
of the Subsidiary Guarantee endorsed upon the Senior Notes and the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as a Subsidiary Guarantor; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause (b) of the
first paragraph of Section 4.07 hereof, the Consolidated Net Income of any
Person other than the Company and its Subsidiaries shall only be included for
periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets. Such successor Person thereupon may cause to
be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the
Senior Notes issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee. All of the Subsidiary Guarantees so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Subsidiary Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Subsidiary
Guarantees had been issued at the date of the execution hereof.
Section 10.04. Releases Following Sale of Assets.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition of all of the capital stock of any Subsidiary Guarantor, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Subsidiary Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Subsidiary
Guarantor) shall be released and relieved of any obligations under its
Subsidiary Guarantee; provided that (i) in the event of an Asset Sale, the Net
Proceeds from such sale or other dispositions are treated in accordance with the
provisions of Section 4.09 hereof and (ii) the Company is in compliance with all
other provisions of
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this Indenture applicable to such disposition. Upon delivery by the Company to
the Trustee of an Officers' Certificate to the effect of the foregoing, the
Trustee shall execute any documents reasonably required in order to evidence the
release of any Subsidiary Guarantor from its Obligation under its Subsidiary
Guarantee. Any Subsidiary Guarantor not released from its Obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of,
premium, if any, interest and Additional Interest, if any, on the Senior Notes
and for the other Obligations of such Subsidiary Guarantor under this Indenture
as provided in this Article 10.
Section 10.05. Limitation on Subsidiary Guarantor Liability.
For purposes hereof, each Subsidiary Guarantor's liability shall be limited
to the lesser of (i) the aggregate amount of the Obligations of the Company
under the Senior Notes and this Indenture and (ii) the amount, if any, which
would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term
is defined in the Bankruptcy Law and in the Debtor and Creditor Law of the State
of New York) or (B) left such Subsidiary Guarantor with unreasonably small
capital at the time its Subsidiary Guarantee of the Senior Notes was entered
into; provided that, it will be a presumption in any lawsuit or other proceeding
in which a Subsidiary Guarantor is a party that the amount guaranteed pursuant
to the Subsidiary Guarantee is the amount set forth in clause (i) above unless
any creditor, or representative of creditors of such Subsidiary Guarantor, or
debtor in possession or trustee in bankruptcy of the Subsidiary Guarantor,
otherwise proves in such a lawsuit that the aggregate liability of the
Subsidiary Guarantor is the amount set forth in clause (ii) above. In making
any determination as to solvency or sufficiency of capital of a Subsidiary
Guarantor in accordance with the previous sentence, the right of such Subsidiary
Guarantor to contribution from other Subsidiary Guarantors, and any other rights
such Subsidiary Guarantor may have, contractual or otherwise, shall be taken
into account.
Section 10.06. "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 10 shall in each case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 10 in place of the Trustee.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice or communication by the Company, any Subsidiary Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
62
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If to the Company or any Subsidiary Guarantor:
Talton Holdings, Inc.
611 S.W. Third Street
Lee's Summit, Missouri 64063
Telecopy: (816) 525-3006
Attention: Chief Financial Officer
With a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Telecopy: (214) 939-5500
Attention: Glen Hettinger, Esq.
If to the Trustee:
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Telecopier No.: (214) 754-1303
Attention: Corporate Trust Department
The Company, any Subsidiary Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five (5) Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class mail
to its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA (S) 313(c),
to the extent required by the TIA. Failure to mail a notice or communication to
a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it,
except for notices or communications to the Trustee which shall be effective
only upon actual receipt thereof.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Senior Notes with Other Holders of
Senior Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Senior Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
63
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Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Subsidiary Guarantor
to the Trustee to take any action under this Indenture, the Company or such
Subsidiary Guarantor shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section
11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company under the Senior Notes, any Subsidiary Guarantee,
this Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Senior Notes by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Senior Notes and the Subsidiary
Guarantees.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE SENIOR NOTES AND THE SUBSIDIARY GUARANTEES.
64
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Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 11.10. Successors.
All agreements of the Company and the Subsidiaries Guarantors in this
Indenture, the Senior Notes and the Subsidiary Guarantees shall bind their
respective successors and assigns. All agreements of the Trustee in this
Indenture shall bind its successors and assigns.
Section 11.11. Severability.
In case any provision in this Indenture, the Senior Notes or in the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[signature page follows]
65
<PAGE>
SIGNATURES
Dated as of June 27, 1997 Talton Holdings, Inc.
By: /s/ TODD W. FOLLMER
---------------------------------------
Name: Todd W. Follmer
Title: Vice President
Dated as of June 27, 1997 AmeriTel Pay Phones, Inc.
By: /s/ TODD W. FOLLMER
---------------------------------------
Name: Todd W. Follmer
Title: Vice President
Dated as of June 27, 1997 Talton Telecommunications Corporation
By: /s/ TODD W. FOLLMER
---------------------------------------
Name: Todd W. Follmer
Title: Vice President
Dated as of June 27, 1997 Talton Telecommunications of Carolina, Inc.
By: /s/ TODD W. FOLLMER
---------------------------------------
Name: Todd W. Follmer
Title: Vice President
Dated as of June 27, 1997 Talton STC, Inc.
By: /s/ TODD W. FOLLMER
---------------------------------------
Name: Todd W. Follmer
Title: President
U.S. Trust Company of Texas, N.A.
By: /s/ BILL BARBER Dated as of June 27, 1997
------------------------
Name: Bill Barber
Title: Vice President
S-1
<PAGE>
Exhibit A-1
-----------
(Face of Senior Note)
11% Senior Notes due 2007, Series [A/B]
No. ___ $_______________
CUSIP NO. 87483B AA 6
TALTON HOLDINGS, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of
___________ Dollars on June 30, 2007.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
Dated: June 27, 1997
Talton Holdings, Inc.
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
This is one of the Senior Notes
referred to in the
within-mentioned Indenture:
Dated: June 27, 1997
U.S. Trust Company of Texas, N.A.
as Trustee
By:
-----------------------------
EXHIBIT A-1 -- Page 1
<PAGE>
(Back of Senior Note)
Talton Holdings, Inc.
11% Senior Notes due 2007, Series [A/B]
[Unless and until it is exchanged in whole or in part for Senior Notes in
definitive form, this Senior Note may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the
registered owner hereof, Cede & Co., has an interest herein.]/1/
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) INSIDE THE
UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) or (7) OF THE
SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH
CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SENIOR NOTES LESS THAN $100,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.]/2/
- ------------
/1/ This paragraph should be included only if the Senior Note is issued in
global form.
/2/ This paragraph should be removed upon the exchange of Series A Notes for
Series B Notes in the Exchange Offer or upon the registration of the Series A
Notes pursuant to the terms of the Registration Rights Agreement
EXHIBIT A-1 -- Page 2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest.
Talton Holdings, Inc., a Delaware corporation, or its successor (the
"Company"), promises to pay interest on the principal amount of this
Senior Note at the rate of 11.0% per annum and shall pay the Additional
Interest, if any, payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Additional
Interest, if any, in United States dollars (except as otherwise provided
herein) semi-annually in arrears on each January 1 and July 1, commencing
on January 1, 1998, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on
the Senior Notes shall accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance;
provided that if there is no existing Default or Event of Default in the
payment of interest, and if this Senior Note is authenticated between a
record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding
Interest Payment Date, except in the case of the original issuance of
Senior Notes, in which case interest shall accrue from the date of
authentication. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal
at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Senior Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Additional
Interest (without regard to any applicable grace period) at the same rate
to the extent lawful. Interest shall be computed on the basis of a 360-
day year comprised of twelve 30-day months.
2. Method of Payment.
The Company will pay interest on the Senior Notes (except defaulted
interest) and Additional Interest, if any, to the Persons who are
registered Holders of Senior Notes at the close of business on the
December 15 or June 15 next preceding the Interest Payment Date, even if
such Senior Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Senior Notes shall be
payable as to principal, premium, if any, interest and Additional
Interest, if any, at the office or agency of the Company maintained for
such purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest and Additional Interest, if
any, may be made by check mailed to the Holders at their addresses set
forth in the register of Holders; provided that payment by wire transfer
of immediately available funds shall be required with respect to principal
of, and interest, premium and Additional Interest, if any, on, all Global
Notes and all other Senior Notes the Holders of which shall have provided
written wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public
and private debts.
3. Paying Agent and Registrar.
Initially, U.S. Trust Company of Texas, N.A., the Trustee under the
Indenture, shall act as Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
EXHIBIT A-1 -- Page 3
<PAGE>
4. Indenture.
The Company issued the Senior Notes under an Indenture dated as of June
27, 1997 (as amended or supplemented from time to time, the "Indenture")
among the Company, the Subsidiary Guarantors and the Trustee. The terms
of the Senior Notes include those stated in the Indenture and those made a
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"). The Senior Notes
are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Senior Notes are general
unsecured Obligations of the Company limited to $115,000,000 in aggregate
principal amount, plus amounts, if any, sufficient to pay premium, if any,
interest or Additional Interest, if any, on outstanding Senior Notes as
set forth in Paragraph 2 hereof.
5. Optional Redemption.
Except as set forth in the next paragraph, the Senior Notes shall not
be redeemable at the Company's option prior to June 30, 2002. Thereafter,
the Senior Notes shall be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below together with accrued and unpaid interest and any
Additional Interest, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on June 30 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2002..................................... 105.500%
2003..................................... 103.667%
2004..................................... 101.833%
2005 and thereafter...................... 100.000%
Notwithstanding the foregoing, at any time prior to June 30, 2000, the
Company may on any one or more occasions redeem up to 30% of the original
aggregate principal amount of Senior Notes at a redemption price of 111.0%
of the principal amount thereof, plus accrued and unpaid interest and
Additional Interest, if any, to the redemption date with the net proceeds
of an Equity Offering of the Company; provided that at least $80.0 million
aggregate principal amount of Senior Notes originally issued remains
outstanding immediately after the occurrence of any such redemption; and
provided, further, that such redemption shall occur within 90 days of the
date of the closing of any such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with
respect to the Senior Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Senior
Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Senior Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Additional Interest,
if any, thereon, to the date of purchase. Within 30 days following any
Change of Control, the Company will mail a notice to each Holder
describing the
EXHIBIT A-1 -- Page 4
<PAGE>
transaction or transactions that constitute the Change of Control setting
forth the procedures governing the Change of Control Offer required by
the Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall offer to all Holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may
be purchased out of the Excess Proceeds at an offer price in cash equal
to 100% of principal amount thereof, plus accrued and unpaid interest,
and Additional Interest thereon, if any, to the date of purchase in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate amount of Senior Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for any general corporate purposes. If the
aggregate principal amount of Senior Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the
Senior Notes to be purchased on a pro rata basis.
(c) Holders of the Senior Notes that are the subject of an offer to
purchase will receive a Change of Control Offer or Asset Sale Offer from
the Company prior to any related purchase date and may elect to have such
Senior Notes purchased by completing the form titled "Option of Holder to
Elect Purchase" appearing below.
8. Notice of Redemption.
Notice of redemption shall be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Senior Notes
are to be redeemed at its registered address. Senior Notes in
denominations larger than $1,000 may be redeemed in part but only in
integral multiples of $1,000, unless all of the Senior Notes held by a
Holder are to be redeemed. On and after the redemption date, interest and
Additional Interest, if any, ceases to accrue on the Senior Notes or
portions thereof called for redemption.
9. Denominations, Transfer, Exchange.
The Senior Notes are in registered form without coupons in initial
denominations of $1,000 and integral multiples of $1,000. The transfer of
the Senior Notes may be registered and the Senior Notes may be exchanged
as provided in the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture. The Company need
not exchange or register the transfer of any Senior Note or portion of a
Senior Note selected for redemption, except for the unredeemed portion of
any Senior Note being redeemed in part. Also, it need not exchange or
register the transfer of any Senior Notes for a period of 15 days before
a selection of Senior Notes to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners.
The registered Holder of a Senior Note may be treated as its owner for
all purposes.
11. Amendment, Supplement and Waiver.
Subject to the following paragraph, the Indenture, the Senior Notes
and the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Senior Notes then outstanding (including, without limitation, consents
EXHIBIT A-1 -- Page 5
<PAGE>
obtained in connection with a purchase of or, tender offer or exchange
offer for Senior Notes), and any existing Default or Event of Default
(other than a Default or Event of Default in the payment of the principal
of, premium, if any, interest or Additional Interest, if any, on the
Senior Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of the
Indenture, the Senior Notes or the Subsidiary Guarantees may be waived
with the consent of the Holders of a majority in principal amount of the
then outstanding Senior Notes (including consents obtained in connection
with a tender offer or exchange offer for Senior Notes).
Without the consent of any Holder of Senior Notes, the Company and the
Trustee may amend or supplement the Indenture, the Subsidiary Guarantees
or the Senior Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes, to provide for the assumption of the Company's
or a Subsidiary Guarantor's obligations to Holders of Senior Notes in the
case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of Senior Notes or that
does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with the requirements of the Commission in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act or to allow any Subsidiary Guarantor to guarantee the
Senior Notes.
12. Defaults and Remedies.
Events of Default include: (i) default for 30 days in the payment when
due of interest on or Additional Interest, if any, with respect to the
Senior Notes; (ii) default in payment when due of the principal of or
premium, if any, on the Senior Notes; (iii) failure by the Company or any
Subsidiary to comply with the provisions described in Sections 3.09,
4.07, 4.08, 4.09, 4.15 or 5.01 of the Indenture; (iv) failure by the
Company or any Subsidiary for 60 days after notice from the Trustee or
the Holders of at least 25% in principal amount of the Senior Notes then
outstanding to comply with its other agreements in the Indenture or the
Senior Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of
their its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date hereof, which default
(A) (i) is caused by a failure to pay when due at final stated maturity
(giving effect to any grace period related thereto) any principal of or
premium, if any, or interest on such Indebtedness (a "Payment Default")
or (ii) results in the acceleration of such Indebtedness prior to its
express maturity and (B) in each case, the principal amount of any such
Indebtedness as to which a Payment Default shall have occurred, together
with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more and such default has not
been cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 30 days after written notice as provided in
the Indenture, or such acceleration shall not be rescinded or annulled
within 10 days after written notice as provided in the Indenture; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
paid discharged or stayed within 60 days after their entry; (vii) any
holder (or person acting on its behalf) of at least $5.0 million in
aggregate principal amount of Indebtedness of the Company or any of its
Restricted Subsidiaries shall, subsequent to the occurrence of a default
with respect to such Indebtedness and in accordance with the terms of the
document or agreement governing such Indebtedness, commence judicial
proceedings to foreclose upon assets of the Company or any of its
Restricted Subsidiaries having an aggregate fair market value in excess
of $5.0 million or shall have exercised any rights under applicable law
or applicable security documents to take ownership of any such assets in
lieu
EXHIBIT A-1 -- Page 6
<PAGE>
of foreclosure; (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Restricted Subsidiaries; and (ix)
the termination of the Subsidiary Guarantee of any Subsidiary Guarantor
for any reason not permitted by the Indenture, or the denial of any
Person acting on behalf of any Subsidiary Guarantor of its Obligations
under any such Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding
Senior Notes may declare all the Senior Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" and
the same shall become immediately due and payable. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary, all outstanding Senior Notes will become due and payable
without further action or notice. Holders of the Senior Notes may not
enforce the Indenture or the Senior Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Senior Notes may direct the
Trustee in its exercise of any trust or power. The Holders of a majority
in aggregate principal amount of the Senior Notes then outstanding, by
notice to the Trustee, may on behalf of the Holders of all of the Senior
Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in
the payment of interest or Additional Interest, if any, on, or principal
of, the Senior Notes. The Trustee may withhold from Holders of the Senior
Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal,
interest or Additional Interest, if any) if it determines that
withholding notice is in such Holders' interest. The Company is required
to deliver to the Trustee quarterly a statement regarding compliance with
the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. Trustee Dealings with Company.
The Trustee, in its individual or any other capacity, may make loans
to, accept deposits from, and perform services for the Company, the
Subsidiary Guarantors or their respective Affiliates, and may otherwise
deal with the Company, the Subsidiary Guarantors or their respective
Affiliates, as if it were not the Trustee.
14. No Recourse Against Others.
No director, officer, employee, incorporator or stockholder, of the
Company or any Subsidiary Guarantor, as such, shall have any liability
for any obligations of the Company or any Subsidiary Guarantor under the
Senior Notes, the Indenture or the Subsidiary Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Senior Notes by accepting a Senior Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Notes and any Subsidiary
Guarantee.
15. Authentication.
This Senior Note shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.
EXHIBIT A-1 -- Page 7
<PAGE>
16. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and
not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to Holders of the Senior Notes
under the Indenture, Holders of Transferred Restricted Securities (as
defined in the Registration Rights Agreement) shall have all the rights
set forth in the Registration Rights Agreement, dated as of the date of
the Indenture, among the Company, the Subsidiary Guarantors and the
Initial Purchaser (the "Registration Rights Agreement").
18. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Senior Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as
printed on the Senior Notes or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers
placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Talton Holdings, Inc.
611 S.W. Third Street
Lee's Summit, Missouri 64063
Telecopy: (816) 525-3006
Attention: Chief Financial Officer
EXHIBIT A-1 -- Page 8
<PAGE>
Assignment Form
To assign this Senior Note, fill in the form below: (I) or (we) assign and
transfer this Senior Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Senior Note on the books of the Company. The agent may
substitute another to act for him.
Date:
-----------------
Your Signature:
------------------------------
(Sign exactly as your name appears on the face
of this Senior Note)
Signature Guarantee:
EXHIBIT A-1 -- Page 9
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Senior Note purchased by the Company
pursuant to Section 4.09 or 4.15 of the Indenture, check the box below:
[ ] Section 4.09 [ ] Section 4.15
If you want to elect to have only part of the Senior Note purchased by the
Company pursuant to Section 4.09 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date: Your Signature:
---------------------------- ---------------------
(Sign exactly as your name
appears on the Senior Note)
Tax Identification No.:
-------------
Signature Guarantee:
EXHIBIT A-1 -- Page 10
<PAGE>
SCHEDULE OF EXCHANGES OF SENIOR NOTES/3/
The following exchanges of a part of this Global Note for other Senior Notes
have been made:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Date of Exchange Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Principal Amount of this Principal Amount of this Global Note following officer of Trustee or
Global Note Global Note such decrease (or Senior Note Custodian
increase)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -----------------
/3/ This should be included only if the Senior Note is issued in global form.
EXHIBIT A-1 -- Page 11
<PAGE>
Exhibit A-2
-------
(Face of Regulation S Temporary Global Note)
11% Senior Notes due 2007, Series [A/B]
No. ___ $_______________
CUSIP NO. U83095 AA 4
TALTON HOLDINGS, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of No
Dollars on June 30, 2007.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
Dated: June 27, 1997
Talton Holdings, Inc.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
This is one of the Senior Notes
referred to in the
within-mentioned Indenture:
Dated: June 27, 1997
U.S. Trust Company of Texas, N.A.,
as Trustee
By:
------------------------------
EXHIBIT A-2 -- Page 1
<PAGE>
(Back of Regulation S Temporary Global Note)
11% Senior Note due 2007, Series [A/B]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SENIOR NOTES IN
DEFINITIVE FORM, THIS SENIOR NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"),TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
OF THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) or (7) OF THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
SENIOR NOTES LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SENIOR NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON PRIOR TO THE
EXHIBIT A-2 -- Page 2
<PAGE>
EXCHANGE OF THIS SENIOR NOTE FOR A REGULATION S TEMPORARY GLOBAL NOTE AS
CONTEMPLATED BY THE INDENTURE.
Talton Holdings, Inc., a Delaware corporation, or its successor (the
"Company"), promises to pay interest on the principal amount of this Senior Note
at the rate of 11.0% per annum and shall pay the Additional Interest, if any,
payable pursuant to Section 5 of the Registration Rights Agreement referred to
below. The Company will pay interest and Additional Interest, if any, in United
States dollars semi-annually in arrears on each January 1 and July 1, commencing
on January 1, 1998, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Senior Notes shall accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance; provided that
if there is no existing Default or Event of Default in the payment of interest,
and if this Senior Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date, except in the case of
the original issuance of Senior Notes, in which case interest shall accrue from
the date of authentication. The Company shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Senior Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Additional Interest (without regard to any
applicable grace period) at the same rate to the extent lawful. Interest shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
This Regulation S Temporary Global Note is issued in respect of an issue of
11% Senior Notes due 2007 (the "Senior Notes") of the Company, limited to
$115,000,000 in aggregate principal amount, plus amounts, if any, sufficient to
pay premium, if any, interest or Additional Interest, if any on outstanding
Senior Notes. The Company issued Senior Notes under an Indenture (as amended or
supplemented from time to time, the "Indenture") dated as of June 27, 1997,
among the Company, the Subsidiary Guarantors and U.S. Trust Company of Texas,
N.A., as trustee (the "Trustee"). This Regulation S Temporary Global Note is
governed by the terms and conditions of the Indenture governing the Senior
Notes, which terms and conditions are incorporated herein by reference and,
except as otherwise provided herein, shall be binding on the Company and the
Holder hereof as if fully set forth herein. Unless the context otherwise
requires, the terms used herein shall have the meanings specified in the
Indenture.
Until this Regulation S Temporary Global Note is exchanged for Regulation S
Permanent Global Notes, the Holder hereof shall not be entitled to receive
payments of interest and Additional Interest, if any, hereon although interest
and Additional Interest, if any, will continue to accrue; until so exchanged in
full, this Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Senior Notes under the Indenture.
This Regulation S Temporary Global Note is exchangeable in whole or in part
for one or more Regulation S Permanent Global Notes or 144A Global Notes only
(i) on or after the termination of the 40-day restricted period (as defined in
Regulation S) and (ii) upon presentation of certificates (accompanied by an
Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Regulation S
Permanent Global Notes or 144A Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This
Regulation S Temporary Global Note shall be governed by and construed in
accordance with the laws of the State of the New York. All references to "$,"
"Dollars," "dollars" or "U.S. $" are to such coin or
EXHIBIT A-3 -- Page 3
<PAGE>
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts therein.
EXHIBIT A-2 -- Page 4
<PAGE>
SCHEDULE OF EXCHANGES FOR GLOBAL NOTES
The following exchanges of a part of this Regulation S Temporary Global Note for
other Global Notes have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Amount of decrease in Amount of increase in Principal Amount of this Signature of
Principal Amount Principal Amount Global Note authorized officer of
of this Global of this Global following such decrease Trustee or Senior Note
Date of Exchange Note Note (or increase) Custodian
- ------------------ --------------------- --------------------- ------------------------- ----------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
EXHIBIT A-2 -- Page 5
<PAGE>
Exhibit B-1
-------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(i) of the Indenture)
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
Re: 11% Senior Notes due 2007 of Talton Holdings, Inc.
Reference is hereby made to the Indenture, dated as of June 27, 1997 (as
amended or supplemented from time to time, the "Indenture"), among Talton
Holdings, Inc. (the "Company"), AmeriTel Pay Phones, Inc. ("AmeriTel"), Talton
Telecommunications Corporation ("Talton Telecommunications"), Talton
Telecommunications of Carolina, Inc. ("Talton of Carolina"), Talton STC, Inc.
("Talton STC" and, together with AmeriTel, Talton Telecommunications and Talton
of Carolina, the "Subsidiary Guarantors") and U.S. Trust Company of Texas, N.A.,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $ _______________ principal amount of Senior Notes
which are evidenced by one or more 144A Global Notes and held with the
Depository in the name of _______________ (the "Transferor"). The Transferor
has requested a transfer of such beneficial interest in the Senior Notes to a
Person who will take delivery thereof in the form of an equal principal amount
of Senior Notes evidenced by one or more Regulation S Global Notes, which
amount, immediately after such transfer, is to be held with the Depository
through Euroclear or Cedel or both.
In connection with such request and in respect of such Senior Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
hereby further certifies that:
(1) The offer of the Senior Notes was not made to a person in the United
States;
(2) either:
(a) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting
on its behalf reasonably believed and believes that the
transferee was outside the United States; or
(b) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; and
<PAGE>
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depository
through Euroclear or Cedel or both.
Upon giving effect to this request to exchange a beneficial interest in a
144A Global Note for a beneficial interest in a Regulation S Global Note, the
resulting beneficial interest shall be subject to the restrictions on transfer
applicable to Regulation S Global Notes pursuant to the Indenture and the
Securities Act and, if such transfer occurs prior to the end of the 40-day
restricted period associated with the initial offering of Senior Notes, the
additional restrictions applicable to transfers of interest in the Regulation S
Temporary Global Note.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and CIBC Wood
Gundy Securities Corp., the initial purchaser of such Senior Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated:
------------------------
cc: Talton Holdings, Inc.
CIBC Wood Gundy Securities Corp.
EXHIBIT B-1 -- Page 2
<PAGE>
Exhibit B-2
-------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
Re: 11% Senior Notes due 2007 of Talton Holdings, Inc.
Reference is hereby made to the Indenture dated as of June 27, 1997 (as
amended or supplemented from time to time, the "Indenture"), among Talton
Holdings, Inc. (the "Company"), AmeriTel Pay Phones, Inc. ("AmeriTel"), Talton
Telecommunications Corporation ("Talton Telecommunications"), Talton
Telecommunications of Carolina, Inc. ("Talton of Carolina"), Talton STC, Inc.
("Talton STC" and, together with AmeriTel, Talton Telecommunications and Talton
of Carolina, the "Subsidiary Guarantors") and U.S. Trust Company of Texas, N.A.,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $_________ principal amount of Senior Notes which
are evidenced by one or more Regulation S Global Notes and held with the
Depository through Euroclear or Cedel in the name of (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Senior
Notes to a Person who will take delivery thereof in the form of an equal
principal amount of Senior Notes evidenced by one or more 144A Global Notes, to
be held with the Depository.
In connection with such request and in respect of such Senior Notes, the
Transferor hereby certifies that:
[CHECK ONE]
[ ] such transfer is being effected pursuant to and in accordance with Rule 144A
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
Senior Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Senior Notes for its own account, or
for one or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A;
or
[ ] such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
[ ] such transfer is being effected pursuant to an exemption under the
Securities Act other than Rule 144A, Rule 144 or Rule 904 and the Transferor
further certifies that the Transfer complies with the transfer restrictions
applicable to beneficial interests in Global Notes and Definitive Senior
Notes bearing the
EXHIBIT B-2 -- Page 1
<PAGE>
Private Placement Legend and the requirements of the exemption claimed,
which certification is supported by (x) if such transfer is in respect of a
principal amount of Senior Notes at the time of Transfer of $100,000 or
more, a certificate executed by the Transferee in the form of Exhibit C to
---------
the Indenture, or (y) if such Transfer is in respect of a principal amount
of Senior Notes at the time of transfer of less than $100,000, (1) a
certificate executed in the form of Exhibit C to the Indenture and (2) an
---------
Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
(1) such Transfer is in compliance with the Securities Act and (2) such
Transfer complies with any applicable blue sky securities laws of any state
of the United States;
or
[ ] such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or Rule
144, and the Transferor hereby further certifies that the Senior Notes are
being transferred in compliance with the transfer restrictions applicable to
the Global Notes and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel, provided
by the transferor or the transferee (a copy of which the Transferor has
attached to this certification) in form reasonably acceptable to the Company
and to the Registrar, to the effect that such transfer is in compliance with
the Securities Act;
and such Senior Notes are being transferred in compliance with any applicable
blue sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a beneficial interest in 144A Global Senior Notes,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to 144A Global Notes pursuant to the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and CIBC Wood
Gundy Securities Corp., the initial purchaser of such Senior Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated:
----------------------
cc: Talton Holdings, Inc.
CIBC Wood Gundy Securities Corp.
EXHIBIT B-2 -- Page 2
<PAGE>
Exhibit B-3
-------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE SENIOR NOTES
(Pursuant to Section 2.06(b) of the Indenture)
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
Re: 11% Senior Notes due 2007 of Talton Holdings, Inc.
Reference is hereby made to the Indenture dated as of June 27, 1997 (as
amended or supplemented from time to time, the "Indenture"), among Talton
Holdings, Inc. (the "Company"), AmeriTel Pay Phones, Inc. ("AmeriTel"), Talton
Telecommunications Corporation ("Talton Telecommunications"), Talton
Telecommunications of Carolina, Inc. ("Talton of Carolina"), Talton STC, Inc.
("Talton STC" and, together with AmeriTel, Talton Telecommunications and Talton
of Carolina, the "Subsidiary Guarantors") and U.S. Trust Company of Texas, N.A.,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This relates to $ ___________ principal amount of Senior Notes which are
evidenced by one or more Definitive Senior Notes in the name of
__________________ (the "Transferor"). The Transferor has requested an
exchange or transfer of such Definitive Senior Note(s) in the form of an equal
principal amount of Senior Notes evidenced by one or more Definitive Senior
Notes, to be delivered to the Transferor or, in the case of a transfer of such
Senior Notes, to such Person as the Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Notes"), the Holder of such Surrendered Senior Notes hereby certifies that:
[CHECK ONE]
[ ] the Surrendered Senior Notes are being acquired for the Transferor's own
account, without transfer;
or
[ ] the Surrendered Senior Notes are being transferred to the Company;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Senior Notes are being transferred
to a Person that the Transferor reasonably believes is purchasing the
Surrendered Senior Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A;
EXHIBIT B-3 -- Page 1
<PAGE>
or
[ ] the Surrendered Senior Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to an
exemption under the Securities Act other than Rule 144A, Rule 144 or Rule
904 and the Transferor further certifies that the Transfer complies with
the transfer restrictions applicable to beneficial interests in Global
Notes and Definitive Senior Notes bearing the Private Placement Legend and
the requirements of the exemption claimed, which certification is
supported by (x) if such transfer is in respect of a principal amount of
Senior Notes at the time of Transfer of $100,000 or more, a certificate
executed by the Transferee in the form of Exhibit C to the Indenture, or
---------
(y) if such Transfer is in respect of a principal amount of Senior Notes
at the time of transfer of less than $100,000, (1) a certificate executed
in the form of Exhibit C to the Indenture and (2) an Opinion of Counsel
---------
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that (1)
such Transfer is in compliance with the Securities Act and (2) such
Transfer complies with any applicable blue sky securities laws of any
state of the United States;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to an
effective registration statement under the Securities Act;
or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Senior
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Senior Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
EXHIBIT B-3 -- Page 2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and CIBC Wood
Gundy Securities Corp., the initial purchaser of such Senior Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
--------------------------------------
Name:
Title:
Dated:
-------------------
cc: Talton Holdings, Inc.
CIBC Wood Gundy Securities Corp.
EXHIBIT B-3 -- Page 3
<PAGE>
Exhibit B-4
-------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR NOTE
(Pursuant to Section 2.06(c) of the Indenture)
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
Re: 11% Senior Notes due 2007 of Talton Holdings, Inc.
Reference is hereby made to the Indenture dated as of June 27, 1997 (as
amended or supplemented from time to time, the "Indenture"), among Talton
Holdings, Inc. (the "Company"), AmeriTel Pay Phones, Inc. ("AmeriTel"), Talton
Telecommunications Corporation ("Talton Telecommunications"), Talton
Telecommunications of Carolina, Inc. ("Talton of Carolina"), Talton STC, Inc.
("Talton STC" and, together with AmeriTel, Talton Telecommunications and Talton
of Carolina, the "Subsidiary Guarantors") and U.S. Trust Company of Texas, N.A.,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________ principal amount of Senior Notes which
are evidenced by a beneficial interest in one or more 144A Global Notes or
Regulation S Permanent Global Notes in the name of ____________________ (the
"Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest in the form of an equal principal amount of Senior Notes
evidenced by one or more Definitive Senior Notes, to be delivered to the
Transferor or, in the case of a transfer of such Senior Notes, to such Person as
the Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Notes"), the Holder of such Surrendered Senior Notes hereby certifies that:
[CHECK ONE]
[ ] the Surrendered Senior Notes are being transferred to the beneficial owner
of such Senior Notes;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Senior Notes are being transferred
to a Person that the Transferor reasonably believes is purchasing the
Surrendered Senior Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting
they requirements of Rule 144A;
or
EXHIBIT B-4 -- PAGE 1
<PAGE>
[ ] the Surrendered Senior Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to an
effective registration statement under the Securities Act;
or
[ ] the Surrendered Senior Notes are being transferred pursuant to an
exemption under the Securities Act other than Rule 144A, Rule 144 or Rule
904 and the Transferor further certifies that the Transfer complies with
the transfer restrictions applicable to beneficial interests in Global
Notes and Definitive Senior Notes bearing the Private Placement Legend and
the requirements of the exemption claimed, which certification is
supported by (x) if such transfer is in respect of a principal amount of
Senior Notes at the time of Transfer of $100,000 or more, a certificate
executed by the Transferee in the form of Exhibit C to the Indenture, or
---------
(y) if such Transfer is in respect of a principal amount of Senior Notes
at the time of transfer of less than $100,000, (1) a certificate executed
in the form of Exhibit C to the Indenture and (2) an Opinion of Counsel
---------
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that (1)
such Transfer is in compliance with the Securities Act and (2) such
Transfer complies with any applicable blue sky securities laws of any
state of the United States;
or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Senior
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Senior Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
EXHIBIT B-4 -- Page 2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and CIBC Wood
Gundy Securities Corp., the initial purchaser of such Senior Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------------------------
Name:
Title:
Dated:
-----------------------
cc: Talton Holdings, Inc.
CIBC Wood Gundy Securities Corp.
EXHIBIT B-4 -- Page 3
<PAGE>
Exhibit C
---------
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
U.S. Trust Company of Texas, N.A.
2001 Ross Ave., Suite 2700
Dallas, Texas 75201
Attention: Corporate Trust Department
Re: 11% Senior Notes due 2007 of Talton Holdings, Inc.
Reference is hereby made to the Indenture, dated as of June 27, 1997
(as amended or supplemented from time to time, the "Indenture"), among Talton
---------
Holdings, Inc., as issuer, AmeriTel Pay Phones, Inc., Talton Telecommunications
Corporation, Talton Telecommunications of Carolina, Inc., Talton STC, Inc. and
U.S. Trust Company of Texas, N.A., as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $__________ aggregate
principal amount of:
(a) [ ] Beneficial interests, or
(b) [ ] Definitive Senior Notes,
we confirm that:
1. We understand that any subsequent transfer of the Senior Notes of
any interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Senior Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Senior Notes have
not been registered under the Securities Act, and that the Senior Notes and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which
we are acting as hereinafter stated, that if we should sell the Senior Notes or
any interest therein, (A) we will do so only (1)(a) to a person who the Seller
reasonably believes is a qualified institutional buyer (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of 144A, (b)
in a transaction meeting the requirements of Rule 144 under the Securities Act,
(c) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 of the Securities Act, (d) to an institutional
"Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of the
Securities Act (an "Institutional Accredited Investor")) that, prior to such
transfer, furnishes the Trustee a signed letter to the effect set forth herein
and, if such transfer is in respect of an aggregate principal amount of Senior
Notes less than $100,000, an opinion of counsel acceptable to the Company that
such transfer is in compliance with the Securities Act or (e) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel), (2) to the Company or any of its subsidiaries
or (3) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any State of the
EXHIBIT C - Page 1
<PAGE>
United States or any other applicable jurisdiction and (B) we will, and each
subsequent holder will be required to, notify any purchaser from it of the
security evidenced hereby of the resale restrictions set forth in (A) above."
3. We understand that, on any proposed resale of the Senior Notes or
beneficial interests, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Senior Notes purchased by us will
bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Senior Notes, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment.
5. We are acquiring the Senior Notes or beneficial interests therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
6. We are not acquiring the Senior Notes with a view to any
distribution thereof that would violate the Securities Act or the securities
laws of any State of the United States.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
______________________________
[Insert Name of Accredited Investor]
By:
-----------------------------------
Name:
Title:
Dated: ______________, ____
cc: Talton Holdings, Inc.
CIBC Wood Gundy Securities Corp.
EXHIBIT C - Page 2
<PAGE>
Exhibit D
-------
SUBSIDIARY GUARANTEE
Each Subsidiary Guarantor hereby, jointly and severally, unconditionally
guarantees to each Holder of a Senior Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture dated as of June 27, 1997 among the
Company, the Subsidiary Guarantors and the Trustee (as amended or supplemented
from time to time, the "Indenture"), the Senior Notes and the Obligations of the
Company under the Senior Notes or under the Indenture, that: (a) the principal
of, premium, if any, interest and Additional Interest, if any, on the Senior
Notes will be promptly paid in full when due, subject to any applicable grace
period, whether at maturity, by acceleration, redemption or otherwise, and
interest on overdue principal, premium, if any, (to the extent permitted by law)
interest on any interest, if any, and Additional Interest, if any, on the Senior
Notes and all other payment Obligations of the Company to the Holders or the
Trustee under the Indenture or under the Senior Notes will be promptly paid in
full and performed, all in accordance with the terms thereof; and (b) in case of
any extension of time of payment or renewal of any Senior Notes or any of such
other payment Obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, subject to
any applicable grace period, whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when so due of any amount so
guaranteed or any performance so guaranteed for whatever reason, the Subsidiary
Guarantors will be jointly and severally obligated to pay the same immediately.
The obligations of the Subsidiary Guarantor to the Holders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 10 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee. The terms of
Articles 10 of the Indenture are incorporated herein by reference. This
Subsidiary Guarantee is subject to release as and to the extent provided in
Section 10.04 of the Indenture.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon each Subsidiary Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Senior Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
Subsidiary Guarantee of payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
For purposes hereof, each Subsidiary Guarantor's liability shall be limited
to the lesser of (i) the aggregate amount of the Obligations of the Company
under the Senior Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term
is defined in the Bankruptcy Law and in the Debtor and Creditor Law of the State
of New York) or (B) left such Subsidiary Guarantor with unreasonably small
capital at the time its Subsidiary Guarantee of the Senior Notes was entered
into; provided that, it will be a presumption in any lawsuit or other proceeding
in which a Subsidiary Guarantor is a party that the amount guaranteed pursuant
to the Subsidiary Guarantee is the amount set forth in clause (i) above unless
any creditor, or representative of creditors of such Subsidiary Guarantor, or
debtor in possession or trustee in bankruptcy of such Subsidiary Guarantor,
otherwise proves in such a lawsuit that the aggregate liability of the
Subsidiary Guarantor is limited to the amount set forth in clause (ii) above.
The Indenture provides that, in making any determination as to the solvency or
sufficiency of capital
EXHIBIT D - Page 1
<PAGE>
of a Subsidiary Guarantor in accordance with the previous sentence, the right of
such Subsidiary Guarantors to contribution from other Subsidiary Guarantors and
any other rights such Subsidiary Guarantors may have, contractual or otherwise,
shall be taken into account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
Dated as of June 27, 1997 AmeriTel Pay Phones, Inc.
By:
-----------------------------------------
Name:
Title:
Dated as of June 27, 1997 Talton Telecommunications Corporation
By:
-----------------------------------------
Name:
Title:
Dated as of June 27, 1997 Talton Telecommunications of Carolina, Inc.
By:
-----------------------------------------
Name:
Title:
Dated as of June 27, 1997 Talton STC, Inc.
By:
-----------------------------------------
Name:
Title:
EXHIBIT D - Page 2
<PAGE>
Exhibit E
-------
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of
___________, _____ between _______________________, a ____________ corporation
(the "New Subsidiary Guarantor"), a subsidiary of Talton Holdings, Inc., a
Delaware corporation (the "Company"), and U.S. Trust Company of Texas, N.A., as
trustee under the indenture referred to below (the "Trustee"). Capitalized
terms used herein and not defined herein shall have the meaning ascribed to them
in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (as amended or supplemented from time to time, the "Indenture"),
dated as of June 27, 1997, providing for the issuance of an aggregate principal
amount of $115,000,000 of 11% Senior Notes due 2007 (the "Senior Notes");
WHEREAS, Section 10.05 of the Indenture provides that under certain
circumstances the Company may cause, and Sections 4.17, 5.01 and 10.03 of the
Indenture provide that under certain circumstances the Company must cause,
certain of its subsidiaries to execute and deliver to the Trustee a supplemental
indenture pursuant to which such subsidiaries shall unconditionally guarantee
all of the Company's Obligations under the Senior Notes pursuant to a Subsidiary
Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Senior Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The New Subsidiary Guarantor hereby
guarantees, jointly and severally with all other Subsidiary Guarantors, the
Company's Obligations under the Senior Notes and the Indenture on the terms and
subject to the conditions set forth in Article 10 of the Indenture and agrees to
be bound by all other applicable provisions of the Indenture.
3. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Senior Notes, any Subsidiary Guarantees,
the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Senior Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Senior Notes.
EXHIBIT E - Page 1
<PAGE>
4. New York Law to Govern. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ________________ [Name of New Subsidiary Guarantor]
By:
--------------------------------------
Name:
Title:
Dated: ________________ U.S. Trust Company of Texas, N.A.,
as Trustee
By:
--------------------------------------
Name:
Title:
EXHIBIT E - Page 2
<PAGE>
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT is entered into as of December 27, 1996 by
and among Talton Holdings, Inc., a Delaware corporation (the "Company") and the
Holders (herein so called) listed on Exhibit A attached hereto.
WHEREAS, the Company has agreed to issue the following securities (the
"Securities"): (i) Class A Common Stock, par value $0.01 per share, (ii) Class
B Common Stock, par value $0.01 per share which upon the occurrence of certain
events is convertible into shares of Class A Common Stock, (iii) Senior
Preferred Stock, par value $0.01 per share which is convertible into Class A
Common Stock and (iv) warrants to purchase shares of Class A Common Stock;
WHEREAS, each Holder has agreed to acquire the type of Securities set forth
opposite his name on Exhibit A attached hereto; and
---------
WHEREAS, the Company has agreed to register and qualify or cause the
registration and qualification of the shares of Class A Common Stock of the
Company held or to be held by the Holders (whether issued contemporaneously
herewith or acquired through the exercise of a conversion right or warrant) as
described in and pursuant to this Registration Rights Agreement (the
"Agreement");
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS. As used herein, the following terms shall have the following
meanings (all terms defined in this SECTION 1 or in other provisions of this
Agreement in the singular shall have the same meanings when used in the plural
and vice versa):
"AFFILIATE" with respect to any Person, shall mean (a) any other Person that
---------
directly, or indirectly, through one or more intermediaries, Controls, or is
Controlled by, or under common Control with such Person, (b) any director,
officer, or partner of such Person, or (c) any father, mother, brother, sister
or descendant of such Person. For purposes of this Agreement, none of the EUFCC
Holders, Talton Holders, CIBC or any of their respective Affiliates shall be
deemed to be an Affiliate of the Company.
"AMERITEL HOLDERS" means Terry C. Matlack, John R. Summers, Richard C. Green,
Jr., Robert K. Green, T. Randall Thompson, Roger K. Sallee, David P. Lorenz,
John C. Dunn, and John R. Baker, and their respective Affiliates.
"BUSINESS DAY" means any day on which commercial banks are not authorized or
required to close in New York, New York, and
-1-
<PAGE>
shall also include any legal holiday on which the National Market System of the
National Association of Securities Dealers Automated Quotation System is open
for trading on a regular basis.
"CIBC" means CIBC Wood Gundy Ventures, Inc. and its Affiliates.
"CLASS A COMMON STOCK" means the Company's authorized Class A Common Stock,
par value $0.01 per share, as constituted on the Closing Date, and any other
stock of the Company into which such Class A Common Stock may thereafter be
changed or which may be issued to the holders of shares of Class A Common Stock
upon any reclassification thereof; provided, however, in no event shall Class A
Common Stock be deemed to include any Junior Preferred Stock which may be
exchanged for Class A Common Stock.
"CLASS B COMMON STOCK" means the Company's authorized Class B Common Stock,
par value $0.01 per share, as constituted on the Closing Date, and all Class B
Common Stock issued upon transfer, division, combination thereof or substitution
therefor.
"CLOSING DATE" means December 27, 1996.
"COMMISSION" means the Securities and Exchange Commission or any successor
thereto.
"COMMON STOCK" means collectively the Class A Common Stock and the Class B
Common Stock.
"CONTROL," "CONTROLS," "CONTROLLED" and "CONTROLLING" with respect to any
------- -------- ---------- -----------
Person shall mean the ability to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
"CONVERSION SHARES" means the shares of Class A Common Stock issued or to be
issued upon the exercise of the Senior Preferred Stock's conversion right and/or
the Class B Common Stock's conversion right, and any other stock of the Company
into which such Class A Common Stock may thereafter be changed or which may be
issued to the holders of shares of Class A Common Stock upon any
reclassification thereof; provided, however, in no event shall Conversion Shares
be deemed to include any shares of Junior Preferred Stock.
"EUFCC HOLDERS" means Gregg L. Engles, Todd W. Follmer, Joseph P. Urso, and
their respective Affiliates.
-2-
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect on the date hereof, applied on a basis consistent with
those used in the preparation of the financial statements for the first fiscal
year of the Company ending after the Closing Date (except for changes concurred
in by the Company's independent public accountants).
"INITIAL PUBLIC OFFERING" means the initial registered public offering by the
Company under the Securities Act of the Class A Common Stock, which public
offering is made pursuant to a registration statement on Form S-1 or a successor
form.
"INITIATING HOLDERS" mean (i) any Holder or Holders of Registrable Securities
who in the aggregate hold not less than twenty-five percent (25%) of the
outstanding Registrable Securities or (ii) any Holder or Holders of Registrable
Securities, In the Money Warrants and/or any combination thereof who in the
aggregate hold (or will hold upon exercise) no less than twenty-five (25%) of
all outstanding Registrable Securities and In the Money Warrants, provided,
however, if the Talton Group is an Initiating Holder under clause (i) or (ii)
above in connection with any Demand Registration, the aforesaid twenty-five
percent (25%) threshold shall be increased to thirty-five percent (35%) for such
Demand Registration.
"IN THE MONEY WARRANTS" means as of any specified date, all options, warrants
or other securities or rights convertible into Common Stock for which the
exercise or conversion price is less than or equal to the Quoted Price as of
such date, provided that options, warrants or other securities or rights
convertible into Common Stock will not be considered as In the Money Warrants
unless at such time a Quoted Price exists for the Common Stock.
"JUNIOR PREFERRED STOCK" means the Company's junior preferred stock which may
be established and issued upon the unanimous consent of the Board of Directors
as provided in the Shareholders Agreement, and all junior preferred stock issued
upon transfer, division, or combination thereof or substitution therefor.
"ONYX HOLDERS" means Onyx Talton Partners, L.P. and Sachs Investment Partners,
and their respective Affiliates.
"PERSON" means an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"PREFERRED STOCK" means collectively the Senior Preferred Stock and the Junior
Preferred Stock.
-3-
<PAGE>
"QUOTED PRICE" means the average of the per share reported price of the Common
Stock for the twenty (20) consecutive trading days before the date in question,
as last reported by Nasdaq National Market, or if the Common Stock is listed on
a national securities exchange, the last reported sales price of the Common
Stock on such exchange (which shall be for consolidated trading if applicable to
such exchange), or if neither are so reported or listed, the last reported bid
price of the Common Stock. Notwithstanding the foregoing, there shall not be a
Quoted Price when the Common Stock is not publicly traded.
"REGISTRABLE SECURITIES" means (i) all Class A Common Shares, (ii) all
Warrant Shares, (iii) all Conversion Shares, and (iv) all Class A Common Stock
issued as a dividend or other distribution to the Holder with respect to, or in
exchange for, or in replacement of, any of the Warrant Shares or Conversion
Shares held by the Holder, including any other capital stock or other security
issued by the Company in a reclassification of the Class A Common Stock of the
Company (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation) after
the date of this Agreement. As to any particular Registrable Securities, once
issued such Registrable Securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale of such Registrable
Securities shall become effective under the Securities Act and such Registrable
Securities shall have been disposed of in accordance with such registration
statement, (ii) such Registrable Securities shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (iii) new certificates for such Registrable Securities not bearing a
legend restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
for them under the Securities Act or any similar state law then in force in the
State of Delaware or such other state in which the Company is domiciled, or (iv)
such Registrable Securities shall have ceased to be outstanding. In addition,
for the purpose of determining whether the holders of any requisite portion of
Registrable Securities have taken any action contemplated by this Agreement,
(a) a Person shall be deemed to hold Registrable Securities issuable upon
exercise of any Warrants or conversion of any Preferred Stock or Class B Common
Stock held by such Person, and (b) any Registrable Securities owned by the
Company or any Affiliate of the Company shall not be deemed outstanding.
Notwithstanding the above, "Registrable Securities" shall not mean or include
any (i) securities acquired by Holder in the public market or through any other
source or intermediary, (ii) Warrants, (iii) Preferred Stock or (iv) Class B
Common Stock.
"REGISTRATION", "REGISTER", "REGISTERED" means a registration effected by
preparing and filing a registration
-4-
<PAGE>
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" means any and all expenses incident to the
registration (including maintenance of the effectiveness of any registration, as
required under this Agreement) of the Registrable Securities pursuant to this
Agreement, including, without limitation, (a) all registration and filing fees
required by or payable to the Commission, any stock exchange or the National
Association of Securities Dealers, Inc. ("NASD"), including, if applicable, the
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained in accordance with the rules and regulations of
the NASD, (b) all fees and expenses to comply with state securities or blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters, if any, in connection with blue sky qualifications), (c) all
printing, messenger and delivery expenses, (d) all fees and disbursements of
counsel for the Company and the Company's independent public accountants,
including the expenses of any special audits and/or "cold comfort" or other
accountants' letters required by or incident to such registration, (e) fees and
disbursements of underwriters imposed on the Company by the underwriting
agreements to which the Company is a party and the reasonable fees and expenses
of any special experts retained in connection with the requested registration,
and (f) the fees and disbursements of counsel for the Holders of the Registrable
Securities. Notwithstanding the above, "Registration Expenses" does not mean or
include, and the Company shall not be liable under any circumstances for, the
following:
a. any expenses in connection with any amendment or supplement to the
Registration Statement or prospectus filed more than one-hundred eighty (180)
days after the effective date of such Registration Statement because any
Holder of Registrable Securities has not effected the disposition of the
securities requested to be registered except for such amendments or
supplements relating to a Shelf Registration (as defined in SECTION 2b.).
(Each Holder acknowledges that the Company shall have no obligation to Holder
to file any such amendment or supplement regardless of the obligation or
readiness of Holder to pay all expenses incurred in connection therewith.);
and
b. any fees, discounts, or commissions to any underwriter with respect to
any resales of securities by a Holder of Registrable Securities.
"RULE 144" means Rule 144 promulgated by the Commission under the Securities
Act, as such Rule may be amended from time to time, or any similar or successor
provision at any time in force.
-5-
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"SENIOR PREFERRED STOCK" mean the Company's Senior Preferred Stock, par value
$0.01 per share, as constituted on the Closing Date, and all Senior Preferred
stock issued upon transfer, division, or combination thereof or substitution
therefor.
"SHAREHOLDERS AGREEMENT" means that certain Shareholders Agreement of even
date herewith among the Company and all its shareholders and warrant holders.
"SHELF REGISTRATION" means a delayed or continuous Registration pursuant to
Rule 415 of the Securities Act.
"SUBSIDIARY" of any Person means any corporation or other entity of which at
least a majority of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by such Person.
"TALTON HOLDERS" means Julius Talton, Julius Talton, Jr., and James E.
Lumpkin, and their respective Affiliates.
"WARRANTS" shall mean the Warrants issued pursuant to those certain Warrant
Agreements of even date herewith between the Company and the warrant holders
named therein, and all Warrants issued upon transfer, division, combination
thereof or substitution therefor.
"WARRANT SHARES" means the shares of Class A Common Stock issued or to be
issued upon the exercise of the Warrants, and any other stock of the Company
into which such Class A Common Stock may thereafter be changed or which may be
issued to the holders of shares of Class A Common Stock upon any
reclassification thereof.
2. REGISTRATION.
------------
a. DEMAND REGISTRATION. Subject to SECTION 2g., if the Company shall
-------------------
receive from Initiating Holders at any time after the earlier to occur of six
(6) months after the Initial Public Offering by the Company, and November 30,
1998, a written request that the Company effect any registration ("Demand
Registration") with respect to all or a part of the Registrable Securities,
which notice will specify whether the registration will be an underwritten
offering the Company will:
(i) promptly give written notice of the proposed Demand Registration
to all other holders of Registrable Securities; and
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<PAGE>
(ii) as soon as practicable, use its best efforts to effect such
Demand Registration (including, without limitation, filing post-effective
amendments and appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act) in
such amount as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any holders
joining in such request as are specified in a written request received by the
Company within ten (10) days after such written notice is given by the
Company.
The Company shall be deemed to have effected a Demand Registration if
the registration statement relating to such Demand Registration is declared
effective by the Commission and remains effective for at least one-hundred
twenty (120) days; provided, however, that no Demand Registration shall be
-------- -------
deemed to have been effected if (i) such registration, after it has become
effective, is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason not attributable to the selling holders of Registrable Securities, or
(ii) the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied, unless such failure is directly or indirectly the result of
deliberate action or inaction on the part of the selling holders of Registrable
Securities.
Registrations under this SECTION 2a. shall be on such appropriate
registration form of the Commission (i) as shall be selected by the Company and
as shall be satisfactory to the holders of a majority of the Registrable
Securities requesting a Demand Registration and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in such holders' requests for such
Registration. If, in connection with any Registration under this SECTION 2a.
which is proposed by the Company to be on Form S-3 or any successor form to such
Form, the managing underwriter (if any) or holders of a majority of the
Registrable Securities requesting a Demand Registration shall advise the Company
in writing that in its opinion the use of another permitted form is of material
importance to the success of the offering, then such Registration shall be on
such other permitted form.
If a Demand Registration is to be an underwritten offering, the
holders of a majority of the Registrable Securities to be included in such
Demand Registration will select a managing underwriter or underwriters of
recognized national standing reasonably acceptable to the Company to administer
the offering and all holders of Registrable Securities included in such Demand
Registration shall enter into such underwriting agreement as the
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<PAGE>
holders of a majority of the Registrable Securities so included determine to be
appropriate.
The Company shall not be obligated to effect, or to take any action to
effect, any such Demand Registration pursuant to this SECTION 2a.:
(A) After the Company has effected three such Demand
Registrations pursuant to this SECTION 2a.;
(B) During the period starting with the date thirty (30) days
prior to the Company's good faith estimate of the date of filing of a
Company-initiated registration, and ending on a date one-hundred
eighty (180) days after the effective date of, the initial
Companyinitiated registration or ninety (90) days after the effective
date for any other type of registration under this SECTION 2a.;
provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective.
Subject to the foregoing clauses (A) and (B), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders; provided, however, that if (i) in the good faith
judgment of the Board of Directors of the Company, such registration would be
seriously detrimental on the ability of the Company to effect a pending or
contemplated financing, merger, sale of assets, recapitalization or other
similar corporate action of the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to such
holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental on the ability of the Company to effect such a transaction
for such registration statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing (except as provided in
clause (B) above) for a continuous period of not more than one-hundred twenty
(120) days after receipt of the request of the Initiating Holders, and,
provided, further, that the Company shall not defer its obligation in this
manner more than once in any twelve-month period.
Whenever the Company shall effect a Registration pursuant to this
SECTION 2a. in connection with an underwritten offering by one or more holders
of Registrable Securities, no securities other than Registrable Securities shall
be included
-8-
<PAGE>
among the securities covered by such Registration unless (a) the managing
underwriter of such offering shall have advised each holder of Registrable
Securities to be covered by such Registration in writing that the inclusion of
such other securities would not adversely affect such offering or (b) the
holders of a majority of all Registrable Securities to be covered by such
Registration shall have consented in writing to the inclusion of such other
securities.
b. DEMAND CUT BACKS. Subject to SECTION 2g., if the Company shall
----------------
effect a Registration pursuant to SECTION 2a. in connection with an underwritten
offering by one or more holders of Registrable Securities, and if the managing
underwriter of such offering shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting Registration) that, in its
opinion, the number of securities requested to be included in such Registration
exceeds the number which can be sold in such offering within a price range
acceptable to the selling holder(s) of a majority of the Registrable Securities
requested to be included in such Registration, the Company will include in such
Registration, to the extent of the number which the Company is so advised can be
sold in such offering, Registrable Securities requested to be included in such
Registration, selected pro rata from the Registrable Securities of the selling
holders requesting such Registration on the basis of the percentage of the total
amount of the Registrable Securities which such selling holders requested to be
so registered. In connection with any such Registration to which this paragraph
is applicable, no securities other than Registrable Securities shall be covered
by such Registration.
c. SHELF REGISTRATION. The Company shall proceed as expeditiously as
------------------
possible after it is eligible to file a Shelf Registration of Registrable
Securities under and in accordance with the provisions of the Securities Act, to
file a registration statement and use its best efforts to effect a Shelf
Registration of all Registrable Securities; provided, however, that the Company
shall be entitled to postpone for a reasonable period of time (not to exceed in
the aggregate a period of one-hundred twenty (120) days for all such
postponements pursuant to this SECTION 2c.) the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
SECTION 2c. if the Board of Directors of the Company shall determine in good
faith that disclosure required in connection with such registration respecting a
pending or contemplated financing, merger, sale of assets, recapitalization or
other similar corporate action of the Company could have a substantial and
adverse affect on the Company's ability to effect such a transaction. The
Company shall use best efforts to keep the Shelf Registration statement
effective until the sale of all shares of Common Stock covered thereby, and
shall comply with the provisions of the Securities Act with respect to the
disposition of all shares of Common Stock covered by such registration
statement; provided, however, that the Company shall be entitled to suspend
offers and sales under
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<PAGE>
the Shelf Registration statement for a reasonable period of time (not to exceed
in the aggregate a period of one-hundred twenty (120) days in any two years for
all such suspensions pursuant to this SECTION 2) if, at the time the Company
requests such suspension, the Board of Directors of the Company has determined
in good faith that disclosures required in connection with such registration
respecting a pending or contemplated financing, merger, sale of assets,
recapitalization or other similar corporate action of the Company could have a
substantial and adverse affect on the Company's ability to effect such a
transaction.
The holders of Registrable Securities shall (i) cooperate with the
Company in preparing such Shelf Registration and (ii) promptly supply the
Company with all information and representations as it may deem reasonably
necessary in connection with such Shelf Registration.
The Company shall not be required to effect a registration pursuant to
this SECTION 2c. unless such registration can be made on Form S-3 or any
successor form to such Form.
In the event that during such time as any of the Registrable
Securities are registered pursuant to a Shelf Registration, any holders of such
Registrable Securities request that some or all of such Registrable Securities
be included in either a Demand Registration or a Piggyback Registration, the
Company will take such actions as may be necessary in accordance with applicable
law to permit such Registrable Securities to be so included, including without
limitation, causing such Registrable Securities to be deregistered under the
Shelf Registration concurrently with the effectiveness of the Demand
Registration or Piggyback Registration of such Registrable Securities.
d. PIGGYBACK REGISTRATION. Subject to SECTION 2g., if the Company, at
----------------------
any time following the Closing Date, proposes to register any Class A Common
Stock under the Securities Act (other than a Registration, pursuant to a
registration statement on Form S-4 or S-8 or any successor form, of securities
to be offered in a transaction of the type referred to in Rule 145 under the
Securities Act or to employees of the Company pursuant to any employee benefit
plan, respectively) for its own account, the Company will each such time
promptly, but not less than thirty (30) days prior to the filing date of such a
registration statement, give written notice to the Holders of its intention to
effect that registration and of the rights of the Holders under this Agreement
to participate therein ("Piggyback Registration"), which notice shall include a
list of jurisdictions in which the Company intends to qualify such securities
under applicable state securities laws or blue sky laws and the estimated filing
date for the registration statement. Upon the written request of any Holder
made within twenty (20) days after receipt of any such notice (which request
shall specify the number and class of Registrable Securities intended to be
disposed of by such
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<PAGE>
Holder), the Company will include in the Piggyback Registration (and any related
qualification under applicable state securities laws or blue sky laws) all
Registrable Securities which the Company has been so requested to register.
The Company shall be entitled, in its sole and absolute discretion, to terminate
any proposed registration initiated by it, to withdraw the registration
statement related to any such registration and to terminate any offering
involved in such terminated registration without the consent of any Holder
provided that the Company shall be liable for all out-of-pocket costs and
expenses of the Holders in connection with such terminated registration. Each
Holder shall be permitted to withdraw all or part of such securities from a
Piggyback Registration at any time prior to the declaration of the effectiveness
of such registration statement by the Commission with no cost to the Holder. No
Registration of Registrable Securities effected pursuant to a request under this
SECTION 2d. shall be deemed to have been effected pursuant to SECTION 2a. or
SECTION 2g. hereof or shall relieve the Company of its obligation to effect any
Registration upon request under SECTION 2a. or SECTION 2g. hereof.
e. UNDERWRITING. If any Demand Registration or Piggyback Registration
------------
for which the Company gives written notice under SECTION 2a., 2d. or 2g.
involves an underwriting, the Company shall so advise the Holders as part of
such written notice. In such case, the right of each Holder to participate in
an underwritten Registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities requested to be included in the underwriting to the
extent provided herein. All holders proposing to distribute their securities
through such underwriting (together with the Company and other holders, if any,
of securities of the Company participating therein) shall enter into an
underwriting agreement in customary form with the representative of the
underwriter(s) selected as provided in SECTION 2a. hereof. Prior to the
declaration of the effectiveness of the registration covering the Registrable
Securities to be registered in connection with such underwriting, each holder
participating therein shall take all steps necessary to exercise the Warrants if
Warrant Shares are to be included in the Registration, and to exercise the
conversion rights if Conversion Shares are to be included in the Registration.
If any Holder has not taken all steps necessary to exercise the Warrants into
Warrant Shares (or to convert into Conversion Shares) prior to the declaration
of effectiveness of the registration statement covering such securities, such
securities of such Holder shall be deemed to have been withdrawn from
registration and such Holder shall reimburse the Company for any Registration
Expenses incurred in the registration of such Registrable Securities being
withdrawn. After a registration statement covering the securities to be sold in
connection with such underwritten Registration has been declared effective by
the Commission, such securities shall be sold in accordance with the method of
distribution described therein. If a Holder exercises Warrants in order to
include
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<PAGE>
Warrant Shares in a Registration, and such Registration does not become
effective, such Holder may require the Company to nullify the exercise of the
Warrant, in which case the Company would return to the Holder the exercise price
which was paid by the Holder upon exercise of the Warrant and the Warrant in
exchange for the Holder's return of the Warrant Shares to the Company.
f. PIGGYBACK CUT BACKS. If the managing underwriter for an
-------------------
underwritten Registration advises the Company that, in its opinion, the number
of securities of a class sought to be included in such registration exceeds the
maximum number (the "Maximum Number") of securities of such class which can be
sold in an orderly manner in such offering within a price range reasonably
acceptable to the Company, the Company shall be entitled to reduce the aggregate
number of securities included in the registration to the Maximum Number, with
participation in the offering being allocated, subject to SECTION 2g., (i)
first, for the account of the Company; (ii) second, pro rata among all Holders
- ----- ------ --- ----
of Registrable Securities (other than the EUFCC Holders, the Talton Holders,
the AmeriTel Holders and the Onyx Holders) exercising piggyback registration
rights (based upon the number of securities sought to be registered by each such
Holder); (iii) third, among the EUFCC Holders, the Talton Holders, the AmeriTel
-----
Holders and the Onyx Holders exercising piggyback registration rights (based
upon the number of securities sought to be registered by each such Holder); and
(iv) fourth, and only if all of the securities with piggyback registration
------
rights requested for inclusion in such Registration have been so included, from
any other securities eligible for inclusion in such Registration.
g. CIBC OVERRIDE. For so long as CIBC shall hold shares of
-------------
Registrable Securities equating to at least fifty percent (50%) of its holdings
of Common Stock on the Closing Date, one of the Demand Registrations provided in
SECTION 2a. above shall be exclusively reserved for the use and exercise by CIBC
(the "CIBC Demand"). In the event the Company shall receive a request for
Demand Registration from any Initiating Holders (other than CIBC) at any time
the CIBC Demand remains outstanding, the Company shall promptly notify CIBC of
such requested Demand Registration, and the Company shall take no action with
respect thereto for a period of ten (10) days. During such ten (10) day period,
CIBC shall have the right to exercise the CIBC Demand in accordance with SECTION
2a. and this SECTION 2g. and thereby preempt the Demand Registration of the
Initiating Holders. The Company shall thereupon act upon the CIBC Demand in
accordance with SECTION 2a. (but subject to the priority set forth in the next
paragraph) and the Demand Registration of the Initiating Holders shall be deemed
automatically withdrawn (but still available for subsequent exercise) by the
Initiating Holders.
In the event CIBC exercises the CIBC Demand, notwithstanding any
contrary provisions in SECTION 2b., CIBC shall have a first priority to cause to
be registered pursuant to the CIBC Demand (prior to any opportunity to register
Registrable
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<PAGE>
Securities of any other Holder other than under SECTION 2c.) a number of its
Registrable Securities up to the amount of Registrable Securities necessary to
cause the remaining Registrable Securities then held by CIBC and not so
registered to equate to the number of Registrable Securities held by Regent
Capital Equity Partners, L.P. on the Closing Date. If after satisfying the
foregoing requirements any availability exists to register Registrable
Securities of the other Holders, such availability shall first be allocated on a
pro rata basis among the Holders (other than the EUFCC Holders, the Talton
Holders, the AmeriTel Holders and the Onyx Holders), desiring to register their
Registrable Securities, and then allocated on a pro rata basis among the EUFCC
Holders, the Talton Holders, the AmeriTel Holders and the Onyx Holders desiring
to register their Registrable Securities.
The Company will, following receipt of a written request from CIBC,
use its best efforts to effect the Initial Public Offering and will promptly
give written notice to the Holders of its intention to effect such offering and
of the rights of the Holders under this Agreement to participate therein, which
notice shall include a list of jurisdictions in which the Company intends to
qualify such securities under applicable state securities laws or blue sky laws
and the estimated filing date for the registration statement. Upon the written
request of any Holder made within twenty (20) days after receipt of any such
notice (which request shall specify the number and class of Registrable
Securities intended to be disposed of by such Holder), the Company will include
in such Registration (and any related qualification under applicable state
securities laws or blue sky laws) all Registrable Securities which the Company
has been so requested to register.
The Company, however, shall be entitled to postpone for a reasonable
period of time (not to exceed in the aggregate a period of one-hundred twenty
(120) days for all such postponements pursuant to the foregoing request) the
filing of any registration statement otherwise required to be prepared and filed
by it pursuant to the foregoing request if (i) in the good faith judgment of the
Board of Directors of the Company, such registration would be seriously
detrimental on the ability of the Company to effect a pending or contemplated
financing, merger, sale of assets, recapitalization or other similar corporate
action of the Company and the Board of Directors of the Company concludes, as a
result, that it is essential to defer the filing of such registration statement
at such time, and (ii) the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental on
the ability of the Company to effect such a transaction for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement.
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<PAGE>
Each Holder shall be permitted to withdraw all or part of such
securities from such Registration at any time prior to the declaration of the
effectiveness of such registration statement by the Commission with no cost to
the Holder. In connection with any piggyback registration on the Initial Public
Offering requested pursuant to this SECTION 2g., CIBC shall have a first
priority to cause to be registered (prior to any opportunity to register
Registrable Securities of any other Holder) a number of its Registrable
Securities up to the amount of Registrable Securities necessary to cause the
remaining Registrable Securities then held by CIBC and not so registered to
equate to the number of Registrable Securities held by Regent Capital Equity
Partners, L.P. on the Closing Date. If after satisfying the foregoing
requirements any availability exists to register Registrable Securities of the
other Holders, such availability shall first be allocated on a pro rata basis
among the Holders (other than the EUFCC Holders, the Talton Holders, the
AmeriTel Holders and the Onyx Holders), desiring to register their Registrable
Securities, and then allocated on a pro rata basis among the EUFCC Holders, the
Talton Holders, the AmeriTel Holders and the Onyx Holders desiring to register
their Registrable Securities.
CIBC may request that the Company effect the Initial Public Offering
pursuant to this SECTION 2g. prior to November 28, 1998, but in connection
therewith CIBC shall not have the special piggyback priority rights set forth in
the preceding paragraph (and the piggyback rights set forth in SECTION 2d. shall
apply), provided that CIBC shall retain during the period following November 28,
1998, the CIBC Demand, with priority, provided in the first two paragraphs of
this SECTION 2g. If CIBC requests that the Company effect the Initial Public
Offering pursuant to this SECTION 2g. on or after November 28, 1998, CIBC shall
have the special piggyback priority rights set forth in the preceding paragraph,
but CIBC shall lose its CIBC Demand.
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
-----------------------
this Agreement to notify holders of Registrable Securities of a proposed
registration of securities under the Securities Act, then, the Company will:
a. before filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to the holders of the Registrable
Securities covered by such registration statement and the underwriters, if any,
copies of all such documents proposed to be filed, which documents will be
subject to the review of such holders and underwriters, and the Company will not
file any registration statement or amendment thereto or any prospectus or any
supplement thereto to which the holders of a majority of the Registrable
Securities covered by such registration statement or the underwriters, if any,
shall reasonably object;
b. with such information promptly and timely furnished by each
Holder regarding the securities held by such Holder and
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<PAGE>
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action to be taken by
the Company, the Company shall prepare and file with the Commission a
registration statement with respect to such securities and use best efforts to
cause such registration statement to become and remain effective until such
securities have all been sold in accordance with the intended methods of
disposition disclosed in the registration statement;
c. furnish to each seller of securities and each underwriter, if
any, of the securities being sold by such seller such number of copies of such
registration statement and of each amendment and supplement therein, such number
of copies of the prospectus, including a preliminary prospectus and summary
prospectus, and such other documents, as such seller or underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such seller;
d. use best efforts to register or qualify the securities covered by
such registration statement under such other securities or blue sky laws of such
jurisdictions in the United States as a seller or underwriter shall reasonably
request, and do such other acts and things as may be necessary or advisable to
enable such seller and underwriter to consummate the public sale or other
disposition in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to execute or file
any general consent to service of process or be obligated to qualify to do
business under the laws of any jurisdiction where it has not previously done so;
e. notify each seller of any securities covered by such registration
statement (1) when the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the registration statement or any
post-effective amendment, when the same has become effective, (2) of any request
by the Commission for amendments or supplements to the registration statement or
the prospectus or for additional information, (3) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (4) if at any
time the representations and warranties of the Company contemplated by paragraph
(i) below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (6) at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of
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<PAGE>
any such seller promptly prepare and furnish to such seller a reasonable number
of copies of a prospectus supplemented or amended so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
f. otherwise to comply with all applicable rules and regulations of
the Commission;
g. use reasonable efforts to list such securities on any securities
exchange on which the Class A Common Stock of the Company is then listed, if the
listing of such securities is then permitted under the rules of such exchange or
to be quoted on the Nasdaq National Market System or Nasdaq SmallCap Market
System;
h. provide a transfer agent and registrar for all the securities
covered by such registration statement not later than the effective date of such
registration statement;
i. enter into such underwriting, indemnity or similar agreements with
the underwriters in customary form and take such other actions as may be
reasonably necessary in order to expedite or facilitate the disposition of such
securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
1. make such representations and warranties to the holders of such
Registrable Securities and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in primary
underwritten offerings;
2. obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the holders
of a majority of the Registrable Securities being sold) addressed to each
selling holder and the underwriters, if any, covering the matters customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such holders and underwriters;
3. obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters
to be in customary form and covering matters of the type customarily covered
in "cold comfort" letters by underwriters in connection with primary
underwritten offerings;
4. if an underwriting agreement is entered into, use its reasonable
efforts to cause the same to set forth in full
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<PAGE>
the indemnification provisions and procedures of SECTION 4 hereof with
respect to all parties to be indemnified pursuant to said Section; and
5. deliver such documents and certificates as may be reasonably
requested by the holders of a majority of the Registrable Securities being
sold and the managing underwriters, if any, to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
The above shall be done at the effectiveness of such registration statement,
each closing under any underwriting or similar agreement as and to the extent
required thereunder and from time to time as may be reasonably requested by any
selling holder in connection with the disposition of Registrable Securities
pursuant to such registration statement;
j. make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment;
k. if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, immediately incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
amount of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment;
l. cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriter may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
m. not later than the effective date of the applicable registration
statement, provide a CUSIP number for all Registrable Securities and provide the
applicable transfer agent with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
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<PAGE>
n. make available for inspection by a representative of the holders of
a majority of the Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney or
accountant retained by the sellers or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the registration; provided that any records,
-------- ----
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order;
o. otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make generally available to its security
holders, earnings statements satisfying the provisions of SECTION 11a. of the
Securities Act, no later than forty-five (45) days after the end of any 12-month
period (or ninety (90) days, if such period is a fiscal year) (1) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in an underwritten offering, or, if not sold to underwriters in
such an offering, (2) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the registration
statement, which statements shall cover said 12-month periods;
p. cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
q. promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
(after initial filing of the registration statement) provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in SECTION 3e.(6) hereof, such
holder will forthwith
-18-
<PAGE>
discontinue disposition of Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by SECTION
3e.(6) hereof, or until it is advised in writing by the Company that the use of
the prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus, and,
if so directed by the Company, such holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time periods during such registration statement shall
be maintained effective shall be extended by the number of days during the
period from and including the date of the giving of such notice to and including
the date when each seller of Registrable Securities covered by such registration
statement either receives the copies of the supplemented or amended prospectus
contemplated by SECTION 3e.(6) hereof or is advised in writing by the Company
that the use of the prospectus may be resumed.
No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any Registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Agreement, or
otherwise.
4. INDEMNIFICATION.
---------------
a. INDEMNIFICATION BY THE COMPANY. To the extent permitted by
------------------------------
applicable law, the Company will indemnify each Holder of Registrable
Securities, each Affiliate of the Holder, each of the directors and officers of
such Affiliate of the Holder, and each person controlling such Affiliate (each,
an "Indemnified Person"), with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, against all claims,
losses, damages, costs, expenses (including reasonable costs of investigation
and legal expenses) and liabilities whatsoever (or actions in respect thereof)
arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other similar document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, or (ii) any violation by the Company
of the Securities Act or any state securities law or of any rule or regulation
promulgated under the Securities Act or any state securities law or any common
law or any other law applicable to the Company in connection with any such
registration, qualification or compliance, and will reimburse each Indemnified
Person for any legal and any other expenses reasonably incurred in connection
with investigating or defending
-19-
<PAGE>
any such claim, loss, damage, liability or action unless such action arises out
of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by any
Holder and stated to be specifically for use therein or furnished by any Holder
to the Company in response to a request by the Company stating specifically that
such information will be used by the Company therein. It is expressly
acknowledged that the Company shall not indemnify an Indemnified Person
otherwise entitled to indemnification hereunder if such Indemnified Person made
an untrue statement or failed to state a material fact in information furnished
in writing to the Company by such person expressly for use in a registration
statement and if the use of such information by the Company in connection with
its registration statement causes the claim, loss, damages, cost, expense or
liability for which indemnification is being sought.
b. INDEMNIFICATION BY THE HOLDER. To the extent permitted by
-----------------------------
applicable law, each Holder will, if Registrable Securities held by or issuable
to such Holder are included in the securities to which such registration,
qualification or compliance is being effected, severally indemnify the Company,
each of the directors and officers of the Company, each Affiliate of the
Company, each of the directors and officers of each Affiliate of the Company,
and each underwriter, if any, of the Company's securities covered by such
registration statement, and each person who controls the Company within the
meaning of the Securities Act against all claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other similar document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and will reimburse the Company, such directors, officers, persons or
underwriters for any legal or other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, cost, expense,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in strict conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein or furnished by the Holder
to the Company in response to a request by the Company stating specifically that
such information will be used by the Company therein. In no event shall the
liability of any selling Holder of Registrable Securities hereunder be greater
in amount than the dollar-amount of the
-20-
<PAGE>
proceeds received by such Holder upon the sale of Registrable Securities giving
rise to such indemnification obligation.
c. INDEMNIFICATION MECHANICS. Each party entitled to indemnification
-------------------------
under this SECTION 4 (the "Indemnified Party") shall give written notice to the
party or parties required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld). The failure of any Indemnified Party to
give notice as provided herein shall relieve the Indemnifying Party of its
obligations under this Agreement only to the extent that such failure to give
notice shall materially adversely prejudice the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. If any such Indemnified Party shall
have been advised by counsel chosen by it that there may be one or more legal
defenses available to such Indemnified Party that are different from or
additional to those available to the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense of such action on behalf of such
Indemnified Party and will reimburse such Indemnified Party and any person
controlling such Indemnified Party for the reasonable fees and expenses of any
counsel retained by the Indemnified Party, it being understood that the
Indemnifying Party shall not, in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for such Indemnified Party
or controlling person, which firm shall be designated in writing by the
Indemnified Party to the Indemnifying Party.
d. CONTRIBUTION. If the indemnification provided for in this SECTION
------------
4 is unavailable to an Indemnified Party (other than by reason of any exception
provided in SECTION 4a. OR 4b. hereof) in respect of any losses, claims,
damages, costs, expenses or liabilities for which such Indemnified Party is
entitled to be indemnified hereunder, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
costs, expenses or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, costs,
-21-
<PAGE>
expenses or liabilities, as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of losses, claims, damages, costs, expenses or liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in SECTION 4c., any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this SECTION 4d. were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in this SECTION 4d. No Person guilty of fraudulent
misrepresentation (within the meaning of SECTION 11f. of the Securities Act)
shall be entitled to contribution from any Person who is not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this SECTION
4d., a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the total amount by which the total price at
which the securities were sold by such holder or its Affiliates and distributed
to the public exceeds the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
5. REGISTRATION EXPENSES. The Company shall pay all Registration Expenses
---------------------
in connection with any Registration requested by Holder pursuant to SECTION 2.
The Company will also pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed, rating agency fees and the fees and expenses of any person,
including special experts, retained by the Company.
6. INFORMATION RIGHTS. Each Holder, if included in any Registration, shall
------------------
furnish to the Company such written information regarding Holder as the Company
may reasonably request in writing and as shall be required in connection with
any registration, qualification, or compliance referred to in this Agreement.
7. RULE 144 COVENANTS. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may permit the sale of
restricted securities to the public without registration, the Company agrees to:
-22-
<PAGE>
a. Make and keep available public information regarding the Company,
as those terms are understood and defined in Rule 144 under the Securities Act
(at all times from and after ninety (90) days following the effective date of
the first registration under Securities Act filed by the Company for an offering
of securities to the general public);
b. File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
c. Furnish to each Holder, as long as such Holder owns any Registrable
Securities or rights to acquire Warrant Shares or Conversion Shares, forthwith
upon written request (i) a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 (at all times from and after ninety
(90) days following the effective date of the first registration under
Securities Act filed by the Company for an offering of securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, and (iii) such other reports
and documents so filed as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
8. SALE DURING REGISTRATION. No Holder may sell any Class A Common Stock
------------------------
of the Company under Rule 144 or otherwise pursuant to a transaction exempt from
registration during the period beginning on the earlier of:
(a) ten (10) days prior to the date any registration statement is filed
with the Commission by the Company (provided that the Company provides to
Holder written notice of the Company's good faith intention to file a
registration statement on the date specified in such notice, all of which
information Holder agrees to maintain in strict confidence until such
registration statement shall be filed with the Commission); or
(b) the date of Holder's receipt of written notice from the Company that
the Company has filed a registration statement with the Commission on the
date specified in such notice as the filing date; or
(c) the termination of Holder's participation in the offering
contemplated by the registration statement filed by the Company;
and ending on the earlier of (i) ninety (90) days after the effective date of
such registration, (ii) one-hundred twenty (120) days after the date of filing
if such registration has not become
-23-
<PAGE>
effective by that time, or (iii) the date when any directors or executive
officers or other affiliate of the Company sell Class A Common Stock under Rule
144 or otherwise pursuant to a transaction exempt from registration.
Notwithstanding anything seemingly to the contrary set forth in this SECTION 8,
the restrictions on sale set forth in this Section shall not apply to (A) the
Shelf Registration, or (B) with respect to the CIBC Demand, to any Holder other
than the EUFCC Holders, the Onyx Holders, the AmeriTel Holders and Regent
Capital Equity Partners, L.P. (excluding Regent Capital Equity Partners, L.P.'s
permitted transferees and assigns), but in the case of this clause (B), such
sale restrictions on Regent Capital Equity Partners, L.P. shall not apply to an
amount of shares of Class A Common Stock equal to twenty-five percent (25%) of
the Class A Common Stock held by Regent Capital Equity Partners, L.P. on the
Closing Date.
9. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS. The Company
-----------------------------------------------------
agrees:
a. not to effect any public or private sale or distribution of its
equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the 10-day period prior to, and during the 90-day period
beginning on, the effective date of a registration statement filed under SECTION
2a., SECTION 2c. or SECTION 2g. hereof or the commencement of the public
distribution of securities to the extent timely notified in writing by a holder
of Registrable Securities covered by such registration statement or the managing
underwriters (the "Holdback Period") (except as part of such underwritten
registration or pursuant to registrations on Forms S-4 or S-8 or any successor
form to such Forms), and
b. to cause each holder of its privately placed equity securities
issued by the Company at any time on or after the date of this Agreement to
agree not to effect any public sale or distribution of any such securities
during the Holdback Period, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration, if permitted).
Notwithstanding anything seemingly to the contrary set forth in clause b. of
this SECTION 9, (i) the restrictions on sale by holders set forth in such clause
shall not apply to the Shelf Registration and (ii) this SECTION 9 is not
intended to restrict the rights granted to Holders in the last sentence of
SECTION 8 to sell Class A Common Stock.
10. NOTICES. All notices and other communication provided for hereunder
-------
shall be in writing and shall be sent by in person delivery, overnight delivery,
or certified or registered mail: (a) if to the Company, to:
c/o Engles Urso Follmer Capital Corporation
3811 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
-24-
<PAGE>
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
Attention: Todd W. Follmer
and (b) if to Holder of the Registrable Securities, to the address of Holder as
shown in the stock record books of the Company, or to such other address as any
of the above shall have designated in writing to the Company. All such notice
and communication shall be deemed to have been given or made (a) when delivered
in person, (b) one (1) day after being sent by overnight delivery service, or
(c) three (3) business days after the date of mailing when sent by United States
registered or certified mail to the address referenced in this SECTION 10.
11. DESCRIPTIVE HEADINGS. The headings in this Agreement are for
--------------------
convenience only and shall not limit or otherwise affect the interpretation or
construction of this Agreement.
12. SEVERABILITY. If for any reason any provision of this Agreement shall
------------
be held invalid or unenforceable in whole or in part in any jurisdiction, such
provisions shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
13. AMENDMENTS, ETC. No amendment or waiver of any provision of this
---------------
Agreement shall be effective unless the same shall be in writing and signed by
each of CIBC, Regent Capital Equity Partners, L.P., EUFCC Holders and the Talton
Holders (but only for so long as it has the right to designate a director under
the Shareholder Agreement), and by a majority-in-interest of the other Holders.
Any such waiver or consent shall be effective only in the specific instance and
for the specific purpose given. No failure on the part of any party to this
Agreement to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further exercise thereof or
the exercise of any other right.
14. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, all of which when taken together shall constitute one and the same
instrument.
15. ASSIGNMENT AND CONSOLIDATION OR MERGER.
--------------------------------------
a. ASSIGNMENT. This Agreement may only be assigned, transferred or
----------
otherwise conveyed by Holder in accordance with the terms, restrictions and
requirements of the Shareholders Agreement. Any attempted assignment, transfer
or conveyance in violation of the provisions of this Agreement or the
Shareholder Agreement shall be void. The rights under this Agreement may be
transferred by a Holder in connection with such Holder's assignment of Capital
Stock to an Affiliate of the Holder or any limited partner of such Holder. The
exercise of rights pursuant
-25-
<PAGE>
to this Agreement is limited to the Holder hereof, any owners of beneficial
interests in any Holder executing this Agreement, and those who obtained any
purported rights hereunder in compliance with all assignment, transfer or
conveyance restrictions contained in the Shareholders Agreement and this
Agreement. This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the Company and the Holder.
b. MERGER OR CONSOLIDATION. In the case of any consolidation or
-----------------------
merger of the Company with or into another corporation, the consolidation of the
Company with or the merger of the Company with or into any other person, or in
the event of the sale or other transfer of all or substantially all of the
assets of the Company to any other person, then in each case the rights granted
to Holder by this Agreement shall survive such consolidation, merger, sale or
other transfer and shall thereafter be enforceable against the entity succeeding
as to the rights and obligations of Company hereunder.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
------------------------------------------
warranties, covenants and agreements of the Company and of each Holder contained
herein or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement.
17. ATTORNEYS' FEES. If any action or proceeding is brought to enforce the
---------------
terms of the Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs.
18. GOVERNING LAW. This Agreement shall be governed by, and interpreted and
-------------
construed in accordance with the laws of the State of Delaware.
19. WAIVER OF JURY TRIAL. The parties waive the right to a jury trial with
--------------------
respect to any controversy or claim between or among the parties hereto,
including but not limited to those arising out of or relating to this Agreement,
including any claim based on or arising from an alleged tort.
20. TIME OF THE ESSENCE. Time is of the essence in performing and
-------------------
interpreting this Agreement.
21. FURTHER ASSURANCES. The Company and each Holder hereby agree promptly
------------------
to execute at the other's reasonable request after the date hereof any documents
or materials related to the transactions contemplated by this Agreement.
22. SPECIFIC PERFORMANCE. Each of the parties shall be entitled to specific
--------------------
performance in the event of a breach by the other party of their respective
obligations hereunder. Such remedy shall be in addition to, but shall not
replace, any other remedies which might be available under this Agreement, at
law or in equity, including without limitation, actions for attorney's fees.
-26-
<PAGE>
23. REPRESENTATIONS OF COMPANY. The Company represents and warrants to each
--------------------------
Holder as follows:
(a) CORPORATE ORGANIZATION AND GOOD STANDING. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
(b) CORPORATE APPROVAL. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board
of directors of the Company has duly and validly approved the execution,
delivery, and performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
24. NO CONFLICTING AGREEMENTS. The Company has not entered into, and will
-------------------------
not enter into, any agreement that conflicts with the rights granted to the
holders of Registrable Securities in this Agreement.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By: /s/ JOSEPH P. URSO
------------------------------
Name: Joseph P. Urso
Title: President
-----------------------------------
By:
--------------------------------
Name:
Title:
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JULIUS E. TALTON
------------------------------------
Julius E. Talton
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JULIUS E. TALTON, JR.
------------------------------------
Julius E. Talton, Jr.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JAMES E. LUMPKIN
------------------------------------
James E. Lumpkin
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
CIBC WOOD GUNDY VENTURES, INC.
By: /s/ BARRY STEWART
---------------------------------
Name: Barry Stewart
Title: Director, Secretary
-32-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ TERRY MATLACK
------------------------------------
Terry Matlack
-33-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOHN R. SUMMERS
------------------------------------
John R. Summers
-34-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ROBERT K. GREEN
------------------------------------
Robert K. Green
-35-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ T. RANDALL THOMPSON
------------------------------------
T. Randall Thompson
-36-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ RICHARD C. GREEN, JR.
------------------------------------
Richard C. Green, Jr.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ROGER K. SALLEE
------------------------------------
Roger K. Sallee
-38-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ DAVID P. LORENZ
------------------------------------
David P. Lorenz
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOHN C. DUNN
------------------------------------
John C. Dunn
-40-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOHN R. BAKER
------------------------------------
John R. Baker
-41-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ GREGG L. ENGLES
------------------------------------
Gregg L. Engles
-42-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOSEPH P. URSO
------------------------------------
Joseph P. Urso
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ TODD W. FOLLMER
------------------------------------
Todd W. Follmer
-44-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
ONYX TALTON PARTNERS, L.P.
By: Onyx Partners, Inc.
By: /s/ DAVID A. SACHS
----------------------------
Name: David A. Sachs
Title: Vice President
-45-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
SACHS INVESTMENT PARTNERS
By: /s/ DAVID A. SACHS
---------------------------------
Name: David A. Sachs
Title: General Partner
-46-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
REGENT CAPTIAL EQUITY PARTNERS, L.P.
By: Regent Capital Partners, L.P.,
as general partner
By: Regent Capital Holdings, Inc.,
as general partner
By: /s/ NINA MCLEMORE
---------------------------
Name: Nina McLemore
Title: Managing Director
-47-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
RICHARD & NANCY BLOCH AS TRUSTEES
FOR THE RICHARD & NANCY BLOCH
FAMILY TRUST DTD 12/17/86
By: /s/ RICHARD L. BLOCH
---------------------------------
Name: Richard L. Bloch
Title: Trustee
-48-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ABRAHAM L. MORRIS
------------------------------------
Abraham L. Morris
-49-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
MAISS FAMILY PARTNERSHIP, L.P.
By: /s/ ALAN MAISS
---------------------------------
Name: Alan Maiss
Title: General Partner
-50-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ NOBATAKA MUTAGUCHI
------------------------------------
Nobataka Mutaguchi
-51-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ SADAFUMI TAKAKUBO
------------------------------------
Sadafumi Takakubo
-52-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ MICHIO SOGA
------------------------------------
Michio Soga
-53-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
CAPITAL ALLIANCE CORPORATION
By: /s/ EDWARD J. DAWSON
---------------------------------
Name: Edward J. Dawson
Title: President
-54-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JAMES G. BURTON
------------------------------------
James G. Burton
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
STREMMEL CAPITAL GROUP
By: /s/ PETER STREMMEL
---------------------------------
Name: Peter Stremmel
Title: Partner
-56-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
LEWIS A. LEVEY, TRUSTEE
LEWIS A. LEVEY REVOCABLE TRUST
DATED 12/15/95
By: /s/ LEWIS A. LEVEY, TRUSTEE
---------------------------------
Name: Lewis A. Levey
Title: Trustee
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
TARRAGONA FUND, INC.
By: /s/ P.J. WENTZEL
---------------------------------
Name: P.J. Wentzel
Title: Director
By: /s/ ANTHONY H. MARKHAM
---------------------------------
Name: Anthony H. Markham
Title: Director
-58-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
BONNINGTON CORPORATION
By: /s/ LOURDES A. GARCIA
---------------------------------
Name: Lourdes A. Garcia
Title: President
-59-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JULIE E. SILCOCK
------------------------------------
Julie E. Silcock
/s/ JIM SILCOCK
------------------------------------
Jim Silcock
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
NOLL INVESTMENTS LLP
By: /s/ TRACY NOLL
---------------------------------
Name: Tracy Noll
Title: President
-61-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
By: /s/ JOHN R. CHRISTIE
---------------------------------
Name: John R. Christie
Title: Beneficiary
FIELD TELECOMMS PROFIT
SHARING PLAN
By: /s/ JOHN R. CHRISTIE
---------------------------------
Name: John R. Christie
Title: President/Trustee
-62-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ WALDEMAR D. MAYA, JR.
------------------------------------
Waldemar D. Maya, Jr.
-63-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ROBERT L. KAMINSKI
------------------------------------
Robert L. Kaminski
-64-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOHN S. BAIN
------------------------------------
John S. Bain
-65-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ILAN BIALER
------------------------------------
Ilan Bialer
-66-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
THE BIALER FAMILY TRUST
DATED 10/13/92
By: /s/ JOE BIALER
---------------------------------
Name: Joe Bialer
Title: Trustee
-67-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ DONALD W. CHESTER, M.D.
------------------------------------
Donald W. Chester, M.D.
-68-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JOHN T. TIERNEY
------------------------------------
John T. Tierney
-69-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ CARL C. CHRISTOFF
------------------------------------
Carl C. Christoff
-70-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ JEFF J. DANDURAND
------------------------------------
Jeff J. Dandurand
-71-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
DOROTHY RICHARDS INTERVIVOS
TRUST DATED 7/6/91
By: /s/ DOROTHY RICHARDS
---------------------------------
Name: Dorothy Richards
Title: Trustee
-72-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ CARL A. MAYER, JR.
------------------------------------
Carl A. Mayer, Jr.
-73-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.
TALTON HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------
Name:
Title:
/s/ ROHNN M. LAMPI
------------------------------------
Rohnn M. Lampi
-74-
<PAGE>
EXHIBIT A
---------
to Registration Rights Agreement
HOLDER SECURITIES
------ ----------
Julius E. Talton Class A Common Stock
Julius E. Talton, Jr. Class A Common Stock
James E. Lumpkin Class A Common Stock
CIBC Wood Gundy Ventures, Inc. Class A Common Stock
Terry C. Matlack Class A Common Stock
John R. Summers Class A Common Stock
Richard C. Green, Jr. Class A Common Stock
Robert K. Green Class A Common Stock
T. Randall Thompson Class A Common Stock
Roger K. Sallee Class A Common Stock
David P. Lorenz Class A Common Stock
John C. Dunn Class A Common Stock
John R. Baker Class A Common Stock
Gregg L. Engles Class A Common Stock
Sachs Investment Partners Class A Common Stock
Regent Capital Equity Partners, L.P. Class A Common Stock
Richard L. Bloch & Nancy Bloch as
trustees for The Richard and Nancy
Bloch Family Trust DTD 12/17/86 Class A Common Stock
Abraham L. Morris Class A Common Stock
Maiss Family Partnership, L.P. Class A Common Stock
Nobutaka Mutaguchi Class A Common Stock
Sadafumi Takakubo Class A Common Stock
Michio Soga Class A Common Stock
Capital Alliance Corporation Class A Common Stock
James G. Burton Class A Common Stock
Stremmel Capital Group Class A Common Stock
Lewis A. Levey, Trustee,
Lewis A. Levey Revocable
Trust DTD 12/15/95 Class A Common Stock
Tarragona Fund, Inc. Class A Common Stock
Page 1 of 3
<PAGE>
Bonnington Corp. Class A Common Stock
Julie and Jim Silcock Class A Common Stock
Noll Investments Class A Common Stock
Field Telecomms Inc. Profit
Sharing FBO John R. Christie Class A Common Stock
Waldemar D. Maya, Jr. Class A Common Stock
Robert L. Kaminski Class A Common Stock
John S. Bain Class A Common Stock
Ilan Bialer Class A Common Stock
Joe Bialer, Trustee or Rachel Bialer,
Trustee Bialer Family Trust
Dated 10/13/92 Class A Common Stock
Donald W. Chester, M.D. Class A Common Stock
John T. Tierney Class A Common Stock
Carl C. Christoff Class A Common Stock
Jeff and Curran Danderand Class A Common Stock
Dorothy Richards as Trustee of the
Dorothy Richards Intervivos Trust
dated 7/6/91 Class A Common Stock
Carl A. Mayer, Jr. Class A Common Stock
Rohnn Lampi Class A Common Stock
Gregg L. Engles Class B Common Stock
Joseph P. Urso Class B Common Stock
Todd W. Follmer Class B Common Stock
Onyx Talton Partners, L.P. Class B Common Stock
Joseph P. Urso Warrants to Acquire
Class A Common Stock
Gregg L. Engles Warrants to Acquire
Class A Common Stock
Todd W. Follmer Warrants to Acquire
Class A Common Stock
Page 2 of 3
<PAGE>
Onyx Talton Partners, L.P. Warrants to Acquire
Class A Common Stock
CIBC Wood Gundy Ventures, Inc. Warrants to Acquire
Class A Common Stock
CIBC Wood Gundy Ventures, Inc. Contingent Warrants
to Acquire
Class A Common Stock
Julius E. Talton, Contingent Warrants
Julies E. Talton, Jr. and to Acquire
James E. Lumpkin Class A Common Stock
Regent Capital Equity Contingent Warrants
Partners, L.P. to Acquire
Class A Common Stock
Page 3 of 3
<PAGE>
EXHIBIT 4.6
SHAREHOLDERS AGREEMENT
----------------------
THIS SHAREHOLDERS AGREEMENT (the "Agreement") is made and entered into as of
---------
December 27, 1996, among each Person (as defined below) listed on the signature
pages hereto (such Persons, other Persons who become parties hereto in
accordance with the provisions hereof, and their respective successors and
permitted assigns are hereinafter individually referred to as a "Holder" and
------
collectively referred to as the "Holders") and Talton Holdings, Inc., a Delaware
-------
corporation (the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has authorized capital stock consisting of (i) 49,600
shares of Class A common stock, $.01 par value ("Class A Common"), (ii) 400
--------------
shares of Class B common stock, $.01 par value ("Class B Common") (the Class A
--------------
Common and Class B Common being referred to herein collectively as the "Common
------
Stock"), (iii) 6,000 shares of Senior Preferred Stock (the "Senior Preferred
- ----- ----------------
Stock") which are convertible to shares of Class A Common, and (iv) up to 44,000
- -----
shares of Junior Preferred Stock (the "Junior Preferred Stock") to be
----------------------
established and issued upon the unanimous consent of the Company's Board of
Directors as provided herein (the Senior Preferred Stock and the Junior
Preferred Stock being referred to herein collectively as the "Preferred Stock");
---------------
WHEREAS, the Company has entered into certain warrant agreements (the "Warrant
-------
Agreements") pursuant to which the Company will issue warrants ("Warrants")
- ---------- --------
entitling certain Holders to purchase shares of Class A Common, upon the terms
and restrictions provided therein;
WHEREAS, the Holders listed on Schedule 1 will acquire the number of shares of
Common Stock set forth opposite their names on Schedule 1, and as a condition to
such acquisition have agreed to enter into this Agreement;
WHEREAS, the Talton Holders (hereinafter defined) will acquire 5,000 shares of
Senior Preferred Stock and the AmeriTel Holders will acquire up to 1,000 shares
of Senior Preferred Stock, and as a condition to such acquisition such Holders
have agreed to enter into this Agreement;
WHEREAS, the Holders listed on Schedule 2 (the "Warrant Holders") will acquire
Warrants entitling them to purchase the number of shares of Class A Common set
forth opposite their names on Schedule 2, and as a condition to the acquisition
of such Warrants have agreed to enter into this Agreement;
WHEREAS, it is intended that all shares of Common Stock, all shares of
Preferred Stock and all Warrants be entitled to the
-1-
<PAGE>
benefits and subject to the restrictions contained in this Agreement, whether
such shares or Warrants are issued contemporaneously herewith or are
subsequently issued by the Company, or whether such shares are acquired by
exercise of the Warrants, acquired by conversion of the Preferred Stock,
subsequently issued by the Company or otherwise, and that any Person not already
a party to this Agreement as a condition to such Person acquiring shares of
Common Stock, shares of Preferred Stock or Warrants becomes a party hereto;
NOW, THEREFORE, in consideration of the covenants and agreements made herein,
the Holders and the Company agree as follows:
1. CERTAIN TERMS. As used herein, the following terms shall have the
-------------
meanings set forth below:
"AFFILIATE" with respect to any Person, shall mean (a) any other Person that
---------
directly, or indirectly, through one or more intermediaries, Controls, or is
Controlled by, or under common Control with such Person, (b) any director,
officer, or partner of such Person, or (c) any father, mother, brother, sister
or descendant of such Person. For purposes of this Agreement, none of the EUFCC
Holders, Talton Holders, CIBC or any of their respective Affiliates shall be
deemed to be an Affiliate of the Company.
"AMERITEL HOLDERS" shall mean Terry C. Matlack, John R. Summers, Richard C.
----------------
Green, Jr., Robert K. Green, T. Randall Thompson, Roger K. Sallee, John R.
Baker, John Dunn, David P. Lorenz, and their respective Affiliates.
"BUSINESS DAY" means any day on which commercial banks are not authorized or
------------
required to close in New York, New York, and shall also include any legal
holiday on which the National Market System of the National Association of
Securities Dealers Automated Quotation System is open for trading on a regular
basis.
"CAPITAL STOCK" shall mean the Common Stock and any Common Stock Equivalents.
-------------
"CERTIFICATE" shall mean that certain Restated Certificate of Incorporation of
-----------
the Company filed with the Secretary of State of the State of Delaware on
December 23, 1996.
"CIBC" shall mean CIBC Wood Gundy Ventures, Inc., and its Affiliates.
----
"COMMON STOCK EQUIVALENTS" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants (including any
contingent warrants), options, convertible securities or indebtedness,
exchangeable securities or indebtedness, or other rights, exercisable for or
convertible
-2-
<PAGE>
or exchangeable into, directly or indirectly, Common Stock and securities
convertible or exchangeable into Common Stock, whether at the time of issuance,
upon the passage of time, or upon the occurrence of some future event, including
without limitation, the Warrants and the Senior Preferred Stock.
"CONTROL," "CONTROLS," "CONTROLLED" and "CONTROLLING" with respect to any
------- -------- ---------- -----------
Person shall mean the ability to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
"EUFCC HOLDERS" shall mean Gregg L. Engles, Todd W. Follmer, Joseph P. Urso,
-------------
and their respective Affiliates.
"FAIR MARKET VALUE" means fair market value, as determined in good faith by
-----------------
the Company's Board of Directors; provided that if any party to a purchase and
sale transaction for which determination of Fair Market Value is required (an
"Appraisal Transaction") objects in writing to such determination within ten
(10) days after receiving notice thereof, then such fair market value will be
determined by an independent appraiser, accountant or investment bank (the
"Appraiser") acceptable to all of the parties to the Appraisal Transaction. If
the parties cannot agree on an Appraiser, then all Persons buying in the
Appraisal Transaction (acting as a group) will select one independent appraiser,
accountant or investment bank and all Persons selling in the Appraisal
Transaction (acting as a group) will select one independent appraiser,
accountant or investment bank, and the two appraisers, accountants or investment
banks will select the Appraiser. The Appraiser's appraisal of the fair market
value will be conclusive and binding on all parties to the Appraisal
Transaction. The costs of the Appraiser will be borne fifty percent (50%) by
all of the buyers in the Appraisal Transaction and fifty percent (50%) by all of
the sellers in the Appraisal Transaction, in each case based on their pro rata
participation in the Appraisal Transaction.
"FULLY-DILUTED COMMON STOCK" shall mean, at any time, the then outstanding
--------------------------
shares of Common Stock of the Company plus (without duplication) all Common
Stock Equivalents.
"INTERESTED PARTY" means each Person who, as a result of an Involuntary
----------------
Transfer, has an interest in Capital Stock previously owned by a Holder,
including (as applicable) the affected Holder's personal representative, spouse
or successor.
"INVOLUNTARY TRANSFER" means any Marital Relationship Transfer or any transfer
--------------------
of Capital Stock by a Holder that results from the attachment, sequestration,
garnishment or other similar involuntary transfer resulting from a bankruptcy or
other proceeding affecting such Holder.
-3-
<PAGE>
"MAJORITY IN INTEREST OF THE OTHER HOLDERS" shall mean any group of Holders
-----------------------------------------
(other than and excluding CIBC, the Talton Holders, the EUFCC Holders, Regent
and their respective Affiliates, successors and assigns) that, in the aggregate
beneficially own a majority in interest of the Fully-Diluted Common Stock, not
including any Fully-Diluted Common Stock beneficially owned by the Holders
listed in the preceding parenthetical phrase.
"MARITAL RELATIONSHIP TRANSFER" means any transfer of Capital Stock owned by a
-----------------------------
Holder that results from the divorce of such Holder or the death of such
Holder's spouse under circumstances in which such Holder does not succeed to the
spouse's interest (if any) in such Capital Stock.
"NEW SECURITIES" means any Capital Stock of the Company, whether now
--------------
authorized or newly authorized, except (a) Capital Stock issued by the Company
to directors, employees, consultants or advisors of the Company or its
subsidiaries pursuant to a written compensatory benefit plan adopted by the
Company's board of directors (the "Board of Directors"); (b) Common Stock issued
------------------
upon conversion or exchange of previously issued Common Stock Equivalents; (c)
Capital Stock issued or sold as consideration to the seller(s) in a bona fide
acquisition by the Company (through merger, consolidation, stock purchase or
asset purchase) of the operations of another entity which acquisition shall have
been approved by the Board of Directors; (d) any borrowings, direct or indirect,
from financial institutions or other Persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instruments (including such borrowings which provide for equity
features such as warrants, options or other similar rights to purchase Capital
Stock provided that the aggregate amount of shares subject to issuance
thereunder shall not in the aggregate exceed 10% of the Fully-Diluted Common
Stock); (e) securities issued in a Public Offering; and (f) any right, option or
warrant to acquire any security convertible into any of the securities described
in any of the foregoing subsections (a) through (e) above.
"ONYX HOLDERS" means Onyx Talton Partners, L.P. and Sachs Investment Partners
------------
and their respective Affiliates.
"PERSON" means an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"PRO RATA" shall mean, with respect to a Holder, the percentage obtained by
--------
dividing the number of shares of FullyDiluted Common Stock beneficially owned by
such Holder by the total number of shares of Fully-Diluted Common Stock owned by
all Holders that are entitled to participate in the subject transaction.
-4-
<PAGE>
"PUBLIC OFFERING" shall mean a registered public offering under the Securities
---------------
Act of equity interests in the Company or any successor to the Company which
public offering is made pursuant to a registration statement on Form S-1 or a
successor form and which yields gross proceeds to the Company of at least
$20,000,000.
"REGENT" shall mean Regent Capital Equity Partners, L.P., and its Affiliates.
------
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
--------------
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
"SIGNIFICANT HOLDER" means any Holder (and its respective Affiliates,
------------------
successors and permitted assigns) owning five percent (5%) or more of the Fully-
Diluted Common Stock
"SUBSIDIARIES" shall mean AmeriTel Pay Phones, Inc., a Missouri corporation,
------------
Talton Telecommunications Corporation, an Alabama corporation, Talton
Telecommunications of Carolina, Inc., an Alabama corporation, and any other
corporations, partnerships, joint ventures, associations and other entities
controlled by the Company, directly or indirectly through one or more
intermediaries.
"TALTON HOLDERS" shall mean Julius E. Talton, Sr., Julius E. Talton, Jr.,
--------------
James E. Lumpkin, and their respective Affiliates.
"THIRD PARTY OFFER" means an offer that a Selling Party receives from a
-----------------
proposed buyer to purchase part or all of the Selling Party's Capital Stock,
which complies with the following requirements: (a) the offer must be in
writing and executed by the proposed buyer; (b) all consideration must be cash
in lawful money of the United States; (c) the offer must be by the principal
identified in the offer (and not by an agent acting on behalf of an undisclosed
principal); and (d) the offer must specifically provide that the offer is not
assignable by the proposed buyer.
"VOLUNTARY TRANSFER" means any sale or other transfer of Capital Stock by a
------------------
Holder, except (a) a transfer to such Holder's spouse or descendants or a trust
entirely for the benefit of such Holder or his spouse or descendants; (b) a
testamentary transfer or a transfer by intestate succession; (c) a transfer to
an Affiliate of the Holder or among Affiliates of the Holder; and (d) an
Involuntary Transfer. Notwithstanding anything to the contrary herein, any
transfer among the Talton Holders will not be a Voluntary Transfer.
-5-
<PAGE>
2. BOARD OF DIRECTORS.
------------------
(a) Each Holder and the Company shall take all actions reasonably within his,
her, or its power to accomplish each of the following (including, without
limitation, the voting of all Common Stock of which a Holder or any of its
Affiliates has beneficial ownership or with respect to which it or any of its
Affiliates has voting power; requesting, in accordance with clause (iii) below,
the removal of any director or directors designated by it pursuant to this
Section 2 who fail to vote in favor of each of the following):
(i) to cause immediately following the consummation of the Company's
senior secured debt financing and subordinated debt financings anticipated
to occur on or about the date hereof (the "Acquisition Financing") the Board
of Directors of the Company and the Board of Directors of each of the
Subsidiaries (collectively, the Board of Directors) to initially consist of
a total of eleven (11) members or such other number may be unanimously
agreed by all members of the Board of Directors;
(ii) subject to Section 2(b) below, to cause immediately following the
consummation of the Acquisition Financings the election to the Board of
Directors of the following persons:
(A) Two (2) Class A/B Directors (as defined in the Certificate)
as designated by CIBC;
(B) One (1) Class A/B Director as jointly designated by the
Talton Holders;
(C) Five (5) Class B Directors (as defined in the Certificate) as
jointly designated by the EUFCC Holders, with the EUFCC Holders
initially to designate as one of its five (5) designees a member of
AmeriTel Pay Phones, Inc.'s current management and to designate as
another one (1) of its designees a principal owning thirty percent
(30%) or more of the shares of Onyx Partners, Inc.;
(D) Two (2) Class A/B Directors designated by Regent; and
(E) One (1) Class A/B Director designated jointly by all Holders
except the EUFCC Holders, the Talton Holders, the AmeriTel Holders, the
Onyx Holders, and CIBC.
(iii) to cause the removal as a director of any person designated
pursuant to Section 2(a)(ii) above if so requested by the Holder(s) who
designated such director;
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<PAGE>
(iv) subject to Section 2(b) below, in the event that any director (a
"Withdrawing Director") designated as set forth in Section 2(a)(ii) above is
unable to serve, or once having commenced to serve, is removed or resigns
from the Board of Directors, to cause the election to, and continued service
on, the Board of Directors as such Withdrawing Director's replacement, a
person (the "Substitute Director") designated by the Holder(s) who
designated the Withdrawing Director;
(v) in the event any Holder(s) entitled to designate a director or
directors pursuant to this Agreement choose(s) not to designate any director
or directors, to cause such directorship or directorships to remain vacant
until such time as such Holder(s) desire(s) to make such designation;
(vi) to cause the appointment of observers who are permitted to
attend all meetings of the Board of Directors and who have such other rights
agreed to by the Company in that certain Purchase Agreement for the senior
subordinated notes dated as of December 27, 1996, as the same may be amended
from time to time;
(vii) to cause no action to be taken at any meeting of the Board of
Directors unless each director shall receive at least two Business Days'
notice of such meeting or shall waive such notice; and
(viii) to cause the Board of Directors to cause the Company to take
the actions and fulfill the obligations set forth in Section 6 below.
(b) Except as provided in this Section 2(b), the right to designate a
director or directors of the Company under this Agreement is not assignable.
Notwithstanding the foregoing, CIBC may assign its right to designate directors
under this Agreement in connection with a permitted transfer of all or part of
its Common Stock as follows:
(i) CIBC may assign its right to designate two (2) Class A/B Directors
to any holder or group of holders (as defined in Rule 13d-5(b)(i) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended ("Rule 13d5(b)(i)")) that holds or owns seven and one-half percent
(7.5%) or more of the outstanding Common Stock, provided that CIBC still has
prior to such assignment the right to designate two (2) Class A/B Directors
under this Agreement.
(ii) CIBC may assign its right to designate one (1) Class A/B Director
to any holder or group of holders (as defined in Rule 13d-5(b)(i)) that
holds and owns five percent (5%) or more of the outstanding Common Stock,
provided that CIBC still has prior to such assignment the
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<PAGE>
right to designate at least one (1) Class A/B Director under this Agreement.
(c) The right of Holders to designate a director or directors under this
Section 2 shall terminate at such time as set forth below.
(i) At the time CIBC and/or its Affiliates shall own less than seven
and one-half percent (7.5%) of the outstanding Common Stock, CIBC shall have
the right to designate only one (1) Class A/B Director. At the time CIBC
and/or its Affiliates shall own less than five percent (5%) of the
outstanding Common Stock, CIBC shall no longer have the right to designate
any directors.
(ii) At the time the Talton Holders and/or their respective Affiliates
shall own less than five percent (5%) of the outstanding Common Stock, the
Talton Holders lose the right to designate any directors.
(iii) At the time the EUFCC Holders and the Onyx Holders collectively
shall own less than ten percent (10%) of the outstanding Common Stock, the
EUFCC Holders lose the right to designate two (2) Class B Directors, and, in
accordance with Section 2(f), all the Holders of outstanding Common Stock
shall acquire the right to designate one (1) additional Class A/B Director
with such voting power as set forth in the Certificate, which is one (1)
full vote so as to maintain the total number of votes on the Board of
Directors at nine (9) (and the membership on the Board of Directors shall be
reduced to ten (10)). At the time the EUFCC Holders and the Onyx Holders
collectively shall own less than seven and one-half percent (7.5%) of the
outstanding Common Stock, the EUFCC Holders lose the right to designate
another two (2) Class B Directors, and, in accordance with Section 2(f), all
the Holders of outstanding Common Stock shall acquire the right to designate
one (1) additional Class A/B Director with such voting power as set forth in
the Certificate, which is one (1) full vote so as to maintain the total
number of votes on the Board of Directors at nine (9) (and the membership on
the Board of Directors shall be reduced to nine (9). At the time the EUFCC
Holders and the Onyx Holders collectively shall own less than five percent
(5%) of the outstanding Common Stock, the EUFCC Holders lose the right to
designate any directors, and, in accordance with Section 2(f), all the
Holders of outstanding Common Stock shall acquire the right to designate one
(1) additional Class A/B Director with such voting power as set forth in the
Certificate, which is one (1) full vote so as to maintain the total number
of votes on the Board of Directors at nine (9) (and the membership on the
Board of Directors shall remain at nine (9). In determining the percentage
of ownership of the EUFCC Holders and the Onyx Holders for purposes of this
Section 2(c)(iii),
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<PAGE>
the Class B Common held by them will be deemed to have been converted into
the appropriate number of Class A Shares as provided in the Company's
Certificate, provided however, that if one of the designees of the EUFCC
Holders is not a designee of Onyx pursuant to Section 2(a)(ii)(C), then the
Common Stock owned by the Onyx Holders shall not be considered in
calculating the percentages pursuant to this clause (iii).
(iv) At the time Regent and/or its Affiliates shall own less than
seven and one-half percent (7.5%) of the outstanding Common Stock, Regent
shall have the right to designate only one (1) Class A/B Director. At the
time Regent and/or its Affiliates shall own less than five percent (5%) of
the outstanding Common Stock, Regent shall no longer have the right to
designate any directors.
(v) At the time any permitted assignee of CIBC's right to designate
two (2) Class A/B Directors shall own less than seven and one-half percent
(7.5%) of the outstanding Common Stock, such Holder shall have the right to
designate only one (1) Class A/B Director. At the time any permitted
assignee of CIBC's right to designate any directors shall own less than five
percent (5%) of the outstanding Common Stock, such Holder loses the right to
designate any directors.
(d) Any Holder (or Holders, in the case of the EUFCC Holders) that has a
right to designate a director or directors hereunder and all of whose designees
for directors, as provided in Section 2(a) above, are not officers or employees
of such Holder or any of its Affiliates shall have the right to have one of its
officers or employees attend and observe all meetings of the Board of Directors;
provided, that such officer or employee shall not be entitled to vote at any
such meeting. The Company shall provide notice to each such Holder, whose
designees for director are not officers or employees of such Holder, at the time
it provides notice to the directors of forthcoming board meetings. The Company
shall pay all reasonable costs of such representative to attend the meeting to
the same extent the Company pays its directors' costs.
(e) For so long as the EUFCC Holders shall have the right under this
Agreement to designate five (5) Class B Directors, each such director designated
by the EUFCC Holders shall have such voting power as set forth in the
Certificate, which is 0.6 vote on any matter voted on by the Board of Directors
(thus, the EUFCC Holders' director designees would have a combined three (3)
director votes, or 0.6 x 5 = 3). For so long as the EUFCC Holders shall have
the right under this Agreement to designate three (3) Class B Directors, each
such director designated by the EUFCC Holders shall have such voting power as
set forth in the Certificate, which is 0.667 vote on any matter voted on by the
Board of Directors (thus, the EUFCC Holders' director designees
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<PAGE>
would have a combined two (2) director votes, or 0.667 x 3 = 2). For so long as
the EUFCC Holders shall have the right under this Agreement to designate one (1)
Class B Director, such director shall have such voting power as set forth in the
Certificate, which is one (1) full vote on any matter voted on by the Board of
Directors. In the event the provisions of this Section 2(e) shall be held
invalid or unenforceable under Delaware law at any time while the EUFCC Holders
have the right to designate five (5) Class B Directors under this Agreement, or
in the event the EUFCC Holders convert their Class B Common into Class A Common
at any time the EUFCC Holders would otherwise have the right to designate five
(5) Class B Directors under this Agreement, then, in either such event the EUFCC
Holders shall no longer have the right to designate five (5) Class B Directors
but shall instead have the right to designate only three (3) Class A/B Directors
immediately upon this Section 2(e) being held invalid or unenforceable or upon
such conversion, and those three (3) directors shall have three (3) votes. In
the event the provisions of this Section 2(e) shall be held invalid or
unenforceable under Delaware law at any time while the EUFCC Holders have the
right to designate three (3) Class B Directors under this Agreement, or in the
event the EUFCC Holders convert their Class B Common into Class A Common at any
time the EUFCC Holders would otherwise have the right to designate three (3)
Class B Directors under this Agreement, then, in either such event the EUFCC
Holders shall no longer have the right to designate three (3) Class B Directors
but shall instead have the right to designate only two (2) Class A/B Directors
immediately upon this Section 2(e) being held invalid or unenforceable or upon
such conversion, and those two (2) directors shall have two (2) votes.
(f) Whenever a party who is authorized under this Agreement to designate
one or more members of the Board of Directors loses such right as to one or more
directors, the director designation right as to such seat(s) on the Board of
Directors shall devolve on all the Holders of Common Stock, subject to the
provisions of Section 2(c)(iii) above and in accordance with the Certificate.
(g) The Company shall pay the reasonable expenses of all directors for
attendance at meetings of the Board of Directors.
(h) For so long as the CIBC Holders shall have the right under this
Agreement to designate any directors, in regard to a meeting of the Board of
Directors, a quorum of the Board of Directors shall not be deemed to exist
unless at least one (1) director designated by CIBC is a part of such quorum;
provided, however, if there would have otherwise been a quorum but for the
absence of a CIBC-designated director, a majority of directors present for such
meeting may adjourn the meeting and send a special notice to the CIBC-designated
director(s) and the other directors not in attendance at the meeting setting a
date for reconvening the meeting of the Board of Directors at least three (3)
Business Days after the meeting as to which no quorum existed by virtue of the
absence of a CIBC-designated director was
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<PAGE>
adjourned, and the Board of Directors may reconvene at such time and conduct
business if a quorum is otherwise present, regardless of whether a CIBC-
designated director is in attendance. Notwithstanding the foregoing, this
Section 2(h) shall not be applicable to a meeting of the Board of Directors to
consider a Selling Party's Notice pursuant to Section 3(b) hereof.
(i) The Boards of Directors of the Company's Subsidiaries shall at all
times during the term of this Agreement consist of the same members as the
Company's Board of Directors. The Boards of Directors of the Company's
Subsidiaries shall each by resolution designate a committee which consists of
two (2) or more directors. Such committees, to the extent provided in the
resolutions of the respective Board of Directors, shall have and may exercise
all the powers and authority of such Subsidiary's Board of Directors in the
management of the business and affairs of such Subsidiary.
(j) From and after the date of this Agreement the Board of Directors will
not, and will not permit any of the Subsidiaries to enter into, or cause, suffer
or permit to exist, any contract, agreement, understanding, arrangement or
transaction (or any amendments to any of the foregoing) with any of the
Company's Affiliates, any Affiliate of a Holder, or any Affiliate of any
director unless such contract, agreement, amendment, understanding, arrangement
or transaction (or any amendments to any of the foregoing) is fair and equitable
to the Company or such Subsidiary comparable to the terms that would be achieved
in an arm's length transaction with a person that is not an Affiliate and is a
contract, agreement, amendment, understanding, arrangement or transaction (or
any amendments to any of the foregoing) of the kind which would be entered into
by a prudent person in the position of the Company or such Subsidiary with a
person which is not one of its Affiliates. Any director who has a financial
interest in, or is an Affiliate of any party who has a financial interest in,
any contract, agreement, amendment, understanding, arrangement or transaction
(or any amendments to any of the foregoing) that comes before the Board of
Directors, shall (i) disclose the material facts of his or her relationship or
interest as to the contract, agreement, amendment, understanding, arrangement or
transaction (or any amendments to any of the foregoing) to the Board of
Directors and (ii) abstain from voting thereon.
3. TRANSFERS OF CAPITAL STOCK.
--------------------------
(a) Involuntary Transfers. Upon any Involuntary Transfer of Capital Stock
---------------------
affecting a Holder (the "Affected Holder"), each Interested Party and the
Affected Holder, as applicable, will comply with the following provisions:
(i) The Interested Party and in the case of a Marital Relationship
Transfer, the Affected Holder will deliver or cause to be delivered a
written notice (the "Notice of
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<PAGE>
Involuntary Transfer") to the Company no later than thirty (30) days after
such Involuntary Transfer. The Notice of Involuntary Transfer will include
(A) a description of the circumstances resulting in the Involuntary
Transfer; (B) the name and address of each Interested Party; and (C) the
type (i.e., Class A Common, Class B Common, Preferred Stock, and/or
Warrants) and amount of Capital Stock subject to the Involuntary Transfer.
(ii) In the case of a Marital Relationship Transfer, the Notice of
Involuntary Transfer will constitute an irrevocable offer by the Interested
Party to sell to the Affected Holder, at Fair Market Value, all or any
portion of the Capital Stock that was subject to the Marital Relationship
Transfer. Such offer will remain open for a period of thirty (30) days
after delivery of the Notice of Involuntary Transfer. Within such 30-day
period, the Affected Holder may elect to accept such offer in whole or in
part by delivering to the Interested Party and the Company written notice of
its irrevocable election to accept such offer. If the Affected Holder does
not accept such offer within such 30-day period with respect to all of the
Capital Stock subject to the Marital Relationship Transfer, then the Company
will have the option, pursuant to Section 3(a)(iii), to purchase any
remaining Capital Stock.
(iii) The Notice of Involuntary Transfer will constitute an
irrevocable offer by the Interested Party to sell to the Company (and/or to
one or more Holders as hereinafter provided), at Fair Market Value, all or
any portion of the Capital Stock subject to the Involuntary Transfer that is
not purchased by the Affected Holder pursuant to Section 3(a)(ii). Such
offer will remain open to the Company for a period of sixty (60) days after
delivery of the Notice of Involuntary Transfer. Within such 60-day period,
the Company may elect to accept such offer in whole or in part by delivering
to the Interested Party written notice of its irrevocable election to accept
such offer. If the Company does not fully exercise its right to purchase
the Capital Stock subject to the Involuntary Transfer, then upon the
expiration of the 60-day period referenced above, the Notice of Involuntary
Transfer shall be deemed to be a "Selling Party's Notice" without a Third
Party Offer and the Interested Party shall be deemed to be a "Selling Party"
as such terms are hereinafter defined, and the Holders shall be given an
opportunity to purchase the remaining Capital Stock, at Fair Market Value,
as provided in Section 3(b) below.
(iv) If the Affected Holder and/or the Company elect to purchase
Capital Stock pursuant to this Section 3(a), the closing of the purchase and
sale will occur on or before the ninetieth (90th) day following delivery of
the Notice of Involuntary Transfer. The purchase price will be payable,
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at the option of the purchaser, (A) in a single lump sum at the closing, or
(B) at least twenty percent (20%) in cash at the closing and the balance in
four (4) equal annual installments of principal and interest, commencing one
year after the closing, in which case each purchaser's obligation to pay the
purchase price will be evidenced by a promissory note executed and delivered
to the Interested Party by such purchaser at the closing. The outstanding
principal amount of each such promissory note will bear interest at a fixed
annual rate equal to the yield of the U.S. Treasury Securities having a
maturity of four years reported in The Wall Street Journal on the date prior
-----------------------
to closing (or the most comparable government bond yield then reported). At
the closing, the purchaser(s) will deliver the consideration payable to the
order of the Interested Party, against delivery by the Interested Party of
the Capital Stock being so purchased, free and clear of all liens, claims
and encumbrances (other than this Agreement) and endorsed in good form for
transfer.
(b) Voluntary Transfers. If any Holder (the "Selling Party") intends to
------------------- ------- -----
effect a Voluntary Transfer (any type of Voluntary Transfer is hereinafter
included within the terms "sell" or "sale") of all or any portion of its Capital
Stock (such Capital Stock or part thereof being hereafter called the "Offered
-------
Stock"), and the Selling Party has received a Third Party Offer with respect to
- -----
the Offered Stock, then the Selling Party may consummate a sale of the Offered
Stock only if the Selling Party complies with the terms and conditions of this
Section 3(b), and, if applicable, the "Tag-Along" and "Drag-Along" Rights as
set forth in Section 3(b)(ix) and 3(b)(x).
(i) The proposed transferee (the "Buyer") shall not be a direct
competitor of the Company, as determined promptly and in good faith by the
Board of Directors.
(ii) The Selling Party will deliver or cause to be delivered a written
notice (the "Selling Party's Notice") to the Company of the terms,
provisions, and conditions under which the Selling Party desires to sell the
Offered Stock. The Company will promptly forward a copy of the Selling
Party's Notice to all other Holders. The Selling Party's Notice shall
include the following information:
(A) a statement of the Selling Party's bona fide intention to
sell Capital Stock;
(B) the portion of the Selling Party's Capital Stock that is for
sale and the type of Capital Stock that is for sale (i.e., Class A
Common, Class B Common, Preferred Stock, and/or Warrants);
(C) a copy of such Third Party Offer and the name and address of
the Buyer and reasonably detailed
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information regarding the Buyer's relationship with any of the other
Holders; and
(D) a statement that the Offerees may exercise their "Tag-Along
Right" under Section 3(b)(ix) and a "Transfer Tag Along Notice" as
provided in Section 3(b)(ix)(D) below, if (I) the Selling Party holds
ten percent (10%) or more of the Fully-Diluted Common Stock or if the
Selling Party is an EUFCC Holder and (II) the Selling Party is not part
of a Drag-Along Group that causes the sale of Capital Stock pursuant to
Section 3(b)(x).
With respect to a Notice of Involuntary Transfer that, pursuant to Section
3(a)(iii) hereof, is deemed to become a Selling Party's Notice of Sale in
the absence of a Third Party Offer, the Interested Party shall deliver or
cause to be delivered to all Holders and the Company a copy of the Notice of
Involuntary Transfer with a statement that, pursuant to this Agreement, such
Notice of Involuntary Transfer is deemed to be a Selling Party's Notice of
Sale, with the Interested Party deemed to be the Selling Party. Such
delivery is to be accomplished within ten (10) days of the date upon which
the Notice of Involuntary Transfer is deemed under this Agreement to become
a Selling Party's Notice of Sale, and such delivery shall be deemed, for
purposes of this Section 3(b), to be the delivery of a Selling Party's
Notice of Sale.
(iii) The delivery of the Selling Party's Notice to the other Holders
constitutes an offer (the "Offer") by the Selling Party to sell the Offered
-----
Stock to the Offerees in accordance with the terms of this Section 3(b) for
cash at the same price as specified in the Selling Party's Notice (or for
Fair Market Value in the case of a Notice of Involuntary Transfer that is
deemed under this Agreement to become a Selling Party's Notice of Sale).
(iv) Within ten (10) Business Days of the Company's receipt of the
Selling Party's Notice, the Company shall, subject to the provisions of
Section 3(e), have the right to purchase all of the Offered Stock.
(A) If the Company does not elect to purchase all of the Offered
Stock within such ten (10) Business Day period, then the Company's
right to purchase the Offered Stock shall terminate.
(B) If the Company elects to purchase all of the Offered Stock
pursuant to this Section 3(b), the Company shall notify all of the
Holders within such ten (10) Business Day period that it is purchasing
the Offered Stock, and the sale shall be made in accordance with
Section 3(b)(vii) hereof. The Selling Party shall
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transfer the Offered Stock, free of all liens and encumbrances and
properly endorsed, to the Company, and the Company shall be permitted
to deliver the proper consideration to the Selling Party -- all in
accordance with the provisions of Section 3(b)(vii).
(v) Response from Offerees.
----------------------
(A) Each Offeree shall have a period of ten (10) Business Days
from the date of delivery of the Selling Party's Notice (this ten (10)
Business Day Period is referred to as the "Election Period") to accept
---------------
such Offer on the same terms, provisions, and conditions stated in the
Selling Party's Notice unless the Company has exercised its right
pursuant to clause (iv) above.
(B) If an Offeree desires to accept the offer of a Selling Party
to purchase part or all of the Offered Stock, then prior to the end of
the Election Period, the Offeree must send a written notice of
acceptance to the Company (the "Election Notice"), specifying the
---------------
maximum amount of the Offered Stock that the Offeree would be willing
to purchase (which may be in excess of such Offeree's Pro Rata share of
the Offered Stock) on the terms and conditions set forth in the Selling
Party's Notice. An Offeree's acceptance of the Offer must be actually
received by the Company prior to the expiration of the Election Period.
Any purported acceptance made orally shall be ineffective; an untimely
acceptance shall be ineffective, and any purported acceptance which
varies the terms of such Offer shall be deemed a rejection thereof for
all purposes.
(vi) At the end of the Election Period, the Company shall review the
Election Notices and shall determine the rights of the Offerees and/or the
Buyer to acquire the Offered Stock in accordance with the following
provisions:
(A) First, the Company shall determine if one or more of the
Offerees have permissibly elected to purchase all of the Offered Stock
(this determination shall be made pursuant to Section 3(b)(vi)(C)). If
one or more of the Offerees have permissibly elected to purchase all of
the Offered Stock, then the electing Offerees shall be obligated to
purchase, and the Selling Party shall be obligated to sell, the Offered
Stock in the manner set forth in Section 3(b)(vi)(C)(II).
(B) Second, if the Offerees elected to purchase less than all of
the Offered Stock, the Company shall send a notice to the Offerees
informing them of the amount of Offered Stock which the Offerees have
not yet
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<PAGE>
elected to purchase (the "Shortfall Notice"). Each Offeree shall have
a period of five (5) Business Days from the date of delivery of the
Shortfall Notice (the "Extended Election Period") to send a new
Election Notice to the Company specifying the maximum amount of Offered
Stock that the Offeree would be willing to purchase on the terms and
conditions set forth in the Selling Party's Notice. If, after the end
of the Extended Election period, the Offerees have still not elected to
purchase all of the Offered Stock, then the Offer shall be deemed
rejected. In that event, the Company shall notify the Offerees and the
Selling Party that the Offer has been rejected, and the Selling Party
shall have the following options:
(I) The Selling Party may sell the Offered Stock to the
Buyer subject to the "Tag-Along Rights" (if applicable) of all
other Holders as set forth in Section 3(b)(ix); and
(II) If Section 3(b)(vi)(B)(I) does not apply, then the
Selling Holder shall be free to sell the Offered Stock to the
Buyer identified in the Third Party Offer in accordance with
Section 3(b)(viii).
(C) The Offered Stock shall be sold in the manner set forth
below:
(I) First, the Company shall be entitled to purchase all of
the Offered Stock pursuant to Section 3(b)(iv) above; and
(II) Second, if the Company does not elect to purchase all
of the Offered Stock, then the Offered Stock may be sold to, and
may be purchased by, the Offerees in the manner set forth in this
Section 3(b)(vi)(C)(II). The Company must initially evaluate the
Election Notices and, if applicable, those Election Notices
submitted during the Extended Election Period to determine if the
Offerees collectively elected to purchase the entire Offered
Stock. If after the termination of the Election Period, or, if
applicable, the Extended Election Period, the Offerees have not
elected to purchase the entire Offered Stock, then the Offerees
shall have no right to purchase the Offered Stock pursuant to this
Section 3(b)(vi)(C)(II), and the Selling Party shall have those
options described in Section 3(b)(vi)(B). If the Offerees have
elected to purchase the entire Offered Stock, then the electing
Holders shall be entitled to purchase
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<PAGE>
the Offered Stock in a manner set forth in clauses (a) and (b)
below:
(a) First, each of the Holders ("Like Kind Offerees")
------------------
owning the same type of Capital Stock as the Offered Stock
(i.e., Common Stock, with no distinction being made for
purposes of this section between Holders of Class A Common
and Class B Common, and/or Preferred Stock and/or Warrants)
(referred to as "Like Kind Stock") shall be entitled to
purchase the amount of the Like Kind Offered Stock such Like
Kind Offeree agreed to purchase in its Election Notice,
provided however, if the aggregate amount which all Like Kind
Offerees have agreed to purchase in their Election Notices is
in excess of the amount of Like Kind Offered Stock, (each
Like Kind Offeree shall be entitled to purchase its pro rata
share of the Offered Stock (based on the relative amounts
each have agreed to purchase in their Election Notices); and
(b) Second, if after the application of Section
3(b)(vi)(C)(II)(a) above, there remains any Offered Stock,
and one or more other Offerees ("Unlike Kind Offerees") have
--------------------
elected to purchase the Offered Stock, then those electing
Unlike Kind Offerees shall be entitled to purchase the amount
of the Offered Stock such Unlike Kind Offerees agreed to
purchase in their Election Notices, provided however, if the
aggregate amount which all Unlike Kind Offerees have agreed
to purchase in their Election Notices is in excess of the
remaining amount of Offered Stock, each Unlike Kind Offeree
shall be entitled to purchase its pro rata share of the
remaining Offered Stock (based on the relative amount each
have agreed to purchase in their Election Notices).
(vii) If, pursuant to this Section 3(b), the Company or one or more
Offerees become obligated to purchase part or all of the Offered Stock, the
Selling Party shall transfer such portion of the Offered Stock, free of all
liens and encumbrances (other than those imposed by this Agreement) and
properly endorsed, to the respective purchasing Offerees thereof within
thirty (30) days after the expiration of the Election Period or the Extended
Election Period, if applicable. This transfer shall be made against delivery
by the purchasing Offerees of immediately available funds payable to the
Selling Party.
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<PAGE>
(viii) If, pursuant to Section 3(b)(vi)(B) hereof, the Offer has been
deemed rejected by the Offerees, then subject to Section 3(b)(ix) and
Section 3(b)(x), if applicable, the Selling Party may sell the Offered Stock
to the Buyer identified in the Selling Party's Notice on such other terms
and conditions no less favorable than the terms set forth in the Selling
Party's Notice; provided, however, that such sale must close within ninety
(90) days after the expiration of the Election Period.
(ix) "Tag-Along" Rights. If any Holder of ten percent (10%) or more
------------------
of the Fully-Diluted Common Stock or any EUFCC Holder ("Selling Holder")
--------------
proposes a Voluntary Transfer of Common Stock (the "Offered Common Stock")
--------------------
to a Proposed Buyer pursuant to Section 3(b) hereof, then as to the other
Holders of Common Stock ("Tag-Along Holders"):
-----------------
(A) each Tag-Along Holder shall have the right to require the
Proposed Buyer to purchase from such Tag-Along Holder (and the Selling
Holder shall reduce by a corresponding amount) the number of shares of
Common Stock which is equal to the product of the number of shares of
Offered Common Stock and the fraction the numerator of which is the
number of shares of Common Stock owned by the Tag-Along Holder (and its
Affiliates) and the denominator of which is the total number of shares
of Common Stock outstanding.
(B) Any Common Stock purchased from a Tag-Along Holder pursuant
to this Section 3(b)(ix) shall be purchased at the same price and upon
all of the same terms and conditions (including appropriate
representations and warranties, as applicable) as the proposed transfer
by the Selling Holder.
(C) If a Holder proposes to transfer any Common Stock which is
subject to the provisions of this Section 3(b)(ix), it shall notify, or
cause to be notified, the Company in writing not less than ten (10)
days nor more than thirty (30) days prior to the time of the proposed
transfer (the "Transferor Tag-Along Notice"). The Company will
promptly forward a copy of the Transferor Tag-Along Notice to all other
Holders. The Transferor Tag-Along Notice shall set forth: (I) the
name and address of the Proposed Buyer and reasonably detailed
information regarding the Buyer's relationship with the other Holders;
(II) the proposed amount of consideration, which must be cash in lawful
money of the United States and the terms and conditions of offered by
the Proposed Buyer (the "Third Party Terms"); and (III) that the
Proposed Buyer has been informed of the terms of this Section 3(b)(ix)
and has
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<PAGE>
agreed to purchase Common Stock in accordance with the terms hereof.
(D) The Tag-Along Right provided for in this Section 3(b)(ix) may
be exercised by any Tag-Along Holder by delivery of a written notice to
the Company and the Selling Holder (the "Tag-Along Notice") within five
(5) days following receipt of the Transferor Tag-Along Notice (the
"Tag-Along Period"). The Tag-Along Notice shall state the maximum
amount of Common Stock, by type, that such Tag-Along Holder wishes to
include in the transfer to the Proposed Buyer.
(E) Within five (5) Business Days after the expiration of the
Tag-Along Period, the Company shall determine the amount(s) and type(s)
of Common Stock that each Tag-Along Holder shall be entitled to sell,
calculated pursuant to this Section 3(b)(ix). Upon the giving of the
Tag-Along Notice, each Tag-Along Holder shall be obligated to sell to
the Proposed Buyer the amount(s) of Common Stock set forth in the Tag-
Along Notice on the Proposed Buyer's terms. If the Proposed Buyer does
not purchase the Common Stock from any Tag-Along Holder as required
pursuant to this Section 3(b)(ix), then the transfer by any Selling
Holder and all Tag-Along Holders to such Proposed Buyer shall be null
and void and of no effect whatsoever.
(F) After expiration of the Tag-Along Period, if the provisions
of this Section 3(b)(ix) have been complied with and no Tag-Along
Notice has been given, the Selling Holder shall have the right for
sixty (60) days to transfer such Common Stock to the Proposed Buyer on
the Proposed Buyer's terms, but after sixty (60) days, no such transfer
may be made without again giving notice to the other Holders of the
proposed transfer and complying with the requirements of Section 3(b),
including this Section 3(b)(ix).
(x) "Drag-Along" Right.
-----------------
(A) If a Holder or a group of Holders owning Common Stock
representing sixty percent (60%) or more of the total amount of the
outstanding Common Stock plus In the Money Warrants, proposes to
transfer all their Common Stock to any third party who is not a Holder
or an Affiliate of a Holder (each, a "Drag-Along Group") then the Drag-
----------------
Along Group shall have the right to require all other Holders (the
"Compelled Holders") to sell to the third party all of their Capital
------------------
Stock notwithstanding any requirements to deliver a Selling Party's
Notice pursuant to Section 3(b) which would otherwise be applicable.
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<PAGE>
(B) If a Third Party Offer is extended contemplating the
acquisition of seventy-five percent (75%) or more of all outstanding
Common Stock and all In the Money Warrants, and (ii) a Holder or a
group of Holders owning Common Stock representing seventy-five percent
(75%) or more of the outstanding Common Stock plus In the Money
Warrants proposes to accept such Third Party Offer (again, each a
"Drag-Along Group"); then the Drag-Along Group shall have the right to
require all Holders of Common Stock and In the Money Warrants (which
for purposes of this Section 3(b)(x) hereof shall include the Drag
Along Group) (the "Compelled Holders") to sell to the third party their
-----------------
outstanding Common Stock and In the Money Warrants in accordance with
the Third Party Offer notwithstanding any requirements to deliver a
Selling Party's Notice pursuant to Section 3(b) which would otherwise
be applicable. For purposes of this Section 3(b)(x), "In the Money
------------
Warrants" shall refer to Warrants having a strike price less than the
--------
per share price at which the third party proposes to purchase the
Common Stock;
(C) Any Common Stock or In the Money Warrants purchased from a
Compelled Holder pursuant to this Section 3(b)(x) shall be purchased at
the same price and on the same terms and conditions as the proposed
transfer by the Drag-Along Group, provided that the purchase price for
the In the Money Warrants shall not be less than the difference between
the per share price of the Common Stock and the strike price of the In
the Money Warrant times the number of shares issuable upon exercise of
such warrants. With respect to Section 3(b)(x)(A), any Common Stock
purchased pursuant thereto will be purchased at the same price and
terms and conditions (including appropriate representations and
warranties, as applicable) as the proposed transfer by the Drag-Along
Group, and any other Capital Stock (other than Senior Preferred Stock
and Common Stock) purchased pursuant thereto shall be purchased at Fair
Market Value but otherwise on all of the same terms and conditions
(including appropriate representations and warranties, as applicable)
as the proposed transfer by the Drag-Along Group. In any circumstance
under Section 3(b)(x)(A) or (B), all Senior Preferred Stock shall be
redeemed at its liquidation preference at the time of the transfer
(which liquidation preference as set forth in the Certificate includes
an amount equal to any accrued but unpaid dividends); provided,
however, the Holders of the Preferred Stock shall be given the
opportunity to exercise their conversion rights and become a Compelled
Holder prior to any redemption.
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<PAGE>
(D) The Drag-Along Group that proposes to transfer any Capital
Stock shall, unless otherwise requested by the Buyer for
confidentiality or other reasons, notify, or cause to be notified, the
Company of the proposed transfer not less than ten (10) days prior to
the time of entering into a binding agreement requiring a transfer
pursuant to this Section 3(b)(x). Upon receipt of such notice, the
Company will promptly forward a copy thereof to all Compelled Holders.
In all events the Drag-Along Group shall notify the Company in writing
not less than twenty (20) days nor more than sixty (60) days prior to
the time of such proposed transfer (the "Transferor Drag-Along
---------------------
Notice"). The Company will promptly forward a copy of the Transferor
Drag-Along Notice to all Compelled Holders. The Transferor Drag-Along
Notice shall set forth: (I) the name and address of the third party
and reasonably detailed information regarding the Buyer's relationship
with the other Holders; (II) the proposed amount of consideration
(which must be cash in lawful money of the United States) and terms and
conditions of payment offered by the third party (the "Drag-Along Third
Party Terms"); provided, however that any transfer by the Compelled
Holders of Capital Stock shall be made against delivery of immediately
available funds payable to such Compelled Holders; and (III) that the
third party has been informed of the "Drag-Along Right" provided for in
----------------
this Section 3(b)(x) and has agreed to purchase all outstanding Capital
Stock in accordance with the terms hereof.
(E) Upon the giving of the Transferor Drag-Along Notice, each
Compelled Holder shall be entitled and obligated to sell to the third
party all of his, her, or its Capital Stock on the Drag-Along Third
Party Terms or his, her, or its Applicable Percentage of outstanding
Common Stock and In-the-Money Warrants, whichever the case may be;
provided, however, that neither the Drag-Along Group nor any Compelled
Holder shall consummate the sale of any Capital Stock owned by it
unless the third party purchases all of the Capital Stock described in
the Transferor Drag-Along Notice. If the third party does not purchase
all Capital Stock owned by each Compelled Holder or the Applicable
Percentage of each Holder's of outstanding Common Stock and In-the-
Money Warrants as required by this Section 3(b)(x), then any transfer
by the Drag-Along Group and all Compelled Holders to such third party
shall be null and void and of no effect whatsoever.
(c) Securities Law Compliance. Notwithstanding anything to the contrary
-------------------------
contained herein, no transfer of any Capital Stock of a Holder shall be
permitted if such transfer will violate the registration requirements of
applicable securities laws or cause
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<PAGE>
any prior offer and sale of shares of Capital Stock to violate such
requirements. The Company may require the proposed transferee to deliver to the
Company acceptable representations and warranties respecting his, her, or its
status under applicable securities laws and investment intent with respect to
the Capital Stock, and may require the transferor and transferee to supply such
other documentation as the Company may deem advisable in its sole discretion,
including an opinion of counsel that the subject transfer complies with
applicable securities laws and regulations.
(d) Transfers to Affiliates. Each Holder represents and warrants that he,
-----------------------
she, or it has no present intention or pre-existing plan or arrangement to
transfer any of its Capital Stock to an Affiliate or any third party. However,
subject to the requirements of Section 3(c) hereof, a Holder may transfer all or
any part of the Capital Stock held by it to an Affiliate of such Holder,
provided such Holder first obtains the written undertaking of such Affiliate
expressly for the benefit of such Holder, the Company, and the other Holders:
(i) to transfer such Capital Stock to such Holder (or such Holder's successor or
permitted assigns) or to offer the Capital Stock in accordance with the
provisions of Section 3(b) hereof when such Affiliate ceases to be an Affiliate
of such Holder; and (ii) that all of the Capital Stock of the Company that has
been transferred to such Affiliate shall remain subject to all the terms and
restrictions of this Agreement as provided herein. The provisions of Section 8
hereof shall apply to any transfer of Capital Stock by a Holder to an Affiliate.
In the event an Affiliate that is a transferee under this Section 3(d) ceases to
be an Affiliate of the transferring Holder, such Holder shall, cause such
Affiliate to transfer to such Holder (or to another Affiliate of such Holder or
to such Holder's successor or permitted assigns) all the transferred Capital
Stock owned by such former Affiliate in accordance with such undertaking
immediately prior to the time such Affiliate ceases to be an Affiliate of such
Holder or such Holder must offer such Capital Stock for sale in accordance with
the provisions of Section 3(b). An Affiliate that is a transferee under this
Section 3(d) shall, but only to the extent permitted by its undertaking with the
transferring Holder, be permitted to transfer the Capital Stock in accordance
with Section 3(b). In addition, transferors of Capital Stock permitted under
this Section 3(d) between Affiliates of the same Holder shall not be deemed to
be Voluntary Transfers pursuant to Section 3(b).
(e) Waiver of First Right of Refusal by Unanimous Vote of Board.
-----------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, the Board of
Directors may, by unanimous vote, waive the shareholders' first right of
refusal, the Company's first right of refusal and the other restrictions under
this Section 3 except as to an Affected Holder's first right of refusal in the
case of an Involuntary Transfer.
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<PAGE>
(f) Regulatory Compliance Cooperation.
---------------------------------
(i) If CIBC determines that is has a Regulatory Problem (as defined below),
then CIBC shall have the right to, and the Company shall take all such actions
as are reasonably requested by CIBC in order to, (a) effectuate and facilitate
the exchange of all or any portion of any voting security then held by CIBC on a
share-for-share basis for shares of a nonvoting security of the Company, which
nonvoting security shall be identical in all respects to the voting security
exchanged for it, except that it shall be nonvoting and shall be convertible
into a voting security on such terms as are requested by CIBC in light of
regulatory considerations then prevailing and CIBC may transfer such nonvoting
securities to an Affiliate of CIBC pursuant to Section 3(d) above, and (b) amend
this Agreement, the Certificate, the Bylaws and related agreements and
instruments to effectuate and reflect the foregoing. The parties to this
Agreement agree to vote their securities in favor of such amendments and
actions.
(ii) For purposes of this Agreement, a "Regulatory Problem" means any set of
facts or circumstances wherein it has been asserted by a governmental regulatory
agency (or CIBC advises the Board of Directors that CIBC believes that there is
a substantial risk of such assertion) that CIBC is not entitled to hold or
exercise any significant right with respect to, the Common Stock.
4. SUBSCRIPTION RIGHTS.
-------------------
The Company will not issue or sell any New Securities without first
complying with this Section 4; provided that Holders holding at least seventy-
five percent (75%) of the outstanding Common Stock and Warrants (having a strike
price less than the per share Fair Market Value of the Common Stock) at the time
may agree in writing to waive the provisions of this Section 4, and such waiver
will be binding on all Holders.
(a) If the Company proposes to issue or sell New Securities, it will give
each Holder written notice of its
intention, describing the type of New Securities and the price and terms upon
which the Company proposes to issue or sell the New Securities. If New
Securities are to be offered or sold as part of a unit with other securities of
the Company, the subscription right granted by this Section 4 will apply to such
units and not to the individual New Securities comprising such units.
(b) Each Holder will have twenty (20) days from the date of receipt of any
such notice to agree to purchase up to its respective Pro Rata Share of the New
Securities, for the price and on the other terms specified in the notice, by
giving written notice to the Company stating the quantity of New Securities
agreed to be purchased.
(c) If a Holder fails to exercise such subscription right fully within such
twenty (20) day period, the other Holders will
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<PAGE>
have an additional five (5) day period to purchase the portion not purchased by
such Holder, in the same proportion in which such other Holders were entitled to
purchase the New Securities. Thereafter, the Company will have ninety (90) days
to sell any New Securities at the same price and on the same other terms
specified in the Company's notice. If the Company has not sold the New
Securities within such ninety (90) day period, the Company will not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
(d) The foregoing subscription right may not be assigned or transferred
apart from the Capital Stock.
5. TERMINATION. This Agreement shall terminate:
-----------
(a) in respect of all Holders, upon (i) the effective date of a Public
Offering by the Company, (ii) the merger, consolidation or reorganization of the
Company, or the sale of all or substantially all of the assets of the Company,
if, immediately following such transaction, the Persons who were stockholders of
the Company immediately prior to such transaction own less than a majority of
the combined voting power to elect directors and the combined equity ownership
interest in the surviving entity, or such surviving entity has publicly traded
Common Stock not held by the parties to the Agreement with a market value in
excess of $30,000,000 and listed on a national securities exchange or national
market system, or (iii) the written consent of CIBC, the Talton Holders, Regent
and the EUFCC Holders (but only so long as each such party is entitled to
designate at least one (1) member of the Board of Directors pursuant to Section
2 hereof) and a Majority in Interest of the Other Holders; or
(b) in respect of any Holder, when such Holder no longer owns any Capital
Stock.
6. REQUIRED ACTIONS. Each Holder and the Company shall take all action
----------------
reasonably within its power to cause the Company to fulfill the following
obligations and requirements:
(a) Reimbursement for Organizational Expenses. The Company shall reimburse
-----------------------------------------
the EUFCC Holders and their Affiliates for all reasonable expenses,
disbursements, and advances incurred or made, and all fees, deposits, and other
sums paid in connection with the organization of the Company, the qualification
of the Company to do business, the acquisition of the assets of the Company, the
financing of both the acquisition and the operation of the assets by the
Company, and all related matters, provided, however, as to out-of-pocket costs
incurred by the EUFCC Holders and their Affiliates for travel, entertainment,
telephone, delivery expenses, and copying charges, and other similar out-of-
pocket expenses, reimbursement of such out-of-pocket costs shall not exceed
$100,000 in the aggregate unless otherwise approved by the Board of Directors.
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<PAGE>
(b) Reimbursement for Operational Expenses. The Company shall enter into a
--------------------------------------
Consulting and Strategic Services Agreement with certain Affiliates of the EUFCC
Holders pursuant to which such Affiliates agree to provide certain consulting
services to the Company in exchange for the compensation provided therein, and
reimbursement of all reasonable, direct, third-party costs and expenses that are
incurred on behalf of, or in connection with, the management and operation of
the business of the Company, including, but not limited to, that portion of the
EUFCC Holders' Affiliates' legal and accounting costs and expenses, telephone,
travel, and entertainment expenses, and additional expenses that are necessary
or appropriate to the conduct of the Company's business and allocable to the
Company the aggregate amount of such reimbursement not to exceed $75,000 per
year, unless otherwise approved by the Board of Directors.
(c) The Company shall enter into a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B, with each Holder in
respect to the Capital Stock owned or which may be acquired by such Holder.
(d) The Company will furnish the following reports to each Holder:
(i) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
and consolidating balance sheet of the Company and its subsidiaries, if any,
as at the end of such fiscal year, and consolidated and consolidating
statements of earnings and cash flows of the Company and its subsidiaries
for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and certified by the Chief Financial Officer and independent public
accountants of recognized national standing selected by the Company, and a
Company prepared comparison to the Company's operating plan for such year.
(ii) As soon as practicable after the end of each quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-
five (45) days thereafter, a consolidated and consolidating balance sheet
of the Company and its subsidiaries as of the end of each such quarterly
period, and consolidated and consolidating statements of earnings and cash
flows of the Company and its subsidiaries for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in comparative
form the figures for the corresponding period of the previous fiscal year
and to the Company's operating plan then in effect and approved by its Board
of Directors, subject to changes resulting from normal year-end audit
-25-
<PAGE>
adjustments, all in reasonable detail and certified by the principal
financial or accounting officer of the Company, except that such financial
statements need not contain the notes required by generally accepted
accounting principles.
(iii) As soon as available and in any event within forty-five (45)
days after the end of each fiscal quarter, a written statement setting forth
management's discussion and analysis of the financial condition and results
of operations of the Company and its Subsidiaries for such fiscal quarter.
(iv) The Company will permit any Significant Holder (or a
representative of any Significant Holder) to visit and inspect any of the
properties of the Company, including its books of account and other records
(and make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as
any such person may reasonably request.
(v) The Company will deliver the reports described below to each
Significant Holder, who so requests in writing:
(A) As soon as practical after the end of each month and in any
event within forty-five (45) days thereafter, a consolidated and
consolidating balance sheet of the Company and its subsidiaries as at
the end of such month and consolidated and consolidating statements of
earnings and cash flows of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, all
subject to normal year-end audit adjustments, prepared in accordance
with generally accepted accounting principles consistently applied and
certified by the principal financial or accounting officer of the
Company, together with a comparison of such statements to the
corresponding periods of the prior fiscal year and to the Company's
operating plan then in effect and approved by its Board of Directors,
and accompanied by a written statement setting forth management's
discussion and analysis of the financial condition and results of
operations of the Company and its Subsidiaries for such month.
(B) As soon as practicable after the end of each fiscal year (and
in any event no later than sixty (60) days thereafter) the financial
plan of the Company, in such manner and form as approved by the Board
of Directors of the Company, which financial plan shall include at
least a projection of income and a projected cash flow statement for
each fiscal quarter in such fiscal year and a projected balance sheet
as of the end
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<PAGE>
of each fiscal quarter in such fiscal year. Any material changes in
such business plan shall be delivered to each Significant Holder as
promptly as practicable after such changes have been approved by the
Board of Directors of the Company and in any event within 30 days after
the end of each fiscal quarter.
(C) With reasonable promptness, such other information and data
with respect to the Company and its subsidiaries as any such person may
from time to time reasonably request.
(D) As soon as practicable after transmission or occurrence and
in any event within ten (10) days thereof, copies of any reports or
communications delivered to any class of the Company's Holders or
broadly to the financial community, including any filings by the
Company with any securities exchange, the Securities and Exchange
Commission, or the National Association of Securities Dealers, Inc.
(e) The provisions of Section 6(d) and this Section 6(e) shall not be in
limitation to any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(f) Anything in Sections 6(d) and 6(e) to the contrary notwithstanding, no
Holder or Significant Holder by reason of this Agreement shall have access to
any trade secrets or classified information of the Company except as otherwise
required by law. Each Significant Holder hereby agrees to hold in confidence
and trust and not to misuse or disclose any confidential information provided
pursuant to Section 6(d). The Company shall not be required to comply with
Section 6(d) in respect of any Holder whom the Company reasonably determines to
be a competitor or an officer, employee, director or greater than ten percent
(10%) stockholder of a competitor.
(g) Each Holder hereby agrees to execute pledge agreements, blank stock
powers, and other documents to evidence the pledge of his, her, or its Capital
Stock as security for the obligations of the Company under that certain Credit
Agreement for the Company's senior secured debt.
7. AMENDMENT. This Agreement may be amended by the written consent of
---------
CIBC, the Talton Holders, Regent, the EUFCC Holders (but only so long as each
such party is entitled to designate at least one (1) member of the Board of
Directors pursuant to Section 2 hereof and only so long as such modification or
amendment would affect such Holder's rights or obligations hereunder) and a
Majority in Interest of the Other Holders, and as so amended shall be binding on
all parties. Notwithstanding the
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<PAGE>
foregoing, no provision of this Agreement shall be amended, altered, changed,
repealed or rescinded if the effect thereof would be to materially adversely
affect the rights of, or materially increase the restrictions on or obligations
of, one or more Holders, without the prior written consent of such Holders.
8. SHARES SUBJECT TO THIS AGREEMENT. All Capital Stock of the Company now
--------------------------------
owned or hereafter acquired by any of the Holders shall be subject to the terms
of this Agreement. In the event any Capital Stock is issued by the Company or
transferred in accordance with the terms of this Agreement, the Company or the
transferring Holder (as applicable) shall require as a condition precedent to
such transfer that the transferee (to the extent such Person is not at such time
a party to this Agreement) execute a counterpart of this Agreement agreeing to
be subject to all of the terms and restrictions contained herein. Upon
execution of such counterpart of this Agreement and compliance with any other
requirement imposed by this Agreement with respect to such transfer, such
transferee shall become a "Holder" under this Agreement. The Company hereby
agrees to grant to any such new Holder the registration rights granted to the
other Holders as provided in the form of the Registration Rights Agreement
attached hereto.
9. LEGENDS. Certificates evidencing Capital Stock shall contain
-------
substantially the restrictive legends set forth on EXHIBIT A attached hereto for
---------
so long as this Agreement is in effect or any restrictions on transfer apply.
10. WITHHOLDING. The Company, to the extent required by law, may withhold
-----------
and pay over, or otherwise pay, any withholding or other taxes, and any
penalties and/or interest associated with such withholding or other taxes,
payable by the Company with respect to any Holder as a result of such Holder's
participation in the Company.
11. JUNIOR PREFERRED. Upon the unanimous consent of the Board of
----------------
Directors, the Company may issue a series of Junior Preferred Stock which is
subordinate to the Senior Preferred Stock and senior to the Common Stock. Such
Junior Preferred Stock shall contain a liquidation preference of $1,000 per
share and shall be redeemable by the Company at any time for an amount equal to
said liquidation preference. Upon the unanimous consent of the Board of
Directors, the Company may issue to each Holder of Class A Common one share of
Junior Preferred Stock in exchange for each share of Class A Common held by such
Holder and such Holder shall hereunder agree to such exchange upon issue of said
Junior Preferred Stock provided that issues of Junior Preferred Stock must be
made subject to the rights of the parties under the Registration Rights
Agreement, to all Holders of Class A Common on a pro rata basis and no more than
ninety percent (90%) of the Class A Common may be exchanged for Junior Preferred
Stock.
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<PAGE>
12. GENERAL PROVISIONS.
------------------
(a) Addresses and Notices:
---------------------
(i) The address of each Holder for all purposes under this Agreement
shall be the address set forth for such Holder on Schedule 1 or Schedule 2
(as applicable). The address of the Company for all purposes under this
Agreement is 3811 Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219,
Telecopy: (214) 528-9929, Attention: Todd W. Follmer, or such other
address of which the Holders have received ten (10) days prior written
notice.
(ii) Any notices, demand, request or report required or permitted to
be given by or made to the Company or any Holder under this Agreement shall
be in writing and shall be deemed given or made (A) when delivered in
person, (B) one day after being sent by overnight delivery service or (C)
three (3) business days after the date of mailing when sent by United States
registered or certified mail to the address referenced in Section 12(a)(i)
above.
(b) Titles and Captions. All section titles and captions in this Agreement
-------------------
are for convenience only, shall not be deemed part of this Agreement, and in no
way shall define, limit, extend, or describe the scope or intent of any
provisions hereof. Except as specifically provided otherwise, references to
"Sections" are to Sections of this Agreement.
(c) Pronouns and Plurals. Whenever the context may require, any pronoun
--------------------
used in this Agreement shall include the corresponding masculine, feminine, or
neuter forms, and the singular form of nouns, pronouns, and verbs shall include
the plural and vice versa.
(d) Further Action. The parties shall execute all documents, provide all
--------------
information, and take or refrain from taking all actions as may be necessary or
appropriate to achieve the purposes of this Agreement.
(e) Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns. The Company shall not
be entitled to assign any of its rights or transfer any of its obligations under
this Agreement without first obtaining the written consent of all Holders.
(f) Final Agreement. This Agreement and the other written agreements
---------------
executed contemporaneously with this Agreement represent the final agreement
between the parties and supersede and may not be contradicted by evidence of
prior, contemporaneous or subsequent oral agreements of the parties. There are
no unwritten oral agreements between the parties.
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<PAGE>
(g) Creditors. None of the provisions of this Agreement shall be for the
---------
benefit of or enforceable by any creditors of the Company, except as otherwise
expressly provided herein.
(h) Waiver. No failure by any party to insist upon the strict performance
------
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement, or condition. No single
or partial exercise of any power or right shall preclude any other or further
exercise thereof or the exercise of any other power or right. No waiver by a
party of any right hereunder or of any default by another shall be binding upon
such party unless in writing.
(i) Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
(j) APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
--------------
AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
(k) Invalidity of Provisions. If any provision of this Agreement is
------------------------
declared or found to be illegal, unenforceable, or void, in whole or in part,
then the parties shall be relieved of all obligations arising under such
provision, but only to the extent that it is illegal, unenforceable, or void, it
being the intent and agreement of the parties that this Agreement shall be
deemed amended by modifying such provision to the extent necessary to make it
legal and enforceable while preserving its intent or, if that is not possible,
by substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
(l) Specific Performance. The Holders and the Company recognize that the
--------------------
obligations imposed on them under this Agreement are special, unique and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Holders and
the Company may have specific performance (in addition to damages) as a remedy
for the enforcement hereof, without proving damages.
(m) Mandatory Arbitration. Any controversy or claim between or among the
---------------------
parties hereto, including but not limited to those arising out of or relating to
this Agreement, shall be determined by binding arbitration in accordance with
the Federal Arbitration Act (or, if not applicable, the applicable Delaware
law), the rules of practice and procedure for the arbitration of commercial
disputes of the American Arbitration Association
-30-
<PAGE>
("A.A.A."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this
Agreement may bring an action, including a summary or expedited proceeding, to
compel arbitration of any controversy or claim to which this Agreement applies
in any court having jurisdiction over such action.
(i) Special Rules. The arbitration shall be conducted in the Borough
-------------
of Manhattan, New York, New York and administered by A.A.A., who will
appoint an arbitrator. All arbitration hearings will be commenced within
ninety (90) days of the demand for arbitration. Further, the arbitrator
shall only, upon a showing of cause, be permitted to extend the commencement
of such hearing for an additional sixty (60) days.
IN WITNESS WHEREOF, the parties hereto have executed a counterpart signature
page of this Agreement as of the date first above written.
-31-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
TALTON HOLDINGS, INC.
- ---------------------
(name of entity)
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
-32-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Partnership:
- ------------------------------
(name of partnership)
By:
---------------------------
(name of general partner)
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Individual:
/s/ JULIUS E. TALTON
- -----------------------------
Name: Julius E. Talton*
*If married, spouse should also sign the Spousal Consent on the next page.
-33-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 19, 1996 /s/ PEARLE L. TALTON
- -------------------------- -----------------------------------------
(Date) (Signature)
Pearle L. Talton
-----------------------------------------
(Name)
-34-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JULIUS E. TALTON, JR.
- -----------------------------
Name: Julius E. Talton, Jr.*
*If married, spouse should also sign the Spousal Consent on the next page.
-35-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 19, 1996 /s/ RUTH J. TALTON
- -------------------------- -----------------------------------------
(Date) (Signature)
Ruth J. Talton
-----------------------------------------
(Name)
-36-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Partnership:
- ------------------------------
(name of partnership)
By:
---------------------------
(name of general partner)
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Individual:
/s/ JAMES E. LUMPKIN
- ------------------------------
Name: James E. Lumpkin*
*If married, spouse should also sign the Spousal Consent on the next page.
-37-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 19, 1996 /s/ PEGGY LUMPKIN
- -------------------------- -----------------------------------------
(Date) (Signature)
Peggy Lumpkin
-----------------------------------------
(Name)
-38-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
CIBC WOOD GUNDY VENTURES, INC.
By: /s/ BARRY STEWART
------------------------
Name: Barry Stewart
Title: Director, Secretary
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name:*
*If married, spouse should also sign the Spousal Consent on the next page.
-39-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:__________________________
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ TERRY MATLACK
- -----------------------------
Name: Terry Matlack*
*If married, spouse should also sign the Spousal Consent on the next page.
-40-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 18, 1996 /s/ CATHY MATLACK
- -------------------------- -----------------------------------------
(Date) (Signature)
Cathy Matlack
-----------------------------------------
(Name)
-41-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JOHN R. SUMMERS
- -----------------------------
Name: John R. Summers
*If married, spouse should also sign the Spousal Consent on the next page.
-42-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
/s/ PAMELA S. SUMMERS
- -------------------------- -----------------------------------------
(Date) (Signature)
Pamela S. Summers
-----------------------------------------
(Name)
-43-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ RICHARD C. GREEN, JR.
- -----------------------------
Name: Richard C. Green, Jr.*
*If married, spouse should also sign the Spousal Consent on the next page.
-44-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ NANCY R. GREEN
- -------------------------- -----------------------------------------
(Date) (Signature)
Nancy R. Green
-----------------------------------------
(Name)
-45-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ ROBERT K. GREEN
- -----------------------------
Name: Robert K. Green*
*If married, spouse should also sign the Spousal Consent on the next page.
-46-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 18, 1996 /s/ JULIE GREEN
- -------------------------- -----------------------------------------
(Date) (Signature)
Julie Green
-----------------------------------------
(Name)
-47-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ T. RANDALL THOMPSON
- -----------------------------
Name: T. Randall Thompson*
*If married, spouse should also sign the Spousal Consent on the next page.
-48-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 15, 1996 /s/ GAY C. THOMPSON
- -------------------------- -----------------------------------------
(Date) (Signature)
Gay C. Thompson
-----------------------------------------
(Name)
-49-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ ROGER K. SALLEE
- -----------------------------
Name: Roger K. Sallee*
*If married, spouse should also sign the Spousal Consent on the next page.
-50-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ VICKI SALLEE
- -------------------------- -----------------------------------------
(Date) (Signature)
Vicki Sallee
-----------------------------------------
(Name)
-51-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ DAVID P. LORENZ
- -----------------------------
Name: David P. Lorenz*
*If married, spouse should also sign the Spousal Consent on the next page.
-52-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
/s/ DENNY KAE LORENZ
- -------------------------- -----------------------------------------
(Date) (Signature)
Denny Kae Lorenz
-----------------------------------------
(Name)
-53-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JOHN C. DUNN
- -----------------------------
Name: John C. Dunn*
*If married, spouse should also sign the Spousal Consent on the next page.
-54-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
/s/ ANITA M. DUNN
- -------------------------- -----------------------------------------
(Date) (Signature)
Anita M. Dunn
-----------------------------------------
(Name)
-55-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JOHN R. BAKER
- ----------------------------
Name: John R. Baker*
*If married, spouse should also sign the Spousal Consent on the next page.
-56-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 15, 1996 /s/ ELIZABETH J. BAKER
------------------------------ -----------------------------------
(Date) (Signature)
Elizabeth J. Baker
-----------------------------------
(Name)
-57-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ GREGG L. ENGLES
- ---------------------------------------
Name: Gregg L. Engles*
*If married, spouse should also sign the Spousal Consent on the next page.
-58-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ CYNTHIA K. ENGLES
------------------------------ -----------------------------------
(Date) (Signature)
Cynthia K. Engles
-----------------------------------
(Name)
-59-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ---------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- --------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ JOSEPH P. URSO
- ---------------------------------------
Name: Joseph P. Ursos*
*If married, spouse should also sign the Spousal Consent on the next page.
-60-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ LIZA P. URSO
--------------------------------- --------------------------------
(Date) (Signature)
Liza P. Urso
--------------------------------
(Name)
-61-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ TODD W. FOLLMER
- ---------------------------------------
Name: Todd W. Follmer*
*If married, spouse should also sign the Spousal Consent on the next page.
-62-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ TRACI R. FOLLMER
- ----------------------------------- -----------------------------------
(Date) (Signature)
Traci R. Follmer
-----------------------------------
(Name)
-63-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
ONYX TALTON PARTNERS, L.P.
- ---------------------------------------
(name of partnership)
By: Onyx Partners, Inc.
------------------------------------
(name of general partner)
By: /s/ DAVID A. SACHS
-----------------------------------
Name: David A. Sachs
Title: Vice President
Individual:
- ---------------------------------------
Name: *
---------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
-64-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- --------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
SACHS INVESTMENT PARTNERS
- --------------------------------------
(name of partnership)
By: David A. Sachs
-----------------------------------
(name of general partner)
By: /s/ DAVID A. SACHS
-----------------------------------
Name: David A. Sachs
Title: General Partner
Individual:
- ---------------------------------------
Name: *
----------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
-65-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
REGENT CAPTIAL EQUITY PARTNERS, L.P.
- --------------------------------------
(name of entity)
By: Regent Capital Partners, L.P.,
as general partner
By: Regent Capital Holdings, Inc.,
as general partner
By: /s/ NINA MCLEMORE
-----------------------------------
Name: Nina McLemore
Title: Managing Director
Partnership:
- --------------------------------------
(name of partnership)
By:
-----------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
- ---------------------------------------
Name:
----------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
Partnership:
-66-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
RICHARD & NANCY BLOCH AS TRUSTEES FOR THE
- -----------------------------------------
RICHARD & NANCY BLOCH FAMILY TRUST DTD 12/17/86
- -----------------------------------------------
(name of entity)
By: /s/ RICHARD L. BLOCH
----------------------------------
Name: Richard L. Bloch
Title: Trustee
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
- ---------------------------------------
Name: *
-----------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
Partnership:
-67-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- --------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ ABRAHAM L. MORRIS
- ---------------------------------------
Name: Abraham L. Morris*
*If married, spouse should also sign the Spousal Consent on the next page.
-68-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 19, 1996 /s/ ANDREA H. MORRIS
- ------------------------------------ -----------------------------------
(Date) (Signature)
Andrea H. Morris
-----------------------------------
(Name)
-69-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ---------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
MAISS FAMILY PARTNERSHIP, L.P.
- ---------------------------------------
(name of partnership)
By: Alan Maiss
------------------------------------
(name of general partner)
By: /s/ ALAN MAISS
------------------------------------
Name: Alan Maiss
Title: General Partner
Individual:
- ---------------------------------------
Name: *
----------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
-70-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ NOBATAKA MUTAGUCHI
- ---------------------------------------
Name: Nobataka Mutaguchi*
*If married, spouse should also sign the Spousal Consent on the next page.
-71-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ---------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
-----------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ SADAFUMI TAKAKUBO
- ---------------------------------------
Name: Sadafumi Takakubo*
*If married, spouse should also sign the Spousal Consent on the next page.
-72-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ---------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ MICHIO SOGA
- ---------------------------------------
Name: Michio Soga*
*If married, spouse should also sign the Spousal Consent on the next page.
-73-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
CAPITAL ALLIANCE CORPORATION
- ---------------------------------------
(name of entity)
By: /s/ EDWARD J. DAWSON
----------------------------------
Name: Edward J. Dawson
Title: President
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
- ---------------------------------------
Name: *
----------------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
-74-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- --------------------------------------
(name of entity)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Partnership:
- ---------------------------------------
(name of partnership)
By:
------------------------------------
(name of general partner)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Individual:
/s/ JAMES G. BURTON
- ---------------------------------------
Name: James G. Burton*
*If married, spouse should also sign the Spousal Consent on the next page.
-75-
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 13, 1996 /s/ VICTORIA M. BURTON
- -------------------------------------- --------------------------------
(Date) (Signature)
Victoria M. Burton
--------------------------------
(Name)
-76-
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
STREMMEL CAPITAL GROUP
- -----------------------------
(name of partnership)
By: Peter Stremmel
--------------------------
(name of general partner)
By: /s/ PETER STREMMEL
--------------------------
Name: Peter Stremmel
Title: Partner
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
77
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
LEWIS A. LEVEY, TRUSTEE
- -----------------------
LEWIS A. LEVEY REVOCABLE TRUST
- ------------------------------
DATED 12/15/95
- --------------
(name of entity)
By: /s/ LEWIS A. LEVEY, TRUSTEE
---------------------------
Name: Lewis A. Levey
Title: Trustee
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
78
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
TARRAGONA FUND, INC.
- --------------------
(name of entity)
By: /s/ P.J. WENTZEL
--------------------------
Name: P.J. Wentzel
Title: Director
By: /s/ ANTHONY H. MARKHAM
--------------------------
Name: Anthony H. Markham
Title: Director
Partnership:
- -----------------------------
(name of partnership)
By:__________________________
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
79
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
BONNINGTON CORPORATION
- -----------------------------
(name of entity)
By: /s/ LOURDES A. GARCIA
--------------------------
Name: Lourdes A. Garcia
Title: President
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
80
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JULIE E. SILCOCK
- -----------------------------
Name: Julie E. Silcock*
*If married, spouse should also sign the Spousal Consent on the next page.
81
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 14, 1996 /s/ JIM SILCOCK
- -------------------------- -----------------------------------------
(Date) (Signature)
Jim Silcock
-----------------------------------------
(Name)
82
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JIM SILCOCK
- -----------------------------
Name: Jim Silcock*
*If married, spouse should also sign the Spousal Consent on the next page.
83
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 14, 1996 /s/ JULIE E. SILCOCK
- -------------------------- -----------------------------------------
(Date) (Signature)
Julie E. Silcock
-----------------------------------------
(Name)
84
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
NOLL INVESTMENTS LLP
- ----------------------------
(name of partnership)
By: Tracy Noll
---------------------------
(name of general partner)
By: /s/ TRACY NOLL
---------------------------
Name: Tracy Noll
Title: President
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
85
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
FIELD TELECOMMS PROFIT SHARING PLAN
- -----------------------------------
(name of entity)
By: /s/ JOHN R. CHRISTIE
--------------------------
Name: John R. Christie
Title: President/Trustee
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
86
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ WALDEMAR D. MAYA, JR.
- -----------------------------
Name: Waldemar D. Maya, Jr.*
*If married, spouse should also sign the Spousal Consent on the next page.
87
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ ROBERT L. KAMINSKI
- -----------------------------
Name: Robert L. Kaminski*
*If married, spouse should also sign the Spousal Consent on the next page.
88
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
/s/ SUSAN KAMINSKI
- -------------------------- -----------------------------------------
(Date) (Signature)
Susan Kaminski
-----------------------------------------
(Name)
89
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JOHN S. BAIN
- -----------------------------
Name: John S. Bain*
*If married, spouse should also sign the Spousal Consent on the next page.
90
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ ILAN BIALER
- -----------------------------
Name: Ilan Bialer*
*If married, spouse should also sign the Spousal Consent on the next page.
91
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
THE BIALER FAMILY TRUST DATED 10/13/92
- --------------------------------------
(name of entity)
By: /s/ JOE BIALER
--------------------------
Name: Joe Bialer
Title: Trustee
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
92
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ DONALD W. CHESTER, M.D.
- ------------------------------
Name: Donald W. Chester, M.D.*
*If married, spouse should also sign the Spousal Consent on the next page.
93
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 17, 1996 /s/ JOAN CHESTER
- -------------------------- -----------------------------------------
(Date) (Signature)
Joan Chester
-----------------------------------------
(Name)
94
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- ------------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JOHN T. TIERNEY
- -----------------------------
Name: John T. Tierney*
*If married, spouse should also sign the Spousal Consent on the next page.
95
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ CARL C. CHRISTOFF
- -----------------------------
Name: Carl C. Christoff*
*If married, spouse should also sign the Spousal Consent on the next page.
96
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
/s/ GINA H. CHRISTOFF
- -------------------------- -----------------------------------------
(Date) (Signature)
Gina H. Christoff
-----------------------------------------
(Name)
97
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
-------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ JEFF AND CURRAN DANDURAND
- --------------------------------
Name: Jeff J. Dandurand*
*If married, spouse should also sign the Spousal Consent on the next page.
98
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 18, 1996 /s/ JEFF J. DANDURAND
- -------------------------- -----------------------------------------
(Date) (Signature)
Jeff J. Dandurand
-----------------------------------------
(Name)
99
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 16, 1996 /s/ CURRAN DANDURAND
- -------------------------- -----------------------------------------
(Date) (Signature)
Curran Dandurand
-----------------------------------------
(Name)
100
<PAGE>
SIGNATURES TO SHAREHOLDER
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
DOROTHY RICHARDS INTERVIVOS TRUST DATED 7/6/91
- ----------------------------------------------
(name of entity)
By: /s/ DOROTHY RICHARDS
--------------------------
Name: Dorothy Richards
Title: Trustee
Partnership:
- ----------------------------
(name of partnership)
By:
-------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
- -----------------------------
Name: *
------------------------
*If married, spouse should also sign the Spousal Consent on the next page.
101
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ CARL A. MAYER, JR.
- -----------------------------
Name: Carl A. Mayer, Jr.*
*If married, spouse should also sign the Spousal Consent on the next page.
102
<PAGE>
SIGNATURES TO SHAREHOLDERS AGREEMENT
The undersigned hereby executes this counterpart signature page of the
Shareholders Agreement, dated as of ______________, among Talton Holdings, Inc.
and the Holders identified therein.
Corporation or Trust:
- -----------------------------
(name of entity)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Partnership:
- -----------------------------
(name of partnership)
By:
--------------------------
(name of general partner)
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Individual:
/s/ ROHNN M. LAMPI
- ------------------------------
Name: Rohnn M. Lampi*
*If married, spouse should also sign the Spousal Consent on the next page.
103
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Shareholders Agreement of
Talton Holdings, Inc., that I know its contents, that I consent thereto and that
I agree to be bound by its terms and become a party thereto. I am aware that by
its provisions, among other things, my spouse is required to sell his/her
Capital Stock in Talton Holdings, Inc., including my community property or other
interest therein (if any), upon his/her death and upon certain other events and
that the transfer of such Capital Stock is otherwise restricted and that I or my
spouse's estate may be required thereunder to sell such shares of Capital Stock.
I am also aware of the rights granted to my spouse and the other parties to the
Agreement to purchase any Capital Stock of Talton Holdings, Inc. that I may
acquire by virtue of an Involuntary Transfer (as defined in the Agreement),
including without limitation any Capital Stock that may be awarded or
distributed to me in any dissolution, divorce, legal separation or other similar
proceeding.
December 16, 1996 /s/ LESLIE B. LAMPI
- -------------------------- -----------------------------------------
(Date) (Signature)
Leslie B. Lampi
-----------------------------------------
(Name)
104
<PAGE>
EXHIBIT A
To Shareholders Agreement
Form of Legend
--------------
THE TRANSFER AND VOTING OF ANY SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED BY THE TERMS OF A SHAREHOLDERS AGREEMENT AMONG TALTON HOLDINGS, INC.
(THE "COMPANY") AND ITS SHAREHOLDERS AND WARRANT HOLDERS, A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE APPLICABLE SECURITIES LAWS
OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF
SUCH ACT AND THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
THE COMPANY WILL FURNISH TO ANY SHAREHOLDER OR WARRANT HOLDER UPON REQUEST AND
WITHOUT CHARGE A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR SPECIAL RIGHTS OF THE SHARES OF EACH CLASS AND OF
EACH SERIES OF STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY
OF THE BOARD OF DIRECTORS TO ESTABLISH OTHER SERIES AND TO FIX THE RELATIVE
RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF ANY CLASS OR SERIES BY
AMENDMENT OF THE CERTIFICATE OF INCORPORATION.
-109-
<PAGE>
EXHIBIT B
To Shareholders Agreement
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement is not attached hereto.
It is produced as a separate material document.
-110-
<PAGE>
EXHIBIT 4.7
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and CIBC Wood Gundy Ventures, Inc. (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 4,850 shares of the Company's Class A Common Stock, $0.01 per value
("Class A Common") and, in connection therewith, the Company has agreed to issue
and sell to the Holder a Stock Purchase Warrant, as hereinafter described (the
"Warrant"), to purchase 1085.5263 shares (the "Shares") of the Company's Class A
Common. The issuance of the Warrant by the Company shall occur concurrently
with the Holder's acquisition of the Class A Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and interests hereunder are assignable or transferable by the Holder only
in whole and not in part. Any Shares issued pursuant to a
-1-
<PAGE>
Warrant issued hereunder shall be subject to the rights and obligations of that
certain Registration Rights Agreement dated of even date herewith between the
Company and the Holder, and the Shareholders Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT
-2-
<PAGE>
IT IS ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND CIBC WOOD GUNDY VENTURES, INC. (THE
"HOLDER"), THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY
AND AMONG THE COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF
DECEMBER 27, 1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS
AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's
own account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the 1933
Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of them
only (i) to an "accredited investor", (ii) in compliance with the 1933 Act, as
then in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized securities
counsel to the effect that the disposition or transfer is to be made in
compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i) in
cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise, the
current market price shall be determined in accordance with the provisions of
Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $1,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it may receive
shares of two or more classes of capital stock of the Company, the Company shall
determine the allocation of the adjusted Warrant Price between the classes of
capital stock. After such allocation, the exercise privilege and the Warrant
Price of each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those certain
contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
-----
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
-----
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of
such additional shares
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
------------------------------------------------------
Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
-----
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such securities
P = the aggregate consideration received for the issuance of such
securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion, exercise
or in exchange for such securities at the initial conversion price, exercise
price or exchange rate
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a
bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of
this Section 7.1(a) the current market price per share of Common Stock on
any date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average
of the Quoted Prices of the Common Stock for 20 consecutive trading days
before the date in question. The "Quoted Price" of the Common Stock is the
last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute
-------- -------
the Fair Market Value as determined by the Board, such holder may undertake
to have it and the Company retain an Independent Expert. The determination
of Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market
Value as determined by the Independent Expert exceeds the Fair Market Value
as determined by the Board by 5% but less than 10%, in which case the cost
of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne
solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
Where:
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<PAGE>
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that
the adjustment shall be effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (1) issuing to the
holder of the Warrant or portion thereof exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the
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<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement
------------------------
or in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company
-------
or by the Holder shall be in writing and shall be deemed to have been duly given
if delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed with the Company a certificate
of a firm of independent public accountants of recognized standing selected by
the Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Warrant Price after such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Shares (or portion
thereof) issuable after such adjustment in the Warrant Price, upon exercise of a
Warrant and payment of the adjusted Warrant Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause to be given to each of the registered holders of the Warrant
Certificates at his address appearing on the Warrant register written notice of
such adjustments by first class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but shall
not replace, any other remedies which might be available under this Agreement,
at law or in equity, including without limitation, actions for attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the
------------
Class A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" CIBC WOOD GUNDY VENTURES, INC.
By: /s/ BARRY STEWART
---------------------------------
Name: Barry Stewart
Title: Director, Secretary
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
---------------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 1
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND CIBC WOOD GUNDY VENTURES, INC. (THE "HOLDER"),
THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, CIBC Wood Gundy Ventures, Inc.,
("Holder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from Talton Holdings, Inc., a
Delaware corporation (the "Company"), up to 1085.5263 shares of Class A Common
Stock, $0.01 par value ("Shares"), of the Company commencing at 9:00 a.m.,
Eastern time, on December 27, 1996, and continuing up to 5 p.m. Eastern time on
December 26, 2006, at an initial per share price of $0.01. This Warrant is
issued pursuant to a Warrant Agreement between the Holder and the Company dated
as of December 27, 1996, the terms of which are incorporated by reference herein
and made a part of this instrument and are referred to for a description of the
rights limitation of rights, obligations, duties and immunities thereunder of
the Company and the holders of the Warrant. This Warrant is also subject to the
terms and obligations of the Shareholders Agreement dated December 27, 1996 by
and among the Company, the Holder and the other warrantholders and shareholders
of the Company.
-1-
<PAGE>
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.8
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Gregg L. Engles (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 328.0769 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's
own account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an opinion,
in form and substance reasonably satisfactory to the Company, of recognized
securities counsel to the effect that the disposition or transfer is to be
made in compliance with all applicable federal and state securities laws; and
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<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i) in
cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
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<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise, the
current market price shall be determined in accordance with the provisions of
Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $3,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company shall
---------------------------------------
(A) pay a stock dividend or make a distribution to holders of Common Stock in
shares of its Common Stock, (B) subdivide its outstanding shares of Common Stock
into a larger number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, (D) make a distribution on its Common
Stock in shares of its capital stock other than Common Stock or preferred stock,
(E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those certain
contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the right, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Warrant Price shall be immediately readjusted to what it would
have been if "N" in the above formula had been the number of shares actually
issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to cash,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company), the
Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to in
subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such additional shares
P = the aggregate consideration received for the issuance of such
additional shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of
such additional shares
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or convertible securities (other than securities issued in
transactions described in subsections (b) and (c) of this Section 7.1) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, the Warrant Price shall be adjusted in
accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such securities
P = the aggregate consideration received for the issuance of such
securities
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion, exercise
or in exchange for such securities at the initial conversion price, exercise
price or exchange rate
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the subsequent
issue of convertible securities or shares of Common Stock upon the exercise of
options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a bona
fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any date
is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on the
basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average
of the Quoted Prices of the Common Stock for 20 consecutive trading days
before the date in question. The "Quoted Price" of the Common Stock is the
last reported sales price of the Common Stock as reported by Nasdaq National
Market, or if the Common Stock is listed on a national securities exchange,
the last reported sales price of the Common Stock on such exchange (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed, the last reported bid price of the Common
Stock. In the absence of one or more such quotations, the current market price
of the Common Stock shall be determined as if the Common Stock was not
registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute the
-------- -------
Fair Market Value as determined by the Board, such holder may undertake to
have it and the Company retain an Independent Expert. The determination of
Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market Value
as determined by the Independent Expert exceeds the Fair Market Value as
determined by the Board by 5% but less than 10%, in which case the cost of the
Independent Expert shall be shared equally by such holder and the Company, and
unless the Fair Market Value as determined by the Independent Expert exceeds
the Fair Market Value as determined by the Board by 10% or more, in which case
the cost of the Independent Expert shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment banking
------------------
firm reasonably agreeable to the Company and the holder of this Warrant who
does not (and whose affiliates do not) have a financial interest in the
Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall
be deemed to be the consideration received by the Company for the issuance of
such securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be
-11-
<PAGE>
determined in the same manner as provided in clauses (1) and (2) of this
subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant Price
otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e) of
this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right to
receive upon payment of the adjusted Warrant Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that
the adjustment shall be effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (1) issuing to the
holder of the Warrant or portion thereof exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock deliverable upon the exercise of the Warrant and shall take all such
action and obtain all such permits or orders as may be
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<PAGE>
necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed
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<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but shall
not replace, any other remedies which might be available under this Agreement,
at law or in equity, including without limitation, actions for attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ GREGG L. ENGLES
--------------------------------
Gregg L. Engles
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 10
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (II) UPON RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR
OTHER DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
BY ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Gregg L. Engles ("Holder"),
or registered assigns, is entitled, subject to the terms and conditions set
forth in this Warrant, to purchase from Talton Holdings, Inc., a Delaware
corporation (the "Company"), up to 328.0769 shares of Class A Common Stock,
$0.01 par value ("Shares"), of the Company commencing on the Exercisability
Date, and continuing up to 5 p.m. Eastern time on December 26, 2006, at an
initial per share price of $3,000. This Warrant is issued pursuant to a Warrant
Agreement between the Holder and the Company dated as of December 27, 1996, the
terms of which are incorporated by reference herein and made a part of this
instrument and are referred to for a description of the rights limitation of
rights, obligations, duties and immunities thereunder of the Company and the
holders of the Warrant. This Warrant is also subject to the terms and
obligations of the Shareholders Agreement dated December 27, 1996 by and among
the Company, the Holder and the other warrantholders and shareholders of the
Company. For purposes hereof, the "Exercisability Date" shall mean the earliest
to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in
part by the presentation and surrender of this Warrant with the form of Election
to Purchase duly executed, at the principal office of the Company (or at such
other address as the Company may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment to the Company of the purchase price in cash, by cashier's check,
or by wire transfer or partially in cash, cashier's check or wire transfer and
the remainder pursuant to Section 3 of the Warrant Agreement. Certificates for
the Shares so purchased shall be delivered or mailed to the Holder promptly
after this Warrant shall have been so exercised, and, unless this Warrant has
expired or has been exercised in full, a new Warrant identical in form but
representing the number of Shares with respect to which this Warrant shall not
have been exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain
events the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder
of this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.9
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Gregg L. Engles (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 448.6842 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and
-1-
<PAGE>
interests hereunder are assignable or transferable by the Holder only in whole
and not in part. Any Shares issued pursuant to a Warrant issued hereunder shall
be subject to the rights and obligations of that certain Registration Rights
Agreement dated of even date herewith between the Company and the Holder, and
the Shareholders Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's
own account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the 1933
Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of them
only (i) to an "accredited investor", (ii) in compliance with the 1933 Act, as
then in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized securities
counsel to the effect that the disposition or transfer is to be made in
compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i) in
cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise, the
current market price shall be determined in accordance with the provisions of
Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $1,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it may receive
shares of two or more classes of capital stock of the Company, the Company shall
determine the allocation of the adjusted Warrant Price between the classes of
capital stock. After such allocation, the exercise privilege and the Warrant
Price of each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any
---------------------------
rights, options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the right, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to in
subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of
such additional shares
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c)
of this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or
the exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
------------------------------------------------------
Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance
of such securities
P = the aggregate consideration received for the issuance of such
securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion, exercise
or in exchange for such securities at the initial conversion price, exercise
price or exchange rate
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the subsequent
issue of convertible securities or shares of Common Stock upon the exercise of
options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a bona
fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any date
is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on the
basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such exchange
(which shall be for consolidated trading if applicable to such exchange), or
if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations, the
current market price of the Common Stock shall be determined as if the Common
Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value
-----------------
obtainable upon a sale in an arm's length transaction to a third party under
usual and normal circumstances, with neither the buyer nor the seller under
any compulsion to act, with equity to both, as determined by the Board in
good faith; provided, however, that if the holder of this Warrant shall
-------- -------
dispute the Fair Market Value as determined by the Board, such holder may
undertake to have it and the Company retain an Independent Expert. The
determination of Fair Market Value by the Independent Expert shall be final,
binding and conclusive on the Company and such holder. All costs and expenses
of the Independent Expert shall be borne by such holder unless the Fair
Market Value as determined by the Independent Expert exceeds the Fair Market
Value as determined by the Board by 5% but less than 10%, in which case the
cost of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne solely
by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial interest
in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall
be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities plus
the additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and (2) of this
subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
Where:
-12-
<PAGE>
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require
that the adjustment shall be effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (1) issuing to
the holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the
-13-
<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed with the Company a certificate
of a firm of independent public accountants of recognized standing selected by
the Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Warrant Price after such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Shares (or portion
thereof) issuable after such adjustment in the Warrant Price, upon exercise of a
Warrant and payment of the adjusted Warrant Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause to be given to each of the registered holders of the Warrant
Certificates at his address appearing on the Warrant register written notice of
such adjustments by first class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this Agreement by
----------
or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but shall
not replace, any other remedies which might be available under this Agreement,
at law or in equity, including without limitation, actions for attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and warrants to
--------------------------
Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have the
-------------
meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class
------------
A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ GREGG L. ENGLES
--------------------------------
Gregg L. Engles
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 8
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS
ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Gregg L. Engles ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 448.6842 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$1,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part
by the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain
events the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.10
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Gregg L. Engles (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 336.5132 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any Shares
issued hereunder are subject to the rights and obligations of that certain
Shareholders Agreement (the "Shareholders Agreement") of even date herewith
between the Company, the Holder and other shareholders and warrantholders of the
Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain
-1-
<PAGE>
pursuant thereto. This Agreement and all rights and interests hereunder are
assignable or transferable by the Holder only in whole and not in part. Any
Shares issued pursuant to a Warrant issued hereunder shall be subject to the
rights and obligations of that certain Registration Rights Agreement dated of
even date herewith between the Company and the Holder, and the Shareholders
Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE,
-2-
<PAGE>
TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS PURSUANT TO AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE HOLDER
OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's own
account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of the
Shares or the Warrant in the absence of either a registration statement under
the 1933 Act or an exemption from the registration provisions of the 1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject to
restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to dispose
of or transfer any of the Shares or the Warrant, he may dispose of them only
(i) to an "accredited investor", (ii) in compliance with the 1933 Act, as then
in effect, and (iii) upon delivery to the Company of an opinion, in form and
substance reasonably satisfactory to the Company, of recognized securities
counsel to the effect that the disposition or transfer is to be made in
compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the foregoing
effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the right,
at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i) in
cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P.
-4-
<PAGE>
is terminated (with or without cause); or (iv) the date upon which a registered
public offering under the Securities Act of 1933, as amended, of equity
interests in the Company is made pursuant to a registration statement on Form
S-1 or a successor form, but in no event earlier than June 27, 1998 in the event
such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a "cashless"
or "net-issue" exercise by delivery to the Company of (a) the written notice
described in Section 3(a) above, (b) the Warrant and (c) written notice that the
holder elects to make payment of the Warrant Price, in full or in part, by
surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise, the
current market price shall be determined in accordance with the provisions of
Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and payment
of such Warrant Price as aforesaid, or after "cashless" or "net issue" exercise,
the Company shall, within five (5) business days, issue and cause to be
delivered to or upon the written order of the Holder, and in such name or names
as the Holder may designate, certificate or certificates for the number of full
Shares so purchased upon the exercise of the Warrant, together with cash, as
provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
-5-
<PAGE>
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Holder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate or
certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and of a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe,
not to exceed Two Hundred Fifty and no/100 Dollars ($250) per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which
-------------
Shares shall be purchasable upon the exercise of the Warrant is $2,000, subject
to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company shall
---------------------------------------
(A) pay a stock dividend or make a distribution to holders of Common Stock in
shares of its Common Stock, (B) subdivide its outstanding shares of Common Stock
into a larger number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, (D) make a distribution on its Common
Stock in shares of its capital stock other than Common Stock or preferred stock,
(E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it may receive
shares of two or more classes of capital stock of the Company, the Company shall
determine the allocation of the adjusted Warrant Price between the classes of
capital stock. After such allocation, the exercise privilege and the Warrant
Price of each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those certain
contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record date
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the right, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to cash,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company), the
Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on the
record date mentioned below
F = the Fair Market Value on the record date of the net assets, securities,
rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to in
subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such additional
shares
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of such
additional shares
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of this
Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a firm
commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the exchange
of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or convertible securities (other than securities issued in
transactions described in subsections (b) and (c) of this Section 7.1) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, the Warrant Price shall be adjusted in
accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such securities
P = the aggregate consideration received for the issuance of such securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion, exercise or in
exchange for such securities at the initial conversion price, exercise price or
exchange rate
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the subsequent
issue of convertible securities or shares of Common Stock upon the exercise of
options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a bona
fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute
-------- -------
the Fair Market Value as determined by the Board, such holder may undertake
to have it and the Company retain an Independent Expert. The determination
of Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market
Value as determined by the Independent Expert exceeds the Fair Market Value
as determined by the Board by 5% but less than 10%, in which case the cost
of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne
solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant
------------------------------------------
Price need be made unless the adjustment would require an increase or decrease
of at least 1% in the Warrant Price. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the Company
--------------------
shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the Warrant
-------------------
Price by any amount for any period of time if the period is at least 20 days and
if the reduction is irrevocable during the period; provided, however, that in no
-------- -------
event may the Warrant Price be less than the par value of a share of Common
Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant Price
otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e) of
this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant Price
------------------------------
pursuant to this Section 7.1, each Warrant outstanding prior to the making of
the adjustment in the Warrant Price shall thereafter evidence the right to
receive upon payment of the adjusted Warrant Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
N' = N x W
-
W'
Where:
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<PAGE>
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made pursuant
to this Section 7, the Holder shall become entitled to purchase any securities
of the Company other than Class A Common Stock, the Company shall duly reserve
such securities for issuance and thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to the adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that the
adjustment shall be effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (1) issuing to the holder
of the Warrant or portion thereof exercised after such record date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment, and (2) paying to such holder any cash in lieu of a fractional
share of Common Stock pursuant to Section 8 hereof; provided, however, that the
Company shall deliver to the holder a due bill or other appropriate instrument
evidencing such holder's right to receive additional shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the
-13-
<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed with the Company a certificate
of a firm of independent public accountants of recognized standing selected by
the Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Warrant Price after such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Shares (or portion
thereof) issuable after such adjustment in the Warrant Price, upon exercise of a
Warrant and payment of the adjusted Warrant Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause to be given to each of the registered holders of the Warrant
Certificates at his address appearing on the Warrant register written notice of
such adjustments by first class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but shall
not replace, any other remedies which might be available under this Agreement,
at law or in equity, including without limitation, actions for attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ GREGG L. ENGLES
--------------------------------
Gregg L. Engles
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 9
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND GREGG L. ENGLES (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Gregg L. Engles ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 336.5132 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$2,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.11
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Onyx Talton Partners, L.P. (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to acquire
and, the Company has agreed to issue and sell to the Holder, as part of the
issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 390.7895 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The issuance
of the Warrant by the Company shall occur concurrently with the Holder's
acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be registered
------------
on the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and
-1-
<PAGE>
interests hereunder are assignable or transferable by the Holder only
in whole and not in part. Any Shares issued pursuant to a Warrant issued
hereunder shall be subject to the rights and obligations of that certain
Registration Rights Agreement dated of even date herewith between the Company
and the Holder, and the Shareholders Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither
------------------------------------------------------
this Agreement, the Warrant, any of the Shares, nor any interest herein or
therein may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election
---------------
to purchase Shares shall be substantially as set forth in Exhibit 1.4A and
Exhibit 1.4B attached hereto and hereby made a part hereof. The Warrant shall
be executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for
------------------------
Shares initially issued upon exercise of the Warrant, shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (II) UPON RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR
OTHER DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY.
Any warrant or certificate issued at any time in exchange or substitution
for any warrant or certificate bearing such legend shall also bear the above
legend unless, in the opinion of the Company's counsel or such other counsel as
shall be reasonably approved by the Company, the securities represented thereby
are no longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder
-----------------
of certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the
Holder's own account (and not for the account of others), for investment and not
with a view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the 1933
Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of them
only (i) to an "accredited investor", (ii) in compliance with the 1933 Act, as
then in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized securities
counsel to the effect that the disposition or transfer is to be made in
compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to
-------------------------------
the limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i)
in cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise,
the current market price shall be determined in accordance with the provisions
of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
SECTION 6.1. Warrant Price. The per Share price (the "Warrant Price") at
-------------
which Shares shall be purchasable upon the exercise of the Warrant is $1,000,
subject to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance
------------------------------------------------
of the Warrant, the number and kind of securities purchasable upon the exercise
of the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If after an adjustment a holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted Warrant Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Warrant Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
(b) Adjustment for Rights Issue. If the Company distributes any
---------------------------
rights, options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares
---------------------------------
of Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or
the exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
------------------------------------------------------
Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
-----
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value
-----------------
obtainable upon a sale in an arm's length transaction to a third party
under usual and normal circumstances, with neither the buyer nor the seller
under any compulsion to act, with equity to both, as determined by the
Board in good faith; provided, however, that if the holder of this Warrant
-------- -------
shall dispute the Fair Market Value as determined by the Board, such holder
may undertake to have it and the Company retain an Independent Expert. The
determination of Fair Market Value by the Independent Expert shall be
final, binding and conclusive on the Company and such holder. All costs and
expenses of the Independent Expert shall be borne by such holder unless the
Fair Market Value as determined by the Independent Expert exceeds the Fair
Market Value as determined by the Board by 5% but less than 10%, in which
case the cost of the Independent Expert shall be shared equally by such
holder and the Company, and unless the Fair Market Value as determined by
the Independent Expert exceeds the Fair Market Value as determined by the
Board by 10% or more, in which case the cost of the Independent Expert
shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to subsections (d) and (e) of this
Section 7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Warrant Price takes effect. The
notice shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
-12-
<PAGE>
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall
be calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require
that the adjustment shall be effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (1) issuing to
the holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the
---------------------
Warrant Price or the number or kind of Shares purchasable upon the exercise of
the Warrant, the Warrant certificate or certificates theretofore issued may
continue to express the same price and number and kind of shares as are stated
in the Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep
-----------
available, free from preemptive rights, so long as the
-13-
<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 7.1 hereof to reduce the Warrant Price below the then par value (if any)
of the Shares, the Company will take any corporate action which may, in the
opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding
-----------------------------------------
anything to the contrary contained herein, in the event of (i) a Change of
Control (as hereinafter defined), (ii) any acquisition of the Corporation by
means of merger or other form of corporate reorganization in which outstanding
shares of the Corporation are exchanged for securities or other consideration
issued, or caused to be issued, by the acquiring corporation or its subsidiary
(other than a mere reincorporation transaction), or (iii) the sale or transfer
of all or substantially all of the assets of the Company to another person,
(each, a "Major Event"), the Company shall provide written notice of such
occurrence to the Holder (the "Change of Control Notice") at least ten (10)
business days prior to the occurrence of such Major Event. The Holder may,
within ten (10) business days of receipt of a Change of Control Notice (the
"Notice Cutoff Date"), exercise the Warrant and purchase, in accordance with the
procedures set forth in Section 3 hereof, up to such number of Shares as the
Holder may be entitled to purchase hereunder, provided however, the Holder (i)
may condition the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the
acquisition by any person or group (as such term is defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, (the "1934 Act") of
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the 1934 Act) of more than 25% of the outstanding shares of Common Stock of the
Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement
------------------------
or in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company
-------
or by the Holder shall be in writing and shall be deemed to have been duly given
if delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the
Company shall promptly thereafter (i) cause to be filed with the Company a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Warrant Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Shares
(or portion thereof) issuable after such adjustment in the Warrant Price, upon
exercise of a Warrant and payment of the adjusted Warrant Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors, heirs and permitted
assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided
--------------------------
herein, nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to
------------------------
a jury trial with respect to any controversy or claim between or among the
parties hereto, including but not limited to those arising out of or relating to
this Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising
---------------
hereunder concerning the interpretation or enforcement of this Agreement, a
party shall be entitled to recover from the party determined to be in breach its
attorneys' fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but shall
not replace, any other remedies which might be available under this Agreement,
at law or in equity, including without limitation, actions for attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise
-------------------
of this Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board
of directors of the Company has duly and validly approved the execution,
delivery, and performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
SECTION 23. Certain Terms. As used herein, the following terms shall
-------------
have the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the
------------
Class A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" ONYX TALTON PARTNERS, L.P.
By: Onyx Partners, Inc.,
general partner
By: /s/ DAVID A. SACHS
------------------------------------
Name: David A. Sachs
Title: Vice President
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 11
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE
"HOLDER"), THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY
AND AMONG THE COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF
DECEMBER 27, 1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS
AND SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Onyx Talton Partners, L.P.
("Holder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from Talton Holdings, Inc., a
Delaware corporation (the "Company"), up to 390.7895 shares of Class A Common
Stock, $0.01 par value ("Shares"), of the Company commencing on the
Exercisability Date, and continuing up to 5 p.m. Eastern time on December 26,
2006, at an initial per share price of $1,000. This Warrant is issued pursuant
to a Warrant Agreement between the Holder and the Company dated as of December
27, 1996, the terms of which are incorporated by reference herein and made a
part of this instrument and are referred to for a description of the rights
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders of the Warrant. This Warrant is also subject to the
terms and obligations of the Shareholders Agreement dated December 27, 1996 by
and among the Company, the Holder and the other warrantholders and shareholders
of the Company. For purposes hereof, the "Exercisability Date" shall mean the
earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by
the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events
the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.12
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Onyx Talton Partners, L.P. (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has
agreed to acquire 100 shares of the Company's Class B Common Stock, $0.01 per
value ("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 293.0920 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The issuance
of the Warrant by the Company shall occur concurrently with the Holder's
acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
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1.1. Registration. The Warrant shall be numbered and shall be
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registered on the books of the Company when issued. This Agreement, the Warrant
and any Shares issued hereunder are subject to the rights and obligations of
that certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
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apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
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or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain
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pursuant thereto. This Agreement and all rights and interests hereunder are
assignable or transferable by the Holder only in whole and not in part. Any
Shares issued pursuant to a Warrant issued hereunder shall be subject to the
rights and obligations of that certain Registration Rights Agreement dated of
even date herewith between the Company and the Holder, and the Shareholders
Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither
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this Agreement, the Warrant, any of the Shares, nor any interest herein or
therein may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election
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to purchase Shares shall be substantially as set forth in Exhibit 1.4A and
Exhibit 1.4B attached hereto and hereby made a part hereof. The Warrant shall
be executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for
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Shares initially issued upon exercise of the Warrant, shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (II) UPON RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE,
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TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS PURSUANT TO AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE HOLDER
OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY.
Any warrant or certificate issued at any time in exchange or substitution
for any warrant or certificate bearing such legend shall also bear the above
legend unless, in the opinion of the Company's counsel or such other counsel as
shall be reasonably approved by the Company, the securities represented thereby
are no longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder
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of certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the
Holder's own account (and not for the account of others), for investment
and not with a view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose
of the Shares or the Warrant in the absence of either a registration
statement under the 1933 Act or an exemption from the registration
provisions of the 1933 Act;
(d) The Holder understands that the Warrant and the Shares are
subject to restrictions on transfer as provided in the Shareholders
Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an
opinion, in form and substance reasonably satisfactory to the Company, of
recognized securities counsel to the effect that the disposition or
transfer is to be made in compliance with all applicable federal and state
securities laws; and
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(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the
Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to
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the limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
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(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i)
in cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P.
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is terminated (with or without cause); or (iv) the date upon which a registered
public offering under the Securities Act of 1933, as amended, of equity
interests in the Company is made pursuant to a registration statement on Form S-
1 or a successor form, but in no event earlier than June 27, 1998 in the event
such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise,
the current market price shall be determined in accordance with the provisions
of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
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taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
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SECTION 5. Mutilated or Missing Warrant. In case the certificate or
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certificates evidencing the Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Holder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate or
certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and of a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe,
not to exceed Two Hundred Fifty and no/100 Dollars ($250) per occurrence.
SECTION 6. Warrant Price.
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6.1. Warrant Price. The per Share price (the "Warrant Price") at which
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Shares shall be purchasable upon the exercise of the Warrant is $2,000, subject
to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
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7.1. Adjustment of Warrant Price and Number of Shares. After the
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issuance of the Warrant, the number and kind of securities purchasable upon the
exercise of the Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
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shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
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An adjustment made pursuant to this Section 7.1(a)(i) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If after an adjustment a holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted Warrant Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Warrant Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
(b) Adjustment for Rights Issue. If the Company distributes any
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rights, options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
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W' = W x M
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O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be
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immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
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any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
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M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares
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of Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
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A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
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P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or
the exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
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Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
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O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
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M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
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(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
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price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value
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obtainable upon a sale in an arm's length transaction to a third party
under usual and normal circumstances, with neither the buyer nor the seller
under any compulsion to act, with equity to both, as determined by the
Board in good faith; provided, however, that if the holder of this Warrant
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shall dispute the Fair Market Value as determined by the Board, such holder
may undertake to have it and the Company retain an Independent Expert. The
determination of Fair Market Value by the Independent Expert shall be
final, binding and conclusive on the Company and such holder. All costs and
expenses of the Independent Expert shall be borne by such holder unless the
Fair Market Value as determined by the Independent Expert exceeds the Fair
Market Value as determined by the Board by 5% but less than 10%, in which
case the cost of the Independent Expert shall be shared equally by such
holder and the Company, and unless the Fair Market Value as determined by
the Independent Expert exceeds the Fair Market Value as determined by the
Board by 10% or more, in which case the cost of the Independent Expert
shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
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banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation
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respecting consideration received pursuant to subsections (d) and (e) of this
Section 7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
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consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
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Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
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Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
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Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
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that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Warrant Price takes effect. The
notice shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
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Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall
be calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require
that the adjustment shall be effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (1) issuing to
the holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the
---------------------
Warrant Price or the number or kind of Shares purchasable upon the exercise of
the Warrant, the Warrant certificate or certificates theretofore issued may
continue to express the same price and number and kind of shares as are stated
in the Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep
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available, free from preemptive rights, so long as the
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Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 7.1 hereof to reduce the Warrant Price below the then par value (if any)
of the Shares, the Company will take any corporate action which may, in the
opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding
-----------------------------------------
anything to the contrary contained herein, in the event of (i) a Change of
Control (as hereinafter defined), (ii) any acquisition of the Corporation by
means of merger or other form of corporate reorganization in which outstanding
shares of the Corporation are exchanged for securities or other consideration
issued, or caused to be issued, by the acquiring corporation or its subsidiary
(other than a mere reincorporation transaction), or (iii) the sale or transfer
of all or substantially all of the assets of the Company to another person,
(each, a "Major Event"), the Company shall provide written notice of such
occurrence to the Holder (the "Change of Control Notice") at least ten (10)
business days prior to the occurrence of such Major Event. The Holder may,
within ten (10) business days of receipt of a Change of Control Notice (the
"Notice Cutoff Date"), exercise the Warrant and purchase, in accordance with the
procedures set forth in Section 3 hereof, up to such number of Shares as the
Holder may be entitled to purchase hereunder, provided however, the Holder (i)
may condition the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the
acquisition by any person or group (as such term is defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, (the "1934 Act") of
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the 1934 Act) of more than 25% of the outstanding shares of Common Stock of the
Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this
------------------------
Agreement or in the Warrant shall be construed as conferring upon the Holder or
its transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the
-------
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered personally with written receipt acknowledged or mailed
by certified mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the
Company shall promptly thereafter (i) cause to be filed with the Company a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Warrant Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Shares
(or portion thereof) issuable after such adjustment in the Warrant Price, upon
exercise of a Warrant and payment of the adjusted Warrant Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors, heirs and permitted
assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided
--------------------------
herein, nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly
------------------
to execute, at the Holder's reasonable request after the issuance of the
Warrant, any documents or materials related to the transactions contemplated by
this Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting
---------------
and performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to
------------------------
a jury trial with respect to any controversy or claim between or among the
parties hereto, including but not limited to those arising out of or relating to
this Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising
---------------
hereunder concerning the interpretation or enforcement of this Agreement, a
party shall be entitled to recover from the party determined to be in breach its
attorneys' fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be
--------------------
entitled to specific performance in the event of a breach by the other party of
their respective obligations hereunder. Such remedy shall be in addition to,
but shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise
-------------------
of this Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board
of directors of the Company has duly and validly approved the execution,
delivery, and performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
SECTION 23. Certain Terms. As used herein, the following terms shall
-------------
have the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the
------------
Class A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" ONYX TALTON PARTNERS, L.P.
By: Onyx Partners, Inc.,
general partner
By: /s/ DAVID A. SACHS
------------------------------------
Name: David A. Sachs
Title: Vice President
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
-----------------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 12
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE
"HOLDER"), THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY
AND AMONG THE COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF
DECEMBER 27, 1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS
AND SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Onyx Talton Partners, L.P.
("Holder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from Talton Holdings, Inc., a
Delaware corporation (the "Company"), up to 293.0920 shares of Class A Common
Stock, $0.01 par value ("Shares"), of the Company commencing on the
Exercisability Date, and continuing up to 5 p.m. Eastern time on December 26,
2006, at an initial per share price of $2,000. This Warrant is issued pursuant
to a Warrant Agreement between the Holder and the Company dated as of December
27, 1996, the terms of which are incorporated by reference herein and made a
part of this instrument and are referred to for a description of the rights
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders of the Warrant. This Warrant is also subject to the
terms and obligations of the Shareholders Agreement dated December 27, 1996 by
and among the Company, the Holder and the other warrantholders and shareholders
of the Company. For purposes hereof, the "Exercisability Date" shall mean the
earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by
the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events
the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.13
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Onyx Talton Partners, L.P. (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 285.7444 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1 Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2 Non-Transferability. The Warrant may be freely traded separate and apart
-------------------
from the shares of Class B Common. However, neither the Warrant nor the right,
title or interest of the Holder in this Agreement may be transferred or assigned
unless such transfer or assignment is to an "accredited investor," as defined in
Rule 501 promulgated under the Securities Act of 1933, as amended, compliance
with said standard to be demonstrated by evidence reasonably satisfactory to the
Company; provided, however, in the event the Holder assigns or transfers its
-------- -------
interest in this Agreement, the assignee or transferee of said interest shall be
subject to all Section 1.3 restrictions and shall acquire only such partial
exercise rights as remain pursuant thereto. This Agreement and all rights and
interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3 Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4 Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6 Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's
own account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an opinion,
in form and substance reasonably satisfactory to the Company, of recognized
securities counsel to the effect that the disposition or transfer is to be
made in compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price,
as defined in and determined in accordance with the provisions of Sections 6
and 7 hereof, allocable to the number of Shares with respect to which such
portion of the Warrant is then exercised. Payment of the Warrant Price shall
be made (i) in cash, by cashier's check or by wire transfer or (ii) through
the surrender of debt, preferred equity securities or Common Stock of the
Company having a principal amount, liquidation preference, or current market
price, as the case may be, equal to the aggregate Warrant Price to be paid
(the Company will pay the accrued interest or dividends on such surrendered
debt, preferred equity securities, or Common Stock in cash at the time of
surrender notwithstanding the stated terms thereof) or (iii) through
"cashless" or "net-issue" exercise provided in Section 3(b) below. For
purposes of this Section 3, the "Exercisability Date" shall mean the earliest
to occur of the following dates: (i) December 27, 1999; (ii) the date when a
Change of Control Notice (as defined in Section 7.4) is given; (iii) the date
that certain Consulting and Strategic Services Agreement dated December 27,
1996 by and between the Company and EUF Talton L.P. is terminated (with or
without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as
amended, of equity interests in the Company is made pursuant to a registration
statement on Form S-1 or a successor form, but in no event earlier than June
27, 1998 in the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the
written notice described in Section 3(a) above, (b) the Warrant and (c)
written notice that the holder elects to make payment of the Warrant Price, in
full or in part, by surrender of its right to purchase certain shares of
Common Stock pursuant to the Warrant. For purposes of this Section 3(b), the
value of the surrender of the right to purchase a share of Common Stock shall
be attributed a value equal to (i) the current market price per share of
Common Stock minus (ii) the then Warrant Price per share of Common Stock. If
the determination of current market price per share of Common Stock is to be
made for a "cashless" or "net-issue" exercise in connection with an initial
public offering of Common Stock, the current market price per share of Common
Stock shall equal the per share offering price without deductions for any
compensation, discounts or expenses paid or incurred by the Company in
connection with such offering. Otherwise, the current market price shall be
determined in accordance with the provisions of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number
of full Shares so purchased upon the exercise of the Warrant, together with
cash, as provided in Section 8 hereof, with respect to any fractional Shares
otherwise issuable upon such surrender and the cash, property and other
securities to which the Holder is entitled pursuant to the provisions of
Section 7. The Warrant shall be exercisable, at the election of the Holder,
either in whole or from time to time in part and, in the event that the
certificate evidencing the Warrant is exercised with respect to less than all
of the Shares specified therein at any time prior to the Termination Date, a
new certificate evidencing the remaining Warrant shall be issued by the
Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1 Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $3,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1 Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common
Stock in shares of its Common Stock, (B) subdivide its outstanding shares of
Common Stock into a larger number of shares, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, (D) make a
distribution on its Common Stock in shares of its capital stock other than
Common Stock or preferred stock, (E) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company, or (F) take any
action which would result in any of the foregoing, then the Warrant Price and
the number and kind of shares of capital stock of the Company issuable upon
exercise of a Warrant as in effect immediately prior to such action shall then
be proportionally adjusted so that the holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company which he would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights
---------------------------
options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the
Company's subordinated debt) entitling them for a period expiring within 60
days after the record date mentioned below to purchase shares of Common Stock
at a price per share less than the current market price per share on that
record date, the Warrant Price shall be adjusted in accordance with the
formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of shares
actually issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to cash,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company), the
Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding
on the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
-----
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
P = the aggregate consideration received for the issuance of such
additional shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or convertible securities (other than securities issued in
transactions described in subsections (b) and (c) of this Section 7.1) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, the Warrant Price shall be adjusted in
accordance with this formula:
P
-
W' = W x O + M
-----
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any date
is:
(i) if the Common Stock is not registered under the Exchange Act, then, based
upon the Fair Market Value of 100% of the Company if sold as a going concern
and without regard to any discount for the lack of liquidity or on the basis
that the relevant shares of the Common Stock do not constitute a majority or
controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average of
the Quoted Prices of the Common Stock for 20 consecutive trading days before
the date in question. The "Quoted Price" of the Common Stock is the last
reported sales price of the Common Stock as reported by Nasdaq National
Market, or if the Common Stock is listed on a national securities exchange,
the last reported sales price of the Common Stock on such exchange (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed, the last reported bid price of the Common
Stock. In the absence of one or more such quotations, the current market price
of the Common Stock shall be determined as if the Common Stock was not
registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute the
-------- -------
Fair Market Value as determined by the Board, such holder may undertake to
have it and the Company retain an Independent Expert. The determination of
Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market Value
as determined by the Independent Expert exceeds the Fair Market Value as
determined by the Board by 5% but less than 10%, in which case the cost of the
Independent Expert shall be shared equally by such holder and the Company, and
unless the Fair Market Value as determined by the Independent Expert exceeds
the Fair Market Value as determined by the Board by 10% or more, in which case
the cost of the Independent Expert shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial interest
in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall
be deemed to be the consideration received by the Company for the issuance of
such securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (1) and (2) of this subsection).
-11-
<PAGE>
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant
------------------------------------------
Price need be made unless the adjustment would require an increase or decrease
of at least 1% in the Warrant Price. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least 15
days before the date the reduced Warrant Price takes effect. The notice shall
state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right to
receive upon payment of the adjusted Warrant Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made pursuant
to this Section 7, the Holder shall become entitled to purchase any securities
of the Company other than Class A Common Stock, the Company shall duly reserve
such securities for issuance and thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to the adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that the
adjustment shall be effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (1) issuing to the holder
of the Warrant or portion thereof exercised after such record date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment, and (2) paying to such holder any cash in lieu of a fractional
share of Common Stock pursuant to Section 8 hereof; provided, however, that the
Company shall deliver to the holder a due bill or other appropriate instrument
evidencing such holder's right to receive additional shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
7.2 Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3 Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock deliverable upon the exercise of the Warrant and shall take all such
action and obtain all such permits or orders as may be necessary to enable the
Company lawfully to issue such Common Stock.
-13-
<PAGE>
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4 Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed
-15-
<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but
shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1 Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2 Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class
------------
A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" ONYX TALTON PARTNERS, L.P.
By: Onyx Partners, Inc.,
general partner
By: /s/ DAVID A. SACHS
----------------------------
Name: David A. Sachs
Title: Vice President
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
----------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 13
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND ONYX TALTON PARTNERS, L.P. (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Onyx Talton Partners, L.P.
("Holder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from Talton Holdings, Inc., a
Delaware corporation (the "Company"), up to 285.7444 shares of Class A Common
Stock, $0.01 par value ("Shares"), of the Company commencing on the
Exercisability Date, and continuing up to 5 p.m. Eastern time on December 26,
2006, at an initial per share price of $3,000. This Warrant is issued pursuant
to a Warrant Agreement between the Holder and the Company dated as of December
27, 1996, the terms of which are incorporated by reference herein and made a
part of this instrument and are referred to for a description of the rights
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders of the Warrant. This Warrant is also subject to the
terms and obligations of the Shareholders Agreement dated December 27, 1996 by
and among the Company, the Holder and the other warrantholders and shareholders
of the Company. For purposes hereof, the "Exercisability Date" shall mean the
earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
---------------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.14
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Joseph P. Urso (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has
agreed to acquire 100 shares of the Company's Class B Common Stock, $0.01 per
value ("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 448.6842 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1 Registration. The Warrant shall be numbered and shall be registered
------------
on the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2 Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3 Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4 Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution
for any warrant or certificate bearing such legend shall also bear the above
legend unless, in the opinion of the Company's counsel or such other counsel as
shall be reasonably approved by the Company, the securities represented thereby
are no longer subject to the restrictions referred to in such legend.
1.6 Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the
Holder's own account (and not for the account of others), for investment
and not with a view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an
opinion, in form and substance reasonably satisfactory to the Company, of
recognized securities counsel to the effect that the disposition or
transfer is to be made in compliance with all applicable federal and state
securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the
Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to
-------------------------------
the limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i)
in cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a "cashless"
or "net-issue" exercise by delivery to the Company of (a) the written notice
described in Section 3(a) above, (b) the Warrant and (c) written notice that the
holder elects to make payment of the Warrant Price, in full or in part, by
surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise,
the current market price shall be determined in accordance with the provisions
of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1 Warrant Price. The per Share price (the "Warrant Price") at which
-------------
Shares shall be purchasable upon the exercise of the Warrant is $1,000, subject
to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1 Adjustment of Warrant Price and Number of Shares. After the issuance
------------------------------------------------
of the Warrant, the number and kind of securities purchasable upon the exercise
of the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those certain
contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record date
The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of shares
actually issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to cash,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company), the
Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on the
record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to
in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such additional shares
P = the aggregate consideration received for the issuance of such
additional shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of
such additional shares
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of this
Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a firm
commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or convertible securities (other than securities issued in
transactions described in subsections (b) and (c) of this Section 7.1) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, the Warrant Price shall be adjusted in
accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such securities
P = the aggregate consideration received for the issuance of such
securities
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion, exercise or
in exchange for such securities at the initial conversion price, exercise price
or exchange rate
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a
bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act,
then, based upon the Fair Market Value of 100% of the Company if sold as a
going concern and without regard to any discount for the lack of liquidity
or on the basis that the relevant shares of the Common Stock do not
constitute a majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid price
of the Common Stock. In the absence of one or more such quotations, the
current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute
-------- -------
the Fair Market Value as determined by the Board, such holder may undertake
to have it and the Company retain an Independent Expert. The determination
of Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market
Value as determined by the Independent Expert exceeds the Fair Market Value
as determined by the Board by 5% but less than 10%, in which case the cost
of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne
solely by the Company.
(3) Independent Expert. Independent Expert means an investment banking
------------------
firm reasonably agreeable to the Company and the holder of this Warrant who
does not (and whose affiliates do not) have a financial interest in the
Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be
-11-
<PAGE>
determined in the same manner as provided in clauses (1) and (2) of this
subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right to
receive upon payment of the adjusted Warrant Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that
the adjustment shall be effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (1) issuing to the
holder of the Warrant or portion thereof exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2 Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3 Reservation. The Company shall at all times reserve and keep
-----------
available, free from preemptive rights, so long as the Warrant remains
outstanding, out of its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the exercise of the Warrant and shall
take all such action and obtain all such permits or orders as may be
-13-
<PAGE>
necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 7.1 hereof to reduce the Warrant Price below the then par value (if any)
of the Shares, the Company will take any corporate action which may, in the
opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4 Change in Control; Merger; Reorganization. Notwithstanding anything
-----------------------------------------
to the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the
acquisition by any person or group (as such term is defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, (the "1934 Act") of
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the 1934 Act) of more than 25% of the outstanding shares of Common Stock of the
Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement
------------------------
or in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company
-------
or by the Holder shall be in writing and shall be deemed to have been duly given
if delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the
Company shall promptly thereafter (i) cause to be filed
-15-
<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors, heirs and permitted
assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided
--------------------------
herein, nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall
------------
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a
------------------------
jury trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising
---------------
hereunder concerning the interpretation or enforcement of this Agreement, a
party shall be entitled to recover from the party determined to be in breach its
attorneys' fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled
--------------------
to specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but
shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of
-------------------
this Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1 Corporate Organization and Good Standing. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
22.2 Corporate Approval. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board
of directors of the Company has duly and validly approved the execution,
delivery, and performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ JOSEPH P. URSO
--------------------------------
Joseph P. Urso
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 2
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS
ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Joseph P. Urso ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 448.6842 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$1,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by
the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events
the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.15
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Joseph P. Urso (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 336.5132 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1 Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2 Non-Transferability. The Warrant may be freely traded separate and apart
-------------------
from the shares of Class B Common. However, neither the Warrant nor the right,
title or interest of the Holder in this Agreement may be transferred or assigned
unless such transfer or assignment is to an "accredited investor," as defined in
Rule 501 promulgated under the Securities Act of 1933, as amended, compliance
with said standard to be demonstrated by evidence reasonably satisfactory to the
Company; provided, however, in the event the Holder assigns or transfers its
-------- -------
interest in this Agreement, the assignee or transferee of said interest shall be
subject to all Section 1.3 restrictions and shall acquire only such partial
exercise rights as remain pursuant thereto. This Agreement and all rights and
interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3 Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4 Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6 Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's own
account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501 promulgated
under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of the
Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject to
restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to dispose of or
transfer any of the Shares or the Warrant, he may dispose of them only (i)
to an "accredited investor", (ii) in compliance with the 1933 Act, as then
in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized
securities counsel to the effect that the disposition or transfer is to be
made in compliance with all applicable federal and state securities laws;
and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the foregoing
effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the right, at
any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up
to the number of Shares which the Holder may at the time be entitled to
purchase pursuant to this Agreement and the portion of the Warrant (or
certificate therefor) then held by it, upon surrender to the Company, at
its principal office in Dallas, Texas, of the certificate evidencing the
portion of the Warrant to be exercised together with the purchase form duly
filled in and signed, and upon payment to the Company of the portion of the
Warrant Price, as defined in and determined in accordance with the
provisions of Sections 6 and 7 hereof, allocable to the number of Shares
with respect to which such portion of the Warrant is then exercised.
Payment of the Warrant Price shall be made (i) in cash, by cashier's check
or by wire transfer or (ii) through the surrender of debt, preferred equity
securities or Common Stock of the Company having a principal amount,
liquidation preference, or current market price, as the case may be, equal
to the aggregate Warrant Price to be paid (the Company will pay the accrued
interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender
notwithstanding the stated terms thereof) or (iii) through "cashless" or
"net-issue" exercise provided in Section 3(b) below. For purposes of this
Section 3, the "Exercisability Date" shall mean the earliest to occur of
the following dates: (i) December 27, 1999; (ii) the date when a Change of
Control Notice (as defined in Section 7.4) is given; (iii) the date that
certain Consulting and Strategic Services Agreement dated December 27, 1996
by and between the Company and EUF Talton L.P. is terminated (with or
without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as
amended, of equity interests in the Company is made pursuant to a
registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such
date.
(b) The holder of the Warrant may also exercise the Warrant in a "cashless" or
"net-issue" exercise by delivery to the Company of (a) the written notice
described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in
part, by surrender of its right to purchase certain shares of Common Stock
pursuant to the Warrant. For purposes of this Section 3(b), the value of
the surrender of the right to purchase a share of Common Stock shall be
attributed a value equal to (i) the current market price per share of
Common Stock minus (ii) the then Warrant Price per share of Common Stock.
If the determination of current market price per share of Common Stock is
to be made for a "cashless" or "net-issue" exercise in connection with an
initial public offering of Common Stock, the current market price per share
of Common Stock shall equal the per share offering price without deductions
for any compensation, discounts or expenses paid or incurred by the Company
in connection with such offering. Otherwise, the current market price
shall be determined in accordance with the provisions of Section 7.1(f)
hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and payment of
such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause
to be delivered to or upon the written order of the Holder, and in such
name or names as the Holder may designate, certificate or certificates for
the number of full Shares so purchased upon the exercise of the Warrant,
together with cash, as provided in Section 8 hereof, with respect to any
fractional Shares otherwise issuable upon such surrender and the cash,
property and other securities to which the Holder is entitled pursuant to
the provisions of Section 7. The Warrant shall be exercisable, at the
election of the Holder, either in whole or from time to time in part and,
in the event that the certificate evidencing the Warrant is exercised with
respect to less than all of the Shares specified therein at any time prior
to the Termination Date, a new certificate evidencing the remaining Warrant
shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1 Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $2,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1 Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company shall
---------------------------------------
(A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of
Common Stock into a larger number of shares, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, (D) make a
distribution on its Common Stock in shares of its capital stock other than
Common Stock or preferred stock, (E) issue by reclassification of its
shares of Common Stock any shares of capital stock of the Company, or (F)
take any action which would result in any of the foregoing, then the
Warrant Price and the number and kind of shares of capital stock of the
Company issuable upon exercise of a Warrant as in effect immediately prior
to such action shall then be proportionally adjusted so that the holder of
any Warrant thereafter exercised may receive the aggregate number and kind
of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised
immediately prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the
Company's subordinated debt) entitling them for a period expiring within 60
days after the record date mentioned below to purchase shares of Common
Stock at a price per share less than the current market price per share on
that record date, the Warrant Price shall be adjusted in accordance with
the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record date
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the right, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Warrant Price shall be immediately readjusted to what it would
have been if "N" in the above formula had been the number of shares actually
issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to
purchase debt securities, preferred stock, assets or other securities of
the Company), the Warrant Price shall be adjusted in accordance with the
formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on the
record date mentioned below
F = the Fair Market Value on the record date of the net assets, securities,
rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to in
subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of Common
---------------------------------
Stock for a consideration per share less than the current market price per
share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such additional shares
P = the aggregate consideration received for the issuance of such additional
shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of such
additional shares
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of this
Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a firm
commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the exchange
of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section
7.1) for a consideration per share of Common Stock initially deliverable
upon conversion or exchange of such securities less than the current market
price per share on the date of issuance of such securities, the Warrant
Price shall be adjusted in accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such securities
P = the aggregate consideration received for the issuance of such securities
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion, exercise or in
exchange for such securities at the initial conversion price, exercise price or
exchange rate
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the subsequent
issue of convertible securities or shares of Common Stock upon the exercise of
options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a bona
fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then, based
upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average of
the Quoted Prices of the Common Stock for 20 consecutive trading days
before the date in question. The "Quoted Price" of the Common Stock is the
last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid price
of the Common Stock. In the absence of one or more such quotations, the
current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable upon
-----------------
a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute
-------- -------
the Fair Market Value as determined by the Board, such holder may undertake
to have it and the Company retain an Independent Expert. The determination
of Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market
Value as determined by the Independent Expert exceeds the Fair Market Value
as determined by the Board by 5% but less than 10%, in which case the cost
of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne
solely by the Company.
(3) Independent Expert. Independent Expert means an investment banking
------------------
firm reasonably agreeable to the Company and the holder of this Warrant who
does not (and whose affiliates do not) have a financial interest in the
Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section
7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be
-11-
<PAGE>
determined in the same manner as provided in clauses (1) and (2) of this
subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant
------------------------------------------
Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Section shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the Company
--------------------
shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the Warrant
-------------------
Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided,
--------
however, that in no event may the Warrant Price be less than the par value
-------
of a share of Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant Price
otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e) of
this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant Price
------------------------------
pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right
to receive upon payment of the adjusted Warrant Price that number of shares
of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a Warrant
by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable
hereunder shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made pursuant
to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company
shall duly reserve such securities for issuance and thereafter the number
of such other securities so purchasable upon exercise of the Warrant and
the Warrant Price of such securities shall be subject to the adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section 7.
(n) In any case in which the provisions of this Section 7.1 require that the
adjustment shall be effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (1) issuing to the
holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common
Stock issuable upon such exercise by reason of the adjustment required by
such event over and above the shares of Common Stock issuable upon such
exercise before giving effect to such adjustment, and (2) paying to such
holder any cash in lieu of a fractional share of Common Stock pursuant to
Section 8 hereof; provided, however, that the Company shall deliver to the
holder a due bill or other appropriate instrument evidencing such holder's
right to receive additional shares, other capital stock and cash upon the
occurrence of the event requiring such adjustment.
7.2 Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3 Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock deliverable upon the exercise of the Warrant and shall take all such
action and obtain all such permits or orders as may be
-13-
<PAGE>
necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4 Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed
-15-
<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but
shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1 Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2 Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ JOSEPH P. URSO
--------------------------------
Joseph P. Urso
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 3
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Joseph P. Urso ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 336.5132 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$2,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.16
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Joseph P. Urso (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 328.0769 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1 Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2 Non-Transferability. The Warrant may be freely traded separate and apart
-------------------
from the shares of Class B Common. However, neither the Warrant nor the right,
title or interest of the Holder in this Agreement may be transferred or assigned
unless such transfer or assignment is to an "accredited investor," as defined in
Rule 501 promulgated under the Securities Act of 1933, as amended, compliance
with said standard to be demonstrated by evidence reasonably satisfactory to the
Company; provided, however, in the event the Holder assigns or transfers its
-------- -------
interest in this Agreement, the assignee or transferee of said interest shall be
subject to all Section 1.3 restrictions and shall acquire only such partial
exercise rights as remain pursuant thereto. This Agreement and all rights and
interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3 Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4 Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6 Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's
own account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an opinion,
in form and substance reasonably satisfactory to the Company, of recognized
securities counsel to the effect that the disposition or transfer is to be
made in compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the right,
at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i) in
cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a "cashless"
or "net-issue" exercise by delivery to the Company of (a) the written notice
described in Section 3(a) above, (b) the Warrant and (c) written notice that the
holder elects to make payment of the Warrant Price, in full or in part, by
surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise, the
current market price shall be determined in accordance with the provisions of
Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and payment
of such Warrant Price as aforesaid, or after "cashless" or "net issue" exercise,
the Company shall, within five (5) business days, issue and cause to be
delivered to or upon the written order of the Holder, and in such name or names
as the Holder may designate, certificate or certificates for the number of full
Shares so purchased upon the exercise of the Warrant, together with cash, as
provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1 Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $3,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1 Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company shall
---------------------------------------
(A) pay a stock dividend or make a distribution to holders of Common Stock in
shares of its Common Stock, (B) subdivide its outstanding shares of Common Stock
into a larger number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, (D) make a distribution on its Common
Stock in shares of its capital stock other than Common Stock or preferred stock,
(E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those certain
contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of shares
actually issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to cash,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities of the Company), the
Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
-----
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding
on the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of
---------------------------------
Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
-----
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
P = the aggregate consideration received for the issuance of such
additional shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire any
class of Common Stock or convertible securities (other than securities issued in
transactions described in subsections (b) and (c) of this Section 7.1) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities less than the current market price per share on the
date of issuance of such securities, the Warrant Price shall be adjusted in
accordance with this formula:
P
-
W' = W x O + M
-----
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any date
is:
(i) if the Common Stock is not registered under the Exchange Act, then, based
upon the Fair Market Value of 100% of the Company if sold as a going concern
and without regard to any discount for the lack of liquidity or on the basis
that the relevant shares of the Common Stock do not constitute a majority or
controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average of
the Quoted Prices of the Common Stock for 20 consecutive trading days before
the date in question. The "Quoted Price" of the Common Stock is the last
reported sales price of the Common Stock as reported by Nasdaq National
Market, or if the Common Stock is listed on a national securities exchange,
the last reported sales price of the Common Stock on such exchange (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed, the last reported bid price of the Common
Stock. In the absence of one or more such quotations, the current market price
of the Common Stock shall be determined as if the Common Stock was not
registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable
-----------------
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute the
-------- -------
Fair Market Value as determined by the Board, such holder may undertake to
have it and the Company retain an Independent Expert. The determination of
Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market Value
as determined by the Independent Expert exceeds the Fair Market Value as
determined by the Board by 5% but less than 10%, in which case the cost of the
Independent Expert shall be shared equally by such holder and the Company, and
unless the Fair Market Value as determined by the Independent Expert exceeds
the Fair Market Value as determined by the Board by 10% or more, in which case
the cost of the Independent Expert shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial interest
in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section 7.1,
the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall
be deemed to be the consideration received by the Company for the issuance of
such securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (1) and (2) of this subsection).
-11-
<PAGE>
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant
------------------------------------------
Price need be made unless the adjustment would require an increase or decrease
of at least 1% in the Warrant Price. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right to
receive upon payment of the adjusted Warrant Price that number of shares of
Common Stock (calculated to the nearest hundredth) obtained from the following
formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made pursuant
to this Section 7, the Holder shall become entitled to purchase any securities
of the Company other than Class A Common Stock, the Company shall duly reserve
such securities for issuance and thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to the adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that the
adjustment shall be effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (1) issuing to the holder
of the Warrant or portion thereof exercised after such record date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment, and (2) paying to such holder any cash in lieu of a fractional
share of Common Stock pursuant to Section 8 hereof; provided, however, that the
Company shall deliver to the holder a due bill or other appropriate instrument
evidencing such holder's right to receive additional shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
7.2 Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3 Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock deliverable upon the exercise of the Warrant and shall take all such
action and obtain all such permits or orders as may be necessary to enable the
Company lawfully to issue such Common Stock.
-13-
<PAGE>
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4 Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed
-15-
<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but
shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1 Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2 Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ JOSEPH P. URSO
--------------------------------
Joseph P. Urso
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
-----------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 4
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND JOSEPH P. URSO (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Joseph P. Urso ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 328.0769 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$3,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
---------------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.17
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Todd W. Follmer (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has
agreed to acquire 100 shares of the Company's Class B Common Stock, $0.01 per
value ("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 448.6842 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The issuance
of the Warrant by the Company shall occur concurrently with the Holder's
acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be
------------
registered on the books of the Company when issued. This Agreement, the Warrant
and any Shares issued hereunder are subject to the rights and obligations of
that certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain pursuant thereto. This Agreement and all
rights and
-1-
<PAGE>
interests hereunder are assignable or transferable by the Holder only in whole
and not in part. Any Shares issued pursuant to a Warrant issued hereunder shall
be subject to the rights and obligations of that certain Registration Rights
Agreement dated of even date herewith between the Company and the Holder, and
the Shareholders Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither
------------------------------------------------------
this Agreement, the Warrant, any of the Shares, nor any interest herein or
therein may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election
---------------
to purchase Shares shall be substantially as set forth in Exhibit 1.4A and
Exhibit 1.4B attached hereto and hereby made a part hereof. The Warrant shall
be executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for
------------------------
Shares initially issued upon exercise of the Warrant, shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (II) UPON RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR
OTHER DISPOSITION IS PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution
for any warrant or certificate bearing such legend shall also bear the above
legend unless, in the opinion of the Company's counsel or such other counsel as
shall be reasonably approved by the Company, the securities represented thereby
are no longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder
-----------------
of certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the
Holder's own account (and not for the account of others), for investment and not
with a view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of
the Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the 1933
Act;
(d) The Holder understands that the Warrant and the Shares are subject
to restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of them
only (i) to an "accredited investor", (ii) in compliance with the 1933 Act, as
then in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized securities
counsel to the effect that the disposition or transfer is to be made in
compliance with all applicable federal and state securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to
-------------------------------
the limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i)
in cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P. is terminated (with or without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as amended,
of equity interests in the Company is made pursuant to a registration statement
on Form S-1 or a successor form, but in no event earlier than June 27, 1998 in
the event such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise,
the current market price shall be determined in accordance with the provisions
of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which
-------------
Shares shall be purchasable upon the exercise of the Warrant is $1,000, subject
to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the issuance
------------------------------------------------
of the Warrant, the number and kind of securities purchasable upon the exercise
of the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If after an adjustment a holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted Warrant Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Warrant Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
(b) Adjustment for Rights Issue. If the Company distributes any
---------------------------
rights, options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares
---------------------------------
of Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c)
of this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or
the exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
------------------------------------------------------
Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value
-----------------
obtainable upon a sale in an arm's length transaction to a third party
under usual and normal circumstances, with neither the buyer nor the seller
under any compulsion to act, with equity to both, as determined by the
Board in good faith; provided, however, that if the holder of this Warrant
-------- -------
shall dispute the Fair Market Value as determined by the Board, such holder
may undertake to have it and the Company retain an Independent Expert. The
determination of Fair Market Value by the Independent Expert shall be
final, binding and conclusive on the Company and such holder. All costs and
expenses of the Independent Expert shall be borne by such holder unless the
Fair Market Value as determined by the Independent Expert exceeds the Fair
Market Value as determined by the Board by 5% but less than 10%, in which
case the cost of the Independent Expert shall be shared equally by such
holder and the Company, and unless the Fair Market Value as determined by
the Independent Expert exceeds the Fair Market Value as determined by the
Board by 10% or more, in which case the cost of the Independent Expert
shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to subsections (d) and (e) of this
Section 7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Warrant Price takes effect. The
notice shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
Where:
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<PAGE>
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall
be calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require
that the adjustment shall be effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (1) issuing to
the holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the
---------------------
Warrant Price or the number or kind of Shares purchasable upon the exercise of
the Warrant, the Warrant certificate or certificates theretofore issued may
continue to express the same price and number and kind of shares as are stated
in the Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep
-----------
available, free from preemptive rights, so long as the
-13-
<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 7.1 hereof to reduce the Warrant Price below the then par value (if any)
of the Shares, the Company will take any corporate action which may, in the
opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding
-----------------------------------------
anything to the contrary contained herein, in the event of (i) a Change of
Control (as hereinafter defined), (ii) any acquisition of the Corporation by
means of merger or other form of corporate reorganization in which outstanding
shares of the Corporation are exchanged for securities or other consideration
issued, or caused to be issued, by the acquiring corporation or its subsidiary
(other than a mere reincorporation transaction), or (iii) the sale or transfer
of all or substantially all of the assets of the Company to another person,
(each, a "Major Event"), the Company shall provide written notice of such
occurrence to the Holder (the "Change of Control Notice") at least ten (10)
business days prior to the occurrence of such Major Event. The Holder may,
within ten (10) business days of receipt of a Change of Control Notice (the
"Notice Cutoff Date"), exercise the Warrant and purchase, in accordance with the
procedures set forth in Section 3 hereof, up to such number of Shares as the
Holder may be entitled to purchase hereunder, provided however, the Holder (i)
may condition the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the
acquisition by any person or group (as such term is defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, (the "1934 Act") of
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the 1934 Act) of more than 25% of the outstanding shares of Common Stock of the
Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this
------------------------
Agreement or in the Warrant shall be construed as conferring upon the Holder or
its transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the
-------
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered personally with written receipt acknowledged or mailed
by certified mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the
Company shall promptly thereafter (i) cause to be filed with the Company a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Warrant Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Shares
(or portion thereof) issuable after such adjustment in the Warrant Price, upon
exercise of a Warrant and payment of the adjusted Warrant Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors, heirs and permitted
assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided
--------------------------
herein, nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly
------------------
to execute, at the Holder's reasonable request after the issuance of the
Warrant, any documents or materials related to the transactions contemplated by
this Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting
---------------
and performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to
------------------------
a jury trial with respect to any controversy or claim between or among the
parties hereto, including but not limited to those arising out of or relating to
this Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising
---------------
hereunder concerning the interpretation or enforcement of this Agreement, a
party shall be entitled to recover from the party determined to be in breach its
attorneys' fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be
--------------------
entitled to specific performance in the event of a breach by the other party of
their respective obligations hereunder. Such remedy shall be in addition to,
but shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise
-------------------
of this Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board of
directors of the Company has duly and validly approved the execution, delivery,
and performance of this Agreement and the transactions contemplated herein. No
other corporate or legal proceedings on the part of the Company are necessary to
approve and authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
SECTION 23. Certain Terms. As used herein, the following terms shall
-------------
have the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the
------------
Class A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ TODD W. FOLLMER
--------------------------------
Todd W. Follmer
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 5
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Todd W. Follmer ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 448.6842 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$1,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by
the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events
the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.18
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Todd W. Follmer (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has
agreed to acquire 100 shares of the Company's Class B Common Stock, $0.01 per
value ("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 336.5132 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The issuance
of the Warrant by the Company shall occur concurrently with the Holder's
acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1. Registration. The Warrant shall be numbered and shall be
------------
registered on the books of the Company when issued. This Agreement, the Warrant
and any Shares issued hereunder are subject to the rights and obligations of
that certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2. Non-Transferability. The Warrant may be freely traded separate and
-------------------
apart from the shares of Class B Common. However, neither the Warrant nor the
right, title or interest of the Holder in this Agreement may be transferred or
assigned unless such transfer or assignment is to an "accredited investor," as
defined in Rule 501 promulgated under the Securities Act of 1933, as amended,
compliance with said standard to be demonstrated by evidence reasonably
satisfactory to the Company; provided, however, in the event the Holder assigns
-------- -------
or transfers its interest in this Agreement, the assignee or transferee of said
interest shall be subject to all Section 1.3 restrictions and shall acquire only
such partial exercise rights as remain
-1-
<PAGE>
pursuant thereto. This Agreement and all rights and interests hereunder are
assignable or transferable by the Holder only in whole and not in part. Any
Shares issued pursuant to a Warrant issued hereunder shall be subject to the
rights and obligations of that certain Registration Rights Agreement dated of
even date herewith between the Company and the Holder, and the Shareholders
Agreement.
1.3. Securities Law Restrictions on Transfer of the Warrant. Neither
------------------------------------------------------
this Agreement, the Warrant, any of the Shares, nor any interest herein or
therein may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4. Form of Warrant. The text of the Warrant and the form of election
---------------
to purchase Shares shall be substantially as set forth in Exhibit 1.4A and
Exhibit 1.4B attached hereto and hereby made a part hereof. The Warrant shall
be executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5. Legend on Warrant Shares. The Warrant and each certificate for
------------------------
Shares initially issued upon exercise of the Warrant, shall bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (II) UPON RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE,
-2-
<PAGE>
TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS PURSUANT TO AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE HOLDER
OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution
for any warrant or certificate bearing such legend shall also bear the above
legend unless, in the opinion of the Company's counsel or such other counsel as
shall be reasonably approved by the Company, the securities represented thereby
are no longer subject to the restrictions referred to in such legend.
1.6. Investment Letter. Simultaneously with the delivery to the Holder
-----------------
of certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the
Holder's own account (and not for the account of others), for investment
and not with a view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose
of the Shares or the Warrant in the absence of either a registration
statement under the 1933 Act or an exemption from the registration
provisions of the 1933 Act;
(d) The Holder understands that the Warrant and the Shares are
subject to restrictions on transfer as provided in the Shareholders
Agreement;
(e) The Holder understands and agrees that if he should decide to
dispose of or transfer any of the Shares or the Warrant, he may dispose of
them only (i) to an "accredited investor", (ii) in compliance with the 1933
Act, as then in effect, and (iii) upon delivery to the Company of an
opinion, in form and substance reasonably satisfactory to the Company, of
recognized securities counsel to the effect that the disposition or
transfer is to be made in compliance with all applicable federal and state
securities laws; and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the
foregoing effect will be in effect with respect to the Shares and the
Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to
-------------------------------
the limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the
right, at any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up to
the number of Shares which the Holder may at the time be entitled to purchase
pursuant to this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion of the
Warrant to be exercised together with the purchase form duly filled in and
signed, and upon payment to the Company of the portion of the Warrant Price, as
defined in and determined in accordance with the provisions of Sections 6 and 7
hereof, allocable to the number of Shares with respect to which such portion of
the Warrant is then exercised. Payment of the Warrant Price shall be made (i)
in cash, by cashier's check or by wire transfer or (ii) through the surrender of
debt, preferred equity securities or Common Stock of the Company having a
principal amount, liquidation preference, or current market price, as the case
may be, equal to the aggregate Warrant Price to be paid (the Company will pay
the accrued interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender notwithstanding the
stated terms thereof) or (iii) through "cashless" or "net-issue" exercise
provided in Section 3(b) below. For purposes of this Section 3, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4) is given; (iii) the date that certain Consulting and Strategic
Services Agreement dated December 27, 1996 by and between the Company and EUF
Talton L.P.
-4-
<PAGE>
is terminated (with or without cause); or (iv) the date upon which a registered
public offering under the Securities Act of 1933, as amended, of equity
interests in the Company is made pursuant to a registration statement on Form S-
1 or a successor form, but in no event earlier than June 27, 1998 in the event
such offering occurs prior to such date.
(b) The holder of the Warrant may also exercise the Warrant in a
"cashless" or "net-issue" exercise by delivery to the Company of (a) the written
notice described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in part,
by surrender of its right to purchase certain shares of Common Stock pursuant to
the Warrant. For purposes of this Section 3(b), the value of the surrender of
the right to purchase a share of Common Stock shall be attributed a value equal
to (i) the current market price per share of Common Stock minus (ii) the then
Warrant Price per share of Common Stock. If the determination of current market
price per share of Common Stock is to be made for a "cashless" or "net-issue"
exercise in connection with an initial public offering of Common Stock, the
current market price per share of Common Stock shall equal the per share
offering price without deductions for any compensation, discounts or expenses
paid or incurred by the Company in connection with such offering. Otherwise,
the current market price shall be determined in accordance with the provisions
of Section 7.1(f) hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and
payment of such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause to
be delivered to or upon the written order of the Holder, and in such name or
names as the Holder may designate, certificate or certificates for the number of
full Shares so purchased upon the exercise of the Warrant, together with cash,
as provided in Section 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other securities to
which the Holder is entitled pursuant to the provisions of Section 7. The
Warrant shall be exercisable, at the election of the Holder, either in whole or
from time to time in part and, in the event that the certificate evidencing the
Warrant is exercised with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
-5-
<PAGE>
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Holder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate or
certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and of a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe,
not to exceed Two Hundred Fifty and no/100 Dollars ($250) per occurrence.
SECTION 6. Warrant Price.
-------------
6.1. Warrant Price. The per Share price (the "Warrant Price") at which
-------------
Shares shall be purchasable upon the exercise of the Warrant is $2,000, subject
to adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1. Adjustment of Warrant Price and Number of Shares. After the
------------------------------------------------
issuance of the Warrant, the number and kind of securities purchasable upon the
exercise of the Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company
---------------------------------------
shall (A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of Common
Stock into a larger number of shares, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, (D) make a distribution on its
Common Stock in shares of its capital stock other than Common Stock or preferred
stock, (E) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, or (F) take any action which would result in any
of the foregoing, then the Warrant Price and the number and kind of shares of
capital stock of the Company issuable upon exercise of a Warrant as in effect
immediately prior to such action shall then be proportionally adjusted so that
the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised immediately
prior to such action.
-6-
<PAGE>
An adjustment made pursuant to this Section 7.1(a)(i) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If after an adjustment a holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Company shall determine the allocation of the adjusted Warrant Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Warrant Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
(b) Adjustment for Rights Issue. If the Company distributes any
---------------------------
rights, options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the Company's
subordinated debt) entitling them for a period expiring within 60 days after the
record date mentioned below to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date, the
Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-------
W' = W x M
------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record
date
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the right,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant Price shall be
-7-
<PAGE>
immediately readjusted to what it would have been if "N" in the above formula
had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
----------------------------------
any holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company),
the Warrant Price shall be adjusted in accordance with the formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on
the record date mentioned below
F = the Fair Market Value on the record date of the net assets,
securities, rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares
---------------------------------
of Common Stock for a consideration per share less than the current market price
per share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such additional shares
-8-
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares
M = the current market price per share on the date of issuance of
such additional shares
A = the number of shares outstanding immediately after the issuance
of such additional shares
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of
this Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or
the exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the
------------------------------------------------------
Company issues any securities convertible into or exchangeable for Common Stock
or options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section 7.1)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current market price per
share on the date of issuance of such securities, the Warrant Price shall be
adjusted in accordance with this formula:
P
-
W' = W x O + M
-----
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the
issuance of such securities
P = the aggregate consideration received for the issuance of such
securities
-9-
<PAGE>
M = the current market price per share on the date of issuance of
such securities or to be received upon the exercise of such securities
D = the maximum number of shares deliverable upon conversion,
exercise or in exchange for such securities at the initial conversion price,
exercise price or exchange rate
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the
subsequent issue of convertible securities or shares of Common Stock upon the
exercise of options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Warrant Price shall promptly be readjusted to the Warrant
Price which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in
a bona fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then,
based upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the
average of the Quoted Prices of the Common Stock for 20 consecutive trading
days before the date in question. The "Quoted Price" of the Common Stock is
the last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
-10-
<PAGE>
price of the Common Stock. In the absence of one or more such quotations,
the current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
(2) Fair Market Value. Fair Market Value means the value
-----------------
obtainable upon a sale in an arm's length transaction to a third party
under usual and normal circumstances, with neither the buyer nor the seller
under any compulsion to act, with equity to both, as determined by the
Board in good faith; provided, however, that if the holder of this Warrant
-------- -------
shall dispute the Fair Market Value as determined by the Board, such holder
may undertake to have it and the Company retain an Independent Expert. The
determination of Fair Market Value by the Independent Expert shall be
final, binding and conclusive on the Company and such holder. All costs and
expenses of the Independent Expert shall be borne by such holder unless the
Fair Market Value as determined by the Independent Expert exceeds the Fair
Market Value as determined by the Board by 5% but less than 10%, in which
case the cost of the Independent Expert shall be shared equally by such
holder and the Company, and unless the Fair Market Value as determined by
the Independent Expert exceeds the Fair Market Value as determined by the
Board by 10% or more, in which case the cost of the Independent Expert
shall be borne solely by the Company.
(3) Independent Expert. Independent Expert means an investment
------------------
banking firm reasonably agreeable to the Company and the holder of this
Warrant who does not (and whose affiliates do not) have a financial
interest in the Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation
----------------------
respecting consideration received pursuant to subsections (d) and (e) of this
Section 7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the
-11-
<PAGE>
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (1) and (2)
of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Warrant Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent
or to the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the
--------------------
Company shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the
-------------------
Warrant Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided, however,
-------- -------
that in no event may the Warrant Price be less than the par value of a share of
Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Warrant Price takes effect. The
notice shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant
Price otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e)
of this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to this Section 7.1, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall thereafter evidence the
right to receive upon payment of the adjusted Warrant Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
-12-
<PAGE>
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall
be calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to purchase any
securities of the Company other than Class A Common Stock, the Company shall
duly reserve such securities for issuance and thereafter the number of such
other securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require
that the adjustment shall be effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (1) issuing to
the holder of the Warrant or portion thereof exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such holder any cash in lieu
of a fractional share of Common Stock pursuant to Section 8 hereof; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive additional
shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
7.2. Statement on Warrants. Irrespective of any adjustment in the
---------------------
Warrant Price or the number or kind of Shares purchasable upon the exercise of
the Warrant, the Warrant certificate or certificates theretofore issued may
continue to express the same price and number and kind of shares as are stated
in the Warrant initially issuable pursuant to this Agreement.
7.3. Reservation. The Company shall at all times reserve and keep
-----------
available, free from preemptive rights, so long as the
-13-
<PAGE>
Warrant remains outstanding, out of its authorized but unissued Common Stock the
full number of shares of Common Stock deliverable upon the exercise of the
Warrant and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 7.1 hereof to reduce the Warrant Price below the then par value (if any)
of the Shares, the Company will take any corporate action which may, in the
opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4. Change in Control; Merger; Reorganization. Notwithstanding
-----------------------------------------
anything to the contrary contained herein, in the event of (i) a Change of
Control (as hereinafter defined), (ii) any acquisition of the Corporation by
means of merger or other form of corporate reorganization in which outstanding
shares of the Corporation are exchanged for securities or other consideration
issued, or caused to be issued, by the acquiring corporation or its subsidiary
(other than a mere reincorporation transaction), or (iii) the sale or transfer
of all or substantially all of the assets of the Company to another person,
(each, a "Major Event"), the Company shall provide written notice of such
occurrence to the Holder (the "Change of Control Notice") at least ten (10)
business days prior to the occurrence of such Major Event. The Holder may,
within ten (10) business days of receipt of a Change of Control Notice (the
"Notice Cutoff Date"), exercise the Warrant and purchase, in accordance with the
procedures set forth in Section 3 hereof, up to such number of Shares as the
Holder may be entitled to purchase hereunder, provided however, the Holder (i)
may condition the exercise of
-14-
<PAGE>
the Warrant and the purchase of the Shares upon consummation of the Major Event,
(ii) may require that the acquisition of the Shares and tender of the Warrant
Price occur contemporaneously with the consummation of the Major Event, and
(iii) may offset and/or credit against the Warrant Price any consideration to be
received by the Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the
acquisition by any person or group (as such term is defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, (the "1934 Act") of
beneficial ownership (as such term is defined in Rule 13d-3 promulgated under
the 1934 Act) of more than 25% of the outstanding shares of Common Stock of the
Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this
------------------------
Agreement or in the Warrant shall be construed as conferring upon the Holder or
its transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the
-------
Company or by the Holder shall be in writing and shall be deemed to have been
duly given if delivered personally with written receipt acknowledged or mailed
by certified mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
-15-
<PAGE>
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in accordance herewith
to the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the
Company shall promptly thereafter (i) cause to be filed with the Company a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the Warrant Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Shares
(or portion thereof) issuable after such adjustment in the Warrant Price, upon
exercise of a Warrant and payment of the adjusted Warrant Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
-16-
<PAGE>
SECTION 12. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors, heirs and permitted
assigns.
SECTION 13. Benefits of this Agreement. Except as otherwise provided
--------------------------
herein, nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly
------------------
to execute, at the Holder's reasonable request after the issuance of the
Warrant, any documents or materials related to the transactions contemplated by
this Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting
---------------
and performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to
------------------------
a jury trial with respect to any controversy or claim between or among the
parties hereto, including but not limited to those arising out of or relating to
this Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising
---------------
hereunder concerning the interpretation or enforcement of this Agreement, a
party shall be entitled to recover from the party determined to be in breach its
attorneys' fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be
--------------------
entitled to specific performance in the event of a breach by the other party of
their respective obligations hereunder. Such remedy shall be in addition to,
but shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
-17-
<PAGE>
SECTION 21. Registration Rights. The Shares issuable upon exercise
-------------------
of this Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
SECTION 22. Representations of Company. The Company represents and
--------------------------
warrants to Holder as follows:
22.1. Corporate Organization and Good Standing. The Company is a
----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and is duly qualified and in good standing in all
other states where the nature of its business or operations or the ownership of
its property requires such qualification.
22.2. Corporate Approval. The Company has full corporate power and
------------------
authority to execute and deliver this Agreement and all other documents and
agreements to be executed and delivered by it hereunder ("Transaction
Documents") and to consummate the transactions contemplated hereby. The board
of directors of the Company has duly and validly approved the execution,
delivery, and performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement
constitutes, and the other Transaction Documents, when executed, will
constitute, the legal, valid, and binding obligation and agreement of the
Company enforceable against the Company in accordance with its terms, subject
only to the general law of creditors' rights.
SECTION 23. Certain Terms. As used herein, the following terms shall
-------------
have the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the
------------
Class A Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any
------------------------
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock and securities convertible or exchangeable into
Common Stock, whether at the time of issuance, upon the passage of time, or upon
the occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ TODD W. FOLLMER
--------------------------------
Todd W. Follmer
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
-----------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 6
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON
RECEIPT OF AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO
THE ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD THE DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT
AGREEMENT, DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A
DELAWARE CORPORATION (THE "COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE
REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE
COMPANY AND THE HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27,
1996 BY AND AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND
SHAREHOLDERS OF THE COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Todd W. Follmer ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 336.5132 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$2,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
-1-
<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by
the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment to the Company of the purchase price in cash, by cashier's check, or by
wire transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events
the Warrant Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Warrant Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. Fractions of a share of Common Stock may be
issued upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 4.19
[EUF Warrants]
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is entered into as of December 27,
1996 by and between Talton Holdings, Inc., a Delaware corporation (the
"Company") and Todd W. Follmer (the "Holder").
Contemporaneously with the execution of this Agreement, the Holder has agreed
to acquire 100 shares of the Company's Class B Common Stock, $0.01 per value
("Class B Common"). The Class B Common carry the right for the Holder to
acquire and, the Company has agreed to issue and sell to the Holder, as part of
the issuance of the Class B Common, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase 328.0769 shares (the "Shares") of the
Company's Class A Common Stock, $0.01 par value ("Class A Common"). The
issuance of the Warrant by the Company shall occur concurrently with the
Holder's acquisition of the Class B Common.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the Warrant and the
respective rights and obligations thereunder, the Company and the Holder hereby
agree as follows:
SECTION 1. Transferability and Form of Warrant.
-----------------------------------
1.1 Registration. The Warrant shall be numbered and shall be registered on
------------
the books of the Company when issued. This Agreement, the Warrant and any
Shares issued hereunder are subject to the rights and obligations of that
certain Shareholders Agreement (the "Shareholders Agreement") of even date
herewith between the Company, the Holder and other shareholders and
warrantholders of the Company.
1.2 Non-Transferability. The Warrant may be freely traded separate and apart
-------------------
from the shares of Class B Common. However, neither the Warrant nor the right,
title or interest of the Holder in this Agreement may be transferred or assigned
unless such transfer or assignment is to an "accredited investor," as defined in
Rule 501 promulgated under the Securities Act of 1933, as amended, compliance
with said standard to be demonstrated by evidence reasonably satisfactory to the
Company; provided, however, in the event the Holder assigns or transfers its
-------- -------
interest in this Agreement, the assignee or transferee of said interest shall be
subject to all Section 1.3 restrictions and shall acquire only such partial
exercise rights as remain pursuant thereto. This Agreement and all rights and
interests
-1-
<PAGE>
hereunder are assignable or transferable by the Holder only in whole and not in
part. Any Shares issued pursuant to a Warrant issued hereunder shall be subject
to the rights and obligations of that certain Registration Rights Agreement
dated of even date herewith between the Company and the Holder, and the
Shareholders Agreement.
1.3 Securities Law Restrictions on Transfer of the Warrant. Neither this
------------------------------------------------------
Agreement, the Warrant, any of the Shares, nor any interest herein or therein
may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act of 1933, as amended, and applicable state securities laws, or an
exemption therefrom. The Warrant may be divided, upon request to the Company by
the Holder, into a certificate or certificates representing the right to
purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Holder" shall include any transferee or transferee of the
Warrant and the term "Warrant" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or permitted transfer
pursuant to this Agreement.
1.4 Form of Warrant. The text of the Warrant and the form of election to
---------------
purchase Shares shall be substantially as set forth in Exhibit 1.4A and Exhibit
1.4B attached hereto and hereby made a part hereof. The Warrant shall be
executed on behalf of the Company by its Chairman or President and by its
Secretary, Assistant Secretary or Treasurer.
A Warrant bearing the signature of an individual who was at any time the
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant or did not hold such office on the date of this Agreement.
The Warrant shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Warrant Shares. The Warrant and each certificate for Shares
------------------------
initially issued upon exercise of the Warrant, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT
-2-
<PAGE>
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE
THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT, DATED AS OF DECEMBER
27, 1996 BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE HOLDER, AND THE
SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY,
THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE COMPANY.
Any warrant or certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear the above legend
unless, in the opinion of the Company's counsel or such other counsel as shall
be reasonably approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.
1.6 Investment Letter. Simultaneously with the delivery to the Holder of
-----------------
certificates or other documents representing the Shares and/or any substitute
Warrant, the Holder will execute and deliver to the Company a letter, in the
following form of Exhibit 1.6 hereto, representing to the Company as follows:
(a) The Holder is acquiring the Shares and the Warrant for the Holder's own
account (and not for the account of others), for investment and not with a
view to the distribution or resale thereof;
(b) The Holder is an "accredited investor", as defined in Rule 501 promulgated
under the Securities Act of 1933, as amended (the "1933 Act");
(c) The Holder understands that the Holder may not sell or dispose of the
Shares or the Warrant in the absence of either a registration statement
under the 1933 Act or an exemption from the registration provisions of the
1933 Act;
(d) The Holder understands that the Warrant and the Shares are subject to
restrictions on transfer as provided in the Shareholders Agreement;
(e) The Holder understands and agrees that if he should decide to dispose of or
transfer any of the Shares or the Warrant, he may dispose of them only (i)
to an "accredited investor", (ii) in compliance with the 1933 Act, as then
in effect, and (iii) upon delivery to the Company of an opinion, in form
and substance reasonably satisfactory to the Company, of recognized
securities counsel to the effect that the disposition or transfer is to be
made in compliance with all applicable federal and state securities laws;
and
-3-
<PAGE>
(f) The Holder understands that stop-transfer instructions to the foregoing
effect will be in effect with respect to the Shares and the Warrant.
SECTION 2. Exchange of Warrant Certificate. Subject in all respects to the
-------------------------------
limitations on transferability and divisibility of Section 1 hereof, any
certificate evidencing all or a portion of the Warrant may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitling such Holder to purchase. Any Holder desiring to exchange a
certificate evidencing all or a portion of the Warrant, shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the portion of the Warrant to be so exchanged.
Thereupon, the Company shall, within five (5) business days, execute and deliver
to the person entitled thereto a new certificate evidencing all or a portion of
the Warrant as so requested.
SECTION 3. Term of Warrants; Exercise of Warrants.
--------------------------------------
(a) Subject to the terms of this Agreement, the Holder shall have the right, at
any time during the period commencing on the "Exercisability Date"
(hereinafter defined), and ending at 5:00 p.m., New York, New York time, on
December 26, 2006 (the "Termination Date"), to purchase from the Company up
to the number of Shares which the Holder may at the time be entitled to
purchase pursuant to this Agreement and the portion of the Warrant (or
certificate therefor) then held by it, upon surrender to the Company, at
its principal office in Dallas, Texas, of the certificate evidencing the
portion of the Warrant to be exercised together with the purchase form duly
filled in and signed, and upon payment to the Company of the portion of the
Warrant Price, as defined in and determined in accordance with the
provisions of Sections 6 and 7 hereof, allocable to the number of Shares
with respect to which such portion of the Warrant is then exercised.
Payment of the Warrant Price shall be made (i) in cash, by cashier's check
or by wire transfer or (ii) through the surrender of debt, preferred equity
securities or Common Stock of the Company having a principal amount,
liquidation preference, or current market price, as the case may be, equal
to the aggregate Warrant Price to be paid (the Company will pay the accrued
interest or dividends on such surrendered debt, preferred equity
securities, or Common Stock in cash at the time of surrender
notwithstanding the stated terms thereof) or (iii) through "cashless" or
"net-issue" exercise provided in Section 3(b) below. For purposes of this
Section 3, the "Exercisability Date" shall mean the earliest to occur of
the following dates: (i) December 27, 1999; (ii) the date when a Change of
Control Notice (as defined in Section 7.4) is given; (iii) the date that
certain Consulting and Strategic Services Agreement dated December 27, 1996
by and between the Company and EUF Talton L.P. is terminated (with or
without cause); or (iv) the date upon
-4-
<PAGE>
which a registered public offering under the Securities Act of 1933, as
amended, of equity interests in the Company is made pursuant to a
registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such
date.
(b) The holder of the Warrant may also exercise the Warrant in a "cashless" or
"net-issue" exercise by delivery to the Company of (a) the written notice
described in Section 3(a) above, (b) the Warrant and (c) written notice
that the holder elects to make payment of the Warrant Price, in full or in
part, by surrender of its right to purchase certain shares of Common Stock
pursuant to the Warrant. For purposes of this Section 3(b), the value of
the surrender of the right to purchase a share of Common Stock shall be
attributed a value equal to (i) the current market price per share of
Common Stock minus (ii) the then Warrant Price per share of Common Stock.
If the determination of current market price per share of Common Stock is
to be made for a "cashless" or "net-issue" exercise in connection with an
initial public offering of Common Stock, the current market price per share
of Common Stock shall equal the per share offering price without deductions
for any compensation, discounts or expenses paid or incurred by the Company
in connection with such offering. Otherwise, the current market price
shall be determined in accordance with the provisions of Section 7.1(f)
hereof.
(c) Upon such surrender of the Warrant (or certificate therefor) and payment of
such Warrant Price as aforesaid, or after "cashless" or "net issue"
exercise, the Company shall, within five (5) business days, issue and cause
to be delivered to or upon the written order of the Holder, and in such
name or names as the Holder may designate, certificate or certificates for
the number of full Shares so purchased upon the exercise of the Warrant,
together with cash, as provided in Section 8 hereof, with respect to any
fractional Shares otherwise issuable upon such surrender and the cash,
property and other securities to which the Holder is entitled pursuant to
the provisions of Section 7. The Warrant shall be exercisable, at the
election of the Holder, either in whole or from time to time in part and,
in the event that the certificate evidencing the Warrant is exercised with
respect to less than all of the Shares specified therein at any time prior
to the Termination Date, a new certificate evidencing the remaining Warrant
shall be issued by the Company.
SECTION 4. Payment of Taxes. The Company shall pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of the Shares; provided that
the Company shall not be required to pay any tax or taxes which may be payable
with respect to any secondary transfer of the Warrant or the Shares.
SECTION 5. Mutilated or Missing Warrant. In case the certificate or
----------------------------
certificates evidencing the Warrant shall be
-5-
<PAGE>
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Holder, issue and deliver in exchange and substitution for and upon cancellation
of the mutilated certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and of a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe, not to exceed Two Hundred Fifty and no/100 Dollars ($250)
per occurrence.
SECTION 6. Warrant Price.
-------------
6.1 Warrant Price. The per Share price (the "Warrant Price") at which Shares
-------------
shall be purchasable upon the exercise of the Warrant is $3,000, subject to
adjustment pursuant to Section 7 hereof.
SECTION 7. Adjustment of Warrant Price and Number of Shares.
------------------------------------------------
7.1 Adjustment of Warrant Price and Number of Shares. After the issuance of
------------------------------------------------
the Warrant, the number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Adjustments for Change in Capital Stock. In the event the Company shall
---------------------------------------
(A) pay a stock dividend or make a distribution to holders of Common Stock
in shares of its Common Stock, (B) subdivide its outstanding shares of
Common Stock into a larger number of shares, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, (D) make a
distribution on its Common Stock in shares of its capital stock other than
Common Stock or preferred stock, (E) issue by reclassification of its
shares of Common Stock any shares of capital stock of the Company, or (F)
take any action which would result in any of the foregoing, then the
Warrant Price and the number and kind of shares of capital stock of the
Company issuable upon exercise of a Warrant as in effect immediately prior
to such action shall then be proportionally adjusted so that the holder of
any Warrant thereafter exercised may receive the aggregate number and kind
of shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised
immediately prior to such action.
An adjustment made pursuant to this Section 7.1(a)(i) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and
-6-
<PAGE>
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Company shall determine the allocation of the
adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the Warrant Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
---------------------------
options or warrants to any holder of its Common Stock (other than those
certain contingent warrants which may be issued to the holders of the
Company's subordinated debt) entitling them for a period expiring within 60
days after the record date mentioned below to purchase shares of Common
Stock at a price per share less than the current market price per share on
that record date, the Warrant Price shall be adjusted in accordance with
the formula:
O + N x P
-------
W' = W x M
-------------
O + N
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the record date
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the right, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Warrant Price shall be immediately readjusted to what it would
have been if "N" in the above formula had been the number of shares actually
issued.
-7-
<PAGE>
(c) Adjustment for Other Distributions. If the Company distributes to any
----------------------------------
holder of its Common Stock any of its assets (including but not limited to
cash, debt securities, preferred stock, or any rights or warrants to
purchase debt securities, preferred stock, assets or other securities of
the Company), the Warrant Price shall be adjusted in accordance with the
formula:
W' = W x M - F
------
M
Where:
W' = the adjusted Warrant Price
W = the current Warrant Price
M = the current market price per share of Common Stock outstanding on the
record date mentioned below
F = the Fair Market Value on the record date of the net assets, securities,
rights or warrants applicable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred to in
subsection (b) of this Section 7.1.
(d) Adjustment for Common Stock Issue. If the Company issues shares of Common
---------------------------------
Stock for a consideration per share less than the current market price per
share on the date the Company fixes the offering price of such additional
shares, the Warrant Price shall be adjusted in accordance with the formula:
P
-
W' = W x O + M
------
A
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such additional shares
P = the aggregate consideration received for the issuance of such additional
shares
-8-
<PAGE>
M = the current market price per share on the date of issuance of such
additional shares
A = the number of shares outstanding immediately after the issuance of such
additional shares
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and (c) of this
Section 7.1 or
(2) Common Stock issued in a bona fide public offering pursuant to a firm
commitment underwriting or
(3) Shares of Common Stock issued pursuant to existing options or the
exchange of convertible securities on the date hereof.
(e) Adjustment for Convertible Securities or Options Issue. If the Company
------------------------------------------------------
issues any securities convertible into or exchangeable for Common Stock or
options, rights or warrants to subscribe for, purchase or otherwise acquire
any class of Common Stock or convertible securities (other than securities
issued in transactions described in subsections (b) and (c) of this Section
7.1) for a consideration per share of Common Stock initially deliverable
upon conversion or exchange of such securities less than the current market
price per share on the date of issuance of such securities, the Warrant
Price shall be adjusted in accordance with this formula:
P
-
W' = W x O + M
------
O + D
Where:
W' = the adjusted Warrant Price
W = the then current Warrant Price
O = the number of shares outstanding immediately prior to the issuance of
such securities
P = the aggregate consideration received for the issuance of such securities
M = the current market price per share on the date of issuance of such
securities or to be received upon the exercise of such securities
-9-
<PAGE>
D = the maximum number of shares deliverable upon conversion, exercise or in
exchange for such securities at the initial conversion price, exercise price or
exchange rate
The adjustment shall be made successively whenever any such issuance is made,
and shall become effective immediately after such issuance.
No further adjustment in the Warrant Price shall be made upon the subsequent
issue of convertible securities or shares of Common Stock upon the exercise of
options or conversion or exchange of such convertible securities.
If all of the Common Stock deliverable upon conversion or exchange of such
securities have not been issued when such securities are no longer outstanding,
then the Warrant Price shall promptly be readjusted to the Warrant Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued in a bona
fide public offering pursuant to a firm commitment underwriting.
(f) Current Market Price.
--------------------
(1) In Section 3(b) and subsections (b), (c), (d) and (e) of this
Section 7.1(a) the current market price per share of Common Stock on any
date is:
(i) if the Common Stock is not registered under the Exchange Act, then, based
upon the Fair Market Value of 100% of the Company if sold as a going
concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of the Common Stock do not constitute a
majority or controlling interest in the Company; or
(ii) if the Common Stock is registered under the Exchange Act, the average of
the Quoted Prices of the Common Stock for 20 consecutive trading days
before the date in question. The "Quoted Price" of the Common Stock is the
last reported sales price of the Common Stock as reported by Nasdaq
National Market, or if the Common Stock is listed on a national securities
exchange, the last reported sales price of the Common Stock on such
exchange (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid price
of the Common Stock. In the absence of one or more such quotations, the
current market price of the Common Stock shall be determined as if the
Common Stock was not registered under the Exchange Act.
-10-
<PAGE>
(2) Fair Market Value. Fair Market Value means the value obtainable upon
-----------------
a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board in good
faith; provided, however, that if the holder of this Warrant shall dispute
-------- -------
the Fair Market Value as determined by the Board, such holder may undertake
to have it and the Company retain an Independent Expert. The determination
of Fair Market Value by the Independent Expert shall be final, binding and
conclusive on the Company and such holder. All costs and expenses of the
Independent Expert shall be borne by such holder unless the Fair Market
Value as determined by the Independent Expert exceeds the Fair Market Value
as determined by the Board by 5% but less than 10%, in which case the cost
of the Independent Expert shall be shared equally by such holder and the
Company, and unless the Fair Market Value as determined by the Independent
Expert exceeds the Fair Market Value as determined by the Board by 10% or
more, in which case the cost of the Independent Expert shall be borne
solely by the Company.
(3) Independent Expert. Independent Expert means an investment banking
------------------
firm reasonably agreeable to the Company and the holder of this Warrant who
does not (and whose affiliates do not) have a financial interest in the
Company or any of its affiliates.
(g) Consideration Received. For purposes of any computation respecting
----------------------
consideration received pursuant to subsections (d) and (e) of this Section
7.1, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be
-11-
<PAGE>
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (1) and (2) of this subsection).
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the Warrant
------------------------------------------
Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Warrant Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Section shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(i) Notice of Adjustment. Whenever the Warrant Price is adjusted, the Company
--------------------
shall provide the notice required by Section 11 hereof.
(j) Voluntary Reduction. The Company from time to time may reduce the Warrant
-------------------
Price by any amount for any period of time if the period is at least 20
days and if the reduction is irrevocable during the period; provided,
--------
however, that in no event may the Warrant Price be less than the par value
-------
of a share of Common Stock.
Whenever the Warrant Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Warrant Price takes effect. The notice
shall state the reduced Warrant Price and the period it will be effect.
A reduction of the Warrant Price does not change or adjust the Warrant Price
otherwise in effect for purposes of subsections (a), (b), (c), (d) and (e) of
this Section 7.1.
(k) Adjustment in Number of Shares. Upon each adjustment of the Warrant Price
------------------------------
pursuant to this Section 7.1, each Warrant outstanding prior to the making
of the adjustment in the Warrant Price shall thereafter evidence the right
to receive upon payment of the adjusted Warrant Price that number of shares
of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x W
-
W'
Where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a Warrant
by payment of the adjusted Warrant Price
-12-
<PAGE>
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Warrant Price prior to adjustment
W' = the adjusted Warrant Price
W = the Warrant Price prior to adjustment.
(l) In calculating any adjustment hereunder, the Warrant Price shall be
calculated to the nearest cent and the number of Shares purchasable hereunder
shall be calculated to the nearest .001 of a share.
(m) In the event that at any time, as a result of an adjustment made pursuant
to this Section 7, the Holder shall become entitled to purchase any securities
of the Company other than Class A Common Stock, the Company shall duly reserve
such securities for issuance and thereafter the number of such other securities
so purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to the adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Shares contained in this Section 7.
(n) In any case in which the provisions of this Section 7.1 require that the
adjustment shall be effective immediately after a record date for an event, the
Company may defer until the occurrence of such event (1) issuing to the holder
of the Warrant or portion thereof exercised after such record date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment, and (2) paying to such holder any cash in lieu of a fractional
share of Common Stock pursuant to Section 8 hereof; provided, however, that the
Company shall deliver to the holder a due bill or other appropriate instrument
evidencing such holder's right to receive additional shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
7.2 Statement on Warrants. Irrespective of any adjustment in the Warrant
---------------------
Price or the number or kind of Shares purchasable upon the exercise of the
Warrant, the Warrant certificate or certificates theretofore issued may continue
to express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement.
7.3 Reservation. The Company shall at all times reserve and keep available,
-----------
free from preemptive rights, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock deliverable upon the exercise of the Warrant and shall take all such
action and obtain all such permits or orders as may be
-13-
<PAGE>
necessary to enable the Company lawfully to issue such Common Stock.
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 11 hereof.
Before taking any action which would cause an adjustment pursuant to Section
7.1 hereof to reduce the Warrant Price below the then par value (if any) of the
Shares, the Company will take any corporate action which may, in the opinion of
its counsel (which may be counsel employed by the Company), be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Warrant Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will, upon issue, be fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
7.4 Change in Control; Merger; Reorganization. Notwithstanding anything to
-----------------------------------------
the contrary contained herein, in the event of (i) a Change of Control (as
hereinafter defined), (ii) any acquisition of the Corporation by means of merger
or other form of corporate reorganization in which outstanding shares of the
Corporation are exchanged for securities or other consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary (other than
a mere reincorporation transaction), or (iii) the sale or transfer of all or
substantially all of the assets of the Company to another person, (each, a
"Major Event"), the Company shall provide written notice of such occurrence to
the Holder (the "Change of Control Notice") at least ten (10) business days
prior to the occurrence of such Major Event. The Holder may, within ten (10)
business days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the procedures set
forth in Section 3 hereof, up to such number of Shares as the Holder may be
entitled to purchase hereunder, provided however, the Holder (i) may condition
the exercise of the Warrant and the purchase of the Shares upon consummation of
the Major Event, (ii) may require that the acquisition of the Shares and tender
of the Warrant Price occur contemporaneously with the consummation of the Major
Event, and (iii) may offset
-14-
<PAGE>
and/or credit against the Warrant Price any consideration to be received by the
Holder as part of the consummation of the Major Event.
For purposes of this Agreement, Change of Control shall mean the acquisition
by any person or group (as such term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the 1934 Act)
of more than 25% of the outstanding shares of Common Stock of the Company.
SECTION 8. Obtaining Stock Exchange Listings. The Company will from time to
---------------------------------
time take all action which may be necessary so that the Shares, immediately upon
their issuance upon the exercise of Warrants, will be listed on the principal
securities exchanges and markets within the United States of America, if any, on
which other shares of Common Stock are then listed.
SECTION 9. Fractional Interests. The Company shall be required to issue
--------------------
fractional Shares on the exercise of the Warrant.
SECTION 10. No Rights as Stockholder. Nothing contained in this Agreement or
------------------------
in the Warrant shall be construed as conferring upon the Holder or its
transferee any rights as a stockholder of the Company.
SECTION 11. Notices. Any notice pursuant to this Agreement by the Company or
-------
by the Holder shall be in writing and shall be deemed to have been duly given if
delivered personally with written receipt acknowledged or mailed by certified
mail five days after mailing, return receipt requested:
If to the Holder:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, TX 75219
Attention:____________________
If to the Company:
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Chief Executive Officer
Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Upon any adjustment of the Warrant Price pursuant to Section 7.1, the Company
shall promptly thereafter (i) cause to be filed
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<PAGE>
with the Company a certificate of a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) setting forth the Warrant Price after
such adjustment and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based and setting forth the
number of Shares (or portion thereof) issuable after such adjustment in the
Warrant Price, upon exercise of a Warrant and payment of the adjusted Warrant
Price, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register written notice of such adjustments by first class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included as
a part of the notice required to be mailed under the other provisions of this
Section 11.
In case: (a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or distributions referred
to in subsection (1) of Section 7.1 hereof); (c) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; or (d) the Company
proposes to take any action (other than actions of the character described in
Section 7.1(a)) which would require an adjustment of the Warrant Price pursuant
to Section 7; then the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at his address appearing on the Warrant
register, at least 20 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (i) the date as
of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock. The failure to give the notice required by
this Section 11 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
SECTION 12. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors, heirs and permitted assigns.
-16-
<PAGE>
SECTION 13. Benefits of this Agreement. Except as otherwise provided herein,
--------------------------
nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Holder any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and the Holder.
SECTION 14. Further Assurances. The Company hereby agrees promptly to
------------------
execute, at the Holder's reasonable request after the issuance of the Warrant,
any documents or materials related to the transactions contemplated by this
Agreement.
SECTION 15. Time of Essence. Time is of the essence in interpreting and
---------------
performing this Agreement.
SECTION 16. Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired hereby.
SECTION 17. Jury Trial; Jurisdiction. The parties waive the right to a jury
------------------------
trial with respect to any controversy or claim between or among the parties
hereto, including but not limited to those arising out of or relating to this
Agreement, including any claim based on or arising from an alleged tort.
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware. The parties,
in acknowledgment that they have been represented by counsel and that this
Agreement has been carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into in connection
herewith shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents were prepared or
drafted.
SECTION 19. Attorneys' Fees. In the event of any disputes arising hereunder
---------------
concerning the interpretation or enforcement of this Agreement, a party shall be
entitled to recover from the party determined to be in breach its attorneys'
fees, costs and expenses.
SECTION 20. Specific Performance. Each of the parties shall be entitled to
--------------------
specific performance in the event of a breach by the other party of their
respective obligations hereunder. Such remedy shall be in addition to, but
shall not replace, any other remedies which might be available under this
Agreement, at law or in equity, including without limitation, actions for
attorney's fees.
SECTION 21. Registration Rights. The Shares issuable upon exercise of this
-------------------
Warrant are subject to certain rights and restrictions pursuant to the
Registration Rights Agreement and the Shareholders Agreement.
-17-
<PAGE>
SECTION 22. Representations of Company. The Company represents and warrants
--------------------------
to Holder as follows:
22.1 Corporate Organization and Good Standing. The Company is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in all other states
where the nature of its business or operations or the ownership of its property
requires such qualification.
22.2 Corporate Approval. The Company has full corporate power and authority
------------------
to execute and deliver this Agreement and all other documents and agreements to
be executed and delivered by it hereunder ("Transaction Documents") and to
consummate the transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and performance
of this Agreement and the transactions contemplated herein. No other corporate
or legal proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal, valid, and
binding obligation and agreement of the Company enforceable against the Company
in accordance with its terms, subject only to the general law of creditors'
rights.
SECTION 23. Certain Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Common Stock" shall mean (A) the class of stock designated as the Class A
------------
Common Stock and Class B Common Stock of the Company at the date of this
Agreement, or (B) any other class of stock resulting from successive changes or
reclassifications of such Common Stock.
"Common Stock Equivalents" shall mean (without duplication with any other
------------------------
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock and securities convertible or exchangeable into Common
Stock, whether at the time of issuance, upon the passage of time, or upon the
occurrence of some future event.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
"HOLDER" /s/ TODD W. FOLLMER
---------------------------------
Todd W. Follmer
"COMPANY" TALTON HOLDINGS, INC.,
Delaware corporation
By: /s/ JOSEPH P. URSO
------------------------
Name: Joseph P. Urso
Title: President
-19-
<PAGE>
WARRANT NO. 7
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH
SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH THE WARRANT AGREEMENT,
DATED AS OF DECEMBER 27, 1996, BY AND AMONG TALTON HOLDINGS, INC., A DELAWARE
CORPORATION (THE "COMPANY") AND TODD W. FOLLMER (THE "HOLDER"), THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND AMONG THE COMPANY AND THE
HOLDER, AND THE SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 27, 1996 BY AND
AMONG THE COMPANY, THE HOLDER AND OTHER WARRANTHOLDERS AND SHAREHOLDERS OF THE
COMPANY."
WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF
TALTON HOLDINGS, INC. $.01 PAR VALUE
Exercisable commencing December 27, 1996;
Void after December 26, 2006;
THIS CERTIFIES that, for value received, Todd W. Follmer ("Holder"), or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from Talton Holdings, Inc., a Delaware corporation
(the "Company"), up to 328.0769 shares of Class A Common Stock, $0.01 par value
("Shares"), of the Company commencing on the Exercisability Date, and continuing
up to 5 p.m. Eastern time on December 26, 2006, at an initial per share price of
$3,000. This Warrant is issued pursuant to a Warrant Agreement between the
Holder and the Company dated as of December 27, 1996, the terms of which are
incorporated by reference herein and made a part of this instrument and are
referred to for a description of the rights limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders of the Warrant.
This Warrant is also subject to the terms and obligations of the Shareholders
Agreement dated December 27, 1996 by and among the Company, the Holder and the
other warrantholders and shareholders of the Company. For purposes hereof, the
"Exercisability Date" shall mean the earliest to occur of the following dates:
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<PAGE>
(i) December 27, 1999; (ii) the date when a Change of Control Notice (as defined
in Section 7.4 of the Warrant Agreement) is given; (iii) the date that certain
Consulting and Strategic Services Agreement dated December 27, 1996 by and
between the Company and EUF Talton L.P. is terminated (with or without cause);
or (iv) the date upon which a registered public offering under the Securities
Act of 1933, as amended, of equity interests in the Company is made pursuant to
a registration statement on Form S-1 or a successor form, but in no event
earlier than June 27, 1998 in the event such offering occurs prior to such date.
This Warrant may be exercised by the holder hereof, in whole or in part by the
presentation and surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such other address
as the Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash, by cashier's check, or by wire
transfer or partially in cash, cashier's check or wire transfer and the
remainder pursuant to Section 3 of the Warrant Agreement. Certificates for the
Shares so purchased shall be delivered or mailed to the Holder promptly after
this Warrant shall have been so exercised, and, unless this Warrant has expired
or has been exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not have been
exercised shall also be issued to the holder hereof.
The Warrant Agreement provides that upon the occurrence of certain events the
Warrant Price set forth on the face hereof may, subject to certain conditions,
be adjusted. If the Warrant Price is adjusted, the Warrant Agreement provides
that the number of shares of Common Stock issuable upon the exercise of each
Warrant shall be adjusted. Fractions of a share of Common Stock may be issued
upon the exercise of any Warrant.
Nothing contained herein shall be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company.
-2-
<PAGE>
Dated: December 27, 1996 TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ JOSEPH P. URSO
-------------------------
Name: Joseph P. Urso
Title: President
-3-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
June 2, 1997, (the "Effective Date"), by and between Talton Holdings, Inc., a
Delaware corporation (the "Company"), and John A. Crooks, Jr., a resident of the
State of Texas (the "Executive").
RECITALS
--------
WHEREAS, the Company is the owner of all of the outstanding shares of
capital stock of Talton Telecommunications Corporation, an Alabama corporation
("TTC"), all of the outstanding shares of capital stock of AmeriTel Pay Phones,
Inc., a Missouri corporation ("AmeriTel") and all of the outstanding shares of
capital stock of Talton STC, Inc., a Delaware corporation ("Talton STC") (the
Company, TTC, AmeriTel, Talton STC and their respective affiliates and
subsidiaries are sometimes referred to herein individually as a "Talton Entity"
and collectively as the "Talton Entities");
WHEREAS, the Company desires to employ the Executive and the Executive
desires to furnish services to the Company and/or the other Talton Entities on
the terms and conditions hereinafter set forth;
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the employment relationship of the Executive
with the Company;
WHEREAS, the Executive and the Company each acknowledge and agree that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Talton Entities and to
compensate the Executive for information, knowledge and experience brought to
the Talton Entities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth.
2. EMPLOYMENT PERIOD. The period of employment of the Executive by the
Company hereunder (the "Employment Period") shall commence on the Effective Date
and shall end on December 31, 1998 (unless earlier terminated in accordance with
Section 5 of the Agreement); provided that prior to December 31, 1997, the
parties agree to negotiate in good faith to establish Executive's annual
compensation for 1998, to be in an amount no less than set
1
<PAGE>
forth on Exhibit 4 attached hereto. Commencing on January 1, 1999, the
Employment Period shall be extended for successive one-year periods
(individually, a "Renewal Period"), unless a notice not to extend this Agreement
shall have been given by either party hereto to the other not later than thirty
(30) days immediately preceding the commencement of the Renewal Period (or
unless earlier terminated in accordance with Section 5 of this Agreement).
Unless the context otherwise requires, the Employment Period hereunder shall for
purposes of this Agreement be deemed to include the current Renewal Period (if
any).
3. POSITION AND DUTIES. The Executive shall, within reason, devote his
full time, attention, skills and energies during the Employment Period to the
business of the Talton Entities, performing such specific functions on behalf of
the Talton Entities and holding such positions as the Board of Directors or
senior management of the Company may direct, all of which shall be substantially
consistent with executive functions within the industry in which the Talton
Entities are engaged. In particular, the Executive shall serve as President and
Chief Operating Officer of the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Employment Period, the Company shall pay the
Executive a base salary at an annual rate specified in Exhibit 4 (the "Base
---------
Salary"), which Base Salary shall be paid in equal installments in accordance
with the Company's payroll policy, subject to Section 5 below.
(b) BONUS. During the Employment Period, the Company shall pay the
Executive the bonus specified in Exhibit 4.
---------
(c) OTHER BENEFITS. During the Employment Period, the Executive shall be
entitled to and eligible for group health insurance coverage and any other
fringe benefits in accordance with policies applicable generally to salaried
employees of the Company. The Executive shall also be entitled to paid vacation
and other paid absences during the Employment Period in accordance with policies
applicable generally to salaried employees of the Company.
5. TERMINATION.
(a) COMPANY'S TERMINATION FOR CAUSE. Prior to the end of the Employment
Period, the Company may terminate the Executive's employment under this
Agreement for "Cause". For purposes of this Agreement, the Company shall have
Cause to terminate the Executive's employment hereunder in the event the
Executive: (i) has committed any act of willful misconduct, embezzlement or
wrongful conversion of money or property belonging to any Talton Entity, or any
act of fraud or dishonesty that materially affects the business of or relates to
any of the Talton Entities; (ii) is convicted of a felony at any time hereafter;
(iii) has failed to
2
<PAGE>
comply with any material directive of the Board of Directors of the Company; or
(iv) has willfully and continually failed to substantially perform his duties
hereunder (other than any such failure resulting from the Executive's death or
disability). If the Executive's employment is terminated by the Company for
Cause, the Company shall pay the Executive any Base Salary accrued or owing to
the Executive hereunder through the date of termination, less any amounts owed
by the Executive to any Talton Entity, and the Company shall have no further
liability or obligation to the Executive hereunder. Notwithstanding the
preceding, the Company acknowledges and agrees that any termination pursuant to
subsection (iii) or (iv) above shall only be after the Company has given written
notice to the Executive of the occurrence of such breach and if the Executive
------
does not cure such breach within ten (10) days after such notice is given.
(b) COMPANY'S TERMINATION WITHOUT CAUSE. Prior to the end of the
Employment Period, the Company may terminate the Executive's employment under
this Agreement for a reason other than Cause or no reason whatsoever (i.e.,
without Cause). If (i) the Company terminates the Executive's employment
without Cause prior to the expiration of the Employment Period, or (ii) the
Company elects not to extend the Employment Period as provided in Section 2, the
Company's liability to the Executive is limited to an amount equal to the
Executive's annual Base Salary. The Company may, at its option, pay this amount
in a lump sum within thirty (30) days after the date of termination of
employment, or pay this amount over a twelve month period (commencing effective
as of the date of termination of employment) at the same rate Base Salary would
have been due and owing to the Executive if he had remained a full time
employee. If the Company terminates employment of the Executive because he has
become disabled such that he is unable to perform the essential functions of his
job (with reasonable accommodation), any such termination shall be deemed to be
a termination without Cause pursuant to this Agreement. Similarly, the
Executive's employment shall terminate upon his death, and shall be deemed a
termination by the Company without Cause, with payments hereunder to be made to
the Executive's estate.
(c) EXECUTIVE'S TERMINATION FOR CAUSE. Prior to the end of the Employment
Period, Executive may terminate this Agreement for "Cause". For purposes of
this Agreement, Executive shall have Cause to terminate this Agreement in the
event the Company: (i) causes a substantial and/or material reduction in the
nature or scope of Executive's duties and/or responsibilities, which result in
Executive no longer holding the position of President and Chief Operating
Officer of the Company, which reduction remains in place and uncorrected for
thirty (30) days following written notice of such breach to the Company by
Executive; (ii) a reduction in Executive's base pay or an exclusion from a
benefit plan or program offered to similar executives of the Company; or (iii) a
change in the location for the primary performance of Executive's services under
this Agreement from the city in which
3
<PAGE>
Executive was serving at the time of notification to a city which is more than
50 miles away from such location, which change is not approved by Executive. If
the Executive terminates this Agreement for Cause, the Company shall pay to
Executive, as a severance amount, an amount equal to Executive's then annual
Base Salary. The Company may, at its option, pay this amount in a lump sum
within thirty (30) days after the date of termination, or pay this amount over a
twelve month period (commencing effective as of the date of termination) at the
same rate Base Salary would have been due and owing to Executive if he had
remained a full time employee.
(d) EXECUTIVE'S TERMINATION WITHOUT CAUSE. Prior to the end of the
Employment Period, Executive may, upon thirty (30) days written notice,
terminate this Agreement for a reason other than Cause or no reason whatsoever
(i.e., without Cause). If Executive terminates this Agreement without Cause,
the Company shall pay Executive any Base Salary accrued or owing to Executive
hereunder through the date of termination, less any amounts owed by Executive to
any Talton Entity, and the Company shall have no further liability or obligation
to Executive hereunder.
6. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS,
DEVELOPMENTS AND NON-COMPETITION, RELEASE.
(a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company and the other Talton Entities all trade
secrets, confidential information, proprietary information, knowledge and data
relating to the Talton Entities and/or the businesses or investments of the
Talton Entities, which may have been obtained by the Executive during the
Executive's employment by the Company or any other Talton Entity, including such
information with respect to any products, improvements, formulas, designs or
styles, processes, services, customers, suppliers, marketing techniques,
methods, know-how, data, future plans or operating practices ("Confidential
Information"). Except as may be required or appropriate in connection with his
carrying out his duties under this Agreement, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such Confidential Information to
anyone other than the Company and those designated by the Company. The parties
acknowledge that "Confidential Information" shall not include information that:
(i) is now or subsequently becomes generally available to the public (other than
as a result of the Executive's disclosure of such information in violation of
this Agreement), (ii) is released by the Company for general publication; (iii)
is independently developed by Executive without the use of any Confidential
Information; or (iv) Executive lawfully obtains from a third party who has the
lawful right, in writing, to transfer or disclose such information, without
restriction. Notwithstanding anything contained herein to the contrary, it
shall not be a breach of this provision for Executive to disclose
4
<PAGE>
Confidential Information required to be disclosed in connection with an
administrative, regulatory or judicial process or proceeding, provided that, the
Executive agrees to immediately notify the Company of such process or proceeding
and to allow the Company an opportunity to contest the disclosure of
Confidential Information in such process or proceeding prior to any disclosure
of Confidential Information by the Executive.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters,
memoranda, reports, computer data, computer disks, electronic storage media,
documents, models and the like relating to the business of any of the Talton
Entities, which the Executive prepares, uses or comes into contact with and
which contain Confidential Information shall be the exclusive property of the
Company to be used by the Executive only in the performance of his duties for
the Company and shall not be removed by the Executive from the premises of any
Talton Entity (without the written consent of the Company) during or after the
Employment Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Executive, shall be returned to such Talton Entities immediately
upon termination of the Executive's employment hereunder, or earlier request by
the Company (with the Executive retaining no copies thereof nor any notes or
other records relating thereto).
(c) DEVELOPMENTS. The Executive will make full and prompt disclosure to
the Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Talton Entities, whether patentable or not,
which are created, made, conceived or reduced to practice (in whole or in part)
by the Executive or under his direction or jointly with others prior to or
during the Employment Period, whether or not during normal working hours or on
the premises of the Company (collectively, "Developments"). The Executive
agrees to assign and does hereby assign to the Company all of his right, title
and interest in and to all Developments and related patents, copyrights and
applications therefor. The Executive shall do all permissible things, and take
all permissible action, necessary or advisable, in the Company's sole discretion
and at the Company's expense, to cause any other person related to the Executive
or an entity controlled by the Executive having an interest in a Development to
assign to the Company all of such person's or entity's right, title and interest
in and to such Development and related patents, copyrights and applications
therefor. At the Company's sole cost and expense, the Executive agrees to
reasonably cooperate with the Company, both during and after the termination of
the Employment Period, with respect to the procurements, maintenance and
enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments.
5
<PAGE>
(d) NON-COMPETITION. During (i) the Executive's employment with the
Company and (ii) the two-year period immediately following the termination of
the Executive's employment, the Executive (A) shall not engage, anywhere within
the geographical areas in which any Talton Entity is then conducting its
business operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any Competitive Business; (B) shall not
solicit or encourage any officer, employee, independent contractor, vendor or
consultant of any of the Talton Entities to leave the employ of, or otherwise
cease his relationship with, any of the Talton Entities; and (C) shall not
solicit, divert or take away, or attempt to divert or to take away, the business
or patronage of any of the customers or accounts, or prospective customers or
accounts, of any Talton Entity, which were contacted, solicited or served by any
Talton Entity during the time the Executive was employed by any Talton Entity.
If the Executive violates any of the provisions of this Section 6(d), following
his termination of employment, the computation of the time period provided
herein shall be tolled from the first date of the breach until the earlier of
(i) the date judicial relief is obtained by the Company, (ii) the Company states
in writing that it will seek no judicial relief for said violation, or (iii) the
Executive provides satisfactory evidence to the Company that such breach has
been remedied. If, at any time, the provisions of this Section 6(d) shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6(d) shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 6(d) as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. For purposes of this Section 6, Executive and the Company agree that
Competitive Business shall mean (i) the inmate telephone business, (ii) the
business of selling, leasing or otherwise providing law enforcement management
systems, jail management systems, victim notification systems and/or other
tracking or record systems to inmate, jail or correctional facilities, and/or
(iii) any business that any of the Talton Entities is engaged in as of the date
of this Agreement and/or is engaged in (or is in the process of implementing the
engagement in) at the time of the termination of Executive's employment.
(e) NON-COMPETITION IN EXPANSION MARKETS. Executive acknowledges that a
valuable asset of the Talton Entities is the plan of the Company and the other
Talton Entities to extend and expand their business, by acquisition or
otherwise, to areas of the United States of America which the Talton Entities do
not yet serve as of the Effective Date. Accordingly, during (i) the Executive's
employment with the Company and (ii) the two-year period immediately following
the termination of the Executive's
6
<PAGE>
employment, the Executive shall not engage, anywhere in the United States of
America in which Company has reasonable expectations of expansion, directly or
indirectly, alone, in association with or as a shareholder, principal, agent,
partner, officer, director, employee or consultant of any other organization, in
any Competitive Business. If the Executive violates any of the provisions of
this Section 6(e), following his termination of employment, the computation of
the time period provided herein shall be tolled from the first date of the
breach until the earlier of (i) the date judicial relief is obtained by the
Company, (ii) the Company states in writing that it will seek no judicial relief
for said violation, or (iii) the Executive provides satisfactory evidence to the
Company that such breach has been remedied. If, at any time, the provisions of
this Section 6(e) shall be determined to be invalid or unenforceable, by reason
of being vague or unreasonable as to area, duration or scope of activity, this
Section 6(e) shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Executive agrees that this Section 6(e) as so amended
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein.
(f) CONTINUING OPERATION. Any termination of the Executive's employment
or of this Agreement shall have no effect on the continuing operation of this
Section 6, or any amounts required to be paid to Executive under Section 5(b) or
(c), if applicable.
(g) LEGITIMATE BUSINESS INTERESTS. The Executive has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Executive acknowledges that any violation of any of the
covenants and agreements contained in this Section 6 would result in irreparable
and continuing harm and damage to the Company and the other Talton Entities
which would be extremely difficult to quantify and for which money damages alone
would not be adequate compensation. Consequently, the Executive agrees that, in
the event he violates or threatens to violate any of these covenants and
agreements, the Company shall be entitled to: (1) entry of an injunction,
temporary and permanent, enjoining such violation and/or requiring the Executive
to return all materials or other proprietary information of the Company and (2)
money damages insofar as they can be determined. Nothing in this Agreement
shall be construed to prohibit the Company and the other Talton Entities from
also
7
<PAGE>
pursuing any other legal or equitable remedy, the parties having agreed
that all remedies are cumulative.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Company and its affiliates, successors and assigns,
and the Executive and his assigns, heirs and legal representatives. Each of the
Talton Entities (and their respective affiliates, successors and assigns) shall
be third party beneficiaries of this Agreement and may independently enforce and
benefit from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. Except with regard to that
certain MCI Telecommunications Corporation Employment Termination Agreement (the
"MCI Agreement"), which terms Executive is bound to keep confidential, the
Executive hereby represents that the Executive is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information of such
previous employer or other party in the course of the Executive's employment
with the Company or to refrain from competing, directly or indirectly, with the
business of such previous employer or any other party. The Executive further
represents that his performance of all of the terms of this Agreement does not
and will not breach the MCI Agreement (including without limitation any non-
competition provisions contained therein) nor any other agreement to keep in
confidence proprietary information, knowledge or data acquired by
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the Executive in confidence or in trust prior to the date of this Agreement, and
the Executive will not disclose to the Company or any other Talton Entity or
induce the Company or any other Talton Entities to use any confidential or
proprietary information or material belonging to any previous employer or
others. The Executive hereby indemnifies and agrees to defend and hold the
Company and the other Talton Entities harmless from and against any and all
damages, liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and the costs of investigation) resulting or arising
directly or indirectly from (i) any breach of the foregoing representations,
(ii) any allegations, claims, proceedings or actions by third parties relating
to the confidential information belonging to them and disclosed by the Executive
to the Company or any other Talton Entity, or (iii) any allegations, claims,
proceedings of actions against the Company and/or the other Talton Entities
relating to any violation or breach (or alleged violation or breach) by the
Executive of the MCI Agreement.
11. WITHHOLDING. Any payments provided for in this Agreement shall be
paid net of any applicable withholding of taxes required under federal, state or
local law.
12. RECITALS; HEADINGS; CONSTRUCTION. The Recitals set forth in the
preamble of this Agreement shall be deemed to be included and form an integral
part of this Agreement. The headings of Sections in this Agreement are provided
for convenience only and will not affect its construction or interpretation.
All references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms. All references herein to the word "or"
shall mean "and/or." The parties, in acknowledgment that all of them have been
represented by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement and other
documents entered into in connection herewith shall not be affected by the
identity of the party or parties under whose direction or at whose expense this
Agreement and such documents were prepared or drafted.
13. TIME OF ESSENCE. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
14. GOVERNING LAW. This Agreement shall be governed by the substantive
laws of the State of Texas, without regard to its conflicts of laws principles.
In particular, Texas substantive law will govern any controversy or claim
between or among the parties hereto, including any claim arising out of or
relating to this Agreement or based on or arising from an alleged tort.
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Exclusive venue for any action related to this Agreement shall be in Dallas
County, Texas.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
16. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties' respective
addresses as set forth opposite their signatures hereto). Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit if transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually received in writing by the party to whom it is
required or permitted to be given. The parties may change their address for
purposes hereof by notice given to the other parties in accordance with the
provisions of this Section, but such notice shall not be deemed to have been
duly given unless and until it is actually received by the other party.
17. COMMON LAW OR OTHER DUTIES. The Executive's duties obligations, and
agreements hereunder are in addition to (and not in limitation of) any duties or
obligations under common law or statute owed to the Company or the other Talton
Entities by the Executive by reason of his position as officer, director or
employee, as applicable, of the Company or the other Talton Entities.
18. ATTORNEYS' FEES. In the event of any litigation or proceeding
brought with respect to this Agreement in which the parties to this Agreement
(or any other Talton Entity or Entities) is a party, the prevailing party(ies)
shall be entitled to recover from non-prevailing party(ies) any reasonable
attorneys' fees and expenses incurred therein.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an
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original copy of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
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TALTON HOLDINGS, INC., a
Delaware corporation
By: /s/ TODD W. FOLLMER
---------------------------------
Todd W. Follmer,
Vice President
Address: 3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Attention: Todd W. Follmer
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
EXECUTIVE:
---------
/s/ JOHN A. CROOKS, JR.
--------------------------------------
JOHN A. CROOKS, JR.
Address: 5916 Broadmeade Drive
Plano, Texas 75093
Telephone: (972) 608-8806
Facsimile: (972) _________
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EXHIBIT 4
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to Crooks Employment Agreement
(a) Base Salary: $170,000 per year.
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(b) Bonus: Guaranteed bonus of $50,000 to be paid on or before December 31,
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1997.
Page 1 of 1
<PAGE>
EXHIBIT 10.6
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and dated as of December
27, 1996 (the "Effective Date"), by and between Talton Holdings, Inc., a
Delaware corporation (the "Company"), and JAMES E. LUMPKIN, a resident of the
State of Alabama (the "Consultant").
RECITALS
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WHEREAS, the Company is acquiring all of the outstanding shares of capital
stock of Talton Telecommunications Corporation, an Alabama corporation ("TTC")
and all of the outstanding shares of capital stock of AmeriTel Pay Phones, Inc.,
a Missouri corporation ("AmeriTel");
WHEREAS, the Consultant is a major shareholder of TTC, and as a condition and
in consideration for the Company's acquisition of his shares, the Consultant has
agreed to enter into this Agreement;
WHEREAS, the Consultant has acquired extensive knowledge and experience in the
business conducted by TTC, AmeriTel and the Company;
WHEREAS, the Company desires to obtain the benefit of the Consultant's
knowledge and experience by retaining the Consultant, and the Consultant desires
to accept such position, for the terms and upon the other conditions hereinafter
set forth;
WHEREAS, the Consultant and the Company each acknowledge and agree that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Company, TTC, AmeriTel and
their subsidiaries and affiliates (collectively, the "Acquisition Entities") and
to compensate the Consultant for information, knowledge and experience brought
to the Acquisition Entities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements set
forth below, the parties hereby agree as follows:
1. CONSULTING. The Company hereby agrees to engage the Consultant, and the
Consultant hereby accepts such engagement, on the terms and conditions
hereinafter set forth.
2. CONSULTING PERIOD. The period for which the Consultant is engaged by the
Company hereunder (the "Consulting Period") shall commence on the Effective Date
and shall end on the second anniversary of the Effective Date (unless earlier
terminated in accordance with Section 5 of the Agreement). Commencing on the
second anniversary of the Effective Date, the Consulting Period
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shall be extended for successive one-year periods (individually, a "Renewal
Period"), unless a notice not to extend this Agreement shall have been given by
either party hereto to the other not later than ninety (90) days immediately
preceding the commencement of the Renewal Period (or unless earlier terminated
in accordance with Section 5 of this Agreement). Unless the context otherwise
requires, the Consulting Period hereunder shall for purposes of this Agreement
be deemed to include any Renewal Period.
3. POSITION AND DUTIES.
(a) DUTIES. During the Consulting Period, the Consultant shall make
himself available to perform consulting services with respect to the business
conducted by the Acquisition Entities. Such consulting services shall be related
to such matters as the chief executive officer or board of directors of the
Company may designate from time to time. The Consultant shall accommodate
reasonable requests for the Consultant's consulting services, and shall devote
reasonable time and his reasonable best efforts, skill and attention to the
performance of such consulting services.
(b) POSITION. Without limiting the generality of the foregoing, upon
request of the Company, the Consultant agrees to serve as a member of the Board
of Directors and/or the executive committee of the Company and/or the other
Acquisition Entities with such powers and duties as may from time to time be
reasonably assigned to him.
4. COMPENSATION AND RELATED MATTERS.
(a) CONSULTING FEE. During the Consulting Period, the Company shall pay
the Consultant the annual Consulting Fee specified in Exhibit 4 (the
---------
"Consulting Fee"), which Consulting Fee shall be paid in equal installments in
accordance with the Company's payroll policy, subject to Section 5 below.
(b) SEPARATE PAYMENT. In consideration of the Consultant's release and
agreements set forth in Section 6 below, the Company shall pay the Consultant,
the one-time payment specified in Exhibit 4 (the "Separate Payment"), which
Separate Payment shall be due and payable in equal installments over a 12-month
period in accordance with the Company's payroll policy, subject to Section 5
below.
(c) OTHER BENEFITS. During the Consulting Period, the Consultant shall be
entitled to and eligible for group health insurance coverage and any other
fringe benefits in accordance with policies applicable generally to salaried
employees of the Company.
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5. TERMINATION.
(a) TERMINATION FOR CAUSE. Prior to the end of the Consulting Period, the
Company may terminate the Consultant's engagement under this Agreement for
"Cause". For purposes of this Agreement, the Company shall have Cause to
terminate the Consultant's engagement hereunder in the event the Consultant: (i)
has committed any act of willful misconduct, embezzlement or wrongful conversion
of money or property belonging to any Acquisition Entity, or any act of fraud or
dishonesty that affects the business of any of the Acquisition Entities
(including, without limitation, any past act of which the Company becomes aware
after the date of this Agreement); (ii) is convicted of a felony at any time
hereafter; (iii) has failed to comply with any material directive of the Board
of Directors of the Company; or (iv) has willfully failed to substantially
perform his duties hereunder (other than any such failure resulting from the
Consultant's death or disability). If the Consultant's engagement hereunder is
terminated by the Company for Cause, the Company shall pay the Consultant: (i)
the balance of the Separate Payment then due and owing to the Consultant
pursuant to Section 4(b); and (ii) any Consulting Fee accrued or owing to the
Consultant hereunder through the date of termination, less any amounts owed by
the Consultant to the Company or any of its subsidiaries, and the Company shall
have no further liability or obligation to the Consultant hereunder.
(b) TERMINATION WITHOUT CAUSE. Prior to the end of the Consulting Period,
the Company may terminate the Consultant's engagement under this Agreement for a
reason other than Cause or no reason whatsoever (i.e., without Cause). If the
Company terminates the Consultant's engagement without Cause prior to the
expiration of the Consulting Period, the Company shall pay the Consultant: (i)
the balance of the Separate Payment then due and owing to the Consultant
pursuant to Section 4(b), and (ii) any Consulting Fee accrued or owing to the
Consultant hereunder through the date of termination. The Company's liability to
the Consultant is limited to the amount of Consulting Fee and Separate Payment
(if any) owing to the Consultant for the remainder of the Consulting Period
(excluding any Renewal Periods). The Company shall pay this remaining Consulting
Fee and Separate Payment (if any) to the Consultant at the same rate such
Consulting Fee and Separate Payment (if any) would have been due and owing to
the Consultant if he had remained engaged by the Company for the entire
Consulting Period (excluding any Renewal Periods). If the Company terminates the
engagement of the Consultant because he has become disabled such that he is
unable to perform the essential functions of his job (with or without reasonable
accommodation), any such termination shall be deemed to be a termination without
Cause pursuant to this Agreement. Similarly, the Consultant's engagement shall
terminate upon his death, and shall be deemed a termination by the Company
without Cause, with payments of the Consulting Fee and Separate Payment (if any)
to be made to the Consultant's estate.
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6. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS, DEVELOPMENTS AND NON-
COMPETITION.
(a) CONFIDENTIAL INFORMATION. The Consultant shall hold in a fiduciary
capacity for the benefit of the Company and the other Acquisition Entities all
trade secrets, confidential information, proprietary information, knowledge and
data relating to the Acquisition Entities and/or the businesses or investments
of the Acquisition Entities, which may have been obtained by the Consultant
during the Consultant's engagement by the Company (and/or during the
Consultant's prior employment by any of the Acquisition Entities), including
such information with respect to any products, improvements, formulas, designs
or styles, processes, services, customers, suppliers, marketing techniques,
methods, know-how, data, future plans or operating practices ("Confidential
Information"). Except as may be require or appropriate in connection with his
carrying out his duties under this Agreement, the Consultant shall not, without
the prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such Confidential Information to
anyone other than the Company and those designated by the Company.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters,
memoranda, reports, computer disks, electronic storage media, documents, models
and the like relating to the business of any of the Acquisition Entities, which
the Consultant prepares, uses or comes into contact with and which contain
Confidential Information shall be the exclusive property of the Company to be
used by the Consultant only in the performance of his duties for the Company and
shall not be removed by the Consultant from the premises of any Acquisition
Entity (without the written consent of the Company) during or after the
Consulting Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Consultant, shall be returned to such Acquisition Entities
immediately upon termination of the Consultant's engagement hereunder, or
earlier request by the Company (with the Consultant retaining no copies thereof
or any notes or other records relating thereto).
(c) DEVELOPMENTS. The Consultant will make full and prompt disclosure to
the Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Acquisition Entities, whether patentable or
not, which are created, made, conceived or reduced to practice (in whole or in
part) by the Consultant or under his direction or jointly with others during the
Consulting Period, whether or not during normal working hours or on the premises
of the Company (collectively, "Developments"). The Consultant agrees to assign
and does hereby assign to the Company all of his right, title and interest in
and to all Developments and related patents,
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copyrights and applications therefor. The Consultant shall do all permissible
things, and take all permissible action, necessary or advisable, in the
Company's sole discretion and at the Company's expense, to cause any other
person related to the Consultant or an entity controlled by the Consultant
having an interest in a Development to assign to the Company all of such
person's or entity's right, title and interest in and to such Development and
related patents, copyrights and applications therefor. The Consultant, however,
does not guarantee that such assignment will be obtained. The Consultant agrees
to cooperate fully with the Company, both during and after the termination of
the Consulting Period, with respect to the procurements, maintenance and
enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments.
(d) NON-COMPETITION. During (i) the Consulting Period and (ii) the two-
year period immediately following the expiration or earlier termination of the
Consulting Period, the Consultant (A) shall not engage, anywhere within the
geographical areas in which any Acquisition Entity is then conducting its
business operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any "Competitive Business" which
competes with any business then being conducted by such Acquisition Entity; (B)
shall not solicit or encourage any officer, employee, independent contractor,
vendor or consultant of any of the Acquisition Entities to leave the employ of,
or otherwise cease his relationship with, any of the Acquisition Entities; and
(C) shall not solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the customers or accounts, or
prospective customers or accounts, of any Acquisition Entity, which were
contacted, solicited or served by any Acquisition Entity during the time the
Consultant was engaged by any Acquisition Entity (including any employment of
the Consultant prior to the date hereof). Notwithstanding anything herein to the
contrary, the Consultant will not be in violation of this provision if he owns
five percent or less of the outstanding voting stock of a publicly-traded
corporation as to which the Consultant is neither an officer, director, nor
employer. If, at any time, the provisions of this Section 6(d) shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6(d) shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Consultant agrees that this Section 6(d) as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. For purposes of this Section 6(d), Consultant and Company agree that
Competitive Business shall mean the corrections or penal management businesses
and the
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administration or servicing thereof, and the inmate telephone business and the
pay telephone business generally.
(e) NON-COMPETITION IN EXPANSION MARKETS. Consultant acknowledges that a
valuable asset of the Acquisition Entities is the plan of the Company and
Acquisition Entities to extend and expand their business, by acquisition or
otherwise, to areas of the United States of America which Acquisition Entities
do not yet serve on the Effective Date. Accordingly, during (i) the Consulting
Period and (ii) the two-year period immediately following the expiration or
earlier termination of the Consulting Period, the Consultant shall not engage,
anywhere in the United States of America directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, in any Competitive
Business. Notwithstanding anything herein to the contrary, the Consultant will
not be in violation of this provision if he owns five percent or less of the
outstanding voting stock of a publicly-traded corporation as to which the
Consultant is neither an officer, director, nor employer. If, at any time, the
provisions of this Section 6(e) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(e) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Consultant agrees that
this Section 6(e) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6(e), Consultant and Company agree that Competitive Business shall mean
the corrections or penal management businesses and the administration or
servicing thereof, and the inmate telephone business and the pay telephone
business generally.
(f) CONTINUING OPERATION. Any termination of the Consultant's engagement
as a consultant by the Company or any termination of this Agreement shall have
no effect on the continuing operation of this Section 6.
(g) LEGITIMATE BUSINESS INTERESTS. The Consultant has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Consultant acknowledges that any violation of any of
the covenants and agreements contained in this Section 6 would result in
irreparable and continuing harm and damage to the Company and the other
Acquisition Entities which would be extremely difficult to quantify and for
which
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money damages alone would not be adequate compensation. Consequently, the
Consultant agrees that, in the event he violates or threatens to violate any of
these covenants and agreements, the Company shall be entitled to: (1) entry of
an injunction, temporary and permanent, enjoining such violation and/or
requiring the Consultant to return all materials or other proprietary
information of the Company and (2) money damages insofar as they can be
determined. Nothing in this Agreement shall be construed to prohibit the Company
and the other Acquisition Entities from also pursuing any other legal or
equitable remedy, the parties having agreed that all remedies are cumulative.
The parties waive the right to a jury trial with respect to any controversy or
claim between or among the parties hereto, including any claim arising out of or
relating to this Agreement or based on or arising from an alleged tort.
(i) In consideration of the covenants of the Company contained herein and
the Separate Payment provided for above, Consultant does hereby release, acquit
and forever discharge TTC and Talton Telecommunications of Carolina, Inc., and
all their subsidiaries and affiliated companies and their present and former
officers, directors, agents, employees, and their respective insurers and all
other persons, firms and corporations to whom and for whose conduct the parties
hereby released may be liable (the "Released Parties") from any and all claims,
demands and causes of action of whatsoever nature, known or unknown, foreseen or
unforeseen, whether in contract or in tort, or arising under or by virtue of any
federal or state statute or regulation, which arose prior to the date hereof and
in any way relate to the Consultant's employment by TTC and/or Talton
Telecommunications of Carolina, Inc.,; provided however that nothing herein
shall release the Released Parties from any claim of Consultant arising under
this Agreement or in connection with or related to any of the Contemplated
Transactions as that term is defined in that certain Stock Acquisition Agreement
by and among Company and Julius E. Talton, Julius E. Talton, Jr., James E.
Lumpkin, Carrie T. Glover, Talton Telecommunications Corporation and Talton
Telecommunications of Carolina, Inc.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or
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further exercise of such right, power or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
can be discharged by one party, in whole or in part, by a waiver or renunciation
of the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the Company and its affiliates, successors and assigns, and the
Consultant and his assigns, heirs and legal representatives. Each of the
Acquisition Entities (and their respective affiliates, successors and assigns)
shall be third party beneficiaries of this Agreement and may independently
enforce and benefit from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. The Consultant hereby represents
that, except as he has disclosed in writing to the Company, the Consultant is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of the Consultant's engagement with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. The Consultant further represents
that his performance of all of the terms of this Agreement does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by the Consultant in confidence or in trust prior to the date of
this Agreement, and the Consultant will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous employer or others. The Consultant hereby indemnifies
and agrees to defend and hold the Company harmless from and against any and all
damages, liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and the costs of investigation) resulting or arising
directly or indirectly from any breach of the foregoing representations or from
allegations, claims, proceedings or actions by third parties relating to the
confidential information belonging to them and disclosed by the Consultant to
the Company.
11. WITHHOLDING. Any payments provided for in this Agreement shall be paid
net of any applicable withholding of taxes required under federal, state or
local law.
12. RECITALS; HEADINGS; CONSTRUCTION. The Recitals set forth in the preamble
of this Agreement shall be deemed to be included and form an integral part of
this Agreement. The headings of Sections in this Agreement are provided for
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convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms. All references herein to the word "or"
shall mean "and/or." The parties, in acknowledgment that all of them have been
represented by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement and other
documents entered into in connection herewith shall not be affected by the
identity of the party or parties under whose direction or at whose expense this
Agreement and such documents were prepared or drafted.
13. TIME OF ESSENCE. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
14. GOVERNING LAW. This Agreement shall be governed by the substantive laws
of the State of Alabama, without regard to its conflicts of laws principles. In
particular, Alabama substantive law will govern any controversy or claim between
or among the parties hereto, including any claim arising out of or relating to
this Agreement or based on or arising from an alleged tort.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
16. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties' respective
addresses as set forth opposite their signatures hereto. Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit if transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually
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<PAGE>
received in writing by the party to whom it is required or permitted to be
given. The parties may change their address for purposes hereof by notice given
to the other parties in accordance with the provisions of this Section, but such
notice shall not be deemed to have been duly given unless and until it is
actually received by the other party.
17. COMMON LAW OR OTHER DUTIES. The Consultant's duties obligations, and
agreements hereunder are in addition to (and not in limitation of) any duties or
obligations under common law or statute owed to the Acquisition Entities by the
Consultant by reason of his position as officer or director, as applicable, of
the Acquisition Entities.
18. ATTORNEYS' FEES. In the event of any litigation or proceeding brought
with respect to this Agreement in which the parties to this Agreement (or any
other Acquisition Entity or Entities) is a party, the prevailing party(ies)
shall be entitled to recover from non-prevailing party(ies) any reasonable
attorneys' fees and expenses incurred therein.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Talton Holdings, Inc.,
a Delaware corporation
By: /s/ TODD W. FOLLMER
-------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
/s/ JAMES E. LUMPKIN
----------------------------------
JAMES E. LUMPKIN
Address: ______________________
______________________
______________________
Telephone: ______________________
Facsimile: ______________________
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<PAGE>
EXHIBIT 4
---------
to Lumpkin Consulting Agreement
(a) Consulting Fee: $62,000 for first year of Consulting Period
--------------
$72,000 for second year of Consulting Period
(b) Separate Payment: $10,000
----------------
Other Benefits: During the Consulting Period, the Consultant shall be
--------------
entitled to receive and enjoy all fringe benefits that he enjoyed as an
executive of TTC immediately prior to the commencement of the Consulting Period.
In addition, the Consultant shall be eligible for all future fringe benefits
made available to salaried employees of the Company or the Acquisition Entities.
During the Consulting Period, the Company will pay Consultant a car expense
allowance of $500/month.
Insurance: The Company and the Acquisition Entities shall each maintain
---------
D&O insurance coverage. The Company reserves the right to make Consultant an
officer of the Company.
Indemnity: The Company shall also indemnify, defend, and hold the
---------
Consultant free and harmless of, from, and against any and all other litigation
related to the engagement of the Consultant under this Consulting Agreement.
Page 1 of 1
<PAGE>
EXHIBIT 10.7
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and dated as of December
27, 1996 (the "Effective Date"), by and between Talton Holdings, Inc., a
Delaware corporation (the "Company"), and JULIUS E. TALTON, a resident of the
State of Alabama (the "Consultant").
RECITALS
--------
WHEREAS, the Company is acquiring all of the outstanding shares of capital
stock of Talton Telecommunications Corporation, an Alabama corporation ("TTC")
and all of the outstanding shares of capital stock of AmeriTel Pay Phones, Inc.,
a Missouri corporation ("AmeriTel");
WHEREAS, the Consultant is a major shareholder of TTC, and as a condition and
in consideration for the Company's acquisition of his shares, the Consultant has
agreed to enter into this Agreement;
WHEREAS, the Consultant has acquired extensive knowledge and experience in the
business conducted by TTC, AmeriTel and the Company;
WHEREAS, the Company desires to obtain the benefit of the Consultant's
knowledge and experience by retaining the Consultant, and the Consultant desires
to accept such position, for the terms and upon the other conditions hereinafter
set forth;
WHEREAS, the Consultant and the Company each acknowledge and agree that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Company, TTC, AmeriTel and
their subsidiaries and affiliates (collectively, the "Acquisition Entities") and
to compensate the Consultant for information, knowledge and experience brought
to the Acquisition Entities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements set
forth below, the parties hereby agree as follows:
1. CONSULTING. The Company hereby agrees to engage the Consultant, and the
Consultant hereby accepts such engagement, on the terms and conditions
hereinafter set forth.
2. CONSULTING PERIOD. The period for which the Consultant is engaged by the
Company hereunder (the "Consulting Period") shall commence on the Effective Date
and shall end on the second anniversary of the Effective Date (unless earlier
terminated in accordance with Section 5 of the Agreement). Commencing on the
second anniversary of the Effective Date, the Consulting Period
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shall be extended for successive one-year periods (individually, a "Renewal
Period"), unless a notice not to extend this Agreement shall have been given by
either party hereto to the other not later than ninety (90) days immediately
preceding the commencement of the Renewal Period (or unless earlier terminated
in accordance with Section 5 of this Agreement). Unless the context otherwise
requires, the Consulting Period hereunder shall for purposes of this Agreement
be deemed to include any Renewal Period.
3. POSITION AND DUTIES.
(a) DUTIES. During the Consulting Period, the Consultant shall make
himself available to perform consulting services with respect to the business
conducted by the Acquisition Entities. Such consulting services shall be related
to such matters as the chief executive officer or board of directors of the
Company may designate from time to time. The Consultant shall accommodate
reasonable requests for the Consultant's consulting services, and shall devote
reasonable time and his reasonable best efforts, skill and attention to the
performance of such consulting services.
(b) POSITION. Without limiting the generality of the foregoing, upon
request of the Company, the Consultant agrees to serve as a member of the Board
of Directors and/or the executive committee of the Company and/or the other
Acquisition Entities with such powers and duties as may from time to time be
reasonably assigned to him.
4. COMPENSATION AND RELATED MATTERS.
(a) CONSULTING FEE. During the Consulting Period, the Company shall pay the
Consultant the annual Consulting Fee specified in Exhibit 4 (the
---------
"Consulting Fee"), which Consulting Fee shall be paid in equal installments in
accordance with the Company's payroll policy, subject to Section 5 below.
(b) SEPARATE PAYMENT. In consideration of the Consultant's release and
agreements set forth in Section 6 below, the Company shall pay the Consultant,
the one-time payment specified in Exhibit 4 (the "Separate Payment"), which
Separate Payment shall be due and payable in equal installments over a 12-month
period in accordance with the Company's payroll policy, subject to Section 5
below.
(c) OTHER BENEFITS. During the Consulting Period, the Consultant shall be
entitled to and eligible for group health insurance coverage and any other
fringe benefits in accordance with policies applicable generally to salaried
employees of the Company.
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<PAGE>
5. TERMINATION.
(a) TERMINATION FOR CAUSE. Prior to the end of the Consulting Period, the
Company may terminate the Consultant's engagement under this Agreement for
"Cause". For purposes of this Agreement, the Company shall have Cause to
terminate the Consultant's engagement hereunder in the event the Consultant: (i)
has committed any act of willful misconduct, embezzlement or wrongful conversion
of money or property belonging to any Acquisition Entity, or any act of fraud or
dishonesty that affects the business of any of the Acquisition Entities
(including, without limitation, any past act of which the Company becomes aware
after the date of this Agreement); (ii) is convicted of a felony at any time
hereafter; (iii) has failed to comply with any material directive of the Board
of Directors of the Company; or (iv) has willfully failed to substantially
perform his duties hereunder (other than any such failure resulting from the
Consultant's death or disability). If the Consultant's engagement hereunder is
terminated by the Company for Cause, the Company shall pay the Consultant: (i)
the balance of the Separate Payment then due and owing to the Consultant
pursuant to Section 4(b); and (ii) any Consulting Fee accrued or owing to the
Consultant hereunder through the date of termination, less any amounts owed by
the Consultant to the Company or any of its Subsidiaries, and the Company shall
have no further liability or obligation to the Consultant hereunder.
(b) TERMINATION WITHOUT CAUSE. Prior to the end of the Consulting Period, the
Company may terminate the Consultant's engagement under this Agreement for a
reason other than Cause or no reason whatsoever (i.e., without Cause). If the
Company terminates the Consultant's engagement without Cause prior to the
expiration of the Consulting Period, the Company shall pay the Consultant: (i)
the balance of the Separate Payment then due and owing to the Consultant
pursuant to Section 4(b), and (ii) any Consulting Fee accrued or owing to the
Consultant hereunder through the date of termination. The Company's liability to
the Consultant is limited to the amount of Consulting Fee and Separate Payment
(if any) owing to the Consultant for the remainder of the Consulting Period.
(excluding any Renewal Periods). The Company shall pay this remaining Consulting
Fee and Separate Payment (if any) to the Consultant at the same rate such
Consulting Fee and Separate Payment (if any) would have been due and owing to
the Consultant if he had remained engaged by the Company for the entire
Consulting Period. (excluding any Renewal Periods). If the Company terminates
the engagement of the Consultant because he has become disabled such that he is
unable to perform the essential functions of his job (with or without reasonable
accommodation), any such termination shall be deemed to be a termination without
Cause pursuant to this Agreement. Similarly, the Consultant's engagement shall
terminate upon his death, and shall be deemed a termination by the Company
without Cause, with payments of the Consulting Fee and Separate Payment (if any)
to be made to the Consultant's estate.
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<PAGE>
6. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS, DEVELOPMENTS AND
NON-COMPETITION.
(a) CONFIDENTIAL INFORMATION. The Consultant shall hold in a fiduciary
capacity for the benefit of the Company and the other Acquisition Entities all
trade secrets, confidential information, proprietary information, knowledge and
data relating to the Acquisition Entities and/or the businesses or investments
of the Acquisition Entities, which may have been obtained by the Consultant
during the Consultant's engagement by the Company (and/or during the
Consultant's prior employment by any of the Acquisition Entities), including
such information with respect to any products, improvements, formulas, designs
or styles, processes, services, customers, suppliers, marketing techniques,
methods, know-how, data, future plans or operating practices ("Confidential
Information"). Except as may be require or appropriate in connection with his
carrying out his duties under this Agreement, the Consultant shall not, without
the prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such Confidential Information to
anyone other than the Company and those designated by the Company.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters, memoranda,
reports, computer disks, electronic storage media, documents, models and the
like relating to the business of any of the Acquisition Entities, which the
Consultant prepares, uses or comes into contact with and which contain
Confidential Information shall be the exclusive property of the Company to be
used by the Consultant only in the performance of his duties for the Company and
shall not be removed by the Consultant from the premises of any Acquisition
Entity (without the written consent of the Company) during or after the
Consulting Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Consultant, shall be returned to such Acquisition Entities
immediately upon termination of the Consultant's engagement hereunder, or
earlier request by the Company (with the Consultant retaining no copies thereof
or any notes or other records relating thereto).
(c) DEVELOPMENTS. The Consultant will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Acquisition Entities, whether patentable or
not, which are created, made, conceived or reduced to practice (in whole or in
part) by the Consultant or under his direction or jointly with others during the
Consulting Period, whether or not during normal working hours or on the premises
of the Company (collectively, "Developments"). The Consultant agrees to assign
and does hereby assign to the Company all of his right, title and interest in
and to all Developments and related patents,
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<PAGE>
copyrights and applications therefor. The Consultant shall do all permissible
things, and take all permissible action, necessary or advisable, in the
Company's sole discretion and at the Company's expense, to cause any other
person related to the Consultant or an entity controlled by the Consultant
having an interest in a Development to assign to the Company all of such
person's or entity's right, title and interest in and to such Development and
related patents, copyrights and applications therefor. The Consultant, however,
does not guarantee that such assignment will be obtained. The Consultant agrees
to cooperate fully with the Company, both during and after the termination of
the Consulting Period, with respect to the procurements, maintenance and
enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments.
(d) NON-COMPETITION. During (i) the Consulting Period and (ii) the two-year
period immediately following the expiration or earlier termination of the
Consulting Period, the Consultant (A) shall not engage, anywhere within the
geographical areas in which any Acquisition Entity is then conducting its
business operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any "Competitive Business" which
competes with any business then being conducted by such Acquisition Entity; (B)
shall not solicit or encourage any officer, employee, independent contractor,
vendor or consultant of any of the Acquisition Entities to leave the employ of,
or otherwise cease his relationship with, any of the Acquisition Entities; and
(C) shall not solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the customers or accounts, or
prospective customers or accounts, of any Acquisition Entity, which were
contacted, solicited or served by any Acquisition Entity during the time the
Consultant was engaged by any Acquisition Entity (including any employment of
the Consultant prior to the date hereof). Notwithstanding anything herein to the
contrary, the Consultant will not be in violation of this provision if he owns
five percent or less of the outstanding voting stock of a publicly-traded
corporation as to which the Consultant is neither an officer, director, nor
employer. If, at any time, the provisions of this Section 6(d) shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6(d) shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Consultant agrees that this Section 6(d) as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. For purposes of this Section 6(d), Consultant and Company agree that
Competitive Business shall mean the corrections or penal management businesses
and the
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<PAGE>
administration or servicing thereof, and the inmate telephone business and the
pay telephone business generally.
(e) NON-COMPETITION IN EXPANSION MARKETS. Consultant acknowledges that a
valuable asset of the Acquisition Entities is the plan of the Company and
Acquisition Entities to extend and expand their business, by acquisition or
otherwise, to areas of the United States of America which Acquisition Entities
do not yet serve on the Effective Date. Accordingly, during (i) the Consulting
Period and (ii) the two-year period immediately following the expiration or
earlier termination of the Consulting Period, the Consultant shall not engage,
anywhere in the United States of America directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, in any Competitive
Business. Notwithstanding anything herein to the contrary, the Consultant will
not be in violation of this provision if he owns five percent or less of the
outstanding voting stock of a publicly-traded corporation as to which the
Consultant is neither an officer, director, nor employer. If, at any time, the
provisions of this Section 6(e) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(e) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Consultant agrees that
this Section 6(e) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6(e), Consultant and Company agree that Competitive Business shall mean
the corrections or penal management businesses and the administration or
servicing thereof, and the inmate telephone business and the pay telephone
business generally.
(f) CONTINUING OPERATION. Any termination of the Consultant's engagement as a
consultant by the Company or any termination of this Agreement shall have no
effect on the continuing operation of this Section 6.
(g) LEGITIMATE BUSINESS INTERESTS. The Consultant has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Consultant acknowledges that any violation of any of the
covenants and agreements contained in this Section 6 would result in irreparable
and continuing harm and damage to the Company and the other Acquisition Entities
which would be extremely difficult to quantify and for which
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<PAGE>
money damages alone would not be adequate compensation. Consequently, the
Consultant agrees that, in the event he violates or threatens to violate any of
these covenants and agreements, the Company shall be entitled to: (1) entry of
an injunction, temporary and permanent, enjoining such violation and/or
requiring the Consultant to return all materials or other proprietary
information of the Company and (2) money damages insofar as they can be
determined. Nothing in this Agreement shall be construed to prohibit the Company
and the other Acquisition Entities from also pursuing any other legal or
equitable remedy, the parties having agreed that all remedies are cumulative.
The parties waive the right to a jury trial with respect to any controversy or
claim between or among the parties hereto, including any claim arising out of or
relating to this Agreement or based on or arising from an alleged tort.
(i) In consideration of the covenants of the Company contained herein and the
Separate Payment provided for above, Consultant does hereby release, acquit and
forever discharge TTC and Talton Telecommunications of Carolina, Inc., and their
present and former officers, directors, agents, employees, and their respective
insurers and all other persons, firms and corporations to whom and for whose
conduct the parties hereby released may be liable (the "Released Parties") from
any and all claims, demands and causes of action of whatsoever nature, known or
unknown, foreseen or unforeseen, whether in contract or in tort, or arising
under or by virtue of any federal or state statute or regulation, which arose
prior to the date hereof and in any way relate to the Consultant's employment by
TTC and/or Talton Telecommunications of Carolina, Inc.; provided however that
nothing herein shall release the Released Parties from any claim of Consultant
arising under this Agreement or in connection with or related to any of the
Contemplated Transactions as that term is defined in that certain Stock
Acquisition Agreement by and among Company and Julius E. Talton, Julius E.
Talton, Jr., James E. Lumpkin, Carrie T. Glover, Talton Telecommunications
Corporation and Talton Telecommunications of Carolina, Inc.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege. To the
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maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the Company and its affiliates, successors and assigns, and the
Consultant and his assigns, heirs and legal representatives. Each of the
Acquisition Entities (and their respective affiliates, successors and assigns)
shall be third party beneficiaries of this Agreement and may independently
enforce and benefit from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. The Consultant hereby represents
that, except as he has disclosed in writing to the Company, the Consultant is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of the Consultant's engagement with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. The Consultant further represents
that his performance of all of the terms of this Agreement does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by the Consultant in confidence or in trust prior to the date of
this Agreement, and the Consultant will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous employer or others. The Consultant hereby indemnifies
and agrees to defend and hold the Company harmless from and against any and all
damages, liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and the costs of investigation) resulting or arising
directly or indirectly from any breach of the foregoing representations or from
allegations, claims, proceedings or actions by third parties relating to the
confidential information belonging to them and disclosed by the Consultant to
the Company.
11. WITHHOLDING. Any payments provided for in this Agreement shall be paid
net of any applicable withholding of taxes required under federal, state or
local law.
12. RECITALS; HEADINGS; CONSTRUCTION. The Recitals set forth in the preamble
of this Agreement shall be deemed to be included and form an integral part of
this Agreement. The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or
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interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms. All references
herein to the word "or" shall mean "and/or." The parties, in acknowledgment
that all of them have been represented by counsel and that this Agreement has
been carefully negotiated, agree that the construction and interpretation of
this Agreement and other documents entered into in connection herewith shall not
be affected by the identity of the party or parties under whose direction or at
whose expense this Agreement and such documents were prepared or drafted.
13. TIME OF ESSENCE. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
14. GOVERNING LAW. This Agreement shall be governed by the substantive laws
of the State of Alabama, without regard to its conflicts of laws principles. In
particular, Alabama substantive law will govern any controversy or claim between
or among the parties hereto, including any claim arising out of or relating to
this Agreement or based on or arising from an alleged tort.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
16. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties' respective
addresses as set forth opposite their signatures hereto. Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit if transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually received in writing by the party to whom it is
required or
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permitted to be given. The parties may change their address for purposes hereof
by notice given to the other parties in accordance with the provisions of this
Section, but such notice shall not be deemed to have been duly given unless and
until it is actually received by the other party.
17. COMMON LAW OR OTHER DUTIES. The Consultant's duties obligations, and
agreements hereunder are in addition to (and not in limitation of) any duties or
obligations under common law or statute owed to the Acquisition Entities by the
Consultant by reason of his position as officer or director, as applicable, of
the Acquisition Entities.
18. ATTORNEYS' FEES. In the event of any litigation or proceeding brought
with respect to this Agreement in which the parties to this Agreement (or any
other Acquisition Entity or Entities) is a party, the prevailing party(ies)
shall be entitled to recover from non-prevailing party(ies) any reasonable
attorneys' fees and expenses incurred therein.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Talton Holdings, Inc.,
a Delaware corporation
By: /s/ TODD W. FOLLMER
---------------------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
/s/ JULIUS E. TALTON
------------------------------------------------
JULIUS E. TALTON, SR.
Address: 104 Old Marion Junction Road
Selma, Alabama 36701
Telephone: __________________
Facsimile: __________________
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EXHIBIT 4
---------
to Talton, Sr. Consulting Agreement
(a) Consulting Fee: $86,000 for the first year of Consulting Period
--------------
$96,000 for the second year of Consulting Period
$120,000 for any year after the second year of
the Consulting Period
(b) Separate Payment: $10,000
----------------
(c) Other Benefits: During the Consulting Period, the Consultant shall
--------------
be entitled to receive and enjoy all fringe benefits that he enjoyed as an
executive of TTC immediately prior to the commencement of the Consulting Period.
In addition, the Consultant shall be eligible for all future fringe benefits
made available to salaried employees of the Company or the Acquisition Entities.
During the Consulting Period, the Consultant shall have the exclusive use of
that certain 1991 Range Rover, Vehicle Identification No. SALHV1243MA602507 (the
"Vehicle"), now owned by TTC. During the Consulting Period, the Company shall
maintain the Vehicle and shall pay all costs incurred by the Consultant in
connection with his use and operation of the Vehicle. Upon the expiration of
this Consulting Agreement, or upon the termination of this Consulting Agreement
pursuant to Sections 5(a) or 5(b), the Company shall cause TTC or one or more of
the other Acquisition Entities to deliver title to the Vehicle, without payment
therefore by the Consultant, to the Consultant free and clear of all liens or
encumbrances.
(d) Insurance: The Company and the Acquisition Entities shall each
---------
maintain D&O insurance coverage.
(e) Indemnity: The Company shall also indemnify, defend, and hold the
---------
Consultant free and harmless of, from, and against any and all claims, demands,
actions, causes of action, and all other litigation related to the engagement of
the Consultant under this Consulting Agreement.
(f) Additional Compensation: Should Consultant serve as the chairman of
-----------------------
the Company's Board of Directors and successfully manage the initial twelve
months of the Company's operations, the Company will evaluate paying Consultant
additional reasonable compensation for such efforts.
Page 1 of 1
<PAGE>
EXHIBIT 10.8
CONSULTING AND STRATEGIC SERVICES AGREEMENT
-------------------------------------------
THIS CONSULTING AND STRATEGIC SERVICES AGREEMENT (the "Agreement") is made and
entered into as of December 27, 1996 (the "Effective Date"), by and between
TALTON HOLDINGS, INC., a Delaware corporation (the "Company"), and EUF TALTON,
L.P., a Texas limited partnership (the "Consultant").
RECITALS
--------
WHEREAS, the Company desires to retain the services of the Consultant to
provide certain strategic management consulting services; and
WHEREAS, the Consultant is capable of providing such strategic management
consulting services and is willing to provide the services desired by the
Company; and
WHEREAS, the Consultant and the Company each acknowledges and agrees that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Company, and its affiliates and
subsidiaries, including, without limitation, Talton Telecommunication
Corporation, AmeriTel Pay Phones, Inc., and Talton Telecommunications of
Carolina Inc., and their respective subsidiaries and affiliates, now or
hereafter created (collectively, the Entities"), and to compensate the
Consultant for services provided hereunder to the Entities.
NOW, THEREFORE, in consideration of the premises and the mutual agreements set
forth below, the parties hereby agree as follows:
1. CONSULTING. The Company hereby agrees to engage the Consultant, and the
Consultant hereby accepts such engagement, on the terms and conditions
hereinafter set forth.
2. CONSULTING PERIOD. The period for which the Consultant is engaged by the
Company hereunder (the "Consulting Period") shall commence on the Effective Date
and shall end on the third (3rd) anniversary of Effective Date (unless earlier
terminated on accordance with Section 5 of this Agreement). Commencing on the
third (3rd) anniversary of the Effective Date, the Consulting Period shall be
extended for successive one-year periods (individually, a "Renewal Period"),
unless a notice not to extend this Agreement shall have been given by either
party hereto to the other not later than ninety (90) days immediately preceding
the commencement of the Renewal Period (or unless earlier terminated in
accordance with Section 5 of this Agreement). Unless the context otherwise
requires, the Consulting Period hereunder shall for purposes of this Agreement
be deemed to include any Renewal Period.
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3. DUTIES. The Consultant shall provide to the Company management consulting
services relating to strategic and financial matters involving the Company,
including the following:
(i) review and analysis of the financial condition, results of
operation and cash flow of the Company;
(ii) analysis and consultation regarding strategic acquisitions
(including, without limitation, in connection with each
"Acquisition", as defined below), business strategies and
financial planning for the Company;
(iii) analysis and consultation regarding management compensation;
and
(iv) analysis and consultation regarding information systems and
presentation of data.
The Consultant shall also provide such additional management consulting services
as may be reasonably requested for time to time by the Company. The Consultant
shall devote such time as is necessary to provide the services required
hereunder.
4. COMPENSATION AND RELATED MATTERS.
(a) CONSULTING FEE. As compensation for the Consultant's services hereunder,
the Company shall be obligated to pay to the Consultant a consulting fee of
$300,000 per year, payable in equal quarterly installments of $75,000, each on
the 1st day of each quarter (with a pro rated payment for any partial quarter)
(the "Consulting Fee").
(b) REFINANCING FEE. In addition to the other fees set forth in this Section
4, the Company shall pay to the Consultant a $200,000 fee (the "Refinancing
Fee"), payable immediately upon the consummation of the refinancing of that
certain $8.5 million senior subordinated loan to the Company arranged by CIBC
Wood Gundy Securities Corp. and that certain $5 million subordinated loan from
shareholders of Talton Telecommunications Corporation (the "Subordinated
Loans"), provided, however, said Refinancing Fee shall only be payable if the
refinancing of the Subordinated Loans occurs prior to the time warrants are
required to be issued to the holders of the Subordinated Loans pursuant to those
certain Warrant Agreements executed in connection therewith.
(c) NEW ACQUISITION FEE. In addition to the other fees described in this
Section 4, the Company shall pay the Consultant a new acquisition fee (the "New
---
Acquisition Fee") equal to 1% of the gross acquisition price of any acquisition
- ---------------
of assets or stock by any of the Entities ("Acquisition"). The New Acquisition
Fee shall be immediately due and payable, to Consultant by the Company at the
closing of any Acquisition, [provided, however,
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<PAGE>
the aggregate amount of all New Acquisition Fees paid hereunder may not exceed
$1,250,000].
(d) REIMBURSEMENT. The Company shall reimburse Consultant for all reasonable,
direct, third-party costs and expenses that are incurred on behalf of, or in
connection with, the management and operation of the business of the Company,
including, but not limited to, legal and accounting costs and expenses,
telephone, travel and entertainment expense but excluding all normal overhead
expenses relating to the operation of the business of the Consultant (such as
salaries and benefits, rent, office furniture, fixtures and computer equipment)
the aggregate amount of such reimbursement not to exceed $75,000 per year,
unless otherwise approved by the Company's board of directors.
(e) WARRANTS. In addition to the foregoing, in connection with any
Acquisition involving the issuance of the Company's capital stock, the Company's
Board of Directors will consider the Consultant's request to issue warrants to
the Consultant to acquire the Company's capital stock in order to protect the
Consultant from any dilution suffered by the Consultant as a result of the
issuance of capital stock as part of the Acquisition.
5. TERMINATION.
(a) TERMINATION FOR CAUSE. Prior to the end of the Consulting Period, the
Company may terminate the Consultant's engagement under this Agreement for
"Cause". For purposes of this Agreement, the Company shall have Cause to
terminate the Consultant's engagement hereunder in the event the Consultant: (i)
has committed any act of willful misconduct, embezzlement or wrongful conversion
of money or property belonging to any Entity, or any act of fraud or dishonesty
that affects the business of any of the Entities (including without limitation,
any past act of which the Company becomes aware after the date of this
Agreement); or (ii) has willfully failed to substantially perform its duties
hereunder, provided the Company has provided prior written notice if such
failure and the Consultant has been given a reasonable time and opportunity to
cure such deficiency. If the Consultant's engagement hereunder is terminated by
the Company for Cause, the Company shall pay the Consultant (a) any Consulting
Fee accrued or owing to the Consultant hereunder through the date of
termination, plus (b) the Refinancing Fee and the New Acquisition Fee on the
terms and conditions set forth in Section 4(b) and Section 4(c) above, provided
that the consummation of the refinancing of the Subordinated Loans and/or the
closing of the relevant Acquisition was substantially completed at the time of
termination and provided further that the Cause for termination is unrelated to
the consummation of the refinancing of the Subordinated Loans and/or closing of
the Acquisition, less (c) any amount owing from the Consultant to the Company or
any of the other Entities.
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(b) TERMINATION WITHOUT CAUSE. Prior to the end of the Consulting Period, the
Company may terminate the Consultant's engagement under this Agreement for a
reason other than Cause or not reason whatsoever (i.e., without Cause). If the
Company terminates the Consultant's engagement without Cause prior to the
expiration of the Consulting Period, the Company's liability to the Consultant
is limited to the amount of Consulting Fee, Refinancing Fee and New Acquisition
Fee owing to the Consultant for the remainder of the Consulting Period (or, if
applicable, the current Renewal Period). The Company shall pay the remaining
Consulting Fee, Refinancing Fee and New Acquisition Fee to the Consultant at the
same rate and times such Consulting Fee, Refinancing Fee and New Acquisition Fee
would have been due and owing to the Consultant if it had remained engaged by
the Company for the entire Consulting Period (or, if applicable, the current
Renewal Period).
6. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS, DEVELOPMENTS AND
NON-COMPETITION.
(a) CONFIDENTIAL INFORMATION. The Consultant shall hold in a fiduciary
capacity for the benefit of the Company and the other Entities all trade
secrets, confidential information, proprietary information, knowledge and data
relating to the Entities and/or the businesses or investments of the Entities,
which may have been obtained by the Consultant during the Consultant's
engagement by the Company (and/or during the Consultant's prior consultation by
any of the Entities), including such information with respect to any products,
improvements, formulas, designs or styles, processes services, customers,
suppliers, marketing techniques, methods, know-how, data, future plans or
operating practices ("Confidential Information"). Except as may be required or
appropriate in connection with its carrying out its duties under this Agreement,
the Consultant shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such Confidential Information to anyone other than the Company and those
designated by the Company.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters, memoranda,
reports, computer disks, electronic storage media, documents, models and the
like relating to the business of any of the Entities, which the Consultant
prepares, uses or comes into contact with and which contain Confidential
Information shall be the exclusive property of the Company to be used by the
Consultant only in the performance of its duties for the Company shall not be
removed by the Consultant from the premises of any Entity (without the written
consent of the Company) during or after the Consulting Period unless such
removal shall be required or the appropriate in connection with its carrying out
its duties under this Agreement, and, if so removed by the Consultant, shall be
returned to such Entities immediately upon termination of the Consultant's
engagement hereunder, or earlier request by the
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Company (with the Consultant retaining no copies thereof nor any notes or other
records relating thereof).
(c) DEVELOPMENTS. The Consultant will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Entities, whether patentable or not, which
are created, made, conceived or reduced to practice (in whole or in part) by the
Consultant or under its direction or jointly with others during the Consulting
Period, whether or not during normal working hours or on the premises of the
Company (collectively, "Developments"). The Consultant agrees to assign and does
hereby assign to the Company all of its rights, title and interest in and to all
Developments and related patents, copyrights and applications therefor. The
Consultant shall do all permissible things, and take all permissible action,
necessary or advisable, in the Company's sole discretion, to cause any other
person related to the Consultant or an entity controlled by the Consultant
having an interest in a Development to assign to the Company all of such
person's or entity's right, title and interest in and to such Development and
related patents, copyrights and applications therefor. The Consultant agrees to
cooperate fully with the Company, both during and after the termination of the
Consulting Period, with respect to the procurements, maintenance and enforcement
of copyrights and patents (both in the United States and foreign countries)
relating to Developments.
(d) NON-COMPETITION. During (i) the Consulting Period and (ii) the three-year
period immediately following the expiration or earlier termination of the
Consulting Period, the Consultant (A) shall not engage, anywhere within the
geographical areas in which any Entity is then conducting its business
operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any business which competes with any
business then being conducted (a "Competitive Business") by such Entity; (B)
shall not solicit or encourage any officer, employee, independent contractor,
vendor or consultant of any of the Entities to leave the employ of, or otherwise
cease its relationship with, any of the Entities; and (C) shall not solicit,
divert or take away, or attempt to divert or to take away, the business or
patronage of any of the customers or accounts, or prospective customers or
accounts, of any Entity, which were contacted, solicited or served by any Entity
during the time the Consultant was engaged by any Entity (including during the
time of any prior engagement of the Consultant prior to the date hereof). If the
consultant violates any of the provisions of this Section 6(d), following the
expiration or earlier termination of the Consulting Period, the computation of
the time period provided herein shall be tolled form the first date of the
breach until the earlier of (i) the date judicial relief is obtained by the
Company, (ii) the Company
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<PAGE>
states in writing that it will seek no judicial relief for said violation or
(iii) the Consultant provides satisfactory evidence to the Company that such
breach has been remedied. If, at any time, the provisions of this Section 6(d)
shall be determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6(d) shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Consultant agrees that this Section 6(d) as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. For purposes of this Section 6(d), Consultant and Company agree that
businesses engaged in the pay telephone business, the inmate telephone business,
and all businesses engaged in any business that any Entity is engaged in as of
the date hereof shall be construed to be a Competitive Business.
(e) NON-COMPETITION IN EXPANSION MARKETS. Consultant acknowledges that a
valuable asset of the Entities is the plan of the Company and Entities to extend
and expand their business, by acquisition or otherwise, to areas of the United
States of America which Entities do not yet serve on the Effective Date.
Accordingly, during (i) the Consulting Period and (ii) the three-year period
immediately following the expiration or earlier termination of the Consulting
Period, the Consultant shall not engage, anywhere in the United States of
America directly or indirectly, alone, in association with or as a shareholder,
principal, agent, partner, officer, director, employee or consultant of any
other organization, in any Competitive Business. If the Consultant violates any
of the provisions of this Section 6(e), following the expiration or earlier
termination of the Consulting Period, the computation of the time period
provided herein shall be tolled from the first date of the breach until the
earlier of (i) the date judicial relief is obtained by the Company, (ii) the
Company states in writing that it will seek no judicial relief for said
violation or (iii) the Consultant provides satisfactory evidence to the Company
that such breach has been remedied. If, at any time, the provisions of this
Section 6(e) shall be determined to be invalid or unenforceable, by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 6(e) shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Consultant agrees that this Section 6(e) as so amended
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein. For purposes of this Section 6(e), Consultant and
Company agree that businesses engaged in the pay telephone business, the inmate
telephone business, and all businesses engaged in any business that any Entity
is engaged in as of the date hereof shall be construed to be a Competitive
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Business of the Entities, whether or not an Entity is then actively engaged in
the Business in the area protected form competition under this Section 6(e).
(f) CONTINUING OPERATION. Any termination of the Consultant's engagement as a
consultant by the Company or any termination of this Agreement shall have no
effect on the continuing operation of this Section 6.
(g) LEGITIMATE BUSINESS INTERESTS. The Consultant has carefully read and
considered the provisions of the Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Consultant acknowledges that any violation of any of the
covenants and agreements contained in the Section 6 would result in irreparable
and continuing harm and damage to the Company and the other Entities which would
be extremely difficult to quantify and for which money damages alone would not
be adequate compensation. Consequently, the Consultant agrees that, in the event
it violates or threatens to violate any of the these covenants and agreements,
the Company shall be entitled to: (1) entry of an injunction, temporary and
permanent, enjoining such violation and/or requiring the Consultant to return
all materials or other proprietary information to the Company and (2) money
damages insofar as they can be determined. Nothing in this Agreement shall be
construed to prohibit the Company and the other Entities from also pursuing any
other legal or equitable remedy, the parties having agreed that all remedies are
cumulative. The parties waive between or among the parties hereto, including any
claim arising out of or relating to this Agreement or based on or arising form
an alleged tort.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provisions or term will be ineffectively only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties of this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right
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<PAGE>
arising out of this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing signed
by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the Company and its affiliates, successors and assigns, and the
Consultant and its assigns, heirs and legal representatives. Each of the
Entities (and their respective affiliates, successors and assigns) shall be
third party beneficiaries of this Agreement and may independently enforce and
benefit from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. The Consultant hereby represents
that, except as it has disclosed in writing to the Company, the Consultant is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of the Consultant's engagement with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. The Consultant further
represents that its performance of all of the terms of this Agreement does not
and will not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by the Consultant in confidence or in trust prior to
the date of this Agreement, and the Consultant will not disclose to the Company
or induce the Company to use any confidential or proprietary information or
material belonging to any previous employer or others. The Consultant hereby
indemnifies and agrees to defend and hold the Company harmless from and against
any and all damages, liabilities, losses, costs and expenses (including, without
limitation, reasonable attorneys' fees and the costs of investigation) resulting
or arising directly or indirectly from any breach of the foregoing
representations or from allegations, claims, proceedings or actions by third
parties relating to the confidential information belonging to them and disclosed
by the Consultant to the Company.
11. RECITALS, HEADINGS; CONSTRUCTION. The Recitals set forth in the preamble
of this Agreement shall be deemed to be included and form an integral part of
this Agreement. The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word
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<PAGE>
"including" does not limit the preceding words or terms. All references herein
to the word "or" shall mean "and/or." The parties, in acknowledgment that all
of them have been represented by counsel and that this Agreement has been
carefully negotiated, agree that the construction and interpretation of this
Agreement and other documents entered into in connection herewith shall not be
affected by the identity of the party or parties under whose direction or at
whose expense this Agreement and such documents were prepared or drafted.
12. TIME OF ESSENCE. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
13. GOVERNING LAW. This Agreement shall be governed by the substantive laws
of the State of Texas, without regard to its conflicts of laws principles. In
particular, Texas substantive law will govern any controversy or claim between
or among the parties hereto, including any claim arising out of or relating to
this Agreement or based on or arising from an alleged tort.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
15. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested ; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties' respective
addresses as set forth opposite their signatures hereto. Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit of transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually received in writing by the party to whom it is
required or permitted to be given. The parties may change their address for
purposes hereof by notice given to the other parties in accordance with the
provisions of this Section, but such notice shall not be deemed to have been
duly given unless and until it is actually received by the other party.
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16. ATTORNEYS' FEES. In the event that the Company and/or the other Entities
are successful in any lawsuit or proceeding brought or instituted to enforce or
seek damages for the Consultant's violation of any of the provisions contained
in this Agreement, the Consultant agrees to pay to the Company and the other
Entities any reasonable attorneys' fees and expenses incurred therein.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
TALTON HOLDINGS, INC.
A DELAWARE CORPORATION
By: /s/ TODD W. FOLLMER
---------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Blvd.
Suite 1300 L.B. 50
Dallas, TX 75219
Attn: Joseph P. Urso
Telephone: (214) 526-3456
Facsimile: (214) 528-9929
CONSULTANT:
----------
EUF TALTON, L.P., A TEXAS LIMITED
PARTNERSHIP
By: Texas EUF Talton Corporation,
a Texas corporation
By: /s/ JOSEPH P. URSO
-------------------
Name: Joseph P. Urso
Title: President
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Blvd.
Suite 1300 L.B. 50
Dallas, TX 75219
Telephone: (214) 526-3454
Facsimile: (2140 528-9929
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and dated as of December
27, 1996 (the "Effective Date"), by and between Talton Holdings, Inc., a
Delaware corporation (the "Company"), and JULIUS E. TALTON, JR., a resident of
the State of Alabama (the "Executive").
RECITALS
--------
WHEREAS, the Company and or its subsidiaries is acquiring all of the
outstanding shares of capital stock of Talton Telecommunications Corporation, an
Alabama corporation ("TTC") and all of the outstanding shares of capital stock
of AmeriTel Pay Phones, Inc., a Missouri corporation ("AmeriTel");
WHEREAS, the Executive is currently employed by TTC, pursuant to that certain
employment agreement (the "Existing Employment Agreement"), which Existing
Employment Agreement is superseded by this Agreement;
WHEREAS, the Company desires to employ the Executive and the Executive desires
to furnish services to the Company on the terms and conditions hereinafter set
forth;
WHEREAS, the parties desire to enter into this Agreement in order to set forth
the terms and conditions of the employment relationship of the Executive with
the Company;
WHEREAS, the Executive and the Company each acknowledge and agree that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Company, TTC, AmeriTel and
their subsidiaries and affiliates (collectively, the "Acquisition Entities") and
to compensate the Executive for information, knowledge and experience brought to
the Acquisition Entities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements set
forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth. The Existing Employment Agreement is hereby superseded
in its entirety, and the Executive agrees that he is entitled to no further
salary, bonus, termination payments or other payments or compensation thereunder
or otherwise, and that all obligations thereunder or otherwise have been fully
discharged and satisfied.
2. EMPLOYMENT PERIOD. The period of employment of the Executive by the
Company hereunder (the "Employment Period) shall commence on the Effective Date
and shall end on the first
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anniversary of the Effective Date (unless earlier terminated in accordance with
Section 5 of the Agreement). Commencing on the first anniversary of the
Effective Date, the Employment Period shall be extended for successive one-year
periods (individually, a "Renewal Period"), unless a notice not to extend this
Agreement shall have been given by either party hereto to the other not later
than ninety (90) days immediately preceding the commencement of the Renewal
Period (or unless earlier terminated in accordance with Section 5 of this
Agreement). Unless the context otherwise requires, the Employment Period
hereunder shall for purposes of this Agreement be deemed to include any Renewal
Period.
3. POSITION AND DUTIES. The Executive shall, within reason, devote his full
time, attention, skills and energies during the Employment Period to the
business of the Acquisition Entities, performing such specific functions on
behalf of the Acquisition Entities and holding such positions as the Board of
Directors or senior management of the Company may direct, all of which shall be
substantially consistent with executive functions within the industry in which
the Acquisition Entities are engaged.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Employment Period, the Company shall pay the
Executive a base salary at an annual rate specified in Exhibit 4 (the "Base
---------
Salary"), which Base Salary shall be paid in equal installments in accordance
with the Company's payroll policy, subject to Section 5 below.
(b) BONUS. During the Employment Period, incentive or other bonuses (if
any) shall be at the sole discretion of the Board of Directors of the Company
except as otherwise provided herein.
(c) SEPARATE PAYMENT. In consideration of the Executive's agreements and
release set forth in Section 6 below, the Company shall pay the Executive a one-
time payment specified in Exhibit 4 (the "Separate Payment"), which Separate
Payment shall be due and payable in equal installments over a 12-month period in
accordance with the Company's payroll policy, subject to Section 5 below.
(d) OTHER BENEFITS. During the Employment Period, the Executive shall be
entitled to and eligible for group health insurance coverage and any other
fringe benefits in accordance with policies applicable generally to salaried
employees of the Company. The Executive shall also be entitled to paid vacation
and other paid absences during the Employment Period in accordance with policies
applicable generally to salaried employees of the Company.
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V. TERMINATION.
(a) TERMINATION FOR CAUSE. Prior to the end of the Employment Period, the
Company may terminate the Executive's employment under this Agreement for
"Cause". For purposes of this Agreement, the Company shall have Cause to
terminate the Executive's employment hereunder in the event the Executive: (i)
has committed any act of willful misconduct, embezzlement or wrongful conversion
of money or property belonging to any Acquisition Entity, or any act of fraud or
dishonesty that affects the business of or relates to any of the Acquisition
Entities (including, without limitation, any past act of which the Company
becomes aware after the date of this Agreement); (ii) is convicted of a felony
at any time hereafter; (iii) has failed to comply with any material directive of
the Board of Directors of the Company; or (iv) has willfully failed to
substantially perform his duties hereunder (other than any such failure
resulting from the Executive's death or disability). If the Executive's
employment is terminated by the Company for Cause, the Company shall pay the
Executive: (i) the balance of the Separate Payment then due and owing to the
Executive pursuant to Section 4(c); and (ii) any Base Salary accrued or owing to
the Executive hereunder through the date of termination, less any amounts owed
by the Executive to the Company or any of its, subsidiaries, and the Company
shall have no further liability or obligation to the Executive hereunder.
(b) TERMINATION WITHOUT CAUSE. Prior to the end of the Employment Period,
the Company may terminate the Executive's employment under this Agreement for a
reason other than Cause or no reason whatsoever (i.e., without Cause). If the
Company terminates the Executive's employment without Cause prior to the
expiration of the Employment Period, the Company's liability to the Executive is
limited to the amount of Base Salary and Separate Payment (if any) owing to the
Executive for the remainder of the Employment Period (excluding any Renewal
Periods.) The Company shall pay this remaining Base Salary and Separate Payment
(if any) to the Executive at the same rate such Base Salary and Separate Payment
(if any) would have been due and owing to the Executive if he had remained a
full time employee for the entire Employment Period (excluding any Renewal
Periods.) If the Company terminates employment of the Executive because he has
become disabled such that he is unable to perform the essential functions of his
job (with or without reasonable accommodation), any such termination shall be
deemed to be a termination without Cause pursuant to this Agreement. Similarly,
the Executive's employment shall terminate upon his death, and shall be deemed a
termination by the Company without Cause, with payments of the Base Salary and
Separate Payment (if any) to be made to the Executive's estate.
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VI. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS,
DEVELOPMENTS AND NON-COMPETITION, RELEASE.
(a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company and the other Acquisition Entities all
trade secrets, confidential information, proprietary information, knowledge and
data relating to the Acquisition Entities and/or the businesses or investments
of the Acquisition Entities, which may have been obtained by the Executive
during the Executive's employment by the Company (and/or during the Executive's
prior employment by any of the Acquisition Entities), including such information
with respect to any products, improvements, formulas, designs or styles,
processes, services, customers, suppliers, marketing techniques, methods, know-
how, data, future plans or operating practices ("Confidential Information").
Except as may be required or appropriate in connection with his carrying out his
duties under this Agreement, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such Confidential Information to anyone other than
the Company and those designated by the Company.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters, memoranda,
reports, computer data, computer disks, electronic storage media, documents,
models and the like relating to the business of any of the Acquisition Entities,
which the Executive prepares, uses or comes into contact with and which contain
Confidential Information shall be the exclusive property of the Company to be
used by the Executive only in the performance of his duties for the Company and
shall not be removed by the Executive from the premises of any Acquisition
Entity (without the written consent of the Company) during or after the
Employment Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Executive, shall be returned to such Acquisition Entities
immediately upon termination of the Executive's employment hereunder, or earlier
request by the Company (with the Executive retaining no copies thereof nor any
notes or other records relating thereto).
(c) DEVELOPMENTS. The Executive will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Acquisition Entities, whether patentable or
not, which are created, made, conceived or reduced to practice (in whole or in
part) by the Executive or under his direction or jointly with others prior to or
during the Employment Period, whether or not during normal working hours or on
the premises of the Company (collectively, "Developments"). The Executive agrees
to assign and does hereby assign to the Company all of his right, title and
interest in and to all Developments and related patents, copyrights and
applications therefor. The Executive
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shall do all permissible things, and take all permissible action, necessary or
advisable, in the Company's sole discretion and at the Company's expense, to
cause any other person related to the Executive or an entity controlled by the
Executive having an interest in a Development to assign to the Company all of
such person's or entity's right, title and interest in and to such Development
and related patents, copyrights and applications therefor. The Executive,
however, does not guarantee that such assignment will be obtained. The Executive
agrees to cooperate fully with the Company, both during and after the
termination of the Employment Period, with respect to the procurements,
maintenance and enforcement of copyrights and patents (both in the United States
and foreign countries) relating to Developments.
(d) NON-COMPETITION. During (i) the Executive's employment with the Company
and (ii) the two-year period immediately following the termination of the
Executive's employment, the Executive (A) shall not engage, anywhere within the
geographical areas in which any Acquisition Entity is then conducting its
business operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any Competitive Business; (B) shall not
solicit or encourage any officer, employee, independent contractor, vendor or
consultant of any of the Acquisition Entities to leave the employ of, or
otherwise cease his relationship with, any of the Acquisition Entities; and (C)
shall not solicit, divert or take away, or attempt to divert or to take away,
the business or patronage of any of the customers or accounts, or prospective
customers or accounts, of any Acquisition Entity, which were contacted,
solicited or served by any Acquisition Entity during the time the Executive was
employed by any Acquisition Entity (including any employment of the Executive
prior to the date hereof). Notwithstanding anything herein to the contrary, the
Executive will not be in violation of this provision if he owns five percent or
less of the outstanding voting stock of a publicly-traded corporation as to
which the Executive is neither an officer, director, nor employee. If, at any
time, the provisions of this Section 6(d) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(d) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Executive agrees that
this Section 6(d) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6, Executive and the Company agree that Competitive Business shall mean
the corrections or penal management businesses and the administration or
servicing thereof, and the inmate telephone business and the pay telephone
business generally.
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(e) NON-COMPETITION IN EXPANSION MARKETS. Executive acknowledges that a
valuable asset of the Acquisition Entities is the plan of the Company and
Acquisition Entities to extend and expand their business, by acquisition or
otherwise, to areas of the United States of America which Acquisition Entities
do not yet serve as of the Effective Date. Accordingly, during (i) the
Executive's employment with the Company and (ii) the two-year period immediately
following the termination of the Executive's employment, the Executive shall not
engage, anywhere in the United States of America, directly or indirectly, alone,
in association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, in any Competitive
Business. Notwithstanding anything herein to the contrary, the Executive will
not be in violation of this provision if he owns five percent or less of the
outstanding voting stock of a publicly-traded corporation as to which the
Executive is neither an officer, director, nor employee. If, at any time, the
provisions of this Section 6(e) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(e) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Executive agrees that
this Section 6(e) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6(e), Executive and Company agree that Competitive Business shall mean
the corrections or penal management businesses and the administration or
servicing thereof, and the inmate telephone business and the pay telephone
business generally.
(f) CONTINUING OPERATION. Any termination of the Executive's employment or
of this Agreement shall have no effect on the continuing operation of this
Section 6.
(g) LEGITIMATE BUSINESS INTERESTS. The Executive has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Executive acknowledges that any violation of any of the
covenants and agreements contained in this Section 6 would result in irreparable
and continuing harm and damage to the Company and the other Acquisition Entities
which would be extremely difficult to quantify and for which money damages alone
would not be adequate compensation. Consequently, the Executive agrees that, in
the event he violates or threatens to violate any of these covenants and
agreements, the Company shall be entitled to: (1) entry of an injunction,
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temporary and permanent, enjoining such violation and/or requiring the Executive
to return all materials or other proprietary information of the Company and (2)
money damages insofar as they can be determined. Nothing in this Agreement shall
be construed to prohibit the Company and the other Acquisition Entities from
also pursuing any other legal or equitable remedy, the parties having agreed
that all remedies are cumulative. The parties waive the right to a jury trial
with respect to any controversy or claim between or among the parties hereto,
including any claim arising out of or relating to this Agreement or based on or
arising from an alleged tort.
(i) In consideration of the covenants of the Company contained herein and
the Separate Payment provided for above, Executive does hereby release, acquit
and forever discharge TTC and Talton Telecommunications of Carolina, Inc., and
their present and former officers, directors, agents, employees, and their
respective insurers and all other persons, firms and corporations to whom and
for whose conduct the parties hereby released may be liable (the "Released
Parties") from any and all claims, demands and causes of action of whatsoever
nature, known or unknown, foreseen or unforeseen, whether in contract or in
tort, or arising under or by virtue of any federal or state statute or
regulation, which arose prior to the date hereof and in any way relate to the
Executive's employment by TTC and/or Talton Telecommunications of Carolina,
Inc.; provided however that nothing herein shall release the Released Parties
from any claim of Executive arising under this Agreement or in connection with
or related to any of the Contemplated Transactions as that term is defined in
that certain Stock Acquisition Agreement by and among Company and Julius E.
Talton, Julius E. Talton, Jr., James E. Lumpkin, Carrie T. Glover, Talton
Telecommunications Corporation and Talton Telecommunications of Carolina, Inc.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver
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that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the Company and its affiliates, successors and assigns, and the
Executive and his assigns, heirs and legal representatives. Each of the
Acquisition Entities (and their respective affiliates, successors and assigns)
shall be third party beneficiaries of this Agreement and may independently
enforce and benefit from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. The Executive hereby represents that,
except as he has disclosed in writing to the Company, the Executive is not bound
by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of the Executive's employment with the Company or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party. The Executive further represents that his
performance of all of the terms of this Agreement does not and will not breach
any agreement to keep in confidence proprietary information, knowledge or data
acquired by the Executive in confidence or in trust prior to the date of this
Agreement, and the Executive will not disclose to the Company or induce the
Company to use any confidential or proprietary information or material belonging
to any previous employer or others. The Executive hereby indemnifies and agrees
to defend and hold the Company harmless from and against any and all damages,
liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and the costs of investigation) resulting or arising
directly or indirectly from any breach of the foregoing representations or from
allegations, claims, proceedings or actions by third parties relating to the
confidential information belonging to them and disclosed by the Executive to the
Company.
11. WITHHOLDING. Any payments provided for in this Agreement shall be paid
net of any applicable withholding of taxes required under federal, state or
local law.
12. RECITALS; HEADINGS; CONSTRUCTION. The Recitals set forth in the preamble
of this Agreement shall be deemed to be included and form an integral part of
this Agreement. The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
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require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms. All references herein to the word "or"
shall mean "and/or." The parties, in acknowledgment that all of them have been
represented by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement and other
documents entered into in connection herewith shall not be affected by the
identity of the party or parties under whose direction or at whose expense this
Agreement and such documents were prepared or drafted.
13. TIME OF ESSENCE. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
14. GOVERNING LAW. This Agreement shall be governed by the substantive laws
of the State of Alabama, without regard to its conflicts of laws principles. In
particular, Alabama substantive law will govern any controversy or claim between
or among the parties hereto, including any claim arising out of or relating to
this Agreement or based on or arising from an alleged tort.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
16. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties' respective
addresses as set forth opposite their signatures hereto. Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit if transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually received in writing by the party to whom it is
required or permitted to be given. The parties may change their address for
purposes hereof by notice given to the other parties in accordance with the
provisions of this Section, but such notice
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shall not be deemed to have been duly given unless and until it is actually
received by the other party.
17. COMMON LAW OR OTHER DUTIES. The Executive's duties obligations, and
agreements hereunder are in addition to (and not in limitation of) any duties or
obligations under common law or statute owed to the Acquisition Entities by the
Executive by reason of his position as officer, director or employee, as
applicable, of the Acquisition Entities.
18. ATTORNEYS' FEES. In the event of any litigation or proceeding brought
with respect to this Agreement in which the parties to this Agreement (or any
other Acquisition Entity or Entities) is a party, the prevailing party(ies)
shall be entitled to recover from non-prevailing party(ies) any reasonable
attorneys' fees and expenses incurred therein.
19. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TALTON HOLDINGS, INC., a
Delaware corporation
By: /s/ TODD W. FOLLMER
-----------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Boulevard
Suite 1300
Dallas, Texas 75219
Attention: Todd W. Follmer
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
/s/ JULIUS E. TALTON, JR.
----------------------------------------
JULIUS E. TALTON, JR.
Address: ________________________
________________________
________________________
Telephone: ________________________
Facsimile: ________________________
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EXHIBIT 4
---------
to Talton, Jr. Employment Agreement
(a) Base Salary: $100,000
-----------------
(b) Guaranteed Bonus: $25,000, to be paid on the earlier of the
-----------------
refinancing of the Talton subordinated debt or December 31, 1997.
(c) Separate Payment: $25,000
-----------------
(d) Incentive Bonus: Up to 37.5% of Base Salary tied to performance on
-----------------
a budget approved and established by the Board.
(e) Other Benefits: During the Employment Period, the Executive shall
--------------
be entitled to receive and enjoy all fringe benefits that he enjoyed as an
executive of TTC immediately prior to the commencement of the Employment Period.
In addition, the Executive shall be eligible for all future fringe benefits made
available to other salaried employees of the Company or the Acquisition
Entities. The Executive shall be entitled to paid vacation and other paid
absences during the Employment Period in accordance with the policies applicable
generally to salaried employees of the Company or the Acquisition Entities.
(f) Warrants: The Company plans to establish a Management Stock Option
--------
Incentive Plan and the Executive will participate thereunder in an amount and on
the terms to be determined by the Board of Directors of the Company.
(g) Insurance: The Company and the Acquisition Entities shall each
---------
maintain D&O insurance coverage.
(h) Indemnity: The Company shall also indemnify, defend, and hold
---------
the Executive free and harmless of, from, and against any and all claims,
demands, actions, causes of action, and all other litigation related to the
employment of the Executive under this Employment Agreement.
Page 1 of 1
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
December 27, 1996 (the "Effective Date"), by and between Talton Holdings, Inc.,
a Delaware corporation (the "Company"), and John R. Summers, a resident of the
State of Missouri (the "Executive").
RECITALS
--------
WHEREAS, the Company and or its subsidiaries is acquiring all of the
outstanding shares of capital stock of Talton Telecommunications Corporation, an
Alabama corporation ("TTC") and all of the outstanding shares of capital stock
of AmeriTel Pay Phones, Inc., a Missouri corporation ("AmeriTel");
WHEREAS, the Executive is currently employed by AmeriTel, pursuant to that
certain employment agreement (the "Existing Employment Agreement"), which
Existing Employment Agreement is superseded by this Agreement;
WHEREAS, the Company desires to employ the Executive and the Executive desires
to furnish services to the Company on the terms and conditions hereinafter set
forth;
WHEREAS, the parties desire to enter into this Agreement in order to set forth
the terms and conditions of the employment relationship of the Executive with
the Company;
WHEREAS, the Executive and the Company each acknowledge and agree that the
terms and conditions set forth below are reasonable and necessary in order to
protect the legitimate business interests of the Company, TTC, AmeriTel and
their subsidiaries and affiliates (collectively, the "Acquisition Entities") and
to compensate the Executive for information, knowledge and experience brought to
the Acquisition Entities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements set
forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth, The Existing Employment Agreement is hereby superseded in
its entirety, and the Executive agrees that he is entitled to no further salary,
bonus, termination payments or other payments or compensation thereunder or
otherwise (except as provided in this Agreement), and that all obligations
thereunder or otherwise have been fully discharged and satisfied.
2. EMPLOYMENT PERIOD. The period of employment of the Executive by the
Company hereunder (the "Employment Period) shall commence on the Effective Date
and shall end on the first
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anniversary of the Effective Date (unless earlier terminated in accordance with
Section 5 of the Agreement). Commencing on the first anniversary of the
Effective Date, the Employment Period shall be extended for successive one-year
periods (individually, a "Renewal Period"), unless a notice not to extend this
Agreement shall have been given by either party hereto to the other not later
than ninety (90) days immediately preceding the commencement of the Renewal
Period (or unless earlier terminated in accordance with Section 5 of this
Agreement). Unless the context otherwise requires, the Employment Period
hereunder shall for purposes of this Agreement be deemed to include any Renewal
Period.
3. POSITION AND DUTIES, The Executive shall, within reason, devote his full
time, attention, skills and energies during the Employment Period to the
business of the Acquisition Entities, performing such specific functions on
behalf of the Acquisition Entities and holding such positions as the Board of
Directors or senior management of the Company may direct, all of which shall be
substantially consistent with executive functions within the industry in which
the Acquisition Entities are engaged.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Employment Period, the Company shall pay the
Executive a base salary at an annual rate specified in Exhibit 4 (the "Base
---------
Salary"), which Base Salary shall be paid in equal installments in accordance
with the Company's payroll policy, subject to Section 5 below.
(b) BONUS. During the Employment Period, incentive or other bonuses (if any)
shall be at the sole discretion of the Board of Directors of the Company.
(c) SEPARATE PAYMENT. In consideration of the Executive's agreements and
release set forth in Section 6 below, the Company shall pay the Executive, the
one-time payment specified in Exhibit 4 (the "Separate Payment"), which Separate
Payment shall be due and payable at Closing, subject to Section 5 below.
(d) OTHER BENEFITS. During the Employment Period, the Executive shall be
entitled to and eligible for group health insurance coverage and any other
fringe benefits in accordance with policies applicable,generally to salaried
employees of the Company. The Executive shall also be entitled to paid vacation
and other paid absences during the Employment Period in accordance with policies
applicable generally to salaried employees of the Company.
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5. TERMINATION.
(a) TERMINATION FOR CAUSE. Prior to the end of the Employment Period, the
Company may terminate the Executive's employment under this Agreement for
"Cause". For purposes of this Agreement, the Company shall have Cause to
terminate the Executive's employment hereunder in the event the Executive: (i)
has committed any act of willful misconduct, embezzlement or wrongful conversion
of money or property belonging to any Acquisition Entity, or any act of fraud or
dishonesty that affects the business of or relates to any of the Acquisition
Entities (including, without limitation, any past act of which the Company
becomes aware after the date of this Agreement); (ii) is convicted of a felony
at any time hereafter; (iii) has failed to comply with any material directive of
the Board of Directors of the Company; or (iv) has willfully and continually
failed to substantially perform his duties hereunder (other than any such
failure resulting from the Executive's death or disability). If the Executive's
employment is terminated by the Company for Cause, the Company shall pay the
Executive any Base Salary and any Separate Payment accrued or owing to the
Executive hereunder through the date of termination, and the Company shall have
no further liability or obligation to the Executive hereunder.
(b) TERMINATION WITHOUT CAUSE. Prior to the end of the Employment Period, the
Company may terminate the Executive's employment under this Agreement for a
reason other than Cause or no reason whatsoever (i.e., without Cause). If the
Company terminates the Executive's employment without Cause prior to the
expiration of the Employment Period, the Company's liability to the Executive is
limited to the amount of Base Salary and Separate Payment (if any) owing to the
Executive for the remainder of the Employment Period. The Company shall pay this
remaining Base Salary and Separate Payment (if any) to the Executive at the same
rate such Base Salary and Separate Payment (if any) would have been due and
owing to the Executive if he had remained a full time employee for the entire
Employment Period. If the Company terminates employment of the Executive because
he has become disabled such that he is unable to perform the essential functions
of his job (with or without reasonable accommodation), any such termination
shall be deemed to be a termination without Cause pursuant to this Agreement.
Similarly, the Executive's employment shall terminate upon his death, and shall
be deemed a termination by the Company without Cause, with payments of the Base
Salary and Separate Payment (if any) to be made to the Executive's estate.
6. CONFIDENTIAL INFORMATION, REMOVAL OF DOCUMENTS DEVELOPMENTS AND NON-
COMPETITION, RELEASE.
(a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity
for the benefit of the Company and the other Acquisition Entities all trade
secrets, confidential information, proprietary information, knowledge and data
relating to the Acquisition Entities and/or the businesses or investments of the
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Acquisition Entities, which may have been obtained by the Executive during the
Executive's employment by the Company (and/or during the Executive's prior
employment by any of the Acquisition Entities), including such information with
respect to any products, improvements, formulas, designs or styles, processes,
services, customers, suppliers, marketing techniques, methods, know-how, data,
future plans or operating practices ("Confidential Information"). Except as may
be required or appropriate in connection with his carrying out his duties under
this Agreement, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such Confidential Information to anyone other than the Company
and those designated by the Company.
(b) REMOVAL OF DOCUMENTS. All records, files, drawings, letters, memoranda,
reports, computer data, computer disks, electronic storage media, documents,
models and the like relating to the business of any of the Acquisition Entities,
which the Executive prepares, uses or comes into contact with and which contain
Confidential Information shall be the exclusive property of the Company to be
used by the Executive only in the performance of his duties for the Company and
shall not be removed by the Executive from the premises of any Acquisition
Entity (without the written consent of the Company) during or after the
Employment Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Executive, shall be returned to such Acquisition Entities
immediately upon termination of the Executive's employment hereunder, or earlier
request by the Company (with the Executive retaining no copies thereof nor any
notes or other records relating thereto),
(c) DEVELOPMENTS. The Executive will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software and/or works of authorship relating in any way to the business,
activities or affairs of any of the Acquisition Entities, whether patentable or
not, which are created, made, conceived or reduced to practice (in whole or in
part) by the Executive or under his direction or jointly with others prior to or
during the Employment Period, whether or not during normal working hours or on
the premises of the Company (collectively, "Developments'). The Executive agrees
to assign and does hereby assign to the Company all of his right, title and
interest in and to all Developments and related patents, copyrights and
applications therefor. The Executive shall do all permissible things, and take
all permissible action, necessary or advisable, in the Company's sole
discretion, to cause any other person related to the Executive or an entity
controlled by the Executive having an interest in a Development to assign to the
Company all of such person's or entity's right, title and interest in and to
such Development and related patents, copyrights and applications therefor. The
Executive agrees to cooperate fully with the Company, both during and after the
termination of the Employment Period, with respect to the procurements,
maintenance
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<PAGE>
and enforcement of copyrights and patents (both in the United States and foreign
countries) relating to Developments.
(d) NON-COMPETITION. During the Executive's employment with the Company and
(ii) the three-year period immediately following the termination of the
Executive's employment, the Executive (A) shall not engage, anywhere within the
geographical areas in which any Acquisition Entity is then conducting its
business operations, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or
consultant of any other organization, in any "Competitive Business' which
competes with any business then being conducted by such Acquisition Entity; (B)
shall not solicit or encourage any officer, employee, independent contractor,
vendor or consultant of any of the Acquisition Entities to leave the employ of,
or otherwise cease his relationship with, any of the Acquisition Entities; and
(C) shall not solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the customers or accounts, or
prospective customers or accounts, of any Acquisition Entity, which were
contacted, solicited or served by any Acquisition Entity during the time the
Executive was employed by any Acquisition Entity (including any employment of.
the Executive prior to the date hereof). If the Executive violates any of the
provisions of this Section 6(d), following his termination of employment, the
computation of the time period provided herein shall be tolled from the first
date of the breach until the earlier of (i) the date judicial relief is obtained
by the Company, (ii) the Company states in writing that it will seek no judicial
relief for said violation or (iii) the Executive provides satisfactory evidence
to the Company that such breach has-been remedied. If, at any time, the
provisions of "this Section 6(d) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(d) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Executive agrees that
this Section 6(d) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6, Executive and the Company agree that only businesses engaged in the
pay telephone business, the inmate telephone business, and/or all businesses
engaged in any business that AmeriTel is engaged in as of the date of this
Agreement, shall be in a "Competitive Business."
(e) NON-COMPETITION IN EXPANSION MARKETS. Executive acknowledges that a
valuable asset of the Acquisition Entities is the plan of the Company and
Acquisition Entities to extend and expand their business, by acquisition or
otherwise, to areas of the United States of America which Acquisition Entities
do not yet serve as of the Effective Date, Accordingly, during (i) the
Executive's employment with the Company and (ii) the two-year period immediately
following the termination of the Executive's
-5-
<PAGE>
employment, the Executive shall not engage, anywhere in the United States of
America, directly or indirectly, alone, in association with or as a shareholder,
principal, agent, partner, officer, director, employee or consultant of any
other organization, in any Competitive Business. If the Executive violates any
of the provisions of this Section 6(e), following his termination of employment,
the computation of the time period provided herein shall be tolled from the
first date of the breach until the earlier of (i) the date judicial relief is
obtained by the Company, (ii) the Company states in writing that it will seek no
judicial relief for said violation or (iii) the Executive provides satisfactory
evidence to the Company that such breach has been remedied. If, at any time, the
provisions of this Section 6(e) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 6(e) shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court"or
other body having jurisdiction over the matter; and the Executive agrees that
this Section 6(e) as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein. For purposes of this
Section 6(e), Executive and Company agree that only businesses engaged in the
pay telephone business, the inmate telephone business, and/or all businesses
engaged-in any business that AmeriTel is engaged in as of the date of this
Agreement, shall be in a Competitive Business of the Acquisition Entities
whether or not an Acquisition Entity is then actively engaged in the business in
the area protected from competition under this Section 6(e).
(f) CONTINUING OPERATION, Any termination of the Executive's employment or of
this Agreement shall have no effect on the continuing operation of this Section
6.
(g) LEGITIMATE BUSINESS INTERESTS. The Executive has carefully read and
considered the provisions of this Section 6 and, having done so, agrees that the
restrictions set forth herein, including, without limitation, the time and
geographic restrictions set forth above, are fair and reasonable and are
reasonably required for the protection of the legitimate business interests and
goodwill of the Company.
(h) REMEDIES. The Executive acknowledges that any violation of any of the
covenants and agreements contained in this Section 6 would result in irreparable
and continuing harm and damage to the Company and the other Acquisition Entities
which would be extremely difficult to quantify and for which money damages alone
would not be adequate compensation. Consequently, the Executive agrees that, in
the event he violates or threatens to violate any of these covenants and
agreements, the Company shall be entitled to: (1) entry of an injunction,
temporary and permanent, enjoining such violation and/or requiring the Executive
to return all materials or other proprietary information of the Company and (2)
money damages insofar as they can be determined. Nothing in this Agreement shall
-6-
<PAGE>
be construed to prohibit the Company and the other Acquisition Entities from
also pursuing any other legal or equitable remedy, the parties having agreed
that all remedies are cumulative. The parties waive the right to a jury trial
with respect to any controversy or claim between or among the parties hereto,
including any claim arising out of or relating to this Agreement or based on or
arising from an alleged tort.
(i) In consideration of the covenants of the Company contained herein and the
Separate Payment provided for above, Executive does hereby release, acquit and
forever discharge each of the Acquisition Entities and all their subsidiaries
and affiliated companies and their present and former officers, directors,
agents, employees, and their respective insurers and all other persons, firms
and corporations to whom and for whose conduct the parties hereby released may
be liable (the "Released Parties") from any and all claims, demands and causes
of action of whatsoever nature, known or unknown, foreseen or unforeseen,
whether in contract or in tort, or arising under or by virtue of -,any,federal
or-state statute or regulations provided however that nothing herein shall
release the Released Parties from any claim of Executive arising under this
Agreement.
7. SEVERABILITY. Whenever possible, each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
8. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the Company and its affiliates, successors and assigns, and the
Executive and his assigns, heirs and legal representatives. Each of the
Acquisition Entities (and their respective affiliates, successors and assigns)
shall be third
-7-
<PAGE>
party beneficiaries of this Agreement and may independently enforce and benefit
from the terms hereof.
10. OTHER AGREEMENTS; INDEMNIFICATION. The Executive hereby represents that
the Executive is not bound by the terms of any agreement with any previous
employer or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of the Executive's
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Executive further represents that his performance of all of the terms of this
Agreement does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Executive in
confidence or in trust prior to the date of this Agreement, and the Executive
will not disclose to the Company or induce the Company to use any confidential
or proprietary information or material belonging to any previous employer or
others. The Executive hereby indemnities and agrees to defend and hold the
Company harmless from and against any and all damages, liabilities, losses,
costs and expenses (including, without limitation, reasonable attorneys' fees
and the costs of investigation) resulting or arising directly or indirectly from
any breach of the representations in this Section or from allegations, claims,
proceedings or actions by third parties relating to the confidential information
belonging to them and disclosed by the Executive to the Company.
11. WITHHOLDING. Any payments provided for in this Agreement shall be paid
net of any applicable withholding of taxes required under federal, state or
local law.
12. RECITALS; READINGS; CONSTRUCTION. The Recitals set forth in the preamble
of this Agreement shall be deemed to be included and form an integral part of
this Agreement. The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to 'section" or 'sections' refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms, All references herein to the word "or" shall
mean "and/or." The parties, in acknowledgment that all of them have been
represented by counsel and that this Agreement has been carefully negotiated,
agree that the construction and interpretation of this Agreement and other
documents entered into in connection herewith shall not be affected by the
identity of the party or parties under whose direction or at whose expense this
Agreement and such documents were prepared or drafted.
13. TIME OF ESSENCE. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
-8-
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed by the substantive laws of
the State of Missouri, without regard to its conflicts of laws principles. In
particular, Missouri substantive law will govern any controversy or claim
between or among the parties hereto, including any claim arising out of or
relating to this Agreement or based on or arising from an alleged tort.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by both parties.
16. NOTICES. Any notice, demand or other communication which may or is
required to be given under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States postage prepaid mail,
registered or certified mail, return receipt requested; (c) transmitted by
reputable overnight courier service such as Federal Express; or (d) transmitted
by legible facsimile (with answer back confirmation) to the parties, respective
addresses as set forth opposite their signatures hereto. Except as otherwise
specified herein, all notices and other communications shall be deemed to have
been duly given on (i) the date of receipt if delivered personally, (ii) two (2)
calendar days after the date of posting if transmitted by registered or
certified mail, return receipt requested, (iii) the first (1st) business day
after the date of deposit if transmitted by reputable overnight courier service
or (iv) the date of transmission with confirmed answer back if transmitted by
facsimile, whichever shall first occur. A notice or other communication not
given as herein provided shall only be deemed given if and when such notice or
communication is actually received in writing by the party to whom it is
required or permitted to be given. The parties may change their address for
purposes hereof by notice given to the other parties in accordance with the
provisions of this Section, but such notice shall not be deemed to have been
duly given unless and until it is actually received by the other party.
17. COMMON LAW OR OTHER DUTIES. The Executive's duties obligations, and
agreements hereunder are in addition to (and not in limitation of) any duties or
obligations under common law or statute owed to the Acquisition Entities by the
Executive by reason of his position as officer, director or employee, as
applicable, of the Acquisition Entities.
18. ATTORNEYS' FEES. In the event of any litigation or proceeding brought
with respect to this Agreement in which the parties to this Agreement (or any
other Acquisition Entity or Entities) is a party, prevailing party shall be
entitled to recover from non-prevailing party signatory to this Agreement any
reasonable attorneys' fees and expenses incurred therein.
-9-
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of-this Agreement -and all
of which, when taken together, will be deemed to constitute one and the same
agreement,
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TALTON HOLDINGS, INC.,
a Delaware corporation
By: /s/ TODD W. FOLLMER
------------------------------------
Name: Todd W. Follmer
Title: Chief Executive Officer
Address: c/o Engles Urso Follmer
Capital Corporation
3811 Turtle Creek Blvd.
Suite 1300
Dallas, Texas 75219
Attention: Todd W. Follmer
Telephone: (214) 526-3454
Facsimile: (214) 528-9929
/s/ JOHN R. SUMMERS
---------------------------------------
JOHN R. SUMMERS
Address: __________________
__________________
__________________
Telephone: __________________
Facsimile: __________________
-11-
<PAGE>
EXHIBIT 4
---------
to Summers Employment Agreement
(a) Base Salary: $120,000
-----------
(b) Bonus: Guaranteed Bonus of $20,000 upon first anniversary of closing.
-----
(c) Incentive Bonus: Up to 30% of Base Salary tied to performance on a
---------------
budget approved and established by the Board.
(d) Separate Payment: $30,000
----------------
(e) Warrants: The Company plans to establish a Management Stock Option
--------
Incentive Plan and Mr. Summers will participate thereunder in an amount and on
the terms to be determined by the Board of Directors of the Company.
(f) Redemption Agreement: Mr. Summers is purchasing $100,000 of Class A
--------------------
Common Stock of the Company upon close of the acquisition transaction. In the
event Mr. Summers is terminated by the Company without cause, the Company agrees
to redeem the stock purchased by Mr. Summers, only upon his request made to the
Company within ninety days of his termination, at a price equal to the original
purchase price of $100,000.
Page 1 of 1
<PAGE>
EXHIBIT 10.11
June 2, 1997
Mr. John A. Crooks, Jr.
5916 Broadmeade Drive
Plano, Texas 75093
Re: Talton Holdings, Inc.
Dear Mr. Crooks:
This letter is to evidence that John A. Crooks, Jr. ("Crooks") shall have
the following rights to acquire shares of stock in Talton Holdings, Inc.
("Talton") and to receive stock options:
(a) Rights to Purchase Stock: Crooks has the right to purchase from
------------------------
Talton up to 165 shares of Talton's Class A Common Stock at a per share price of
$2,000 per share. Such right may be exercised in whole or in part. Such right
shall expire December 31, 1997.
(b) Stock Options. In accordance with a management stock option
-------------
incentive plan to be established by Talton, but to be established no later than
December 31, 1997, Talton agrees to issue Crooks options to purchase 330 shares
of Class A Common Stock at a per share strike price of $2,000 per share or on
such other terms if a more favorable offering is determined or required. Such
options shall be subject to a three year vesting period (1/3 per year) or such
other period as may be required by law in order to make such options "incentive
stock options". Such option may be exercised in whole or in part. Such options
shall expire if not exercised on or before December 26, 2006.
Sincerely,
Talton Holdings, Inc.
By: /s/ TODD W. FOLLMER
------------------------
Todd W. Follmer,
Vice President
<PAGE>
EXHIBIT 11.1
Statement re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
One Month Six Month
Period Ended Period Ended
December 31, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Income (loss) before extraordinary items (260) (2,395)
Extraordinary loss (4,396)
------- -------
Net income (loss) (260) (7,028)
======= =======
Calculation of primary earnings (loss)
per share:
Weighted avg. shares outstanding 17,004 17,013
Common stock equivalents
(options and warrants) 1,086 1,086
------- -------
Total weighted avg. shares outstanding 18,090 18,099
Income (loss) before extraordinary items (14.38) (145.44)
Extraordinary loss -- (242.87)
Net income (loss) (14.38) (388.31)
======= =======
</TABLE>
CALCULATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE: *Not presented, as
presentation would be
antidilutive.
<PAGE>
EXHIBIT 12.1
Statement Regarding Computation of Ratios
Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined The Combined The
Combined Predecessors Predecessors Company Predecessors Company
---------------------------------- ------------ --------- ------------ ---------
Eleven One Six Six
Months Month Months Months
Ended Ended Ended Ended
Years Ended December 31, November December June June
---------------------------------- 30, 31, 30, 30,
1992 1993 1994 1995 1996 1996 1996 1997
------- ------- ------- ------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before
income taxes and extraordinary loss $ (276) $ 597 $ 1,647 $ 2,230 $ 5,183 $(283) $ 2,687 $(3,245)
Interest expense 131 331 745 1,360 1,469 612 799 3,932
Interest portion of rent expense 57 87 56 7 42 40
------ ----- ------- -------- ------- ----- ------- -------
Earnings available for fixed charges $ (145) $ 928 $ 2,449 $ 3,677 $ 6,708 $ 336 $ 3,528 $ 727
------ ----- ------- -------- ------- ----- ------- -------
Fixed Charges:
Interest expense $ 131 $ 331 $ 745 $ 1,360 $ 1,546 $ 612 $ 799 $ 3,932
Interest portion of rent expense 0 0 67 87 56 7 42 40
------ ----- ------- -------- ------- ----- ------- -------
Total fixed charges $ 131 $ 331 $ 812 $ 1,447 $ 1,602 $ 619 $ 841 $ 3,972
------ ----- ------- -------- ------- ----- ------- -------
Ratio of earnings to fixed charges (1.1) 2.8 3.0 2.5 4.2 0.5 4.2 0.2
Deficiency of earnings to fixed charges 276 - - - - 283 - 3,245
</TABLE>
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
Names under
which Subsidiary
Subsidiary State of Incorporation does Business
- ---------- ---------------------- --------------------------
<S> <C> <C>
AmeriTel Pay Phones, Inc. Missouri AmeriTel Pay Phones
AmeriTel Pay Phones
d/b/a AMT
Cellblock Systems
Corrections Corporation of California
Cellblock Phones of
North Dakota, Inc.
Talton Telecommunications Corporation Alabama Talton Communications Corporation
Talton Telecommunications
Talton Telecommunications of Carolina, Inc. Alabama
Talton STC, Inc. Delaware Security Telecom Corporation
Talton STC
Talton Invision, Inc. Delaware Invision Telecom
Invision
One Source Telecommunications, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-effective Amendment No. 1 to the
Registration Statement of Talton Holdings, Inc. on Form S-4 of our report
dated April 4, 1997 (October 6, 1997 as to Note 13) with respect to the
consolidated financial statements of Talton Holdings, Inc. as of December 31,
1996 and for the one month period from December 1, 1996 (date of acquisition)
to December 31, 1996; our report dated April 4, 1997 with respect to the
financial statements of AmeriTel Pay Phones, Inc. as of November 30, 1996 and
for the eleven months ended November 30, 1996; our report dated April 4, 1997
with respect to the consolidated financial statements of Talton
Telecommunications Corporation as of November 30, 1996 and for the eleven
months ended November 30, 1996; and our report dated October 10, 1997 with
respect to the consolidated financial statements of Security Telecom
Corporation and subsidiary as of June 30, 1997 and for the six months ended
June 30, 1997; all appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Deloitte & Touche llp
Dallas, Texas
November 5, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 22, 1996, and to all references to our firm, included in or made a
part of this registration statement.
Arthur Andersen LLP
Kansas City, Missouri,
November 5, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-effective Amendment No. 1 to the
registration statement of Talton Holdings, Inc. on Form S-4 of our report
dated March 4, 1996, with respect to the consolidated financial statements of
Talton Telecommunications as of December 31, 1995, and for each of the two
years in the period ended December 31, 1995; all appearing in the prospectus,
which is part of this registration statement. We also consent to the reference
to us under the heading "experts" in such prospectus.
Borland, Benefield, Crawford &
Webster, P.C.
Birmingham, Alabama
November 5, 1997
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this pre-effective amendment No. 1 to the
Registration Statement of Talton Holdings, Inc. on Form S-4 of our report
dated May 23, 1997 with respect to the consolidated financial statements of
Security Telecom Corporation and subsidiary as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
Davis, Clark and Company, P.C.
Dallas, Texas
November 5, 1997
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-effective Amendment No. 1 to the
registration statement of Talton Holdings, Inc. on Form S-4 of our report
dated June 27, 1997 (October 6, 1997 as to Note 10) with respect to the
financial statements of Correctional Communications Corporation as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996; all appearing in the prospectus which is part of this registration
statement. We also consent to the reference to us under the heading "experts"
in such prospectus.
Ginsberg, Weiss & Company
Pearl River, New York
November 5, 1997
<PAGE>
EXHIBIT 99.2
[FORM OF BROKER, DEALER LETTER]
TALTON HOLDINGS, INC.
OFFER TO EXCHANGE
11% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR NOTES DUE 2007
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES, AND OTHER NOMINEES:
Talton Holdings, Inc. (the "Company") is offering, upon and subject to the
terms and conditions set forth in the Prospectus, dated , 1997 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange a
principal amount of its 11% Series B Senior Notes due 2007 (the "New Notes")
pursuant to a registration statement of which the Prospectus is a part (the
"Registration Statement") for an equal principal amount of the issued and
outstanding 11% Senior Notes due 2007 (the "Old Notes," and collectively with
the New Notes, the "Senior Notes") of which $115.0 million in aggregate
principal amount are outstanding as of the date hereof. The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement dated as of June 27, 1997 between the
Company, each of AmeriTel Pay Phones, Inc., Talton Telecommunications
Corporation, Talton Telecommunications of Carolina, Inc., and Talton STC, Inc.
(collectively, with Talton Invision, Inc., the "Subsidiary Guarantors" and,
together with the Company, the "Registrants"), and CIBC Wood Gundy Securities
Corp. (the "Initial Purchaser").
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1997;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer,
if certificates for Old Notes are not immediately available, or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below), or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter that may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to U.S. Trust Company of Texas, N.A., the
Exchange Agent for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, [ ], 1997 unless extended by the Company, provided
it may not be extended beyond , 1997 (the "Expiration Date"). Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time before
the Expiration Date.
<PAGE>
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent, and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks, and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 5 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to U.S.
Trust Company of Texas, N.A,, the Exchange Agent for the Old Notes, at its
address and telephone number set forth on the front of the Letter of
Transmittal.
Very truly yours,
TALTON HOLDINGS, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF TALTON HOLDINGS, INC. OR THE EXCHANGE AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS
OF BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR
STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
[FORM OF CLIENTS' LETTER]
TALTON HOLDINGS, INC.
OFFER TO EXCHANGE
11% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR NOTES DUE 2007
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1997 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Talton
Holdings, Inc. (the "Company") to exchange a principal amount of its 11%
Series B Senior Notes due 2007 (the "New Notes"), which exchange has been
registered under the Securities Act of 1933, as amended, pursuant to a
registration statement of which the Prospectus is part, for an equal principal
amount of its outstanding 11% Senior Notes due 2007 (the "Old Notes") of which
$115.0 million in aggregate principal amount are outstanding as of the date
hereof, upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated as of June 27, 1997 between the Company,
each of AmeriTel Pay Phones, Inc., Talton Telecommunications Corporation,
Talton Telecommunications of Carolina, Inc., and Talton STC, Inc.
(collectively, with Talton, Invision, Inc., the "Subsidiary Guarantors" and,
together with the Company, the "Registrants"), and CIBC Wood Gundy Securities
Corp. (the "Initial Purchaser").
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A tender
of such Old Notes may only be made by us as the holder of record and pursuant
to your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, unless extended by the Company. Any Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
<PAGE>
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in
the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on , 1997,
unless extended by the Company, provided it may not be extended beyond ,
1997.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Talton
Holdings, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
-------------------------------------------
<S> <C>
11% SENIOR NOTES DUE 2007.......... ___________________________________________
</TABLE>
[_] Please do not tender any Old Notes held by
you for my account.
-------------------------------------
Dated: ____________ , 1997 -------------------------------------
Signature(s)
-------------------------------------
-------------------------------------
-------------------------------------
Please print name(s) here
-------------------------------------
-------------------------------------
Address(es)
-------------------------------------
-------------------------------------
Area Code and Telephone Number
-------------------------------------
Tax Identification or Social
Security No(s).
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon will
constitute an instruction to us to tender all the Old Notes held by us for
your account.
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY FOR
TALTON HOLDINGS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Talton Holdings, Inc. (the "Company") made pursuant to the
Prospectus, dated , 1997 (the "Prospectus"), if certificates for 11%
Senior Notes due 2007 of the Company are not immediately available or if the
procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Company prior to 5:00
p.m., New York City time, on the Expiration Date of the Exchange Offer. Such
form may be delivered or transmitted by telegram, mail or hand delivery to
U.S. Trust Company of Texas, N.A. (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal must also be received by the Exchange Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
DELIVERY TO: U.S. TRUST COMPANY OF TEXAS, N.A., THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail, By Facsimile:
by hand or by Overnight Courier U.S. Trust Company of Texas, N.A.
U.S. Trust Company of Texas, N.A. Attention: Corporate Trust Department
2001 Ross Avenue, Suite 2700 (214) 754-1303
Dallas, Texas 75201 Confirm by Telephone:
Attention: Corporate Trust Department (214) 754-1200
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the aggregate principal amount of 11% Senior Notes due 2007 set forth
below, pursuant to the guaranteed delivery procedure described in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Aggregate Principal Amount of 11% Senior Notes due 2007 Tendered: $_______
Certificate Nos. (if available): _________________________________________
Aggregate Number of Shares Represented by Old Certificates(s): ___________
If 11% Senior Notes due 2007 will be delivered by book-entry transfer to The
Depository Trust Company, provide account number.
Account Number: __________________________________________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<PAGE>
PLEASE SIGN HERE
____________________________________________________ __________________ , 1997
____________________________________________________ __________________ , 1997
Signature(s) of Owners(s) or Authorized Signatory
Date
Area Code and Telephone Number:__________________________________________
Must be signed by the holder(s) of 11% Senior Notes due 2007 as their
name(s) appear(s) on certificates for 11% Senior Notes due 2007 or on a
security position listing, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer, or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
Please Print Name(s) and Address(es)
Name(s):__________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Capacity:_________________________________________________________________
Address(es):___________________________________________________________________
______________________________________________________________________
______________________________________________________________________
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees that the certificates representing the shares
of 11% Senior Notes due 2007 tendered hereby in proper form for transfer, or
timely confirmation of the book-entry transfer of such 11% Senior Notes due
2007 into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus, together with a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantee and any other
documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five New York
Stock Exchange trading days after the date of execution hereof.
<TABLE>
<S> <C>
Name of Firm: _____________________________ ___________________________________________
Authorized Signature
Address: __________________________________ Name: _____________________________________
(Please Type or Print)
___________________________________________ Title: ____________________________________
Zip Code
Area Code and
Telephone Number: _________________________ Dated: ____________________________________
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR 11% SENIOR NOTES DUE 2007 WITH THIS FORM.
CERTIFICATES FOR 11% SENIOR NOTES DUE 2007 SHOULD ONLY BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
