Schifino & Fleischer, P.A.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
_X_ Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended DECEMBER 31, 1997
___ Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________ to _________
Commission File Number: 333-27161
THRUCOMM, INC.
(Name of Small Business Issuer in Its Charter)
FLORIDA 59-3415131
(State of Incorporation) (IRS Employer Identification No.)
1641 COMMERCE AVENUE NORTH
ST. PETERSBURG, FLORIDA 33716 (813) 576-1582
(Address of Principal Executive (Issuer's Telephone Number,
Offices, Zip Code) Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. __X__
The issuer's revenues for the fiscal year ended December 31, 1997 were
$2,917,586.
As of March 31, 1998, there was one (1) outstanding share of the issuer's common
stock, no par value per share, (the "Common Shares"). The Common Shares are the
only class of voting or non-voting common equity of the issuer, and accordingly,
the aggregate market value of such common equity held by non-affiliates is $0.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Registration Statement on Form S-4, effective September 3,
1997, is incorporated by reference in answer to Part I, Items 1 and 4 of this
report.
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Transitional Small Business Disclosure Format (check one): Yes ___ No __X__
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The discussion contained in this annual report under Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for the
issuer's fiscal year ended December 31, 1997 (this "Report"), contains
forward-looking statements that involve risks and uncertainties. The issuer's
actual results could differ significantly from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Description of Business" and "Management's Discussion
and Analysis or Plan of Operation" as well as those discussed elsewhere in this
Report. Statements contained in this Report that are not historical facts are
forward-looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the issuer's actual results for 1998 and beyond to differ materially
from those expressed in any forward-looking statement made by or on behalf of
the issuer.
RISK FACTORS
AVAILABILITY AND REGULATION OF RADIO SPECTRUM
The Company's products use radio spectrum and in the United States are
subject to regulation by the U.S. Federal Communications Commission (the "FCC").
In the past, the FCC has adopted changes to the requirements for equipment using
radio spectrum, and there can be no assurance that the FCC or the U.S. Congress
will not adopt additional changes in the future.
The Company's wireless products also employ unlicensed radio frequencies.
The unlicensed frequencies are available for a wide variety of uses and are not
entitled to protection from interference by other users. In the event that the
unlicensed frequencies become unacceptably crowded or restrictive, and no
additional frequencies are allocated, the Company's business will be materially
and adversely affected. See, "Item 1. Description of Business, Government
Regulation."
FCC REGULATION
The Company's products, both wireless and VSAT, use radio frequencies, the
access to and use of which are regulated by the FCC pursuant to the
Communications Act of 1934, as amended. In general, one must have a radio
license issued by the FCC to operate a radio transmitter. For satellite earth
stations, such as the Company uses in its VSAT network, the licenses are issued
by the FCC for a fixed term, and the licenses must be periodically renewed.
Although radio licenses are generally required for radio stations, Part 15
of the FCC's rules permits certain low-power radio devices ("Part 15 devices")
to operate on an unlicensed basis. Part 15 devices are designed to be used in
frequency bands licensed to and used by others. Part 15 devices are not
permitted to cause harmful interference to the licensed uses and must be
designed to accept interference from licensed radio devices and from other Part
15 devices. The Company's wireless products are designed to transmit in the
902-928 MHZ band, pursuant to these rules.
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The Company's wireless products are designed to eliminate, to a very high
degree, the likelihood of interference with other frequency uses, while still
enabling a complete and accurate transmission of data. However, if the Company
were unable to eliminate harmful interference caused by its Part 15 devices
through technical or other means, the Company could be required to cease
operations in the band in the locations affected by the harmful interference.
Further, in the event that the unlicensed frequencies used by the Company and
its customers becomes unacceptably crowded or restrictive, and no additional
frequencies are allocated, the Company's business could be materially and
adversely affected. See, "Item 1. Description of Business, Government
Regulation."
In addition to requiring radio licenses for operation radio stations, the
FCC requires that equipment authorizations be obtained to manufacture and market
radio transmitters and receivers. Applicants for equipment authorizations must
demonstrate that their equipment satisfies the FCC's technical requirements.
Although the Company has succeeded in securing equipment authorizations for its
existing products, there can be no assurance against present or future FCC
equipment regulations materially limiting the Company's ability to manufacture
devices that meet the customers' requirements.
TECHNOLOGICAL OBSOLESCENCE
The communications industry has recently experienced significant changes
and technological developments. Such technological progress may result in the
development of newer or more advanced techniques and equipment than that used by
the Company and could have a negative impact on the Company's business.
COMPETITION
THRUCOMM competes with many providers of data communication services, most
of which are larger and more established, experienced and better financed than
the Company. Those firms may be able to develop newer products or communications
systems which are superior to those of the Company, and could place the Company
at a significant competitive disadvantage.
UNCERTAINTY OF MARKET ACCEPTANCE
To date, the Company has successfully signed two (2) anchor customers, and
it is conducting pilot programs with two (2) additional potential anchor
customers. There can be no assurances, however, that the Company's current
customers or its future customers will commit a sufficient number of their
automated teller machine locations or their point-of-sale locations to the
Company's Network, to enable THRUCOMM to achieve profitability.
POTENTIAL CHANGE OF CONTROL
On January 26, 1998 (the "Closing"), the Company entered into a stock
purchase agreement with four institutional investors represented by their
Investment Advisor, Pecks Management Partners Ltd. (the "Stock Purchase
Agreement"), pursuant to which the Company obtained $10,000,000 in debt proceeds
in exchange for Notes and 1,600,000 Senior B Preferred Shares, which shares are
convertible into 1,600,000, or sixteen percent (16%) of the Common Shares of the
Company. If on the third anniversary of the Closing the Notes have not been
paid, the Note holders shall be entitled to a Note Put Right (as defined in the
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Agreement), which would require the Company to purchase all or any part of the
holders' Notes, in an amount equal to the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest thereon. If the Company is unable to
service the Note Put Right, or the Public Offering Right of the Senior B
Preferred Shares, upon the exercise thereof, the outstanding Senior B Preferred
Shares shall be canceled and new Senior B Preferred Shares shall be issued in an
amount equal to sixty percent (60%) of the Common Shares outstanding at the time
of such issuance. Accordingly, in the event the Company has not had a Qualifying
Public Offering or otherwise paid the Notes in full, a change in control of the
Company could occur as of the third anniversary of the Closing, or January 26,
2001.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND OF THE COMPANY
Thrucomm, Inc. ("THRUCOMM" or the "Company") was incorporated in Florida in
December of 1996. The Company's executive offices are located at 1641 Commerce
Avenue North, St. Petersburg, Florida 33716, and its telephone number is (813)
576-1582. THRUCOMM is an integrator of data communication systems, specializing
in the provision of on-line data communication solutions for the electronic
funds transfer ("EFT") industry. THRUCOMM is the successor in interest of two
Florida limited partnerships, Datalinc, Ltd. ("Datalinc") and Fastcom, Ltd.
("Fastcom"). Effective November 1, 1997, all of the assets and liabilities of
Datalinc and Fastcom were transferred to THRUCOMM in exchange for the Company's
Mandatory Convertible Preferred Stock, Series A-P, par value $.001 per share
(the "Mandatory Convertible Preferred Shares"), which shares are convertible,
upon certain triggering events, into an aggregate 67.33% of the common equity of
the Company (said exchange hereinafter referred to as, the "Reorganization").
Information regarding the Reorganization is contained in the Company's
Registration Statement on Form S-4, effective September 3, 1997, and is
incorporated by reference in this Item 1. Certain information provided in this
Report pre-dates the Reorganization and/or the incorporation of the Company and
reflects the operations and management of the Company's predecessors.
Beginning operations in 1990, THRUCOMM executed a value-added reseller
agreement with Hughes Network Systems, and built a satellite hub (the "Hub") and
a network control center in Cincinnati, Ohio. Today, the Hub supports over 1,000
remote VSAT (very small aperture terminal) earth stations located throughout the
continental United States and Canada. The management of the Company
("Management") believes that, at the present time, THRUCOMM is one of the only
two successful, independently-owned, shared hubs in the United States, and the
Company counts Ashland Oil, Providian Agency Group, Champion International,
Standard Register, and Mercantile Stores Co., Inc. among its customers.
In 1994, THRUCOMM developed a remote transceiver, or radio (the "DP1000"),
which drives the Company's proprietary data communications technology. The
DP1000 transceiver is optimized to support the data communications required for
automated teller machines ("ATM") and point of sale ("POS") transactions.
THRUCOMM completed testing of the DP1000 in the first quarter of 1996 and signed
its first customer, Star Bank, in the second quarter of that year. THRUCOMM has
installed its DP1000 transceivers in major metropolitan areas throughout the
state of Ohio, and it presently supports approximately 300 ATMs for Star Bank.
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Additionally, at the end of the last completed fiscal year, THRUCOMM was
conducting pilot programs using DP1000 transceivers, with three of the top ten
EFT processors in the United States. One of the three processors, recently
signed a contract for THRUCOMM's on-line solutions in the first quarter of 1998.
GROWTH STRATEGY AND ADDITIONAL FINANCING
THRUCOMM's strategic long-term goal is to install a data communications
network using its DP1000 transceivers and other proprietary technology (the
"Network"), to provide on-line solutions for the EFT industry. The Company is
targeting the top 100 standard metropolitan statistical areas throughout the
United States for the installation of the Network.
Management believes a prudent first step toward a national deployment of
the Network is a regional deployment of the Network. The Company believes a
regional deployment of the Network would be highly desirable for a number of
reasons. In a regional approach to the formation of the Network, the placement
of the Network's component equipment need not be determined with respect to any
particular customer's location, rather, equipment can be installed at various
locations throughout a region, so as to provide the greatest area of coverage
for the least number of components and cost. A regional approach would provide
the Company an opportunity to take advantage of the efficiencies of placing
multiple customers on the same network infrastructure, and the Company could
focus its sales efforts on the ATM and POS opportunities within a particular
region. A regional build-out would enable the Company to forecast its equipment
requirements, and place larger orders with vendors, resulting in lower equipment
costs.
For any given region, THRUCOMM will seek to contract with an "anchor
customer" prior to installing the Network's infrastructure in that region.
THRUCOMM defines an anchor customer as a business which enjoys a reputation as
an industry leader, and has the potential to deliver a minimum mix of 1,000 ATM
and POS sites within that region. Anchor customers provide an immediate source
of revenue for the Company and testimonials from anchor customers tend to
significantly reduce the lead times associated with the signing of follow-on
businesses in the anchor customer's region.
THRUCOMM has targeted certain metropolitan areas in the Northeast,
Mid-Atlantic, and Mid-Western states, which it refers to as "Region 1," and in
which it plans to launch the installation of the Network. Management believes
that Region 1 presents the Company with the best opportunity for a successful
initial deployment, because Region 1 contains densely-populated metropolitan
areas with large concentrations of ATM and POS sites, and there are numerous
existing communication towers and rooftops on which to locate the Network's
equipment. In addition, the Company believes its current sales efforts in Region
1 have the potential to result in contracts with anchor customers.
The Company recently secured financing for the installation of the Network
in Region 1. On January 26, 1998, the Company privately placed, with a small
group of accredited investors, $10 million in subordinated debt and preferred
securities, which preferred shares are convertible into an aggregate sixteen
percent (16%) of the common equity of the Company. Concurrently therewith, the
Company privately placed $5.5 million of its preferred securities with a small
number of accredited investors, which preferred shares are convertible, in the
aggregate, into a 16.67% common equity interest in THRUCOMM. The Company
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received approximately $1.7 million of the offering proceeds in cash and entered
into a subscription agreement for the remaining $3.8 million, which is to be
funded by June 1998. The subscription agreement is collateralized with the stock
of a public company, which shares are held in escrow and are of a value in
excess of the monies owed under the subscription agreement.
Management anticipates that the deployment of the Network in Region 1 will
take approximately eighteen (18) months to complete. The installation of the
Network in other regions of the country will require additional financing which
the Company anticipates obtaining by the scheduled completion of the build-out
in Region 1. There can be no assurances, however, that the Company will obtain
the necessary funds for such further installations, nor any assurances as to the
source of such additional financing.
THE ELECTRONIC FUNDS TRANSFER INDUSTRY
THE COMPANY'S FOCUS ON THE EFT INDUSTRY
The EFT industry consists primarily of independent, third party processors
and large banks which function as clearing houses for ATM, credit card, debit
card and check authorization requests. Typically, the authorization process is
initiated either by an ATM, or a merchant transmits an authorization request to
the processor who, in real time, accesses the pertinent data bases and transmits
a response back to the ATM or merchant.
THRUCOMM chose to focus on the EFT industry due to the industry's current
size, and the projected growth of the industry. Based upon reports contained in
industry reference materials and trade publications, Management believes that
the EFT industry currently serves approximately 3.0 million locations in the
United States and spends over $3 billion per year on data communications
solutions. Double digit growth is projected for both the number of sites and the
number of EFT transactions. Moreover, the EFT industry is currently under-served
by traditional land line carriers, and the Company believes that its
proprietary, on-line data communications technologies are compatible with and
optimized for the EFT industry.
Management projects that it can capture a minimum of 10% of the existing
3.0 million ATM and POS sites by combining an array of its digital technologies
(including, point-to-multi-point radio links, frame relay circuits, and VSATs)
into one, seamless, single-vendor solution. Management also believes, that as a
result of projected double digit growth, merger and acquisition activity, and
the rapid increase in new technologies, the EFT industry has excellent potential
for the entry of a multi-platform service provider and systems integrator like
THRUCOMM.
SCOPE OF THE ATM MARKET
There are two categories of ATMs, those with "synchronous," or high
transaction volume, and those with "asynchronous," or low data transmission
traffic. Synchronous ATMs can be defined as ATMs with 1,000 or more
authorization requests or other data transmissions per month, and asynchronous
transaction volume can be defined as less than 1,000 transmissions per month.
Asynchronous ATMs are also known as "cash dispensers." These low volume ATMs
offer none of the features associated with "full service" ATMs, such as
deposits, statement drops and dispensing postage and other services. Typically,
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they are installed in convenience stores and other retail areas where their
primary function is cash withdrawal. Historically, data transmission on
synchronous ATMs occurs primarily via terrestrial (land lines), on-line (as
opposed to dial-up) multi-drop networks. Cash dispensers, as a result of their
relatively low data traffic, can not justify the cost of on-line services, and
data transmissions on such asynchronous ATMs are processed primarily via
terrestrial, dial-up (telephone) networks.
According to the 1997 edition of the EFT NETWORK DATA BOOK there were
165,000 synchronous ATM sites as of the end of 1996, and this number of sites
was projected to grow at an annual rate of 20% to 25% over the next five years.
The BANK SYSTEMS AND TECHNOLOGY report, published in the first quarter of 1997
by Faulkner & Gray, placed the number of asynchronous ATM sites at 25,000, and
projected an annual 40% to 50% growth rate over the next five years. The vast
majority of the growth in ATM installations is in "off-premise" sites, which are
locations that are away from bank branch offices. The torrid growth rate over
the next five years of both synchronous and asynchronous, off-premise ATMs is
expected due to the efforts of the banking industry to trim operating costs by
reducing the number of branches and replacing them with ATMs and mini-branches,
which are installed in existing retail locations. An additional factor in the
growth of off-premise ATMs is surcharging. Surcharging adds a profit center
dynamic to ATM transactions which were primarily viewed in the past by the
banking industry as an extension of its customer services.
SCOPE OF THE POS MARKET
POS transactions typically involved the transmission of an authorization
request, for a check, credit card or debit card, from a merchant to a processor,
who then accesses the pertinent data bases and transmits a response back to the
merchant in real time. The data transmission volume for POS transactions falls
into the same synchronous/asynchronous categories as with ATMs. However, unlike
ATMs, POS transactions have a higher sensitivity to response time, that is, the
speed of the authorization process is important in the POS/merchant market.
EFT industry reference materials and industry trade publications
approximate that only 10% of the POS market, or approximately 300,000 locations,
currently use on-line services. The balance of the 2.7 million POS sites use
some version of dial-up communication services.
APPLICATION OF THE COMPANY'S ON-LINE SOLUTIONS IN THE ATM AND POS MARKETS
THE DP1000 AND THE SYNCHRONOUS SEGMENT OF THE ATM AND POS MARKETS
Almost without exception, the EFT industry uses on-line, multi-drop
networks to establish connections between processors and merchants or ATMs in
the synchronous segments of the markets. "Multi-drop" networks are a form of
on-line service whose infrastructure is comprised of special, leased circuits
from an interexchange carrier (each, an "IXC", such as AT&T) which, in
combination with multiple, local exchange carriers (each, an "LEC", such as Bell
Atlantic), provide data communication services between an ATM or POS and an
authorization processor. Multiple LECs are needed for a multi-drop circuit as it
routes through multiple LEC service areas in a regional or national network.
Multi-drop networks require modems, which typically are not provided by either
the IXC or LEC and, therefore, require a modem vendor. The total IXC and LEC
dial-up charges combined with the amortized cost of the modems bring the cost of
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a multi-drop network to between $150 and $225 per month, per site. Charges vary
among LECs, which accounts for the range in cost from site to site. Additional
significant draw backs to multi-drop networks include the potential for
increased down-time, theft, and vandalism, as a result of the absence of the
monitoring that is available with the Company's on-line services.
THRUCOMM's on-line Network does not use multi-drop circuit technology. The
Company's Network is comprised of remote transceivers, cells, VSAT earth
stations, a satellite, a hub and a network control center, all of which are
owned and/or operated by THRUCOMM. The defining characteristic of THRUCOMM's
on-line network is that the authorization machine located at a merchant's site,
or at the ATM site, is connected, seven (7) days per week, twenty-four (24)
hours per day, to the processor's host computer and to THRUCOMM's control
center. This is known as a "session." The advantages of a session are the quick
response times (under 5 seconds) and network-management, which in the event of
an interruption in a session, for example, reports the interruption to the
processor's host computer, as an alarm. The Company's on-line Network has
significant advantages over conventional, multi-drop networks, including: (i)
lower monthly costs per site; (ii) a single vendor (THRUCOMM), as opposed to
multiple LECs, IXCs and modem vendors; (iii) guaranteed end-to-end availability
and management of the Network, seven (7) days per week, twenty-four (24) hours
per day; (iv) guaranteed restoration of service within four (4) hours, as
opposed to the next-day guarantee of multi-drop networks; (v) shorter
installation time, two (2) weeks, as opposed to thirty (30) to ninety (90) days
for multi-drop networks; and (vi) access to the Network does not require a
modem.
THE DP100 AND THE ASYNCHRONOUS SEGMENT OF THE ATM AND POS MARKETS
In addition to the DP1000, THRUCOMM'S proprietary data communications
technology also features the DP100 remote transceiver (the "DP100"). THRUCOMM
has developed and optimized the DP100 to provide an affordable on-line solution
for the asynchronous segment of the ATM and POS markets. Whereas the DP1000 is
optimized to support synchronous data traffic, using a less expensive and more
reliable on-line network than the multi-drop network, the DP100 is optimized to
support asynchronous traffic with an on-line network, which does not necessarily
reduce a customer's existing costs, but delivers a magnitude increase in
performance and features for approximately the same cost as the dial-up
networks.
Generally, merchants at asynchronous sites install and pay for a business
line from the local LEC, and contract for access to an "800" service, typically
offered by the company processing the merchant's credit and debit transactions.
A modem (internal to the authorization machine at the merchant's site) enables a
merchant to dial into the "800" service to process a credit or debit card
transaction. When the authorization request has been completed, the call is
terminated. The combination of the costs of the LEC business line (about $35 per
month) and per minute charges for the "800" service adds up to $60 and $80 per
month, per site.
Management anticipates that the new asynchronous cash-dispenser ATM is an
important market for DP100. Because security monitoring requires that the data
processor's host computer receive a message from the ATM every six minutes, in a
dial-up solution, the ATM would need to dial the data processing center every
six minutes, 24 hours a day. Thus, monitoring would spike dial-up costs higher
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than on-line costs. The DP100, however can closely approximate dial-up costs,
and at the same time provide ATM operators with the security and management
capabilities of its on-line technology. ATM operators will be able to install
the same level of security alarm monitoring at their cash dispensers that is
available at full service synchronous ATMs. The advantages over dial-up networks
that the DP100 extends to cash dispenser operators are similar to the advantages
of the DP1000 and they include: (i) a single vendor (THRUCOMM), as opposed to
multiple LEC's, IXCs, and modem vendors; (ii) quick response times of under five
(5) seconds, as opposed to fifteen (15) or more seconds; (iii) guaranteed
end-to-end network availability and management, seven (7) days per week,
twenty-four (24) hours per day; (iv) guaranteed restoration of interrupted
service within four (4) hours; (v) two (2) week installation time; and (vi) a
modem is not required. Designed to support lighter duty, the DP100 costs less to
build and install than the DP1000, and the Company's savings are then passed on
to its customers.
ANTICIPATED CONVERSION FROM DIAL-UP TO ON-LINE SERVICES IN THE ATM AND POS
MARKETS
The DP1000 has significant advantages over multi-drop solutions, including
lower costs for the synchronous segment of the EFT industry. As a result,
Management anticipates that the synchronous segment of the EFT industry may
migrate to the Company's Network solutions, to take advantage of its lower cost,
superior features and performance reliability. The Company also believes that
its DP100 transceiver will open up the asynchronous segment of the EFT industry
to the Company, and it will serve to accelerate the conversion of dial-up users
to on-line services, for its superior features and performance.
A number of issues typically drive a customer's decision to upgrade from a
dial-up to an on-line network, principal among them is the higher dial-up costs
which result from increased authorization traffic, and the generation of POS
reports. As the number of authorizations or other transactions increase, the per
transaction and per minute fees associated with dial-up services increase, and
at approximately 1,000 authorizations per month, the fees for dial-up services
intersect with the lower-end fees for on-line networks. In addition, as the
number of transactions increases, the elapsed time for processing authorization
requests (response time) becomes critical. Slower dial-up response times at
high-traffic sites can cause queuing delays, and lead to higher labor costs,
lost sales, and customer dissatisfaction. Sales figures, inventory control, and
price changes are examples of POS reports implemented by merchants. POS reports
significantly increase data traffic as merchants transmit reports between remote
sites and the data center, contributing to higher dial-up costs. Because the
DP100 can be upgraded to the DP1000 with relative ease, in the field, the DP100
provides a natural migratory path to the DP1000 as a merchant's or ATM
operator's traffic requirements grow.
The Company anticipates no significant obstacles from businesses converting
from dial-up networks to its on-line Network. In a study published in 1995 by
Probe Research, Inc., circuit speeds for ATMs and POS transmissions are
projected to increase from 9.6Kbps to 38.4Kbps by 1999. Additionally, Management
believes that the doubling of data traffic on the Network would result in only a
ten percent (10%) increase in overall costs to a majority of its customers.
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FCC REGULATION - UTILIZATION OF LICENSE-FREE DEVICES
The architecture of the Network is a seamless integration of the Company's
DP1000 transceiver, and high speed, land-line, frame relay circuits. The DP1000
wireless transceiver operates under FCC regulations (Part 15, 47 CFR) which
permit license-free, spread-spectrum operation of radio frequency transceivers
in the 902 MHZ - 928 MHZ band, among others. To use this spectrum license-free,
transceivers must meet certain specifications, including: (i) a maximum of one
(1) watt of power is used to transmit a signal; (ii) that the transceiver
employs spread spectrum, a sophisticated modulation technique; and (iii) that
the transceiver will not cause harmful interference to licensed users in the
band. Upon completion of successful compliance testing, the transceiver design
is issued an authorization certificate by the FCC. An authorization certificate
was issued for the DP1000 in May 1996. Compliance testing on a newer version of
the DP100 is scheduled to begin in May 1998.
License-free operators are required by the FCC to "accept" interference
from all other license-free operators in the band, and license-free operators
have no recourse to the FCC. The DP1000 transceiver ASSUMES THE EXISTENCE OF
HARMFUL INTERFERENCE and relies upon the combination of (i) a sophisticated
spread spectrum modulation technique, a proprietary, inboard filtering design,
and (ii) an advanced Forward Error Correction algorithm, to reject any harmful
interference.
PROPRIETARY TECHNOLOGY
THE DP1000 TRANSCEIVER
The DP1000 transceiver is a digital, wireless, spread spectrum platform
that was designed by THRUCOMM specifically for outdoor utilization. Through a
combination of proprietary software and sophisticated filtering designs, the
DP1000 transceiver is capable of high speed, error-free data transmission in a
point-to-multi-point configuration at distances of up to five (5) miles.
Transmissions in this range produce a relatively low ratio of cells to
transceivers, thereby creating healthy operating margins.
Spread spectrum modulation techniques were first developed by the military
as a method of transmitting and receiving secure radio signals immune to jamming
and intercept efforts. The DP1000's sophisticated spread-spectrum modulation
technology, and its advanced Forward Error Correction algorithm capabilities,
function in combination so as to reject the harmful interferences the
transceiver faces as a license-free device, and to permit the operation of the
transceiver for a fraction of the cost of comparable licensed networks.
Additionally, an array of hierarchial command and control features, imbedded at
various platform levels, provides for central management of the Network on a
regional or national basis, and guarantees a minimum 99.8% availability.
RESEARCH AND DEVELOPMENT
The Company believes it has established a significant lead in the
development of outdoor spread-spectrum technology for EFT-type applications, and
it has every intention of maintaining that lead. The Company will continue to
improve the cost/performance ratio of the DP1000 through prudent investments in
the on-going development of the DP1000 transceiver and VSAT service offering.
Research and development expense was approximately $365,000 and $275,000 in 1996
and 1997, respectively, and were not borne by the Company's customers.
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The Company has built a core group of system and software engineers which
comprise its development team. The development team's mission statement is to
simultaneously improve the overall performance, and decrease the operating costs
of the Network, through innovation and technology. In an effort to enhance the
effectiveness of THRUCOMM's development team, the Company has developed a
collaborative relationship with an engineering firm, which enjoys a reputation
for engineering excellence in the field of spread-spectrum modulation. The
three-year agreement with the engineering firm provides THRUCOMM with exclusive
proprietary rights to all designs and algorithms that result from the
collaborative effort, pays the engineering firm a royalty fee for each
transceiver placed in service.
Below is a summary of the Company's current development projects, which
Management believes will dramatically expand THRUCOMM's addressable market.
THE DP100 TRANSCEIVER - The DP100 is a less costly version of the DP1000
and it is targeted at the large segment of the asynchronous POS market which is
comprised primarily of independent retailers, restaurants and convenience
stores. This market segment accounts for approximately 90% of the existing POS
sites, generate less than 1,000 transactions per month, per site, and currently
uses low-cost, dial-up circuits. The Company believes users of dial-up circuits
will adopt THRUCOMM's superior on-line service at a comparable price to its
current dial-up costs. The Company has completed much of the development work on
the DP100 and expects to deploy the DP100 in the third quarter of 1998.
THE DPX CELL - The DPX development effort will provide a magnitude increase
in the current throughput of the Company's cells, and will enable the Company to
address higher bandwidth applications currently running on terrestrial, frame
relay and switched packet networks. The DPX development involves an upgrade to a
cell's switching capability, and the implementation of data compression. DPX
development time is projected to be completed in 1999.
OVERVIEW OF THE NETWORK
The Network provides its customers with end-to-end connectivity between
their host computer and remote ATM and POS sites. The Network uses its digital,
wireless technology, in and around metropolitan areas, to by-pass the local
exchange carriers. It uses its digital, terrestrial, frame relay circuits to
transmit customers' data traffic from the metropolitan areas to the Network's
Control Center. The Network also maintains an alternate, wireless,
satellite-based platform to "shadow" the terrestrial frame relay circuits, in
the event of cable cuts or other service interruptions beyond the control of the
Company. To the best of their knowledge, Management believes the Company is the
only vendor in operation that maintains two totally independent, wide-area
network paths (its terrestrial frame relay circuits and its satellite platform).
THE NETWORK CONTROL CENTER
The Network Control Center (the "NCC," also referred to as the "Hub") is a
fully redundant, digital, switching center. The NCC is equipped to control and
monitor the Network at all levels. From the NCC, system operators isolate
problems, dispatch technicians to cell or transceiver sites on a nationwide
basis, and act as a single point of contact for all of its customers' technical
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queries. The NCC has been fully operational since November 1991, and has served
as the master earth station for the Company's VSAT data communication services,
whose satellite uplink commissioned on Galaxy 7 (G7) is in geo-synchronous orbit
at 91 degrees west longitude. Over the past two years, the Company has expanded
the NCC to manage the DP1000 and frame relay circuits.
CELLS
THRUCOMM installs its cells on existing towers and roof tops. A "cell" is
the equipment that routes data traffic to and from the NCC. Each cell averages a
transmission area of 78.4 square miles, or a five mile radius. Multiple cells
are installed in a metropolitan area to provide complete coverage. Being
license-free, the Network has no limitations placed on it with respect to the
number or the location of its cells. Limitations on the number and location of
cells is one of the fundamental flaws of previous, fixed, wireless solutions
when attempted with licensed networks. Limitations on number and location of
cells results in coverage "holes."
TRANSCEIVERS
A transceiver is the radio equipment installed at an ATM or POS site which
is used to transmit and receive transactional data to and from the site and its
assigned cell. Both the DP1000 and DP100 operate in the 902 MHZ - 928 MHZ band.
A field replaceable component, now under development by THRUCOMM, will enable
either transceivers to operate in either the 902 MHZ - 928 MHZ or the 2400 MHZ -
2483.5MHz bands. Additional features of the transceivers include 100% forward
error correction algorithm capabilities, software download capability, public
key encryption and received signal strength indicator (RSSI). RSSI gives
THRUCOMM system operators the ability to measure the integrity of a signal
between a remote transceiver and a cell from the NCC in real time.
THRUCOMM'S OPERATIONS
CUSTOMER EQUIPMENT FINANCING
Installation of the Company's VSAT services equipment can result in large
capital outlays on the part of the customer. Experience demonstrates that large
capital outlays are viewed by customers as strategic investments and, as a
consequence, are subjected to both internal rate of return analysis, and
approval from a customer's management, which analysis and approval process
lengthen the THRUCOMM's sales cycle and, in turn, drives up THRUCOMM's cost of
sales. In an effort to shorten sales cycles, the Company has entered into an
innovative equipment financing agreement with Information Leasing Corporation, a
Cincinnati-based leasing company specializing in hi-tech and telecommunications
equipment ("ILC"). Under the agreement with ILC, customers sign a services
contract called an Integrated Services Agreement ("ISA"). The ISA eliminates
large capital outlays from the customer's decision matrix and transforms the
process into one of executing a services agreement. ILC owns the equipment for
the term of the agreement, and the Company has the option to purchase or
refinance the equipment at the end of the initial term.
REVENUE SOURCES
The Company's business has two distinct revenue streams, non-recurring and
recurring. Non-recurring revenue is generated from the sale and installation of
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remote site VSAT equipment to a customer, as each customer site is installed on
the Network. Certain switching and terminating equipment sold or leased to the
customer may be installed at the Hub. Subsequent to the customer's initial
deployment, additional non-recurring revenue can be generated by customers
adding, moving or upgrading sites.
Recurring revenue is generated on a monthly basis for Network services
including network access, network management, and field maintenance. Recurring
monthly fees are contractually guaranteed for the term of a contract. Recurring
revenue can increase, subsequent to the signing of a Network service agreement,
through increased customer traffic and the addition of new customer
applications. Being a service provider as opposed to a manufacturer or
distributor, the Company emphasizes its margins on recurring rather than
non-recurring revenue.
CUSTOMERS
THRUCOMM's existing customer base represents industries that include
manufacturing, insurance, retail and more recently the EFT industry. The Company
has gained sales, networking and support experience spanning a number of
applications and engineering disciplines. Additionally, the Company has
demonstrated its ability to capture a share of the EFT market by dislodging
well-established, incumbent carriers and signing customers to multi-year service
agreements. During the last completed fiscal year, THRUCOMM was dependent on a
few, major customers, and the Company anticipates that such reliance will
continue for the foreseeable future.
SALES STRATEGY AND MARKET POSITIONING
THRUCOMM forms sales teams comprised of an executive level salesperson and
a customer engineer for direct sales contact with potential customers identified
as EFT processors and banks. The sales team implements a multi-faceted sales
effort and conducts regular account reviews to identify the "buying influences"
in the customer's engineering, sales, operations, marketing and legal
departments. The sales team engages additional THRUCOMM staff in the sales cycle
as "specialists" at appropriate times to address specific customer issues that
may range from installation procedures to data security. Due to the technical
characteristics of a sale, the Company maintains a high ratio of
engineers/technicians to sales people.
THRUCOMM enhances its sales efforts with marketing efforts that include
exhibiting at EFT industry trade shows, participating in industry seminars,
providing low or no cost communications for customer special events, and
participating in interviews and feature stories for industry publications. The
Company will seek to promote industry acceptance of its technology through lab
certifications, pilots and testimonials from existing customers.
CELL SITE LEASING
Because of the Company's license-free operation, THRUCOMM is able to
co-locate with virtually any wireless transceiver. Accordingly, the Company
leases existing towers and roof tops for the installation of its cells, thereby
avoiding the costly and time consuming construction of dedicated towers. Over
the last three years, the Company has compiled a data base of over 10,000
existing towers and roof tops containing the site location, height, elevation
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above ground, and contact name and phone number. The Company will use the
services of brokers and site acquisition companies to locate and secure
locations not included in the Company's data base. Once identified, the leasing
of a tower or roof top is a relatively straight forward process and is very
similar to leasing any commercial space.
SITE LAYOUT
THRUCOMM has invested in a suite of software that enables its engineers to
pinpoint existing towers and roof tops at which to locate its cells. Using
information provided by the customer, the Company's engineers can plot, with the
aid of such software, all customer sites relative to cell locations.
Additionally, each RF link between a proposed transceiver and cell can be
simulated and evaluated in advance of actual installation. Such software, and
related methodologies, afford THRUCOMM the capability of forecasting deployment
costs with a high degree of accuracy.
INSTALLATION
THRUCOMM maintains a core installation staff that manages a national
network of installation subcontractors. The Company is able to maintain quality
and consistency throughout the installation process and maximum flexibility of
installation schedules.
NETWORK MANAGEMENT
The Company has developed a software suite of Network management functions.
A full compliment of engineers, technicians and system operators manage the
Network, 24 hours per day, seven days per week. Through a combination of simple
network-management protocol polling,, error-trap messages, and real time
monitoring of permanent virtual circuits, the NCC staff can monitor and isolate
problems in every major Network component, out to and including customer
transceiver sites. Network reconfiguration, including port speeds, protocols,
and updated versions of operating software, can be downloaded to cells and
customer sites over the Network's infrastructure. Customers are presented with a
single point of contact for problem resolution and operation issues.
FIELD MAINTENANCE
A prominent, third party maintenance company, with twenty-five (25) years
of experience, provides the Company with a field maintenance program that
includes cells and customer site transceivers. The agreement provides coverage
on a national basis and specifies an average mean time to respond of four (4)
hours. The Company provides its customers with spare equipment and on-going
training. The maintenance organization provides the Company with skilled
technicians, and will maintain spare equipment in their depot centers around the
United States.
MANUFACTURING
Being primarily a service provider, the THRUCOMM elected to sub-contract
the manufacturing of the DP1000 printed circuit boards, cables and case. The
Company elected to retain component sourcing, inventory management, final
assembly and quality assurance on an in-house basis.
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EMPLOYEES
As of the end of the last completed fiscal year, the Company employed a
total of forty-one (41) employees, all of whom are of whom are employed on a
full-time basis, which include engineers, technicians, and system operators.
THRUCOMM believes its relations with its employees are good, and it continually
evaluates its human resource needs, and will increase the number of employees on
an as needed basis.
COMPETITION
The Company evaluates data communication networks for their ability to
compete with the Company's services within the EFT industry, and various
competitive networks are summarized below. Certain networks, such as personal
communication or cellular services have not been included in summary, due to
their almost complete incompatibility with EFT industry.
Currently, THRUCOMM's main source of competition is traditional,
terrestrial, data communication solutions, offered by large, well-established
carriers, of which AT&T dominates the market with a market share of over sixty
percent (60%). Depending upon the volume of transactions and the type of
application, processors utilize either on-line circuits or dial-up circuits.
THRUCOMM is an on-line solution, which is generally more expensive than dial-up
solutions. On-line solutions fall into two categories, multi-drop networks and
packet networks.
MULTI-DROP NETWORKS
The Company faces significant competition from on-line, multi-drop
networks. However, there are a number of significant disadvantages to multi-drop
networks as they relate to the EFT industry, including distance sensitivity, LEC
fees, upgrade costs, inferior network management capabilities, and tarriffs,
each as more fully discussed below. These disadvantages of multi-drop networks
provide the Company with avenues of competitive advantage.
DISTANCE SENSITIVITY - The distance between a processor's data center and
its remote sites is a significant cost factor of multi-drop solutions.
Conversely, the Network experiences limited distance sensitivity. The Network's
satellite circuits and other wireless technology, which are installed in
metropolitan areas ("MAN" locations), are inherently distance-INsensitive.
THRUCOMM experiences some distance sensitivity with respect to its terrestrial,
frame relay circuits, which are installed outside metropolitan areas
("wide-area" or "WAN" locations). THRUCOMM is attempting to mitigate such
sensitivity through the negotiation of a flat-rate price algorithm with its IXC.
There can be no assurances that the Company will successfully mitigate its
exposure to distance sensitivity.
LEC FEES - Another disadvantage of multi-drop networks is LEC fees, which
charges account for forty percent (40%) to sixty percent (60%) of multi-drop
network costs. The Network, however, when installed in MAN locations, by-passes
the LECs and the attendant costs thereof, affording the Company a competitive
opportunity. Additionally, the installation costs of the Network in MAN
locations are significantly below the costs associated with maintaining and
upgrading land lines in metropolitan areas.
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UPGRADE COSTS - The Network successfully competes with multi-drop networks
with respect to the costs attendant with a customer's decision to upgrade its
data communication equipment, which decision may be the result of an increase in
the volume of a customer's authorization requests or other data transmissions,
or because a customer requires superior performance and features. Upgrading a
multi-drop network is expensive and time consuming, but the Network is largely
software driven, and upgrade commands can be readily downloaded, without
significant expense to the customer.
NETWORK MANAGEMENT - Whereas IXCs and LECs (telephone companies) are unable
to monitor a multi-drop network in real time, the Network, in contrast, is
monitored in real time, and potential problems or service interruptions are
spotted as they occur and service restoration commences immediately.
Additionally, the Network has a single point of contact for the data processor,
the Network Control Center, as opposed to the multiple IXCs and LECs that a
processor in a multi-drop network must contact to determine the location of a
fault in the network. As a result of the Network's superior management features,
THRUCOMM is able to contractually guarantee network availability.
TARIFFS - A further disadvantage of multi-drop networks is that they are
subject to an array of federal and state tariffs, and they experience constant
fluctuations in tariff rates from various states and the federal government.
THRUCOMM's Network is not subject to tariffs.
PACKET NETWORKS
The Company also faces competition from the vendors of packet networks.
There are two types of packet networks, integrated services digital packet
network ("ISDNs"), which are dial-up networks, and frame relay packet networks,
which are on-line networks.
INTEGRATED SERVICES DIGITAL NETWORKS - An ISDN is, in effect, a digital,
dial-up service, which enables the user to transmit voice and data
simultaneously over the same telephone line. In the EFT industry, the processors
of authorization requests and other data transmissions have no use for the voice
portion of an ISDN service, and they only order what is known as the "D channel"
to transmit data. Processors pay a monthly fee to access a local LEC switch, a
monthly fee for each remote site, a fee for each one-thousand transmissions (a
"packet"), and if an IXC is required, additional packet usage fees are charged
to the processor. ISDN-compatible equipment must be installed at each remote
site, and at the processor's data center.
ISDN packet networks are competitive with THRUCOMM in only about
twenty-five percent (25%) of the total ATM and POS markets, and only in the
short term. Given the projected double digit growth in the number of EFT
transactions, and the wider geographic areas served by EFT processors,
Management views ISDN packet networks as counter strategic to the EFT industry,
and it believes the Company's Network offers a more compelling business case to
the EFT industry than do the ISDN networks.
FRAME RELAY PACKET NETWORKS - Frame relay packet networks are designed for
on-line data networking and have been very successful in displacing multi-drop
networks for users with a relatively high volume of transmissions. A negative
characteristic of the Company's competitors using frame relay packet networks is
that they do not always guarantee delivery of data packets to the intended
destination. To overcome this problem, competitors market their frame relay
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services by offering committed information rates ("CIR") and burst information
rates ("BIR"). A CIR is the maximum data rate at which the carrier will
guarantee data packets will not be discarded. The BIR is the data rate that the
processor can transmit above the CIR. This BIR is on an availability basis only;
that is, if the frame relay network is congested, then frame packets will be
discarded. The higher the CIR/BIR commitment by the carrier, the higher the
processor's monthly recurring costs. For the EFT industry, even minimum CIR/BIR
commitment levels often result in significantly higher cost for a higher
capacity than is needed now or in the foreseeable future for the majority of EFT
processors. The Network's advantages of lower costs, guaranteed availability,
and superior network management, allow the Company to successfully compete with
the vendors of other frame relay packet networks.
ITEM 2. PROPERTIES.
The Company's headquarters are located in approximately 3,200 square feet
of leased office and warehouse space in St. Petersburg, Florida. The lease at
this property expires on May 1, 1998, and the annual rental payment on such
lease for the last completed fiscal year was $37,119. The Company plans to
relocate its headquarters in downtown St. Petersburg and is presently
negotiating the terms of a lease for approximately 5,000 square feet of office
space. The anticipated terms of the lease on the new facility include a
five-year term with an annual rental fee of $62,467 in the first year, and
$77,303, $79,645, $81,988, and $84, 330 in the subsequent years. The new lease
is expected to contain a provision for termination by the Company in the event
the Company requires additional office space which the landlord is unable to
provide.
The Company also leases 14,100 square feet in an office park in Fairfield,
Ohio, which is used as the Company's Network Control Center and for warehouse.
The Company believes the Ohio facility is adequate for its operations as the
Company recently completed a 5,000 square foot expansion of its Ohio facility.
The lease on the Ohio property expires on January 31, 2005, and the annual
rental fee for the last completed fiscal year was $106,165. Annual rental fees
will be $130,591 for 1998, and $125,512 per year thereafter through the
expiration of the lease.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings which are not
routine litigation that is incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this Report, only
one matter was submitted to a vote of security holders through the solicitation
of written consents. The information contained in the Company's Registration
Statement on Form S-4, effective September 3, 1997, is incorporated by reference
in answer to Item 4 of this Report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
There is no established public trading market for the Company's common
equity.
HOLDERS
As of March 31, 1998, there was one (1) holder of record of the Company's
common stock, no par value per share, (the "Common Shares"), which is the only
class of common equity of the Company.
DIVIDENDS
To date, the Company has not declared or paid any cash dividends on its
Common Shares and it does not anticipate or contemplate paying cash dividends in
the foreseeable future, until earnings generate funds in excess of those
required to provide for the current and future growth needs of the Company.
Furthermore, the Company is restricted from paying any dividends on any
securities of the Company before conversion of the Mandatory Convertible
Preferred Shares.
RECENT SALES OF UNREGISTERED SECURITIES
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK - On January 31, 1997, the
Company closed a private offering of its Series A Senior Convertible Preferred
Stock, par value $.001 per share (the "Senior A Preferred Shares"), for
approximately $5.5 million. The Senior A Preferred Shares are presently
convertible, in the aggregate, into 1,677,777 shares of the Company's common
stock, no par value (the "Common Shares"), or 16.67% of the common equity of
THRUCOMM. The Company received approximately $1.7 million of the offering
proceeds in cash and entered into a subscription agreement for the remaining
$3.8 million, which is to be funded by June 1998. The subscription agreement is
collateralized with the stock of a public company which shares are held in
escrow and are of a value in excess of the monies due under the subscription
agreement.
The unregistered Senior A Preferred Shares were privately placed with
approximately sixteen (16) accredited investors, in reliance upon the exemption
from registration provided in Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 506 of Regulation D, promulgated
thereunder. A summary of the terms of the Senior A Preferred Shares appears
under "Liquidity and Capital Resources" in Item 6, Part II of this Report.
SERIES B SENIOR CONVERTIBLE PREFERRED STOCK - On January 26, 1998, the
Company obtained $10,000,000 in loan proceeds in exchange for Senior
Subordinated Notes (the "Notes") and 1,600,000 shares of Series B Senior
Convertible Preferred Stock, par value $.001 per share (the "Senior B Preferred
Shares"). The unregistered Notes and Senior B Preferred Shares were privately
placed with four (4) accredited investors, in reliance upon the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Rule 506 of Regulation D, promulgated thereunder. A
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summary of the terms of the Notes and the Senior B Preferred Shares appears
under "Liquidity and Capital Resources" in Item 6, Part II of this Report.
DISCLOSURE PURSUANT TO RULE 463 OF THE SECURITIES ACT
This Report on Form 10-KSB is the Company's first periodic report filed
pursuant to Sections 13(a) or 15(d) of the Exchange Act after effectiveness of
its Securities Act registration statement on September 3, 1997. Disclosure of an
issuer's use of proceeds in such first periodic report, pursuant to Rule 463 of
the Securities Act, is not applicable to the Company whose Securities Act
registration statement on Form S-4 was filed to register the exchange of
Mandatory Convertible Preferred Stock, Series A-P, for all of the assets and
liabilities of two affiliated limited partnerships in a roll-up transaction.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
The following table presents certain items in the Statement of Operations
of Thrucomm and as a percentage of revenues for the period indicated.
YEAR ENDED DECEMBER 31,
Percent of Percent of Percent of
1995 REVENUES 1996 REVENUES 1997 REVENUES
-------------------------------------------------------
Revenues $2,169 100.0% $5,853 100.0% $2,918 100.0%
Operating expenses:
Cost of services
and sales 1,456 67.1 4,664 79.7 3,031 103.9
Selling, general
and administrative 1,217 56.1 1,969 33.6 2,034 69.7
Research and
development 278 12.8 365 6.2 275 9.4
Depreciation and
amortization 353 16.3 580 9.9 856 29.3
------ ----- ----- ---- ----- -----
Operating loss (1,135) -52.3 (1,725) -29.5 (3,278) -112.3
Interest expense 108 5.0 166 2.8 223 7.6
------ ----- ----- ---- ----- -----
Net loss $ (1,243) -57.3 $ (1,891) -32.3 $ (3,501) -120.0
====== ===== ===== ==== ===== =====
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
REVENUES for the year ended December 31, 1997 decreased approximately $2.9
million (50.2 percent) from the same period in 1996 due to a decrease in VSAT
equipment sales and installation fees of $3.1 million (85.3 percent). The
Company's network access fees increased approximately $.3 million from $2.1
million in 1996 to $2.4 million in 1997 (9.8 percent) as a result of the Company
having a full year of revenues from its first Network customer. This customer
accounted for approximately $.3 million in revenues and currently has
approximately 300 ATM sites. The Company continues to service its VSAT customers
and has 1,010 VSAT customer sites at December 31, 1997 compared with 1,105 such
sites at December, 1996.
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COST OF SERVICES AND SALES decreased $1.6 million (35.0 percent) for the
year ended December 31, 1997 over the same period in 1996 consisting of a
decrease in cost of equipment sales of $3.0 million and an increase in cost of
services provided of $1.3 million. The increase in cost of services provided is
due to the Company's continued expansion of its Network. Such operating costs
include satellite space segment rental, engineers and technicians being hired,
and maintenance of the Network. The Company's operating employees increased from
26 in 1996 to 41 in 1997.
The decrease in cost of equipment sales and installation fees is due to the
Company not obtaining a new VSAT customer in 1997. Cost of sales as a percent of
revenue decreased from 90% in 1996 to 62% in 1997 as the majority of the
Company's revenue came from higher margin installation fees.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased approximately
$65,000 (3.3 percent) from $1,969,000 in 1996 to $2,034,000 in 1997, principally
as a result of the Company continuing to expand its capabilities related to the
Network.
RESEARCH & DEVELOPMENT decreased approximately $90,000 (24.7 percent) from
$365,000 in 1996 to $275,000 in 1997, due to the Company limiting its research
and development activities.
DEPRECIATION AND AMORTIZATION increased approximately $276,000 (47.6
percent) from $580,000 in 1996 to $856,000 in 1997, principally as a result of
depreciation related to new capital leases entered into during 1997.
INTEREST EXPENSE increased approximately $57,000 (34.3 percent) from
$166,000 in 1996 to $223,000 in 1997, principally due to interest expense
related to new capital leases entered into during 1997 and interest from
additional financing, including a $500,000 line of credit used to fund the
Company's operations.
NET LOSS was $3,501,000 (-120.0 percent of total revenues) for the year
ended December 31, 1997 as compared to $1,891,000 (-32.3 percent of total
revenues) the same period in 1996 as result of factors described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUES for the year ended December 31, 1996 increased approximately $3.7
million (169.9 percent) from the same period in 1995. Network access fee
revenues increased approximately $392,000 from $1.7 million in 1995 to $2.1
million in 1996 (23 percent) as a result of the Company obtaining a significant
new customer in 1996. This customer accounted for approximately 570 new sites,
raising the total number of sites to 1,105 in service at December 31, 1996 as
compared with 536 sites at December 31, 1995.
In addition to increasing network fee revenues, the Company's significant
new customer increased equipment sales and installation fees by approximately
$3.2 million from $.5 million in 1995 to $3.7 million in 1996 (640 percent).
COST OF SERVICES AND SALES increased by $3.2 million (220.3 percent) for
the year ended December 31, 1996 over the same period in 1995. Cost of Hub
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access services increased $179,000 from $1.2 million in 1995 to $1.3 million in
1996 (15.2 percent). Cost of services as a percent of network access fee
revenues decreased from 68.8 percent in 1995 to 64.4 percent in 1996 as a result
of increasing the amount of customer sites, the overall cost per site decreased.
With the addition of the Company's significant new customer in 1996, cost
of equipment sales increased $3.0 million from $.3 million in 1995 to $3.3
million in 1996 (1,063 percent) resulting in margins of $182,000 in 1995 and
$423,000 in 1996. Cost of equipment sales as a percent of equipment sales and
installation fees increased 27.7 percent from 61.0 percent in 1995 to 88.7
percent in 1996. This increase in cost of sales as a percent of sales is
principally a result of lower margins on equipment sales incurred to secure the
signing of a major new customer.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased approximately
$752,000 (61.8 percent) from $1,217,000 in 1995 to $1,969,000 in 1996,
principally as a result of the Company continuing to expand its capabilities
related to the Network. Additionally, there was increased marketing efforts
including more travel by the Company's sales force in the Network's surrounding
area, an increase in personnel and an increase in professional fees.
RESEARCH AND DEVELOPMENT increased $87,000 (31.3 percent) from $278,000 in
1995 to $365,000 in 1996, principally as the Company continues to improve the
technology related to its Network and new transceivers.
DEPRECIATION AND AMORTIZATION increased approximately $227,000 (64.3
percent) from $353,000 in 1995 to $580,000 in 1996, principally as a result of
depreciation related to new capital leases entered into during 1996.
INTEREST EXPENSE increased approximately $58,000 (53.7 percent) from
$108,000 in 1995 to $166,000 in 1996, principally due to interest expense
related to new capital leases entered into during 1996. Additionally, the
Company obtained a new $600,000 line of credit to assist in funding operations.
NET LOSS was $1,891,000 (-32.3 percent of total revenues) in the year ended
December 31, 1996 as compared to $1,243,000 (-57.3 percent of total revenues) in
the same period in 1995 as result of factors described above.
INFLATION AND CHANGING PRICES
Inflation has not materially affected the sale of access fee services by
the Company. VSAT/PES equipment, leasing costs and transmission costs have not
risen significantly, nor has the Company substantially increased it charges to
customers. Overhead expenses are, however, subject to inflationary pressure.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has devoted significant resources to the
development of the Network. The Company's accumulated deficit is $11.3 million
at December 31, 1997 compared to $7.8 million at December 31, 1996.
Additionally, the company has a working capital deficit of $4.7 million at
December 31, 1997 compared to $1.3 million at December 31, 1996.
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Cash flow from operations has improved to $.2 million being provided by for
the year ended December 31, 1997 compared to $1.0 million being used for the
year ended December 31, 1996. In January 1998, the Company obtained substantial
capital investment from a small group of accredited investors in exchange for
Notes and Senior Preferred Shares, as further described below, which capital is
anticipated to be sufficient to meet the needs of the Company for the
foreseeable future.
The following summary description of the terms of the securities below, is
qualified in its entirety by reference to the Certificates of Designation, and
the Securities Purchase Agreement dated January 26, 1998, which documents are
filed as exhibits to this Report.
THE MANDATORY CONVERTIBLE PREFERRED SHARES, SERIES A-P
On November 1, 1997, all the assets and liabilities of Datalinc and
Fastcom, both limited partnerships, were transferred to THRUCOMM, a wholly-owned
subsidiary of Datalinc, in accordance with the approved Reorganization
Agreement, in exchange for Mandatory Convertible Preferred Shares of the
Company. Each limited partner group was allocated one Mandatory Convertible
Preferred Share. The Mandatory Convertible Preferred Shares are convertible, in
the aggregate, into 6,733,333 Common Shares upon a Mandatory Conversion Event.
Datalinc and Fastcom owned all of the outstanding preferred and common
securities of THRUCOMM as of December 31, 1997. The Reorganization was performed
to enhance the Company's ability to obtain future financing, as the reorganized
company would be more conducive to institutional investors.
THE NOTES AND SENIOR B PREFERRED SHARES
On January 26, 1998 (the "Closing"), the Company entered into a stock
purchase agreement with four institutional investors represented by their
Investment Advisor, Pecks Management Partners Ltd. (the "Stock Purchase
Agreement"), pursuant to which the Company obtained $10,000,000 in debt proceeds
in exchange for Notes and 1,600,000 Senior B Preferred Shares, which shares are
convertible into 1,600,000, or sixteen percent (16%) of the Common Shares of the
Company. With the proceeds from the Notes, the Company paid off $1,484,000 of
its non-term debt and approximately $2.8 in outstanding payables. The Company
continues to develop its Network which remains capital intensive. The proceeds
from the Notes and Senior B Preferred Shares, as well as any future capital
lease transactions, will be used to finance the further development of the
Network.
SENIOR B PREFERRED SHARES - The Senior B Preferred Shares have a $.001 per
share liquidation preference, and vote, on all matters submitted to the holders
of Common Shares, that number of shares which is equal to the number of Common
Shares into which the Senior B Preferred Shares may be converted. Each Senior B
Preferred Share is convertible into one Common Share. Additionally, there is an
anti-dilution provision which prevents the Senior B Preferred Shares from
becoming diluted if the Company issues any Common Shares at a value less than
the Trigger Value (as defined in the Stock Purchase Agreement). The Senior B
Preferred Shares also have a redemption provision permitting the Company to
redeem the stock if the Company completes a Qualifying Public Offering (as
defined in the Stock Purchase Agreement) and the conversion rights have not been
exercised. If the Company so elects to redeem, each holder shall receive an
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amount equal to the greater of the holder's pro rata share of the Fair Market
Value (as defined in the Stock Purchase Agreement) or $3,000,000. The holders of
Senior B Preferred Shares are also entitled to a Change of Control Put Right (as
defined in the Agreement), and a Public Offering Put Right (as defined in the
Stock Purchase Agreement), also entitling such shareholders to the greater of
the Fair Market Value of the Senior B Preferred Shares and $3,000,000.
NOTES - The Notes have a ten percent (10%) interest rate (22.8% implicit
rate), are due January 26, 2005, and carry certain financial and non-financial
covenants which the Company must maintain. Interest payments on the Notes are
due quarterly; provided however, that the Company may, until the earlier to
occur of a Qualifying Public Offering or the second anniversary of the Closing,
issue Interest Notes (as defined in the Stock Purchase Agreement) together with
additional Senior B Preferred Shares, in the amount of .0022% of the fully
diluted outstanding shares at the time of such issuance per $1,000 principal
amount of Interest Notes issued.
The Notes require mandatory principal payments on the fifth anniversary of
the Closing whereby one-third (1/3) of the outstanding principal and all accrued
interest must be paid. On the sixth anniversary of the Closing, one-half (1/2)
of the outstanding principal and all accrued interest must be paid. The
remaining outstanding principal is due at the end of the term.
The Notes also contain mandatory prepayment provisions affording the Note
holders prepayment within two (2) days after the consummation of a Qualifying
Public Offering or upon a Change of Control (as defined in the Stock Purchase
Agreement). In the event the Notes remain outstanding after the consummation of
a Qualifying Public Offering, the Company shall within ten (10) days, the
Company shall issue to each Note holder his or her pro rata share of that number
of Senior B Preferred Shares which is equal to the product of (i) a fraction,
the numerator of which is equal to $10,000,000, times (ii) that number of Senior
B Preferred Shares which are convertible, upon issuance into 6% of the fully
diluted Common Shares.
In the event the Notes have not been repaid within eighteen months of the
Closing, (i) on each anniversary thereof until such Notes have been repaid, or
until the 24th month after the Closing, the Company shall issue to each holder
of Notes, an amount of Senior B Preferred Shares equal to 1% of the fully
diluted outstanding Common Shares; (ii) if the Company redeems the Notes between
the 18th and 24th months from Closing with the proceeds of Indebtedness, which
indebtedness has a stated maturity of 36 months or more, then the Company shall
cause the cancellation of the Senior B Preferred Shares issued to it as set
forth in clause (i) above, and the Company shall issue to each such holder a pro
rata share of new Senior B Preferred Shares, in an amount which is equal to
three percent (3%) of the Common Shares on a fully diluted basis at the time of
issuance.
If on the third anniversary of the Closing the Notes have not been paid,
the Note holders shall be entitled to a Note Put Right (as defined in the
Agreement), which would require the Company to purchase all or any part of the
holders' Notes, in an amount equal to the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest thereon. If the Company is unable to
service the Note Put Right, (or the Public Offering Right of the Senior B
Preferred Shares), upon the exercise thereof, the outstanding Senior B Preferred
Shares shall be canceled and new Senior B Preferred Shares shall be issued in an
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amount equal to sixty percent (60%) of the Common Shares outstanding at the time
of such issuance. Accordingly, in the event the Company has not had a Qualifying
Public Offering or otherwise paid the Notes in full, a change in control of the
Company could occur as of the third anniversary of the Closing, or January 26,
2001.
SENIOR A PREFERRED SHARES
On January 31, 1997, the Company closed its private offering of Series A
Senior Convertible Preferred Stock, par value $.001 per share (the "Senior A
Preferred Shares"), for approximately $5.5 million. The Senior A Preferred
Shares are presently convertible, in the aggregate, into 1,677,777 shares of the
Company's common stock, no par value (the "Common Shares"), or 16.67% of the
common equity of THRUCOMM. The Company received approximately $1.7 million of
the offering proceeds in cash and entered into a subscription agreement for the
remaining $3.8 million, which is to be funded by June 1998. The subscription
agreement is collateralized with the stock of a public company, which shares are
held in escrow and are of a value in excess of the monies due under the
subscription agreement.
The Senior A Preferred Shares rank on parity with the Senior B Preferred
Shares with respect to dividend and asset distributions, but have a liquidation
preference of $3.30 per share. Each Senior A Preferred Share is convertible into
one Common Share, and the holders of Senior A Preferred Shares are entitled to
vote on all matters coming before the holders of Common Shares. There is an
anti-dilution provision which prevents the Senior A Preferred Shares from
becoming diluted if the Company issues any Common Stock at a value less than the
Trigger Value. The Company may redeem outstanding Senior A Preferred Shares at
any time after the closing of a Qualifying Public Offering, at the Fair Market
Value thereof.
NEW CUSTOMER
In February 1998, the Company signed a new customer onto the Network for
500 new remote ATM and/or POS sites, with the potential in excess of 4,000
sites. The deployment of the new sites will occur during 1998.
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ITEM 7. FINANCIAL STATEMENTS
The information required by this Item is found immediately following Item
13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the names and ages of the directors and
executive officers of the Company (each, a "Director" and/or "Officer"), the
positions and offices that each Director and Officer held with the Company, and
the period during which each served in such positions and offices. Each Director
serves for a term of one year, until his successor is duly elected and
qualified. John F. Kolenda and Mark J. Gianinni, in their capacities as
Officers, each serve for a term of five (5) years, until each's successor is
duly elected and qualified.
- -------------------------------------------------------------------------------
TABLE OF DIRECTORS AND EXECUTIVE OFFICERS
- -------------------------------------------------------------------------------
PERIOD SERVED IN
NAME AGE POSITIONS/OFFICES Office/Position (1)
================================================================================
Joseph F. Bert 51 Director 1993 - present
- -------------------------------------------------------------------------------
J. Jeffrey Brausch 54 Director January 1998 - present
- -------------------------------------------------------------------------------
Mark J. Gianinni 43 Director 1989 - present
President 1989 - present
- -------------------------------------------------------------------------------
R. Brandon Harrison, Jr. 60 Director 1993 - present
- -------------------------------------------------------------------------------
Elaine E. Healy 35 Director January 1998 - present
- -------------------------------------------------------------------------------
John F. Kolenda 54 Chairman of the Board 1989 - present
Director 1989 - present
Chief Financial Officer 1989 - present
Secretary 1989 - present
Treasurer 1989 - present
- -------------------------------------------------------------------------------
Z. David Patterson 61 Director 1993 - present
- -------------------------------------------------------------------------------
Vincent D. Rinaldi 48 Director 1996 - present
- -------------------------------------------------------------------------------
(1) All dates preceding THRUCOMM's incorporation in 1996, reflect positions
held with the management of THRUCOMM's predecessors, Datalinc and Fastcom.
BUSINESS EXPERIENCE OF OFFICERS AND DIRECTORS
The following is a summary of the business experience of each of the
Company's Officers and Directors listed in the above-referenced table, and of
certain other significant employees of the Company, during the past five (5)
years.
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JOSEPH F. BERT is the principal founder and the majority shareholder of
Certified Financial Group, Inc. ("CFG"), a company that through its affiliates
provides financial planning, investment advice, and insurance related services.
Mr. Bert is also a Certified Financial Planner; a member of the Institute of
Certified Financial Planners and the International Association for Financial
Planning; an advisor affiliate of Certified Advisory Corp., an SEC registered
Investment Advisor; and he is an adjunct faculty member for the College for
Financial Planning based in Denver, Colorado. Through an affiliate of CFG, Mr.
Bert served as the managing dealer for limited partnership offerings of Datalinc
and Fastcom. He was elected to the board of directors of Datalinc and Fastcom's
General Partners pursuant to certain agreements entered into in connection with
such offerings. Mr. Bert was elected to Thrucomm's board as a result of his
relationship with Datalinc and Fastcom. See Item 12 "Certain Relationships and
Related Transactions."
J. JEFFREY BRAUSCH is the President of J. Jeffrey Brausch & Company, a firm
that has been engaged in the business of providing investment banking services
for over 25 years. The firm specializes in assisting public and secondary
offerings. Mr. Brausch has provided consulting services to the Company since
1996. See Item 12 "Certain Relationships and Related Transactions." Mr. Brausch
was elected to the Board of Directors of THRUCOMM at the request of Thomas
O'Gara, a greater than ten percent (10%) beneficial owner of the Companies
Common Shares.
MARK J. GIANINNI is the co-founder of the Company and its predecessors,
Datalinc and Fastcom. In addition, Mr. Gianinni has served as the Director of
Development and Operations of the Company and its predecessors since inception.
From 1984 to 1987, he was President of Strand Communications, Inc., which
designed and marketed PC based, media gateways primarily for the Humana chain of
hospitals. From 1982 to 1984, Mr. Gianinni was Vice President of Home Cinema,
Inc.
R. BRANDON HARRISON, Jr. has been a Director of Fine Gold, Inc., a
wholly-owned USA subsidiary of Altair International, Inc. since 1995. From 1975
to present, Mr. Harrison has served as the President of Petrus Management of
Edwards, Colorado, a business involved in a wide range of activities including
venture capital activities, investment in various companies and rental
properties, and a sourcing agency for trade with Russia, CIS states, and South
East Asian countries. Mr. Harrison's previous employment includes Procter &
Gamble Co., Laird, Inc., and Republic Funding Inc., the latter two New York
investment banking companies. In addition, Mr. Harrison is a Director and the
Secretary of Colton Milling Co., L.L.C., a company in the flour milling
business, and also is (and has been) an officer of other real estate and
commercial companies. Mr. Harrison attended Harvard College and New York
University.
ELAINE E. HEALY has been a Vice President of Pecks Management Partners
Ltd., a Registered Investment Advisor, since May of 1993. Previously, she was a
General Partner of Quantum Partners, Ltd., a private venture capital
partnership, with which she was associated for eight years. Ms. Healy also
served for two years as Vice President of the Revere Fund, Inc., a public
closed-end investment fund. Ms. Healy is also a director of Precise
Technologies, Inc., as well as several private companies, and has over thirteen
years of investment experience. Ms. Healy was elected as a director of the
Company pursuant to the terms of the Stock Purchase Agreement, dated January 26,
1998, by and among the Company and four (4) institutional investors.
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JOHN F. KOLENDA is the co-founder of the Company and its predecessors in
1989. Mr. Kolenda is also the President of Home Cinema, Inc., a company he
founded in 1982 to provide turnkey video rental programs for supermarket chains
throughout the southeastern and mid-western United States. From 1975 to 1982, he
was Vice President of Southern Data, Inc. and President of Southern Consulting
Group, Inc., two sister companies involved in financial computer system design,
programming services and data processing services. From 1970 to 1975, Mr.
Kolenda was a manager in the Management Advisory Services Division of Price
Waterhouse. He received a B.S. in Electrical Engineering in 1965 from Bucknell
University and an MBA degree in 1970 from The Wharton School, University of
Pennsylvania.
Z. DAVID PATTERSON has served, since 1992, as the Executive Vice President,
Treasurer and Secretary of Blue Chip Venture Company ("Blue Chip Venture"), the
General Partner of Blue Chip Capital Fund, a $44 million, Cincinnati-based
venture capital fund which specializes in growth equity investment in privately
owned companies located primarily in the Mid-west ("Blue Chip Capital"). Mr.
Patterson serves in similar capacities in Blue Chip Capital and its other
affiliates. From 1973-1991, Mr. Patterson served as Vice President and then as
President of New England Capital Corporation, a venture capital firm based in
Boston, with a portfolio value of $50 million. From 1962-1973, Mr. Patterson
held a broad range of corporate lending positions at Bank of New England. From
1994 to the present, Mr. Patterson has served as a director for Lan Vision
Systems, Inc. Mr. Patterson received a B.S. in Finance in 1961 and an MBA in
1967 from Babson College, in Boston, Massachusetts. Mr. Patterson serves as a
director of the Company pursuant to various agreements between Blue Chip
Capital, or its affiliates, and the Company and its predecessors. See Item 12
"Certain Relationships and Related Transactions."
VINCENT D. RINALDI is the CEO of Information Leasing Corporation of
Cincinnati, Ohio which he founded in 1984 ("ILC"). Since April of 1990, he has
been the CEO of Procurement Alternative Corporation, which currently manages
over $300 million of lease transactions and negotiates the procurement of lease
financing for Fortune 100 companies. Mr. Rinaldi was previously employed by
Xerox Corp. from 1973 to 1984, and by Ernest & Ernest from 1971 to 1973. Mr.
Rinaldi received a B.S. in Accounting from the University of Cincinnati in 1971.
Pursuant to an agreement by and between ILC and one of the Company's
predecessors, Fastcom, ILC was granted the right to have at least one of its
representatives elected to the Board of Directors of Fastcom's General Partner,
which number of seats on the board is subject to increase, if necessary to
maintain ILC's initial percentage representation on such board. After the
Reorganization, ILC has provided similar services to Thrucomm. Mr. Rinaldi was
elected to Thrucomm's Board of Directors as a result of this relationship with
Fastcom. See Item 12, "Certain Relationships and Related Transactions".
SIGNIFICANT EMPLOYEES
THOMAS A. EGNER, JR., age 47, joined the Company as Director of Sales in
1991. Mr. Egner has increased over five fold the number of the Company's
installed transceivers. In 1995 Mr. Egner was named Vice President of Sales when
the Network was added to his sales and marketing responsibilities. Recently, he
was responsible for signing Star Bank, the Network's first account and is
currently in sales discussions with the top transaction processors in the United
States. Prior to his tenure at the Company, he served in other Senior Sales
28
<PAGE>
positions with Hughes Communications, Geostar and Burlington Northern. He
received a B.S. in Business from the University of Cincinnati in 1974 and an MBA
in 1977 from Baldwin-Wallace.
THOMAS C. GREGGO, age 40, has been Director of Network Operations since
1991. Mr. Greggo oversaw the construction, installation and commissioning of the
Company's Hub and currently directs the daily operation of that facility.
Additionally, in 1993, Mr. Greggo was named Director of Network Development for
the Network, which includes design and implementation responsibilities of the
Network's architecture and the DP1000 radio. Prior to his tenure with the
Company, he managed and supported a PC based network for Home Cinema, Inc. in
St. Petersburg, Florida. Mr. Greggo attended Ohio State University, College of
Engineering and graduated from Jefferson Technical Institute in 1976.
RENE TREMBLAY, age 36, has been Director of Network Engineering for the
Company since 1991 and was named to the same post for the Network in 1993. In
those positions he has total responsibility for customer network engineering,
the Network's backbone architecture, performance and capacity planning and
directs customer pilot implementation. Mr. Tremblay also directed the Network /
Company integration and was responsible for designing the Networks' backbone
protocol. He came to the Company from Telsat Canada, where he worked in the
fields of telephone switching, public data networks and mainframe communications
using both terrestrial and satellite-based networks. He graduated Cum Laude from
the University of Ottawa in 1989 with a B.S. in Computer Science.
MICHAEL C. MOTHERSHEAD, age 38, serves in dual roles as Director of
Installations and Program Manager. As Installation Director, he is responsible
for the coordination and installation of both the Network and Company customer
sites and has both Company installers and sub-contractors reporting to him. As
Program Manager, Mr. Mothershead is responsible for reconciling Company
resources and equipment to customer contracts and equipment inventories. Prior
to his tenure at the Company, Mr. Mothershead was a Production Manager for NCR,
and a Senior Technician for a Hughes Communications installation sub-contractor.
Mr. Mothershead graduated from Tampa College in 1983 with an A.S. degree in
Computer Programming.
J. THOMAS DICHIARO, age 29, as Principal Engineer, Mr. Dichiaro designed
both the hardware and software of the DP1000 radio, and is primarily responsible
for the conceptualization and implementation of the DP1000 radio manufacturing
process. Additionally, he plays a key roll in the strategic planning of future
DP1000 radio development. Prior to joining the Company, Mr. Dichiaro developed
integrated circuits and designed software for DEC. He has a B.S. in Electrical
Engineering (1990) and a Masters in Electrical and Computer Engineering (1992)
from the University of Cincinnati, and is currently working on the completion of
his Doctorate in Computer Engineering at the University of Cincinnati.
JAMES R. SPURLOCK, age 30, is the Network Control Center Manager. As NCC
Manager, Mr. Spurlock has eight system operators reporting to him. His
responsibilities also include the installation, maintenance and repair of the
VSAT Hub, and troubleshooting existing customer networks. Mr. Spurlock played a
key design role in the Network's routing architecture and was primarily
responsible for developing the Network's site commissioning procedures. Prior to
joining the Company, Mr. Spurlock installed LAN/WAN networks and VSATs for
Hughes Communications. Mr. Spurlock joined the Company in 1992.
29
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under Section 16(a) of the Exchange Act, all executive officers, directors,
and each person who is the beneficial owner of more than 10 percent of any class
of any equity security of a company which is registered pursuant to Section 12
of the Exchange Act, are required to report the ownership of such common stock,
options, and stock appreciation rights (other than certain cash-only rights) and
any changes in that ownership with the Securities and Exchange Commission (the
"SEC"). Specific due dates for these reports have been established, and such
companies are required to report, in a Form 10-KSB, any failure of its officers
and directors to comply therewith during the last completed fiscal year.
The Company does not have any class of any equity security which is
registered pursuant to Section 12 of the Exchange Act and accordingly, its
directors and officers are not required, pursuant to Section 16(a) of the
Exchange Act to file any statement of the amount of such equity securities of
the Company of which he or she is the beneficial owner.
DIRECTOR MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1997 ("Fiscal Year 1997"), the
Board of Directors of the THRUCOMM held a total of four (4) regular and one (1)
telephonic meetings; the Board of Directors of the General Partner of Datalinc
held a total of three (3) regular and zero (0) telephonic meetings; and the
Board of Directors of Fastcom's General Partner held a total of four (4) regular
and one (1) telephonic meetings. Each of the Directors of the respective Boards
attended more than 75% of the total number of said meetings.
Prior to the consummation of the Reorganization on November 1, 1997,
neither the Company nor its predecessor limited partnerships had an Audit
Committee. In February 1998, an Audit Committee of the Board of Directors was
established. The Audit Committee is responsible for recommending to the Board of
Directors the engagement or discharge of the independent public accountants,
meeting with the independent public accountants to review the plans and results
of the audit engagement, approving the services to be performed by the
independent public accountants, considering the range of the audit and non-audit
fees, reviewing the adequacy of the Company's system of internal accounting,
reviewing the scope and results of the Company's internal audit procedures. The
Audit Committee is comprised of Joseph F. Bert, J. Jeffrey Brausch, and Elaine
E. Healy.
Similarly, neither the Company nor its predecessor limited partnerships had
a Compensation and Stock Option Committee, and in February 1998 a Compensation
and Stock Option Committee of the Board of Directors was established. The
Compensation and Stock Option Committee administers the Company's Non-Employee
Directors' Non-Statutory Stock Option Plan and its Incentive and Non-Statutory
Stock Option Plan. The committee makes recommendations to the Board of Directors
with respect to the Company's compensation policies and the compensation of
executive officers. The Compensation and Stock Option Committee is comprised of
Joseph F. Bert, J. Jeffrey Brausch, and R. Brandon Harrison.
30
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Except for the Company's Non-Employee Directors Non-Statutory Stock Option
Plan (the "Non-Employee Directors' Plan"), there was no standard arrangement
pursuant to which directors of the Company are compensated for their services
provided to the Company as directors, including committee participation or
special assignments in the last completed fiscal year. Neither were there any
other compensation arrangements during the Company's last completed fiscal year,
such as consulting contracts, entered into in consideration of any director's
service on the board.
Under the terms of the Company's Non-Employee Directors Non-Statutory Stock
Option Plan, each non-employee director, on the date of his or her appointment
to the Board, shall be granted a ten (10) year option to purchase an aggregate
of 5,000 Common Shares, and, on the date of the annual stockholders meeting of
the Company, each non-employee director hall be granted a ten (10) year option
for the purchase of 1,000 Common Shares. As of March 31, 1998, no options have
been granted to any Directors. See "NON-EMPLOYEE DIRECTORS NON-STATUTORY STOCK
OPTION PLAN" below.
Commencing 1998, the Company's outside Directors shall receive a $7,500
annual retainer, $1,000 per meeting for attendance at Board Meetings, $500 per
telephonic meeting, plus reimbursement for out -of-pocket expenses. Committee
members will receive $1,000 per committee meeting which is not associated with a
regular meeting.
There are no other standard or special arrangements regarding Director
compensation, except pursuant to the Non-Employee Directors' Plan.
STOCK OPTION PLANS
INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN.
The Company has adopted an Incentive and Non-Statutory Stock Option Plan
(the "Plan"), to attract, maintain and develop management by encouraging
ownership of the Company's Common Stock by Directors, Officers, and other key
employees. The following is a summary of the provisions of the Plan. This
summary is qualified in its entirety by reference to the Plan, a copy of which
may be obtained from the Company.
The Company currently has 200,000 Common Shares reserved for issuance upon
exercise of options under the Plan, however it is considering an increase in the
number of shares subject to the Plan. The Plan is administered and interpreted
by the Board of Directors. The Board of Directors has appointed a option
committee, comprised solely of "Non-Employee Directors" as defined in the Plan,
which committee has the power, subject to Board approval, to make
recommendations to the Board as to whom options should be granted, the number of
shares covered by each option, the time or times of option grants, and the terms
and conditions of each option.
Options granted under the Plan may be either incentive options (as defined
in Section 422 of the Internal Revenue Code) or non-statutory options. Each
option shall be evidenced by an option agreement containing such terms and
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provisions as the Board or Option Committee shall from time to time deem
appropriate, PROVIDED HOWEVER, and notwithstanding anything in an option
agreement to the contrary, each option shall expire no later than the tenth
anniversary of the date on which the option was granted, and the per share
exercise price of an option shall be not less than the "fair market value" of
the Common Shares on the date of the grant. Options granted under the Plan are
not transferable, except by will or by operation of the laws of descent and
distribution.
NON-EMPLOYEE DIRECTORS' NON-STATUTORY STOCK OPTION PLAN
The Company has also adopted a Non-Employee Directors' Non-Statutory Stock
Option Plan (the "Non-Employee Directors' Plan") which is intended as an
incentive for members of the Board of Directors who are not employed by the
Company to acquire or increase a proprietary interest in the success of the
Company. The following is a summary of the provisions of the Non-Employee
Directors' Plan. This summary is qualified in its entirety by reference to the
Non-Employee Directors' Plan, a copy of which may be obtained from the Company.
The Company has reserved an aggregate of 100,000 Common Shares for issuance
upon the exercise of stock options granted under its Non-Employee Directors'
Plan. The Board of Directors may appoint an Option Committee to administer and
interpret said plan. The Non-Employee Directors' Plan provides for the granting
of non-statutory stock options and is considered a "formula plan." On the dated
of appointment to the Board of Directors, a new director is entitled to be
granted and options for 5,000 Common Shares (the "Initial Option"), which
Initial Option shall vest and become exercisable at the rate of twenty percent
(20%) per year after the expiration of the first year following the date of
grant. On the date of each annual stockholders meeting, each non-employee
director shall receive an option for 1,000 Common Shares (each such grant, an
"Annual Option"), which Annual Option shall vest and become exercisable one (1)
year from the date of grant. Options become immediately exercisable upon the
occurrence of certain events, and the Board, consistent with federal securities
laws, my accelerate the exercise date of an option.
Each option shall be evidenced by an option agreement containing such terms
and provisions as the Board or Option Committee shall from time to time deem
appropriate, PROVIDED HOWEVER, and notwithstanding anything in an option
agreement to the contrary, each option shall expire no later than the tenth
anniversary of the date on which the option was granted, and the per share
exercise price of an option shall be not less than the "fair market value" of
the Common Shares on the date of the grant. Options granted under the
Non-Employee Directors' Plan are not transferable, except by will or by
operation of the laws of descent and distribution.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mark J. Gianinni,
its President and John F. Kolenda, its Chief Financial Officer, Secretary and
Treasurer. The employment agreements provide for annual base salaries of
$160,000 and $150,000 for Messrs. Gianinni and Kolenda respectively. The
employment agreements further provide for: (i) the possibility of an annual cash
bonus in an amount approximately equal to 20% of the annual base salary, subject
to Board discretion, (ii) the reimbursement of reasonable expenses incurred in
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furtherance of the Company's business, (iii) medical and disability benefits,
and (iv) participation in the Company's stock option, profit sharing or other
incentive plans.
The term of Messrs. Gianinni and Kolenda's employment with the Company
commenced on November 1, 1997 and shall terminate five (5) years thereafter,
PROVIDED HOWEVER, either party to an employment agreement may terminate the
employment upon the delivery of a written notice of his or its election to
terminate, which termination shall be effective one hundred twenty days (120)
after the delivery of such notice. If the Company terminates the employment of
Mr. Gianinni or Mr. Kolenda without "Reasonable Cause" or due to the employee's
disability, or if the employee voluntarily terminates his employment for "Good
Reason" (including a "Change of Control"), or if an employment agreement is not
renewed for any reason at the end of the term thereof, the subject employee
shall be entitled to a severance compensation equal to his then-current base
salary and outplacement services, for the period of time the employee is subject
to the covenant not to complete provisions of the employment agreements.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by, or
paid to Mark J. Gianinni and John F. Kolenda for their services to the Company
in any capacity. The Company has not designated any person as its Chief
Executive Officer, and there are no other Officers or individuals whose
compensation exceeded $100,000 for this period.
SUMMARY COMPENSATION TABLE
---------------------------------------------------
| Annual Compensation | Long-Term Compensation|
| ----------------------------|
| | Awards |Payouts|
- ------------------------------------------------------------------------------
| | | | | | Secur- | |
| | | | | | ities | |
| | | | Other | Re- | Under- | |All
| | | | Annual | stricted| lying | |Other
Name and | |Salary | | Compen-| Stock | Options/|LTIP |Compen-
Principal |Fiscal| ($) |Bonus| sation | Award(s)| SARs |Payouts|sation
Position |Year | (1) | ($) | ($) | ($) | (#) | ($) | ($)
- ------------------------------------------------------------------------------
Mark J. | | | | | | | |
Gianinni, | | | | | | | |
President |1997 |$151,667| 0 | 0 | 0 | 0 | 0 | 0
- ------------------------------------------------------------------------------
John F. | | | | | | | |
Kolenda | | | | | | | |
CFO, | | | | | | | |
Secretary, | | | | | | | |
Treasurer | 1997 |$150,000| 0 | 0 | 0 | 0 | 0 | 0
- ------------------------------------------------------------------------------
(1) Salary for the last completed fiscal year includes amounts received
pursuant to management agreements with the Company's predecessors,
Datalinc and Fastcom. Such management agreements were terminated as of
the effective date of the Reorganization and the terms of such prior
management agreements are summarized in the Company's Registration
Statement on Form S-4, effective September 3, 1997.
33
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, by (i) each person
known to the Company to own beneficially more than 5% of its Common Shares, (ii)
each director and executive officer of the Company, and (iii) all directors and
executive officers as a group. As of March 31,1998, there was one (1) Common
Share issued and outstanding.
________________________________________________________________________________
AMOUNT AND NATURE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP (1)(2) CLASS(3)(4)
________________________________________________________________________________
Integrated Communication Networks, Inc.
1641 Commerce Avenue North
St. Petersburg, Florida 33716......... 1 (5) 100%
Pecks Management Partners Ltd.
One Rockefeller Plaza, Suite 900
New York, New York 10020 ..... 1,600,000 (6) 100%
Thomas M. O'Gara........................ 1,166,666 (7) 100%
9113 Le Saint Drive
Fairfield, Ohio 45014
Greg C. Mosher.......................... 100,000 (8) 100%
5251 DTC Parkway
Suite # 825
Greenwood Village, Colorado 80111
John H. Wyant........................... 75,757 (9) 100%
Blue Chip Venture Company
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
John N. Taylor, Jr. .................... 60,636(10) 100%
2271 Arbor Boulevard
Dayton, Ohio 45439
S. William Miller and................... 33,300(11) 100%
N. Pauline Miller
7576 Silver Creek
Cleves, Ohio 45002
David W. McCauley....................... 30,304 (1) 100%
28 East Drive
Box # 535
Hartville, Ohio 44632
Bernard F. Masters, D.O................. 30,303(13) 100%
340 Tucker Drive
Worthington, Ohio 43085
34
<PAGE>
________________________________________________________________________________
AMOUNT AND NATURE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP (1)(2) CLASS(3)(4)
________________________________________________________________________________
Jerry L. Ruyan.......................... 30,303(14) 100%
8730 Red Fox Lane
Cincinnati, Ohio 45243
James E. Evans.......................... 30,300(15) 100%
One East Fourth Street, #919
Cincinnati, Ohio 45202
Daniel E. Dosoretz, M.D................. 15,151(16) 99%
13211 Ponderosa Way
Fort Meyers, Florida 33907
Harry C. Brown.......................... 10,000(17) 99%
9300 Cunningham Road
Cincinnati, Ohio 45243
William Motto........................... 8,000(18) 99%
3471 Riverhills Drive
Cincinnati, Ohio 45244
Paul T. Rogalski........................ 7,500(19) 99%
9 Lake Ridge Court
Burr Ridge, Illinois 60521
Marshall Weinstein...................... 6,061(20) 99%
1900 Clendenin Lane
Riverwoods, Illinois 60015
Joseph F. Bert.......................... 0 *
J. Jeffrey Brausch...................... 47,230(21) 100%
Mark J. Gianinni........................ 1(22) 100%
R. Brandon Harrison..................... 0 *
Elaine E. Healy......................... 1,600,000(23) 100%
John F. Kolenda......................... 1(24) 100%
Z. David Patterson...................... 75,757(25) 100%
Vincent D. Rinaldi...................... 15,152(26) 99%
All directors and officers as a group
(8 persons)............................. 1,738,140 100%
- -------------------
* Less than 1%
(1) In accordance with Rule 13d-3 promulgated pursuant to the Exchange Act, a
person is deemed to be the beneficial owner of a security, for purposes of
35
<PAGE>
the rule, if he or she has or shares voting or dispositive power with
respect to such security, or has the right to acquire such ownership within
sixty days. As used herein, "voting power" is the power to vote or direct
the voting of shares, and "dispositive power" is the power to dispose or
direct the disposition of shares, irrespective of any economic interest
therein.
(2) Except as otherwise indicated by footnote, the persons named in the table
have sole voting and investment power with respect to all Common Shares
beneficially owned by them.
(3) Percentage ownership for a given individual or group is calculated on the
basis of (i) the amount of outstanding Common Shares (one (1) as of March
31, 1998) PLUS, (ii) the number of Common Shares that such individual or
group has the right to acquire within 60 days pursuant to options,
warrants, conversion privileges or other rights. SEE, Instruction 3 to Item
403, of Regulation S-B under the Exchange Act.
(4) Datalinc, Ltd. is the record owner of the only Common Share that is issued
and outstanding. All of the other beneficial owners identified in the table
hold Senior A or Senior B Preferred Shares, which are immediately
exercisable. If any one of such persons converts his or her holding to
Common Shares, and the other holders did not, that person would have
beneficial ownership of 99-100% of the outstanding Common Shares, however,
such person would not have the same percentage of voting control, because
the holders of all of the Company's series of preferred shares are
empowered with voting privileges on all matters presented to the holders of
Common Shares.
(5) Integrated Communication Networks, Inc. ("ICN"), as a General Partner of
Datalinc, Ltd., has beneficial ownership of the only issued and outstanding
Common Share of the Company, which share is held of record by Datalinc. ICN
is a Florida corporation which is owned equally by Messrs. Gianinni and
Kolenda, who are directors and executive officers of THRUCOMM.
(6) Pecks Management Partners Ltd., a Registered Investment Advisor, exercises
beneficial ownership on behalf of NAP & Company, HARE & Co., Fuelship &
Company, and Northman & Co., with respect to, collectively, (i) zero (0)
outstanding Common Shares and (ii) an aggregate of 1,600,000 Common Shares
which such companies have the right to acquire within sixty (60) days upon
the conversion of Senior B Preferred Shares registered in their names, or
1,008,000, 128,000, 186,400, and 277,600 Common Shares, respectively.
(7) Mr. O'Gara has beneficial ownership of (i) zero (0) outstanding Common
Shares, and (ii) 1,166,666 Common Shares which he has the right to acquire
within sixty (60) days, upon the conversion of (a) 583,333 Senior A
Preferred Shares registered to the Thomas M. O'Gara Family Trust, dated
July 8, 1982, as amended, a revocable living trust, of which Mr. O'Gara is
the Trustee, and (b) 583,333 Senior A Preferred Shares registered to
MeesPierson Management (Guernsey) Limited.
(8) Mr. Mosher has beneficial ownership of (i) zero (0) outstanding Common
Shares, and (ii) 100,000 Common Share which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
36
<PAGE>
(9) Mr. Wyant has beneficial ownership of (i) zero (0) outstanding Common
Shares, and (ii) 75,757 Common Shares which Blue Chip / Datalinc
Corporation ("BC/DC") has the right to acquire within sixty (60) days, upon
conversion of the Senior A Preferred Shares that are registered in its
name. Mr. Wyant shares, with Z. David Patterson, voting and dispositive
power over the securities that are registered to BC/DC.
(10) Mr. Taylor has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 60,636 Common Shares which the K - K Realty Company ("K - K
Realty") has the right to acquire within sixty (60) days, upon conversion
of the Senior A Preferred Shares that are registered in its name. Mr.
Taylor is the Managing General Partner of K - K Realty.
(11) Mr. and Mrs. Miller have beneficial ownership of (i) zero (0) outstanding
Common Shares and (ii) 33,300 Common Shares which they have the right to
acquire within sixty (60) days, upon conversion of the Senior A Preferred
Shares that are registered in their names.
(12) Mr. McCauley has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 30,304 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(13) Dr. Masters has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 30,303 Common Shares which the Bernard F. Masters
Individual Retirement Account (the "Account") has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in the name of the Account.
(14) Mr. Ruyan has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 30,303 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(15) Mr. Evans has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 30,300 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(16) Dr. Dosoretz has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 15,151 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name. He shares voting and dispositive power
with his spouse Celia Dosoretz.
(17) Mr. Brown has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 10,000 Common Shares which he has a right to acquire within
sixty (60) days, upon conversion of the Senior A Preferred Shares that are
registered in his name.
(18) Mr. Motto has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 8,000 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
37
<PAGE>
(19) Mr. Rogalski has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 7,500 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(20) Mr. Weinstein has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 6,061 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(21) Mr. Brausch has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 47,230 Common Shares which he has the right to acquire
within sixty (60) days, upon conversion of the Senior A Preferred Shares
that are registered in his name.
(22) Mr. Gianinni has beneficial ownership of the one (1) outstanding Common
Share which is registered to Datalinc, Ltd. ("Datalinc"). Mr. Gianinni is a
fifty percent (50%) owner of Datalinc's General Partner, Integrated
Communication Networks, Inc., and, with John F. Kolenda, shares voting and
dispositive power of the Common Share that is registered to Datalinc.
(23) Ms. Healy, in her capacity as Vice President of Pecks Management Partners
Ltd., a Registered Investment Advisor, ("Pecks Management") may be deemed
to have beneficial ownership of the 1,600,000 Common Shares over which
Pecks Management exercises beneficial ownership on behalf of certain
institutional investors identified in footnote 6. Ms. Healy, in her
personal capacity, has no pecuniary or other interest in any securities of
the Company.
(24) Mr. Kolenda has beneficial ownership of the one (1) outstanding Common
Share registered to Datalinc, Ltd. ("Datalinc"). Mr. Kolenda is a fifty
percent (50%) owner of Datalinc's General Partner, Integrated Communication
Networks, Inc., and, with Mr. Gianinni, shares voting and dispositive power
of the Common Share that is registered to Datalinc.
(25) Mr. Patterson has beneficial ownership of (i) zero (0) outstanding Common
Shares and (ii) 75,757 Common Shares which Blue Chip / Datalinc Corporation
("BC/DC") has the right to acquire within sixty (60) days, upon conversion
of the Senior A Preferred Shares that are registered to it. Mr. Patterson
shares, with John H. Wyant, voting and dispositive power, of the securities
that are registered to BC/DC, with John H. Wyant.
(26) Mr. Rinaldi has beneficial ownership of zero (0) outstanding Common Shares
and a right to acquire beneficial ownership of 15,152 Common Shares within
sixty (60) days, upon conversion of the Senior A Preferred Shares that are
registered in his name and the name of h is spouse, Anne M. Rinaldi, with
whom he shares voting and dispositive power.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
JOSEPH F. BERT - Mr. BERT is the principal founder and the majority
shareholder of Certified Financial Group, Inc. ("CFG"), a company that through
its affiliates provides financial planning, investment advice, and insurance
related services. CFG's affiliate CFG Securities Corp., a member of the National
Association of Securities Dealers, Inc. ("CFG Securities") was engaged to sell
38
<PAGE>
limited partnership interests in connection with the private offerings of
Datalinc's Series 200, 300, 300E1 and 300E2 Limited Partnership Units, and
Fastcom's Series 100 and Series 200 Limited Partnership Units. In consideration
of such services, CFG received options to acquire an aggregate 4% limited
partnership interest in Datalinc for $1, and an aggregate 2.171% limited
partnership interest in Fastcom, for $240,000.
J. JEFFREY BRAUSCH - Mr. Brausch entered into a Professional Services
Agreement with the Company, in January 1998 (the "Services Agreement"). Pursuant
to the Services Agreement, Mr. Brausch received $30,000 for consulting services
to the Company from July 1997 to December 1997, in connection with the private
placement of the Senior A Preferred Shares. Commencing January 1998, Mr. Brausch
will be paid $4,166.67 per month, for a period of thirty-six (36) months, for on
going general consulting services to the Company. In addition the Services
Agreement also provides for payments to Mr. Brausch in connection with a
three-phase program, for which he will receive $40,000 for the first phase,
$80,000 for the second phase, and $80,000 for the third phase. Payment for
phases one (1) and two (2) were made to Mr. Brausch on January 26, 1998. Payment
for phase three (3) will be spread out over 36 monthly payments of $2,222.22.
Z. DAVID PATTERSON - Mr. Patterson has served, since 1992, as the Executive
Vice President, Treasurer and Secretary of Blue Chip Venture Company ("Blue Chip
Venture"), the General Partner of Blue Chip Capital Fund Limited Partnership, a
$44 million, Cincinnati-based venture capital fund which specializes in growth
equity investment in privately owned companies located primarily in the Mid-west
("Blue Chip Capital Fund"). Blue Chip / Datalinc Corporation, a wholly-owned
subsidiary of Blue Chip Capital, is a Delaware corporation, originally organized
as an Ohio corporation in February 1992, for the sole purpose of providing
financing to Datalinc.
In April 1993 and September 1993, Blue Chip entered into agreements with
Datalinc, its General Partner, and Messrs. Kolenda and Gianinni,, pursuant to
which Blue Chip purchased shares of Series 300 Limited Partnership Units in
Datalinc, and in exchange therefore, Blue Chip received certain rights,
interests, and preferences from Messrs. Kolenda and Gianinni, and from
Datalinc's General Partner, with respect to its interest in, and management of
Datalinc (the "First and Second Agreements," respectively). The First and Second
Agreements were amended in August 1997 to make certain agreements in connection
with the Reorganization (the "Third Agreement"). The Agreements were amended
again in January 1998 to make certain modifications thereto, and to make certain
new agreements in contemplation of the Company's sale of its Notes and its
Senior A and Senior B Preferred Shares.
Also in August 1997, Blue Chip Capital Fund provided the Company with a
guarantee of a $300,000 bridge loan, pursuant to which the Company agreed to
issued to Blue Chip Capital Fund warrants for the purchase of Common Shares if
the bridge loan was not fully discharged on or before October 31, 1997, which it
was not. Accordingly, on January 26, 1998, the Company entered into a warrant
agreement to issue to Blue Chip Capital Fund warrants for the purchase, at any
time until January 27, 2001, up to an aggregate of 67,333 Common Shares at an
exercise price of $0.002 per share.
VINCENT D. RINALDI - Mr. Rinaldi is a director of the Company as well as
the CEO and Chairman of the Board of Information Leasing Corporation, an Ohio
corporation ("ILC"). In November of 1995, Fastcom entered into an agreement with
Information Leasing Corporation ("ILC") pursuant to which ILC leases certain
39
<PAGE>
Network equipment, including radio equipment and personal earth stations, to
THRUCOMM. The Company subleases such equipment to its customers through ISA's,
as described under "Customer Equipment Financing" in Item 1 of Part I of this
Report. The Company guarantees the ISA's to ILC and ILC in turn uses such ISA's
as collateral for the leases and equipment.
As of December 31, 1996, ILC had no equity interests in Fastcom, but as of
April 30, 1997, ILC had acquired the .905% equity interest in Fastcom (from
Datalinc's limited partnership interest in Fastcom), based upon the financing of
at least $1 million of equipment through ILC leases. ILC financed approximately
$1,310,000 and $750,000 of Network equipment in 1997 and 1996, respectively. ILC
transferred such .905% interest to Vincent Rinaldi and two of his associates.
ILC is entitled to an additional .4525% for each $3 million of equipment
financed thereafter, up to a total of 4.525% of the equity of Fastcom or its
successors. ILC was acquired in stock-for-stock merger by Provident Bancorp,
Inc. in December, 1996. ILC is now wholly-owned subsidiary of Provident Bancorp,
Inc.
40
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) INDEX TO EXHIBITS
The following exhibits are filed with or incorporated by reference in this
Registration Statement:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Reorganization, by and among Datalinc,
Ltd., Fastcom, Ltd. and Thrucomm, Inc., dated August 26, 1997.*
3.1 Articles of Incorporation of Thruco, Inc.*
3.2 Articles of Amendment to Articles of Incorporation of Thruco,
Inc., changing the corporate name to Thrucomm, Inc.*
3.3 Articles of Amendment to Articles of Incorporation of Thrucomm,
Inc., filing Certificates of Designation of Preferred Stock.**
3.4 Certificate of Designation of the Series, Preferences,
Limitations and Relative Rights of the Series A-P Mandatory
Convertible Preferred Stock.**
3.5 Certificate of Designation of the Series, Preferences,
Limitations and Relative Rights of the Series A Senior
Convertible Preferred Stock.**
3.6 Certificate of Designation of the Series, Preferences,
Limitations and Relative Rights of the Series B Senior
Convertible Preferred Stock.**
3.7 By-laws of Thrucomm, Inc.**
10.1 Agreement by and between Blue Chip/Datalinc Corporation,
Integrated Communication Networks, Inc., John F. Kolenda, Mark J.
Gianinni and Datalinc, Ltd., dated as of September 1, 1993.*
10.2 Amendment to Agreement by and between Blue Chip/Datalinc
Corporation, Integrated Communication Networks, Inc., John F.
Kolenda, Mark J. Gianinni and Datalinc, Ltd., dated September 1,
1993.*
10.3 Agreement by and among Thrucomm, Inc., Blue Chip/Datalinc
Corporation, Integrated Communications Networks, Inc., John F.
Kolenda, Mark J. Gianinni and Datalinc, Inc., dated August 27,
1997.*
10.4 Option Agreement by and between Datalinc, Ltd. and CFG Securities
Corp.*
10.5 Managing Dealer Agreement by and between Fastcom, Ltd. and CFG
Securities Corp., dated as of April 24, 1996.*
41
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.6 Agreement by and between Information Leasing Corporation,
Datalinc, Ltd. and Fastcom, Ltd., dated as of September 6, 1995.*
10.7 Master Lease Agreement by and between Information Leasing
Corporation, Datalinc, Ltd. and Fastcom, Ltd., dated as of
November 7, 1995.*
10.8 Payment Agreement by and between Fastcom, Ltd. and Nova
Engineering dated July 25, 1997.*
10.9 Form of Employment Agreement by and among Thrucomm, Inc. and
Messrs. Kolenda and Gianinni.*
10.10 Incentive and Non-Statutory Stock Option Plan.*
10.11 Non-Employee Directors Non-Statutory Stock Option Plan.*
10.12 Datalinc's $300,000 Line of Credit with United Bank and Trust
Co., dated as of October 3, 1994.*
10.13 Industrial Lease Agreement between Industrial Developments
International, Inc. and Datalinc-I, Ltd., dated as of April 15,
1991.*
10.14 Third Lease Amendment by and between Duke Realty Limited
Partnership and Thrucomm, Inc. dated January 27, 1998.**
10.15 Agreement by and among Thrucomm, Inc., Blue Chip/Datalinc
Corporation, Integrated Communications Networks, Inc., John F.
Kolenda, Mark J. Gianinni and Datalinc, Inc., dated January 26,
1998.**
10.16 Warrant Agreement by and between Thrucomm, Inc. and Blue Chip
Capital Fund Limited, dated January 26, 1998.**
10.17 Stock Purchase Agreement by and among Thrucomm, Inc. and
Declaration of Trust for Defined Benefit Plans of ICI American
Holdings, Declaration of Trust for Defined Benefit Plans of
Zeneca Holdings Inc., Delaware State Employees' Retirement Fund,
and J. W. Family Foundation, dated January 26, 1998.**
10.18 Professional Services Agreement by and between Thrucomm, Inc. and
J. Jeffrey Brausch, dated January 19, 1998.**
10.19 Maintenance Service Agreement by and between Thrucomm, Inc. and
Dictaphone Corporation dated August 13, 1996 **
27 Financial Data Schedule.
* Exhibit incorporated by reference from the Company's Registration
Statement on Form S-4, effective September 3, 1997.
** Exhibit filed herewith.
(B) REPORTS ON 8-K
None.
42
<PAGE>
THRUCOMM, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Thrucomm, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Thrucomm, Inc. at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Tampa, Florida
February 27, 1998
<PAGE>
THRUCOMM, INC.
BALANCE SHEETS
December 31,
1996 1997
Assets
Cash and cash equivalents $ 36,741 $ 178,365
Trade accounts receivable 588,291 329,479
Inventories 281,550 204,526
Other receivables 62,025 5,686
Prepaid and other current assets 36,532 2,340
---------- ----------
Total current assets 1,005,139 720,396
Property and equipment, net 2,445,840 2,728,918
Other long-term receivables 10,000 9,500
Other assets and deposits 90,405 207,550
---------- ----------
$3,551,384 $3,666,364
========== ==========
Liabilities and Shareholders' Equity
Accounts payable and accrued expenses $1,187,165 $3,332,654
Debt due within one year 746,152 1,501,595
Capital lease obligations due within one year 356,668 587,513
---------- ----------
Total current liabilities 2,289,985 5,421,762
Long-term debt 5,208 15,976
Deposit from investor - 250,000
Long-term capital lease obligations 867,949 784,302
---------- ----------
Total liabilities 3,163,142 6,472,040
========== ==========
Commitments and contingencies (Note 8)
Series A senior convertible preferred stock, $.001 par
value, 1,666,667 shares authorized, no shares issued
and outstanding (Note 12) - -
Series B senior convertible preferred stock, $.001 par
value, 2,200,000 shares authorized, no shares issued
and outstanding (Note 12) - -
Preferred stock, $.001 par value, 25,000,000 shares
authorized (Note 7)
Common stock, no par value, 100,000,000 shares
authorized, 1 share issued - -
and outstanding 1 1
Additional paid in capital 8,186,404 8,363,755
Warrants outstanding (Note 5) - 130,000
Accumulated deficit (7,798,163) (11,299,432)
---------- -----------
Total shareholders' equity 388,242 ( 2,805,676)
---------- ----------
$3,551,384 $3,666,364
========== ==========
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
F-2
<PAGE>
THRUCOMM, INC.
STATEMENTS OF OPERATIONS
For the year ended December 31,
1995 1996 1997
Revenues:
Network access fees $1,701,591 $2,163,545 $2,375,963
VSAT/PES sales 120,587 3,131,810 21,600
Other equipment sales and 346,559 557,860 520,023
installation fees
---------- ---------- ----------
Total revenues 2,168,737 5,853,215 2,917,586
========== ========== ==========
Operating expenses:
Cost of services provided 1,170,600 1,349,499 2,695,240
Cost of equipment sales and 285,054 3,315,001 336,181
installation fees
Selling, general and administrative 1,217,519 1,969,086 2,034,386
Research and development 278,426 364,977 274,810
Depreciation 352,085 579,367 854,759
---------- ---------- ----------
Total operating expenses 3,303,684 7,577,930 6,195,376
========== ========== ==========
Loss from operations (1,134,947) (1,724,715) (3,277,790)
Interest expense (108,381) (166,122) (223,479)
---------- ---------- ----------
Loss before income tax benefit (1,243,328) (1,890,837) (3,501,269)
Income tax benefit - - -
---------- ---------- ----------
Net loss $(1,243,328)$(1,890,837)$(3,501,269)
========== ========== ==========
Basic net loss per share (Note 2) $(1,243,328)$(1,890,837)$(3,501,269)
Weighted average shares outstanding 1 1 1
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
F-3
<PAGE>
THRUCOMM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Prefered Paid in Warrants Accumulated
Stock Stock Capital Outstnding Deficit Total
Balance at $ - $ - $ 5,717,275 $ - $(4,663,998)$ 1,053,277
December 31, 1994
Net loss (1,243,328) (1,243,328)
Equity contributions - 333,600 333,600
-------- -------- ---------- --------- ----------- ----------
Balance at - - 6,050,875 - (5,907,326) 143,549
December 31, 1995
Net loss (1,890,837) (1,890,837)
Equity contributions 1 - 2,017,500 2,017,501
Original Management
Incentive Plan - 41,000 41,000
Options associated
with Series N
preferred shares - 77,029 77,029
-------- -------- ---------- --------- ----------- ----------
Balance at 1 - 8,186,404 - (7,798,163) 388,242
December 31, 1996
Net loss (3,501,269) (3,501,269)
Debt issue costs associated
with Series O preferred
shares - 132,000 132,000
Termination of Original
Management Incentive Plan - (41,000) (41,000)
Establishment of 1997
Management Incentive Plan - 1,100 1,100
Step up in fair value
associated with Series I
preferred shares - 85,251 85,251
Warrants issued to shareholder 130,000 130,000
-------- -------- ---------- --------- ----------- ----------
Balance at $ 1 $ - $8,363,755 $ 130,000$(11,299,432)$(2,805,676)
December 31, 1997======== ======== ========== ========= =========== ==========
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
F-4
<PAGE>
THRUCOMM, INC.
STATEMENTS OF CASH FLOW
1995 1996 1997
Cash flows from operating activities:
Net loss $(1,243,328) $(1,890,837) $(3,501,269)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 352,085 579,367 854,759
Non-cash research and development (Note 2) - - 85,251
Compensation expense for warrants
issued to shareholder - - 130,000
(Increase) decrease in:
Trade accounts receivable 175,898 (281,491) 258,812
Inventories (665,961) 433,929 77,024
Other receivables 45,748 (59,100) 56,839
Prepaid and other current assets (8,856) 10,930 34,192
Other assets and deposits 1,111 (42,769) 33,322
Increase in accounts payable and
accrued expenses 745,486 240,969 2,145,489
--------- --------- ---------
Net cash provided by (used in)
operating activities (597,817) (1,009,002) 174,419
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (194,156) (781,792) (553,899)
--------- --------- ---------
Net cash used in investing activities (194,156) (781,792) (553,899)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from equity contributions 333,600 2,017,500 -
Deposit from investor (Note 12) - - 250,000
Additions to debt 840,000 638,280 904,735
Reductions in debt and capital lease
obligations (316,394) (890,190) (574,631)
Debt issue costs - (15,884) (59,000)
--------- --------- ---------
Net cash provided by financing
activities 857,206 1,749,706 521,104
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 65,233 (41,088) 141,624
Cash and cash equivalents, beginning of
year 12,596 77,829 36,741
--------- --------- ---------
Cash and cash equivalents, end of year $ 77,829 $ 36,741 $ 178,365
========= ========= =========
Supplemental cash flow information:
Capital lease obligations entered into$ 202,394 $ 949,396 $ 583,305
========= ========= =========
Non-cash debt issue costs $ - $ - $ 132,000
========= ========= =========
Interest paid, net of capitalized $ 108,000 $ 152,000 $ 227,000
amount ========= ========= =========
Income taxes paid $ - $ - $ -
========= ========= =========
The accompanying Notes to Financial Statements
are an integral part of these financial statements.
F-5
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
Thrucomm, Inc. (the "Company") was formed through a business reorganization
between two Florida partnerships, Fastcom, Ltd. ("Fastcom") and Datalinc,
Ltd. ("Datalinc"). Datalinc and Fastcom's general partners are Integrated
Communications Networks, Inc. ("ICN") and Fastcom Management, Inc. ("FMI"),
respectively, both of which are Florida Corporations. Voting common stock
held by Datalinc.
The Company offers two complementary services. The first service provides
customers with a wireless digital communications network (the "Network")
designed to meet the needs of the electronic funds transfer ("EFT")
industry. The Network transmits authorization requests for debit and credit
cards at point of sale locations, automated teller machines and similar
transactions. The Network is based upon the Company's proprietary radio
technology and is designed to displace current "terrestrial" carriers,
primarily telephone companies, by providing better performance and, for
certain users, a significantly lower-cost alternative to terrestrial
delivery systems. Fastcom was formed in March 1994 to develop, install and
operate the Network, formerly identified as DATAPAC or THRUCOMM.
The second service provides customers with a satellite-based communication
to a variety of large corporate accounts with data centers based in Ohio,
Kentucky and Indiana. The Company owns and operates a satellite
communication hub (the "Hub") located in Cincinnati, Ohio. A Hub links
centralized computers, located in the headquarters of a business with other
computers and data processing devices located elsewhere in remote offices
or stores. Data is transmitted to the Hub via small satellite antenna
dishes. The Hub system is used for a variety of functions, such as
verification of credit card transactions, order entry and inventory
management. The Hub has been in operation since November 1991.
REORGANIZATION AGREEMENT
The Reorganization Agreement (the "Agreement") established the combination
of the businesses of Datalinc and Fastcom through a tax-free incorporation
of their assets and liabilities into a single corporate entity, Thrucomm,
Inc. On November 1, 1997, pursuant to the Agreement, Datalinc and Fastcom
transferred all of their rights, title and interests in their assets and
liabilities to Thrucomm. In the exchange, Datalinc received one (1) share
of each series of Thrucomm's Mandatory Convertible Preferred Stock ("MC
Preferred Stock"), Series A-G, and Fastcom received one (1) share of each
series of Thrucomm's Mandatory Convertible Preferred Stock, Series H-P. The
Series K preferred stock is currently reserved and has not been issued and
is not outstanding at December 31, 1997. The MC Preferred Stock will be
held by Datalinc and Fastcom until Mandatory Conversion (as defined in the
Agreement) at which time the MC Preferred Stock will be converted into
shares of Thrucomm's common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING TREATMENT OF REORGANIZATION
The reorganization was accounted for as a transaction among parties
considered to be under common control and treated similar to a pooling of
interest except for Fastcom's Series 100EA Units (Series I), which are
treated as a purchase. Accordingly, historical cost basis was used for all
F-6
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
Datalinc Investors and Datalinc's interest in Fastcom. The historical basis
of the Fastcom Series 100EA Units have been stepped up to its fair market
value of $85,251 to reflect the purchase accounting treatment of these
minority interests in Fastcom. The $85,251 was subsequently expensed as
research and development and is included in the statement of operations.
USE OF ESTIMATES
The Company prepares its financial statements in conformity with generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclose contingent assets and liabilities at the date of the
financial statements and report 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, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
INVENTORIES
Inventories are comprised of component parts, equipment and supplies used
in the installation and sale of remote Very Small Aperture Terminals
(VSATs) and Personal Earth Stations (PESs) at customer locations and
equipment utilized in the Network. Inventories are valued at cost
determined on the specific identification basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The Company changed its
depreciation method from the double declining balance method to the
straight-line method for all asset acquisitions after January 1, 1997, to
better match the expenses incurred with the revenues being generated. All
assets acquired prior to January 1, 1997 remain depreciated under the
double declining balance method. Depreciation is charged over the estimated
useful lives of the assets ranging from three to thirty-nine years. Costs
of additions and betterments are capitalized, and repairs and maintenance
are charged to expense as incurred. Upon sale or retirement of property and
equipment, the costs and related accumulated depreciation are eliminated
from the accounts and the resulting gain or loss is reflected in the
statement of operations.
OTHER ASSETS
Other assets include deposits, debt issue costs and organization costs.
Debt issue costs are amortized over the life of the loan using the
effective interest rate method. Amortization costs of $40,533 were recorded
as interest expense for the year ended December 31, 1997.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research, development and engineering of products are
expensed as incurred.
F-7
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
MAJOR CUSTOMERS
The Company had four major customers which accounted for approximately
$580,000, $522,000, $496,000 and $324,000 of sales for the year ended
December 31, 1997; two major customers which accounted for approximately
$3,725,000 and $858,000 of sales for the year ended December 31, 1996; and
three major customers which accounted for approximately $926,000, $608,000
and $459,000 of sales for the year ended December 31, 1995.
VALUATION ASSESSMENT OF LONG-LIVED ASSETS
Management continuously reviews the value of the Company's long-lived
assets and records necessary adjustments to the asset's carrying value in
the event the asset becomes impaired. If an asset is determined to be
impaired, a loss is recognized in the statement of operations. No assets
were considered impaired as of December 31, 1997.
EARNINGS PER SHARE
Although the Company has one share of common stock outstanding during 1997,
pro forma earnings per share was calculated for the periods presented in
accordance with FAS 128, "Earnings per Share." On December 31, 1997, the
Board of Directors determined that the Preferred Stock outstanding would
convert to 6,733,333 common shares based on the pending Senior Preferred
Series A and Series B transaction that closed subsequent to year end.
However, 67,333 shares are reserved for the warrants issued to a
shareholder (Note 5) and are not included in basic loss per share. Pro
forma basic loss per shares was ($.19), ($.28) and ($.53) for the year
ended December 31, 1995, 1996 and 1997, respectively, assuming 6,666,001
weighted average shares were outstanding during each period.
Diluted loss per share is not presented as it is anti-dilutive.
INCOME TAXES
The predecessor partnerships were not subject to income tax prior to the
transfer of net assets to Thrucomm on November 1, 1997.
The provisions for income taxes include Federal and State income taxes
currently payable and deferred income taxes. Deferred income taxes are
determined based on the difference between the book and tax basis of assets
and liabilities using tax rates expected to be in effect in the years in
which the differences are expected to reverse.
3. INVENTORIES:
DECEMBER 31,
1996 1997
Satellite equipment $ 130,332 $ 27,851
Transmission equipment 142,054 160,386
Materials and supplies 9,164 16,289
--------- ---------
$ 281,550 $ 204,526
========= =========
F-8
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT:
DECEMBER 31,
1996 1997
Hub and network equipment installed $ 3,665,759 $ 4,759,822
Software 101,516 111,504
Leasehold Improvements 137,274 137,274
Furniture and equipment 275,138 308,760
Construction in progress 479,723 479,887
--------- ---------
4,659,410 5,797,247
Less accumulated depreciation
and amortization (2,213,570) (3,068,329)
--------- ---------
$ 2,445,840 $ 2,728,918
========= =========
Hub and network equipment of approximately $2,058,000 and $1,572,000 at December
31, 1997 and 1996, respectively, is equipment under capital lease. Accumulated
amortization for such equipment approximated $952,000 and $411,000 at December
31, 1997 and 1996, respectively. Depreciation expense was $854,759, $579,367 and
$352,085 for the years ended December 31, 1997, 1996 and 1995, respectively.
F-9
<PAGE>
5. DEBT:
December 31,
1996 1997
Revolving line of credit; interest rate at prime
plus .75% (10.12% at December 31, 1997); interest
payments due monthly; collateralized by equipment,
inventory, accounts receivable and life insurance
policies of key executives of Company; due on demand
(see Note 12). $ 293,000 $ 293,000
Bank line of credit; interest rate at prime plus .75%
(10.12% at December 31, 1997); due December 31, 1997;
interest payments due monthly; guaranteed by the
Company, collateralized by inventory, accounts
receivable, equipment and life insurance policies of
key executives of the Company (see Note 12). 321,289 600,000
Bank term loan; interest rate at prime plus .75%
(10.12% at December 31, 1997); due January 22, 1998;
interest payments due monthly; guaranteed by a related
party; collateralized by equipment, inventory and
accounts receivable, and life insurance policies of key
executives of the Company (see Note 12). 120,000 491,000
Blue Chip term loan; interest rate at 15%; interest
and principal due at December 31, 1997 (see Note 12). - 100,000
Commercial loan; interest rate at 10%; collateralized by
equipment, inventory, accounts receivable and life
insurance policies on key employees of Company; $1,219
principal and interest payments due monthly;
due January 24, 2000. - 28,361
Equipment loan; interest rate at prime plus .75%
(10.12% at December 31, 1997); interest payments due
monthly; guaranteed by equipment purchased; due
May 3, 1998; $990 principal payments due monthly. 17,071 5,210
--------- ---------
Total debt 751,360 1,517,571
Less debt due within one year (746,152) (1,501,595)
--------- ---------
Long-term debt $ 5,208 $ 15,976
========= =========
Capital lease obligations, at varying rates of
imputed interest from 8% to 13% $ 1,224,617 $ 1,371,815
Less capital lease obligations due within one year (356,668) (587,513)
--------- ---------
Long-term capital lease obligations $ 867,949 $ 784,302
========= =========
During 1997, the Company entered into an agreement with Blue Chip/Datalinc
Corporation ("Blue Chip") whereby Blue Chip would provide a guarantee for the
Company's line of credit in exchange for an $8,000 consulting fee. In the event
that the Company's guarantee was not fully discharged by October 31, 1997, Blue
Chip would receive $3,000 per month plus warrants to purchase a 1% interest in
the Company exercisable within three years. As the guarantee was not discharged
during 1997, Blue Chip became fully vested in its warrant and the Company
F-10
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
recorded a $130,000 charge for the value of the warrant based on the fair value
of the Company. The warrant is exercisable for 67,333 shares of common stock at
an exercise price of $.002 per share. The warrant expires on January 27, 2001.
Included in the Company's capital lease obligations at December 31, 1997 and
1996, respectively, is $1,084,000 and $863,000 of equipment subleased to a
customer under an operating lease and integrated services agreement.
Scheduled principal repayments on debt and minimum future capital lease payments
for the next five years and thereafter are as follows:
OBLIGATIONS
UNDER CAPITAL
DEBT LEASES
YEAR ENDING
DECEMBER 31,
1998 $1,501,595 $ 709,419
1999 14,857 622,819
2000 1,119 225,226
2001 -
--------- ---------
Total $1,517,571 $1,557,464
=========
Less amount representing interest on obligations
under capital leases
Total (185,649)
---------
$1,371,815
=========
6. INCOME TAXES:
Prior to the reorganization on November 1, 1997, the Company's business
operated in the form of two partnerships for federal and state income tax
purposes. Therefore, all income and losses prior to that date were taxed at
the partner level and no provision for income taxes was recorded.
As a result of the reorganization on November 1, 1997, the tax status of
the Company changed to a taxable entity. No provision for income taxes was
recorded for the two months ended December 31, 1997, as the Company
generated operating losses.
Deferred tax assets and deferred tax liabilities reflect the tax effect of
the following differences between financial statements carrying amounts and
tax bases of assets and liabilities:
F-11
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,
1997
Deferred tax assets:
Depreciation $ 736,970
Net Operating loss carryforwards 361,260
---------
1,098,230
Less valuation allowance (1,098,230)
---------
Total $ -
=========
A valuation allowance has been provided as management believes it is more
likely than not that the deferred tax asset will not be realized.
No pro forma provision for income taxes is presented for the periods ended
December 31, 1995 and 1996 and the ten months ended October 31, 1997 as
there were operating losses at both partnerships and any benefit generated
would have been fully reserved. The effective tax rate for these periods
would have been 38%.
1997
Tax benefit at U. S. Federal Statutory tax rates (12 months) $(1,190,431)
State income tax benefit, net of federal (12 months) (140,050)
Tax benefits attributable to losses recognized for book
purposes in periods that Company operated as
non-taxable entities (10 months) 991,300
Benefit of deferred tax assets at date of
reorganization (10 months) (759,049)
Valuation allowance 1,098,230
---------
Benefit for income taxes $ -
=========
The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $951,000 at
December 31, 1997 expiring through 2012. Under the Internal Revenue Code,
if certain substantial changes in the Company's ownership occur, there
are annual limitations on the utilization of loss carryforwards.
7. PREFERRED STOCK:
Thrucomm is authorized to issue 25,000,000 shares of $.001 par value
preferred stock with such designation, rights and preferences as may be
determined by Thrucomm's Board of Directors. Additionally, Thrucomm's board
of directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which
could adversely affect the common stockholder's voting power or other
rights. The Board of Directors has authorized 16 shares of preferred stock
to be mandatorily convertible and are designated as Series A-P. Series A
through P (except Series K which is reserved) are issued and outstanding as
follows:
F-12
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31,
Issued and 1996 Issued and 1997
Outstanding Par Outstanding Par
Shares Value APIC Shares Value APIC
Series A - series 100 1 $ - $1,632,000 1 $ - $1,632,000
Series B - series 200 1 - 1,027,952 1 - 1,027,952
Series C - series 300 1 - 654,433 1 - 654,433
Series D - series 300E1 1 - 1,110,889 1 - 1,110,889
Series E - series 300E2 1 - 956,791 1 - 956,791
Series F - CFG 1 - 261,067 1 - 261,067
Series G - ICN 1 - - 1 - -
Series H - series 100 1 - 414,600 1 - 414,600
Series I - series 100EA 1 - - 1 - 85,251
Series J - series 200 1 - 1,936,500 1 - 1,936,500
Series K - series 300 0 - - 0 - -
Series L - Datalinc 1 - 74,143 1 - 74,143
Series M - MIP 1 - 41,000 1 - 1,100
Series N - CFG 1 - 77,029 1 - 77,029
Series O - ILC 0 - - 1 - 132,000
Series P - FMI 1 - - 1 - -
-------- ------ --------- ------- ------ ---------
14 $ - $8,186,404 15 $ - $8,363,755
======== ====== ========= ======= ====== =========
THE CONVERSION FEATURE
The MC Preferred Stock shall be mandatorily convertible into 6,666,000
shares of common stock ("Underlying Shares") upon the earliest to occur of
one of the following events: (i) the completion of an initial public
offering (an "IPO"), (ii) the sale of all or substantially all of the
assets (a "Sale"), (iii) the merger into a non-affiliated entity, whereby
the Company is not the surviving entity (a "Merger"), or (iv) the sale of
one-third or more of the equity interests in Thrucomm, in a single
transaction, to one or more investors, (collectively, the "Mandatory
Conversion Events"). The "sale of all or substantially all of the assets of
Thrucomm" is defined in the Reorganization Agreement as the sale of at
least 80% of Thrucomm's assets.
The precise number of Underlying Shares that will be issued to each
individual series of MC Preferred Stock upon Mandatory Conversion is not
presently ascertainable, because the number of Underlying Shares will vary
depending upon the Conversion Value of Thrucomm in the Mandatory Conversion
event. The Board of Directors of Thrucomm have developed a formula for
allocating the conversion value of Thrucomm to Fastcom and Datalinc in a
Mandatory Conversion Event. In any Mandatory Conversion Event, the minimum
conversion value of Thrucomm shall not be less than $20 million and it will
be allocated to Datalinc and Fastcom in the manner prescribed by the
Formula (as defined), known respectively as the "Datalinc Value" and
"Fastcom Value."
F-13
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
RIGHTS AND PREFERENCES OF SERIES A-P PREFERRED STOCK UPON MANDATORY
CONVERSION
SERIES A
--------
The Series A shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Returns of the Series A (as defined), plus (ii)
18.921% of (a) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E (as defined) and (b) the
remainder of Datalinc's share of the Fastcom Value.
SERIES B
--------
The Series B shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Returns of the Series B (as defined), plus (ii)
8.642% of (a) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (b) the remainder of
Datalinc's share of the Fastcom Value.
SERIES C
--------
The Series C shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Returns of the Series C (as defined), plus (ii)
5.429% of (a) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (b) the remainder of
Datalinc's share of the Fastcom Value.
SERIES D
--------
The Series D shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Returns of the Series D (as defined), plus (ii)
9.137% of (a) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (b) the remainder of
Datalinc's share of the Fastcom Value.
SERIES E
--------
The Series E shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Returns of the Series E (as defined), plus (ii)
7.871% of (a) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (b) the remainder of
Datalinc's share of the Fastcom Value.
SERIES F
--------
The Series F shall be convertible into a number of Underlying Shares equal
to 4.0% of (i) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (ii) the remainder of
Datalinc's share of the Fastcom Value. This series is for Certified
Financial Group, Inc. ("CFG") who was engaged to sell limited partnership
interests in Datalinc and Fastcom. As part of their compensation, CFG
received options in the partnerships.
F-14
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
SERIES G
--------
The Series G shall be convertible into a number of Underlying Shares equal
to 46.0% of (i) the difference, if any, of the Datalinc Value minus the
Earned Preferred Returns of the Series A-E, and (ii) the remainder of
Datalinc's share of the Fastcom Value.
SERIES H
--------
The Series H shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Return of the Series H (as defined), plus (ii)
2.184% of the Fastcom Value.
SERIES I
--------
The Series I shall be convertible into a number of Underlying Shares equal
to 0.546% of the Fastcom Value.
SERIES J
--------
The Series J shall be convertible into a number of Underlying Shares equal
to (i) the Earned Preferred Return of the Series J (as defined), plus (ii)
10.832% of the Fastcom Value.
SERIES K
--------
The Series K is currently reserved for any new investors.
SERIES L
--------
The Series L shall be convertible into a number of Underlying Shares equal
to (i) 79.262% of the Fastcom Value, (ii) minus the sum of any Earned
Preferred Returns of the Series H, J, K and M (as defined).
SERIES M
--------
The Series M shall be convertible into Underlying Shares in an amount equal
to (i) 0.01% of the Fastcom Value, (ii) plus any Earned Preferred Return of
the Series M (as defined).
SERIES N
--------
The Series N shall be convertible into a number of Underlying Shares equal
to 2.356% of the Fastcom Value.
SERIES O
--------
The Series O shall be convertible into a number of Underlying Shares equal
to 0.982% of the Fastcom Value.
SERIES P
--------
The Series P shall be convertible into a number of Underlying Shares equal
to 1.0% of the Fastcom Value.
F-15
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation (as defined) of
the Company, the Preferred Stock is entitled to be paid out of the assets
of the Company ("Available Assets") prior to any distribution to the Common
Stockholders. The liquidation payment (as defined) is based on the Datalinc
and Fastcom Liquidation Values (as defined) and allocated accordingly to
the respective Preferred Stockholders. In addition to any distribution upon
liquidation, the MC Preferred Stock is entitled to receive twenty percent
(20%) of the Available Assets otherwise payable to common stockholders. The
MC Preferred Stock ranks junior to the Senior A and B Convertible Preferred
Stock (Note 12).
VOTING
The MC Preferred Stock is entitled to vote with the Common Stockholders on
all matters submitted to the Common Stockholders. Additionally, the MC
Preferred stock is entitled to one vote for each share of Common Stock that
would be issuable upon Mandatory Conversion. Fastcom has given Datalinc its
proxy to vote its shares.
DIVIDENDS
Prior to Mandatory Conversion, all series of MC Preferred Stock are not
entitled to dividends.
8. COMMITMENTS AND CONTINGENCIES:
The Company maintains hub and Corporate operations primarily in leased
facilities. Thrucomm's rental expense for its facilities was $139,110,
$125,328 and $115,593 for the year ended December 31, 1997, 1996 and 1995,
respectively, and is included in selling, general and administrative
expenses in the statement of operations. The minimum future noncancelable
operating lease payments for these facilities are $88,564 in 1998, 1999,
2000, 2001 and 2002.
Included in one of Thrucomm's lease agreements was a provision that the
lessor, Information Leasing Corporation ("ILC"), would receive an ownership
interest in the Company, ranging from .982% up to 4.525%, dependent on the
dollar amount of equipment financed. A .982% ownership interest will be
granted after $1 million of equipment is financed and an additional .4525%
ownership interest (up to the maximum of 4.525%) will be granted on a pro
rata basis for each additional $3 million financed. No equity ownership
will be granted if less than $1 million is leased. As of December 31, 1997,
approximately $1,310,000 of equipment had been leased resulting in the
lessor having a .982% ownership interest. The cost of this interest was
recorded as debt issue costs and is being amortized over the life of the
Company's leases, which is three years.
The Company leases certain operating equipment under an operating lease
from third parties. Rental expense for this equipment in the amount of
$23,669, $15,456 and $1,288 for the year ended December 31, 1997, 1996 and
1995, respectively, is included in selling, general and administrative
expenses in the statement of operations.
F-16
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
Pursuant to a purchase agreement between the Company and Blue Chip, Blue
Chip has preferential rights which affect the number of shares of Thrucomm
common stock to be issued and the right of first refusal to purchase equity
interests offered by Thrucomm. The preferential rights also include the
right for Blue Chip to be entitled to receive certain distributions,
otherwise payable to ICN, providing a return equal to 35% per annum on its
capital contribution. This return was frozen in accordance with the debt
proceeds received subsequent to year end (Note 12). As of December 31,
1997, Blue Chip's interest totaled $7,200,000. Where defined, ICN has
agreed to escrow certain distributions otherwise payable to ICN as an
assurance that Blue Chip will receive its specified return. In addition,
ICN has agreed to certain restrictions on its right to transfer its
interest in the Company. The stockholders of ICN have agreed to elect a
nominee to the ICN Board of Directors, place certain restrictions on their
right to transfer stock in ICN and to certain employment restrictions. Blue
Chip has been granted registration rights in the event the Company or its
successor should register its securities under the Securities Act of 1993.
The Company has entered into employment agreements with its top executives.
The employment agreements provide combined base annual salaries of $310,000
with the executives eligible, subject to the discretion of the Board of
Directors, for twenty percent bonuses and the Company's stock option plan
(Note 9).
9. STOCK COMPENSATION PLANS:
The Company's stock option plans authorize the granting of incentive stock
options for a total of 200,000 shares of Common Stock to all eligible
employees, including officers and employee directors and others who perform
services for the Company and with respect to 100,000 shares to non-employee
directors. Under the plans, all options cannot be granted at prices not
less than market value on the date of grant. Employee options generally
vest over a five-year period from the date of the grant, with 40% of the
options becoming vested two years after the date of the grant and 20%
vesting on each of the next three anniversaries after the date of grant.
Non-employee directors vest 20% each year after the date of grant. No
options have been granted as of December 31, 1997.
10. RELATED PARTY TRANSACTIONS:
The Company is charged, as provided by employment agreements, by officers
of the Company for management fees. These charges aggregated $250,000,
$314,200 and $272,000 in 1997, 1996 and 1995, respectively, and are
included in selling, general and administrative expenses. The Company had
non-interest bearing advances to officers of the Company of approximately
$0, $200 and $18,000 at December 31, 1997, 1996 and 1995, respectively,
which are included in other receivables.
Life insurance policy premiums on the lives of certain employees of the
Company are paid and expensed by the Company. The policies carry $3,250,000
in life insurance benefits and have no cash surrender value at December 31,
1997 and 1996.
F-17
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
A member of the Company's Board of Director is the president of the Company
that engages in certain leasing transactions with the Company. This company
has leased approximately $1,310,000 of equipment over the last several
years to the Company.
11. MANAGEMENT INCENTIVE PLAN:
In July 1997, the Company and the respective key employees terminated the
original Management Incentive Plan (the "Plan" or "Original MIP") and
replaced it with an alternative plan ("1997 Plan") which provides for a
.01% interest in Thrucomm. The employees covered by the 1997 Plan became
fully vested during the year. A charge of $1,100 was recorded as
compensation expense and is included in selling, general and administrative
expenses. The 1997 Plan shares are Preferred Stock- Series M.
12. SUBSEQUENT EVENTS:
SENIOR A CONVERTIBLE PREFERRED STOCK
Thrucomm is authorized to issue 1,666,667 shares of voting $.001 par value
Series A Senior Convertible Preferred Stock ("Senior A Preferred Stock").
No shares were issued or outstanding as of December 31, 1997. On January
31, 1998, the Company closed on a $5,500,000 private placement for the
Senior A Preferred Stock. The Company received approximately $1,700,000 in
cash and entered into an agreement for the remaining $3,800,000 which is to
be funded by June, 1998. The agreement is collateralized and held in escrow
with the stock of a public company whose value exceeds the monies owed
under the agreement. The Senior A Preferred Stock ranks on parity with the
Series B Senior Convertible Preferred Stock ("Senior B Preferred Stock")
with respect to dividend and asset distributions, but is senior to all
other preferred and common shares. The Senior A Preferred Stock also has a
$3.30 per share liquidation preference. There is an optional conversion
which allows for each share of Senior A Preferred Stock to convert to one
share of Common Stock. There is an anti-dilution provision which prevents
the Senior A Preferred Stock from becoming diluted if the Company issues
any Common Stock at a value less than the Trigger Value (as defined). The
Senior A Preferred Stock also has a redemption provision requiring the
Company to redeem the stock for $5,500,000 if the Company completes an IPO
and the Conversion rights are not exercised. During 1997, the Company
received $250,000 as a deposit from one of the investors for the Series A
Preferred Stock.
SENIOR B CONVERTIBLE PREFERRED STOCK
Thrucomm is authorized to issue 2,200,000 shares of voting $.001 par value
Series B Senior Convertible Preferred Stock ("Senior B Preferred Stock").
No shares were issued or outstanding as of December 31, 1997. On January
26, 1998, the Company issued 1,600,000 shares in conjunction with the
$10,000,000 debt proceeds received. The value of the proceeds received was
allocated between the fair value of the Senior B Preferred Stock
($5,280,000) and the debt proceeds ($4,720,000). The Senior B Preferred
Stock ranks on parity with the Senior A Preferred Stock with respect to
dividend and asset distributions, but is senior to all other preferred and
common shares. The Senior B Preferred Stock also has a $.001 per share
liquidation preference. There is an optional conversion which allows for
F-18
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
each share of Senior B Preferred Stock to convert to one share of Common
Stock. Additionally, there is an anti-dilution provision which prevents the
Senior B Preferred Stock from becoming diluted if the Company issues any
Common Stock at a value less than the Trigger Value (as defined). The
Senior B Preferred Stock also has a redemption provision requiring the
Company to redeem the stock for $3,000,000 if the Company completes an IPO
and the Conversion rights are not exercised.
SENIOR SUBORDINATED NOTES
On January 26, 1998 (the "Closing"), several investors loaned the Company
$10,000,000 in cash in exchange for Senior Subordinated Notes ("Senior
Notes") and the Senior B Preferred Stock, convertible into 16% of the
Common Stock of the Company or 1,600,000 shares, as discussed above.
The Senior Notes carry a 10% stated interest rate (22.8% implicit interest
rate) and are due on January 26, 2005. The Senior Notes require mandatory
principal payments on the fifth anniversary of the Closing whereby
one-third of the outstanding principal and all accrued interest must be
paid. On the sixth anniversary of the Closing, one-half of the outstanding
principal and all accrued interest must be paid. The remaining outstanding
principal and all accrued interest are due at the end of the term.
The Senior Notes also contain a Note Put Right whereby on the third
anniversary of the Closing if the Company has not completed a Qualifying
IPO, then the holders of the Senior Notes may redeem their Notes for the
outstanding principal amount. If the Company is unable to pay the
redemption price for the Senior Notes or Senior B Preferred Stock, the
investors shall return the Senior B Preferred Stock for cancellation in
exchange for Convertible Preferred Stock which is convertible into 60% of
the fully diluted outstanding shares at the time of issuance.
The Senior Notes also contain a provision that if, at any time after the
Closing, there is a Change of Control (as defined), the outstanding
principal and all accrued interest shall become due and payable.
Interest payments are due quarterly; provided however, that the Company
may, until the earlier to occur of a Qualifying IPO or the second
anniversary of the Closing, issue Interest Notes together with additional
shares of Senior B Preferred Stock. Additionally, for each $1,000 of
principal amount issued, the Company will issue Convertible Preferred Stock
convertible into .0022% of the fully diluted outstanding shares of the
Company.
In the event, the Senior Notes are not repaid out of the proceeds of a
Qualifying IPO within eighteen months of the Closing, the Senior Preferred
Stock is convertible into 17% of the fully diluted outstanding shares of
the Company. Such equity ownership is increased 1% per month for each month
that the Senior Notes remain outstanding to a maximum of 22% (prorated if
partially paid down). If all Senior Notes are not redeemed until after the
18th month but before the 24th month, the Company shall issue Convertible
Preferred Stock convertible into 3% of the fully diluted outstanding shares
at the time of issuance. In the event that the Senior Notes remain
F-19
<PAGE>
THRUCOMM, INC.
NOTES TO FINANCIAL STATEMENTS
outstanding after the consummation of a Qualifying IPO, the Company shall
issue Preferred Stock convertible into 6% of the fully diluted outstanding
shares. In the event the Company has not completed a Qualifying IPO by the
36th month, the Senior Notes may become convertible into 60% of the
Company.
PRO FORMA CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1997, and the pro forma capitalization after giving effect
to the Company entering into the Senior Subordinated Notes and the Senior A
and B Preferred Stock as if they had occurred on December 31, 1997. This
table should be read in conjunction with the Company's financial statements
and related notes.
As of December 31, 1997
Actual Pro Forma
as Adjusted
(unaudited)
Debt $ 1,517,570 $ 33,570
Senior Subordinated Notes (1) 4,720,000
---------- ----------
Total debt 1,517,570 4,753,570
---------- ----------
Series A - Senior Convertible Preferred Stock (2) - 5,500,000
Series B - Senior Convertible Preferred Stock (1) - 5,280,000
Common stock 1 1
Additional paid in capital 8,363,755 8,363,755
Warrants outstanding 130,000 130,000
Accumulated deficit (11,299,432) (11,299,432)
---------- ----------
Total stockholders' equity (deficit) $(2,805,676) $ 7,974,324
========== ==========
(1) On January 26, 1998, the Company obtained $10,000,000 in loan proceeds from
several institutional investors, in exchange for Senior Subordinated Notes
and Series B Senior Convertible Preferred Stock for 16% of the Company. The
fair value of these proceeds are allocated between the Notes and Senior B
Preferred Stock. Following the receipt of the proceeds the Company paid
$1,484,000 in debt and approximately $2,800,000 in outstanding payables.
(2) On January 31, 1998, the Company closed on a $5,500,000 private placement
for the Senior A Preferred Stock. The Company received approximately
$1,700,000 of the offering proceeds in cash and entered into an agreement
for the remaining $3,800,000 which is to be funded by June, 1998. As part
of the agreement, 440,000 shares of a public company's stock worth
approximately $7.5 million are collateralized and held in escrow until the
appropriate funds can be forwarded to the Company. The proceeds will be
used to further develop the Company's Network.
F-20
<PAGE>
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 6, 1998
THRUCOMM, INC.
By: /S/ JOHN F. KOLENDA
-------------------------------
John F. Kolenda, Secretary,
Chief Financial Officer,
Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
Director
- ---------------------------
Joseph F. Bert
/S/ J. JEFFREY BRAUSCH Director April 6, 1998
- ---------------------------
J. Jeffrey Brausch
/S/ MARK J. GIANINNI Director April 6, 1998
- ---------------------------
Mark J. Gianinni
Director
- ---------------------------
R. Brandon Harrison
/S/ ELAINE E. HEALY Director April 6, 1998
- ---------------------------
Elaine E. Healy
/S/ JOHN F. KOLENDA Director April 6, 1998
- ---------------------------
John F. Kolenda
Director
- ---------------------------
Z. David Patterson
/S/ VINCENT D. RINALDI Director April 3, 1998
- ---------------------------
Vincent D. Rinaldi
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed with or incorporated by reference in
this Report.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Reorganization, by and among Datalinc, Ltd.,
Fastcom, Ltd. and Thrucomm, Inc., dated August 26, 1997.*
3.1 Articles of Incorporation of Thruco, Inc.*
3.2 Articles of Amendment to Articles of Incorporation of Thruco, Inc.,
changing the corporate name to Thrucomm, Inc.*
3.3 Articles of Amendment to Articles of Incorporation of Thrucomm, Inc.,
filing Certificates of Designation of Preferred Stock.**
3.4 Certificate of Designation of the Series, Preferences, Limitations and
Relative Rights of the Series A-P Mandatory Convertible Preferred
Stock.**
3.5 Certificate of Designation of the Series, Preferences, Limitations and
Relative Rights of the Series A Senior Convertible Preferred Stock.**
3.6 Certificate of Designation of the Series, Preferences, Limitations and
Relative Rights of the Series B Senior Convertible Preferred Stock.**
3.7 By-laws of Thrucomm, Inc.**
10.1 Agreement by and between Blue Chip/Datalinc Corporation, Integrated
Communication Networks, Inc., John F. Kolenda, Mark J. Gianinni and
Datalinc, Ltd., dated as of September 1, 1993.*
10.2 Amendment to Agreement by and between Blue Chip/Datalinc Corporation,
Integrated Communication Networks, Inc., John F. Kolenda, Mark J.
Gianinni and Datalinc, Ltd., dated September 1, 1993.*
10.3 Agreement by and among Thrucomm, Inc., Blue Chip/Datalinc Corporation,
Integrated Communications Networks, Inc., John F. Kolenda, Mark J.
Gianinni and Datalinc, Inc., dated August 27, 1997.*
10.4 Option Agreement by and between Datalinc, Ltd. and CFG Securities
Corp.*
10.5 Managing Dealer Agreement by and between Fastcom, Ltd. and CFG
Securities Corp., dated as of April 24, 1996.*
10.6 Agreement by and between Information Leasing Corporation, Datalinc,
Ltd. and Fastcom, Ltd., dated as of September 6, 1995.*
10.7 Master Lease Agreement by and between Information Leasing Corporation
Datalinc, Ltd. and Fastcom, Ltd., dated as of November 7, 1995.*
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.8 Payment Agreement by and between Fastcom, Ltd. and Nova Engineering
dated July 25, 1997.*
10.9 Form of Employment Agreement by and among Thrucomm, Inc. and Messrs.
Kolenda and Gianinni.*
10.10 Incentive and Non-Statutory Stock Option Plan.*
10.11 Non-Employee Directors Non-Statutory Stock Option Plan.*
10.12 Datalinc's $300,000 Line of Credit with United Bank and Trust Co.,
dated as of October 3, 1994.*
10.13 Industrial Lease Agreement between Industrial Developments
International, Inc. and Datalinc-I, Ltd., dated as of April 15, 1991.*
10.14 Third Lease Amendment by and between Duke Realty Limited Partnership
and Thrucomm, Inc., dated December ___, 1997.**
10.15 Agreement by and among Thrucomm, Inc., Blue Chip/Datalinc Corporation,
Integrated Communications Networks, Inc., John F. Kolenda, Mark J.
Gianinni and Datalinc, Inc., dated January 26, 1998.**
10.16 Warrant Agreement by and between Thrucomm, Inc. and Blue Chip Capital
Fund Limited, dated January 26, 1998.**
10.17 Stock Purchase Agreement by and among Thrucomm, Inc. and Declaration
of Trust for Defined Benefit Plans of ICI American Holdings,
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings
Inc., Delaware State Employees' Retirement Fund, and J. W. Family
Foundation, dated January 26, 1998.**
10.18 Professional Services Agreement by and between Thrucomm, Inc. and J.
Jeffrey Brausch, dated January 19, 1998.**
10.19 Maintenance Service Agreement by and between Thrucomm Inc. and
Dictaphone Corporation, dated August 13, 1996.**
* Exhibit incorporated by reference from the Company's Registration
Statement on Form S-4, effective September 3, 1997.
** Exhibit filed herewith.
<PAGE>
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THRUCOMM, INC.
1. The name of the corporation is Thrucomm, Inc. (the "Corporation").
2. Pursuant to Sections 607.0602(4) and 607.1006 of the Florida
Business Corporation Act, Article IV of the Articles of Incorporation of
the Corporation, is hereby amended to read as follows:
"ARTICLE IV-CAPITAL STOCK"
SHARES AUTHORIZED. The aggregate number of shares of stock
which the Corporation shall have authority to issue shall be one
hundred twenty-five million (125,000,000) shares, of which one hundred
million (100,000,000) shares shall be common stock, without par value
(the "Common Stock"), and twenty-five million (25,000,000) shares shall
be preferred stock with a par value of $.001 per share (the "Preferred
Stock").
PREFERRED STOCK.
A. IN GENERAL.
(i) Shares of Preferred Stock may be issued from time to time, in
one or more series (each, a "Series"), with such designations,
assigned values, preferences and relative, participating, optional or
other rights, qualifications, limitation or restrictions thereof as
shall be stated and expressed in the resolution or resolutions
providing for the issue of each such Series, adopted by the Board of
Directors of the Corporation (the "Board of Directors" or the
"Board"), pursuant to the authority herein given, a copy of which
resolution or resolutions shall have been set forth in a certificate
(a "Certificate of Designation") made, executed, acknowledged, filed
and recorded in the manner required by the laws of the State of
Florida in order to make the same effective. Each Series shall consist
of such number of shares as shall be stated in such resolution or
resolutions providing for the creation, preferences, limitations, and
relative rights of such Series.
(ii) All shares of a Series shall have preferences, limitations
and relative rights identical with those of other shares of the same
Series.
(iii) All shares of one Series shall have preferences,
limitations and relative rights identical with those of other shares
of another Series, except to the extent otherwise provided in the
Certificate of Designation for a Series, which Certificate of
Designation is contained in articles of amendment to these Articles of
Incorporation, which articles of amendment have been delivered to the
Department of State of the State of Florida for filing.
1
<PAGE>
(iv) Except as limited by law or elsewhere in this Article IV,
the preferences, limitations and relative rights of shares of a Series
created under this Article IV shall be determined by the Board of
Directors who shall have the power to decide the following terms:
(a) whether the shares shall be participating;
(b) the dividend rate or rates, if any, on the shares and the
relation which dividends shall bear to the dividends payable
on any other class or classes or on any other series of any
class or classes of capital stock of the Corporation;
(c) the terms and conditions upon which and the periods in
respect to which any such dividends shall be payable;
(d) whether and upon what conditions any dividends shall be
cumulative, and if cumulative, the date or dates from which
dividends shall accumulate;
(e) whether the shares shall be limited in dividends, if any, or
whether they shall participate in dividends over and above
the dividend rate, if any, provided for the shares;
(f) whether any such dividends shall be payable in cash, in
shares of such Series, in shares of any other class or
classes or of any other series of any class or classes of
capital stock of the Corporation, or in other property, or
in more than one of the foregoing;
(g) whether the shares shall be redeemable or callable, the
limitations and restrictions with respect to such redemption
or call, the time or times of redemption, and the price or
prices (which may be greater than par value) at which and
the manner in which shares shall be redeemable or callable,
including the manner of selecting shares for redemption if
less than all shares are to be redeemed or called;
(h) whether the shares shall be subject to the operation of a
purchase, retirement or sinking fund, and, if so, whether
and upon what conditions the purchase, retirement or sinking
fund shall be cumulative on non-cumulative, and the extent
to which and the manner in which the fund shall be applied
to the purchase or redemption of the shares for retirement
or to other corporate purposes and the terms and provisions
relative to the operation thereof;
(i) the terms on which shares shall be convertible into or
exchangeable for shares of any other class or classes of
capital stock of the Corporation, and the price or prices or
the rate or rates of conversion or exchange and the method,
if any, of adjusting the same, and any other terms and
conditions of such conversion or exchange;
(j) the extent to which holders of shares shall be entitled to
vote generally with respect to matters relating to the
Corporation and the matters on which the holders of shares
shall be entitled to vote as a class;
2
<PAGE>
(k) the preferences, in respect to the assets of the
Corporation, upon liquidation or winding up of the
Corporation including the amount (which may be greater than
par value) payable to holders before any amount is payable
to holders of Common Stock;
(l) any other preferences, privileges and powers, and relative,
participating, optional or other special rights and
qualifications of or limitations or restrictions which the
Board of Directors may deem advisable, provided they are not
inconsistent with the provisions of these Articles of
Incorporation.
B. SERIES AUTHORIZED.
(i) The Corporation shall have the authority to issue one (1)
share of each series of Mandatory Convertible Preferred Stock, Series
A-P ("Series A-P Preferred Stock"), with such preferences, limitations
and relative rights thereof as stated and expressed in the resolution
providing for the issue of each such series, adopted by the Board of
Directors, pursuant to the authority herein given, a copy of which
resolution has been set forth in a Certificate of Designation and
attached hereto as Appendix A.
(ii) The Corporation shall have the authority to issue one
million, four hundred twenty-eight thousand, five hundred seventy-one
(1,666,667) shares of Senior Convertible Preferred Stock, Series A,
with such preferences, limitations and relative rights thereof as
stated and expressed in the resolution providing for the issue of such
series, adopted by the Board of Directors, pursuant to the authority
herein given, a copy of which resolution has been set forth in a
Certificate of Designation and attached hereto as Appendix B.
(iii) The Corporation shall have the authority to issue two
million two hundred thousand (2,200,000) shares of Senior Convertible
Preferred Stock, Series B, with such preferences, limitations and
relative rights thereof as stated and expressed in the resolution
providing for the issue of such series, adopted by the Board of
Directors, pursuant to the authority herein given, a copy of which
resolution has been set forth in a Certificate of Designation and
attached hereto as Appendix C."
3. At a joint meeting of Board of Directors and the shareholders of
the Corporation held on December 31, 1997, adjourned and reconvened on
January 5, 1998:
(i) the foregoing amendment relating to the Series A-P Preferred
Stock was duly adopted by the Board of Directors and approved by the
sole holder of the only outstanding share of Common Stock of the
Corporation.
(ii) the foregoing amendments relating to the Series A and the
Series B Senior Convertible Preferred Stock were duly adopted by the
Board of Directors, and approved by the holders of Series A-P
Preferred Stock, each such Series A-P voting separately as a class,
3
<PAGE>
which Series A-P are the only classes of the Corporation's authorized
shares entitled to vote on the amendments relating to the Series A and
the Series B Senior Convertible Preferred Stock. The favorable vote of
such shareholders was sufficient for approval.
IN WITNESS WHEREOF, THRUCOMM, INC. has caused its corporate seal to be
affixed hereunto and these Articles of Amendment to be duly executed by its
President and attested to by its Secretary, this ____ day of January, 1998.
THRUCOMM, INC.
By:____________________________
Name: Mark J. Giannini
Title: President
[Corporate Seal]
Attest:
By:______________________________
Name: John F. Kolenda
Title: Secretary
4
<PAGE>
STATE OF FLORIDA }
}
COUNTY OF HILLSBOROUGH }
Before me, the undersigned authority, personally appeared John F.
Kolenda, who is to me well known to be the person described in and who
subscribed the above Articles of Amendment to the Articles of Incorporation, and
he did freely and voluntarily acknowledge before me according to law that he
made and subscribed the same for the use and purposes therein mentioned and set
forth.
IN WITNESS WHEREOF, I have hereunto set my hand and my official seal,
at in said County and State this day of January, 1998.
________________________________
Notary Public, State of Florida
My Commission Expires:
5
<PAGE>
CERTIFICATE OF DESIGNATION OF THE SERIES, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES A-P
MANDATORY CONVERTIBLE PREFERRED STOCK
$ .001 PAR VALUE
OF
THRUCOMM, INC.
------------------------------------------------------------
Pursuant to Section 607.0602 of the Florida Business Corporation Act
------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolutions were
duly adopted by the Board of Directors (the "BOARD OF DIRECTORS") of THRUCOMM,
INC., a Florida corporation (the "CORPORATION"), at a meeting duly convened and
held on December 31, 1997, duly adjourned and reconvened on January 5, 1998, at
which a quorum was present and acted throughout:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Articles of Incorporation of the
Corporation (the "ARTICLES OF INCORPORATION"), to provide by resolution or
resolutions for the issuance of shares of preferred stock of the Corporation, in
one or more series with such voting powers, full or limited, or without voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions as
shall be stated and expressed in a resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in the Articles of Incorporation, or any amendment thereto, including
(but without limiting the generality of the foregoing) such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Florida Business Corporation Act; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its aforesaid authority, to authorize and fix the terms of several
series of preferred stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBER OF SHARES.
There shall be hereby established sixteen (16) series of the preferred
stock of the Corporation, each series with a par value $.001 per share,
designated as follows: (i) "Series A Mandatory Convertible Preferred Stock"
(the "SERIES A PREFERRED STOCK"), (ii) "Series B Mandatory Convertible
Preferred Stock" (the "SERIES B PREFERRED STOCK"), (iii) "Series C
Mandatory Convertible Preferred Stock" (the "SERIES C PREFERRED STOCK"),
(iv) "Series D Mandatory Convertible Preferred Stock" (the "SERIES D
1
<PAGE>
PREFERRED STOCK"), (v) "Series E Mandatory Convertible Preferred Stock"
(the "SERIES E PREFERRED STOCK"), (vi) "Series F Mandatory Convertible
Preferred Stock" (the "SERIES F PREFERRED STOCK"), (vii) "Series G
Mandatory Convertible Preferred Stock" (the "SERIES G PREFERRED STOCK"),
(viii) "Series H Mandatory Convertible Preferred Stock" (the "SERIES H
PREFERRED STOCK"), (ix) "Series I Mandatory Convertible Preferred Stock"
(the "SERIES I PREFERRED STOCK"), (x) "Series J Mandatory Convertible
Preferred Stock" (the "SERIES J PREFERRED STOCK"), (xi) "Series K Mandatory
Convertible Preferred Stock" (the "SERIES K PREFERRED STOCK"), (xii)
"Series L Mandatory Convertible Preferred Stock" (the "SERIES L PREFERRED
STOCK"), (xiii) "Series M Mandatory Convertible Preferred Stock" (the
"SERIES M PREFERRED STOCK"), (xiv) "Series N Mandatory Convertible
Preferred Stock" (the "SERIES N PREFERRED STOCK"), (xv) "Series O Mandatory
Convertible Preferred Stock" (the "SERIES O PREFERRED STOCK"), (xvi)
"Series P Mandatory Convertible Preferred Stock" (the "SERIES P PREFERRED
STOCK") (such series being hereinafter referred to collectively as the
"PREFERRED STOCK"). The authorized number of shares of each series of
Preferred Stock shall be one (1), which number of shares may be increased
from time to time by resolution of the Board of Directors, subject to
paragraph 5(b)(iv) hereof.
2. RANK.
a. The Preferred Stock shall, with respect to distributions of assets
and rights upon the liquidation, winding up and dissolution of the
Corporation, rank senior to the Corporation's common stock, no par value
per share (the "COMMON STOCK"). The Preferred Stock shall, with respect to
distributions of assets and rights upon the liquidation, winding up and
dissolution of the Corporation, rank junior to the Corporation's Series A
Senior Convertible Preferred Stock, par value $.001 per share (the "SERIES
A SENIOR PREFERRED STOCK") and Series B Senior Convertible Preferred Stock,
par value $.001 per share (the "SERIES B SENIOR PREFERRED STOCK").
b. All classes or series of Capital Stock of the Corporation
simultaneously or hereafter created that does not expressly provide that it
rank on a parity with or senior to the Preferred Stock with respect to
distributions of assets and rights upon the liquidation, winding up and
dissolution of the Corporation, shall rank junior to the Preferred Stock,
and together with all classes or series of Capital Stock of the Corporation
which expressly provide that it rank junior to the Preferred Stock with
respect to distributions of assets and rights upon the liquidation, winding
up and dissolution of the Corporation, all such Capital Stock are
collectively referred to herein as "JUNIOR STOCK". All classes or series of
Capital Stock of the Corporation simultaneously or hereafter created which
expressly provide that it rank on a parity with the Preferred Stock with
respect to distributions of assets and rights upon the liquidation, winding
up and dissolution of the Corporation are collectively referred to herein
as "PARITY STOCK". All classes or series of Capital Stock of the
Corporation simultaneously or hereafter created which expressly provide
that it rank senior to the Preferred Stock with respect to distributions of
assets and rights upon the liquidation, winding up and dissolution of the
Corporation are collectively referred to herein as "SENIOR STOCK".
2
<PAGE>
3. DIVIDENDS OR DISTRIBUTIONS.
So long as any shares of Preferred Stock are outstanding, no dividend
or distribution (except a dividend or distribution paid in Common Stock or
any other Capital Stock of the Corporation ranking junior to the Preferred
Stock as to distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation) shall be declared or paid or
set aside for payment on the Common Stock or on any other Capital Stock of
the Corporation nor, except for the Series B Senior Preferred Stock, shall
any Common Stock or other Capital Stock of the Corporation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any such
shares) by the Corporation, except by conversion into, or exchange for,
Common Stock or other Capital Stock of the Corporation ranking junior to
the Preferred Stock as to distributions of assets and rights upon the
liquidation, winding up and dissolution of the Corporation.
4. LIQUIDATION RIGHTS.
a. LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, winding up and dissolution of the Corporation, the
holders of shares of Preferred Stock then outstanding shall be entitled to
be paid for each share held, out of the assets of the Corporation available
for distribution to its shareholders (the "AVAILABLE ASSETS"), before any
payment shall be made or any assets distributed to the holders of any
shares of Junior Stock. In addition to any distribution to the holders of
shares of Preferred Stock upon liquidation, dissolution or winding up of
the affairs of the Corporation, the holders of shares of Preferred Stock
shall be entitled to receive twenty percent (20%) of the Available Assets
otherwise payable to the holders of shares of Common Stock. The voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all the property
or assets of the Corporation to, or a consolidation or merger of the
Corporation with, one or more other corporation or corporations (whether or
not the Corporation is the surviving corporation in such consolidation or
merger) will not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, within the meaning of the provisions of this
paragraph 4.
b. LIQUIDATION PAYMENT. Upon any liquidation, dissolution or winding
up of the Corporation, the holders of Preferred Stock shall be entitled to
receive amount which shall be determined as follows (such distribution to
each series of Preferred Stock, a "LIQUIDATION PAYMENT"):
(i) The excess, if any, of the Available Assets after any
distribution of Available Assets to any holder of shares of the
Capital Stock of the Corporation ranking senior to the Preferred Stock
with respect to distributions of Available Assets (the "REMAINDER
AVAILABLE ASSETS"), shall be allocated in accordance with the
calculations for determining the Datalinc Value and the Fastcom Value,
(the result of such allocations of Remainder Available Assets, the
"DATALINC LIQUIDATION VALUE" and the "FASTCOM LIQUIDATION VALUE",
respectively).
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(ii) The Fastcom Liquidation Value shall be allocated to the
holders of Series H-P Preferred Stock as follows: (A) First, PARI
PASSU to the holders of Series H, J, K, and M Preferred Stock to
satisfy Earned Preferred Returns on such series, if any. (B) Second,
PARI PASSU to the holders of Series H-P Preferred Stock in accordance
with the Conversion Rate of each such series before performing
calculation (C), as set forth in paragraph 6(b) of this Certificate.
(iii) The Datalinc Liquidation Value shall be allocated to the
holders of Series A-G Preferred Stock as follows: (A) First, to the
holders of the Series A-E Preferred Stock as follows: 37.85% to the
Series A Preferred Stock, 17.28% to the Series B Preferred Stock,
10.86% to the Series C Preferred Stock, 18.27% to the Series D
Preferred Stock, and 15.47% to the Series E Preferred Stock, until the
Series A-E Earned Preferred Returns have been paid in full. (B)
Second, PARI PASSU to the holders of the Series A-G Preferred Stock in
accordance with the Conversion Rate of each such series, before
performing calculation (C).
Upon any such liquidation, winding up and dissolution, after the
holders of each series of Preferred Stock shall have been paid in full
each series' Liquidation Payment, the remaining Available Assets, if
any, may be distributed to the holders of the Junior Stock.
d. NOTICE. Written notice of such liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments and the
place where said Liquidation Payments shall be payable, shall be given by
mail, postage prepaid, not less than twenty (20) days prior to the payment
date stated therein, to the holders of record of Preferred Stock, such
notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation.
e. PRIORITY. All of the preferential amounts to be paid to the holders
of the Preferred Stock shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution
of any assets of the Corporation to, the holders of Common Stock and any
Junior Stock as to distributions upon liquidation.
5. VOTING RIGHTS.
a. GENERAL. Except as otherwise provided by law and in the Articles of
Incorporation, the holders of Preferred Stock and Common Stock shall vote
together as a single class on all matters to be voted on by the
shareholders of the Corporation on the following bases: (1) each holder of
Preferred Stock shall be entitled to one vote for each share of Common
Stock which would be issuable to such holder upon the conversion of all of
the shares of Preferred Stock so held on the record date for the
determination of shareholders entitled to vote; and (2) each holder of
Common Stock shall be entitled to one vote per share. In any case in which
holders of Series A-P Preferred Stock shall be entitled to vote as separate
classes pursuant to Florida law or this Certificate, (excluding the prior
sentence hereof), each holder of each such series shall be entitled to one
vote for each share of Preferred Stock.
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b. SHAREHOLDER APPROVALS. So long as any of the shares of Preferred
Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law
or the Articles of Incorporation and in addition to any other vote required
by law, without the prior consent of the holders of the outstanding shares
of Preferred Stock, given in person or by proxy, either in writing or at a
special meeting called for that purpose, the Corporation will not:
(i) authorize or issue a new class of equity securities (or any
equity or debt securities convertible into equity securities) ranking
senior to or PARI PASSU with the Preferred Stock;
(ii) authorize or effect any capital reorganization or
reclassification of any securities (or securities convertible into
other securities) into equity securities of the Corporation ranking
senior to or PARI PASSU with the Preferred Stock;
(iii) amend, alter or repeal this Certificate, the Articles of
Incorporation, or the Bylaws of the Corporation in any manner so as to
adversely affect the respective rights, privileges and preferences of
the Preferred Stock; or
(iv) authorize the issuance of additional shares of Preferred
Stock.
6. CONVERSION OF PREFERRED STOCK.
a. GENERAL. Subject to the terms and conditions of this paragraph 6,
the Preferred Stock shall be mandatorily convertible into an aggregate of
6,733,333 fully paid and nonassessable whole shares of Common Stock (the
"Underlying Shares"), upon the occurrence of a Mandatory Conversion Event
and in the manner hereinafter provided.
b. CONVERSION RATE.
(i) Upon the occurrence of a Mandatory Conversion Event, each
share of Preferred Stock shall be automatically converted into a
number of Underlying Shares that is determined as to each series of
Preferred Stock as follows:
SERIES A PREFERRED STOCK CONVERSION RATE. The Series A
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series A
Earned Preferred Return, plus (b) 18.921% of the excess if any of
the Datalinc Value and the net portion of the Fastcom Value
allocated to the Series L Preferred Stock after the payment in
full of all of the Earned Preferred Returns of the Series A-E
Preferred Stock. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES B PREFERRED STOCK CONVERSION RATE. The Series B
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
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calculations: (A) The addition of (a) the value of the Series B
Earned Preferred Return, plus (b) 8.642% of the excess if any of
the Datalinc Value and the net portion of the Fastcom Value
allocated to the Series L Preferred Stock after the payment in
full of all of the Earned Preferred Returns of the Series A-E
Preferred Stock. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES C PREFERRED STOCK CONVERSION RATE. The Series C
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series C
Earned Preferred Return, plus (b) 5.429% of the excess if any of
the Datalinc Value and the net portion of the Fastcom Value
allocated to the Series L Preferred Stock after the payment in
full of all of the Earned Preferred Returns of the Series A-E
Preferred Stock. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES D PREFERRED STOCK CONVERSION RATE. The Series D
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series D
Earned Preferred Return, plus (b) 9.137% of the excess if any of
the Datalinc Value and the net portion of the Fastcom Value
allocated to the Series L Preferred Stock after the payment in
full of all of the Earned Preferred Returns of the Series A-E
Preferred Stock. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES E PREFERRED STOCK CONVERSION RATE. The Series E
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series E
Earned Preferred Return, plus (b) 7.871% of the excess if any of
the Datalinc Value and the net portion of the Fastcom Value
allocated to the Series L Preferred Stock after the payment in
full of all of the Earned Preferred Returns of the Series A-E
Preferred Stock. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES F PREFERRED STOCK CONVERSION RATE. The Series F
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 4.0% of the excess if any of the Datalinc Value
and the Fastcom Value after the payment in full of all of the
Earned Preferred Returns of the Series A-E Preferred Stock. (B)
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The division of the number obtained in calculation A by the
Remainder Conversion Value. (C) The multiplication of the number
obtained in calculation B by 6,733,333.
SERIES G PREFERRED STOCK CONVERSION RATE. The Series G
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 46.0% of the excess if any of the Datalinc
Value and the Fastcom Value after the payment in full of all of
the Earned Preferred Returns of the Series A-E Preferred Stock.
(B) The division of the number obtained in calculation A by the
Remainder Conversion Value. (C) The multiplication of the number
obtained in calculation B by 6,733,333.
SERIES H PREFERRED STOCK CONVERSION RATE. The Series H
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series H
Earned Preferred Return, if any, plus (b) 2.184% of the Fastcom
Value. (B) The division of the sum obtained in calculation A by
the Remainder Conversion Value. (C) The multiplication of the
number obtained in calculation B by 6,733,333.
SERIES I PREFERRED STOCK CONVERSION RATE. The Series I
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 0.546% of the Fastcom Value. (B) The division
of the number obtained in calculation A by the Remainder
Conversion Value. (C) The multiplication of the number obtained
in calculation B by 6,733,333.
SERIES J PREFERRED STOCK CONVERSION RATE. The Series J
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series J
Earned Preferred Return , if any, plus (b) 11.755% of the Fastcom
Value. (B) The division of the sum obtained in calculation A by
the Remainder Conversion Value. (C) The multiplication of the
number obtained in calculation B by 6,733,333.
SERIES K PREFERRED STOCK CONVERSION RATE. (Series K -
RESERVED)
SERIES L PREFERRED STOCK CONVERSION RATE. The Series L
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) The difference between (a) 79.262% of the
Fastcom Value, minus (b) the sum of any Series H, J, K, and M
Earned Preferred Returns. (B) The division of the sum obtained in
calculation A by the Remainder Conversion Value. (C) The
multiplication of the number obtained in calculation B by
6,733,333.
SERIES M PREFERRED STOCK CONVERSION RATE. The Series M
Preferred Stock shall be converted into a number of Underlying
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<PAGE>
Shares equal to the result obtained from the following
calculations: (A) The addition of (a) the value of the Series M
Earned Preferred Return , if any, plus (b) 0.01% of the Fastcom
Value. (B) The division of the sum obtained in calculation A by
the Remainder Conversion Value. (C) The multiplication of the
number obtained in calculation B by 6,733,333.
SERIES N PREFERRED STOCK CONVERSION RATE. The Series N
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 2.356% of the Fastcom Value. (B) The division
of the number obtained in calculation A by the Remainder
Conversion Value. (C) The multiplication of the number obtained
in calculation B by 6,733,333.
SERIES O PREFERRED STOCK CONVERSION RATE. The Series O
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 0.982% of the Fastcom Value. (B) The division
of the number obtained in calculation A by the Remainder
Conversion Value. (C) The multiplication of the number obtained
in calculation B by 6,733,333.
SERIES P PREFERRED STOCK CONVERSION RATE. The Series P
Preferred Stock shall be converted into a number of Underlying
Shares equal to the result obtained from the following
calculations: (A) 1.0% of the Fastcom Value. (B) The division of
the number obtained in calculation A by the Remainder Conversion
Value. (C) The multiplication of the number obtained in
calculation B by 6,733,333.
(ii) Upon the occurrence of a Mandatory Conversion Event,
the Corporation shall forthwith file at each office designated to
accept the conversion of Preferred Stock, a statement, signed by
the President, any Vice President or the Treasurer of the
Corporation, showing in reasonable detail the calculation of the
Conversion Rate as to each series of Preferred Stock. The
Corporation shall also cause a notice setting forth such
calculations to be sent by mail, first class, postage prepaid, to
each record holder of Preferred Stock at his or its address
appearing on the stock register.
c. EARNED PREFERRED RETURNS. Upon a Mandatory Conversion Event,
there shall be no Earned Preferred Returns on the Preferred Stock,
except as set forth below:
SERIES A EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series A Preferred Stock shall be an amount equal
to the aggregate Preferred Return on the Adjusted Capital
Investment (as such terms are defined in the partnership
agreement of Datalinc, Ltd.) of all holders of Datalinc's Series
100 Units, as accrued through the date of a Mandatory Conversion
Event.
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SERIES B EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series B Preferred Stock shall be an amount equal
to the aggregate Preferred Return on the Adjusted Capital
Investment (as such terms are defined in the partnership
agreement of Datalinc, Ltd.) of all holders of Datalinc's Series
200 Units, as accrued through the date of a Mandatory Conversion
Event.
SERIES C EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series C Preferred Stock shall be an amount equal
to the aggregate Preferred Return on the Adjusted Capital
Investment (as such terms are defined in the partnership
agreement of Datalinc, Ltd.) of all holders of Datalinc's Series
300 Units, as accrued through the date of a Mandatory Conversion
Event.
SERIES D EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series D Preferred Stock shall be an amount equal
to the aggregate Preferred Return on the Adjusted Capital
Investment (as such terms are defined in the partnership
agreement of Datalinc, Ltd.) of all holders of Datalinc's Series
300E1 Units, as accrued from June 1, 1993 through the date of a
Mandatory Conversion Event.
SERIES E EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series E Preferred Stock shall be an amount equal
to the aggregate Preferred Return on the Adjusted Capital
Investment (as such terms are defined in the partnership
agreement of Datalinc, Ltd.) of all holders of Datalinc's Series
300E2 Units, as accrued from September 1, 1993 through the date
of a Mandatory Conversion Event.
SERIES H EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series H Preferred Stock shall be a number equal to
the Discounted Fastcom Value, if the Discounted Fastcom Value is
equal to or greater than $18,431,595. If the Discounted Fastcom
Value is less than $18,431,595, the Series H Earned Preferred
Return shall be a number equal to the result obtained from the
following calculations: (A) The division of 18,431,595 by the
Discounted Fastcom Value. (B) The multiplication of the number
obtained in calculation A by 2.184%. (C) The multiplication of
the number obtained in calculation B by the Fastcom Value. (D)
The Fastcom Value multiplied by 2.184%. (E) The difference
between the numbers obtained in calculations C and D. The Series
H Preferred Stock shall not be entitled to an Earned Preferred
Return unless the Mandatory Conversion Event is an IPO.
SERIES J EARNED PREFERRED RETURN. The Earned Preferred
Return on the Series J Preferred Stock shall be a number equal to
the Discounted Fastcom Value, if the Discounted Fastcom Value is
equal to or greater than $19,894,940. If the Discounted Fastcom
Value is less than $19,894,940, the Series J Earned Preferred
Return shall be a number equal to the result obtained from the
following calculations: (A) The division of 19,894,940 by the
Discounted Fastcom Value. (B) The multiplication of the number
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<PAGE>
obtained in calculation A by 11.757%. (C) The multiplication of
the number obtained in calculation B by the Fastcom Value. (D)
The Fastcom Value multiplied by 11.757%. (E) The difference
between the numbers obtained in calculations C and D. The Series
J Preferred Stock shall not be entitled to an Earned Preferred
Return unless the Mandatory Conversion Event is an IPO.
SERIES K EARNED PREFERRED RETURN.
(Series K - RESERVED)
SERIES M EARNED PREFERRED RETURN. (i) The Series M Preferred
Stock shall not be entitled to an Earned Preferred Return if the
Conversion Value of the Corporation is less than $30,000,000. The
Series M Preferred Stock may be entitled to an Earned Preferred
Return when the Conversion Value of the Corporation is at least
$30,000,000 (the "SERIES M CONVERSION VALUE"), however, the
Series M Conversion Value is subject to an adjustment upwards if,
within 6 months from August 26, 1997, the Corporation receives a
capital infusion that is reflected as equity in the financial
statements of Thrucomm (a "CAPITAL INFUSION"). Upon the
occurrence of any Capital Infusion, the amount of the Series M
Conversion Value shall be increased dollar for dollar by the
amount of such Capital Infusion or Capital Infusions, however,
the Series M Conversion Value shall not exceed $35,000,000 (the
"MAXIMUM SERIES M CONVERSION Value"), and any further Capital
Infusions shall not further increase the Series M Conversion
Value.
(ii) If the Series M Preferred Stock is entitled, pursuant to the
conditions set forth in subsection (i) of this Paragraph 6, to an Earn
Preferred Return upon the occurrence of a Mandatory Conversion Event,
the amount of the Series M Earned Preferred Return shall be a number
equal to $750,000 plus 4.3% of Datalinc's share of the Remainder
Conversion Value, which number is the result of the following
calculations: (A) The addition of (a) the Datalinc Value, (b) the
portion of the Fastcom Value allocated to the Series L Preferred
Stock, and (c) the portion of the Fastcom Value allocated to the
Series M Stock, which amounts shall be mathematically discernable upon
the occurrence of a Mandatory Conversion Event. (B) The sum of the
Series A-E Earned Preferred Returns. (C) The difference between the
numbers obtained in calculations A and B. (D) The difference between
the number obtained in calculation C and $750,000. (E) The
multiplication of the number obtained in calculation D by 4.3%. (F)
The addition of the number obtained in calculation E and $750,000. (G)
The difference between the result obtained in calculation F and 0.01%
of the Fastcom Value.
d. CONVERSION PREFERENCE.
(i) The allocation of the Fastcom Value to the holders of Series
H-P Preferred Stock shall be in the order as follows: (A) First, PARI
PASSU to the holders of Series H, J, K, and M Preferred Stock to
satisfy Earned Preferred Returns on such series, if any. (B) Second,
pari passu to the holders of Series H-P Preferred Stock in accordance
with the Conversion Rate of each such series.
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(ii) The allocation of the Datalinc Value to the holders of the
Series A-G Preferred Stock shall be in the order which follows: (A)
First, to the holders of the Series A-E Preferred Stock as follows:
37.85% to the Series A Preferred Stock, 17.28% to the Series B
Preferred Stock, 10.86% to the Series C Preferred Stock, 18.27% to the
Series D Preferred Stock, and 15.47% to the Series E Preferred Stock,
until the Series A-E Earned Preferred Returns have been paid in full.
(B) Second, PARI PASSU to the holders of the Series A-G Preferred
Stock in accordance with the Conversion Rate of each such series.
e. ISSUANCE OF COMMON STOCK CERTIFICATES; TIME CONVERSION EFFECTED.
(i) As soon as reasonably practicable following the receipt of
the notice set forth in paragraph 6(b)(ii) above, each holder of
Preferred Stock shall surrender to the Corporation at its principal
offices, or to any transfer agent for the Corporation, (A) the
certificate or certificates representing such shares of Preferred
Stock to be converted and (B) transfer instrument or instruments
satisfactory to the Corporation and sufficient to transfer such shares
of Preferred Stock to the Corporation free of any adverse interest.
Such notice shall also state the name or names (with addresses) in
which the certificates for shares issuable upon such conversion shall
be issued.
(ii) Promptly after the surrender of the certificate or
certificates for the share or shares of the Preferred Stock to be
converted, the Corporation shall issue and deliver, or cause to be
issued and delivered, to such holder, registered in such name or names
as such holder may direct, subject to compliance with applicable laws
to the extent such designation shall involve a transfer, a certificate
or certificates for the number of whole share of Common Stock issuable
upon the conversion of such share or shares of Preferred Stock.
(iii) To the extent permitted by law, the conversion of the
Preferred Stock shall be deemed to have been effected for all purposes
including without limitation the taking of a record date for a meeting
of the shareholders of the Corporation, at the close of business on
the date on which certificate or certificates for share or shares of
Preferred Stock have been surrendered as aforesaid in paragraph
6(e)(ii), and at such time the rights of the holder of such share or
shares of Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby.
f. FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of the Preferred Stock into Common Stock. If any fractional
interest in a share of Common Stock would, except for the provisions of
this paragraph, be deliverable upon such conversion, in lieu of delivering
the fractional share thereof, each fractional interest shall be rounded up
to the nearest whole share of Common Stock.
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g. REORGANIZATION; RECLASSIFICATION. If any capital reorganization or
reclassification of the Capital Stock of the Corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive
Capital Stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of Preferred Stock shall thereafter have the
right to receive, upon the basis, terms and conditions specified herein,
and in lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of the Preferred
Stock, such shares of Capital Stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of Common Stock
immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of such
holder to the end that the provisions of this Certificate shall thereafter
be applicable, as nearly as may be, in relation to any shares of Capital
Stock, securities or assets thereafter deliverable upon conversion.
h. OTHER NOTICES. In case at any time there shall be any capital
reorganization or reclassification of the Capital Stock of the Corporation,
then the Corporation shall give, by first class mail, postage prepaid,
return receipt requested, addressed to each holder of any shares of
Preferred Stock at the address of such holder as shown on the books of the
Corporation, at least 30 days' prior written notice of the date when the
same shall occur. Such notice shall specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization or
reclassification.
i. STOCK TO BE RESERVED. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose
of issue upon the conversion of the Preferred Stock as provided pursuant to
paragraph 6 herein, 6,733,333 shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Preferred Stock.
The Corporation covenants that all shares of Common Stock, if any, which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges arising out of or
by reason of the issue thereof. The Corporation will take all such action
as may be necessary on its part to assure that all such shares of Common
Stock, may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Common Stock of the Corporation may be listed.
j. NO REISSUANCE OF THE PREFERRED STOCK. Shares of Preferred Stock
which are converted into shares of Common Stock as provided herein shall
not be reissued.
k. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of the Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than of the holder of the Preferred Stock which
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is being converted. l. CLOSING OF BOOKS. The Corporation will at no time
close its transfer books against the transfer of any Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
shares of Preferred Stock in any manner which interferes with the timely
conversion of such Preferred Stock.
7. MISCELLANEOUS.
a. BUSINESS DAY. If any payment shall be required by the terms hereof
to be made on a day that is not a Business Day, such payment shall be made
on the immediately succeeding Business Day.
b. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Preferred Stock shall not have any designations,
preferences, limitations or relative rights, other than those specifically
set forth in these resolutions (as such resolutions may be amended from
time to time) and in the Articles of Incorporation of the Corporation.
c. HEADINGS. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
d. SEVERABILITY OF PROVISIONS. If any right, preference or limitation
of the Preferred Stock set forth in this Certificate (as such Certificate
may be amended from time to time) is invalid, unlawful or incapable of
being enforced by reason of any rule or law or public policy, all other
rights, preferences and limitations set forth in this Certificate (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation, shall nevertheless remain in
full force and effect, and no right, preference or limitation herein set
forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
e. STATUS OF REACQUIRED SHARES. Shares of Preferred Stock which have
been issued and reacquired in any manner shall (upon compliance with any
applicable provisions of the laws of the State of Florida) have the status
of authorized and unissued shares of Preferred Stock issuable in series
undesignated as to series and may be redesignated and reissued.
8. DEFINITIONS. As used in this Certificate of Designation, the following
terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and VICE
VERSA), unless the context otherwise requires: "Articles of
Incorporation" means the Articles of Incorporation of Thrucomm, Inc.
"Available Assets" shall have the meaning ascribed to it in paragraph
4(a) hereof.
"Board of Directors" shall have the meaning ascribed to it in the
first recital hereof.
"Business Day" means any day except a Saturday, a Sunday, or any day
on which banking institutions in New York, New York are required or
authorized by law or other governmental action to be closed.
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"Capital Infusion" shall have the meaning ascribed to it in paragraph
6(c)
"Capital Stock" means, with respect to any Person, (i) any and all
shares, interests, participation, rights or other equivalents thereof
(however designated and whether voting or non-voting) in such Person's
capital stock, and (ii) any and all rights to purchase, warrants or
options exchangeable for or convertible into such capital stock,
including any debt security that is exchangeable for or convertible
into such capital stock.
"Common Stock" shall have the meaning ascribed to it in paragraph 2
hereof.
"Conversion Preference" means the order of distribution of Underlying
Shares to the holders of Preferred Stock, as set forth in paragraph
6(d) hereof.
"Conversion Rate" means the number of Underlying Shares into which a
share of Preferred Stock will be converted upon the occurrence of a
Mandatory Conversion Event, determined as to each such series in the
manner set forth in paragraph 6(b) of this Certificate.
"Conversion Value" means the value of Thrucomm, not less than
$20,000,000, as determined at the time of a Mandatory Conversion
Event. If the Mandatory Conversion Event is an IPO, the Conversion
Value shall be an amount equal to the result obtained from the
following calculations: (A) the multiplication of the gross proceeds
of the IPO by the inverse of the fraction of the Corporation's Common
Stock sold in the IPO, and (B) the difference between the result
obtained in calculation A and the gross proceeds of the IPO. If the
Mandatory Conversion Event is a Sale or Merger, the Conversion Value
shall be an amount equal to the aggregate consideration proposed to be
received in the Sale or Merger. If the Mandatory Conversion Event is
an Investment, the Conversion Value shall be an amount equal to the
aggregate value received in the Investment.
"Corporation" means Thrucomm, Inc., a Florida corporation, and its
successors and assigns.
"Datalinc" means Datalinc, Ltd., a Florida limited partnership.
"Datalinc Liquidation Value" means the portion of the Remainder
Available Assets allocated to Datalinc, Ltd., determined at the time
of a liquidation, winding up and dissolution of the Corporation, as
follows: If the Remainder Available Assets is less than $30,000,000,
the Datalinc Liquidation Value shall be $9,000,000. If the Remainder
Available Assets is greater than or equal to $30,000,000, but less
than $60,000,000, the Datalinc Liquidation Value shall be an amount
equal to the result obtained from the following calculations: (A) The
difference between the Remainder Available Assets and $30,000,000. (B)
The result obtained in calculation A divided by the number five (5).
(C) The sum of the result obtained in calculation B and $9,000,000. If
the Remainder Available Assets is greater than or equal to
$60,000,000, the Datalinc Liquidation Value shall be an amount equal
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<PAGE>
to the result obtained from the following calculations: (A) The
difference between the Remainder Available Assets and $60,000,000. (B)
The result obtained in calculation A divided by the number ten (10).
(C) The sum of the result obtained in calculation B and $15,000,000.
"Datalinc Value" means the portion of the Conversion Value allocated
to Datalinc, Ltd., determined at the time of a Mandatory Conversion
Event as follows: If the Remainder Conversion Value is less than
$30,000,000, the Datalinc Value shall be $9,000,000. If the Remainder
Conversion Value is greater than or equal to $30,000,000, but less
than $60,000,000, the Datalinc Value shall be an amount equal to the
result obtained from the following calculations: (A) The difference
between the Remainder Conversion Value and $30,000,000. (B) The result
obtained in calculation A divided by the number five (5). (C) The sum
of the result obtained in calculation B and $9,000,000. If the
Remainder Conversion Value is greater than or equal to $60,000,000,
the Datalinc Value shall be an amount equal to the result obtained
from the following calculations: (A) The difference between the
Remainder Conversion Value and $60,000,000. (B) The result obtained in
calculation A divided by the number ten (10). (C) The sum of the
result obtained in calculation B and $15,000,000.
"Discounted Fastcom Value" means an amount equal to the product of (i)
.30 and (ii) the Fastcom Value.
"Dividend Payment Date" shall have the meaning ascribed to it in
paragraph 3(a) hereof. "Earned Preferred Return" means the number,
determined as to a particular series of Preferred Stock in the manner
set forth in paragraph 6(c) of this Certificate upon the occurrence of
a Mandatory Conversion Event.
"Fastcom" means Fastcom, Ltd., a Florida limited partnership.
"Fastcom Liquidation Value" shall mean an amount equal to the
difference between the Remainder Available Assets and the Datalinc
Liquidation Value.
"Fastcom Value" shall mean an amount equal to the difference between
the Remainder Conversion Value and the Datalinc Value.
"Investment" means the sale by the Corporation, to one or more
investors in a single transaction, of a one-third or greater interest
in the Corporation.
"IPO" means the consummation of an initial public offering of the
Common Stock pursuant to an effective registration statement.
"Junior Stock" shall have the meaning ascribed to it in paragraph 2
hereof.
"Mandatory Conversion Event" means the earliest to occur of the
following: (i) the consummation of an initial public offering of the
Common Stock pursuant to an effective registration statement, (ii) a
Sale or the approval by the Board of Directors of a proposed Sale and
the execution of a definitive agreement for such Sale which is
15
<PAGE>
conditioned upon the approval of the Corporation's shareholders, (iii)
a Merger or the approval by the Board of Directors of a Merger and the
execution of a definitive agreement for such Merger that is
conditioned upon the approval of the Corporation's shareholders or
(iv) the sale by the Corporation, to one or more investors in a single
transaction, of a one-third or greater interest in the Common Stock or
other securities exercisable for or convertible into Common Stock.
"Maximum Series M Conversion Value" shall have the meaning ascribed
thereto in paragraph 6(c) hereof.
"Merger" means the merger of the Corporation with a non-affiliated
entity, whereby the Corporation is not the surviving entity.
"Parity Stock" shall have the meaning ascribed to it in paragraph 2
hereof.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" shall have the meaning ascribed to it in paragraph 1
hereof.
"Remainder Available Assets" shall have the meaning ascribed to it in
paragraph 4(b)(i) hereof.
"Remainder Conversion Value " means the excess of the Conversion Value
after any distribution of a portion of the Conversion Value to any
person having an interest in the Corporation which interest is senior
to the Preferred Stock with respect to distributions of the Conversion
Value, and the interests of the Corporation's Series A Senior
Convertible Preferred Stock, simultaneously or hereafter created,
shall rank PARI PASSU with the Preferred Stock with respect to
distributions of the Conversion Value. "Sale" means the sale of at
least 80% of the Corporation's assets.
"Senior Stock" shall have the meaning ascribed to it in paragraph 2
hereof.
"Series A Senior Preferred Stock" shall have the meaning ascribed to
it in paragraph 2 hereof.
"Series B Senior Preferred Stock" shall have the meaning ascribed to
it in paragraph 2 hereof.
"Series M Conversion Value" shall have the meaning ascribed thereto in
paragraph 6(c) hereof.
"Underlying Shares" shall have the meaning ascribed to it in paragraph
6(a) hereof.
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<PAGE>
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to (i) execute and acknowledge this Certificate setting forth
these resolutions and (ii) to cause articles of amendment to the Articles of
Incorporation setting forth this Certificate to be delivered to the Department
of State for filing, in accordance with the requirements of Section 607.0602(4)
of the Florida Business Corporation Act of the State of Florida.
IN WITNESS WHEREOF, THRUCOMM, INC. has caused its corporate seal to be
affixed hereunto and this Certificate to be duly executed by its President and
attested to by its Secretary, this _____ day of January, 1998.
THRUCOMM, INC.
By:___________________________
Name: Mark J. Giannini
Title: President
[Corporate Seal]
Attest:
By:_________________________
Name: John F. Kolenda
Title: Secretary
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CERTIFICATE OF DESIGNATION OF THE SERIES, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES A
SENIOR CONVERTIBLE PREFERRED STOCK
$.001 PAR VALUE PER SHARE
OF
THRUCOMM, INC.
------------------------------------------------------------
Pursuant to Section 607.0602 of the Florida Business Corporation Act
------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolutions were
duly adopted by the Board of Directors (the "BOARD OF DIRECTORS") of THRUCOMM,
INC., a Florida corporation (the "CORPORATION"), at a meeting duly convened and
held on December 31, 1997 duly adjourned and reconvened on January 5, 1998, at
which a quorum was present and acted throughout:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Articles of Incorporation of the
Corporation (the "ARTICLES OF INCORPORATION"), to provide by resolution or
resolutions for the issuance of shares of preferred stock of the Corporation, in
one or more series with such voting powers, full or limited, or without voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions as
shall be stated and expressed in a resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in the Articles of Incorporation, or any amendment thereto, including
(but without limiting the generality of the foregoing) such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Florida Business Corporation Act; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its aforesaid authority, to authorize and fix the terms of a series
of preferred stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBER OF SHARES.
There shall be hereby established a single series of the preferred
stock of the Corporation, the designation of which shall be "Series A
Senior Convertible Preferred Stock", par value $.001 per share (the "SERIES
A SENIOR PREFERRED STOCK"). The number of authorized shares constituting
the Series A Senior Preferred Stock is 1,666,667.
2. RANK.
a. The Series A Senior Preferred Stock shall, with respect to dividend
distributions and distributions of assets and rights upon the liquidation,
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winding up and dissolution of the Corporation, rank on a parity with the
Corporation's Series B Senior Convertible Preferred Stock, par value $.001
per share (the "SERIES B SENIOR PREFERRED STOCK"). The Series A Senior
Preferred Stock shall, with respect to dividend distributions, rank on a
parity with, and with respect to distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation, rank senior
to the Corporation's common stock, no par value per share (the "COMMON
STOCK"). The Series A Senior Preferred Stock shall, with respect to
distributions of assets and rights upon the liquidation, winding up and
dissolution of the Corporation, rank senior to the Corporation's Series
A-P, Mandatory Convertible Preferred Stock, par value $.001 per share
(collectively, the "SERIES A-P PREFERRED STOCK").
b. All classes or series of Capital Stock of the Corporation
simultaneously or hereafter created that do not expressly provide that it
rank on a parity with or senior to the Series A Senior Preferred Stock with
respect to dividend distributions or distributions of assets and rights
upon the liquidation, winding up and dissolution of the Corporation shall
rank junior to the Series A Senior Preferred Stock, and together with all
classes or series of Capital Stock of the Corporation which expressly
provide that it rank junior to the Series A Senior Preferred Stock with
respect to dividend distributions or distributions of assets and rights
upon the liquidation, winding up and dissolution of the Corporation are
collectively referred to herein as "JUNIOR Stock". All classes or series of
Capital Stock of the Corporation hereafter created which expressly provide
that it rank on a parity with the Series A Senior Preferred Stock with
respect to dividend distributions or distribution of assets and rights upon
the liquidation, winding up and dissolution of the Corporation are
collectively referred to herein as "PARITY STOCK". All classes or series of
Capital Stock of the Corporation simultaneously or hereafter created which
expressly provide that it rank senior to the Series A Senior Preferred
Stock with respect to dividend distributions or distribution of assets and
rights upon the liquidation, winding up and dissolution of the Corporation
are collectively referred to herein as "SENIOR STOCK".
3. DIVIDENDS.
a. So long as any shares of Series A-P Preferred Stock are
outstanding, no dividend or distribution (except a dividend or distribution
paid in Common Stock or any other Capital Stock of the Corporation ranking
junior to the Preferred Stock as to distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation) shall be
declared or paid or set aside for payment on the Common Stock, the Series A
Senior Preferred Stock or on any other Capital Stock of the Corporation
nor, except for the Series B Senior Preferred Stock, shall any Common Stock
or other Capital Stock of the Corporation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation, except by conversion into, or exchange for, Common Stock or
other Capital Stock of the Corporation ranking junior to the Series A-P
Preferred Stock as to distributions of assets and rights upon the
liquidation, winding up and dissolution of the Corporation.
b. The holders of the outstanding shares of Series A Senior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
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<PAGE>
of Directors, out of funds legally available therefor, dividends to the
same extent as, on the same basis as, at the same rate as, and
contemporaneously with, dividends when, as and if declared by the Board of
Directors with respect to shares of Common Stock, as if such Series A
Senior Preferred Stock had been converted into Common Stock, on the record
date for determining the holders of Common Stock entitled to receive such
dividend. Such dividends shall be paid on the dates specified by the Board
of Directors as the dates for payment of dividends in respect of shares of
Common Stock (each, a "DIVIDEND PAYMENT DATE"). No interest or dividends
shall be payable in respect of any dividends which may be in arrears. Each
distribution on the Series A Senior Preferred Stock shall be payable to
holders of record as they appear on the stock books of the Corporation on
such record dates, not less than ten (10) nor more than sixty (60) days
preceding the related Dividend Payment Date, as shall be fixed by the Board
of Directors.
c. All dividends paid with respect to shares of Series A Senior
Preferred Stock pursuant to paragraph 3(a) shall be paid PRO RATA and in
like manner to all of the holders entitled thereto.
d. Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set apart for payment, any dividends
on shares of the Series A Senior Preferred Stock or Common Stock at any
time.
e. (i) No full dividends shall be declared by the Board of
Directors of the Corporation or paid or set apart for payment by the
Corporation on any Parity Stock (including the Common Stock) unless,
contemporaneously therewith, a like ratable dividend calculated in
accordance with paragraph 3(a) hereof is declared and paid, or
declared and a sum set apart sufficient for such payment, on the
Series A Senior Preferred Stock, payable as set forth in paragraph
3(a) hereof. If any such dividends are not paid in full, as aforesaid,
on the shares of the Series A Senior Preferred Stock and any other
Parity Stock, all dividends declared upon shares of the Series A
Senior Preferred Stock and any other Parity Stock shall be declared
PRO RATA so that the amount of dividends declared per share on the
Series A Senior Preferred Stock and such Parity Stock shall in all
cases bear to each other the same ratio that accrued dividends per
share on the Series A Senior Preferred Stock and such Parity Stock
bear to each other.
(ii) The Corporation shall not declare, pay or set apart for
payment any dividend on any shares of Junior Stock or make any payment
on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any
shares of Junior Stock or any warrants, rights, calls or options
exercisable for or convertible into any shares of Junior Stock, or
make any distribution in respect thereof, either directly or
indirectly, whether in cash, obligations or shares of the Corporation
or other property, and shall not permit any of its Subsidiaries to
purchase or redeem any shares of Junior Stock or any such warrants,
rights, calls or options, unless all accrued and unpaid dividends have
been or contemporaneously are declared and paid in cash, or declared
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<PAGE>
and a sum in cash set apart sufficient for such payment, on the Series
A Senior Preferred Stock (all such prohibited payments and other
actions set forth above in this paragraph 3(d)(2) being collectively
referred to as "RESTRICTED JUNIOR PAYMENTS"). The foregoing provisions
will not prohibit any of the following: (a) the payment of dividends
or other distributions on Junior Stock in the form of additional
shares of Junior Stock (or the adjustment of the Liquidation
Preference of such Junior Stock); and (b) the payment of any
Restricted Junior Payment made with the affirmative vote or consent of
the holders of a majority of the issued and outstanding shares of
Series A Senior Preferred Stock, voting or consenting, as the case may
be, as one class, provided that such holders do not also beneficially
own shares of Junior Stock.
f. Subject to the foregoing provisions of this paragraph 3, the
Corporation may declare, pay or set apart for payment dividends on any
shares of Junior Stock or Parity Stock, or make any payments on account of
or set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any shares of Junior Stock or
Parity Stock or any warrants, rights, calls or options exercisable for or
convertible into any shares of Junior Stock or Parity Stock or make any
distribution in respect thereof and the Corporation may permit any of its
Subsidiaries to purchase or redeem any shares of Junior Stock or Parity
Stock or such warrants, rights, calls or options, and the holders of the
shares of the Series A Senior Preferred Stock shall not be entitled to
share therein.
4. LIQUIDATION RIGHTS.
a. LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of shares of Series A Senior Preferred Stock then
outstanding shall be entitled to be paid, for each share held, out of the
assets of the Corporation available for distribution to its shareholders
(the "AVAILABLE ASSETS"), an amount equal to $3.30 per share (the
"LIQUIDATION PREFERENCE"). The voluntary sale, conveyance, lease, exchange
or transfer (for cash, shares of stock, securities or other consideration)
of all or substantially all the property or assets of the Corporation to,
or a consolidation or merger of the Corporation with, one or more other
corporation or corporations (whether or not the Corporation is the
surviving corporation in such consolidation or merger) will not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary,
within the meaning of the provisions of this paragraph 4, unless in each
such case such sale or merger involves a plan of liquidation.
b. LIQUIDATION PAYMENT; INSUFFICIENT FUNDS. Upon any liquidation,
dissolution or winding up of the Corporation, the holders of outstanding
Series A Senior Preferred Stock shall be entitled to receive payment for
each share held, out of the excess, if any, of the Available Assets after
any distribution of the Available Assets to any holder of any shares Senior
Stock with respect to distributions of Available Assets (the "REMAINDER
AVAILABLE ASSETS"), an amount in cash equal to the Liquidation Preference
per share, plus all accumulated and unpaid dividends thereon to the date
fixed for liquidation winding up and dissolution of the Corporation (the
"LIQUIDATION PAYMENT"). If upon such liquidation, dissolution or winding
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<PAGE>
up, the Remainder Available Assets to be distributed among the holders of
the Series A Senior Preferred Stock shall be insufficient to permit payment
in full of the Liquidation Payment to the holders of outstanding shares of
the Series A Senior Preferred Stock and any preferential amount to be paid
to the holders of Parity Stock with respect to distributions of assets and
rights upon the liquidation, winding up and dissolution of the Corporation,
including the Series B Senior Preferred Stock, then the holders of such
shares shall share ratably in such distribution of assets in accordance
with the amount which would be payable on such distribution if the amounts
to which the holders of outstanding shares of Series A Senior Preferred
Stock and the holders of such Parity Stock are entitled, were paid in full.
c. PRIORITY. All of the preferential amounts to be paid to the holders
of the Series A Senior Preferred Stock shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of
Series A-P Preferred Stock, the holders of Common Stock, and any other
Junior Stock with respect to distributions upon liquidation.
d. NOTICE. Written notice of any liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payment and the
place where said Liquidation Payment shall be payable, shall be given by
mail, postage prepaid, not less than twenty (20) days prior to the payment
date stated therein, to the holders of record of the Series A Senior
Preferred Stock, such notice to be addressed to each such holder at his
post office address as shown by the records of the Corporation.
5. VOTING RIGHTS.
a. In addition to any rights afforded by law, the holder of each share
of Series A Senior Preferred Stock shall have the right to one vote for
each share of Common Stock into which such share of Series A Senior
Preferred Stock could then be converted on all matters as to which holders
of Common Stock shall be entitled to vote, in the same manner and with the
same effect as such holders of Common Stock, voting together with the
holders of Common Stock, Series B Senior Preferred Stock and Series A-P
Preferred Stock, as one class, and, with respect to such vote, such holder
shall be entitled to notice of any stockholders' meeting in accordance with
the Bylaws of the Corporation and applicable law.
b. So long as any shares of Series A Senior Preferred Stock are
outstanding, the Corporation shall not, without the affirmative consent of
a majority of the Series A Senior Preferred Stock amend, alter or repeal
any of the provisions of its Articles of Incorporation which would in any
way adversely affect the rights of the holders of Series A Senior Preferred
Stock.
c. In any case in which the holders of Series A Senior Preferred Stock
shall be entitled to vote as a separate class pursuant to Florida law or
this Certificate of Designation (excluding paragraph 5(a) above), each
holder of Series A Senior Preferred Stock shall be entitled to one vote for
each share of Series A Senior Preferred Stock.
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<PAGE>
6. CONVERSION OF SERIES A SENIOR PREFERRED STOCK.
a. OPTIONAL CONVERSION. At any time and from time to time, each share
of Series A Senior Preferred Stock may be converted, at the option of the
holder thereof, in the manner hereinafter provided, into fully paid and
nonassessable shares of Common Stock at its then effective Conversion Rate
(as defined below); PROVIDED, HOWEVER, that on any liquidation or winding
up of the affairs of the Corporation, the right of conversion shall
terminate at the close of business on the Business Day preceding the date
fixed for payment of any amounts distributable on liquidation to the
holders of Series A Senior Preferred Stock.
b. CONVERSION RATE.
(i) The initial conversion rate for the Series A Senior Preferred
Stock shall be one (1) share of Common Stock for each share of Series
A Senior Preferred Stock surrendered for conversion (as in effect from
time to time, the "CONVERSION RATE"). The Conversion Rate from time to
time in effect is subject to adjustment as provided in paragraph 6(d)
hereof.
(ii) Whenever the Conversion Rate shall be adjusted as provided
in paragraph 6(d) hereof, the Corporation shall forthwith file at each
office designated to accept the conversion of Series A Senior
Preferred Stock, a statement, signed by the President, any Vice
President or the Treasurer of the Corporation, showing in reasonable
detail the facts requiring such adjustment and the Conversion Rate
that will be effective after such adjustment. The Corporation shall
also cause a notice setting forth any such adjustments to be sent by
mail, first class, postage prepaid, to each record holder of Series A
Senior Preferred Stock at his or its address appearing on the stock
register.
c. CONVERSION MECHANICS.
(i) In order to exercise the foregoing conversion privilege, a
holder of Series A Senior Preferred Stock shall surrender to the
Corporation at its principal offices, or to any transfer agent for the
Corporation, (A) the certificate(s) representing such shares of Series
A Senior Preferred Stock to be converted, (B) transfer instrument(s)
satisfactory to the Corporation and sufficient to transfer such shares
of Series A Senior Preferred Stock to the Corporation free of any
adverse interest, and (C) a written notice to the Corporation that
such holder has elected to convert all such shares into Common Stock
or, if less than all shares represented by such certificate are to be
converted, the portion of the shares represented thereby to be
converted. Such notice shall also state the name or names (with
addresses) in which the certificates for shares issuable upon such
conversion shall be issued. Series A Senior Preferred Stock shall be
deemed converted for all purposes including without limitation the
taking of a record date for a meeting of the stockholders of the
Corporation, upon receipt by the Corporation or its transfer agent of
the items listed in clauses (A), (B) and (C) above.
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(ii) Upon conversion of any certificate evidencing Series A
Senior Preferred Stock which is converted in part only, the
Corporation shall cause to be executed and delivered to the holder
thereof, at the expense of the Corporation, a new certificate
evidencing the balance of the Series A Senior Preferred Stock which
was not so converted.
(iii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the full
number of shares which all shares of Series A Senior Preferred Stock
from time to time outstanding are convertible.
d. ANTI-DILUTION PROVISIONS. In order to prevent dilution of the
rights granted hereunder, the Conversion Rate shall be subject to
adjustment from time to time in accordance with this paragraph 6(d). Upon
each adjustment of the Conversion Rate, the record holder of shares of
Series A Senior Preferred Stock shall thereafter be entitled to acquire
upon exercise, the number of shares of the Corporation's Common Stock equal
to the Conversion Rate; PROVIDED that, notwithstanding anything in this
paragraph 6(d) to the contrary, no adjustment shall be made to the
Conversion Rate for (i) the issuance of any Series B Senior Preferred Stock
pursuant to the Purchase Agreement or (ii) any dividend or distribution
made on the Common Stock which is contemporaneously made to the holders of
Series A Senior Preferred Stock pursuant to paragraph 3 hereof. To the
extent that as a result of any conversion of the Series A Senior Preferred
Stock the Corporation would be obligated to issue a fractional share of
Common Stock (which shall be determined with respect to the aggregate
number of shares of Common Stock held of record by each holder), then the
Corporation shall issue a number of shares of Common Stock upon such
conversion rounded to the nearest whole share.
(i) CERTAIN ISSUANCES OF SECURITIES. If the Corporation shall at
any time after the initial date of issuance of the Series A Senior
Preferred Stock, issue any shares of Common Stock, or convertible
preferred stock, warrants, options, rights or other securities
convertible into or exchangeable or exercisable for shares of Common
Stock (collectively, the "Newly Issued Securities") for a
consideration (paid in cash, securities or other property) per share
less than theTrigger Value of such Newly Issued Securities, then the
Conversion Rate shall be adjusted to an amount equal to (x) the
Applicable Percentage (determined immediately prior to such issuance)
of a fraction, the numerator of which equals the Fully Diluted Shares
(after giving effect to the issuance of the Newly Issued Securities),
and the denominator of which equals the number of shares of Series A
Senior Preferred Stock then outstanding. For the purposes of any
adjustment of the Conversion Rate pursuant to this clause (i), the
following provisions shall be applicable:
(A) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash
received by the Corporation therefor.
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(B) In the case of the issuance 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
value" of such consideration as determined in the good faith
judgment of the Board of Directors; PROVIDED, HOWEVER, that the
holders of a majority of the Series A Senior Preferred Stock may
in good faith refer the question of valuation for final
settlement to a nationally recognized investment banking firm
designated by such holders, and the cost relating to the
retention of such firm shall be borne by the Corporation.
(C) In the case of the issuance of (x) options to purchase
or rights to subscribe for Common Stock, (y) securities by their
terms convertible into or exchangeable for Common Stock or (z)
options to purchase or rights to subscribe for such convertible
or exchangeable securities:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were
issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (A) and
(B) above), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common
Stock covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options or rights were issued and for a consideration equal
to the consideration received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange
of such securities or the exercise of any related options or
rights (the consideration in each case to be determined in
the manner provided in subdivisions (A) and (B) above);
(3) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchange for such
convertible or exchangeable securities, other than a change
resulting from the antidilution provisions thereof, the
Conversion Rate shall forthwith be readjusted to such
Conversion Rate as would have obtained had the adjustment
made at the time of the issuance of such options, rights or
securities not converted prior to such change been made upon
the basis of such change; and
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(4) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Rate
shall forthwith be readjusted to such Conversion Rate had
such options, rights, securities or options or rights
related to such securities not been issued.
(D) In the case of the issuance of any of the types of
securities referenced in clause (C) above in connection with the
issue and sale of other securities of the Corporation together
comprising one integral transaction in which no specific
consideration is allocated to such securities by the parties
thereto, the amount of consideration therefor shall be deemed to
be the fair value as determined in good faith by the Board of
Directors; PROVIDED, HOWEVER, that the holders of a majority of
the Series A Senior Preferred Stock may in good faith refer the
question of valuation for final settlement to a nationally
recognized investment banking firm designated by such holders,
and the cost relating to the retention of such firm shall be
borne by the Corporation.
(ii) SUBDIVISION, COMBINATION, DIVIDEND OR DISTRIBUTION OF COMMON
STOCK. In case the Corporation shall at any time (a) subdivide its
outstanding shares of Common Stock into a greater number of shares of
Common Stock, (b) combine its outstanding shares of Common Stock into
a smaller number of shares or (c) declare a distribution (other than a
dividend which the Series A Senior Preferred is entitled to pursuant
to Section 3 hereof) payable to its holders of Common Stock in
additional shares of Common Stock, then the Conversion Rate in effect
shall forthwith be adjusted to that ratio determined by multiplying
the Conversion Rate in effect immediately prior to such subdivision,
combination, grant, dividend or distribution by a fraction, the
numerator of which shall be the total number of outstanding shares of
Common Stock immediately after such subdivision, combination or
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<PAGE>
distribution, and the denominator of which shall be the total number
of outstanding shares of Common Stock immediately prior to such
subdivision, combination or distribution.
(iii) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization or reclassification of the capital
stock of the Corporation (except in respect of transactions described
in paragraph 6(d)(ii)) or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all its assets to another corporation, shall be effected
in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to, or in exchange
for, Common Stock, then as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision will be made whereby the holders of Series A Senior
Preferred Stock shall thereafter have the right to receive upon the
basis and upon the terms and conditions specified herein and in lieu
of the shares of Common Stock immediately theretofore receivable upon
the conversion of such Series A Senior Preferred Stock, such shares of
stock, securities or assets (including cash) as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and
in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of
the Conversion Rate) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion of Series A Senior
Preferred Stock. In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares
of common stock of the surviving corporation are issuable to holders
of Common Stock outstanding immediately prior to such merger or
consolidation, the Conversion Rate in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Common Stock.
(iv)
(A) If any event occurs of the type contemplated by the
provisions of this paragraph 6(d) but not expressly provided for
by such provisions, the Board of Directors will determine whether
to make appropriate adjustments to the Conversion Rate as may be
necessary fully to carry out the adjustments contemplated by this
paragraph 6(d). In the event the Board of Directors is unable to
make such determination, an appraiser shall be selected by the
Board of Directors with the consent of the holder or holders of a
majority (by number of shares) of Series A Senior Preferred
Stock, which consent shall not be unreasonably withheld.
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(B) The Corporation will not, by amendment of its Articles
of Incorporation or bylaws or through any reorganization,
transfer of assets, reclassification, merger, dissolution, issue
or sale of securities or otherwise, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by the Corporation hereunder but will at all times in
good faith assist in the carrying out of all the provisions
hereof and in the taking of all such actions as may be necessary
or appropriate in order to protect the rights of the holders of
Series A Senior Preferred Stock against impairment.
(v) In the event that (a) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights, (b) there
shall be any capital reorganization or reclassification of the capital
stock of the Corporation, including any subdivision or combination of
its outstanding shares of Common Stock, or consolidation or merger of
the Corporation with, or sale of all or substantially all of its
assets to, another corporation or (c) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
then, in connection with such event, the Corporation shall give to the
holders of the Series A Senior Preferred Stock:
(A) at least twenty (20) days prior written notice of the
date on which the books of the Corporation shall close or a
record shall be taken for such subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up; and
(B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) days prior
written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (A)
shall also specify, in the case of any such subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause
(B) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each
such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of the Series A Senior
Preferred Stock at the address of each such holder as shown on
the books of the Corporation.
The foregoing anti-dilution provisions set forth in this
paragraph 6(d) may be amended or waived, in whole or in part and
in writing, by a majority of the holders of the Series A Senior
Preferred Stock.
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7. REDEMPTION.
a. Each share of Series A Senior Preferred Stock shall, at the sole
election of the Corporation, be redeemed at any time after the closing of a
Qualifying Public Offering and upon delivery of the notice set forth in
paragraph 7(b), which notice shall conclusively evidence such election by
the Corporation. The redemption price for the shares of Series A Senior
Preferred Stock redeemed pursuant to this paragraph 7 shall be paid to each
holder of Series A Senior Preferred Stock by certified check or by wire
transfer of immediately available funds denominated in U.S. dollars to one
or more accounts designated by such holder to the Corporation in an amount
equal to the greater of the holder's pro rata share of the Fair Market
Value of the Series A Senior Preferred Stock relating to the Common Stock
into which the shares of Series A Senior Preferred Stock being redeemed are
convertible, determined at the time of the notice set forth in paragraph
7(b). For purposes of this Certificate, "FAIR MARKET VALUE" means either
(i) the Market Price, if any (as defined below), of the Common Stock or
(ii) if no Market Price exists, the value (which shall not take into effect
any minority discounts) of the Common Stock as determined by the price per
share of such Common Stock which the Corporation could obtain from a
willing buyer (not a current employee, officer, consultant or director or
any affiliate of any such Person) for such shares sold by the Corporation,
as determined in good faith by the Board of Directors; PROVIDED, HOWEVER,
that the holder or holders of a majority (by number of shares) of the
Series A Senior Preferred Stock may refer the question of valuation (which
shall not take into effect any minority discounts) for final settlement to
a nationally recognized investment banking firm designated by such holder
or holders and reasonably acceptable to the Corporation; and PROVIDED,
FURTHER, that if the parties cannot agree on such a firm, each party shall
choose a nationally recognized investment banking firm, which shall choose
a third firm which shall be nationally recognized and that third firm shall
determine the Fair Market Value, which determination shall be final and
binding. The cost relating to retaining any investment banking firm(s)
shall be borne by the Corporation. The parties agree to cooperate in the
exercise of their obligations so that the Fair Market Value is determined
in a timely manner. For purposes of this Certificate, the "MARKET PRICE" of
any security shall mean the value determined in accordance with the
following provisions:
(i)ab if such security is listed on a national securities
exchange registered under the Exchange Act, a price equal to the
volume weighted average of the closing sales prices for such security
on such exchange for each day during the 20 trading days preceding the
notice set forth in paragraph 7(b); and
(ii) if not so listed under clause (i) above and such security is
quoted on the NASDAQ or other national quotation system, a price equal
to the average of the volume weighted average of the closing bid and
asked prices for such security quoted on such system each day during
the 20 trading days preceding the notice set forth in paragraph 7(b).
b. If the Corporation elects to cause a redemption as set forth in
paragraph 7(a), all holders of record of shares of Series A Senior
Preferred Stock will be given at least 10 days' prior written notice of the
date fixed and the place designated for redemption of all of such shares of
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<PAGE>
Series A Senior Preferred Stock pursuant to this paragraph 7. Such notice
will be sent by mail, first class, postage prepaid, or overnight courier to
each record holder of shares of Series A Senior Preferred Stock at such
holder's address appearing on the stock register. On or before the date
fixed for redemption each holder of shares of Series A Senior Preferred
Stock shall surrender his or its certificates or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive the redemption proceeds to which such holder is entitled
pursuant to this paragraph 7. On the date fixed for redemption, all rights
with respect to the Series A Senior Preferred Stock so redeemed will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive the redemption
proceeds into which such Series A Senior Preferred Stock has been redeemed,
including payment of any accrued and unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for redemption shall
be endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorneys duly authorized in writing. All
certificates evidencing shares of Series A Senior Preferred Stock which are
required to be surrendered for redemption in accordance with the provisions
hereof shall, from and after the date such certificates are so required to
be surrendered, be deemed to have been retired and canceled and the shares
of Series A Senior Preferred Stock represented thereby redeemed for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date.
8. BUSINESS DAY.
If any payment shall be required by the terms hereof to be made on a
day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
9. EXCLUSION OF OTHER RIGHTS.
Except as may otherwise be required by law, the shares of Series A
Senior Preferred Stock shall not have any designations, preferences,
limitations or relative rights, other than those specifically set forth in
these resolutions (as such resolutions may, subject to paragraph 5, be
amended from time to time) and in the Articles of Incorporation.
10. HEADINGS.
The headings of the various sections and subsections hereof are for
convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
11. DEFINITIONS.
As used in this Certificate of Designation, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and VICE VERSA), unless the
context otherwise requires:
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"APPLICABLE PERCENTAGE" means, as of any date of determination, the
percentage of the Fully Diluted Shares represented by the number of
shares of Common Stock issuable upon conversion of all then
outstanding Series A Senior Preferred Stock.
"ARTICLES OF INCORPORATION" shall have the meaning ascribed to it in
the second paragraph of this Certificate.
"AVAILABLE ASSETS" shall have the meaning ascribed to it in paragraph
4(a) hereof.
"BOARD OF DIRECTORS" shall have the meaning ascribed to it in the
first paragraph of this Certificate.
"BUSINESS DAY" means any day except a Saturday, a Sunday, or any day
on which banking institutions in New York, New York are required or
authorized by law or other governmental action to be closed.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital
stock and any and all rights to purchase, warrants or options
exchangeable for or convertible into such capital stock (including any
debt security that is exchangeable for or convertible into such
capital stock).
"COMMON STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"CONVERSION RATE" shall have the meaning ascribed to it in paragraph
6(b) hereof.
"CORPORATION" means Thrucomm, Inc., a Florida corporation, and its
successors and assigns.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended.
"FAIR MARKET VALUE" shall have the meaning ascribed to it in paragraph
7(a) hereof.
"FULLY DILUTED SHARES" means, when used with reference to Common
Stock, the number of shares of Common Stock outstanding at such date
and Common Stock of the Corporation issuable in respect of any
warrants, options or convertible securities.
"JUNIOR STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"LIQUIDATION PAYMENT" shall have the meaning ascribed to it in
paragraph 4(b) hereof.
"LIQUIDATION PREFERENCE" shall have the meaning ascribed to it in
paragraph 4(a) hereof.
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"MARKET PRICE" shall have the meaning ascribed to it in paragraph 7(a)
hereof.
"PARITY STOCK" shall have the meaning ascribed to it in paragraph 2
hereof. "PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as
of January __, 1998, among the Corporation and the Investors party
thereto, relating to the issuance of the Series B Senior Preferred
Stock.
"QUALIFYING PUBLIC OFFERING" shall mean the sale by one or more
Persons in an underwritten offering registered under the Securities
Act of any equity securities of the Corporation (or its successor)
which results in aggregate gross proceeds from such sales (before
underwriters' discounts and selling commissions) to the Corporation
greater than or equal to $15,000,000.
"REMAINDER AVAILABLE ASSETS" shall have the meaning ascribed to it in
paragraph 4(b) hereof.
"RESTRICTED JUNIOR PAYMENTS" shall have the meaning ascribed to it in
paragraph 3 hereof.
"SECURITIES ACT" shall mean the United States Securities Act of 1933,
as amended.
"SENIOR STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"SERIES A SENIOR PREFERRED STOCK" shall have the meaning ascribed to
it in paragraph 1 hereof.
"SERIES A-P PREFERRED STOCK" shall have the meaning ascribed to it in
paragraph 2 hereof.
"SERIES B SENIOR PREFERRED STOCK" shall have the meaning ascribed to
it in paragraph 2 hereof.
"SUBSIDIARY" means, with respect to any Person, (i) any Person more
than fifty percent (50%) of the voting securities, having ordinary
voting power, of which is owned directly or indirectly by such Person
or by one or more other Subsidiaries of such Person or such Person in
conjunction with one or more other Subsidiaries of such Person or (ii)
any other Person more than fifty percent (50%) of the voting interest
of which is owned directly or indirectly by such Person or by one or
more Subsidiaries of such Person or by such Person in conjunction with
one or more other Subsidiaries of such Person.
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"TRIGGER VALUE" means, as of any date of determination with respect to
the issuance of Newly Issued Securities, the amount determined by
dividing $33,000,000 by the number of Fully Diluted Outstanding Shares
(prior to giving effect to the issuance of such Newly Issued
Securities).
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 607.0602(4) of the Florida Business
Corporation Act.
IN WITNESS WHEREOF, THRUCOMM, INC. has caused its corporate seal to be
affixed hereunto and this Certificate to be duly executed by its President and
attested to by its Secretary, this ____ day of January, 1998.
THRUCOMM, INC.
By:__________________________
Name: Mark J. Giannini
Title: President
[Corporate Seal]
Attest:
By:________________________
Name: John F. Kolenda
Title: Secretary
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CERTIFICATE OF DESIGNATION OF THE SERIES, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES B
SENIOR CONVERTIBLE PREFERRED STOCK
$.001 PAR VALUE PER SHARE
OF
THRUCOMM, INC.
------------------------------------------------------------
Pursuant to Section 607.0602 of the Florida Business Corporation Act
------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolutions were
duly adopted by the Board of Directors (the "BOARD OF DIRECTORS") of THRUCOMM,
INC., a Florida corporation (the "CORPORATION"), at a meeting duly convened and
held on December 31, 1997, duly adjourned and reconvened on January 5, 1998, at
which a quorum was present and acted throughout:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Articles of Incorporation of the
Corporation (the "ARTICLES OF INCORPORATION"), to provide by resolution or
resolutions for the issuance of shares of preferred stock of the Corporation, in
one or more series with such voting powers, full or limited, or without voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions as
shall be stated and expressed in a resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in the Articles of Incorporation, or any amendment thereto, including
(but without limiting the generality of the foregoing) such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Florida Business Corporation Act; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its aforesaid authority, to authorize and fix the terms of a series
of preferred stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED:
1. DESIGNATION AND NUMBER OF SHARES.
There shall be hereby established a single series of the preferred
stock of the Corporation, the designation of which shall be "Series B
Senior Convertible Preferred Stock", par value $.001 per share (the "SERIES
B SENIOR PREFERRED STOCK"). The number of authorized shares constituting
the Series B Senior Preferred Stock is 2,200,000.
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2. RANK.
a. The Series B Senior Preferred Stock shall, with respect to dividend
distributions and distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation, rank on a parity with the
Corporation's Series A Senior Convertible Preferred Stock, par value $.001
per share (the "SERIES A SENIOR PREFERRED Stock"). The Series B Senior
Preferred Stock shall, with respect to dividend distributions, rank on a
parity with, and with respect to distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation, rank senior
to the Corporation's common stock, no par value per share (the "COMMON
STOCK"). The Series B Senior Preferred Stock shall, with respect to
distributions of assets and rights upon the liquidation, winding up and
dissolution of the Corporation, rank senior to the Corporation's Series
A-P, Mandatory Convertible Preferred Stock, par value $.001 per share
(collectively, the "SERIES A-P PREFERRED STOCK").
b. All classes or series of Capital Stock of the Corporation
simultaneously or hereafter created that do not expressly provide that it
rank on a parity with or senior to the Series B Senior Preferred Stock with
respect to dividend distributions or distributions of assets and rights
upon the liquidation, winding up and dissolution of the Corporation shall
rank junior to the Series B Senior Preferred Stock, and together with all
classes or series of Capital Stock of the Corporation which expressly
provide that it rank junior to the Series B Senior Preferred Stock with
respect to dividend distributions or distributions of assets and rights
upon the liquidation, winding up and dissolution of the Corporation are
collectively referred to herein as "JUNIOR STOCK". All classes or series of
Capital Stock of the Corporation hereafter created which expressly provide
that it rank on a parity with the Series B Senior Preferred Stock with
respect to dividend distributions or distribution of assets and rights upon
the liquidation, winding up and dissolution of the Corporation are
collectively referred to herein as "PARITY STOCK". All classes or series of
Capital Stock of the Corporation simultaneously or hereafter created which
expressly provide that it rank senior to the Series B Senior Preferred
Stock with respect to dividend distributions or distribution of assets and
rights upon the liquidation, winding up and dissolution of the Corporation
are collectively referred to herein as "SENIOR STOCK".
3. DIVIDENDS.
a. So long as any shares of Series A-P Preferred Stock are
outstanding, no dividend or distribution (except a dividend or distribution
paid in Common Stock or any other Capital Stock of the Corporation ranking
junior to the Preferred Stock as to distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation) shall be
declared or paid or set aside for payment on the Common Stock, the Series B
Senior Preferred Stock or on any other Capital Stock of the Corporation
nor, except for the Series B Senior Preferred Stock, shall any Common Stock
or other Capital Stock of the Corporation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation, except by conversion into, or exchange for, Common Stock or
other Capital Stock of the Corporation ranking junior to the Series A-P
Preferred Stock as to distributions of assets and rights upon the
liquidation, winding up and dissolution of the Corporation.
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<PAGE>
b. The holders of the outstanding shares of Series B Senior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available therefor, dividends to the
same extent as, on the same basis as, at the same rate as, and
contemporaneously with, dividends when, as and if declared by the Board of
Directors with respect to shares of Common Stock, as if such Series B
Senior Preferred Stock had been converted into Common Stock, on the record
date for determining the holders of Common Stock entitled to receive such
dividend. Such dividends shall be paid on the dates specified by the Board
of Directors as the dates for payment of dividends in respect of shares of
Common Stock (each, a "DIVIDEND PAYMENT DATE"). No interest or dividends
shall be payable in respect of any dividends which may be in arrears. Each
distribution on the Series B Senior Preferred Stock shall be payable to
holders of record as they appear on the stock books of the Corporation on
such record dates, not less than ten (10) nor more than sixty (60) days
preceding the related Dividend Payment Date, as shall be fixed by the Board
of Directors.
c. All dividends paid with respect to shares of Series B Senior
Preferred Stock pursuant to paragraph 3(a) shall be paid PRO RATA and in
like manner to all of the holders entitled thereto.
d. Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set apart for payment, any dividends
on shares of the Series B Senior Preferred Stock or Common Stock at any
time.
e.
(i) No full dividends shall be declared by the Board of Directors
of the Corporation or paid or set apart for payment by the Corporation
on any Parity Stock (including the Common Stock) unless,
contemporaneously therewith, a like ratable dividend calculated in
accordance with paragraph 3(a) hereof is declared and paid, or
declared and a sum set apart sufficient for such payment, on the
Series B Senior Preferred Stock, payable as set forth in paragraph
3(a) hereof. If any such dividends are not paid in full, as aforesaid,
on the shares of the Series B Senior Preferred Stock and any other
Parity Stock, all dividends declared upon shares of the Series B
Senior Preferred Stock and any other Parity Stock shall be declared
PRO RATA so that the amount of dividends declared per share on the
Series B Senior Preferred Stock and such Parity Stock shall in all
cases bear to each other the same ratio that accrued dividends per
share on the Series B Senior Preferred Stock and such Parity Stock
bear to each other.
(ii) The Corporation shall not declare, pay or set apart for
payment any dividend on any shares of Junior Stock or make any payment
on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any
shares of Junior Stock or any warrants, rights, calls or options
exercisable for or convertible into any shares of Junior Stock, or
make any distribution in respect thereof, either directly or
indirectly, whether in cash, obligations or shares of the Corporation
or other property, and shall not permit any of its Subsidiaries to
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<PAGE>
purchase or redeem any shares of Junior Stock or any such warrants,
rights, calls or options, unless all accrued and unpaid dividends have
been or contemporaneously are declared and paid in cash, or declared
and a sum in cash set apart sufficient for such payment, on the Series
B Senior Preferred Stock (all such prohibited payments and other
actions set forth above in this paragraph 3(d)(2) being collectively
referred to as "RESTRICTED JUNIOR PAYMENTS"). The foregoing provisions
will not prohibit any of the following: (a) the payment of dividends
or other distributions on Junior Stock in the form of additional
shares of Junior Stock (or the adjustment of the Liquidation
Preference of such Junior Stock); and (b) the payment of any
Restricted Junior Payment made with the affirmative vote or consent of
the holders of a majority of the issued and outstanding shares of
Series B Senior Preferred Stock, voting or consenting, as the case may
be, as one class, provided that such holders do not also beneficially
own shares of Junior Stock.
f. Subject to the foregoing provisions of this paragraph 3, the
Corporation may declare, pay or set apart for payment dividends on any
shares of Junior Stock or Parity Stock, or make any payments on account of
or set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any shares of Junior Stock or
Parity Stock or any warrants, rights, calls or options exercisable for or
convertible into any shares of Junior Stock or Parity Stock or make any
distribution in respect thereof and the Corporation may permit any of its
Subsidiaries to purchase or redeem any shares of Junior Stock or Parity
Stock or such warrants, rights, calls or options, and the holders of the
shares of the Series B Senior Preferred Stock shall not be entitled to
share therein.
4. LIQUIDATION RIGHTS.
a. LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of shares of Series B Senior Preferred Stock then
outstanding shall be entitled to be paid, for each share held, out of the
assets of the Corporation available for distribution to its shareholders
(the "AVAILABLE ASSETS"), an amount equal to $.001 per share (the
"LIQUIDATION PREFERENCE"). The voluntary sale, conveyance, lease, exchange
or transfer (for cash, shares of stock, securities or other consideration)
of all or substantially all the property or assets of the Corporation to,
or a consolidation or merger of the Corporation with, one or more other
corporation or corporations (whether or not the Corporation is the
surviving corporation in such consolidation or merger) will not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary,
within the meaning of the provisions of this paragraph 4, unless in each
such case such sale or merger involves a plan of liquidation.
b. LIQUIDATION PAYMENT; INSUFFICIENT FUNDS. Upon any liquidation,
dissolution or winding up of the Corporation, the holders of outstanding
Series B Senior Preferred Stock shall be entitled to receive payment for
each share held, out of the excess, if any, of the Available Assets after
any distribution of the Available Assets to any holder of any shares Senior
Stock with respect to distributions of Available Assets (the "REMAINDER
AVAILABLE ASSETS"), an amount in cash equal to the Liquidation Preference
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per share, plus all accumulated and unpaid dividends thereon to the date
fixed for liquidation winding up and dissolution of the Corporation (the
"LIQUIDATION PAYMENT"). If upon such liquidation, dissolution or winding
up, the Remainder Available Assets to be distributed among the holders of
the Series B Senior Preferred Stock shall be insufficient to permit payment
in full of the Liquidation Payment to the holders of outstanding shares of
the Series B Senior Preferred Stock and any preferential amount to be paid
to the holders of Parity Stock with respect to distributions of assets and
rights upon the liquidation, winding up and dissolution of the Corporation,
including the Series A Senior Preferred Stock, then the holders of such
shares shall share ratably in such distribution of assets in accordance
with the amount which would be payable on such distribution if the amounts
to which the holders of outstanding shares of Series B Senior Preferred
Stock and the holders of such Parity Stock are entitled, were paid in full.
c. PRIORITY. All of the preferential amounts to be paid to the holders
of the Series B Senior Preferred Stock shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of
Series A-P Preferred Stock, the holders of Common Stock, and any other
Junior Stock with respect to distributions upon liquidation.
d. NOTICE. Written notice of any liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payment and the
place where said Liquidation Payment shall be payable, shall be given by
mail, postage prepaid, not less than twenty (20) days prior to the payment
date stated therein, to the holders of record of the Series B Senior
Preferred Stock, such notice to be addressed to each such holder at his
post office address as shown by the records of the Corporation.
5. VOTING RIGHTS.
a. In addition to any rights afforded by law, the holder of each share
of Series B Senior Preferred Stock shall have the right to one vote for
each share of Common Stock into which such share of Series B Senior
Preferred Stock could then be converted on all matters as to which holders
of Common Stock shall be entitled to vote, in the same manner and with the
same effect as such holders of Common Stock, voting together with the
holders of Common Stock, Series A Senior Preferred Stock and Series A-P
Preferred Stock, as one class, and, with respect to such vote, such holder
shall be entitled to notice of any stockholders' meeting in accordance with
the Bylaws of the Corporation and applicable law. b. So long as any shares
of Series B Senior Preferred Stock are outstanding, the Corporation shall
not, without the affirmative consent of a majority of the Series B Senior
Preferred Stock (i) amend, alter or repeal any of the provisions of its
Articles of Incorporation which would in any way adversely affect the
rights of the holders of Series B Senior Preferred Stock or (ii) issue any
shares of Series B Senior Preferred Stock other than pursuant to the terms
of the Purchase Agreement.
c. In any case in which the holders of Series B Senior Preferred Stock
shall be entitled to vote as a separate class pursuant to Florida law or
this Certificate of Designation (excluding paragraph 5(a) above), each
holder of Series B Senior Preferred Stock shall be entitled to one vote for
each share of Series B Senior Preferred Stock.
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6. CONVERSION OF SERIES B SENIOR PREFERRED STOCK.
a. OPTIONAL CONVERSION. At any time and from time to time, each share
of Series B Senior Preferred Stock may be converted, at the option of the
holder thereof, in the manner hereinafter provided, into fully paid and
nonassessable shares of Common Stock at its then effective Conversion Rate
(as defined below); PROVIDED, HOWEVER, that on any liquidation or winding
up of the affairs of the Corporation, the right of conversion shall
terminate at the close of business on the Business Day preceding the date
fixed for payment of any amounts distributable on liquidation to the
holders of Series B Senior Preferred Stock.
b. CONVERSION RATE. (i) The initial conversion rate for the Series B
Senior Preferred Stock shall be one (1) share of Common Stock for each
share of Series B Senior Preferred Stock surrendered for conversion (as in
effect from time to time, the "CONVERSION RATE"). The Conversion Rate from
time to time in effect is subject to adjustment as provided in paragraph
6(d) hereof.
(ii) Whenever the Conversion Rate shall be adjusted as provided
in paragraph 6(d) hereof, the Corporation shall forthwith file at each
office designated to accept the conversion of Series B Senior
Preferred Stock, a statement, signed by the President, any Vice
President or the Treasurer of the Corporation, showing in reasonable
detail the facts requiring such adjustment and the Conversion Rate
that will be effective after such adjustment. The Corporation shall
also cause a notice setting forth any such adjustments to be sent by
mail, first class, postage prepaid, to each record holder of Series B
Senior Preferred Stock at his or its address appearing on the stock
register.
c. CONVERSION MECHANICS. (i) In order to exercise the foregoing
conversion privilege, a holder of Series B Senior Preferred Stock shall
surrender to the Corporation at its principal offices, or to any transfer
agent for the Corporation, (A) the certificate(s) representing such shares
of Series B Senior Preferred Stock to be converted, (B) transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer
such shares of Series B Senior Preferred Stock to the Corporation free of
any adverse interest, and (C) a written notice to the Corporation that such
holder has elected to convert all such shares into Common Stock or, if less
than all shares represented by such certificate are to be converted, the
portion of the shares represented thereby to be converted. Such notice
shall also state the name or names (with addresses) in which the
certificates for shares issuable upon such conversion shall be issued.
Series B Senior Preferred Stock shall be deemed converted for all purposes
including without limitation the taking of a record date for a meeting of
the stockholders of the Corporation, upon receipt by the Corporation or its
transfer agent of the items listed in clauses (A), (B) and (C) above.
(ii) Upon conversion of any certificate evidencing Series B
Senior Preferred Stock which is converted in part only, the
Corporation shall cause to be executed and delivered to the holder
thereof, at the expense of the Corporation, a new certificate
evidencing the balance of the Series B Senior Preferred Stock which
was not so converted.
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(iii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the full
number of shares which all shares of Series B Senior Preferred Stock
from time to time outstanding are convertible.
d. ANTI-DILUTION PROVISIONS. In order to prevent dilution of the
rights granted hereunder, the Conversion Rate shall be subject to
adjustment from time to time in accordance with this paragraph 6(d). Upon
each adjustment of the Conversion Rate, the record holder of shares of
Series B Senior Preferred Stock shall thereafter be entitled to acquire
upon exercise, the number of shares of the Corporation's Common Stock equal
to the Conversion Rate; PROVIDED that, notwithstanding anything in this
paragraph 6(d) to the contrary, no adjustment shall be made to the
Conversion Rate for (i) the issuance of any Series B Senior Preferred Stock
pursuant to the Purchase Agreement and (ii) any dividend or distribution
made on the Common Stock which is contemporaneously made to the holders of
Series B Senior Preferred Stock pursuant to paragraph 3 hereof. To the
extent that as a result of any conversion of the Series B Senior Preferred
Stock the Corporation would be obligated to issue a fractional share of
Common Stock (which shall be determined with respect to the aggregate
number of shares of Common Stock held of record by each holder), then the
Corporation shall issue a number of shares of Common Stock upon such
conversion rounded to the nearest whole share.
(i) CERTAIN ISSUANCES OF SECURITIES. If the Corporation shall at
any time after the initial date of issuance of the Series B Senior
Preferred Stock, issue any shares of Common Stock, or convertible
preferred stock, warrants, options, rights or other securities
convertible into or exchangeable or exercisable for shares of Common
Stock (collectively, the "NEWLY ISSUED SECURITIES") for a
consideration (paid in cash, securities or other property) per share
less than the Trigger Value of such Newly Issued Securities, then the
Conversion Rate shall be adjusted to an amount equal to (x) the
Applicable Percentage (determined immediately prior to such issuance)
of a fraction, the numerator of which equals the Fully Diluted Shares
(after giving effect to the issuance of the Newly Issued Securities),
and the denominator of which equals the number of shares of Series B
Senior Preferred Stock then outstanding. For the purposes of any
adjustment of the Conversion Rate pursuant to this clause (i), the
following provisions shall be applicable:
(A) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash
received by the Corporation therefor.
(B) In the case of the issuance 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
value" of such consideration as determined in the good faith
judgment of the Board of Directors of the Corporation; PROVIDED,
HOWEVER, that the holders of a majority of the Series B Senior
Preferred Stock may in good faith refer the question of valuation
for final settlement to a nationally recognized investment
banking firm designated by such holders, and the cost relating to
the retention of such firm shall be borne by the Corporation.
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(C) In the case of the issuance of (x) options to purchase
or rights to subscribe for Common Stock, (y) securities by their
terms convertible into or exchangeable for Common Stock or (z)
options to purchase or rights to subscribe for such convertible
or exchangeable securities:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were
issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (A) and
(B) above), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common
Stock covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options or rights were issued and for a consideration equal
to the consideration received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange
of such securities or the exercise of any related options or
rights (the consideration in each case to be determined in
the manner provided in subdivisions (A) and (B) above);
(3) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchange for such
convertible or exchangeable securities, other than a change
resulting from the antidilution provisions thereof, the
Conversion Rate shall forthwith be readjusted to such
Conversion Rate as would have obtained had the adjustment
made at the time of the issuance of such options, rights or
securities not converted prior to such change been made upon
the basis of such change; and
(4) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Rate
shall forthwith be readjusted to such Conversion Rate had
such options, rights, securities or options or rights
related to such securities not been issued.
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(D) In the case of the issuance of any of the types of
securities referenced in clause (C) above in connection with the
issue and sale of other securities of the Corporation together
comprising one integral transaction in which no specific
consideration is allocated to such securities by the parties
thereto, the amount of consideration therefor shall be deemed to
be the fair value as determined in good faith by the Board of
Directors; PROVIDED, HOWEVER, that the holders of a majority of
the Series B Senior Preferred Stock may in good faith refer the
question of valuation for final settlement to a nationally
recognized investment banking firm designated by such holders,
and the cost relating to the retention of such firm shall be
borne by the Corporation.
(ii) SUBDIVISION, COMBINATION, DIVIDEND OR DISTRIBUTION OF COMMON
STOCK. In case the Corporation shall at any time (a) subdivide its
outstanding shares of Common Stock into a greater number of shares of
Common Stock, (b) combine its outstanding shares of Common Stock into
a smaller number of shares or (c) declare a distribution (other than a
dividend which the Series B Senior Preferred is entitled to pursuant
to Section 3 hereof) payable to its holders of Common Stock in
additional shares of Common Stock, then the Conversion Rate in effect
shall forthwith be adjusted to that ratio determined by multiplying
the Conversion Rate in effect immediately prior to such subdivision,
combination, grant, dividend or distribution by a fraction, the
numerator of which shall be the total number of outstanding shares of
Common Stock immediately after such subdivision, combination or
distribution, and the denominator of which shall be the total number
of outstanding shares of Common Stock immediately prior to such
subdivision, combination or distribution.
(iii) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization or reclassification of the capital
stock of the Corporation (except in respect of transactions described
in paragraph 6(d)(ii)) or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all its assets to another corporation, shall be effected
in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to, or in exchange
for, Common Stock, then as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision will be made whereby the holders of Series B Senior
Preferred Stock shall thereafter have the right to receive upon the
basis and upon the terms and conditions specified herein and in lieu
of the shares of Common Stock immediately theretofore receivable upon
the conversion of such Series B Senior Preferred Stock, such shares of
stock, securities or assets (including cash) as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and
in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of
the Conversion Rate) shall thereafter be applicable, as nearly as may
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be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion of Series B Senior
Preferred Stock. In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares
of common stock of the surviving corporation are issuable to holders
of Common Stock outstanding immediately prior to such merger or
consolidation, the Conversion Rate in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Common Stock.
(iv)
(A) If any event occurs of the type contemplated by the
provisions of this paragraph 6(d) but not expressly provided for
by such provisions, the Board of Directors will determine whether
to make appropriate adjustments to the Conversion Rate as may be
necessary fully to carry out the adjustments contemplated by this
paragraph 6(d). In the event the Board of Directors is unable to
make such determination, an appraiser shall be selected by the
Board of Directors with the consent of the holder or holders of a
majority (by number of shares) of Series B Senior Preferred
Stock, which consent shall not be unreasonably withheld.
(B) The Corporation will not, by amendment of its Articles
of Incorporation or bylaws or through any reorganization,
transfer of assets, reclassification, merger, dissolution, issue
or sale of securities or otherwise, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by the Corporation hereunder but will at all times in
good faith assist in the carrying out of all the provisions
hereof and in the taking of all such actions as may be necessary
or appropriate in order to protect the rights of the holders of
Series B Senior Preferred Stock against impairment.
(v) In the event that (a) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights, (b) there
shall be any capital reorganization or reclassification of the capital
stock of the Corporation, including any subdivision or combination of
its outstanding shares of Common Stock, or consolidation or merger of
the Corporation with, or sale of all or substantially all of its
assets to, another corporation or (c) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
then, in connection with such event, the Corporation shall give to the
holders of the Series B Senior Preferred Stock:
(A) at least twenty (20) days prior written notice of the
date on which the books of the Corporation shall close or a
record shall be taken for such subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up; and
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(B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) days prior
written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (A)
shall also specify, in the case of any such subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause
(B) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each
such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of the Series B Senior
Preferred Stock at the address of each such holder as shown on
the books of the Corporation.
The foregoing anti-dilution provisions set forth in this
paragraph 6(d) may be amended or waived, in whole or in part and
in writing, by a majority of the holders of the Series B Senior
Preferred Stock.
7. REDEMPTION.
a. Each share of Series B Senior Preferred Stock shall, at the sole
election of the Corporation, be redeemed at any time after the closing of a
Qualifying Public Offering (as defined in the Purchase Agreement) and upon
delivery of the notice set forth in paragraph 7(b), which notice shall
conclusively evidence such election by the Corporation. The redemption
price for the shares of Series B Senior Preferred Stock redeemed pursuant
to this paragraph 7 shall be paid to an Investor by certified check or by
wire transfer of immediately available funds denominated in U.S. dollars to
one or more accounts designated by such Investor to the Corporation in an
amount equal to the greater of the Investor's Pro Rata Share (as such term
is defined in the Purchase Agreement) of (i) the Fair Market Value (as such
term is defined in the Purchase Agreement) of the Series B Senior Preferred
Stock relating to the Common Stock into which the shares of Series B Senior
Preferred Stock being redeemed are convertible, determined at the time of
the notice set forth in paragraph 7(b), or (ii) $3,000,000.
b. If the Corporation elects to cause a redemption as set forth in
paragraph 7(a), all holders of record of shares of Series B Senior
Preferred Stock will be given at least 10 days' prior written notice of the
date fixed and the place designated for redemption of all of such shares of
Series B Senior Preferred Stock pursuant to this paragraph 7. Such notice
will be sent by mail, first class, postage prepaid, or overnight courier to
each record holder of shares of Series B Senior Preferred Stock at such
holder's address appearing on the stock register. On or before the date
fixed for redemption each holder of shares of Series B Senior Preferred
Stock shall surrender his or its certificates or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive the redemption proceeds to which such holder is entitled
pursuant to this paragraph 7. On the date fixed for redemption, all rights
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with respect to the Series B Senior Preferred Stock so redeemed will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive the redemption
proceeds into which such Series B Senior Preferred Stock has been redeemed,
including payment of any accrued and unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for redemption shall
be endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorneys duly authorized in writing. All
certificates evidencing shares of Series B Senior Preferred Stock which are
required to be surrendered for redemption in accordance with the provisions
hereof shall, from and after the date such certificates are so required to
be surrendered, be deemed to have been retired and canceled and the shares
of Series B Senior Preferred Stock represented thereby redeemed for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date.
8. BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
9. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law,
the shares of Series B Senior Preferred Stock shall not have any
designations, preferences, limitations or relative rights, other than
those specifically set forth in these resolutions (as such resolutions
may, subject to paragraph 5, be amended from time to time) and in the
Articles of Incorporation.
10. HEADINGS. The headings of the various sections and subsections hereof
are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
11. DEFINITIONS. As used in this Certificate of Designation, the following
terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and VICE
VERSA), unless the context otherwise requires:
"APPLICABLE PERCENTAGE" means, as of any date of determination, the
percentage of the Fully Diluted Shares represented by the number of
shares of Common Stock issuable upon conversion of all then
outstanding Series B Senior Preferred Stock.
"ARTICLES OF INCORPORATION" shall have the meaning ascribed to it in
the second paragraph of this Certificate.
"AVAILABLE ASSETS" shall have the meaning ascribed to it in paragraph
4(a) hereof.
"BOARD OF DIRECTORS" shall have the meaning ascribed to it in the
first paragraph of this Certificate.
"BUSINESS DAY" means any day except a Saturday, a Sunday, or any day
on which banking institutions in New York, New York are required or
authorized by law or other governmental action to be closed.
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"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital
stock and any and all rights to purchase, warrants or options
exchangeable for or convertible into such capital stock (including any
debt security that is exchangeable for or convertible into such
capital stock).
"COMMON STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
CONVERSION RATE" shall have the meaning ascribed to it in paragraph
6(b) hereof.
"CORPORATION" means Thrucomm, Inc., a Florida corporation, and its
successors and assigns.
"FULLY DILUTED SHARES" means, when used with reference to Common
Stock, the number of shares of Common Stock outstanding at such date
and Common Stock of the Corporation issuable in respect of any
warrants, options or convertible securities.
"JUNIOR STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"LIQUIDATION PAYMENT" shall have the meaning ascribed to it in
paragraph 4(b) hereof.
"LIQUIDATION PREFERENCE" shall have the meaning ascribed to it in
paragraph 4(a) hereof.
"PARITY STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as
of January __, 1998, among the Corporation and the Investors party
thereto, relating to the issuance of the Series B Senior Preferred
Stock.
"REMAINDER AVAILABLE ASSETS" shall have the meaning ascribed to it in
paragraph 4(b) hereof.
"RESTRICTED JUNIOR PAYMENTS" shall have the meaning ascribed to it in
paragraph 3 hereof.
"SENIOR STOCK" shall have the meaning ascribed to it in paragraph 2
hereof.
"SERIES A SENIOR PREFERRED STOCK" shall have the meaning ascribed to
it in paragraph 2 hereof.
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"SERIES A-P PREFERRED STOCK" shall have the meaning ascribed to it in
paragraph 2 hereof.
"SERIES B SENIOR PREFERRED STOCK" shall have the meaning ascribed to
it in paragraph 1 hereof.
"SUBSIDIARY" means, with respect to any Person, (i) any Person more
than fifty percent (50%) of the voting securities, having ordinary
voting power, of which is owned directly or indirectly by such Person
or by one or more other Subsidiaries of such Person or such Person in
conjunction with one or more other Subsidiaries of such Person or (ii)
any other Person more than fifty percent (50%) of the voting interest
of which is owned directly or indirectly by such Person or by one or
more Subsidiaries of such Person or by such Person in conjunction with
one or more other Subsidiaries of such Person.
"TRIGGER VALUE" means, as of any date of determination with respect to
the issuance of Newly Issued Securities, the amount determined by
dividing $33,000,000 by the number of Fully Diluted Outstanding Shares
(prior to giving effect to the issuance of such Newly Issued
Securities).
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 607.0602(4) of the Florida Business
Corporation Act.
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IN WITNESS WHEREOF, THRUCOMM, INC. has caused its corporate seal to be
affixed hereunto and this Certificate to be duly executed by its President and
attested to by its Secretary, this ____ day of January, 1998.
THRUCOMM, INC.
By:_________________________
Name: Mark J. Giannini
Title: President
[Corporate Seal]
Attest:
By:_______________________________
Name: John F. Kolenda
Title: Secretary
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AMENDED AND RESTATED
BYLAWS
OF
THRUCOMM, INC.
ARTICLE I - OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of Thrucomm, Inc. (the
"Corporation") may be located either within or without the State of Florida as
the board of directors of the Corporation (the "Board of Directors" or the
"Board") may designate.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation, required
by the Florida Business Corporation Act ("FBCA") to be maintained in the State
of Florida, may be, but need not be identical to the principal office in the
State of Florida, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II- SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be held
for the election of directors and for the transaction of any other business as
may properly come before the meeting on the LAST THURSDAY IN APRIL in each year
at such time as may specified in the notice of meeting, or at such other date or
time as shall be designated, from time to time, by the Board of Directors and
stated in the notice of meeting. If the day fixed for the annual meeting shall
be a legal holiday in the State of Florida, the meeting shall be held on the
next succeeding business day. If the election of directors is not held on the
day designated in these bylaws for any annual meeting of shareholders, or at any
adjournment of the annual meeting, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as may be convenient.
SECTION 2. SPECIAL MEETINGS. The Corporation shall hold a special meetings of
shareholders, for any purpose or purposes (i) on call of the Board of Directors,
the President or the Secretary of the Corporation, or (ii) upon a demand, made
in conformance with the FBCA, of the holders of not less than ten percent 10% of
all the votes entitled to be cast on any issue to be considered at such meeting;
and such special meetings may not be called by any other person or persons.
SECTION 3. PLACE OF MEETING. The Board of Directors or the President shall
designate the place, either within or without the State of Florida, as the place
of meeting for any annual or special meeting of shareholders. If no designation
is made, the place of meeting shall be the principal office of the Corporation.
SECTION 4. NOTICE OF MEETING. Written notice stating the time, date and place of
the meeting of shareholders, and in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered to each
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shareholder of record entitled to vote at such meeting not less than ten (10)
nor more than sixty (60) days before the date of the meeting, either personally,
by telegraph, teletype, or other form of electronic communication, or by mail,
by or at the direction of the President, the Secretary, or the person or persons
calling the meeting. If mailed, such notice shall be deemed delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation. Any shareholder may waive notice of any meeting, before or after
the meeting. Such waiver must be in writing, signed by the shareholder entitled
to the notice, and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. The attendance of a shareholder at a meeting
shall constitute a waiver of any objection to the lack of notice or defective
notice of such meeting, except when such shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
SECTION 5. ADJOURNMENTS. Any meeting of the shareholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place (such
reconvened meeting being referred to herein as the "reconvened meeting"), and
notice need not be given of the new date, time and place of the reconvened
meeting if, prior to such adjournment, the new date, time and place thereof is
announced at the meeting at which the adjournment is taken. If, however, the
Board fixes a new record date or if a new record date for the reconvened meeting
is required to be fixed under law, a notice of the reconvened meeting shall be
given in compliance with Section 4 of this Article II to each shareholder of
record on the new record date entitled to notice of and to vote at the
reconvened meeting.
SECTION 6. RECORD DATE. In order that the Corporation may determine the
shareholders entitled to notice and to vote at any meeting of shareholders, or
to express consent to corporate action in writing without a meeting (to the
extent permitted by law and the Corporation's Articles of Incorporation), or to
receive payment of any dividend or other distribution or allotment of rights, or
to exercise any rights in respect of any change, conversion, exchange of shares,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of a determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders, shall not be more than
seventy (70) and not less than ten (10) days prior to the date of any such
meeting; (2) in the case of a determination of shareholders entitled to take
action by written consent without a meeting, shall not be less than ten (10)
days after the date upon which a resolution fixing the record date is adopted by
the Board, and (3) in the case of any other action, shall not be more than
seventy (70) days prior to the time for such other action.
If no record date is fixed, the record date for determining: (1)
shareholders entitled to notice of and to vote at a meeting of shareholders
shall be at the close of business on the day before the first notice is
delivered to shareholders; (2) shareholders entitled to express consent to
corporate action in writing without a meeting (a) when no prior action of the
Board of Directors is required by the FBCA, 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 (b) when
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prior action by the Board of Directors is required by the FBCA 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 the
shareholders for any other purpose, shall be the close of business on which the
Board of Directors adopts a resolution relating thereto.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may, or if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting, the Board of Directors shall, fix a new record date for the reconvened
meeting and a notice of the reconvened meeting shall be given in compliance with
Section 4 of this Article II to each shareholder of record on the new record
date entitled to notice thereof and to vote at the reconvened meeting.
SECTION 7. SHAREHOLDERS' LIST FOR MEETING. After fixing the record date for a
meeting, an alphabetical list of the names of all shareholders entitled to
notice of the meeting, arranged by voting group, with the address of and the
number, class and series, if any, of shares held by each, shall be prepared by
the Secretary of the Corporation. The shareholders' list shall, upon written
demand, be available during regular business hours, for inspection by any
shareholder and at his expense for a period of ten (10) days prior to the
meeting date, or such shorter time as may exist between the record date and the
meeting, and continuing through the meeting, at the Corporation's principal
office, at a place set forth in the meeting notice in the city where the meeting
will be held, or at the office of the Corporation's transfer agent or registrar.
The shareholders' list also shall be made available by the Corporation
at the meeting, and any shareholder is entitled to inspect the list at any time
during the meeting or any adjournment. The shareholders' list shall
presumptively determine the identity of shareholders entitled to examine the
shareholders' list or to vote at the meeting.
SECTION 8. QUORUM. At any meeting of the shareholders, the holders of a majority
of the votes entitled to be cast on a matter at such meeting shall constitute a
quorum for action on that matter, except to the extent that the presence of a
larger or smaller number may be required by the Corporation's articles of
incorporation (the "Articles of Incorporation") or by law. Shares of the
Corporation's stock owned, directly or indirectly, by the Corporation or by any
corporation of which the Corporation holds, directly or indirectly, a majority
of the shares entitled to vote in the election of directors of such other
corporation, shall not be counted for quorum purposes, except shares held by it
in a fiduciary capacity. In the absence of a quorum, the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, may
adjourn the meeting from time to time in the manner provided in Article II,
Section 5 of these bylaws. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of that
meeting and any adjournment thereof (unless a new record date is or must be set
for the reconvened meeting) and the subsequent withdrawal of shares of stock or
shareholders, so as to reduce the presence, in person or by proxy, of the number
of shares entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
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SECTION 9. PROXIES AND VOTING. EXCEPT AS OTHERWISE PROVIDED BY THE ARTICLES OF
INCORPORATION, each shareholder entitled to vote at any meeting of shareholders
shall be entitled to one (1) vote for each share of stock held by him which has
voting power upon the matter in question.
Every shareholder entitled to vote at a meeting of shareholders, or to
express consent or dissent to a corporate action in writing without a meeting,
or his duly authorized attorney-in-fact, may vote in person or may authorize
another person or persons to act for him by proxy. The proxy must be authorized
by a signed written instrument or by an executed telegram or cablegram appearing
to have been transmitted by such person, or by a photographic, photostatic, or
equivalent reproduction of an appointment form. Such proxy shall be filed with
the Secretary of the Corporation, or other officer or agent authorized to
tabulate votes, before or at the time of such meeting or at the time of
expressing such consent or dissent without a meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless a longer period
is expressly provided in the proxy. A duly executed proxy shall be irrevocable
if it conspicuously states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A shareholder may revoke any proxy which is not irrevocable by attending
the meeting and voting in person, or by filing an instrument in writing with the
Secretary revoking the proxy, or by giving a duly executed proxy bearing a later
date. If an appointment form expressly provides, any proxy holder may appoint,
in writing, a substitute to act in his place.
All elections of directors shall be determined by a plurality of the
votes cast. Except as otherwise provided by the Articles of Incorporation or the
FBCA, action on all other matters shall be approved if the votes cast favoring
the action exceed the votes cast opposing the action.
SECTION 10. ORGANIZATION AND CONDUCT OF BUSINESS. The Chairman, if any, or in
his absence, the President, if any, or in his absence, a Vice President, if any,
or in his absence, such person designated by the Board of Directors, or in the
absence of such designation, such person as may be chosen by the holders of a
majority of the shares entitled to vote at the meeting and who are present, in
person or by proxy, shall call to order any meeting of shareholders and act as
chairman of the meeting. The Secretary shall act as secretary of the meeting,
but in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
The chairman of any meeting of shareholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her to be in
order. The date and time of the opening and closing of the polls for each matter
upon which shareholders will vote at the meeting shall be announced at the
meeting.
SECTION 11. ADVANCE NOTICE OF SHAREHOLDER-PROPOSED BUSINESS AT ANNUAL MEETING.
To be properly brought before the annual meeting of shareholders, business must
be either (a) specified in the notice of meeting (or any supplement thereof)
given by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a shareholder. In addition
to any other applicable requirements, for business to be properly brought before
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an annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than fifty (50) days
nor more than seventy-five (75) days prior to the meeting; PROVIDED, HOWEVER,
that in the event that less than fifty-eight (58) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business of the 8th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the shareholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 11; PROVIDED, HOWEVER, that nothing in this
Section 11 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 11 and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 12. PROCEDURE FOR SHAREHOLDER NOMINATION OF DIRECTORS. Nominations for
the election of directors by shareholders of the Corporation must be made in
accordance with the procedures of this Section 12 of Article II of these bylaws.
Only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the Corporation at the annual meeting may be made at a
meeting of shareholders by or at the direction of the Board of Directors, by a
nominating committee or person appointed by the Board of Directors, or by any
shareholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
12. Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than thirty (30) days nor more than seventy-five (75) days prior to the
meeting; PROVIDED, HOWEVER, that in the event that less than fifty-eight (58)
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the 8th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such shareholder's notice to the Secretary shall
set forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
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the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person and (iv) any other
information related to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice (i) the name and record address of shareholder and
(ii) the class and number of shares of capital stock of the Corporation which
are beneficially owned by the shareholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 13. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of stock standing in the
name of another corporation may be voted by the officer, agent, or proxy as
prescribed by the bylaws of the corporate shareholder or, in the absence of any
applicable bylaw, by such person as the Board of Directors of the corporate
shareholder may designate. Proof of such designation may be made by presentation
of a certified copy of the bylaws or other instrument of the corporate
shareholder. In the absence of any such designation or, in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder shall be presumed to possess, in that order, authority to vote such
shares.
Shares of stock held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name.
Shares of stock standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee.
Shares of stock standing in the name of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him or her without the transfer thereof into his or her name.
A shareholder whose shares of stock 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 or his nominee shall be entitled to vote the
shares so transferred.
Shares of stock owned by another corporation, the majority of whose
shares of stock entitled to vote for directors is owned or controlled by the
Corporation, shall not be voted, directly or indirectly, at any meeting, except
to the extent permitted by law.
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SECTION 14. ACTION BY WRITTEN CONSENT OF SHAREHOLDERS. Any action required or
permitted by the FCBA to be taken at any annual or special meeting of the
shareholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if (1) a consent or consents in writing, setting
forth the action so taken, shall be signed and dated by the holders of
outstanding shares entitled to vote thereon having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
(2) such consent or consents are delivered to the Corporation by delivery to its
principal office or received by the Secretary or another officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
shareholders are recorded.
No written consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the date of the earliest
dated consent delivered to the Corporation, a written consent or consents signed
by a sufficient number of holders to take action are delivered to the
Corporation in the manner prescribed in the first paragraph of this Section 14
of Article II or as otherwise required by law.
Prompt notice of the taking of corporate action without a meeting shall
be given as required by law to those shareholders who have not consented in
writing or who are not entitled to vote on the action.
Any action taken in the manner provided by this Section 14 of Article II
has the effect of a meeting vote and, to the extent permitted by law, may be
described as such in any document.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of, the Board of Directors, which Board of
Directors may, except as otherwise provided by law, the Articles of
Incorporation, or these bylaws, exercise all powers and do all such acts and
things as may be exercised or done by the Corporation.
SECTION 2. NUMBER, TENURE, AND QUALIFICATION. The number of directors who shall
constitute the whole Board shall be between five (5) and twenty-five (25), as
fixed from time to time by resolution of the Board of Directors in accordance
with the Articles of Incorporation. The authorized number of directors may be
increased or decreased from time to time by amendment of these bylaws; provided,
however, that the Corporation shall always have at least one (1) director. Any
increase in the number of directors shall be effective immediately. Any decrease
in the number of directors shall be effective at the time of the next succeeding
annual meeting of the shareholders unless, at the time of such decrease, there
shall be vacancies on the Board which are being eliminated by the decrease, in
which case such decrease may become effective at any time prior to the next
succeeding annual meeting to the extent of the number of vacancies.
Except as otherwise provided by these bylaws or required by the Articles
of Incorporation or law, directors shall be elected at the annual meeting of
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shareholders for a term of one (1) year and shall hold office until the next
annual meeting of shareholders and until his or her successor is duly elected
and qualified, or until his or her earlier death, resignation, or removal from
office as hereinafter provided by these bylaws. Directors of the Corporation
need not be shareholders of the Corporation.
SECTION 3. CHAIRMAN OF THE BOARD. The Board of Directors may elect a chairman
("Chairman") who, if so elected, shall preside at all meetings of the
shareholders and the Board of Directors. The Chairman shall have such other
powers and shall perform all duties as from time to time may be granted or
assigned to him or her by the Board of Directors and as provided by law.
SECTION 4. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board of
Directors shall be held without other notice than these bylaws, immediately
after and at the same place as the annual meeting of shareholders. The Board of
Directors may provide, by resolution, for the holding of other regular meetings,
which meetings shall be held on such date(s) at such time(s), and at such
place(s) as established by such resolution. A notice of each regular meeting
other than by resolution shall not be required.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called the Chairman, if one is elected, the President, or any two directors. The
Chairman of the Board, if one is elected, or the President shall fix the place
for holding such special meeting.
SECTION 6. NOTICE. Notice of any special meeting of the Board shall be given
at least two (2) days before the meeting by written notice delivered personally,
or by mail, telegraph, teletype, cablegram, or other form of electronic
communication to each director at his business address, unless in case of
emergency, the Chairman, if one is elected, or the President shall prescribe a
shorter notice to be given personally or by telegraph, teletype, cablegram, or
other electronic communication to each director at his residence or business
address. If a notice of meeting is sent by regular mail, such notice shall be
deemed delivered five (5) days after its deposit in the United States mail, if
mailed postpaid and correctly addressed. Any director may waive notice of any
meeting, before or after the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting and a waiver of any and all
objections to the place of the meeting, the time or date of the meeting, or the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting, any objection to the transaction of business
because the meeting is not lawfully called or convened.
SECTION 7. QUORUM. A majority of the number of directors fixed pursuant to
Section 2 of this Article III shall constitute a quorum for transacting business
at any meeting of the Board of Directors. A majority of the directors present,
whether or not a quorum exists, may adjourn any meeting of the Board of
Directors to another time and place. Notice of any such adjourned meeting shall
be given to the directors who were not present at the time of the adjournment
and, unless the time and place of the adjourned meeting are announced at the
time of the adjournment, to the other directors.
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SECTION 8. VOTE REQUIRED FOR ACTION. Except as otherwise required by law, the
Articles of Incorporation, or these bylaws, the vote of a majority of the
directors present at a meeting in which a quorum is present shall be the act of
the Board of Directors.
SECTION 9. VACANCIES. If any vacancy occurs on the Board of Directors, including
a vacancy resulting from an increase in the number of directors of the
Corporation, such vacancy may be filled by the affirmative vote of a majority of
the directors remaining in office, although less than a quorum of the Board of
Directors, or by a sole remaining director, or by the shareholders. A director
elected to fill a vacancy, including a vacancy resulting from an increase in the
number of directors of the Corporation, shall hold office only until the next
annual meeting of shareholders and until his or her successor shall have been
elected and qualified or until his or her earlier death, resignation, or removal
from office.
SECTION 10. COMPENSATION. By resolution of the Board of Directors, directors may
receive fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors, and reimbursement for expenses incurred for attendance at
meetings of the Board of Directors and its committees. The compensation of
directors shall be on such basis as determined by the Board of Directors. No
such payment made to a director under this Section 10 of Article III shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation and reimbursement of expenses therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the Corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken, unless he
objects at the beginning of the meeting to holding it or transacting specified
business at the meeting, or he votes against or abstains from the action taken.
SECTION 12. CONSTRUCTIVE PRESENCE AT A MEETING. Members of the Board of
Directors may participate in a meeting of the Board through the use of any means
of communication by which all directors participating in the meeting may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means shall constitute presence in person at the meeting.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted by law to
be taken at any meeting of the Board or a committee thereof, may be taken
without a meeting if all members of the Board or any committee thereof, as the
case may be, consent thereto in writing, and such consent or consents are filed
with the minutes of the proceedings of the Board of Directors or such committee.
Any such consents or consent shall describe the action taken and such
action so taken shall be effective when the last director or committee member
executes such consent, unless such consent or consents specify a different
effective date. A consent so signed has the effect of a meeting vote and may be
described as such in any document.
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SECTION 14. REMOVAL OF DIRECTORS. The shareholders of the Corporation may remove
one or more directors with or without cause if such shareholder action is
undertaken in the manner prescribed by the FBCA.
ARTICLE IV - COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS. Except as otherwise provided by
the Articles of Incorporation or these bylaws, the Board of Directors, by a
resolution passed by a majority of the full Board of Directors, may from time to
time designate one or more committees of the Board of Directors, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board. The Board of Directors shall, for those committees and
any others provided for herein, elect two or more directors to serve as members
and, if it so desires, designate one or more directors as alternate members who
may replace any absent or disqualified member at any meeting of the committee.
Any committee so designated, to the extent permitted by law and to the
extent provided in the Board of Directors resolution which designates the
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
SECTION 2. CONDUCT OF BUSINESS. Each committee designated by the Board of
Directors may determine, make, alter, and repeal the procedural rules for
meeting and conducting its business and shall act in accordance therewith,
except as otherwise required by law or provided by the Board of Directors or
these bylaws. In the absence of such rules, each committee shall conduct its
business in the same manner as the Board of Directors conducts its business
pursuant to Article III of these bylaws.
ARTICLE V - OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall include: President,
Secretary, and Treasurer, each of whom shall be elected by the Board of
Directors. One or more Vice Presidents and such other officers, assistant
officers, and agents as may be deemed necessary, may be elected or appointed by
the Board of Directors. A duly appointed officer may appoint one or more
officers or assistant officers if authorized by the Board of Directors.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation to be
elected by the Board shall be elected annually by the Board at the annual
meeting of the Board held after each annual meeting of shareholders. If the
election of officers shall not be held at meeting, such election shall be held
as soon thereafter as may be convenient. Each officer shall hold office until
his or her successor shall have been elected and qualified or until his or her
earlier resignation, removal from office, or death.
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SECTION 3. REMOVAL. Any officer, assistant officer, or agent of the Corporation
may be removed by the Board, either with or without cause, whenever, in the
Board's its judgment, the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contractual rights,
if any, of the person so removed. Any officer or assistant officer, if appointed
by another officer, may likewise be removed by the officer who so appointed them
or by the Board of Directors. Election or appointment of an officer or agent
shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy, however occurring, in any office may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The President shall be the chief executive officer of the
Corporation and, subject to the provisions of these bylaws and to the direction
of the Board of Directors, shall supervise, control, and have the responsibility
for the general management and control of the business and affairs of the
Corporation. The President shall perform all duties and have all powers which
are commonly incident to the office of chief executive or which from time to
time may be assigned or delegated to him by the Board of Directors. If a
Chairman has not been elected or is otherwise absent, the President shall
preside at all meetings of shareholders and at all meetings of the Board of
Directors. The President may sign all stock certificates, deeds, contracts, and
other instruments of the Corporation which the Board of Directors has authorized
to be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. The President also shall have supervision and direction of
all of the other officers, employees and agents of the Corporation.
SECTION 6. VICE PRESIDENT. Each Vice President shall have such powers and duties
as may be delegated to him or her by the Board of Directors. In the absence of
the President or in the event of the President's death or inability or refusal
to act, the Vice President, if one is elected, shall have the duties of the
President, and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President. If more than one Vice President is
elected, the Board of Directors shall designate which Vice President shall serve
until the election of a successor President.
SECTION 7. SECRETARY. The Secretary shall: (1) keep the minutes of all meetings
of shareholders and of the Board of Directors in one or more books provided for
that purpose; (2) duly issue all authorized notices in accordance with the
provisions of these bylaws or as required by law; (3) have charge of and be
custodian of the corporate books and records and of the seal of the Corporation,
and shall affix or cause to be affixed the seal of the Corporation to all
documents the execution of which on behalf of the Corporation is duly
authorized; (4) keep a register of the post office address of each shareholder
which shall be furnished to the Secretary by each shareholder; (5) have general
charge of the stock transfer books of the Corporation; (6) authenticate all
records of the Corporation; and (7) in general, perform all duties incident to
the office of Secretary and such other duties as the Board of Directors or the
President from time to time prescribe.
SECTION 8. TREASURER. The Treasurer shall: (1) have responsibility for
maintaining the financial records of the Corporation; (2) receive and give
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receipts for monies due and payable to the Corporation from any source
whatsoever; (3) deposit all such monies in the name of the Corporation in such
banks, trust companies, or other depositories as shall be selected in accordance
with the provisions of Article VII of these bylaws; (4) make disbursements of
the funds of the Corporation as are authorized; (5) render from time to time an
account of all transactions and of the financial condition of the Corporation;
and (6) in general perform all of the duties incident to the office of Treasurer
as the Board of Directors or the President from time to time prescribe. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the Board of Directors shall determine.
SECTION 9. OFFICER COMPENSATION. The salaries and other compensation paid to
officers of the corporation shall be fixed from time to time by the Board of
Directors and no officer shall be prevented from receiving such salary or other
compensation by reason of the fact that he is also a director of the
Corporation.
SECTION 10. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President or any other officer
of the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of shareholders of or with respect to any action of shareholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE VI - RESIGNATIONS
Any director or officer of the Corporation may resign at any time by
delivering written notice to the Board of Directors or its Chairman, or to the
President or the Secretary of the Corporation. Any such resignation shall take
effect when delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date, the Board of Directors may fill
the pending vacancy before the effective date if the Board of Directors provides
that the successor does not take office until the effective date.
ARTICLE VII - CONTRACTS, LOAN, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, unless otherwise
restricted by law. Such authority may be general or confined to specific
instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation and
no evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
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SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies, or other depositories as the Board of Directors may select.
ARTICLE VIII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES OF STOCK. Unless the Board of Directors provide
otherwise, each shareholder shall be entitled to a certificate which certifies
the number and class of shares owned by him or her, signed by or in the name of
the Corporation by (1) the President or a Vice President, and by either the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
or (2) any other officers or directors of the Corporation designated by the
Board of Directors. Any or all of the signatures on the certificate may be by
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board of Directors. All certificates for
shares shall be numbered consecutively or otherwise identified. The name and
address of the person to whom the shares represented thereby have been issued,
the number of shares, and the date of issuance shall be entered on to the
transfer books of the Corporation.
All certificates representing shares which are subject to restrictions
on transfer or to other restrictions shall have conspicuously imprinted or
otherwise referenced thereon such notation.
SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the
transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Transfers of stock shall be made on the transfer books of the Corporation only
when the holder of record thereof, or his legal representative, or his attorney
whereunto authorized by a power of attorney duly executed and filed with the
Secretary of the Corporation, shall furnish proper evidence of authority to
transfer, and when there is surrendered for cancellation the certificate(s) for
shares, properly endorsed. The person in whose name shares stand on the books of
the Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes. Except where a certificate is issued in accordance with Section 3
of Article VII of these bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
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SECTION 3. LOST, STOLEN, OR DESTROYED CERTIFICATES. In the event of the loss,
theft, or destruction of any certificate of stock, another may be issued in its
place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft, or destruction and concerning the giving
of a satisfactory bond or bonds of indemnity.
SECTION 4. REGULATIONS. The issue, transfer, conversion, and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE IX - INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") by reason of the fact that he or the person for
whom he is the legal representative is or was a director of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation or of a partnership, joint venture,
trust, or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding
is alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the FBCA, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment), against
all expenses, liability, and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section 3 of this Article IX with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
SECTION 2. ADVANCEMENT OF EXPENSES. The right to indemnification conferred in
Section 1 of this Article IX shall include the right to be paid by the
Corporation the expenses (including attorney's fees) incurred in defending any
such proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that, if the FBCA requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision form which there is not further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
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the advancement of expenses conferred in Section 1 and 2 of this Article IX
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall insure to the
benefit of the indemnitee's heirs, executors and administrators.
SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 or 2 of
this Article IX is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also to the expense of prosecuting or defending such suit.
In (i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the FBCA. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the FBCA, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article IX or otherwise shall be on the Corporation.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and to the
advancement of expenses conferred in this Article IX shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Articles of Incorporation, these bylaws, any agreement, a vote of
shareholders or disinterested directors, or otherwise.
SECTION 5. INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of the Corporation
or another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability, or loss
under the FBCA.
SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
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indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article IX with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
SECTION 7. OTHER INDEMNIFICATION. The Corporation's obligation, if any, 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 enterprise.
SECTION 8. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
provisions of this Article IX shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE X - GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall begin on
January 1 and end on December 31 in each year.
SECTION 2. DIVIDENDS. The Board of Directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by the Articles of Incorporation and law.
SECTION 3. SEAL. The Board of Directors shall provide a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors.
SECTION 4. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
SECTION 5. RELIANCE UPON BOOKS REPORTS AND RECORDS. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports, or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
SECTION 6. TIME PERIODS. In applying any provision of these bylaws which
requires that an act be done or not be done a specified number of days prior to
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an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
SECTION 7. CORPORATE RECORDS. The Corporation shall maintain in written form or
in a form capable of conversion into written form (1) permanent records of
minutes of all meetings of its shareholders and Board of Directors or any
committee thereof, or a record of all action taken without a meeting of its
shareholders or Board of Directors or any committee thereof; (2) accurate
accounting record; and (3) a record of its shareholders in a form that permits
preparation of a list of names and addresses of all shareholders in alphabetical
order by class of shares showing the number and series held by each.
Additionally, the Corporation shall keep a copy of (a) its Articles of
Incorporation and all amendments currently in effect; (b) its bylaws, or
restated bylaws, and all amendments currently in effect; (c) resolutions adopted
by its Board of Directors creating one or more classes or series of shares and
affixing their relative rights, preferences, and limitations, if shares issued
pursuant thereto are outstanding; (d) minutes of all shareholders' meetings and
record of all action taken by shareholders without a meeting for the past three
years; (e) written communications to all shareholders, generally, or all
shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years pursuant to the FBCA;
(f) a list of names and business street addresses of its current directors and
officers; and (g) its most recent annual report delivered to the Florida
Department of State pursuant to the FBCA.
ARTICLE XI - AMENDMENTS
Except as provided by the Articles of Incorporation or law, any or all
of these bylaws may be altered, amended, or repealed and new bylaws may be
adopted by: (1) a vote of the Board of Directors, unless shareholders, in
amending or repealing the bylaws generally or a particular bylaw provision,
provides expressly that the Board of Directors may not alter, amend, or repeal
the bylaws or that particular bylaw provision, or (2) by a vote of shareholders
at any meeting.
ARTICLE XII - EMERGENCY BYLAWS
In the event that a quorum of the Corporation's Board of Directors
cannot readily be assembled because of a catastrophic event, the following
Emergency Bylaws are in effect until termination of the emergency:
SECTION 1. NOTICE. Notice of a meeting of the Board of Directors need only be
given to those directors whom it is practicable to reach and may be given in any
practicable manner, including publication by publication or radio.
SECTION 2. OFFICERS. One or more officers of the Corporation present at the
meeting of the Board of Directors may be deemed to be directors for the meeting,
in order of rank and within the same rank in order of seniority, as necessary to
achieve a quorum.
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SECTION 3. QUORUM. The director or directors in attendance at a meeting,
including those persons deemed directors in accordance with Article XIV, Section
2 hereof, shall constitute a quorum.
SECTION 4. ACTIONS BY THE BOARD OF DIRECTORS DURING AN EMERGENCY. To the extent
consistent with these Emergency Bylaw, the Corporation's bylaws shall remain in
effect during an emergency. During an emergency as set forth herein, the Board
of Directors may (a) modify lines of succession to accommodate the incapacity of
any director, officer, employee, or agent; and (b) relocate the principal office
or designate alternative principal or regional officers or authorize the
officers to do so.
As approved and adopted by the Board of Directors on December 29, 1997.
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THIRD LEASE AMENDMENT
THIS THIRD LEASE AMENDMENT (the "Amendment") is executed this ______ day of
December, 1997, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ('Landlord"), and THRUCOMM, INC., a(n) __________________
corporation f/k/a Dataline-I. Ltd. ("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord's predecessor in interest, Industrial Developments
International, Inc., and Tenant entered into a certain lease dated April 15,
1991, as amended September 16, 1991 and January 31, 1994 (collectively, the
"Lease"), whereby Tenant leased from Landlord certain premises consisting of
approximately 9,400 square feet of space (the "Original Premises") located in
Building D at 6900 Fairfield Business Drive, Fairfield, Ohio; and
WHEREAS, Landlord and Tenant desire to expand the Original Premises by
approximately 4,700 square feet (the "Additional Space"); and
WHEREAS, Landlord and Tenant desire to amend certain
provisions of the Lease to reflect such expansion;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein contained and each act performed hereunder by the parties,
Landlord and Tenant hereby agree as follows:
1. Amendment of Article 1.
Commencing March 1, 1998, Article 1, Items (b), (d), (e), (h),
(i) (j), and (n) of Article 1, Basic Lease Provisions, are hereby deleted and
the following is substituted in lieu thereof:
(b) Demised Premises Square Footage: 14,100;
(d) Annual Minimum Rent:
March 1, 1998 - January 31, 1999 $115,052.63 (11 months)
February 1, 1999 - January 31, 2000 $125,511.96 per year
February 1, 2000 - January 31, 2001 $125,511.96 per year
February 1, 2001 - January 31, 2002 $125,511.96 per year
February 1, 2002 - January 31, 2003 $125,511.96 per year
February 1, 2003 - January 31, 2004 $125,511.96 per year
February 1, 2004 - January 31, 2005 $125,511.96 per year;
(e) Monthly Rental Installments:
Months 1-71 $10,459.33 per month;
(h) Termination Date: January 31, 2005;
(i) Term: Through January 31, 2005;
(j) Tenant's Operating Expense Percentage: 35.10%;
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(n) Addresses for payments and notices:
Landlord: Duke Realty Limited Partnership
4555 Lake Forest Drive, Suite 400
Cincinnati, OH 45242
With Payments to: Duke Realty Limited Partnership
P.O. Box 960664
Cincinnati, OH 45296-0664
Tenant: ThruComm, Inc.
Attn: Mark Gianinni
1641 Commerce Avenue, N.
St. Petersburg, FL 33716
3. AMENDMENT OF ARTICLE 2. Demised Premises. Commencing
March 1, 1998, Article 2 of the Lease is hereby deleted and the
following is substituted in lieu thereof:
"For and in consideration of the rent hereinafter reserved and the
mutual covenants hereinafter contained, Landlord does hereby lease and demise
unto Tenant, and Tenant does hereby hire, lease and accept from Landlord the
following premises, referred to as the "Demised Premises": approximately 14,100
square feet of space located within 6900 Fairfield Business Drive within
Fairfield Business Center (the "Project"), located in Butler County, Ohio as
shown on the floor plan attached hereto as Exhibit A-1 and incorporated herein,
all upon the terms and conditions hereinafter set forth."
4. INCORPORATION INTO ARTICLE 17. Construction of Demised Premises.
The following shall be added to Article 17 of the Lease:
Tenant has personally inspected the Demised Premises and accepts the
same "as is" without representation or warranty by Landlord of any kind and with
the understanding that Landlord shall have no responsibility with respect
thereto except that Landlord agrees to perform and complete the work on the
tenant finish improvements for the Additional Space as set forth in Exhibit B-1
attached hereto and shall give Tenant written notice of the day on which
Landlord expects to complete such work. Landlord agrees to pay Thirty-one
Thousand Eight Hundred Thirty-eight Dollars and Ninety-four Cents ($31,838.94)
toward the cost of the tenant finish improvements and Tenant agrees to pay
Thirty-one Thousand Eight Hundred Thirty-eight Dollars and Ninety-four Cents
($31,838.94) toward the cost of the tenant finish improvements. Tenant shall pay
Fifteen Thousand Nine Hundred Nineteen Dollars and Forty-seven Cents
($15,919.47) of its portion upon the execution of this Amendment and the
remaining amount on the date Landlord delivers the Additional Space to Tenant.
Upon completion of the work in the Additional Space, Tenant shall
execute a letter of understanding as referred to in Article 17 of the Lease.
5. ADDITION OF ARTICLES 36 AND 37. Articles 36 and 37 are hereby added
to the Lease:
Article 36. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent certified and audited financial statements prepared as of the end of
Tenant's most recent fiscal year. Such financial statements shall be prepared in
conformity with generally accepted accounting principles, consistently applied.
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Article 37. Representations and Indemnifications. Any representations
and indemnifications of Landlord contained in the Lease shall not be binding
upon (i) any mortgagee having a mortgage presently existing or hereafter placed
on the Building, or (ii) a successor to Landlord which has obtained or is in the
process of obtaining fee title interest to the Building as a result of a
foreclosure of any mortgage or a deed in lieu thereof.
6. TENANT'S REPRESENTATIONS AND WARRANTIES. The undersigned represents
and warrants to Landlord that (i) Tenant is duly organized, validly existing and
in good standing in accordance with the laws of the state under which it was
organized; (ii) all action necessary to authorize the execution of this
Amendment has been taken by Tenant; and (iii) the individual executing and
delivering this Amendment on behalf of Tenant has been authorized to do so, and
such execution and delivery shall bind Tenant. Tenant, at Landlord's request,
shall provide Landlord with evidence of such authority.
7. EXAMINATION OF AMENDMENT. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation or option,
and it is not effective until execution by and delivery to both Landlord and
Tenant.
8. DEFINITIONS. Except as otherwise provided herein, the capitalized
terms used in this Amendment shall have the definitions set forth in the Lease.
9. INCORPORATION. This Amendment shall be incorporated into and made a
part of the Lease, and all provisions of the Lease not expressly modified or
amended hereby shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed on the day and year first written above.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
WITNESSES: an Indiana limited partnership
__________________________
(Signature)
By: Duke Realty Investments, Inc.,
__________________________ its general partner
(Printed)
__________________________ By: _________________________
(Signature) Robert D. Fessler
Vice President and
__________________________ General Manager
(Printed)
TENANT:
THRUCOMM, INC., a(n)
----------------------------
WITNESSES:
__________________________ By: ___________________________
(Signature) (Signature)
__________________________ ____________________________
(Printed) (Printed)
__________________________ Title: _________________________
(Signature)
__________________________
(Printed)
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<PAGE>
STATE OF _________________ )
) SS:
COUNTY OF ________________ )
Before me, a Notary Public in and for said County and State, personally
appeared Robert D. Fessler, by me known and by me known to be the Vice President
and General Manager of Duke Realty Investments, Inc., an Indiana corporation,
the general partner of Duke Realty Limited Partnership, an Indiana limited
partnership, who acknowledged the execution of the foregoing "Third Lease
Amendment" on behalf of said partnership.
WITNESS my hand and Notarial Seal this _____day of_______________, 1997.
---------------------------------
Notary Public
---------------------------------
(Printed Signature)
My Commission Expires:
My County of Residence:
STATE OF __________ )
) SS:
COUNTY OF _________ )
Before me, a Notary Public in and for said County and State, personally
appeared , by me known and by me known to be the _________________________ of
ThruComm, Inc., a(n) ________________ who acknowledged the execution of the
foregoing "Third Lease Amendment" on behalf of said corporation.
WITNESS my hand and Notarial Seal this _____day of _____________, 1997.
_________________________________
Notary Public
_________________________________
(Printed Signature)
My Commission Expires:
My County of Residence:
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AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as
of this ____ day of January, 1998 by and among THRUCOMM, INC., a Florida
corporation whose address is 1641 Commerce Avenue North, St. Petersburg, Florida
33716 ("Thrucomm"), BLUE CHIP/DATALINC CORPORATION, a Delaware corporation (a
wholly-owned subsidiary of Blue Chip Capital Fund Limited Partnership, a
Delaware limited partnership) whose address is 201 East Fifth Street,
Cincinnati, Ohio 45202 (the "Purchaser"), INTEGRATED COMMUNICATION NETWORKS,
INC., a Florida corporation whose address is 1641 Commerce Avenue North, St.
Petersburg, Florida 33716 ("ICN"), JOHN F. KOLENDA, an individual with a mailing
address at 1641 Commerce Avenue North, St. Petersburg, Florida 33716
("Kolenda"), MARK J. GIANINNI, an individual with a mailing address at 1641
Commerce Avenue North, St. Petersburg, Florida 33716 ("Gianinni", and together
with Kolenda, the "Shareholders"), and DATALINC, LTD., a Florida limited
partnership whose address is 1641 Commerce Avenue North, St.
Petersburg, Florida 33716 (the "Partnership").
WHEREAS, an agreement (the "First Agreement") was made and
entered into as of the 30th day of April, 1993 by and among the Purchaser, ICN,
the Shareholders and the Partnership; and
WHEREAS, an agreement (the "Second Agreement") was made and
entered into as of the 1st day of September, 1993 by and among the Purchaser,
ICN, the Shareholders and the Partnership; and
WHEREAS, pursuant and subject to the First Agreement and the
Second Agreement, the Partnership sold to the Purchaser, and the Purchaser
purchased from the Partnership, three hundred eighty (380) Series 300 Limited
Partnership Units of the Partnership (the "Purchaser Units"), and the Purchaser,
the Partnership, ICN and the Shareholders entered into certain agreements in
connection therewith; and
WHEREAS, pursuant to a Reorganization as described in the Form
S-4 Registration Statement filed with the Securities and Exchange Commission
(the "Commission") with respect to Thrucomm on September 3, 1997, as amended
(the "Registration Statement"), the assets of the Partnership were transferred
to Thrucomm, and the Partnership acquired all of the common stock and certain
preferred stock of Thrucomm (the "Reorganization"); and
WHEREAS, an agreement (the "Third Agreement") was made and
entered into as of the 27th day of August, 1997 by and among Thrucomm and the
parties to the First Agreement and the Second Agreement, pursuant to which
Thrucomm and the parties to the First Agreement and the Second Agreement made
certain agreements in connection with the Reorganization; and
WHEREAS, Thrucomm and the parties to the First Agreement, the
Second Agreement and the Third Agreement (collectively, the "Agreements") now
desire to make certain modifications to the Agreements and other agreements, as
more particularly set forth herein.
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NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties hereby agree as follows:
1. Certain Definitions. As used herein, the following terms shall have the
following meanings:
"Thrucomm Board" shall mean the Board of Directors of Thrucomm.
"Mandatory Conversion Event" shall have the meaning set forth in the
Registration Statement.
"Determination Date" shall mean the earlier to occur of (a) December 31,
2000 or (b) the date of the occurrence of a Mandatory Conversion Event.
"MRA" shall mean Seven Million Two Hundred Thousand Dollars ($7,200,000),
subject to reduction as follows:
(a) If any Purchaser Units are sold by the Purchaser prior to the
earlier to occur of June 30, 1999 or the Determination Date, the
MRA shall be reduced by the same percentage that the number of
Purchaser Units so sold by the Purchaser bears to the total
number of Purchaser Units owned by the Purchaser on the date of
this Agreement; and
(b) If any Purchaser Units are sold by the Purchaser on or after June
30, 1999 but prior to the Determination Date, the MRA shall be
reduced by an amount equal to the greater of (i) the amount of
proceeds (net of any reasonable expenses incurred in connection
therewith) received by the Purchaser from the sale of such
Purchaser Units or (ii) in the event that ICN and the
Shareholders seek such a determination, an amount equal to the
amount which the Thrucomm Board determines in good faith is the
price which reasonably should be accepted for the sale of such
Purchaser Units at that time, taking into account the facts and
circumstances existing at that time, less the amount of expenses
which the Thrucomm Board determines in good faith might
reasonably be incurred in connection therewith.
"FMV" shall mean:
(a) If a Mandatory Conversion Event has not occurred on or prior to
December 31, 2000, the market value as of December 31, 2000 of
the Purchaser Units then owned by the Purchaser, as determined in
good faith by the Thrucomm Board, assuming sale within a period
of not more than four (4) weeks and net of any expenses that
might reasonably be incurred in connection with such sale as
determined in good faith by the Thrucomm Board; or
(b) If a Mandatory Conversion Event has occurred on or prior to
December 31, 2000, the market value of the shares of common stock
of Thrucomm received by the Purchaser upon conversion of
Thrucomm's Mandatory Convertible Preferred Stock, Series D and
Series E (as described in the Registration Statement) as of the
date of receipt thereof, as determined in good faith by the
Thrucomm Board, assuming sale within a period of not more than
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four (4) weeks and net of any expenses which might reasonably be
incurred in connection with such sale as determined in good faith
by the Thrucomm Board; provided, however, that if the Purchaser
disagrees with the market value determined by the Thrucomm Board
in either such situation (a) or (b) above, the Purchaser shall be
entitled to retain, at the expense of Thrucomm, a nationally
recognized investment banking firm reasonably acceptable to the
Thrucomm Board to provide a determination of such market value,
and in such event the determination of such firm as to such
market value shall be determinative and shall be the FMV.
"Deficiency Amount" shall be determined as of the Determination Date and
shall mean (a) if the FMV is then equal to or greater than the MRA, zero,
or (b) if the MRA is then greater than the FMV, the difference between the
MRA and the FMV, subject to reduction as described in Paragraph 2 below.
"Escrow Agent" shall mean a financial institution reasonably acceptable to
the Purchaser.
"Escrow Agreement" shall mean an Escrow Agreement among the Purchaser, the
Partnership, Thrucomm, ICN, the Shareholders and the Escrow Agent in
substantially the form of Exhibit A attached hereto.
"Escrow Account" shall mean the escrow account established pursuant to the
Escrow Agreement.
"Reasonable Preferred Stock Sale Price" shall mean the price which the
Thrucomm Board in good faith determines is the price which reasonably
should be accepted for the sale of the Escrowed Preferred Stock or the
portion thereof then sold or proposed to be sold, taking into account the
facts and circumstances existing at the time of such sale, less the amount
of expenses which the Thrucomm Board determines in good faith might
reasonably be incurred in connection therewith.
"Reasonable Common Stock Sale Price" shall mean the price which the
Thrucomm Board in good faith determines is the price which reasonably
should be accepted for the sale of the Escrowed Common Stock or the portion
thereof then sold or proposed to be sold, taking into account the facts and
circumstances existing at the time of such sale, less the amount of
expenses which the Thrucomm Board determines in good faith might reasonably
be incurred in connection therewith.
2. Escrow.
(a) Deposit of Escrowed Preferred Stock. Within thirty (30) days after the
date of this Agreement, the Purchaser, the Partnership, Thrucomm, ICN,
the Shareholders and the Escrow Agent shall enter into the Escrow
Agreement and the Partnership shall deposit forty-five percent (45%)
of Thrucomm's Mandatory Convertible Preferred Stock, Series G, as
described in the Registration Statement (the "Escrowed Preferred
Stock"), into the Escrow Account. Simultaneously with depositing the
Escrowed Preferred Stock into the Escrow Account, the Partnership
shall deposit stock powers with respect to the Escrowed Preferred
Stock, duly executed in blank, into the Escrow Account, which shall
only be released from the Escrow Account for the purpose of
effectuating sale of the Escrowed Preferred Stock or any portion
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thereof in accordance with the terms of this Agreement or when the
Escrow Account is closed in accordance with the terms of this
Agreement.
(b) Restrictions on Sale and Release of Escrowed Preferred Stock. No
Escrowed Preferred Stock may be sold or otherwise released from the
Escrow Account, except that (i) the Purchaser may at any time direct
that the Escrowed Preferred Stock or any portion thereof be sold, (ii)
at any time after June 30, 1999, ICN and the Shareholders may direct
that the Escrowed Preferred Stock or any portion thereof be sold, but
only if such Escrowed Preferred Stock is sold at a price no less than
the Reasonable Preferred Stock Sale Price, and (iii) the Escrowed
Preferred Stock shall be released from the Escrow Account (A) in
connection with a Mandatory Conversion Event or (B) if a Mandatory
Conversion Event has not occurred on or prior to December 31, 2000,
but the Deficiency Amount as of that date is zero; in each case
subject to the terms hereinafter set forth.
(c) Sale of Escrowed Preferred Stock Prior to Determination Date. Upon any
sale of Escrowed Preferred Stock as permitted in Paragraph 2(b) above
prior to the Determination Date, all proceeds from such sale shall be
deposited into the Escrow Account, and such proceeds and any interest
or income thereon (the "Escrowed Proceeds") shall remain in the Escrow
Account until the date of determination of the Deficiency Amount as of
the Determination Date or up to ten (10) days thereafter. If as of the
Determination Date the Deficiency Amount is zero, the Escrowed
Proceeds shall be released to ICN, and the Escrow Account shall be
closed. If as of the Determination Date the Deficiency Amount is
greater than zero, the Deficiency Amount shall be reduced by an amount
equal to the greater of (i) the amount of the Escrowed Proceeds or
(ii) with respect to any sale directed by the Purchaser, the amount of
the Reasonable Preferred Stock Sale Price, and the Escrowed Proceeds
shall be released to the Purchaser up to an amount equal to the
Deficiency Amount as so reduced. If as a result of the release of
Escrowed Proceeds to the Purchaser the Deficiency Amount is reduced to
zero, the balance of the Escrowed Proceeds shall be released to ICN,
and the Escrow Account shall be closed.
(d) Release of Escrowed Preferred Stock if Deficiency Amount is Zero. If a
Mandatory Conversion Event has not occurred on or prior to December
31, 2000, but the Deficiency Amount as of that date is zero, all
Escrowed Preferred Stock shall be released to ICN and the Escrow
Account shall be closed.
(e) Sale of Escrowed Preferred Stock After December 31, 2000. Upon any
sale of Escrowed Preferred Stock as permitted in Paragraph 2(b) above
on or after December 31, 2000 but prior to the date of a Mandatory
Conversion Event, the Deficiency Amount shall be reduced by an amount
equal to the greater of (i) the amount of the proceeds of such sale or
(ii) with respect to any sale directed by the Purchaser, the amount of
the Reasonable Preferred Stock Sale Price, and such proceeds shall be
remitted to the Purchaser up to an amount equal to the Deficiency
Amount as so reduced. If as a result of the remittance of such
proceeds to the Purchaser the Deficiency Amount is reduced to zero,
the balance of such proceeds shall be remitted to ICN, and the Escrow
Account shall be closed.
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<PAGE>
(f) Release of Escrowed Preferred Stock Upon Mandatory Conversion Event;
Deposit of Escrowed Common Stock. Upon the occurrence of a Mandatory
Conversion Event (i) if the Deficiency Amount is then zero, the
Escrowed Preferred Stock shall be released from the Escrow Account and
the Escrow Account shall be closed, or (ii) if the Deficiency Amount
is then greater than zero, the Escrowed Preferred Stock shall be
exchanged for the common stock of Thrucomm received upon conversion of
the Escrowed Preferred Stock in connection with the Mandatory
Conversion Event (the "Escrowed Common Stock") and the Escrowed Common
Stock shall be deposited into the Escrow Account. Simultaneously with
depositing the Escrowed Common Stock into the Escrow Account, the
owners or holders thereof shall deposit stock powers with respect to
the Escrowed Common Stock, duly executed in blank, into the Escrow
Account, which shall only be released from the Escrow Account for the
purpose of effectuating sale of the Escrowed Common Stock or any
portion thereof in accordance with the terms of this Agreement or when
the Escrow Account is closed in accordance with the terms of this
Agreement.
(g) Restrictions on Sale and Release of Escrowed Common Stock. No Escrowed
Common Stock may be sold or otherwise released from the Escrow
Account, except that (i) ICN and the Shareholders may at any time
direct that the Escrowed Common Stock or any portion thereof be sold,
but only if such Escrowed Common Stock is sold at a price no less than
the Reasonable Common Stock Sale Price, and (ii) the Purchaser may at
any time direct that the Escrowed Common Stock or any portion thereof
be sold.
(h) Sale of Escrowed Common Stock. Upon any sale of Escrowed Common Stock,
the Deficiency Amount shall be reduced by an amount equal to the
greater of (i) the amount of the proceeds of such sale or (ii) with
respect to any sale directed by the Purchaser, the amount of the
Reasonable Common Stock Sale Price, and such proceeds shall be
remitted to the Purchaser up to an amount equal to the Deficiency
Amount as so reduced. If as a result of the remittance of such
proceeds to the Purchaser the Deficiency Amount is reduced to zero,
the balance of such proceeds shall be remitted to ICN, and the Escrow
Account shall be closed.
(i) Close of Escrow Account. In addition to the closing of the Escrow
Account in the circumstances described above in this Paragraph 2, the
Escrow Account shall be closed when all Escrowed Preferred Stock or
Escrowed Common Stock has been sold in a manner permitted under this
Paragraph 2.
(j) Cooperation. The parties hereto agree to execute such documents and
instruments and take such other action as may reasonably be deemed
appropriate by any of the others in order to effectuate the sale or
release of any Escrowed Preferred Stock or Escrowed Common Stock
pursuant to this Paragraph 2 or otherwise to effectuate the matters
contemplated under this Paragraph 2.
(k) Prior Escrow Account. Upon the opening of the Escrow Account, the
Escrow Agreement between the Purchaser, ICN, the Partnership, the
Shareholders and Star Bank, National Association dated as of September
1, 1993 shall be closed.
3. ICN and Thrucomm Board of Directors.
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<PAGE>
(a) ICN. The provisions of Paragraph 2(a) of the Third Agreement shall
continue in full force and effect.
(b) Thrucomm Directors Prior to Mandatory Conversion Event. At all times
prior to the occurrence of a Mandatory Conversion Event, the
Partnership shall vote its shares of Thrucomm to elect and shall
continue to maintain a Board of Directors of Thrucomm of not less than
five (5) and not more than nine (9) persons, consisting at least of
(i) an individual nominated by the Purchaser, (ii) an individual
nominated by a majority-in-interest of the Limited Partners of the
Partnership other than the Purchaser, (iii) an individual proposed by
ICN and reasonably acceptable to the Purchaser and to the individual
nominated thereto by the Limited Partners of the Partnership other
than the Purchaser, and (iv) so long as he desires, Mr. Vincent
Rinaldi. In connection therewith, the Partnership and Thrucomm shall:
(A) cause all certificates representing shares of Thrucomm's Mandatory
Convertible Preferred Stock, Series G, to reflect that the Partnership
has agreed to elect members of the Board of Directors as required
under this Paragraph 3(b) and that a copy of this Agreement may be
obtained from Thrucomm; (B) not permit or suffer to exist the Articles
of Incorporation or ByLaws of Thrucomm to contain any provisions which
would contravene or otherwise be inconsistent with the provisions of
this Paragraph 3(b); and (C) provide to the Purchaser such evidence as
the Purchaser may reasonably request from time to time with respect to
compliance by the Partnership with the provisions of this Paragraph
3(b).
(c) Thrucomm Directors After Mandatory Conversion Event. Upon a Mandatory
Conversion Event and thereafter so long as any Escrowed Common Stock
remains in the Escrow Account, ICN and the Shareholders shall vote
their shares of Thrucomm for election to the Board of Directors of
Thrucomm of an individual designated by the Purchaser.
4. Transfer of Interests.
(a) The Partnership and ICN. The provisions of Paragraph 3(a) of the Third
Agreement shall continue in full force and effect.
(b) Thrucomm. Neither ICN nor either of the Shareholders may transfer any
portion of the Escrowed Preferred Stock or the Escrowed Common Stock,
except in accordance with the provisions of Paragraph 2 above.
5. Life Insurance. The provisions of Paragraph 4 of the Third Agreement shall
continue in full force and effect.
6. Registration.
(a) Partnership Registration. The provisions of Paragraph 5(a) of the
Third Agreement shall continue in full force and effect.
(b) Thrucomm Registration. Contemporaneously with the execution of this
Agreement, Thrucomm, the Purchaser and Blue Chip Capital Fund Limited
Partnership shall enter into a Registration Rights Agreement in
substantially the form attached hereto as Exhibit B.
7. Rights of First Refusal. The provisions of Paragraph 6 of the Third
Agreement shall continue in full force and effect.
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<PAGE>
8. Legal Fees and Expenses. Except as otherwise provided in Paragraph 5 of the
Third Agreement, the Partnership, Thrucomm and ICN, jointly and severally,
agree to pay all legal fees and expenses incurred by the Purchaser or any
of its affiliates in connection with the consummation of the transactions
contemplated under this Agreement, such fees and expenses to be paid within
thirty (30) days after the date hereof.
9. Representations and Warranties. Thrucomm, the Partnership, ICN and the
Shareholders jointly and severally represent and warrant to the Purchaser
that:
(a) Due Execution. This Agreement has been duly executed and delivered by
Thrucomm, the Partnership, ICN and the Shareholders, as applicable,
and authorized by all requisite partnership action on the part of the
Partnership and all requisite corporate action on the part of ICN and
Thrucomm, and constitutes the legal, valid and binding obligation of
each such party, enforceable against such party in accordance with its
terms.
(b) No Violation. The execution and delivery of this Agreement by
Thrucomm, the Partnership, ICN and the Shareholders, as applicable,
and the performance by them of their obligations hereunder, do not
constitute any violation of any applicable law or any provision of the
Partnership Agreement or the Articles of Incorporation, By-Laws or
other organizational or governing documents of ICN or Thrucomm, or any
other agreement or governmental restriction to which any of them is a
party or by which any of them is bound, or require the consent or
approval of the Limited Partners of the Partnership or any other
person or entity.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
(b) No Broker. Each of the parties hereto represents and warrants that,
except as described in the succeeding sentence, it has dealt with no
broker or finder in connection with any of the transactions
contemplated hereunder, and no broker, finder or other person is or
will be entitled to any commission, finder's fee or other compensation
as a result of consummation of the transactions contemplated
hereunder. The Partnership, ICN and the Shareholders represent to the
Purchaser that CFG Securities Corp. ("CFG") and/or an affiliate of CFG
has acted as a broker for them in connection with the transactions
contemplated hereunder, and covenant with the Purchaser that they
shall pay all commissions and other compensation due to CFG and any
such affiliate on or prior to the date due.
(c) Modification; Waiver. No modification or amendment of this Agreement
shall be binding unless executed in writing by all parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof, nor shall any
waiver constitute a waiver of the same provision on any other
occasion. No waiver of any of the provisions hereof shall be binding
unless executed in writing by the party making such waiver.
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<PAGE>
(d) Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
(e) Notices. All notices required under this Agreement shall be in writing
and shall be deemed to have been given on the date of personal
delivery, or of deposit in the United States mail, postage prepaid, by
registered or certified mail, return receipt requested, or of delivery
to a nationally-recognized overnight courier service with arrangements
made by the sender for payment therefor, addressed to the parties at
their addresses set forth above, or such other addresses as any party
has notified the others as provided herein.
(f) Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
(g) Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
(h) Headings. The headings of paragraphs and subparagraphs of this
Agreement are included for convenience of reference only and shall not
be considered in construing any provisions contained therein.
(i) Remedies. The Partnership, ICN, Thrucomm and the Shareholders
acknowledge and agree that in the event of breach of any of the
provisions of Paragraphs 3, 4 and 7 above, the Purchaser would sustain
irreparable injury, and Thrucomm, the Partnership, ICN and the
Shareholders recognize that money damages for such breach would be
difficult or impossible to ascertain. Thrucomm, the Partnership, ICN
and the Shareholders therefore agree that the Purchaser shall be
entitled, in addition to any other remedies and damages available, to
an injunction to restrain the violation of any of such provisions.
(j) Third Party Beneficiaries. Neither the Limited Partners of the
Partnership nor any other person or entity shall be deemed third party
beneficiaries with respect to any provision of this Agreement, except
that the Limited Partners shall be deemed third party beneficiaries
with respect to the provisions of Paragraph 6(b) of the Third
Agreement.
(k) Conflict. In the event of any conflict between the provisions of this
Agreement and any provisions of the Third Agreement, the provisions of
this Agreement shall be controlling. Without limiting the generality
of the foregoing, it is hereby acknowledged by the parties hereto that
Paragraphs 1, 2(b), 2(c), 3(b), 3(c), 5(b), 5(c), 5(d) and 5(e) of the
Third Agreement are deleted and no longer in force and effect.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
BLUE CHIP/DATALINC CORPORATION
By: _______________________________
Title: ____________________________
INTEGRATED COMMUNICATION NETWORKS, INC.
By: _______________________________
Title: ____________________________
-----------------------------------
JOHN F. KOLENDA
-----------------------------------
MARK J. GIANINNI
DATALINC, LTD.
By: Integrated Communication
Networks, Inc., its
General Partner
By: __________________________
Title: _______________________
THRUCOMM, INC.
By: __________________________
Title: _______________________
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WARRANT AGREEMENT dated as of January 26, 1998 between THRUCOMM, INC.,
a Florida corporation (the "Company") and BLUE CHIP CAPITAL FUND LIMITED
PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as the
"Holder").
WITNESSETH:
WHEREAS, the Company proposes to issue to the Holder warrants (the
"Warrants") to purchase up to an aggregate of 67,333 shares of common stock of
the Company (the "Common Stock"); and
WHEREAS, the Holder has provided the Company with a guarantee of a
$300,000 bridge loan, pursuant to which the Company agreed to issue these
Warrants if the bridge loan was not fully discharged on or before October 31,
1997, which it was not; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Securities Purchase
Agreement dated as of January 26, 1998 among the Company and certain investors
relating to the issuance of the Company's Series B Senior Convertible Preferred
Stock) by the Company to the Holder in partial consideration for, and as part of
the Holder's compensation in connection with the aforementioned bridge loan;
NOW, THEREFORE, in consideration of the premises, the payment by the
Holder to the Company of an aggregate of one dollar ($1.00), the agreements
herein set forth and other good and valuable consideration, hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase, at any
time from January 27, 1998, until 5:30 P.M., Florida time, on January 27,
2001, up to an aggregate of 67,333 shares of Common Stock (the "Shares") at
an exercise price (subject to adjustment as provided in Section 7 hereof)
of $0.002 per share of Common Stock subject to the terms and conditions of
this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a
part hereof, with such appropriate insertions, omissions, substitutions,
and other variations as required or permitted by this Agreement.
3. Exercise of Warrant. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in
Section 7 hereof) per share of Common Stock set forth in Section 6 hereof
payable by certified or official bank check in New York Clearing House
funds, subject to adjustment as provided in Section 7 hereof. Upon
surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock purchased at the
Company's principal offices in St. Petersburg, Florida (presently located
at 1641 Commerce Avenue, North, St. Petersburg, Florida 33716) the Holder
shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased. The purchase rights represented by each
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Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock
underlying the Warrants). Warrants may be exercised to purchase all or part
of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the shares of Common Stock
purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Section 5 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of
the Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of
the Company by the manual or facsimile signature of the then President or
Vice President of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof unless an exemption from the
Securities Act of 1933, as amended, is available therefor.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 7 hereof, the initial exercise price of each
Warrant shall be $0.002 per share of Common Stock. The adjusted
exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 7 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending
upon the context.
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7. Adjustments to Exercise Price and Number of Securities.
7.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination. 2
7.2 Stock Dividends and Distributions. In case the Company shall
pay a dividend in, or make a distribution of, shares of Common Stock
or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An
adjustment made pursuant to this Section 7.2 shall be made as of the
record date for the subject stock dividend or distribution.
7.3 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 7, the
number of Warrant Securities issuable upon the exercise at the
adjusted exercise price of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of
Warrant Securities issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
7.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the
Company as may be amended as of the date hereof, or (ii) any other
class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or
from par value to no par value, or from no par value to par value.
7.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger
shall execute and deliver to the Holder a supplemental warrant
agreement providing that the holder of each Warrant then outstanding
or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such warrant,
the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of
the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to
the adjustments provided in this Section 7. The above provision of
this subsection shall similarly apply to successive consolidations or
mergers.
7.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
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(a) Upon the issuance or sale of the Warrants or the shares
of Common Stock issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two
cents (2c) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least
two cents (2c) per Warrant Security.
8. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by
the registered Holder at the principal executive office of the Company, for
a new Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of the Warrants, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
9. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock or
other securities, properties or rights.
10. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
Warrants, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of the Warrants and
payment of the Exercise Price therefor, all shares of Common Stock and
other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights
of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock
issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the
Common Stock issued to the public in connection herewith may then be listed
and/or quoted.
11. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholder for the election of directors or any other matter, or as having
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<PAGE>
any rights whatsoever as a stockholder of the Company. If, however, at any
time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed; then, in any one or more of said events,
the Company shall give written notice of such event at least fifteen
(15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholder
entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or
the issuance of any convertible or exchangeable , securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
12. Representations.
12.1 Authorization. This Warrant has been duly and validly
authorized, executed and delivered by the Company, and constitutes the
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
12.2. Authorized Common Stock. The authorized Common Stock of the
Company consists solely of 100,000,000 shares of Common Stock, of
which one share has been issued and is outstanding and of which
6,733,000 shares have been reserved for issuance pursuant to
Convertible Preferred Stock, options and Warrants.
13. Notices.
13.1 Delivery of Notices. Any notice shall be deemed to have been
duly delivered (a) when delivered by hand, if personally delivered,
(b) if sent by mail to a party whose address is in the same country as
the sender, two Business Days after being deposited in the mail, via
registered or certified mail, return receipt requested, postage
5
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prepaid, (c) if sent by facsimile transmission on a Business Day, when
receipt is acknowledged or, if sent on a day that is not a Business
Day, on the next Business Day following the day on which receipt is
acknowledged, and (d) if sent by recognized international courier,
freight prepaid, with a copy sent by telecopier, to a party whose
address is not in the same country as the sender, three Business Days
after the later of (i) being telecopied and (ii) delivery to such
courier.
13.2 Addresses for Notice. All communications (including all
required or permitted notices) pursuant to the provisions hereof shall
be in writing and shall be sent:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by
notice to the Holder.
14. Supplements and Amendments. The Company and the Holder may from
time to time supplement or amend this Agreement in order to cure any
ambiguity, to correct or supplement any provision contained herein which
may be defective or inconsistent with any provisions herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the Company and the Holder may deem necessary or desirable and which the
Company and the Holder deem shall not adversely affect the interests of the
Holder.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holder
and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of
business on January 27, 2001.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Florida and for all purposes shall be
construed in accordance with the laws of said State without giving effect
to the rules of said State governing the conflicts of laws.
The Company and the Holder hereby agree that any action, proceeding or
claim against it arising out of, or relating in any way to, this Agreement
shall be brought and enforced in the courts of the State of Florida or of
the United States of America for the Middle District of Florida, and
irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive. The Company and the Holder hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company and the Holder (at
the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal
service and shall be legal and binding upon the party so served in any
6
<PAGE>
action, proceeding or claim. The Company and the Holder agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs
and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they
be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Amendment. 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 benefit of the Company
and the Holder.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one
and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
THRUCOMM, INC.
By: _____________________________
Name: ___________________________
Title:___________________________
BLUE CHIP CAPITAL FUND LIMITED PARTNERSHIP
By: Blue Chip Venture Company,
it General Partner
By: _____________________________
Name: ___________________________
Title:___________________________
8
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., FLORIDA TIME, JANUARY 27, 2001
No. W-1
Warrants to Purchase
67,333 Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that Blue Chip Capital Fund Limited
Partnership is the registered holder of Warrants to purchase initially, at any
time from January 27, 1998 until 5:30 p.m. Florida time on January 27, 2001
("Expiration Date"), up to 67,333 fully-paid and non-assessable shares of common
stock, (the "Common Stock") of THRUCOMM, INC., a Florida corporation (the
"Company"), (one share of Common Stock referred to individually as a "Security"
and collectively as the "Securities") at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $0.002 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of January 26,
1998 among the Company and Blue Chip Capital Fund Limited Partnership (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company.
No Warrant may be exercised after 5:30 p.m., Florida time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the word "holder" meaning the registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
9
<PAGE>
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed under its corporate seal.
Dated as of January 26, 1998
THRUCOMM, INC.
[SEAL] By:_______________________________
Name:_____________________________
Title:____________________________
Attest:
______________________________________
Secretary
11
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
__________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Thrucomm, Inc. in
the amount of $______________, all in accordance with the terms of Section 3 of
the Warrant Agreement dated as of January 26, 1998 among Thrucomm, Inc. and Blue
Chip Capital Fund Limited Partnership. The undersigned requests that a
certificate for such securities be registered in the name of
___________________________________________________ whose address is
_____________________________________________________________________ and that
such Certificate be delivered to ______________________________________________
whose address is______________________________________________________.
Dated:__________________________
Signature_____________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
______________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
12
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED________________________ hereby sells, assigns and
transfers unto_________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
_______________________________________________________ attorney-in-fact, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________________ Signature: ___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
______________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
13
<PAGE>
THRUCOMM, INC.
$10,000,000
10% Senior Subordinated Notes due 2004
and
Series B Senior Convertible Preferred Stock
SECURITIES PURCHASE AGREEMENT
Dated as of December ___, 1997
1
<PAGE>
TABLE OF CONTENTS
PAGE NO.
1. AUTHORIZATION OF ISSUE OF SECURITIES...................................1
1A. SENIOR SUBORDINATED NOTES..........................................1
1B. CONVERTIBLE PREFERRED STOCK........................................1
2. PURCHASE AND SALE OF SECURITIES........................................2
2A. PURCHASE AND SALE..................................................2
2B. CLOSING............................................................2
3. CONDITIONS OF CLOSING..................................................2
3A. OPINION OF COUNSEL TO THE COMPANY..................................2
3B. REPRESENTATIONS AND WARRANTIES.....................................2
3C. ARTICLES OF INCORPORATION AND BY-LAWS..............................3
3D. [INTENTIONALLY OMITTED]............................................3
3E. SECURITYHOLDERS AGREEMENT..........................................3
3F. REGISTRATION RIGHTS AGREEMENT......................................3
3G. COMPLIANCE WITH SECURITIES LAWS....................................3
3H. PROCEEDINGS........................................................3
3I. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION....................3
3J. APPROVAL AND CONSENTS..............................................4
3K. MATERIAL CHANGES...................................................4
3L. BOARD NOMINEE......................................................4
3M. USE OF PROCEEDS....................................................4
3N. EQUITY FINANCING...................................................4
3O. CERTIFICATE OF DESIGNATION.........................................4
3P. STRUCTURING FEE....................................................5
3Q. ROLL-UP OF FASTCOM AND DATALINC....................................5
3R. DUE DILIGENCE REVIEW...............................................5
3S. BLUE CHIP..........................................................5
4. PAYMENTS AND PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES..............5
4A. GENERAL............................................................5
4B. MANDATORY PAYMENTS AND PREPAYMENTS OF THE SENIOR SUBORDINATED
NOTES..............................................................6
4C. PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES UPON A CHANGE
OF CONTROL.........................................................6
4D. OPTIONAL PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES..............6
4E. NOTICE OF PREPAYMENTS..............................................6
4F. MANDATORY PAYMENTS AND PARTIAL PREPAYMENTS PRO RATA...............7
4G. PUT OPTION OF HOLDERS OF SENIOR SUBORDINATED NOTES.................7
5. REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK..........................7
5A. PUT OPTION OF HOLDERS OF SHARES OF CONVERTIBLE PREFERRED STOCK
UPON A CHANGE OF CONTROL...........................................7
5B. PUT OPTION OF HOLDERS OF SHARES OF CONVERTIBLE PREFERRED STOCK
IN THE ABSENCE OF A QUALIFYING PUBLIC OFFERING.....................7
5C. EXERCISE OF THE PUT OPTION.........................................8
5D. FAIR MARKET VALUE.................................................8
5E. MARKET PRICE.......................................................9
6. AFFIRMATIVE COVENANTS..................................................9
6A. FINANCIAL STATEMENTS...............................................9
6B. USE OF PROCEEDS...................................................10
6C. BOOKS AND RECORDS; INSPECTION OF PROPERTY.........................10
(i)
<PAGE>
Page No.
6D. COVENANT TO SECURE SENIOR SUBORDINATED NOTES EQUALLY..............12
6E. ADDITIONAL COVENANTS PENDING THE CLOSING..........................12
6F. STOCK TO BE RESERVED..............................................12
6G. COMPLIANCE WITH LAWS, ETC.........................................12
6H. ERISA.............................................................12
6I. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES....................13
6J. INSURANCE.........................................................14
6K. FURTHER ASSURANCES................................................14
6L. FILING OF REPORTS UNDER THE EXCHANGE ACT..........................14
6M. SECURITIES ACT REGISTRATION STATEMENTS............................14
6N. NOTICES OF CERTAIN EVENTS.........................................15
6O. BOARD NOMINEE.....................................................16
6P. LISTING OF COMMON STOCK...........................................16
6Q. ENVIRONMENTAL LAWS................................................16
6R. GUARANTEE BY SUBSIDIARY..........................................17
6S. ISSUANCE OF CONVERTIBLE PREFERRED STOCK WITH INTEREST NOTES21
6T. ISSUANCE OF CONVERTIBLE PREFERRED STOCK UPON FAILURE TO
REDEEM SENIOR SUBORDINATED NOTES AND CERTAIN REFINANCINGS OF
SENIOR SUBORDINATED NOTES........................................18
6U. INABILITY OF COMPANY TO SERVICE PUT..............................19
7. NEGATIVE COVENANTS....................................................19
7A. FINANCIAL COVENANTS...............................................19
7B. RESTRICTIONS ON INDEBTEDNESS AND REPAYMENT OF INDEBTEDNESS........19
7C. RESTRICTIONS ON LIENS.............................................20
7D. RESTRICTED PAYMENTS...............................................20
7E. LOANS, ADVANCES AND INVESTMENTS...................................20
7F. LEASES............................................................21
7G. TRANSACTIONS WITH AFFILIATES......................................21
7H. MERGER............................................................21
7I. DISPOSITION OF SUBSTANTIAL ASSETS.................................22
7J. SALE OF STOCK AND DEBT OF SUBSIDIARIES............................22
7K. CERTAIN CONTRACTS.................................................22
7L. CONDUCT OF BUSINESS...............................................22
7M. NO AMENDMENTS.....................................................23
7N. REGISTRATION RIGHTS...............................................23
7O. OFFERING OF SECURITIES............................................23
7P. ISSUANCE OF SECURITIES............................................23
8. SUBORDINATION.........................................................23
8A. SUBORDINATED DEBT SUBORDINATE TO SENIOR DEBT......................23
8B. SUSPENSION OF RIGHT TO RECEIVE PAYMENTS OF SUBORDINATED DEBT.....24
8B(1). FAILURE TO PAY PRINCIPAL OF OR INTEREST ON SENIOR DEBT.........24
8B(2). ACCELERATION OF PAYMENT OF SENIOR DEBT OR SUBORDINATED DEBT...25
8B(3). BANKRUPTCY OR INSOLVENCY.......................................25
8C. RIGHTS OF HOLDERS OF SENIOR DEBT NOT TO BE IMPAIRED...............26
8D. COMPANY'S OBLIGATION UNCONDITIONAL................................26
8E. PAYMENTS HELD IN TRUST............................................26
8F. SUBROGATION.......................................................27
8G. RELIANCE BY HOLDERS ON FINAL ORDER OR DECREE......................27
8H. LEGEND............................................................27
8I. AMENDMENT.........................................................27
9. EVENTS OF DEFAULT.....................................................27
9A. GENERAL...........................................................27
9B. OTHER REMEDIES....................................................30
(ii)
<PAGE>
Page No.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................31
10A. ORGANIZATION, QUALIFICATION AND AUTHORITY........................31
10B. FINANCIAL STATEMENTS.............................................31
10C. CAPITAL STOCK AND RELATED MATTERS................................32
10D. ACTIONS PENDING..................................................32
10E. OUTSTANDING DEBT; DEFAULTS.......................................32
10F. TITLE TO PROPERTIES..............................................33
10G. TAXES............................................................33
10H. CONFLICTING AGREEMENTS...........................................33
10I. OFFERING OF SECURITIES...........................................33
10J. BROKER'S OR FINDER'S COMMISSIONS.................................34
10K. REGULATION G, ETC................................................34
10L. ENVIRONMENTAL MATTERS............................................34
10M. ERISA............................................................35
10N. POSSESSION OF FRANCHISES, LICENSES, ETC..........................35
10O. PATENTS, ETC.....................................................35
10P. HOLDING COMPANY AND INVESTMENT COMPANY STATUS....................35
10Q. GOVERNMENTAL CONSENTS............................................36
10R. INSURANCE COVERAGE...............................................36
10S. SUBSIDIARIES.....................................................36
10T. DISCLOSURE.......................................................36
10U. RELATED PARTY TRANSACTIONS.......................................36
10V. REGISTRATION RIGHTS..............................................36
10W. ABSENCE OF FOREIGN OR ENEMY STATUS...............................37
10X. AGREEMENTS WITH AFFILIATES.......................................37
10Y. CONVERTIBLE PREFERRED STOCK AND EQUITY OF THE COMPANY............37
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS......................37
12. DEFINITIONS..........................................................37
13. MISCELLANEOUS........................................................46
13A. HOME OFFICE PAYMENT..............................................47
13B. INDEMNIFICATION..................................................47
13C. CONSENT TO AMENDMENTS............................................48
13D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF SENIOR
SUBORDINATED NOTES; LOST SENIOR SUBORDINATED NOTES...............48
13E. PROVISIONS APPLICABLE IF ANY OF THE SECURITIES ARE SOLD..........50
13F. RESTRICTIVE LEGENDS..............................................50
13G. PERSONS DEEMED OWNERS............................................50
13H. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................50
13I. SUCCESSORS AND ASSIGNS...........................................50
13J. NOTICES..........................................................50
13K. DESCRIPTIVE HEADINGS.............................................50
13L. GOVERNING LAW; CONSENT TO JURISDICTION...........................50
13M. DELAY FEES.......................................................51
13N. REMEDIES.........................................................51
13O. ENTIRE AGREEMENT.................................................51
13P. SEVERABILITY.....................................................52
13Q. AMENDMENTS.......................................................52
13R. PAYMENT DATE.....................................................52
13S. WAIVER OF TRIAL BY JURY..........................................52
13T. COUNTERPARTS.....................................................52
(iii)
<PAGE>
EXHIBITS
Exhibit A Form of Senior Subordinated Note and Interest Note
Exhibit B Form of Certificate of Designation
Exhibit C Form of Opinion of Counsel to the Company
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Securityholders Agreement
Exhibit F Form of Subsidiary Guarantee
(iv)
<PAGE>
THRUCOMM, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of
December ___, 1997
To the Investors named on the signature pages hereto:
The undersigned, THRUCOMM, INC. (the "COMPANY"), a Florida corporation and
each of the investors named on the signature pages hereto (the "INVESTORS"),
hereby agree as follows:
1. AUTHORIZATION OF ISSUE OF SECURITIES.
1A. SENIOR SUBORDINATED NOTES. The Company will authorize the issuance,
sale and delivery to the Investors of its senior subordinated notes
("SENIOR SUBORDINATED NOTES" and individually called a "SENIOR SUBORDINATED
NOTE ) in the aggregate principal amount of $10,000,000, to be dated the
date of issue thereof, to mature (subject to Section 4 hereof) on the
seventh anniversary of such date of issue and to bear interest on the
unpaid balances thereof from the date thereof at the rate of 10% per annum
until the principal thereof shall, subject to the terms of the Senior
Subordinated Notes, be paid. Such Senior Subordinated Notes shall be
substantially in the form of Exhibit A attached hereto. Interest will be
payable quarterly in arrears in cash on the last day of [March, June,
September and December], in each year, commencing on [December 31, 1997];
PROVIDED, HOWEVER, that the Company may, until the earlier to occur of (i)
a Public Offering or (ii) the second anniversary of the Closing Date (the
"PIK DATE"), issue interest notes ("INTEREST NOTES" and individually called
an "INTEREST NOTE"), together with additional shares of Convertible
Preferred Stock (as defined below) to the extent provided in paragraph 6S
hereof, in lieu of a cash payment of any or all interest due during such
period. Such Interest Notes shall be substantially in the form of Exhibit A
attached hereto. For purposes of this Agreement, all references to the
Senior Subordinated Notes shall be deemed to include any and all Interest
Notes. [The Senior Subordinated Notes shall bear a legend on their face,
indicating that the Senior Subordinated Notes have been issued with
original issue discount and the name and address of the Company's
representative who, upon the request of a holder, can supply information
about such original issue discount.]
1B. CONVERTIBLE PREFERRED STOCK. The Company will also authorize the
issuance, sale and delivery to the Investors of 1,600,000 shares of its
Series B Senior Convertible Preferred Stock, par value $.001 per share
(herein called the "CONVERTIBLE PREFERRED STOCK", and the Senior
Subordinated Notes and the Convertible Preferred Stock shall be referred to
herein collectively as the "SECURITIES"). The powers, designations,
preferences and relative participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, of the
Convertible Preferred Stock are set forth in the Certificate of Designation
of the Convertible Preferred Stock in the form of Exhibit B attached hereto
(the "CERTIFICATE OF DESIGNATION").
1
<PAGE>
2. PURCHASE AND SALE OF SECURITIES.
2A. PURCHASE AND SALE. The Company hereby agrees to sell to the Investors
and, subject to the terms and conditions herein set forth, the Investors
severally agree to purchase from the Company, the Securities set forth
opposite the name of each of the Investors on the signature pages hereof.
The aggregate purchase price for the Securities is $10,000,000.
2B. CLOSING. The purchase and delivery of the Securities to be purchased by
the Investors shall take place at a closing (the "CLOSING") at the offices
of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, at 10:00 a.m., local time, on December [___], 1997
(or at such other time and place or on such other Business Day thereafter
as the parties hereto shall agree) (herein called the "CLOSING DATE"). On
the Closing Date, the Company will deliver the Securities to be purchased
by the Investors payable to or registered in the names of the Investors
and/or the Investors' nominees or other designees specified on the
signatures pages hereof in the amounts set forth opposite the name of the
Investors on the signature pages hereof, against receipt of the purchase
price therefor by wire transfer to [BANK ACCOUNT INFORMATION]. If at the
Closing, the Company shall, in breach of this Agreement, fail to tender to
the Investors any of the Securities to be purchased by them or if any of
the conditions specified in Section 3 hereof shall not have been satisfied
or waived by the Investors, the Investors shall, at their election, be
relieved of all further obligations under this Agreement without thereby
waiving any other rights they may have by reason of such failure or such
non-fulfillment. Notwithstanding anything to the contrary, the obligation
of the Company to deliver any Securities to any Investor at the Closing
shall be conditioned on its concurrent receipt of the purchase price of all
of the Securities from the Investors.
3. CONDITIONS OF CLOSING. The Investors' obligation to purchase and pay for the
Securities to be purchase by them hereunder is subject to the satisfaction, on
or before the Closing Date, of the following conditions:
3A. OPINION OF COUNSEL TO THE COMPANY. The Investors shall have received
from Schifino & Fleischer, P.A., counsel to the Company, a legal opinion
addressed to the Investors and dated the Closing Date, substantially in the
form of Exhibit C attached hereto.
3B. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties contained in Section 10 hereof and those otherwise made in
writing by the Company or on behalf of the Company by its officers or
directors and contained in any document, certificate or other written
statement provided to the Investors by the Company or on behalf of the
Company by its officers or directors, in connection with the transactions
contemplated by this Agreement shall be true and correct in all material
respects when made and on and as of the Closing Date, except to the extent
of changes caused by the transactions herein contemplated; provided, that
each of such representations and warranties containing any qualification as
to materiality therein shall be true and correct when made and on and as of
the Closing Date, except to the extent of changes caused by the
transactions herein contemplated; all of the covenants and obligations of
the Company hereunder to be performed or observed on or prior to the
Closing shall have been duly performed or observed; there shall exist on
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the Closing Date and after giving effect to such transactions no Default or
Event of Default; and the Company shall have delivered to the Investors an
Officer's Certificate, dated the Closing Date, to the foregoing effects.
3C. ARTICLES OF INCORPORATION AND BY-LAWS. The Investors shall have
received certificates, dated the Closing Date, of the Secretary of the
Company attaching (i) true and complete copies of the Articles of
Incorporation of the Company as filed with the appropriate state officials
of its jurisdiction of incorporation with all amendments thereto, (ii) true
and complete copies of the By-laws of the Company in effect as of such
date, (iii) certificates of good standing of the appropriate officials of
the jurisdiction of incorporation of the Company and of each state in which
the Company is required to be qualified to do business as a foreign
corporation, except where the failure to so qualify would not have a
Material Adverse Effect, (iv) resolutions of the Board of Directors of the
Company authorizing (a) the execution, delivery and performance of the
Related Documents, (b) the issuance and delivery of the Securities and (c)
the reservation for issuance of a sufficient number of shares of Common
Stock into which the Convertible Preferred Stock may be converted to permit
such conversion, and (d) certificates as to the incumbency of the officers
of the Company executing this Agreement or any other Related Document.
3D. [INTENTIONALLY OMITTED].
3E. SECURITYHOLDERS AGREEMENT. The Investors shall have received a fully
executed counterpart of the Securityholders Agreement and such
Securityholders Agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
3F. REGISTRATION RIGHTS AGREEMENT. The Investors shall have received a
fully executed counterpart of the Registration Rights Agreement and such
Registration Rights Agreement shall be in full force and effect and no term
or condition thereof shall have been amended, modified or waived.
3G. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the
Securities under this Agreement shall have complied with all applicable
requirements of federal and state securities laws, and the Investors shall
have received evidence of such compliance in form and substance
satisfactory to them.
3H. PROCEEDINGS. All required corporate and other proceedings taken or
required to be taken in connection with the transactions contemplated
hereby and all documents in ident thereto shall be reasonably satisfactory
in form and substance to the Investors and their counsel, and the Investors
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
3I. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. To the best of the
Company's knowledge, after reasonable inquiry, no legislation, order, rule,
ruling or regulation shall have been enacted or made by or on behalf of any
governmental body, department or agency of the United States, nor shall any
legislation have been introduced and favorably reported for passage to
either House of Congress by any committee of either such House to which
such legislation has been referred for consideration, nor shall any
decision of any court of competent jurisdiction within the United States
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have been rendered which would materially and adversely affect the
Business. There shall be no action, suit, investigation or proceeding,
pending or threatened, against or affecting the Company or any of its
properties or rights, or any of its Affiliates, associates, officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, prevent the consummation of or
otherwise affect the transactions contemplated by any of the Related
Documents or (ii) questions the validity or legality of any such
transaction or seeks to recover damages or to obtain other relief in
connection with any such transaction.
3J. APPROVAL AND CONSENTS. The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities
necessary or advisable for the issuance of the Securities and the
consummation of the transactions contemplated hereby and by the Related
Documents, and all thereof shall be in full force and effect at the time of
the Closing, except where the failure to have received any such items would
not have a Material Adverse Effect. The Company shall have delivered to the
Investors an Officer's Certificate, dated the Closing Date, to such effect.
3K. MATERIAL CHANGES. Since December 31, 1996, there shall not have been
any changes in the Business which have or could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, nor shall
there have been any development or discovery of an event or condition or
any material contingency or other liability which could reasonably be
expected to have such effect on the Business. Except as set forth on
Schedule 10E hereto, there shall exist no defaults under the provisions of
any instrument evidencing Indebtedness of the Company and the Company shall
have delivered to the Investors an Officer's Certificate, dated the Closing
Date, to such effect.
3L. BOARD NOMINEE. The Board of Directors of the Company shall be initially
constituted as contemplated by Section 3.1 of the Securityholders Agreement
and the nominee designated by the Investors shall have been appointed to
the Board of Directors effective upon the Closing.
3M. USE OF PROCEEDS. The Investors shall have received evidence in form and
substance reasonably satisfactory to them with respect to the use of
proceeds by the Company in accordance with paragraph 6B.
3N. EQUITY FINANCING. The Company shall have received at least $5,000,000
of additional financing as follows: (i) $___________ shall have been
deposited with United Bank of Pinellas pursuant to the terms of one or more
Subscription Agreements for the issuance of shares of the Company's Series
A Senior Convertible Preferred Stock and (ii) ____________ shares of the
common stock, par value $.01 per share, of the O'Gara Company, a Ohio
corporation, shall have been deposited pursuant to that certain Escrow
Agreement, dated as of December ___, 1997, by and among the Company, Mr.
Jeffrey Brausch and ____________.
3O. CERTIFICATE OF DESIGNATION. The Certificate of Designation shall have
been filed with the Secretary of State of the State of Florida and the
Investors shall have received a certificate, dated the Closing Date, of the
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Secretary of the Company attaching a true and complete copy of the
Certificate of Designation as filed with the Secretary of State of the
State of Florida.
3P. STRUCTURING FEE. The Company shall have paid to Pecks Management
Partners Ltd. a structuring and due diligence fee of $50,000.
3Q. ROLL-UP OF FASTCOM AND DATALINC. The Company, Fastcom and Datalinc
shall have consummated the transactions contemplated by the Reorganization
Agreement without waiver by any of the parties thereto of any material term
or condition of such agreement.
3R. DUE DILIGENCE REVIEW. The Investors shall have completed a satisfactory
due diligence review, determined in the sole and absolute discretion of the
Investors, of the Company's business, including, but not limited to, the
Company's business plan, technology and management.
3S. BLUE CHIP. The Company, Blue Chip/Datalinc Corporation, a Delaware
corporation, Integrated Communications Networks, Inc., a Florida
corporation, Datalinc, Mark J. Gianinni and John F. Kolenda shall have
consummated the transactions contemplated by the Blue Chip Agreement
without waiver by any of the parties thereto of any material term or
condition of such agreement.
4. PAYMENTS AND PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES.
4A. GENERAL. The Senior Subordinated Notes shall be subject to mandatory
payments as specified in paragraph 4B and to the optional prepayments under
the circumstances set forth in paragraph 4C. No partial prepayment of the
Senior Subordinated Notes pursuant to paragraph 4D shall relieve the
Company of its obligations to make any of the required prepayments pursuant
to paragraph 4B.
4B. MANDATORY PAYMENTS AND PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES.
(a) On the fifth anniversary of the Closing Date, one-third (1/3) of the
principal amount of the Senior Subordinated Notes then outstanding,
together with all accrued and unpaid interest thereon to and including such
date, shall become immediately due and payable and shall be paid by the
Company to the holders of the Senior Subordinated Notes. On the sixth
anniversary of the Closing Date, one-half (1/2) of the principal amount of
the Senior Subordinated Notes then outstanding, together with all accrued
and unpaid interest thereon to and including such date, shall become
immediately due and payable by the Company and shall be paid by the Company
to the holders of the Senior Subordinated Notes. On the seventh anniversary
of the Closing Date, the principal amount of all Senior Subordinated Notes
then outstanding, together with all accrued and unpaid interest thereon to
and including such date, shall become immediately due and payable and shall
be paid by the Company to the holders of the Senior Subordinated Notes.
Two (2) days after the Company's consummation of any Public Offering, the
Company shall prepay the Senior Subordinated Notes in an outstanding
principal amount (together with all accrued and unpaid interest thereon to
and including such date) equal to the lesser of (i) one third (1/3) of the
amount of proceeds received by the Company in such offering net of
underwriting discount and registration expenses as disclosed in the
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effective registration statement for such Public Offering or (ii) the
principal amount of all Senior Subordinated Notes then outstanding,
together with all accrued and unpaid interest thereon to and including such
date. No later than 30 days prior to any Public Offering, the Company shall
provide written notice to the holders of Senior Subordinated Notes setting
forth estimates of the proceeds to the Company from such Public Offering.
4C. PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES UPON A CHANGE OF CONTROL.
Upon a Change of Control the principal amount of the Senior Subordinated
Notes outstanding, together with all accrued and unpaid interest thereon to
the Repayment Date (as defined below) shall become due and payable on the
Repayment Date and shall be paid by the Company to the holders of the
Senior Subordinated Notes. Upon the occurrence of a Change of Control, or
the Company acquiring knowledge of a pending Change of Control, the notice
furnished to each holder of Senior Subordinated Notes under paragraph 6N
shall (i) refer specifically to paragraph 4C, (ii) state that the Company
will prepay the principal amount of all of the Senior Subordinated Notes
outstanding held by each holder of Senior Subordinated Notes, together with
all accrued and unpaid interest to the date of prepayment and (iii)
indicate that the Company will prepay the Senior Subordinated Notes as
provided in clause (ii) above simultaneously with such Change of Control
(the "REPAYMENT DATE"). If a proposed Change of Control shall not occur,
(i) the Company shall have no obligation under this paragraph 4C to prepay
any Senior Subordinated Notes notwithstanding the fact that the notice
required pursuant to paragraph 6N had previously been delivered in
connection with such proposed Change of Control, (ii) the obligations of
the Company under this paragraph 4C shall not be affected with respect to
any subsequent Change of Control, and (iii) if any holder of Convertible
Preferred Stock shall have converted all or any shares of Convertible
Preferred Stock after receiving the notice referred to in this paragraph
4C, the Company shall be required, at the election of such holder within
ten Business Days after notice that such proposed Change of Control did not
occur, to issue new shares of Convertible Preferred Stock in exchange for
the Common Stock issued upon conversion of such shares of Convertible
Preferred Stock.
4D. OPTIONAL PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES. The Senior
Subordinated Notes shall be subject to prepayment, in whole or in part,
without premium or penalty, at the option of the Company at any time and
from time to time at a price equal to (x) the outstanding principal amount
of the Senior Subordinated Notes to be prepaid PLUS (y) all accrued and
unpaid interest thereon up to and including the date of prepayment.
4E. NOTICE OF PREPAYMENTS. In the event of prepayment pursuant to paragraph
4D, written notice of such prepayment shall be given by the Company by
overnight courier, first-class mail or certified mail, return receipt
requested, postage prepaid to the holders of the Senior Subordinated Notes
at their respective addresses as the same appear on the records of the
Company, 30 days prior to the prepayment date, specifying the prepayment
date, the principal mount of the Senior Subordinated Notes to be prepaid on
such date and that such prepayment is to be made pursuant to paragraph 4D.
Notice of prepayment having been given as aforesaid, the principal amount
of the Senior Subordinated Notes specified in such notice, together with
interest thereon to the prepayment date, shall become due and payable on
such prepayment date.
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4F. MANDATORY PAYMENTS AND PARTIAL PREPAYMENTS PRO RATA. If there is more
than one holder of the Senior Subordinated Notes, the aggregate principal
amount of each partial prepayment of the Senior Subordinated Notes shall be
allocated among the holders of the Senior Subordinated Notes at the time
outstanding in proportion to the unpaid principal amounts of the Senior
Subordinated Notes respectively held by each such holder. For purposes of
allocation pursuant to this paragraph 4F only, each Senior Subordinated
Note (to the extent possible) shall be rounded to the nearest $1,000.
4G. PUT OPTION OF HOLDERS OF SENIOR SUBORDINATED NOTES. If, on the third
anniversary of the Closing Date, the Company has not completed a Qualifying
Public Offering, any holder of Senior Subordinated Notes shall have the
right (the "NOTE PUT RIGHT") upon delivery of a Put Notice (as hereinafter
defined in paragraph 5C), to require the Company to purchase at the Put
Option Closing (as hereinafter defined in paragraph 5C), and the Company
agrees to so purchase, all or any of the Senior Subordinated Notes held by
such holder; provided, that there shall not be more than one (1) Put Option
Closing pursuant to the exercise of a Note Put Right hereunder in any 120
day period. The redemption price for the Senior Subordinated Notes shall be
paid at the Put Option Closing (as hereinafter defined in paragraph 5C) by
certified check or by wire transfer of immediately available funds
denominated in U.S. dollars to one or more accounts designated by the
holders of the Senior Subordinated Notes to the Company prior to the Put
Option Closing in an amount equal to the principal amount of the Senior
Subordinated Notes to be redeemed, together with all accrued and unpaid
interest thereon to and including the date of such Put Notice.
5. REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK.
5A. PUT OPTION OF HOLDERS OF SHARES OF CONVERTIBLE PREFERRED STOCK UPON A
CHANGE OF CONTROL. If, at any time after the Closing Date, there is a
Change of Control, any holder of shares of Convertible Preferred Stock
shall have the right (the "CHANGE OF CONTROL PUT RIGHT") upon delivery of a
Put Notice (as hereinafter defined in paragraph 5C), to require the Company
to redeem at the Put Option Closing (as hereinafter defined in paragraph
5C), and the Company agrees to so purchase out of funds legally available
therefor, all or any of the shares of Convertible Preferred Stock held by
such holder. The redemption price for the shares of Convertible Preferred
Stock upon an Investor's exercise of a Change of Control Put Right shall be
paid to such Investor at the Put Option Closing by certified check or by
wire transfer of immediately available funds denominated in U.S. dollars to
one or more accounts designated by such Investor to the Company prior to
the Put Option Closing in an amount equal to the greater of the Investor's
Pro Rata Share of (i) the Fair Market Value of the Convertible Preferred
Stock relating to the Common Stock into which the shares of Convertible
Preferred Stock subject to the Change of Control Put Right are convertible,
determined at the time of the Put Notice, or (ii) $3,000,000.
5B. PUT OPTION OF HOLDERS OF SHARES OF CONVERTIBLE PREFERRED STOCK IN THE
ABSENCE OF A QUALIFYING PUBLIC OFFERING. If, on the third anniversary of
the Closing Date, the Company has not completed a Qualifying Public
Offering, any holder of shares of Convertible Preferred Stock shall have
the right (the "PUBLIC OFFERING PUT RIGHT") upon delivery of a Put Notice
(as hereinafter defined in paragraph 5C), to require the Company to redeem
at the Put Option Closing (as hereinafter defined in paragraph 5C), and the
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Company agrees to so purchase out of funds legally available therefor, all
or any of the shares of Convertible Preferred Stock held by such holder.
The redemption price for the shares of Convertible Preferred Stock upon an
Investor's exercise of a Public Offering Put Right shall be paid to such
Investor at the Put Option Closing by certified check or by wire transfer
of immediately available funds denominated in U.S. dollars to one or more
accounts designated by such Investor to the Company prior to the Put Option
Closing in an amount equal to the greater of the Investor's Pro Rata Share
of (i) the Fair Market Value of the Convertible Preferred Stock relating to
the Common Stock into which the shares of Convertible Preferred Stock
subject to the Public Offering Put Right are convertible, determined at the
time of the Put Notice, or (ii) $3,000,000.
5C. EXERCISE OF THE PUT OPTION. To exercise a Change of Control Put Right,
a Public Offering Put Right or a Note Put Right, any holder of shares of
Convertible Preferred Stock shall deliver to the Company a written notice
(the "PUT NOTICE") which shall (i) refer specifically to this paragraph 5C,
(ii) state the number of shares of Convertible Preferred Stock (or, in the
case of an exercise of a Note Put Right, the principal amount of Senior
Subordinated Notes) held by such holder that the Company is required to
redeem, (iii) indicate that a closing (the "PUT OPTION CLOSING") for such
redemption shall take place on a date specified in the notice, which date
shall be a date occurring not earlier than 45 days nor more than 60 days
after the date on which the notice is delivered; PROVIDED, HOWEVER, that,
in the case of the exercise of a Change of Control Put Right or a Public
Offering Put Right, if the Fair Market Value shall not have been determined
as of 60 days after the date on which the Put Notice is delivered, the Put
Option Closing shall occur on an agreed-upon date not later than 15 days
after the determination of Fair Market Value, (iv) indicate where the Put
Option Closing shall take place and (v) be delivered by certified mail
return receipt requested. At the Put Option Closing, the Company shall pay
the price for the securities being purchased against delivery of the
securities being redeemed.
5D. FAIR MARKET VALUE. The term "FAIR MARKET VALUE" means either (i) the
Market Price, if any (as calculated in accordance with paragraph 5E below),
of the Common Stock or (ii) if no Market Price exists, the value (which
shall not take into effect any minority discounts) of the Common Stock as
determined by the price per share of such Common Stock which the Company
could obtain from a willing buyer (not a current employee, officer,
consultant or director or any Affiliate of any such Person) for such shares
sold by the Company, as determined in good faith by the Board of Directors
of the Company; PROVIDED, HOWEVER, that if (x) the Investors' nominee on
the Board of Directors of the Company have not affirmatively voted in favor
of such determination made by the Board of Directors of the Company or (y)
there is no such nominee, the Investors may refer the question of valuation
(which shall not take into effect any minority discounts) for final
settlement to a nationally recognized investment banking firm designated by
the Investors and reasonably acceptable to the Company; and provided,
FURTHER, that if the parties cannot agree on such a firm, each party shall
choose a nationally recognized investment banking firm, which shall choose
a third firm which shall be nationally recognized and that third firm shall
determine the Fair Market Value, which determination shall be final and
binding. The cost relating to retaining any investment banking firm(s)
pursuant to this paragraph 5D shall be borne by the Company. The parties
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agree to cooperate in the exercise of their obligations under this
paragraph 5D so that the Fair Market Value is determined in a timely
manner.
5E. MARKET PRICE. As used in this Section 5, the term "MARKET PRICE" of any
security shall mean the value determined in accordance with the following
provisions:
if such security is listed on a national securities exchange
registered under the Exchange Act, a price equal to the volume weighted
average of the closing sales prices for such security on such exchange for
each day during the 20 trading days preceding the day of the Put Notice;
and
if not so listed under clause (i) above and such security is quoted on
the NASDAQ or other national quotation system, a price equal to the average
of the volume weighted average of the closing bid and asked prices for such
security quoted on such system each day during the 20 trading days
preceding the day of the Put Notice.
6. AFFIRMATIVE COVENANTS. All covenants contained herein shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that such action or condition would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or condition
exists. The provisions of this Section 6 are for the benefit of the Investors so
long as they hold any of the Securities and, to the extent set forth herein, for
the benefit of each other holder of the Securities; PROVIDED, HOWEVER, that upon
the repayment in full of any and all amounts (including, without limitation,
principal and interest) due under the Senior Subordinated Notes outstanding, the
Company and its Subsidiaries shall no longer be bound by the covenants set forth
in paragraphs 6A (other than 6A(iii), (v) and (vi)), 6B, 6D, 6E, 6H, 6N, and 6R;
PROVIDED, FURTHER, that at such time as the Convertible Preferred Stock is no
longer outstanding, the Company and its Subsidiaries shall no longer be bound by
the covenants set forth in paragraphs 6A(v), 6A(vi), 6C, 6I, 6J, 6K, 6L and 6Q
(other than 6Q(iv)).
6A. FINANCIAL STATEMENTS. The Company will deliver to each holder of
Securities (except as set forth in paragraph 6A(i) below and excluding any
holder that is a competitor of the Company and its Subsidiaries):
as soon as practicable and in any event within (i) 45 days after the
end of each of the first three months of fiscal year 1997 and (i) 30 days
after the end of each month in each fiscal year commencing with April 1997,
the Company will deliver to the Investors' designee on the Company's Board
of Directors (appointed pursuant to Section 3.1 of the Securityholders
Agreement) unaudited management reports of the Company and its Subsidiaries
setting forth the financial, operational and other performance data of the
Company and its Subsidiaries in reasonable detail and reasonably
satisfactory to the Investors, which shall include at least a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated balance sheet for or as at the end of such month, in each case
setting forth, in comparative form, comparable information from the same
month in the preceding fiscal year and management's budget, all to the
extent such reports are then prepared by management of the Company in the
conduct of its business or for presentation to the Board of Directors;
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as soon as practicable and in any event within 45 days after the end
of each quarterly period in each fiscal year, consolidated and
consolidating statements of income, changes in stockholders' equity and
cash flow of the Company and its Subsidiaries for such quarterly period and
for the period from the beginning of the current fiscal year to the end of
such quarterly period and a consolidated and consolidating balance sheet of
the Company and its Subsidiaries as at the end of the most recent year and
at the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and reasonably satisfactory in scope
to the holder or holders of 66 2/3% or more (by number of shares) of
Securities and prepared in accordance with GAAP (except for footnote
disclosure) on a basis consistent with past practice and certified by the
chief financial officer or chief executive officer of the Company as fairly
presenting the financial condition of the Company and its Subsidiaries,
subject to the changes resulting from audit and year-end adjustments;
as soon as practicable and in any event within 120 days after the end
of each fiscal year, consolidated and consolidating statements of income,
changes in stockholders' equity and cash flow of the Company and its
Subsidiaries for such year, and a consolidated and consolidating balance
sheet of the Company and its Subsidiaries as at the end of such year,
setting forth in each case in comparative form corresponding figures from
the preceding annual audit, all in reasonable detail and reasonably
satisfactory in scope to the holder or holders of 66 2/3% or more (by
number of shares) of Securities, and in each case audited by Price
Waterhouse LLP, or such other independent public accountants of recognized
national standing selected by the Company, and reasonably satisfactory to
the holders of Securities, whose report in each case shall state that such
consolidated financial statements present fairly the results of operations
and cash flows of the Company and its Subsidiaries, in accordance with GAAP
on a basis consistent with prior years and that the examination by such
accountants has been made in accordance with generally accepted auditing
standards then in effect in the United States;
as soon as practicable and in any event by the end of each fiscal year
beginning with fiscal year 1997, a budget for the Company and its
Subsidiaries, as approved by the Board of Directors of the Company and each
Subsidiary, for the following fiscal year setting forth in comparative form
corresponding figures from the preceding fiscal year, in reasonable detail
and certified as to its good-faith preparation by the chief financial
officer or chief executive officer of the Company and each Subsidiary;
promptly upon transmission thereof, copies of all financial
statements, information circulars, proxy statements and reports as the
Company or any Subsidiary shall send to its stockholders that are material
to the business of the Company and its Subsidiaries, taken as a whole, and
copies of all registration statements and prospectuses and all reports
which it or any of its officers or directors file with the Commission (or
any governmental body or agency succeeding to the functions of the
Commission) or with any securities exchange on which any of its securities
are listed or with NASDAQ, and copies of all press releases and other
statements made available generally by the Company or its Subsidiaries to
the public concerning material developments in the business of the Company
and its Subsidiaries;
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promptly upon receipt thereof, a copy of each other report submitted
to the Company or any of its Subsidiaries by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any of its Subsidiaries; and
with reasonable promptness, such other financial and/or operating data
as the holders of Securities may reasonably request.
notwithstanding the foregoing, the obligation of the Company to
provide comparative information from prior periods pursuant to this
paragraph 6A shall commence with the reports delivered for fiscal month
January 1999.
Together with each delivery of the financial statements required by
clauses (ii) and (iii) above, the Company will deliver to each holder of
Securities an Officer's Certificate (a) demonstrating (with computations in
reasonable detail) compliance by the Company and its Subsidiaries with the
provisions of paragraph 7A, (b) stating that the Company and its
Subsidiaries are in compliance with the provisions of paragraphs 7B, 7C, 7D
and 7E, and (c) stating that there exists no Default or Event of Default
or, if any Default or Event of Default exists, specifying the nature
thereof, the period of existence thereof and what action the Company
proposes to take with respect thereto. Together with each delivery of
financial statements required by clause (iii) above, the Company will
deliver to each holder of Securities a certificate of the accountants
referred to in such clause (iii) stating that, in making the audit
necessary to the certification of such financial statements, they have
obtained no knowledge of any Default or Event of Default or, if, to their
knowledge any such Default or Event of Default exists, specifying the
nature and period of existence thereof; PROVIDED, HOWEVER, that such
accountants shall not be liable to anyone by reason of their failure to
obtain knowledge of any such Default or Event of Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards then in effect in the United States. Each
holder of Securities is hereby authorized to deliver a copy of any
financial statement or certificate delivered pursuant to this paragraph 6A
to any regulatory body having jurisdiction over such holder that requests
or requires delivery of such information; provided, that each holder of
Securities making such a delivery will promptly provide written notice to
the Company of such delivery.
6B. USE OF PROCEEDS. Schedule 6B sets forth the use of proceeds from the
sale of the securities.
6C. BOOKS AND RECORDS; INSPECTION OF PROPERTY. The Company will keep, and
will cause each of its Subsidiaries to keep, proper books of record and
account in which full, true and correct entries in conformity in all
material respects with GAAP shall be made of all material dealings and
transactions in relation to their business and activities. The Company
will, upon reasonable advance notice, permit any Person representing any
Investor and designated in writing by such holder, at such holder's
expense, to visit and inspect any of the properties of the Company and its
Subsidiaries during normal business hours in a manner which does not unduly
interrupt the normal course of business, to examine the corporate,
financial and operating records of the Company or any of its Subsidiaries
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and make copies thereof or extracts therefrom and to discuss the affairs,
finances and accounts of any of such corporations with the directors,
officers and independent accountants of the Company and its Subsidiaries,
all at such reasonable times and as often as the holders may reasonably
request.
6D. COVENANT TO SECURE SENIOR SUBORDINATED NOTES EQUALLY. If the Company or
any of its Subsidiaries shall create or assume any Lien upon any of its
property or assets, whether now owned or hereafter acquired, other than
Liens permitted by the provisions of paragraph 7C hereof, it will make or
cause to be made effective provisions whereby the Senior Subordinated Notes
will be secured by such Lien senior to any and all other Indebtedness
(other than Senior Debt) thereby secured as long as any such other
Indebtedness shall be so secured.
6E. ADDITIONAL COVENANT PENDING THE CLOSING. Pending the Closing, the
Company will not, without the prior written consent of the Investors, take
any action which, to the Company's knowledge, results (i) in any of the
representations or warranties contained in this Agreement not being true
and correct in all material respects (without giving effect to any
qualification as to materiality contained therein) at and as of the time
immediately after such action or (ii) in any of the covenants contained in
this Agreement becoming incapable of performance. Pending the Closing, the
Company will promptly advise the Investors of any action or event of which
either becomes aware which has the effect of making incorrect, in any
material respect, any of such representations or warranties or which has
the effect of rendering any of such covenants incapable of performance. The
Company will duly perform, in all material respects, all of its respective
obligations required to be performed under each of the Related Documents to
which it is a party.
6F. STOCK TO BE RESERVED. The Company covenants that all shares of Common
Stock that may be issued upon conversion of the Convertible Preferred Stock
will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance
thereof. The Company further covenants that during the period within which
the Convertible Preferred Stock may be converted, the Company will at all
times have authorized and reserved a sufficient number of shares of Common
Stock to permit the conversion of all of the outstanding shares of
Convertible Preferred Stock and shares of Convertible Preferred Stock that
are otherwise issuable at any time pursuant to the terms of this Agreement,
including, without limitation, paragraphs [6S, 6T and 6U] hereof.
6G. COMPLIANCE WITH LAWS, ETC. The Company will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws,
rules, regulations and orders of any Governmental Authority, and obtain and
maintain in good standing all licenses, permits and approvals from any and
all governments, governmental commissions, boards or agencies of
jurisdictions in which they carry on business required in respect of the
operations of the Company and its Subsidiaries, except for those with which
the failure to comply or maintain would not have a Material Adverse Effect.
6H. ERISA. Promptly (and in any event within 30 days) after the Company or
any of its Subsidiaries knows that a Reportable Event with respect to any
Pension Plan has occurred, that any Pen ion Plan is or may be terminated,
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reorganized, partitioned or declared insolvent under Title IV of ERISA or
that the Company or any of its Subsidiaries will or may incur any liability
under Section 4062, 4063, 4064, 4201 or 4204 of ERISA or promptly upon
becoming aware of the occurrence of any (i) event requiring the Company or
any of its Subsidiaries to provide security to a Pension Plan under Section
401(a)(29) of the Code, (ii) "prohibited transaction", as such term is
defined in Section 4975 of the Code or in Section 406 of ERISA, in
connection with any employee benefit plan maintained or contributed to by
the Company or any of its Subsidiaries or any trust created thereunder for
which a statutory or administrative exemption is not available, (iii)
notice of intent to terminate a Pension Plan or Pension Plans having been
filed under Title IV of ERISA by the Company, any Subsidiary or any ERISA
Affiliate, any Pension Plan administrator or any combination of the
foregoing, (iv) institution of proceedings by the PBGC to terminate or to
cause a trustee to be appointed to administer any Pension Plan, (v) partial
or complete withdrawal by the Company, any Subsidiary or any ERISA
Affiliate from any Multiemployer Pension Plan, (vi) institution of
proceedings by a fiduciary of any Multiemployer Pension Plan against the
Company or any of its Subsidiaries to enforce Section 515 of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter, (vii)
failure of the Company, any Subsidiary or any ERISA Affiliate to make a
required installment under Section 412(m) of the Code or any other payment
required under Section 412 of the Code or to pay any amount which it shall
have become liable to pay to the PBGC or to a Pension Plan under Title IV
of ERISA on or before the due date, (viii) application by the Company, any
Subsidiary or any ERISA Affiliate for a waiver of the minimum funding
standard under Section 412 of the Code or Section 302 of ERISA, or (ix)
"reorganization" (as defined in Section 418 of the Code or Title IV of
ERISA) of any Multiemployer Pension Plan, the Company will deliver to each
holder of Securities, a certificate of the chief financial officer of the
Company, setting forth information as to such occurrence and what action,
if any, the Company is required or proposes to take with respect thereto.
The Company shall also deliver to each holder of Securities any notices
concerning such occurrences which are (a) required to be filed by the
Company or the plan administrator of any such Pension Plan controlled by
the Company or any of its Subsidiaries with the PBGC, or (b) received by
the Company or any of its Subsidiaries from any plan administrator of a
Multiemployer Pension Plan not under their control. The Company shall
furnish to each holder of Securities a copy of each annual report (Form
5500 Series, excluding Schedule SSA) of any Pension Plan received or
prepared by it or any of its Subsidiaries. Each annual report and any
notice required to be delivered hereunder shall be delivered no later than
30 days after the later of the date such report or notice is filed with the
Internal Revenue Service or the PBGC or the date such report or notice is
received by the Company or any of its Subsidiaries, as the case may be.
6I. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company (i) will do
or cause to be done all things reasonably necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises and
the corporate existence, rights and franchises of its Subsidiaries (except
as specifically permitted by paragraphs 7H and 7I hereof), except where the
failure to maintain such rights and franchises would not have a Material
Adverse Effect, (ii) will take all reasonable steps to cause its material
properties and the material properties of its Subsidiaries to be maintained
and kept in good condition, repair and working order (ordinary wear and
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tear excepted) and will cause to be made all reasonable and necessary
repairs, renewals, replacements, betterments and improvements thereto, and
(iii) will, and will cause each of its Subsidiaries to, qualify and remain
qualified to conduct business in each jurisdiction where the nature of the
business of or ownership of property by the Company or such Subsidiary may
require such qualification, except where the failure to so qualify would
not have a Material Adverse Effect.
6J. INSURANCE. The Company will maintain, and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurance
companies, funds or underwriters, insurance for itself and its Subsidiaries
of the kinds, covering the risks and in the relative proportionate amounts
usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries. From and after a Public
Offering, the Company will use its reasonable commercial efforts to obtain
and maintain directors and officers liability insurance similar to the
insurance usually carried by companies conducting business activities
similar to those of the Company and its Subsidiaries.
6K. FURTHER ASSURANCES. The Company shall co operate with any of the
Investors and execute such further instruments and documents as the
Investors shall reasonably request to carry out to the satisfaction of such
Investors the transactions contemplated by this Agreement.
6L. FILING OF REPORTS UNDER THE EXCHANGE ACT. The Company shall, and shall
cause each of its Subsidiaries to, give prompt notice to each Investor of
the filing of any registration statement (an "EXCHANGE ACT REGISTRATION
STATEMENT") pursuant to the Exchange Act relating to any class of
securities of the Company or any of its Subsidiaries and the effectiveness
of such Exchange Act Registration Statement and, with respect to equity
securities, the number of shares of such class of equity security
outstanding as reported in such Exchange Act Registration Statement. If and
for so long as the Company or any of its Subsidiaries has a class of equity
securities required to be registered under the Exchange Act, the Company
and such Subsidiaries shall (i) comply in all material respects with the
reporting requirements of the Exchange Act, and (ii) comply in all material
respects with all other public information reporting requirements of the
Commission that are a condition to the availability of an exemption from
the Securities Act (under Rule 144 thereof, as amended from time to time,
or successor rule thereto or otherwise) for the sale of shares of Common
Stock by any Investor. The Company shall, and shall cause each of its
Subsidiaries to, cooperate with each Investor in supplying such information
as may be reasonably necessary for such Investor to complete and file any
information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act (under Rule 144 thereunder or otherwise) for the sale of
shares of Common Stock by any Investor.
6M. SECURITIES ACT REGISTRATION STATEMENTS. The Company covenants that it
shall not, and shall cause each of its Subsidiaries not to, file any
registration statement under the Securities Act covering any securities
unless it shall first have given to each Investor 10 days written notice
thereof. The Company further covenants that each Investor shall have the
right, at any time when it may reasonably be deemed by such Investor or the
Company or any of its Subsidiaries to be a controlling person of the
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Company or any of its Subsidiaries, to participate in the preparation of
such registration statement (regardless of whether or not an Investor will
be a selling security holder in connection with such registration
statement) and to request the insertion therein of material furnished to
the Company or any of its Subsidiaries in writing which in such Investor's
reasonable judgment should be included. In connection with any registration
statement referred to in this paragraph 6M, the Company will indemnify each
Investor, its partners, officers and directors and each person, if any, who
controls such Investor within the meaning of Section 15 of the Securities
Act (collectively, the "INVESTOR PARTIES"), against all losses, claims,
damages, liabilities and expenses caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
or prospectus or any preliminary prospectus or any amendment thereof or
supplement thereto or caused by 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, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any untrue statement
or alleged untrue statement or omission or alleged omission contained in
written information furnished to the Company or any of its Subsidiaries by
such Investor Parties expressly for use in such registration statement. If,
in connection with any such registration statement, such Investor Parties
shall furnish written information to the Company or any of its Subsidiaries
expressly for use in the registration statement, such Investor will
indemnify the Company, its directors, each of its officers who signs such
registration statement and each person, if any, who controls the Company
within the meaning of the Securities Act against all losses, claims,
damages, liabilities and expenses caused by any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged
untrue statement or such omission or alleged omission is contained in
information so furnished in writing by such Investor for use therein. The
provisions of this paragraph 6M are in addition to, and not in limitation
of, the provisions of the Registration Rights Agreement.
6N. NOTICES OF CERTAIN EVENTS. The Company shall promptly give notice to
each holder of Securities (i) of the occurrence of any Default or Event of
Default, (ii) of any default or event of default under any contractual
obligation of the Company or any of its Subsidiaries if such default or
event of default, individually or in the aggregate, relates to a
contractual obligation equal to or in excess of $100,000, (iii) of any
pending or threatened litigation, investigation or proceeding to which the
Company or any of its Subsidiaries is or is threatened to be a party which,
if such pending or threatened litigation, investigation or proceeding were
adversely determined, would create a liability of the Company or its
Subsidiaries equal to or in excess of $100,000 that is not fully covered by
insurance held by the Company or its Subsidiaries, or (iv) of a Change of
Control Event. Any notice delivered pursuant to this paragraph 6N shall be
accompanied by an Officer's Certificate specifying the details of the
occurrence referred to therein and stating what action the Company proposes
to take with respect thereto, or if such action has not been determined at
the time of giving such notice, a statement to that effect. In addition to
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the foregoing, in the case contemplated by clause (iv) of the first
sentence of this paragraph 6N, the Company will also comply with the
provisions of paragraphs 4C hereof.
6O. BOARD NOMINEE. As long as (x) any Senior Subordinated Notes are
outstanding or (y) the Investors hold at least 25% of the Convertible
Preferred Stock or Common Stock obtained through conversion of the
Convertible Preferred Stock held by them on the date hereof, the Company
will use its best efforts to have one (1) nominee designated by the
Investors elected to the Board of Directors of the Company and of each
Subsidiary that the Investors elect. Any director designated by the
Investors shall receive (A) all materials distributed to the Board of
Directors of the Company or any Subsidiary, as the case may be, whether
provided to directors in advance of, during or after, any meeting of the
applicable Board of Directors, regardless of whether such director shall be
in attendance at any such meeting, (B) the same compensation other outside
members of the Board of Directors of the Company or any Subsidiary, as the
case may be, shall receive in his or her capacity as a director and (C)
reimbursement of the reasonable out-of-pocket expenses of such director
incurred in attending the meetings of the Board of Directors of the Company
or any Subsidiary, as the case may be.
6P. LISTING OF COMMON STOCK. The Company covenants and agrees for the
benefit of the Investors and each holder of any Common Stock issued upon
conversion of the Convertible Preferred Stock, that at the time of and in
connection with the listing of Common Stock or any other equity securities
of the Company on any national securities exchange, it will, at its
expense, use its best efforts to cause the shares of Common Stock issuable
from time to time upon conversion of the Convertible Preferred Stock to be
approved for listing, subject to notice of issuance, and will provide
prompt notice to each such exchange of the issuance thereof from time to
time.
6Q. ENVIRONMENTAL LAWS. (i) The Company will comply with, and will cause
each of its Subsidiaries to comply with, and use its best efforts to ensure
compliance by all tenants and subtenants and with respect to all of its
assets with, all licenses, permits and other authorizations required under
all applicable laws, regulations, orders, notices and other requirements of
Governmental Authorities relating to public health and safety, pollution or
to the protection of the environment (the "ENVIRONMENTAL LAWS") and obtain
and comply with and maintain, and use its best efforts to ensure that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, registrations or permits required by Environmental
Laws, except to the extent that failure to so comply or to obtain and
comply with and maintain such licenses, approvals, registrations and
permits does not have, and could not reasonably be expected to result in, a
Material Adverse Effect.
The Company will, and will cause each of its Subsidiaries to, conduct
and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions, required under Environmental Laws and
promptly comply with all lawful orders and directives of all Governmental
Authorities with respect to Environmental Laws, except to the extent that
the same are being contested in good faith by appropriate proceedings or
the dependency of such proceedings would not have a Material Adverse
Effect.
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The Company will, and will cause each of its Subsidiaries to, notify
the holders of the Securities of any of the following that is reasonably
likely to have a Material Adverse Effect:
any claim with respect to any Environmental Law that the Company or
any of its Subsidiaries receives, including one to take or pay for any
remedial, removal, response or cleanup or other action with respect to any
hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law)
(collectively, "HAZARDOUS SUBSTANCES") contained on or generated from any
property owned or leased by the Company or any of its Subsidiaries;
any notice of any alleged violation of or knowledge by the Company or
any of its Subsidiaries of a condition that might reasonably result in a
violation of any Environmental Law;
any commencement of or receipt of written intent to commence any
judicial or administrative proceeding or investigation alleging a violation
or potential violation of any requirement of any Environmental Law by the
Company or any of its Subsidiaries; and
the release of any Hazardous Substance at any property owned, leased
or used by the Company or any of its Subsidiaries.
Without limiting the generality of paragraph 13B, the Company will,
and will cause each of its Subsidiaries to, indemnify the Investors and
each holder from time to time of the Securities and each of their
respective directors, officers, employees, agents, partners and Affiliates
(each such person being called an "INDEMNITEE" and collectively, the
"INDEMNITEES") against, and hold each Indemnitee harmless from, any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses (including reasonable counsel fees, charges and disbursements) of
whatever kind or nature arising out of, or in any way relating to, the
violation of, noncompliance with or liability under any Environmental Laws
applicable to the operations of the Company, any orders, requirements or
demands of Governmental Authorities related thereto or the presence of any
Hazardous Substance on, at, beneath or near any Property owned, leased or
used by the Company or any of its Subsidiaries, including, without
limitation, attorneys' and consultants' fees, investigation and laboratory
fees, Response Costs (as such term is defined in CERCLA), court costs and
litigation expenses, except to the extent that any of the foregoing are
found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the willful misconduct of the Indemnitee
seeking indemnification therefor. The obligation of the Company under this
paragraph 6Q(iv) shall survive the payment of the Senior Subordinated Notes
and the conversion of the Convertible Preferred Stock.
Neither the Company's nor any of its Subsidiaries' plants and
facilities will use, manage, treat, store or dispose of any Hazardous
Substances in violation of any Environmental Laws.
6R. GUARANTEE BY SUBSIDIARY. Promptly upon any Person becoming a Subsidiary
of the Company, the Company covenants that it will cause such Subsidiary to
execute and deliver to the Investors such appropriate documents, including
this Agreement and the Subsidiary Guarantee, to become a guarantor under
this Agreement and the Subsidiary Guarantee.
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6S. ISSUANCE OF CONVERTIBLE PREFERRED STOCK WITH INTEREST NOTES. The
Company agrees to issue, together with any Interest Notes, shares of
Convertible Preferred Stock which are convertible into .0022% of the Fully
Diluted Outstanding Shares at the time of such issuance per $1,000
principal amount of Interest Notes issued. All such shares shall be
registered in the name of the recipient of the Interest Notes or its
designee and will, upon issuance, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof.
6T. ISSUANCE OF CONVERTIBLE PREFERRED STOCK UPON FAILURE TO REDEEM SENIOR
SUBORDINATED NOTES AND CERTAIN REFINANCINGS OF SENIOR SUBORDINATED NOTES.
(a) If the Senior Subordinated Notes have not been repaid in full on or
prior to July [___], 1999, then on July [___], 1999 (and on each one-month
anniversary thereof until (i) the Senior Subordinated Notes have been
repaid in full or (ii) December [___], 1999, whichever occurs first) the
Company shall issue to each Investor such Investor's Pro Rata Share of
shares of Convertible Preferred Stock which are convertible into 1% of the
Fully Diluted Outstanding Shares at the time of such issuance. All such
shares shall be registered in the name of such Investor or its designee and
will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance
thereof. For purposes of this Agreement, "Pro Rata Share" means, with
respect to any Investor, a fraction, the numerator of which equals the
amount of Senior Subordinated Notes to be purchased by such Investor set
forth opposite its name on the signature pages hereof, and the denominator
of which equals $10,000,000.
(b) In the event the Company shall redeem all of the outstanding
Senior Subordinated Notes after June [___], 1999 and prior to December
[___], 1999 with the proceeds from the incurrence of Indebtedness with a
stated maturity of no sooner than December [___], 2000, then the Investors
shall return to the Company for cancellation all shares of Convertible
Preferred Stock issued to the Investors pursuant to clause (a) above
(including any shares of Common Stock issued upon conversion of any such
shares of Convertible Preferred Stock), and the Company shall issue to each
Investor such Investor's Pro Rata Share of shares of Convertible Preferred
Stock which are convertible into 3% of the Fully Diluted Outstanding Shares
at the time of such issuance. All such shares shall be registered in the
name of such Investor or its designee and will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(c) In the event any Senior Subordinated Notes remain outstanding
after the consummation of a Qualifying Public Offering, the Company shall,
within 10 days of the consummation of such Qualifying Public Offering,
issue to each Investor such Investor's Pro Rata Share of that number of
shares of Convertible Preferred Stock equal to the product of (i) a
fraction, the numerator of which equals the principal amount of Senior
Subordinated Notes then outstanding, and the denominator of which equals
$10,000,000 times (ii) that number of shares of Convertible Preferred Stock
which would, upon issuance, be convertible into 6% of the Fully Diluted
Outstanding Shares. All such shares shall be registered in the name of such
Investor or its designee and will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.
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6U. INABILITY OF COMPANY TO SERVICE PUT. IF THE COMPANY IS UNABLE TO PAY
THE REDEMPTION PRICE FOR EITHER (I) THE SENIOR SUBORDINATED NOTES UPON
EXERCISE OF A NOTE PUT RIGHT OR (II) THE SHARES OF CONVERTIBLE PREFERRED
STOCK UPON EXERCISE OF A PUBLIC OFFERING PUT RIGHT, THEN THE INVESTORS
SHALL RETURN TO THE COMPANY FOR CANCELLATION ALL SHARES OF CONVERTIBLE
PREFERRED STOCK PREVIOUSLY ISSUED TO THE INVESTORS (INCLUDING ANY SHARES OF
COMMON STOCK ISSUED UPON CONVERSION OF ANY SUCH SHARES OF CONVERTIBLE
PREFERRED STOCK), AND THE COMPANY SHALL ISSUE TO EACH INVESTOR SUCH
INVESTOR'S PRO RATA SHARE OF SHARES OF CONVERTIBLE PREFERRED STOCK WHICH
ARE CONVERTIBLE INTO 60% OF THE FULLY DILUTED OUTSTANDING SHARES AT THE
TIME OF SUCH ISSUANCE.
7. NEGATIVE COVENANTS. All covenants contained herein shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or condition
exists. The provisions of this Section 7 are for the benefit of the Investors so
long as they hold any of the Securities and for the benefit of each other holder
of Securities; PROVIDED, HOWEVER, that upon repayment in full of any and all
amounts (including, without limitation, principal and interest) due under the
Senior Subordinated Notes, the Company or any of its Subsidiaries, as the case
may be, shall no longer be bound by the covenants contained in paragraphs 7A
through 7F, 7H through 7M and 7P.
7A. FINANCIAL COVENANTS.
The Company and its Subsidiaries, on a consolidated basis, shall not:
(a) Permit the Quick Ratio to be less than 1:1.
(b) Permit Net Worth as of the last day of each period set forth
below to be less than the amounts set forth below opposite such
period:
FISCAL YEAR ENDED AMOUNT
December 31, 1998 ($3,400,000)
December 31, 1999 ( $350,000)
December 31, 2000 ($3,500,000)
December 31, 2001 ($8,000,000)
[Thereafter ($ )]
7B. RESTRICTIONS ON INDEBTEDNESS AND REPAYMENT OF INDEBTEDNESS. The Company
covenants that it will not incur, create, assume or suffer to exist any
Indebtedness or permit any of its Subsidiaries to do any of the foregoing,
other than the following:
Senior Debt in an amount not to exceed $10,000,000;
Indebtedness represented by the Senior Subordinated Notes and this
Agreement;
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Indebtedness of the Company which by its terms is subordinated (on terms
acceptable to the holders of a majority of the aggregate principal amount
of Senior Subordinated Notes then outstanding) to the Senior Subordinated
Notes, provided that no such Indebtedness is guaranteed or incurred by any
Subsidiary of the Company; and
Indebtedness secured by Liens permitted pursuant to paragraph 7C; and
In addition, the Company covenants that it will not, and will not permit
any Subsidiary to, prepay any Indebtedness junior to the Senior
Subordinated Notes.
7C. RESTRICTIONS ON LIENS. The Company covenants that it will not and will
not permit any Subsidiary to create, assume or suffer to exist any Lien
upon any of its property or assets, whether now owned or hereafter
acquired, except:
Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP;
statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Persons and other Liens imposed by
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
Liens made to secure performance of bids, tenders, contracts (other
than repayment of borrowed money), or leases, or to secure statutory
obligations, surety or appeal bonds, or indemnity, performance or other
similar bonds in the ordinary course of business;
Liens made to secure Senior Debt;
Liens incurred through Purchase Money Security Interests in amounts
which do not exceed the fair market value of the asset securing such Liens;
Liens or deposits made to secure payment of workers' compensation, or
in connection with the participation in any fund in connection with
workers' compensation, unemployment insurance, pensions (excluding Liens in
respect of any Pension Plans) or other social security programs; and
Liens incurred in connection with Capitalized Lease Obligations.
7D. RESTRICTED PAYMENTS. The Company covenants that it will not make, and
will not permit any Subsidiary to make, any Restricted Payments other than
a Restricted Payment made by a wholly owned Subsidiary of the Company to
the extent necessary to enable the Company to make a principal or interest
payment on the Senior Subordinated Notes.
7E. LOANS, ADVANCES AND INVESTMENTS. The Company covenants that it will
not, and will not permit any of its Subsidiaries to, make or permit to
remain outstanding any loan or advance to, or guarantee, endorse or
otherwise be or become contingently liable, directly or indirectly in
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connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or make any Investment in,
any Person except that the Company or any of its Subsidiaries may:
own, purchase or acquire Permitted Investments;
endorse negotiable instruments for collection in the ordinary course
of business, make or permit to remain outstanding travel, moving and other
like advances to officers, employees and consultants in the ordinary course
of business or make or permit to remain outstanding lease, utility and
other similar deposits in the ordinary course of business;
make an Investment in a Person not otherwise permitted pursuant to
this paragraph 7E, provided the amount of such Investment (including the
amount of any guarantee, endorsement or other liability with respect
thereto) shall not exceed $25,000 individually or $50,000 in the aggregate;
make an Investment in a Person that becomes a Subsidiary as a result
of such Investment or in assets of a Person that become assets of the
Company or any Subsidiary; provided that such Investments: (a) relate to
the acquisition of communications services or any Person being principally
engaged in the communications services business; (b) the Company shall
deliver to the Investors pro forma financial statements reflecting the
proposed acquisition and related calculations demonstrating compliance with
all covenants contained herein, relating to financial and accounting
matters, together with a description in reasonable detail of the nature and
reasons for the proposed transaction; and (c) immediately after giving
effect to such transaction, no Default or Event of Default shall exist and
be continuing; and (d) make or permit to remain outstanding loans or
advances to any wholly owned Subsidiary (now existing or hereafter created)
or, as to a Subsidiary, any such loan or advance to the Company.
7F. LEASES. The Company covenants that it will not enter into, or permit
any of its Subsidiaries to enter into, any leases of real or personal
property (except in the normal course of business at reasonable rents co
parable to those paid for similar leasehold interests in the area, or at
comparable amounts payable by companies in the same business as the Company
or such Subsidiary which are similarly situated) as lessee or sublessee,
with initial terms (excluding options to renew or extend any term, whether
or not exercised) of more than 12 years.
7G. TRANSACTIONS WITH AFFILIATES. The Company covenants that it will not,
and will not permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service), with any holder of 5% or more of any class of
equity securities of the Company or with any Affiliate of the Company or of
any such holder on terms that are less favorable to such Subsidiary or the
Company than those that would be obtainable at the time in an arms-length
transaction from any Person who is not such a holder or Affiliate.
7H. MERGER. The Company covenants that it will not, and will not permit any
of its wholly owned Subsidiaries to, enter into any transaction of merger
or consolidation (which does not constitute a Change of Control) or
liquidate, wind up or dissolve itself (or suffer any liquidation or
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dissolution) (other than any sales or transfers by a wholly owned
Subsidiary to the Company or to another wholly owned Subsidiary or by the
Company to a wholly owned Subsidiary), except that the Company or a wholly
owned Subsidiary may (i) enter into or permit a transaction of purchase,
merger or consolidation if the merger or consolidation is between two or
more wholly owned Subsidiaries of the Company or between the Company and
one or more wholly owned Subsidiaries of the Company and (ii) enter into a
merger in connection with an investment permitted by paragraph 7E.
7I. DISPOSITION OF SUBSTANTIAL ASSETS. The Company covenants that it will
not, and will not permit any of its Subsidiaries to, sell, dispose of or
otherwise convey (by merger, consolidation, sale of stock or otherwise)
(collectively, a "TRANSFER"), in any single or related series of sales,
dispositions or conveyances, any assets of the Company or any Subsidiary
except if such Transfer is made in the ordinary course of business
consistent with past practice. Notwithstanding this paragraph 7I, no assets
of the Company or its Subsidiaries shall be sold, disposed of or otherwise
conveyed (i) at less than fair market value (determined in good faith by
the Board of Directors of the Company) nor (ii) if any Default or Event of
Default shall have occurred and then be continuing or shall result from
such sale or disposition.
7J. SALE OF STOCK AND DEBT OF SUBSIDIARIES. Except with respect to the
Senior Debt, the Company covenants that it will not, and will not permit
any of its Subsidiaries to sell or otherwise dispose of, or part with
control of, any shares of stock or Indebtedness of any Subsidiary, except
to the Company or another wholly owned Subsidiary.
7K. CERTAIN CONTRACTS. Except as otherwise specifically permitted by any
other provision of this Section 7, the Company covenants that it will not,
and will not permit any of its Subsidiaries to, enter into or be a party to
(i) any contract for the purchase of materials, supplies or other property
or services if such contract (or any related document) requires that
payment for such materials, supplies or other property or services shall be
made regardless of whether or not delivery of such materials, supplies or
other property or services is ever made or tendered, (ii) any contract to
rent or lease (as lessee) any real or personal property if such contract
(or any related document) requires that the lessee purchase or otherwise
acquire securities or obligations of the lessor (unrelated to the lease in
question), (iii) any contract for the sale or use of materials, supplies or
other property, or the rendering of services, if such contract (or any
related document) provides that payment for such materials, supplies or
other property, or the use thereof, or payment for such services, shall be
subordinated to any indebtedness (of the purchaser or user of such
materials, supplies or other property or the Person entitled to the benefit
of such services) owed or to be owed to any Person, (iv) any other contract
which is, or, in economic effect, is substantially equivalent to, a
guarantee or (v) any contract providing for the making of loans, advances
or capital contributions to any Person other than a Subsidiary, or for the
purchase of any property from any Person, in each case primarily in order
to enable such Person to maintain working capital, net worth or any other
balance sheet condition or to pay debts, dividends or expenses.
7L. CONDUCT OF BUSINESS. The Company covenants that it will not, and will
not permit any of its Subsidiaries to, engage in any business other than
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the business engaged in by the Company and its Subsidiaries on the date
hereof, including, without limitation, [(i) providing communication
services and (ii) developing equipment and software for use in
communications networks.]
7M. NO AMENDMENTS. The Company covenants that it will not, and will not
permit any of its Subsidiaries to, amend (i) the Company's or any of its
Subsidiaries' Articles of Incorporation or By-laws in a manner which
impairs the rights, privileges or preferences of the Securities, (ii) the
Related Documents in any manner that impairs any right or privilege of the
holders of the Senior Subordinated Notes (including, without limitation,
enlarging the rights or privileges of any other Persons at the expense of
the holders of the Senior Subordinated Notes), (iii) any Senior Debt
Agreement in any manner that impairs any right of the Senior Subordinated
Notes, including without limitation, the right to payments of principal and
interest when due in accordance with paragraph 4B.
7N. REGISTRATION RIGHTS. The Company covenants that it will not hereafter
enter into any agreement with respect to its securities any provision of
which is inconsistent with or more favorable than the rights granted to the
Investors in the Registration Rights Agreement.
7O. OFFERING OF SECURITIES. The Company will not take any action which
would subject the issuance or sale of any of the Securities to the
provisions of Section 5 of the Securities Act or violate the provisions of
any securities or Blue Sky Law of any applicable jurisdiction.
7P. ISSUANCE OF SECURITIES. (a) The Company covenants that it will not
issue, sell or otherwise dispose of or part with any shares of capital
stock, Indebtedness or other securities of the Company which by its terms
is senior to the Senior Subordinated Notes, other than, subject to
paragraph 7B(i), Senior Debt. The Company covenants that it will not permit
any of its Subsidiaries to issue, sell or otherwise dispose of or part with
any shares of capital stock, Indebtedness or other securities of the
Company which by its terms is senior to the Senior Subordinated Notes, or
which results, directly or indirectly, in such capital stock, Indebtedness
or other securities being senior to the Senior Subordinated Notes, other
than Senior Debt.
The Company covenants that it will not, and will not permit any of its
Subsidiaries to, issue, sell or otherwise dispose of or art with any shares
of capital stock, Indebtedness or other Securities of the Company or any of
its Subsidiaries which by its terms is pari-passuant to the Senior
Subordinated Notes.
8. SUBORDINATION.
8A. SUBORDINATED DEBT SUBORDINATE TO SENIOR DEBT. The Senior Subordinated
Notes shall be junior and subordinate to all Senior Debt to the extent and
in the manner provided in this Section 8 and each holder of a Senior
Subordinated Note, by its acceptance thereof, agrees to be bound by the
provisions of this Section 8. The Senior Subordinated Notes shall not be
junior or subordinate to any Indebtedness of the Company other than the
Senior Debt. For purposes hereof, Indebtedness evidenced by the Senior
Subordinated Notes, including any refinancing, extension or modification
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thereof, and the Company's obligation to pay the redemption price in
respect of an exercise of the Put Right shall constitute "SUBORDINATED
Debt".
8B. SUSPENSION OF RIGHT TO RECEIVE PAYMENT OF SUBORDINATED DEBT.
8B(1) FAILURE TO PAY PRINCIPAL OF OR INTEREST ON SENIOR DEBT. (a) Upon
(i) the maturity of Senior Debt by lapse of time, acceleration or
otherwise, (ii) any failure by the Company to make any payment of
principal when due with respect to Senior Debt or (iii) any default in
the payment by the Company of any interest or other amounts due with
respect to Senior Debt, all principal thereof and all interest thereon
and other amounts due in connection therewith, shall first be paid in
full, or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Debt, before any payment or
distribution of any kind or character, whether in cash, property or
securities, shall be paid or delivered with respect to Subordinated
Debt, and any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or
deliverable with respect to the Subordinated Debt shall be paid or
delivered directly to the holders of Senior Debt, ratably, for
application in payment thereof, unless and until all Senior Debt shall
have been paid in full and in cash.
Upon the occurrence of (i) any default with respect to Senior Debt of
the types described in clause (i), (ii) or (iii) of paragraph
8B(1)(a), or (ii) any other default under any Senior Debt which would,
with the giving of notice or the passage of time, or both, permit the
holders of such Senior Debt to accelerate the maturity thereof upon
written notice thereof given to he Company by the holder of such
Senior Debt or their representatives (a "DEFAULT NOTICE"), then,
unless and until such default with respect to Senior Debt shall have
been cured or waived in writing by the holders of such Senior Debt, no
payment shall be made by the Company with respect to the principal of
or interest or other amounts due with respect to Subordinated Debt;
PROVIDED, HOWEVER, that in the case of a default described in clause
(ii) above (a "Senior Debt Covenant Default") this paragraph shall not
prevent the making of any payment for longer than the longer of (x)
180 days after the giving of a Default Notice and (y) any period
during which Senior Debt in respect of which such Default Notice has
been given has become due and payable in its entirety by reason of its
acceleration and such acceleration has not been rescinded or annulled
and such Senior Debt has not been paid in full. A holder of Senior
Debt may deliver more than one Default Notice to the Company,
PROVIDED, that (i) the Company shall not be prevented from making, and
the holders of the Subordinated Debt shall not be prevented from
receiving by reason of a Default Notice, any payments with respect to
principal or interest of or other amounts due with respect to the
Senior Subordinated Notes for a period in excess of 180 days during
any 365-day period and (ii) no facts or circumstances constituting a
Senior Debt Covenant Default existing on the date of delivery of any
Default Notice may be used as a basis for delivering a subsequent
Default Notice.
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Upon the occurrence of (i) any default with respect to Senior Debt of
the types described in clause (i), (ii) or (iii) of paragraph
8B(1)(a), or (ii) the giving of any Default Notice, the Company shall
not make any payments, and the holders of the Subordinated Debt shall
not receive, ask, demand, sue for any payment or otherwise exercise
their remedies against the Company with respect to the Subordinated
Debt or this Agreement, unless and until such default with respect to
Senior Debt has been cured or waived in writing; PROVIDED, HOWEVER,
that the provisions of this paragraph shall not apply (x) for longer
than 180 days after the giving of a Default Notice by the holders of
Senior Debt to the Company based upon such default and (y) from and
after the date upon which the relevant Senior Debt has become due and
payable in its entirety by reason of its acceleration or otherwise,
PROVIDED that the provisions of paragraphs 8B(1)(a) and 8B(2) shall
thereupon apply.
8B.(2) ACCELERATION OF PAYMENT OF SENIOR DEBT OR SUBORDINATED DEBT. If
at the time any payment or prepayment with respect to any Subordinated
Debt or any purchase, redemption or other retirement (whether at the
option of the holder or otherwise) of Subordinated Debt is to be made,
directly, or indirectly, or immediately after giving effect thereto
(i) the Senior Debt or Subordinated Debt shall have been declared by
the holders thereof due and payable before its expressed maturity and
(ii) such acceleration shall not have been expressly rescinded in
writing by the holders of Senior Debt pursuant to the relevant Senior
Debt Agreement or by the holders of Subordinated Debt pursuant to this
Agreement, as the case may be, then any payment or distribution of any
kind or character, whether in cash, property or securities, which may
be payable or deliverable with respect to Subordinated Debt shall be
paid or delivered directly to the holders of Senior Debt, ratably, for
application in payment thereof, unless and until all Senior Debt shall
have been paid in full or such acceleration shall have been rescinded.
8B. (3) BANKRUPTCY OR INSOLVENCY. In the event of (a) any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings,
or any receivership proceedings in connection therewith, relative to
the Company or (b) any proceedings for voluntary liquidation,
dissolution or other winding-up of the Company, whether or not
involving insolvency or bankruptcy proceedings, then all Senior Debt
shall first be paid in full, or such payment shall have been duly
provided for, before any further payment is made with respect to
Subordinated Debt. In any of such proceedings, any payment or
distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable with respect to
Subordinated Debt shall be paid or delivered directly to the holders
of Senior Debt, ratably, for application in payment thereof, unless
and until all Senior Debt shall have been paid in full; PROVIDED,
HOWEVER, that in the event that payment or delivery of any cash,
property or securities to any holders of Subordinated Debt is
authorized by a final non-appealable order or decree giving effect,
and stating in such order or decree that effect is given, to the
subordination of Subordinated Debt to Senior Debt, and made by a court
of competent jurisdiction in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency receivership or
similar proceeding under any applicable law, no payment or delivery of
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such cash, property or securities payable or deliverable with respect
to Subordinated Debt shall be made to the holders of Senior Debt.
Anything in this Section 8 to the contrary notwithstanding, no payment
or delivery shall be made to holders of Senior Debt of securities that
are issued and delivered to holders of Subordinated Debt pursuant to
liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding, or
upon any merger, consolidation, sale, lease, transfer or other
disposal not prohibited by the provisions of this Agreement, by the
Company, as reorganized, or by the corporation succeeding to the
Company or acquiring its property and assets, if such securities are
subordinate and junior at least to the extent provided in this Section
8 to the payment of all Senior Debt then outstanding and to the
payment of any securities that are issued in exchange or substitution
for any Senior Debt then outstanding.
8C. RIGHTS OF HOLDERS OF SENIOR DEBT NOT TO BE IMPAIRED. No right of any
present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act by any such holder, or by any noncompliance by
the Company with the terms and provisions and covenants herein contained,
regardless of any knowledge thereof any such holder may have or otherwise
be charged with. The provisions of this Section 8 are intended to be for
the benefit of, and shall be enforceable directly by, any one or more of
the holders from time to time of the Senior Debt. Each of the holders of
Subordinated Debt waives notice of or proof of reliance on this Agreement
and protest, demand for payment and notice of default by the holders of
Senior Debt.
8D. COMPANY'S OBLIGATION UNCONDITIONAL. The provisions of this Section 8
are solely for the purpose of defining the relative rights of the holders
of Senior Debt, on the one hand, and the holders of Subordinated Debt, on
the other hand, against the Company and its property. Nothing herein shall
impair, as between the Company and the holders of Subordinated Debt, the
obligation of the Company, which is unconditional and absolute, to pay to
the holders thereof the full amount of Subordinated Debt in accordance with
the terms thereof and the provisions hereof and, except as expressly
provided in paragraph 8B(1)(c), nothing herein shall prevent the holder of
any Subordinated Debt from exercising all remedies otherwise permitted by
applicable law or hereunder upon Default hereunder or under any
Subordinated Debt (including, without limitation, the right to demand and
sue for payment and performance hereof of the Subordinated Debt and to
accelerate the maturity hereof as provided in Section 9 hereof), subject to
the rights under this Section 8 of holders of Senior Debt to receive cash,
property or securities otherwise payable or deliverable to the holders of
Subordinated Debt. The failure to make any payment with respect to
Subordinated Debt by reason of any provision of this Section 8 shall not be
construed as preventing the occurrence of an Event of Default under Section
9.
8E. PAYMENTS HELD IN TRUST. If the holder of any Subordinated Debt shall
receive any payment or delivery of cash, property or securities in respect
of such Subordinated Debt which such holder is not entitled to receive
under the provisions of this Section 8, such holder will hold any amount so
received in trust for the holders of Senior Debt and will forthwith turn
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over to the agent for the account of the holders of Senior Debt such
payment or delivery in the form received to be applied in payment or
prepayment of Senior Debt; PROVIDED, HOWEVER, that no holder of
Subordinated Debt shall be obligated to determine whether a payment
received by it was appropriately made by the Company.
8F. SUBROGATION. Upon the payment in full of all Senior Debt, the holders
of Subordinated Debt shall be subrogated to the rights of the holders of
Senior Debt to receive payments or distributions of assets of the Company
applicable to Senior Debt until all Subordinated Debt shall have been paid
in full. For the purpose of subrogation, no payments to the holders of
Senior Debt of any cash, property or securities to the holders of
Subordinated Debt would be entitled to receive and retain but for the
provisions of this Section 8, and no payment over pursuant to the
provisions of this Section 8 to holders of Senior Debt by holders of
Subordinated Debt, shall, as between the Company and its creditors (other
than the holders of Senior Debt), on the one hand, and the holders of
Subordinated Debt, on the other, be deemed to be a payment by the Company
with respect to the Senior Debt.
8G. RELIANCE BY HOLDERS ON FINAL ORDER OR DECREE. Anything in this Section
8 to the contrary notwithstanding, in the event that payment or delivery of
any cash, property or securities to any holders of Subordinated Debt is
authorized by a final non-appealable order or decree giving effect to the
subordination of the Indebtedness represented by Subordinated Debt to
Senior Debt, and made by a court of competent jurisdiction in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceedings under any applicable law,
no such payment or delivery of cash, property or securities payable or
deliverable with respect to the Indebtedness represented by Subordinated
Debt shall be made to the holders of Senior Debt, nor shall any payment or
delivery be made to holders of Senior Debt of securities that are issued
and delivered to holders of Subordinated Debt pursuant to liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceedings, or upon any merger, consolidation,
sale, lease, transfer or other disposition not prohibited by the provisions
of this Agreement, by the Company, as reorganized, or by the corporation
succeeding to the Company or acquiring its properties and assets, if such
securities are subordinate and junior at least to the extent provided in
this Section 8 to the payment of all Senior Debt then outstanding and to
the payment of any securities that are issued in exchange or substitution
for any Senior Debt then outstanding.
8H. LEGEND. The Senior Subordinated Notes shall be conspicuously legended
indicating that their payment is subordinated to Senior Debt pursuant to
the terms of this Agreement.
8I. AMENDMENT. The provisions in paragraphs 8A through 8I shall not be
amended or modified and no term or provision of this paragraph 8 shall be
waived without the express prior written consent of the holders of Senior
Debt.
9. EVENTS OF DEFAULT.
9A. GENERAL. So long as any Senior Subordinated Notes remain outstanding,
if any of the following events shall occur and be continuing for any reason
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whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise):
the Company defaults in the payment of any principal of or interest or
premium (if any) on any Senior Subordinated Notes when the same shall
become due, either by the terms thereof or otherwise as herein provided;
the Company defaults in the payment when due, either by the terms
thereof or otherwise as herein provided, of any other amounts on any Senior
Subordinated Notes and such default shall continue unremedied for twenty or
more days;
the Company or any of its Subsidiaries (x) defaults in any payment of
principal of or interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale or
other title retention agreement, any obligation issued or assumed as full
or partial payment for property whether or not secured by a Purchase Money
Security Interest or any obligation under notes payable or drafts accepted
representing extensions of credit) and such default shall continue beyond
any applicable grace period or (y) fails to perform or observe any other
agreement, term or condition contained in any agreement under which any
such obligation is created (or if any other event thereunder or under any
such agreement shall occur and be continuing), and in the case of (y)
above, the effect of such default, failure or other event is to cause, or,
with respect to any Indebtedness, to permit the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause an
obligation of more than $100,000 to become due prior to any stated
maturity;
any representation or warranty made by the Company herein or in any
writing furnished in connection with or pursuant to this Agreement or any
other Related Document shall be false in any material respect on the date
as of which made;
the Company defaults, or any Subsidiary thereof shall cause the
Company to default, in the performance or observance of any of its
agreements contained in paragraph 6D;
the Company defaults, or any Subsidiary thereof shall cause the
Company to default, in the performance or observance of any of its
agreements contained in paragraph 7A, and any such default shall not have
been remedied within 30 days after such default shall first become known to
any officer of the Company, or such Subsidiary;
the Company defaults, or any Subsidiary thereof shall cause the
Company to default, in the performance or observance of any of the
agreements contained in Section 6 or 7 or in the performance or observance
of any other agreement, term or condition contained herein or in the
Related Documents and any such default shall not have been remedied within
30 days after such default shall first become known to any officer of the
Company, or such Subsidiary;
the Company or any of its Subsidiaries makes an assignment for the
benefit of creditors generally or is generally not paying its debts as such
debts become due;
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any decree or order for relief in respect of the Company or any of its
Subsidiaries is entered under any Bankruptcy Law of any jurisdiction;
the Company or any of its Subsidiaries petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any of its Subsidiaries, of any substantial part of the assets
of the Company or any of its Subsidiaries, or commences a voluntary case
under the Bankruptcy Law of the United States or any proceedings (other
than proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any of its Subsidiaries under the
Bankruptcy Law of any other jurisdiction;
any such petition or application is filed, or any such proceedings are
commenced, against the Company or any of its Subsidiaries and the Company
or such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect for more than 45
days;
any order, judgment or decree is entered in any proceedings against
the Company or any of its Subsidiaries decreeing the dissolution of the
Company and such Subsidiary and such order, judgment or decree remains
unstayed and in effect for more than 60 days;
any order, judgment or decree is entered in any proceedings against
the Company or any of its Subsidiaries decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of substantial assets of
the Company and its Subsidiaries, taken as a whole, and such order,
judgment or decree remains unstayed and in effect for more than 60 days;
a final judgment in an amount in excess of $250,000 is rendered
against the Company or any of its Subsidiaries and, within 90 days after
entry thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after expiration of any such stay, such
judgment is not discharged;
the Company, any Subsidiary or any ERISA Affiliate fails to meet its
obligations under the minimum funding standard provided for in Section 412
of the Code for any plan year or in the case of a single employer-plan a
waiver of such standard is sought or granted under Section 412(d) of the
Code, or any Pension Plan subject to Title IV of ERISA is, has been or is
likely to be terminated or the subject of termination proceedings under
ERISA, or the Company, any Subsidiary or an ERISA Affiliate has incurred or
is likely to incur a liability under Section 4062, 4063, 4064, 4201 or 4204
of ERISA, and there results from any such event or events a liability or a
material risk of incurring a liability to the PBGC, any Multiemployer
Pension Plan or any Pension Plan which, if incurred, would have a Material
Adverse Effect, or the Company or any of its Subsidiaries has engaged in a
prohibited transaction that would result in a liability, penalty or tax
under ERISA or Section 4975 of the Code, as the case may be, which would
have a Material Adverse Effect; or
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the release of a Hazardous Substance at any real property owned or
leased by the Company or any of its Subsidiaries, and which is not abated,
mitigated, contained or remediated as required by any Environmental Law,
except for any such release which would not have a Material Adverse Effect;
then (a) upon the occurrence of any Event of Default described in the
foregoing clause (vii), solely as such clause relates to a breach of clause
(i), (ii) or (iii) or the Officer's Certificate delivery requirements of
paragraph 6A, or clauses (viii), (ix), (x), (xi) or (xii), the unpaid
principal amount of and accrued interest on the Senior Subordinated Notes
outstanding shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Company, and (b) upon the
occurrence and during the continuation of any other Event of Default, the
holders of a majority of the aggregate unpaid principal amount of the
Senior Subordinated Notes may, at their option and in addition to any
right, power or remedy permitted by law or equity, by notice in writing to
the Company, declare all of the Senior Subordinated Notes to be, and all of
the Senior Subordinated Notes shall thereupon be and become, forthwith due
and payable together with interest accrued thereon.
At any time after any declaration of acceleration is made as provided
above, the holders of at least a majority of the aggregate unpaid principal
amount of the Senior Subordinated Notes may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, PROVIDED, HOWEVER, that at the time any such declaration is
annulled and rescinded:
no judgment or decree shall have been entered for the payment of
any monies due pursuant to the Senior Subordinated Notes and the other
Related Documents;
all arrears of interest upon all the Senior Subordinated Notes
and all other sums payable under the Senior Subordinated Notes and the
other Related Documents (except any principal, interest or premium on
the Senior Subordinated Notes which has become due and payable solely
by reason of such declaration under this paragraph 9A) shall have been
duly paid or waived;
the Company shall not have paid any amounts which have become due
solely by reason of such declaration; and
each and every other Event of Default shall have been waived or
otherwise made good or cured;
and PROVIDED, FURTHER, that no such rescission and annulment
shall extend to or after any subsequent Default or Event of Default or
impair any right consequent thereon.
9B. OTHER REMEDIES. If any Event of Default shall occur and be continuing,
the holder of any Security may proceed to protect and enforce its rights
under this Agreement and such Security by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement
or in aid of the exercise of any power granted in this Agreement. No remedy
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conferred in this Agreement upon the Investors or any other holder of any
Security is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Investor that: corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and is
duly qualified to do business as a foreign corporation and in good standing in
each jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect. The Company has the corporate
power to own its properties and to carry on its business as now being conducted.
The Company has all requisite corporate power and authority to enter into each
of the Related Documents, to issue and sell the Securities hereunder, and to
issue the shares of Common Stock upon conversion of the Convertible Preferred
Stock, and has the requisite corporate power and authority to carry out the
transactions contemplated hereby and thereby to be performed by it, and the
execution, delivery and performance hereof and thereof have been duly authorized
by all necessary corporate action. This Agreement constitutes, and each other
agreement (including the Related Documents) or instrument (including the
Securities) executed and delivered by the Company pursuant hereto or thereto or
in connection herewith or therewith will constitute, legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws or by
the application of principles of equity.
10A. FINANCIAL STATEMENTS. The Company has furnished the Investors with (a)
the audited consolidated balance sheet of Datalinc as of (i) December 31,
1995 and (ii) December 31, 1996, together with the related statements of
operations, changes in partners' equity and cash flow of Datalinc for such
periods, (b) the audited balance sheet of Fastcom as of (i) December 31,
1995 and (ii) December 31, 1996, together with the related statements of
operations, changes in partners' equity and cash flow of Fastcom for such
periods, (c) the audited balance sheet of the Company, together with the
related statements of operations and accumulated deficit and cash flow for
such periods and (d) the unaudited balance sheet of the Company and its
Subsidiaries as of September 30, 1997, together with the related unaudited
statements of income, changes in stockholders' equity and cash flow of the
Company and its Subsidiaries for such period. Such financial statements
(including any related schedules and notes) have been prepared in
accordance with GAAP consistently applied throughout the period or periods
in question and show all material liabilities, direct or contingent,
required to be shown in accordance with GAAP consistently applied
throughout the period or periods in question and fairly present, in all
material respects, the financial condition of the Company for the periods
indicated therein, except for normal audit adjustments in the case of
interim financial statements. There has been no material adverse change in
the business, condition (financial or other), assets, properties, rights,
operations or prospects of the Business since December 31, 1996.
10B. CAPITAL STOCK AND RELATED MATTERS. As of the Closing Date, and after
giving effect to the transactions contemplated hereby and pursuant to the
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Related Documents, (i) the authorized capital stock of the Company will
consist of a total of 125,000,000 shares as follows: (a) 100,000,000 shares
of Common Stock, no par value per share, of which [_________] shares are
issued and outstanding and [6,952,600] shares of which are reserved for
issuance upon conversion of the Mandatory Convertible Preferred Stock,
Series A-P; (b) [16] shares of Mandatory Convertible Preferred Stock, one
(1) share to each series of Mandatory Convertible Preferred Stock, Series
A-P; (c) [_________] shares of Convertible Preferred Stock, par value $.001
per share, of which [1,600,000] shares are issued and outstanding; and (d)
[___________] shares of Series A Senior Convertible Preferred Stock, par
value $3.80 per share, of which [1,447,400] are issued and outstanding;
(ii) all issued and outstanding shares shall have been duly and validly
issued, fully paid and non-assessable; (iii) no shares of capital stock of
the Company will be owned or held by or for the account of the Company;
(iv) except as set forth on Schedule 10C, the Company will not have
outstanding any securities convertible into or exchangeable for any shares
of capital stock or any rights (either preemptive or other) to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any other character relating to the issuance of,
any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock; (v) except as set forth on Schedule
10C, the Company will not be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or warrants or options to purchase shares of its capital
stock; (vi) the Company is not a party to any agreement (other than this
Agreement, the Securityholders Agreement and the Blue Chip Agreement)
restricting the transfer of any shares of its capital stock; and (vii) the
Company will not have filed or be required to file, pursuant to Section 12
of the Exchange Act, a registration statement relating to any class of debt
or equity securities as of the date hereof.
10D. ACTIONS PENDING. Except as set forth on Schedule 10D, there is no
action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of its properties or
rights, by or before any court, arbitrator or administrative or
governmental body, which if adversely decided, could have a Material
Adverse Effect.
10E. OUTSTANDING DEBT; DEFAULTS. Except as set forth on Schedule 10E, the
Company (i) has no outstanding Indebtedness, except as permitted by
paragraph 7B, and there exist no material defaults under the provisions of
any instrument evidencing such Indebtedness or of any agreement relating
thereto, (ii) is not in default under its Articles of Incorporation (as
amended to date) or By-laws, (iii) is not in viola ion of or in default
under or with respect to any indenture, mortgage, lease or any other
contract or agreement to which it is a party or by which it or any of its
property is bound or affected in any respect which could have a Material
Adverse Effect, (iv) has no material debts, liabilities, obligations
(whether absolute, accrued, contingent or otherwise) of any nature
whatsoever other than (A) liabilities appearing on the financial
statements, (B) liabilities incurred in the ordinary course of business
since [December 31, 1996], (C) liabilities under contracts to which the
Company is a party and which are listed on Schedule 10E hereto or which
have an obligation thereunder of less than $10,000 and which were entered
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into in the ordinary course of business or (D) liabilities described on the
other schedules hereto or (v) is not in material default with respect to
any order, writ, injunction or decree of any court or any Federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality, and there exists no condition,
event or act which constitutes, or which after notice, lapse of time, or
both, would constitute, such a violation or default under any of the
foregoing.
10F. TITLE TO PROPERTIES. The Company does not own or lease any real
property.
10G. TAXES. The Company has filed all Federal, state and other income tax
returns which are required to be filed, and has paid all taxes as shown on
said returns and on all assessments received by it to the extent that such
taxes have become due, or except such as any of the foregoing are being
contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP; and no tax lien has
been filed and no claim is being asserted with respect to any tax or other
similar charge.
10H. CONFLICTING AGREEMENTS. Neither the execution or delivery of the
Related Documents, nor the offering, issuance and sale of the Securities or
the shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock, nor fulfillment of or compliance with the terms and
provisions hereof and thereof, will conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon any
of the properties or assets of the Company or any of its Subsidiaries
pursuant to (i) the Articles of Incorporation or By-laws of the Company, or
(ii) any award of any arbitrator or any agreement (including any agreement
with stockholders), instrument, order, judgment, decree, statute, law, rule
or regulation to which the Company or any of its Subsidiaries is subject.
The Company is not a party to, or otherwise subject to any provision
contained in, any instrument evidencing Indebtedness of the Company or any
of its Subsidiaries, any agreement relating thereto or any other contract
or agreement (including its Articles of Incorporation and By-laws) which
limits the amount of, or otherwise imposes restrictions on the incurring
of, Indebtedness of the type to be evidenced by the Senior Subordinated
Notes, or contains dividend or redemption limitations on any capital stock
of the Company or any of its Subsidiaries, except for the Related Documents
and the Blue Chip Agreement.
10I. OFFERING OF SECURITIES. The offer, sale and issuance of the Securities
pursuant to this Agreement and the issuance of the Common Stock upon
conversion of the Convertible Preferred Stock, do not require registration
of such securities under the Securities Act or registration or
qualification under any applicable state "blue sky" or securities laws (or
if so required, has been so registered or qualified). The Company has not
taken any action which would subject the issuance or sale of any of the
Securities or the Common Stock to the provisions of Section 5 of the
Securities Act or violate the provisions of any securities or Blue Sky law
of any applicable jurisdiction.
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10J. BROKER'S OR FINDER'S COMMISSIONS. Except as set forth on Schedule 10J
[NEED TO REFLECT FEE OF JEFFREY BRAUSCH], no broker's or finder's fee or
commission will be payable by the Company with respect to the issuance and
sale of the Securities or the transactions contemplated hereby or under the
Related Documents.
10K. REGULATION G, ETC. The Company does not own or have any present
intention of acquiring, any "margin stock" as defined in Regulation G (12
CFR Part 207) of the Board of Governors of the Federal Reserve System
(herein called a "MARGIN STOCK"). None of the proceeds resulting from the
sale of the Securities will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of
Regulation G. Neither the Company nor any of its Subsidiaries nor any agent
acting on its behalf has taken or will take any action which might cause
this Agreement or the Securities to violate Regulation G, Regulation T,
Regulation X or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Exchange Act, in each case as in
effect now or as the same may hereafter be in effect.
10L. ENVIRONMENTAL MATTERS. Except as set forth on Schedule 10L, to the
best of the Company's knowledge after due inquiry, (i) the Company has
obtained and is in compliance with all licenses, permits and other
authorizations required under all Environmental Laws, with the exceptions
of instances that will not in the aggregate result in any Material Adverse
Effect.
The Company has not received written notice of any failure to comply
with, nor has any such notice been issued that has not been fully satisfied
so as to bring the subject property into full compliance with, all
Environmental Laws.
All licenses, permits or registrations (or any extensions thereof)
required under any Environmental Law for the business of the Company or any
of its Subsidiaries have been obtained and the Company and its
Subsidiaries, as the case may be, will be in compliance therewith, except
in such instances as will not in the aggregate result in a Material Adverse
Effect.
The Company is not in noncompliance with, breach of or default under
any applicable writ, order, judgment, injunction or decree where such
noncompliance, breach or default would materially and adversely affect the
ability of the Company or any of its Subsidiaries to operate any real
property owned or leased by them and no event has occurred and is
continuing that, with the passage of time or the giving of notice or both,
would constitute such noncompliance, breach or default thereunder.
No Hazardous Substance has been Released (as such term is defined in
CERCLA) (and no oral or written notification of such Release has been
filed) (whether or not in a reportable or threshold planning quantity) at,
on or under any property owned or leased by the Company, or to be acquired
or leased by the Company or any of its Subsidiaries, during the period of
the Company's or any of its Subsidiaries' ownership or lease of such
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property, or at any time previous to such ownership or lease, under
conditions that require remedial action under applicable Environmental
Laws, no property now or previously owned or leased by the Company or any
of its Subsidiaries has, directly or indirectly, transported or arranged
for the transportation of any Hazardous Substances to any site at which a
Hazardous Substance has been released, or which is listed, or proposed for
listing, on the National Priorities List promulgated pursuant to CERCLA, on
CERCLIS (as defined in CERCLA) or on any similar Federal, state or foreign
list of sites requiring investigation or cleanup. The Company is not aware
of any event, condition or circumstance involving environmental pollution
or contamination, or employee safety or health relating to the use or
handling of, or exposure to, Hazardous Substances, that could result in a
Material Adverse Effect.
10M. ERISA. Neither the Company nor any ERISA Affiliate maintains or has an
obligation to contribute to any Pension Plan or any Multiemployer Pension
Plan. Neither the Company nor any ERISA Affiliate has incurred any
liability to the PBGC (other than annual premiums due to the PBGC), a
Pension Plan under Title IV of ERISA or a Multiemployer Pension Plan under
Title IV of ERISA. The execution and delivery by the Company of this
Agreement and the purchase and delivery of the Securities will not involve
any prohibited transaction within the meaning of ERISA or Section 4975 of
the Code. The Company has no Pension Plans or other employee benefit plan
covered by ERISA.
10N. POSSESSION OF FRANCHISES, LICENSES, ETC. The Company possesses all
franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities, that are
necessary for the ownership, maintenance and operation of its properties
and assets, except where the failure to be in such compliance would not
have a Material Adverse Effect, and the Company is not in violation of any
thereof in any material respect.
10O. PATENTS, E C. The Company owns or has the right to use all patents,
trademarks, service marks, trade names, copyrights, industrial designs,
licenses and other rights, free from non-customary burdensome restrictions,
which are necessary for the operation of its business substantially as
presently conducted. To the Company's knowledge, no product, process,
method, substance, part or other material presently sold by or employed by
the Company in connection with its business infringes any patent,
trademark, service mark, trade name, copyright, industrial design, license
or other right owned by any other Person. No claim or litigation is pending
or, to the Company's knowledge, threatened against or affecting the Company
or any of its Subsidiaries contesting their right to sell or use any such
product, process, method, substance, part or other material which would
prevent, inhibit or render obsolete the production or sale of any products
of, or substantially reduce the projected revenues of, the Company or any
of its Subsidiaries, or otherwise have a Material Adverse Effect.
10P. HOLDING COMPANY AND INVESTMENT COMPANY STATUS. The Company is not a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", or a "public utility", within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or a "public utility"
within the meaning of the Federal Power Act, as amended. The Company is not
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an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
10Q. GOVERNMENTAL CONSENTS. Neither the nature of the Company nor any of
its businesses or properties, nor any relationship between the Company and
any other Person, nor any circumstance in connection with the offer, issue,
sale or delivery of the Securities being purchased by the Investors
hereunder is such as to require on behalf of the Company or any of its
Subsidiaries any consent, approval or other action by or any notice to or
filing with any court or administrative or governmental body in connection
with the execution, delivery and performance of this Agreement, the other
Related Documents, the offer, issue, sale or delivery of the Securities
being purchased hereunder, the issuance of the shares of Common Stock upon
conversion of the Convertible Preferred Stock or fulfillment of or
compliance with the terms and provisions hereof or the Securities being
purchased hereunder, except for such filings or consents all of which have
been heretofore made or obtained.
10R. INSURANCE COVERAGE. The business and properties of the Company are
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by Persons
operating businesses similar to those of the Company in the localities
where such properties are located.
10S. SUBSIDIARIES. The Company has no Subsidiaries.
10T. DISCLOSURE. This Agreement and the other Related Documents, and the
other documents, certificates and written statements furnished to the
Investors by the Company or on behalf of the Company by its officers or
directors in connection herewith or therewith do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading
10U. RELATED PARTY TRANSACTIONS. Except as described on Schedule 10U, no
current or former stockholder, director, officer of the Company, nor any
"Associate" (as defined in Rule 405 promulgated under the Securities Act)
of any such Person, is presently, directly or indirectly through his
affiliation with any other Person, a party to any transaction with the
Company and any Subsidiary providing for the furnishing of services by or
to, or rental of real or personal property from or to, or otherwise
requiring cash payments to or by any such Person. Except as described on
Schedule 10U, in addition, there is no current relationship or transaction,
or presently contemplated relationship or transaction, involving the
Company and any Subsidiary which is described in Item 404 of Regulation S-K
promulgated under the Securities Act (but for purposes of this
representation not limited by any dollar amount).
10V. Registration Rights. Except as contemplated by the Registration Rights
Agreement and the Blue Chip Agreement, no Person has the right to cause the
Company or any of its Subsidiaries to effect the registration under the
Securities Act of any shares of Common Stock or any other securities
(including debt securities) of the Company or any of its Subsidiaries.
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10W. ABSENCE OF FOREIGN OR ENEMY STATUS. The Company is not (i) a
"national" of a foreign country designated in Executive Order No. 8389, as
amended, or of any "designated enemy country" as defined in Executive Order
No. 9193, as amended, of the President of the United States of America
within the meaning of said Executive Orders, as amended, or of any
regulation issued thereunder, or a "national" of any "designated foreign
country" within the meaning of the Foreign Assets Control regulations, 31
CFR, Part 500, as amended, or of the Cuban Assets Control Regulations, 31
CFR, Part 515, as amended, of the United States Treasury Department, or
(ii) an "Iranian entity" or a "person subject to the jurisdiction of the
United States" in which an "Iranian entity" has any "interest" within the
meaning of the Iranian Assets Control Regulations, 31 CFR, Part 535, as
amended.
10X. AGREEMENTS WITH AFFILIATES. The Company is not a party to any contract
or agreement with, or any other commitment to, an Affiliate of the Company.
10Y. CONVERTIBLE PREFERRED STOCK AND EQUITY OF THE COMPANY. As of the
Closing Date, upon conversion of the Convertible Preferred Stock held by
the Investors, the shares of Common Stock obtained through such exercise
would represent in the aggregate sixteen percent (16%) of the Fully Diluted
Outstanding Shares of the Company's Common Stock (such percentage, the
"INITIAL EQUITY PERCENTAGE").
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor represents
and warrants that it is acquiring the Securities to be purchased by it hereunder
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof in violation of the Securities
Act; PROVIDED, HOWEVER, that nothing herein contained shall prevent the
Investors from selling or transferring any Securities in any transaction that,
in the opinion of their special counsel, is exempt from the registration
provisions of the Securities Act and applicable state securities laws; PROVIDED,
FURTHER, that the Company shall be an addressee of such opinion. The fees and
expenses of counsel in connection with any transfer opinion shall be borne by
the Company. In addition, each Investor represents and warrants that it has full
power and authority to enter into and perform its obligations under this
Agreement and that this Agreement has been duly authorized, executed and
delivered by a Person authorized to do so. Each Investor represents and warrants
that this Agreement constitutes its valid and binding obligation, enforceable
against it in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws or by the application of principles of equity. In addition, each
Investor represents and warrants that it is an "accredited investor" as defined
in Rule 501 of the General Rules and Regulations under the Securities Act.
12. DEFINITIONS. For the purpose of this Agreement, and in addition to terms
defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"AFFILIATE" shall mean with respect to any Person, a Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
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direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by
contract or otherwise. The Investors shall not be deemed to be an Affiliate
of the Company or any of its Subsidiaries.
"BANKRUPTCY LAW" shall mean any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect.
"BLUE CHIP AGREEMENT" shall mean that Agreement, dated as of December ___,
1997, by and among the Company, Blue Chip/Datalinc Corporation, a Delaware
corporation, Integrated Communication Networks, Inc., a Florida corporation
Datalinc, John F. Kolenda and Mark J. Gianinni.
"BUSINESS" shall mean the business and operations of the Company and its
Subsidiaries, and their predecessors, including, without limitation, [(i)
providing communication services and (ii) developing equipment and software
for use in communications networks.]
"BUSINESS DAY" shall mean any day which is not a Saturday, Sunday or day on
which banks are authorized by law to close in the State of New York.
"CAPITAL LEASE" shall mean any lease of any Property (whether real,
personal, or mixed) that, in conformity with GAAP, is accounted for as a
capital lease on the balance sheet of the lessee.
"CAPITALIZED LEASE OBLIGATIONS" of any Person means all obligations of such
Person, as lessee, under leases which should, in accordance with GAAP, be
recorded as Capital Leases.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 ET SEQ.), and
any regulations promulgated thereunder.
"CERTIFICATE OF DESIGNATION" shall have the meaning set forth in paragraph
1B.
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"CHANGE OF CONTROL" shall mean at any time,
(a) the acquisition or holding by
(i) any person (as such term is used in section 13(d) and section
14(d)(2) of the Exchange Act as in effect on the Closing Date)
other than the Investors, or
(ii) related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the Closing
Date) other than Investors constituting such a group, of legal
and/or beneficial ownership of more than 30% of the Common Stock
of the Company outstanding at such time (excluding for such
purpose persons who own shares through any employee benefit plan
of the Company in connection therewith);
(b) all or substantially all of the assets of the Company are sold or
otherwise transferred, in a single transaction or in a series of
related transactions, to any other Person;
(c) any merger, consolidation or other similar transaction of, or in
respect of, the Company which results in the failure by the owners of
Common Stock on the losing Date to, directly or indirectly in the
aggregate, maintain beneficial ownership and voting control of at
least fifty percent (50%) of the outstanding Common Stock of the
surviving entity in such merger, consolidation or similar transaction;
or
(d) any liquidation or dissolution of the Company, or action taken by
the Board of Directors of the Company to authorize any such
liquidation or dissolution.
Any transaction permitted under the provisions of paragraph 7H hereof
shall not constitute a "Change of Control."
"CHANGE OF CONTROL EVENT" shall mean the earlier of the occurrence of a
Change of Control or the Company acquiring knowledge of a pending Change of
Control.
"CHANGE OF CONTROL PUT RIGHT" shall have the meaning set forth in paragraph
5A.
"CLOSING" shall have the meaning set forth in paragraph 2B.
"CLOSING DATE" shall have the meaning set forth in paragraph 2B.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the United States Securities and Exchange
Commmission.
"COMMON STOCK" shall mean the shares of Common Stock, no par value per
share, of the Company.
"COMPANY" shall have the meaning specified in the preamble.
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"CONVERTIBLE PREFERRED STOCK" shall have the meaning specified in paragraph
1B.
"DATALINC" shall mean Datalinc, Ltd., a Florida limited partnership.
"DEFAULT" SHALL MEAN ANY OF THE EVENTS SPECIFIED IN SECTION 9 HEREOF,
WHETHER OR NOT ANY REQUIREMENT FOR THE GIVING OF NOTICE, THE LAPSE OF TIME,
OR BOTH, OR ANY OF THESE CONDITIONS, EVENT OR ACT HAS BEEN SATISFIED.
"DEFAULT NOTICE" shall have the meaning specified in paragraph 8B(1)(b).
"ENVIRONMENTAL LAWS" shall have the meaning specified in paragraph 6Q
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary would be
deemed to be a "single employer" within the meaning of Section 4001 of
ERISA.
"EVENT OF DEFAULT" shall mean any of the events specified in Section 9,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended.
"EXCHANGE ACT REGISTRATION STATEMENT" shall have the meaning specified in
paragraph 6L.
"FAIR MARKET VALUE" shall have the meaning specified in paragraph 5D.
"FASTCOM" shall mean Fastcom, Ltd., a Florida limited partnership.
"FINANCING AGREEMENTS" shall mean all agreements, instruments and
documents, including, without limitation, any agreement evidencing Senior
Debt and all security agreements, loan agreements, promissory notes, letter
of credit applications, guarantees, mortgages, deeds of trust,
subordination agreements, pledges, powers of attorney, consents,
assignments, contracts, notices, leases, financing statements,
intercreditor agreements, and all other written matter whether heretofore,
now, or hereafter executed by or on behalf of the Company or its
Subsidiaries and delivered to any bank and between the Company and any
bank, together referred to therein or contemplated thereby.
"FULLY DILUTED OUTSTANDING SHARES" shall mean, when used with reference to
Common Stock on any date of determination, all shares of Common stock or
any other capital stock of the Company Outstanding at such date and all
shares of Common Stock or any other capital stock of the Company issuable
in respect of the Convertible Preferred Stock issued pursuant to this
Agreement and any other outstanding warrants, options or convertible
securities.
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"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and 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 may be in general use by
significant segments of the accounting profession, which are applicable to
the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" shall mean any governmental agency, authority,
instrumentality or regulatory body, other than a court or other tribunal,
in each case whether federal, state, local or foreign.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive
or requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety
and health standards or controls, of any Governmental Authority.
"GUARANTY" shall mean, with respect to any Person, any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing
any Indebtedness of another Person, including, without limitation, by means
of an agreement to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to maintain financial
covenants, or to assure the payment of such Indebtedness by an agreement to
make payments in respect of goods or services regardless of whether
delivered or otherwise, PROVIDED THAT the term "Guaranty" shall not include
endorsements for deposit or collection in the ordinary course of business;
and such term when used as a verb shall have a correlative meaning.
"HAZARDOUS SUBSTANCES" shall have the meaning specified in paragraph 6Q.
"INDEBTEDNESS" shall mean (without duplication), for any person, (a)
indebtedness of such Person for borrowed money or arising out of any
extension of credit to or for the account of such Person (including,
without limitation, extensions of credit in the form of reimbursement or
payment obligations of such Person relating to letters of credit issued for
the account of such Person) or for the deferred purchase price of property
or services, except indebtedness which is owing to trade creditors in the
ordinary course of business and which is due within ninety (90) days after
the original invoice date; (b) indebtedness of the kind described in clause
(a) of this definition which is secured by (or for which the holder of such
Indebtedness has any existing right, contingent or otherwise, to be secured
by) any Lien upon or in Property (including, without limitation, accounts
and contract rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness or
obligations; (c) Capitalized Lease Obligations of such Person; (d)
obligations under direct or indirect Guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred in clauses (a) through (c)
above, including without limitation, (i) any endorsement not for collection
in the ordinary course of business or discount with recourse or undertaking
substantially equivalent to or having economic effect similar to a guaranty
in respect of any such Indebtedness; (ii) any agreement (1) to purchase, or
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to advance or supply funds for the payment or purchase of, any such
Indebtedness, (2) to purchase, sell, or lease property, products,
materials, supplies, transportation, or services, in order to enable such
Person to pay any such Indebtedness or to assure the owner thereof against
loss regardless of the delivery or nondelivery of the property, products,
materials, supplies, transportation, or services or (3) to make any loan,
advance, or capital contribution to, or other investment in, or to
otherwise provide funds to or for, such other Person in order to enable
such Person to satisfy any obligation (including any liability for a
dividend, stock liquidation payment or expense) or to assure a minimum
equity, working capital, or other balance sheet condition in respect of any
such obligation; and (iii) obligations under surety, appeal, or custom
bonds; (e) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA; and (f) debt obligations incurred in
connection with the mandatory redemption of securities pursuant to their
terms.
"INDEMNITEE" shall have the meaning specified in paragraph 6Q.
"INITIAL EQUITY PERCENTAGE" shall have the meaning specified in paragraph
10Y.
"INTANGIBLE ASSETS" shall mean goodwill, business records, inventions,
designs, patents, patent applications, trademarks, trade names, trade
secrets, registrations, copyrights, licenses, franchises, customer lists,
co-op memberships, guarantee claims, organization costs, loan costs, tax
refunds, tax refund claims, customs claims, brand , leasehold interests and
easements and contract rights and similar intangible assets which have no
material realizable value.
"INTEREST EXPENSE" shall mean, for any period, total interest expense,
whether paid or accrued (including the interest component of Capital
Leases), of the Company and its Subsidiaries for such period, all as
determined in conformity with GAAP.
"INTEREST NOTES" shall have the meaning specified in paragraph 1A.
"INVESTMENT" shall mean any stock, partnership or joint venture interest or
other security, any loan, Guaranty, advance, contribution to capital, any
acquisitions of real or personal property (other than real and personal
property acquired in the ordinary course of business), and any purchase or
commitment or option to purchase stock or other securities of or any
interest in another Person or any integral part of any business or the
assets comprising such business or part thereof whether existing on the
date of this Agreement or hereafter made.
"INVESTOR PARTIES" shall have the meaning set forth in paragraph 6M.
"INVESTORS" shall have the meaning set forth in the preamble.
"LIABILITIES" shall mean any and all liabilities, obligations and
indebtedness of the Company to any bank of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired or owned, whether primary,
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secondary, direct, contingent, fixed or otherwise (including obligations of
performance) and whether arising or existing under any bank debt agreement
or any of the other Financing Agreements, or by operation of law.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind, including, without limitation, any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any ease in the nature thereof and the filing of or agreement to
file any financing statement under the Uniform Commercial Code of any
jurisdiction.
"MARGIN STOCK" shall have the meaning set forth in paragraph 10K.
"MARKET PRICE" shall have the meaning set forth in paragraph 5E.
"MATERIAL ADVERSE EFFECT" shall mean (i) a material adverse effect on the
business, condition (financial or other), assets, properties, rights or
operations of the Company and its Subsidiaries taken as a whole or (ii) any
effect which could materially adversely affect the ability of the Company
or its Subsidiaries to perform their respective obligations under any of
the Related Documents.
"MULTIEMPLOYER PENSION PLAN" shall mean any multiemployer plan, as defined
in Section 4001 of ERISA and subject to Title IV of ERISA, which the
Company, any Subsidiary or any ERISA Affiliate has an obligation to make
contributions (or has had an obligation to make contributions during the
five calendar years preceding the Closing) for the employees of the
Company, any of its Subsidiaries, or any ERISA Affiliates.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations system.
"NET WORTH" shall mean all amounts (without duplication) which, in
accordance with GAAP, are included under shareholders equity on an audited
consolidated balance sheet of the Company and its Subsidiaries.
"NOTE PUT RIGHT" shall have the meaning set forth in paragraph 4J.
"OFFICER'S CERTIFICATE" of a Person shall mean a certificate of the
President, one of the Vice Presidents or the Treasurer or Controller of
such Person.
"OUTSTANDING" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"PENSION PLAN" shall mean any single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, which is maintained or
contributed to (or previously maintained or contributed to during the five
calendar years preceding the Closing) for employees of the Company, any of
its Subsidiaries or any ERISA Affiliates.
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"PERMITTED INVESTMENTS" shall mean (i) direct obligations of the United
States, or obligations guaranteed as to principal and interest by the
United States government, (ii) bankers' acceptances and certificates of
deposit issued by any bank or any other bank or trust company or, in the
case of any subsidiary bank of a bank holding company, bank holding
company, having capital, surplus and undivided profits of at least
$500,000,000, the short-term deposits of which are given an A1 or P1 rating
by Standard & Poor's Rating Group or Moody's Investors Service, Inc., as
applicable, (iii) obligations of any bank or trust company or bank holding
company described in clause (ii) above, in respect of the repurchase of
obligations of the type described in clause (i) hereof, provided that such
repurchase obligations shall be fully secured by obligations of the type
described in said clause (i) and the possession of such obligations shall
be transferred to, and segregated from other obligations owned by, and any
such bank's trust company or bank holding company, (iv) commercial paper
given a rating of A1 or P1 by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., as applicable and (v) money market funds organized
under the laws of the United States or any state thereof that invest
substantially all of their assets in any of the types of investments
described in clauses (i), (ii), (iii) or (iv); PROVIDED, HOWEVER, that no
such investment shall have a maturity longer than 270 days from the date of
acquisition by the Company or any Subsidiary.
"PERSON" shall mean and include an individual, partnership, corporation
(including a business trust), a limited liability company, joint stock
company, trust, unincorporated association, joint venture, or other entity,
or a government, or any political subdivision or agency of any of the
foregoing.
"PIK DATE" shall have the meaning specified in paragraph 1A.
"PRO RATA SHARE" shall have the meaning specified in paragraph 6T(a).
"PROPERTY" shall mean any interest or right in any kind of property or
asset, whether real, personal or mixed, owned or leased, tangible or
intangible, and whether now held or hereafter acquired.
"PUBLIC OFFERING" shall mean the closing of a public offering of securities
pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering
made in connection with a business acquisition or an employee benefit plan.
"PUBLIC OFFERING PUT RIGHT" shall have the meaning set forth in paragraph
5B.
"PURCHASE MONEY DEBT" shall mean debt of the company and any Subsidiary
incurred to finance an acquisition of assets which is secured by a Purchase
Money Security Interest.
"PURCHASE MONEY SECURITY INTEREST" shall mean a purchase money security
interest within the meaning of Section 9-107 of the New York Uniform
Commercial Code, as in effect on the date hereof.
"PUT NOTICE" shall have the meaning specified in paragraph 5C.
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"PUT OPTION" closing shall have the meaning specified in paragraph 5C.
"PUT RIGHT" shall have the meaning specified in paragraph 5A.
"QUALIFYING PUBLIC OFFERING" shall mean the sale by one or more Persons in
an underwritten offering registered under the Securities Act of any equity
securities of the Company (or its successor) which results in aggregate
gross proceeds from such sales (before underwriters' discounts and selling
commissions) to the Company greater than or equal to $15,000,000.
"QUICK RATIO" shall mean, with respect to the Company and its Subsidiaries
on a consolidated basis, (a) the sum of (i) cash, (ii) marketable
securities and (iii) accounts receivable, divided by (b) current
liabilities, each as determined in accordance with GAAP.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement between the Company and the Investors in the form of Exhibit D
attached hereto.
"RELATED DOCUMENTS" shall mean this Agreement, the Senior Subordinated
Notes, the Securityholders Agreement, the Registration Rights Agreement and
the Certificate of Designation.
"RELEASED" shall have the meaning set forth in paragraph 10L.
"REORGANIZATION AGREEMENT" shall mean the Agreement and Plan of
Reorganization, dated as of August 26, 1997, by and among Datalinc, Fastcom
and the Company.
"REPAYMENT DATE" shall have the meaning set forth in paragraph 4C.
"REPORTABLE EVENT" shall mean an event described in Section 4043(c) of
ERISA with respect to which the 30-day notice requirement has not been
waived by the PBGC.
"RESTRICTED PAYMENT" by any Person shall mean (i) any dividend or other
distribution on any shares of the capital stock (other than dividends or
distributions payable solely in shares of such capital stock) of such
Person, and (ii) any payment on account of the purchase, redemption,
retirement or acquisition of (a) any shares of the capital stock of such
Person or (b) any option, warrant, convertible or exchangeable security
(except the Convertible Preferred Stock) or other right to acquire shares
of the capital stock of such Person.
"SECURITIES" shall mean "securities" as defined in Section 2( ) of the
Securities Act and includes, with respect to any Person, such Person's
capital stock or other equity interests or any options, warrants or other
securities that are directly or indirectly convertible into, or exercisable
or exchangeable for, such Person's capital stock or other equity interests.
"SECURITIES" shall have the meaning set forth in paragraph 1B.
"SECURITIES ACT" shall mean the United States Securities Act of 933, as
amended.
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"SECURITYHOLDERS AGREEMENT" shall mean the Securityholders Agreement
between the Company, certain shareholders thereof and the Investors in the
form of Exhibit E hereto.
"SENIOR DEBT" shall mean all obligations (whether now outstanding or
hereafter incurred) for the payment of which the Company or any Subsidiary
thereof is responsible or liable as obligor, guarantor or otherwise in
respect of the principal, premium (if any), and unpaid interest on and all
other amounts due with respect to (i) debt under one or more bank
agreements and (ii) all renewals and extensions of any such bank
agreements; PROVIDED, HOWEVER, that the following shall not constitute
Senior Debt: (a) Indebtedness evidenced by the Senior Subordinated Notes or
any extension or refunding thereof, (b) Indebtedness which is expressly
made equal in right of payment with the Senior Subordinated Notes or
subordinate and subject in right of payment to the Senior Subordinated
Notes or (c) Indebtedness which purports to be senior to subordinated debt,
including the Senior Subordinated Notes, but subordinate to the
Indebtedness described in the first sentence hereof.
"SENIOR DEBT AGREEMENT" shall mean any agreement evidencing Senior Debt.
"SENIOR DEBT COVENANT DEFAULT" shall have the meaning set forth in
paragraph 8B(1)(b).
"SENIOR SUBORDINATED NOTES" shall have the meaning specified in paragraph
1A.
"SUBORDINATED DEBT" shall have the meaning specified in paragraph 8A.
"SUBSIDIARY" as to any Person shall mean a corporation or other entity of
which shares or similar stock having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation or
entity are at the time owned, directly or indirectly, through one or more
intermediaries, by such Person. Except as otherwise expressly indicated
herein, references to Subsidiaries shall mean any Subsidiaries of the
Company.
"TAX EXPENSE" shall mean, for any period, total federal and state income
taxes, before adjustment for extraordinary items, as shown in the financial
statements of the Company and its Subsidiaries for such period, all as
determined in conformity with GAAP.
"UCC" shall mean the Uniform Commercial Code as adopted in the State of New
York.
"WHOLLY OWNED" shall mean with respect to any designated Person that all of
the shares or similar stock having ordinary voting power to elect the board
of directors and Indebtedness in respect of borrowing of such Person is
owned by the specified Person or by one or more wholly owned subsidiaries
of such specified Person, or both.
13. MISCELLANEOUS.
13A. HOME OFFICE PAYMENT. The Company agrees that, so long as the Investors
shall hold any Senior Subordinated Note, it will make payments of principal
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of and interest on such Senior Subordinated Notes not later than 12:00
noon, New York time, on the date such payment is due, by transfer of
immediately available funds for credit to the Investors. Such payments
shall be made to the account of the Investors specified on the attachments
to the signature pages hereto or such other account in the United States as
the Investors may designate in writing, notwithstanding any contrary
provision contained herein or in the Senior Subordinated Notes or in the
Articles of Incorporation of the Company with respect to the place of
payment. Dividends on the shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock shall be paid to the holders thereof at
the registered address of such holders as shown on the records of the
Company. The Company agrees to afford the benefits of this paragraph 13A to
any Person which is the registered transferee of any Security, and which,
in the case of the transferee of any Senior Subordinated Note, has made the
same agreement relating to such Senior Subordinated Note as the Investors
have made in this paragraph 13A.
13B. INDEMNIFICATION. The Company agrees to pay, and save the Indemnitees
harmless against liability for the payment of, all reasonable out-of-pocket
expenses arising in connection with the transactions and other agreements
and instruments contemplated by this Agreement, including all taxes,
together in each case with interest and penalties, if any, and any income
tax payable by the Indemnitees in respect of any reimbursement of amounts
payable pursuant to this paragraph 13B (but not if such income tax is
payable by an Indemnitee solely because it has deducted from income the
expenses so reimbursed to it), which may be payable in respect of the
execution and delivery of this Agreement including reasonable fees,
expenses and disbursement of counsel incurred in connection with the
preparation and negotiation of this Agreement, any other agreement or
instrument to be executed and delivered in connection with this Agreement,
any subsequent modification hereof or thereof or consent hereunder or
thereunder (regardless of whether any such modifications or consent becomes
effective) or the execution, delivery or acquisition of Senior Subordinated
Note or capital stock issued under or pursuant to this Agreement, printing,
reproduction and similar costs, and the reasonable cost and expenses,
including reasonable attorneys' fees, incurred by any Indemnitee in
enforcing any of its rights hereunder or thereunder, including without
limitation reasonable costs and expenses incurred in any bankruptcy case
(including reasonable fees and expenses of the Indemnitee's counsel in
connection with such bankruptcy case). The fees of counsel to the Investors
incurred in connection with the preparation and negotiation of this
Agreement shall be paid as follows: (i) $[_________] was paid on October
___, 1997 and (ii) the balance of such fees of counsel to be paid (A) at
the Closing or (B) within 10 days of the submission by the Investors of an
appropriate accounting if the transactions hereby contemplated are not
consummated. The Company agrees to indemnify the Indemnitees and hold them
harmless from and against any and all liabilities, losses, damages, costs
and expenses of any kind (including, without limitation, the reasonable
fees and disbursements of the Indemnitees' counsel in connection with any
investigative, administrative or judicial proceeding, whether or not the
Indemnitees be designated a party thereto) which may be incurred by the
Indemnitees, relating to or arising out of this Agreement or the Securities
or any actual or proposed use of the proceeds of the sale of Securities
hereunder, provided that no Indemnitee shall have the right to be
indemnified hereunder for its own gross negligence or willful misconduct as
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finally determined by a court of competent jurisdiction. The obligations of
the Company under this paragraph 13B shall survive the transfer of any
Security or shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock and the payment of any Senior Subordinated
Note. The indemnification required by this paragraph 13B shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liabilities are incurred.
13C. CONSENT TO AMENDMENTS. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, or take action which by the express terms
of this Agreement requires the consent of the Investors, only if the
Company shall have obtained the prior written consent to such amendment,
action or omission to act after the Closing Date of the holders of a
majority of the aggregate unpaid principal amount of the Senior
Subordinated Notes and each holder of any Security at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 13C, whether or not such Security shall have been marked to
indicate such consent, but any Security issued thereafter shall contain a
reference or bear a notation referring to any such consent; PROVIDED,
HOWEVER, that notwithstanding anything in this paragraph 13C to the
contrary, without the prior written consent of the holder or holders of all
Senior Subordinated Notes at the time outstanding, no consent, amendment or
waiver to or under this Agreement shall extend or reduce the maturity of
any Senior Subordinated Note, or change the principal of, or the rate or
time of payment of interest or any premium payable with respect to any
Senior Subordinated Note, or affect the time, amount or allocation of any
required or optional prepayments, or reduce the proportion of the principal
amount of the Senior Subordinated Notes required with respect to any
consent, amendment or waiver, or affect the provisions of Section 8 or
amend the provisions of this paragraph 13C. The Company shall promptly send
copies of any amendment, waiver or consent (and any request for any such
amendment, waiver or consent) relating to this Agreement or the Securities
to each holder of the Securities and shall consult with such holders in
connection with each such amendment, consent and waiver. No course of
dealing between the Company or any Subsidiary and the holder of any
Security nor any delay in exercising any rights hereunder or under any
Security shall operate as a waiver of any rights of any holder of such
Security. As used herein and in the Securities, the term "this Agreement"
and references thereto shall mean this Agreement as it may, from time to
time, be amended or supplemented. Any amendments to this Agreement shall
also require the consent of the Company.
13D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF SENIOR SUBORDINATED
NOTES; LOST SENIOR SUBORDINATED NOTES. The Senior Subordinated Notes are
issuable as registered notes transferable by endorsement and delivery, each
without coupons in denominations of $1,000 and any larger integral multiple
of $1,000. The Company shall keep at its principal office a register in
which the Company shall provide for the registration of the Senior
Subordinated Notes. Upon surrender for registration of transfer of any
registered Senior Subordinated Note at such office, the Company shall, at
its expense, execute and deliver one or more replacing Senior Subordinated
Notes of like tenor and of a like aggregate principal amount which
replacing Senior Subordinated Notes shall be registered Senior Subordinated
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Notes. At the option of the holder of any Senior Subordinated Note such
Senior Subordinated Notes may be exchanged, for other Senior Subordinated
Notes of any authorized denominations, of a like tenor and of a like
aggregate principal amount, upon surrender of the Senior Subordinated Note
to be exchanged at the office of the Company. Whenever any Senior
Subordinated Notes are so surrendered for exchange, the Company shall
execute and deliver, at its expense, the Senior Subordinated Notes which
the holder thereof making the exchange is entitled to receive. Every Senior
Subordinated Note presented or surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Senior Subordinated Note, or
his attorney duly authorized in writing. Any Senior Subordinated Notes
issued in exchange for or upon transfer shall carry the rights to unpaid
interest and interest to accrue which were carried by the Senior
Subordinated Notes so exchanged or transferred, so that neither gain nor
loss of interest shall result from any such transfer or exchange. Upon
receipt of written notice from any Investor or other evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation
of any Senior Subordinated Note held by an Investor and, in the case of any
such loss, theft or destruction, upon receipt of its unsecured indemnity
agreement, or other indemnity reasonably satisfactory to the Company, or in
the case of any such mutilation upon surrender and cancellation of such
Senior Subordinated Note, the Company will make and deliver a replacement
Senior Subordinated Note of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Senior Subordinated Note.
13E. PROVISIONS APPLICABLE IF ANY OF THE SECURITIES ARE SOLD. The parties
acknowledge that, subject to compliance with applicable securities laws,
the Investors shall be free to transfer the Securities without restriction.
In the event that the Investors should sell or otherwise transfer any of
the Securities or any part thereof to any Person other than the Company, if
any Security shall have been transferred to another holder and such holder
shall have designated in writing the address to which communications with
respect to Security shall be mailed, all notices, certificates, requests,
statements and other documents required to be delivered to the Investors by
any provision hereof by reason of the holding of the transferred Security
shall also be delivered to such holder at such address.
13F. RESTRICTIVE LEGENDS. Each Senior Subordinated Note shall bear the
following (or substantially equivalent) legend on the face or reverse side
thereof:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
and the securities may not be sold, transferred or otherwise disposed of in
the absence of such registration or an exemption therefrom under said Act
and such laws and the respective rules and regulations thereunder."
In addition, the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock shall bear at the time of issuance a legend in
substantially the form set forth above and any legend required by the state
securities or "Blue Sky" laws of any state in which a registered holder
thereof is resident, unless such shares have been registered under the
Securities Act.
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13G. PERSONS DEEMED OWNERS. Prior to due presentment for registration of
transfer, in compliance with the terms of this Agreement, the Company may
treat the Person in whose name any Security is registered as the owner and
holder of such Security for the purpose of receiving payment of principal
of (and premium, if any) and interest on such Security and for all other
purposes whatsoever, whether or not such Security shall be overdue, and the
Company shall not be affected by notice to the contrary.
13H. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by or on behalf of any party
to this Agreement in connection herewith shall survive the execution and
delivery of this Agreement, regardless of any investigation made by the
Investors or on their behalf.
13I. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, all
covenants and agreements in this Agreement contained by or on behalf of the
parties hereto shall bind and inure to the benefit of the respective
successors transferees and assigns of the parties hereto whether so
expressed or not and for greater certainty, a purchaser of Convertible
Preferred Stock from any holder of Convertible Preferred Stock will be
entitled to the benefits of this Agreement and the Company shall be deemed
to have received express notice in writing of any such assignment by a
request for registration of the Convertible Preferred Stock in the name of
a subsequent purchaser.
13J. NOTICES. All communications provided for hereunder shall be sent by
first class mail, overnight courier or by fax with hard copy by first class
mail or overnight courier and, if to the Investors, addressed to the
Investors in the manner (except as otherwise provided in paragraph 13A with
respect to payments of principal of (and premium, if any) and interest on
the Senior Subordinated Notes) in which its address appears on the
signature page hereof, with a copy to William J. Grant, Esq., at Willkie
Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New
York 10022-4677, telecopy number (212) 821-8111, if to the Company,
addressed to it at 1641 Commerce Avenue, North, St. Petersburg, Florida
33716 Attention: President, or to such other address with respect to any
party as such party shall notify the other in writing, and (unless
otherwise specified herein) shall be deemed received 24 hours after it is
sent if sent via facsimile (with receipt confirmed) or overnight courier;
PROVIDED, HOWEVER, that any such communication to the Company may also, at
the option of the Investors, be either delivered to the Company at its
address set forth above or to any executive officer of the Company, as
applicable .
13K. DESCRIPTIVE HEADINGS. The descriptive headings of the several Sections
and paragraphs of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
13L. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS BEING
DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERN D BY, THE LAW OF SUCH STATE WITHOUT GIVING EFFECT
TO THE CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES THEREOF. THIS AGREEMENT
IS EFFECTIVE ONLY WHEN DELIVERED AND ENTERED INTO BY THE INVESTORS IN NEW
YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
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BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS. THE COMPANY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN PARAGRAPH
13J, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE INVESTORS OR ANY HOLDER OF A SECURITY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
13M. DELAY FEES. If the Closing shall not actually occur on any date on
which the Closing is scheduled to occur, and the Company shall have failed
to notify each Investor prior to 10:00 A.M. local time, in the place in
which an Investor is located, on the day prior to such scheduled Closing
that such Closing has been postponed, the Company shall pay to each
Investor (as compensation for such Investor's loss of fund and
administrative costs) an amount equal to interest on the purchase price for
the Securities to have been purchased by each such Investor on such
scheduled date at such Closing, at the rate per annum on the Senior
Subordinated Notes as if the Senior Subordinated Notes had been issued on
the scheduled date of Closing, for each day from and including such
scheduled date of Closing to but not including the earlier of the date on
which such Closing actually occurs or the date on which the amount to be
paid by each such Investor as said purchase price is available to such
Investor for reinvestment, but in any case not less than one day's
interest; PROVIDED, HOWEVER, that the Company shall not owe any Investor
any amount under this paragraph 13M if the Company has fulfilled all of its
obligations under this Agreement and such Investor is not willing or able
to fulfill its obligations on the scheduled date of Closing.
13N. REMEDIES. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by the Company or any
holder of Securities, the Company, or any holder of Securities (or any of
them), as applicable, may proceed to protect and enforce its or their
rights either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained
in this Agreement. Without limitation of the foregoing, the Company agrees
that failure to comply with any of the covenants including, without
limitation, those included in paragraphs 6A, 6B, 6C, 6F, 6L, 6M 6N, 6O and
6Q and those in respect of the Senior Subordinated Notes will cause
irreparable harm and that specific performance shall be available in the
event of any breach thereof. The Company, or an Investor acting pursuant to
this paragraph 13N, shall be indemnified against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses) in accordance
with paragraph 13B.
13O. ENTIRE AGREEMENT. This Agreement, the other Related Documents and the
other writings referred to herein or delivered pursuant hereto contain the
entire agreement among the parties with respect to the subject matter
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hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
13P. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13Q. AMENDMENTS. This Agreement may not be changed orally, but (subject to
the provisions of paragraph 13C) only by a agreement in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
13R. PAYMENT DATE. Notwithstanding any provision of this Agreement to the
contrary, any payment on account of principal of (and premium, if any) or
interest on any Senior Subordinated Note which is due on a date which is
not a Business Day shall be paid on the next succeeding Business Day, and
the amount of interest included in any such payment shall be computed to
the date on which such payment is actually made.
13S. WAIVER OF TRIAL BY JURY. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO
THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT REFERRED TO HEREIN AND
AGREES THAT ANY SUCH DISPUTE SHALL, AT THE OPTION OF ANY INVESTOR AS THE
CASE MAY BE, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
13T. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and it shall no be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
THRUCOMM, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
INVESTORS:
The foregoing Agreement is hereby accepted as of the date first above written.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ICI AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:_____________________________ Principal Amount of Senior
Robert J. Cresci Subordinated Notes: $1,720,000
Managing Direcr 275,200 shares of
Convertible Preferred Stock
Tax ID Number: 043-171-204
Nominee: NORTHMAN & CO.
<PAGE>
IN OF TRUST
FOR DEFINED BENEFIT PLANS
OF ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:_________________________ Principal Amount of Senior
Robert J. Cresci Subordinated Notes: $1,270,000
Managing Director 203,200 shares of
Convertible Preferred Stock
Tax ID Number: 042-809861
Nominee: FUELSHIP & COMPANY
Bank: State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, MA 02171
ABA Routing Number: 0110-00028
Account Number: JG10 DDA 34758508
for Master Trust/State Street
Bank and Trust Company
Boston, MA 02101
BNF: Zeneca Holdings
Physical Delivery
Via Federal Express: State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Concourse Level
Boston, MA 02 01
Attn: David Kay
<PAGE>
Account Name: Zeneca Holdings
Acct.# JG10
<PAGE>
The foregoing Agreement is hereby accepted as of the date first above written.
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:________________________ Principal Amount of Senior
Robert J. Cresci Subordinated Notes: $6,275,000
Managing Director 1,004,000 shares of
Convertible Preferred Stock
Tax ID Number: 516-00-0279
Nominee: NAP & COMPANY
Bank: Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, MD 21201
Attn: Isabelle Corbett
ABA Routing Number: 052-000618
Account Number: 214380-8 for State of Delaware account.
Physical Delivery: Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, MD 21201
Attn: Connie Philpot
<PAGE>
The foregoing Agreement is hereby accepted as of the date first above written.
J.W. MCCONNELL FAMILY FOUNDATION
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:_____________________________ Principal Amount of Senior
Robert J. Cresci Subordinated Notes: $735,000
Managing Director 117,600 shares of
Convertible Preferred Stock
Tax ID Number: 015-7859-03
Nominee: HARE & CO
Bank: Royal Trust Corporation of Canada
Royal Trust Tower, 10th Floor
777 King Street West
Toronto, Ontario M5W1P9
ABA Routing Number: 021000018
Bank of New York
BK of NY/CUST
Account Number: Royal Trust, #298324
Physical Delivery: The Bank of New York
1 Wall Street, 5th Floor
New York, NY 10286
Attn: Special Processing Department
Re: Account #298324
<PAGE>
January 19, 1998
Confidential
Via Facsimile and
Federal Express
Mr. John F. Kolenda, Chairman
Mr. Mark J. Gianinni, President
Thrucomm, Inc.
1641 Commerce Avenue North
St. Petersburg, FL 33716-4205
Dear John and Mark:
You have asked my firm, J. Jeffrey Brausch & Company, to render certain
financial services on behalf of Thrucomm, Inc. (the "Company"). This letter will
set forth the terms of our engagement for services to be rendered for the 36
(thirty-six) month period commencing February 1, 1998 and ending January 31,
2001. If these terms meet with your approval, please evidence your agreement by
signing the enclosed copy of this letter at the place indicated and returning
the same, along with your check for $120,000.
PRINCIPAL SERVICES TO BE RENDERED
Public Offering
Phase One
1. Develop and implement a comprehensive program to prepare the Company for an
initial public offering in the future.
2. Prepare a Feasibility Study regarding the appropriateness of an initial
public offering of the Company's securities. This study includes (1)
probable pre- and post-money valuations, (2) size of offering parameters,
(3) reasonable primary and secondary components, (4) timing considerations,
(5) comparable companies analysis, (6) managing underwriter(s) profile, (7)
syndication profile, (8) expense estimates, (9) ownership matrices, and
(10) public status advantages and disadvantages.
<PAGE>
Thrucomm, Inc.
January 19, 1998
Page 2
3. Update the valuation and size parameters of the initial public offering
Feasibility Study on a quarterly basis, as requested to do so.
Phase Two
1. Review the Company's history, general business plan, and pro forma
forecasts.
2. Review the Company's forecast of capital needs required to support the
general business plan.
3. Prepare a Company Profile which will detail highlights of the Company. This
document will be used to determine initial underwriter interest.
4. Screen and select underwriters that would be expected to have an interest
in managing an offering of the Company's securities.
5. Present the Company Profile to prospective selected underwriters and
solicit their indications of interest.
6. Analyze the indications of interest received from prospective underwriters
and determine, in conjunction with the Company's management, if the project
should proceed to Phase Three.
Phase Three
1. Make personal presentations with Company management to those underwriters
evidencing an initial interest in the Company as a public offering
candidate.
2. Prepare, review, and revise drafts of the registration statement.
3. Prepare a comparative analysis of the underwriting proposals received and
make specific recommendations to the Company.
4. Recommend final selection of the managing underwriter, including
co-managers, if appropriate.
5. In conjunction with management and the Company's legal counsel, continue
assistance in the preparation, review, and revision of the registration
statement, prospectus, and related materials.
6. Prepare a comparative pricing schedule of comparable companies and assist
management in pricing negotiations.
7. Assist the Company in preparing to meet with prospective underwriters
including all due diligence field trips.
8. Assist management in preparing for due diligence meetings in cities of the
underwriter's choice.
<PAGE>
Thrucomm, Inc.
January 19, 1998
Page 3
9. If requested, provide management with recommendations regarding the
Company's board of directors, dividend policy, employee stock option plan,
and other similar topics.
10. If requested, prepare background files and readings for the Company's
directors regarding the Company, "going public," and the industry and its
competitors.
11. Provide general counsel and services, as required, in connection with
negotiations with the underwriter through and including a formal closing.
General Consultation
Be available for general consultation regarding all financial matters, including
assistance in updating the Company's business plan. It is intended that the
services to be rendered would be comprehensive in nature and broad in scope,
except such services would not include any private placement of the Company's
securities.
PROFESSIONAL FEES AND EXPENSES
Professional Fees
1. Upon engagement: $120,000 (one hundred twenty thousand dollars).
2. Beginning February 1, 1998 and continuing for 36 (thirty-six) consecutive
months: $6,388.89 (six thousand three hundred eighty-eight and 89/100
dollars) payable on the first day of each month, for a total of $230,000
(two hundred thirty thousand dollars).
3. All compensation is to be paid in cash; no compensation of any other type
is to be received.
4. In no event and under no circumstances are the professional fees paid
refundable.
5. No fees, commissions, or other compensation from any other party will be
received in connection with the services provided.
Expenses
The Company agrees to reimburse J. Jeffrey Brausch & Company, within 30 (thirty)
days of receipt of a billing, all direct out-of-pocket disbursements in
connection with the foregoing list of services to be rendered. It is understood
that the professional fees provided herein are intended to represent gross
revenue to J. Jeffrey Brausch & Company out of which it will be responsible for
its own employee salaries, consulting fees, if any, and other operating
expenses. The Company's obligation under this paragraph is merely to reimburse
such things as telephone calls, copying charges, postage expenses,
computer-aided research expenses, travel expenses and other similar
disbursements.
<PAGE>
Thrucomm, Inc.
January 19, 1998
Page 4
GENERAL
1. The Company will permit J. Jeffrey Brausch & Company, and any of its
employees and agents, access to its business and financial records.
2. J. Jeffrey Brausch & Company makes no representations or warranties as to
whether or not the aforesaid program will be successful, and it is
expressly understood and agreed that J. Jeffrey Brausch & Company will not
act as a broker, dealer, or underwriter in connection with any offering of
securities by the Company.
3. This letter represents the entire understanding between the Company and J.
Jeffrey Brausch & Company. The terms and conditions of this letter
agreement can only be modified by a subsequent written agreement executed
by both parties. The failure of either party to undertake the performance
of its obligations hereunder shall permit the other party to cease
performance hereunder and to pursue its lawful remedies.
Very truly yours,
J. JEFFREY BRAUSCH & COMPANY
__________________________
J. Jeffrey Brausch
President
<PAGE>
Thrucomm, Inc.
January 19, 1998
Page 5
ACCEPTED AND AGREED:
THRUCOMM, INC.
By: By:
________________________________ ________________________________
Signature Signature
________________________________ ________________________________
Print Name and Title Print Name and Title
________________________________ ________________________________
Date Date
<PAGE>
MAINTENANCE SERVICES PROPOSAL
FOR
ThruComm
SUBMITTED BY:
Dictaphone Corporation
August 13, 1996
<PAGE>
MAINTENANCE SERVICE PROPOSAL FOR Thrucomm
This Maintenance Services Program has been designed to provide ThruComm with
On-site Maintenance Services for your customers throughout the United States.
The details of the proposed Maintenance Services Program are outlined as
follows:
MAINTENANCE SERVICES PROVIDED
1. Dictaphone will provide On-site Maintenance for ThruComm products, as
mutually agreed to, from any of Dictaphone's nationwide service locations.
See Chart one for current service locations.
The On-site Maintenance Service is remedial maintenance performed at the
ThruComm customer site which includes troubleshooting, adjustments and
replacing defective components to the subassembly/assembly level.
In addition, Dictaphone will perform installations as defined later in this
proposal. Other services that ThruComm may require from time to time will
also be performed at a price that has been mutually agreed to.
2. Dictaphone is currently offering these services:
a. 9 X 5 COVERAGE - Service is provided during the Principal Period of
Maintenance (PPM), which is from 8:00 a.m. to 5:00 p.m., local standard
time, Monday through Friday, excluding Dictaphone's normal holidays (see
Chart two).
b. 15 x 7 COVERAGE - Service is provided fifteen hours a day, which is from
08:00 a.m. to 23:00, 365 days a year including Dictaphone Holidays. This
service is only available in Dictaphone Service locations that have two or
more CSR's and within 100 miles of a valid service location. MAINTENANCE
SERVICES PROPOSAL FOR ThruComm
c. 24 x 7 COVERAGE - Service is provided twenty-four hours a day, 365 days
a year including Dictaphone Holidays. This service is only available in
Dictaphone Service locations that have two or more CSR's and within 100
miles of a valid service location.
Dictaphone is extremely flexible and will offer additional coverage types
as ThruComm requires.
3. Dictaphone will respond to service requests in an average of four (4)
contract hours. The response time assumes the parts to repair the defective
equipment are available when the service is to be performed.
If longer response times are desired by ThruComm, Dictaphone will work with
ThruComm to define these product offerings.
1
<PAGE>
SPARE & REPLACEMENT PARTS, SPECIAL TOOLS
1. ThruComm will be responsible for providing Dictaphone with the spare parts
required to provide the services outlined in this proposal, at no charge to
Dictaphone. The spare parts will be shipped to Dictaphone or the customer
site as agreed to. ThruComm will be responsible for the cost of shipping
spare parts to and from the Dictaphone service locations or customer
location.
2. ThruComm will repair or replace all defective parts used for repairs at no
charge to Dictaphone. Administrative procedures will be established to
handle the return of defective parts.
3. Dictaphone will provide the controls necessary to ensure the integrity of
the ThruComm inventory under their control.
4. ThruComm will provide any special tools, if required for the support of the
products, at no charge to Dictaphone.
ADMINISTRATION
1. Initiation of On-site Maintenance Services by Dictaphone will require the
following:
A. Dictaphone Customer Service Representatives, in the servicing office,
trained by an agreed method;
B. ThruComm has provided a Sparing Plan that will provide spare parts
either to the ThruComm customer location or the Dictaphone service centers
providing the maintenance services;
C. Necessary technical documentation and diagnostic tools, as mutually
agreed by both companies, supplied to the service centers providing
maintenance services;
D. ThruComm will provide Dictaphone a work order that delineates the
Maintenance Services required for its customers and information that will
allow Dictaphone to properly provide the services required.
2. ThruComm will notify Dictaphone of the need for On-site Maintenance
Services by using Dictaphone's toll-free telephone number (other options:
Fax or terminal) to report equipment failures and information on units
requiring repair by a Dictaphone service center. The Dictaphone Dispatch
Center is available 24 hours a day, 365 days a year. At ThruCommAEs option,
service requests can be initiated by ThruComm or the ThruComm customer.
TRAINING/DOCUMENTATION
1. Dictaphone will require training for at least one CSR from each opened
service city as per agreed to methods. Considering our current level of
expertise on similar products, training could probably be accomplished via
video and documentation. The Dictaphone video studio in Atlanta can develop
the tape and distribute. Costs are minimized and capabilities are rapidly
implemented. ThruComm would have to train and work with our instructors to
write scripts and qualify content.
2
<PAGE>
Options for formal training, if required can be accomplished at our
Melbourne training center or seminars can be held regionally or in each
district location. Costs vary with methods and Dictaphone will work with
ThruComm to determine the most effective method of meeting our criteria for
quality training while minimizing ThruComm cost.
2. ThruComm will provide Dictaphone with the documentation necessary, that has
been mutually agreed to by both companies, to properly maintain the various
products that will be serviced by Dictaphone. ThruComm will provide at
least one set of documentation to each servicing location.
3. Implementation, once an acceptable training method is determined, can be
accelerated. Dictaphone will make every effort to assure support in accord
with ThruComm business requirements.
MAINTENANCE CHARGES
1. Dictaphone will provide On-site Maintenance Services for the following
products:
A. ThruComm product lines mutually agreed to by both parties including both
cells and remote sites.
2. Dictaphone will provide On-site Maintenance Services to ThruComm products
for a Monthly Maintenance Fee presented in Chart Three. Chart three rates
are based on a single rate and contract coverage regardless of Zone.
This pricing is based on the visits per year and Mean Time To Repair (MTTR)
as indicated in Chart three. If these assumptions deviate based on
real-time data, Dictaphone reserves the right to renegotiate the pricing.
Dictaphone will provide services outside the scope of this proposal at a
rate of ninety dollars ($90.00)/hour during normal working hours or one
hundred and twenty dollars ($120.00)/hour outside of normal working hours
including round trip travel time to and from the servicing office.
3. Dictaphone will provide standard pricing for special projects once these
projects can be defined by both companies. Dictaphone will also develop
pricing for any other projects of magnitude that ThruComm may encounter.
4. It is assumed that ThruComm or the ThruComm customers will provide
Dictaphone free and easy access to the equipment to be serviced.
Installations that require special access methods (Lift trucks, etc.) will
be maintained, but any additional costs incurred for the rental of these
devices will be paid by ThruComm.
ACCEPTANCE OF PROPOSAL
Acceptance of this proposal by ThruComm can be indicated by returning a signed
copy to: Attn: William Cline
Dictaphone Corporation
3984 Pepsi Cola Drive
Melbourne, FL 32934
PROPOSAL ACCEPTED BY:
NAME: _________________________ DATE:__________
TITLE:_________________________
3
<PAGE>
INSTALLATION SERVICES PROPOSAL FOR ThruComm
INSTALLATION SERVICES PROVIDED
1. Dictaphone will provide installation services for ThruComm products, as
agreed to, for the hourly charge of $75.00 per hour during normal working
hours or $110.00 per hour outside of normal working hours including travel
time to and from the servicing office. See Chart 1 for current service
locations.
Installation service includes:
Site preparation
Unpacking of the unit
Positioning of the unit
Power up and verification of proper operation as per the Equipment Setup
and Testing Procedure supplied.
Wiring per specification as required.
Other services as agreed to by the parties
2. Dictaphone will provide standard installation services within 15 calendar
days of notification.
EXCLUSIONS/ASSUMPTIONS
1. A suitable AC power outlet will be provided by the customer near the
determined installation location.
2. A licensed electrician, if required, is not included in the services. If an
electrician is required, Dictaphone will make every effort to schedule the
installation in coordination with the electrician. The scheduling of, and
the cost incurred for the electrician is the responsibility of the Customer
or ThruComm.
3. Special ThruComm needs or cabling will be quoted on a case- by-case basis.
4
<PAGE>
CHART 1 (ONE)
SERVICE LOCATIONS:
ATLANTA, GA ALBANY, GA AUGUSTA, GA COLUMBUS, GA
MACON, GA BALTIMORE, MD HAGERSTOWN, MD BIRMINGHAM, AL
MONTGOMERY, AL HUNTSVILLE, AL MOBILE, AL BOSTON, MA
LONDONDERRY, NH PORTLAND, ME BUFFALO, NY BINGHAMTON, NY
ERIE, PA OLEAN, NY ROCHESTER, NY SYRACUSE, NY
CHARLOTTE, NC ASHEVILLE, NC HICKORY, NC COLUMBIA, SC
GREENSBORO, NC GREENVILLE, SC RALEIGH, NC MT. PLEASANT, SC
BLOOMINGDALE, IL CHICAGO, IL CINCINNATI, OH EVANSVILLE, IN
LEXINGTON, KY LOUISVILLE, KY CLEVELAND, OH AKRON, OH
YOUNGSTOWN, OH COLUMBUS, OH CHARLESTON, WV DAYTON, OH
HUNTINGTON, WV DALLAS, TX ABILENE, TX FT. WORTH, TX
MIDLAND, TX DENVER, CO ALBUQUERQUE, NM COLORADO SPRS, CO
EL PASO, TX DES MOINES, IA CEDAR RAPIDS, IA BETTENDORF, IA
LINCOLN, NE OMAHA, NE SIOUX CITY, IA WATERLOO, IA
DETROIT, MI TOLEDO, OH HARTFORD, CT ALBANY, NY
PROVIDENCE, RI SPRINGFIELD, MA HARRISBURG, PA ALLENTOWN, PA
LANCASTER, PA WILKES BARRE, PA WILLIAMSPORT, PA HOUSTON, TX
VIDOR, TX INDIANAPOLIS, IN FT WAYNE, IN SOUTH BEND, IN
KANSAS CITY, MO COLUMBIA, MO TOPEKA, KS LOS ANGELES, CA
MEMPHIS, TN JACKSON, TN LITTLE ROCK, AR TUPELO, MS
MIAMI, FL SAN JUAN, PR WEST PALM BEACH, FL LANSING, MI
GRAND RAPIDS, MI KALAMAZOO, MI MILWAUKEE, WI APPLETON, WI
MADISION, WI ROCKFORD, IL WAUSAU, WI NASHVILLE, TN
CHATTANOOGA, TN KNOXVILLE, TN MINNEAPOLIS, MN FARGO, ND
PARSIPPANY, NJ NEW ORLEANS, LA BATON ROUGE, LA GULFPORT, MS
JACKSON, MS MERIDIAN, MS LAKE CHARLES, LA LAFAYETTE, LA
WESTCHESTER, NY HICKSVILLE, NY MANHATTAN, NY MT LAUREL, NJ
E. BRUNSWICK, NJ PHOENIX, AZ LAS VEGAS, NV SALT LAKE CITY, UT
BLACKFOOT, ID OKLAHOMA CITY, OK FT SMITH, AR LUBBOCK, TX
WICHITA FALLS, TX TULSA, OK WICHITA, KS DODGE CITY, KS
SALINA, KS PHILADELPHIA, PA PITTSBURGH, PA GREENSBURG, PA
JOHNSTOWN, PA WHEELING, WV RICHMOND, VA CHARLOTTESVILLE, VA
NORFOLK, VA LYNCHBURG, VA ROANOKE, VA HARRISONBURG, VA
HAMPTON, VA BLUEFIELD, WV PORTLAND, OR BOISE, ID
EUGENE, OR KENNEWICK, WA SALEM, OR SACRAMENTO, CA
HONOLULU, HI FRESNO, CA RENO, NV STOCKTON, CA
SAN FRANCISCO, CA SAN JOSE, CA PLEASANTON, CA SAN ANTONIO, TX
AUSTIN, TX CORPUS CHRISTIE, TX WACO, TX TAMPA, FL
JACKSONVILLE, FL ORLANDO, FL MELBOURNE, FL GAINESVILLE, FL
FT. MEYERS, FL TALLAHASSEE, FL ST LOUIS, MO CHAMPAIGN, IL
PEORIA, IL SPRINGFIELD, IL SANTA ANA, CA COLTON, CA
SAN DIEGO, CA SEATTLE, WA ANCHORAGE, AK SPOKANE, WA
WASHINGTON, DC
5
<PAGE>
CHART 2 (TWO)
DICTAPHONE FIELD HOLIDAYS:
NEW YEARS DAY
MEMORIAL DAY
INDEPENDENCE DAY
LABOR DAY
THANKSGIVING DAY
CHRISTMAS DAY
CHART 3 (THREE)
MONTHLY MAINTENANCE CHARGES
- - Equipment which has a Visits/Year Rate of .33 and a MTTR of 1.0 Hours
1. 8 X 5 COVERAGE - $ 5.20/MONTH
2. 15 X 7 COVERAGE - $ 6.90/MONTH*
3. 24 X 7 COVERAGE - $ 8.65/MONTH*
RATES INCLUDE LABOR (UP TO 1.0 HOUR PER CALL PER VERBAL
DISCUSSIONS) AND TRAVEL AND INCLUDES ANY SITE WITHIN 150 MILES
OF A DICTAPHONE SERVICE CENTER.
IF THE VISITS PER YEAR AND MEAN TIME TO REPAIR FOR THE PRODUCTS
DEVIATE BASED ON ACTUAL MEASUREMENT, DICTAPHONE RESERVES THE
RIGHT TO RENEGOTIATE THE CHARGES.
* This coverage is only available for Dictaphone service locations with two or
more CSR's and within 100 miles of a valid Dictaphone service location.
ThruComm SERVICE PROPOSAL - August 13, 1996
6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF THE REGISTRANT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
NOTE: RECEIVABLES are Net of allowance for doubtful amounts of $0.
NOTE: PP&E is Net of accumulated depreciation of $3,068,329.
</LEGEND>
<CIK> 0001038599
<NAME> Thrucomm, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 178,365
<SECURITIES> 0
<RECEIVABLES> 29,479
<ALLOWANCES> 0
<INVENTORY> 204,526
<CURRENT-ASSETS> 720,396
<PP&E> 2,728,918
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,666,364
<CURRENT-LIABILITIES> 5,421,762
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (2,805,677)
<TOTAL-LIABILITY-AND-EQUITY> 3,666,364
<SALES> 2,917,586
<TOTAL-REVENUES> 2,917,707
<CGS> 6,195,376
<TOTAL-COSTS> 6,195,376
<OTHER-EXPENSES> 223,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,600
<INCOME-PRETAX> (3,501,269)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,501,269)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,501,269)
<EPS-PRIMARY> (3,501,269)
<EPS-DILUTED> 0
</TABLE>
