SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 333-35017
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TELETRAC HOLDINGS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1789886
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2323 Grand Street, Suite 1100, Kansas City, Missouri 64108
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(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code (816) 474-0055
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Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 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
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As of November 13, 1998, Teletrac Holdings, Inc. had
outstanding 249,000 shares of Class A Common Stock,
167,387.19 shares of Series A Redeemable Convertible
Participating Preferred Stock, 23,089 shares of Series A1
Redeemable Convertible Participating Preferred Stock and
132,506.76 shares of Series B Participating Convertible
Preferred Stock.
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, September 30,
1997 1998
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $41,480,737 $ 3,918,878
Accounts receivable, less allowances
of $612,639 and $484,402 4,018,874 4,978,079
Inventories 5,441,695 13,397,445
Prepaid expenses and other 5,519,652 3,276,544
Short-term portion of restricted investments 5,920,833 2,450,000
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Total current assets 62,381,791 28,020,946
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RESTRICTED CASH 1,750,000 --
RESTRICTED INVESTMENTS, HELD TO MATURITY 34,942,381 25,630,759
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $3,616,207 and $7,215,911 26,963,180 35,528,179
LICENSES AND OTHER, net of accumulated
amortization of $322,635 and $568,798 6,324,380 6,660,841
----------- -----------
Total assets $132,361,732 $ 95,840,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $3,362,390 $1,487,423
Current portion of long-term obligations 727,624 1,202,986
Accrued interest 5,920,833 2,450,000
Accrued expenses 1,214,455 2,034,141
Refrequency liability 3,076,871 592,756
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Total current liabilities 14,302,173 7,767,306
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SENIOR NOTES, 14% due 8/1/2007 98,253,377 98,353,262
OTHER LONG-TERM OBLIGATIONS 2,072,142 2,849,362
PREFERRED STOCK, redeemable cumulative,
15% dividend, 190,477 shares authorized
and 190,476.19 shares issued and outstanding 38,290,000 42,002,500
PREFERRED STOCK, undesignated, 190,477 shares
authorized, none issued or outstanding -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, $.01 par value,
1,000,000 shares authorized and
249,000 issued and outstanding 2,490 2,490
Common stock, Class B, $.01 par value,
70,000 shares authorized and none
issued or outstanding -- --
Warrants, 105,000 units to purchase
57,071 shares of Class A common stock 7,039,954 7,039,954
Paid-in-capital 16,732,656 13,020,156
Accumulated deficit (44,331,060) (75,194,305)
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Total stockholders' deficit (20,555,960) (55,131,705)
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Total liabilities and stockholders' deficit $132,361,732 $ 95,840,725
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service Revenue $ 9,126,606 $ 12,941,488 $ 3,345,370 $ 4,598,232
Equipment Revenue 9,561,330 7,803,095 3,972,642 2,620,054
------------ ------------ ------------ ------------
Total operating revenues 18,687,936 20,744,583 7,318,012 7,218,286
OPERATING EXPENSES:
Cost of service revenue 2,105,904 2,946,986 739,303 1,113,220
Cost of equipment revenue 6,930,474 5,959,283 3,095,012 2,042,224
Selling, general and administrative 18,579,564 22,270,248 5,712,687 7,861,840
Engineering 5,243,877 6,743,495 1,863,860 2,411,011
Research & development costs 2,873,084 1,091,440 833,038 321,057
Refrequency costs -- 390,000 -- --
Depreciation and amortization 1,754,243 3,871,767 755,008 1,611,696
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (18,799,210) (22,528,636) (5,680,896) (8,142,762)
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 2,527,979 10,783,664 2,441,545 3,667,994
Interest and other income (1,250,586) (2,449,055) (845,800) (686,524)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (20,076,603) (30,863,245) (7,276,641) (11,124,232)
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES -- -- -- --
NET LOSS $(20,076,603) $(30,863,245) $ (7,276,641) $(11,124,232)
============ ============ ============ ============
PREFERRED DIVIDENDS 3,712,500 3,712,500 1,237,500 1,237,500
------------ ------------ ------------ ------------
LOSS APPLICABLE TO
COMMON STOCK $(23,789,103) $(34,575,745) $ (8,514,141) $(12,361,732)
============ ============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1997 1998
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OPERATING ACTIVITIES:
Net Loss $(20,076,603) $(30,863,245)
Adjustments to reconcile net loss to
net cash used in operating activities -
Depreciation and amortization 1,754,243 3,871,767
Accretion of discount on senior notes 117,333 99,885
Loss on assets disposed/sold -- 25,909
Changes in working capital and other
assets and liabilities, net of
acquisition and refrequency (3,610,634) (7,727,269)
Restricted cash (500,042) 1,750,000
Refrequency liability (3,426,282) (2,483,974)
Accrued interest on senior notes 2,245,833 (3,470,833)
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Total adjustments (3,419,549) (7,934,515)
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Cash used in operating activities (23,496,152) (38,797,760)
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INVESTING ACTIVITIES:
Proceeds from sale of assets -- 21,947
Acquisition of property and equipment (8,564,327) (10,296,179)
Acquisition of other intangible assets (62,002) (580,371)
Acquistion of Airtouch Teletrac (1,000,000) --
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Cash used in investing activities (9,626,329) (10,854,603)
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FINANCING ACTIVITIES:
Proceeds from issuance of senior notes
and warrants, net 100,607,766 --
Restricted investments (40,285,811) 12,782,455
Cost of credit facility (815,523) (2,253)
Payments on capital leases (289,947) (689,698)
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Cash provided by financing activities 59,216,485 12,090,504
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NET CHANGE IN CASH 26,094,004 (37,561,859)
CASH AND CASH EQUIVALENTS, beginning of period 27,639,168 41,480,737
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CASH AND CASH EQUIVALENTS, end of period $ 53,733,172 $ 3,918,878
============ ============
SUPPLEMENTAL DISCLOSURES
Interest (net of amounts capitalized) $ 282,146 $ 14,451,658
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
Common Stock Paid-in Accumulated
Class A Class B Warrants Capital Deficit
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 2,490 $ -- $ 7,039,954 $ 16,732,656 $(44,331,060)
Net loss -- -- -- -- (30,863,245)
Preferred stock dividends -- -- -- (3,712,500) --
------- ------- ------------ ------------ ----------
BALANCE, September 30, 1998 $ 2,490 $ -- $ 7,039,954 $ 13,020,156 $(75,194,305)
======= ======= ============ ============ ============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - COMPANY OVERVIEW
The Company is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable
real-time method of locating vehicles in selected metropolitan areas. The
Company's system is designed to enable customers to better manage their mobile
workforce, provide security for their property and personnel and communicate
more effectively with mobile workers.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
involve the installation of a Vehicle Location Unit ("VLU") in each vehicle. The
VLU is a radio transceiver that receives and transmits signals used to determine
a vehicle's location. In addition to the VLU, commercial fleet customers
generally purchase software or location services from the Company. The Company's
primary product for commercial fleets is Fleet Director(Registered), a
proprietary software application that permits simultaneous location of all fleet
vehicles on a real-time 24-hour-a-day basis through a digitized map displayed on
the customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director(Registered) can be complemented with the Company's
messaging units, which allow two-way messaging between the fleet dispatcher and
drivers directly from the Fleet Director(Registered) screen. In the first
quarter of 1998, the Company introduced Winfleet(Trade Mark), a Microsoft
Windows(Registered)-based application similar to Fleet Director(R) that will not
require a dedicated computer.
As of September 30, 1998, the Company operated in eleven metropolitan markets:
Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco,
San Diego, Sacramento and Washington D.C./Baltimore. The Company also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers in its Los Angeles and Miami markets.
The Company's revenues are derived from sales and installation of its VLU's,
messaging units, proprietary software and charges for its services.
NOTE 2 - BASIS OF PRESENTATION
The condensed consolidated interim financial statements of Teletrac
Holdings, Inc. and its wholly owned subsidiaries Teletrac, Inc. and Teletrac
License, Inc. ("Teletrac" or the "Company") included herein have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission") and reflect all
adjustments that are, in the opinion of management, necessary to fairly present
the financial position, results of operations, and cash flows for the interim
periods. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. Management believes that the disclosures made are adequate to
make the information presented not misleading. The results for interim periods
are not necessarily indicative of the results for the full year. The interim
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's audited consolidated financial
statements for the year ended December 31, 1997 filed on Form 10-K.
Certain reclassifications have been made to the prior period consolidated
financial statements to conform with the current presentation.
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31, 1997 and September 30,
1998 (unaudited):
December 31, 1997 September 30, 1998
Vehicle Location Units ("VLUs") $3,497,538 $9,758,198
Messaging Units 920,270 2,063,041
Computers & Software 313,141 452,157
Other Inventory 710,746 1,124,049
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Total Inventory $5,441,695 $13,397,445
========== ===========
The Company received 41,012 VLU's and 12,550 messaging units valued at
approximately $10.3 million during the first nine months of 1998.
NOTE 4 - LETTER OF CREDIT
In January 1998, the $1,750,000 Letter of Credit, established between Teletrac
and Tadiran held at Toronto Dominion, was replaced with a joint $2,500,000
Letter of Credit pledged on the Revolver Line of Credit with Banque Paribas and
Fleet National Bank. In September 1998, the Letter of Credit was reduced to
$455,000. The funds previously accounted for as "Restricted Cash" on the Balance
Sheet were refunded and deposited into the Company's operating cash.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted of
the following at December 31, 1997 and September 30, 1998 (unaudited):
December 31, 1997 September 30, 1998
System Equipment $12,692,730 $21,587,449
Automobiles 502,370 565,723
Furniture & Fixtures 1,711,089 2,260,041
Computer Equipment 3,836,349 5,588,210
Leasehold Improvements 383,911 499,173
Construction in Progress 11,452,938 12,243,494
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Total Property & Equipment $30,579,387 $42,744,090
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Accumulated Depreciation ($3,616,207) ($7,215,911)
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Net Property & Equipment $26,963,180 $35,528,179
=========== ===========
NOTE 6 - OTHER LONG-TERM OBLIGATIONS
The Company entered into capital lease agreements with five separate vendors
valued at $1,942,000 during the first nine months of 1998. The assets included
under the lease agreements will be utilized in the construction and operation of
the metropolitan markets the Company has and will commence business in during
the remainder of 1998.
NOTE 7 - SUBSEQUENT EVENT
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock (Series B) were issued for
net cash proceeds of approximately $10 million. They entitle holders to receive
cumulative, compounding dividends at the rate of 5% percent per annum. Dividends
accrue on a daily basis from the issuance date and are payable as declared by
the board of directors. Holders are entitled to voting rights, preference on
liquidation, voluntary conversion into common stock at a defined conversion
price, and automatic conversion into common stock after either a qualified
public stock offering or a certain non-qualified public stock offering as
defined. Prior to February 1, 2008, at the election of the holders of a majority
of the outstanding Series B preferred stock, the Company is obligated to redeem
the Series B preferred stock at a cash price equal to the liquidation preference
amount of $75 per share plus cumulative unpaid dividends. On or after February
1, 2008, the redemption price will be equal to the greater of the liquidation
preference amount or the fair market value of the Series B preferred stock.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the "Risk Factors" set forth in the
Company's Registration Statement on Form S-1.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
OPERATING REVENUES. Total operating revenues for the three months ended
September 30, 1998 were $7.2 million, compared to $7.3 million for the three
months ended September 30, 1997.
Service revenues, which include revenues from both sold units and
rental units, increased to $4.6 million for the three months ended September 30,
1998 from $3.3 million for the three months ended September 30, 1997, an
increase of 39%, primarily due to an increase in the number of commercial units
in service, to 82,125 at September 30, 1998 from 61,369 at September 30, 1997.
Also, the average commercial service revenue per unit increased to $17.53 in
September 1998 from $16.93 in September 1997 as a result of an increase in both
ancillary services and monthly airtime rates.
Equipment revenues decreased to $2.6 million for the three months ended
September 30, 1998 from $4.0 million for the three months ended September 30,
1997, principally due to the introduction of the Company's rental program in the
first quarter of 1998. Gross commercial sales (installations) decreased to 7,626
units for the three months ended September 30, 1998 from 8,141 units for the
three months ended September 30, 1997. Equipment revenues in future periods may
continue to decline relative to the number of new units going into service due
to the equipment rental program in which units are rented rather than sold.
Equipment rental revenues, which are included in total equipment
revenues, increased to $192,962 for the three months ended September 30, 1998
from $0 for the three months ended September 30, 1997. The total number of
rental units in service at September 30, 1998 was 3,847.
COST OF SERVICE REVENUES. Cost of service revenues includes the direct
cost of providing service (network telephone, billing, roadside assistance and
bad debt expense). Cost of service revenues increased to $1.1 million for the
three months ended September 30, 1998 from $0.7 million for the three months
ended September 30, 1997. Cost of service revenues increased primarily in
network telephone costs from new market build-out.
COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the
direct cost of equipment provided to customers, installation and other direct
ancillary equipment. Cost of equipment revenues decreased to $2.0 million for
the three months ended September 30, 1998 from $3.1 million for the three months
ended September 30, 1997. Cost of equipment revenues decreased primarily as a
result of the Company's rental program.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $2.2 million, to $10.6 million for the
three months ended September 30, 1998 from $8.4 million for the three months
ended September 30, 1997 related to the Company's expansion. The Company
expensed $0.3 million in the three months ended September 30, 1998 relating to
research and development, compared with $0.8 million for the same period in
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased
for the three months ended September 30, 1998 to $1.6 million from $0.8 million
for the three months ended September 30, 1997, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $8.1
million for the three months ended September 30, 1998, as compared to $5.7
million for the three months ended September 30, 1997, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $3.7 million for the three
months ended September 30, 1998 compared to $2.4 million, and primarily relates
to the senior notes.
NET LOSS. For the reasons discussed above net loss increased to $11.1
million for three months ended September 30, 1998 from $7.3 million for three
months ended September 30, 1997. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
OPERATING REVENUES. Total operating revenues for the nine months ended
September 30, 1998 were $20.7 million, compared to $18.7 million for the nine
months ended September 30, 1997, an increase of 11%.
Service revenues, which include revenues from both sold units and
rental units, increased to $12.9 million for the nine months ended September 30,
1998 from $9.1 million for the nine months ended September 30, 1997, an increase
of 42%, primarily due to an increase in the number of commercial units in
service, to 82,125 at September 30, 1998 from 61,369 at September 30, 1997.
Also, the average commercial service revenue per unit increased to $17.53 in
September 1998 from $16.93 in September 1997 as a result of an increase in both
ancillary services and monthly airtime rates.
Equipment revenues decreased to $7.8 million for the nine months ended
September 30, 1998 from $9.6 million for the nine months ended September 30,
1997, principally due to the introduction of the Company's rental program in the
first quarter of 1998. Gross commercial sales (installations) increased to
25,927 units for the nine months ended September 30, 1998 from 23,371 units for
the nine months ended September 30, 1997. Equipment revenues in future periods
may continue to decline relative to the number of new units going into service
because of the equipment rental program in which units are rented rather than
sold.
Equipment rental revenues, which are included in total equipment
revenues, increased to $349,611 for the nine months ended September 30, 1998
from $0 for the nine months ended September 30, 1997. The total number of rental
units in service at September 30, 1998 was 3,847.
COST OF SERVICE REVENUES. Cost of service revenues includes the direct
cost of providing service (network telephone, billing, roadside assistance and
bad debt expense). Cost of service revenues increased to $2.9 million for the
nine months ended September 30, 1998 from $2.1 million for the nine months ended
September 30, 1997. Cost of service revenues increased primarily in network
telephone costs from new market build-out.
COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the
direct cost of equipment provided to customers, installation and other direct
ancillary equipment. Cost of equipment revenues decreased to $6.0 million for
the nine months ended September 30, 1998 from $6.9 million for the nine months
ended September 30, 1997. Cost of equipment revenues decreased primarily as a
result of the Company's rental program.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $3.4 million, to $30.1 million for the
nine months ended September 30, 1998 from $26.7 million for the nine months
ended September 30, 1997 related to the Company's expansion. The Company
expensed $1.1 million in the nine months ended September 30, 1998 relating to
research and development, compared with $2.9 million for the same period in
1997.
REFREQUENCY COSTS. Refrequency costs accrued for the nine months ended
September 30, 1998 was $0.4 million. The accrual, which was recorded during the
second quarter ended June 30, 1998, reflects a change in estimate for the total
refrequency liability.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
for the nine months ended September 30, 1998 to $3.9 million from $1.8 million
for the nine months ended September 30, 1997, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $22.5
million for the nine months ended September 30, 1998, as compared to $18.8
million for the nine months ended September 30, 1997, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $10.8 million for the nine
months ended September 30, 1998 compared to $2.5 million, and primarily relates
to the senior notes.
NET LOSS. For the reasons discussed above net loss increased to $30.9
million for nine months ended September 30, 1998 from $20.1 million for nine
months ended September 30, 1997. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
YEAR 2000 EFFORT
The Company has performed internal testing and evaluation on all products,
services and internal computer hardware and software utilized by the Company in
providing services to customers to ensure compliance with the Year 2000 issue.
This testing has included both information technology systems and
non-information technology systems such as microcontrollers utilized in the
Company's vehicle location units. Based upon the results of this internal
testing, management has determined that the Year 2000 issue will not have a
material impact on the Company's business, results of operations or financial
condition.
Current customers have been notified, in writing, that the Company's current
software and hardware products are Year 2000 compliant. A previous version of
Fleet Director (R), which is currently utilized by few customers, is not Year
2000 compliant. For customers utilizing this version, an upgrade to the most
current version of Fleet Director, which is Year 2000 compliant, is being
provided to affected customers at no charge. The overall impact of the free
software upgrade is not material to the overall results of operations or
financial condition of the Company. Also, as a general service, Customers have
been notified in the same letter that each personal computer utilized by the
customer, while not a product or liability of the Company, should be tested to
ensure it is Year 2000 compliant.
As part of its Year 2000 plan, the Company is seeking confirmation from certain
material vendors and telecommunications service and equipment providers
("Primary Vendors") that they are, or developing and implementing plans to
become, Year 2000 compliant. Confirmations received to date from its Primary
Vendors have indicated that such respondents are in the process of implementing
remediation procedures to ensure Year 2000 compliance. In addition, the Company
is currently developing a contingency plan related to the Year 2000 issue,
should a potential business interruption occur on January 1, 2000 or thereafter.
Although the Company expects its system as a whole to be Year 2000 compliant, on
or before December 31, 1999, it cannot predict the outcome or the success of its
Year 2000 compliance programs of the Primary Vendors, nor can it predict the
impact on its financial condition or results of operations, if any, in the event
that such Year 2000 compliance programs of its Primary Vendors are not
successful.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures were $10.3 million for the nine months ended
September 30, 1998, primarily for the build-out of the Company's networks in new
markets. The Company currently expects that its aggregate capital expenditures
(excluding the acquisition of spectrum rights) will be $16.9 million for both
1998 and 1999 combined. These capital expenditures will consist primarily of
costs associated with the opening of new markets in 1998. In addition, the
Company's capital expenditure plans include network design and development, the
maintenance of existing markets, supporting the Company's rental program, and
other capital improvements.
The Company received 41,012 Vehicle Location Units ("VLUs") and 12,550
messaging units valued at approximately $10.3 million during the first nine
months of 1998. The delivery and payment schedule has been adjusted to allow for
a reduction of the inventory to improve working capital.
At September 30, 1998, the Company was not in compliance with certain
covenants under its revolving credit facilities (the "Revolvers") with Banque
Paribas and Fleet National Bank. Such covenants were established based on
projections that included consumer unit sales that did not materialize, based on
the Company's strategic decision to focus on its core commercial fleet
management business and not pursue opportunities in the consumer markets. The
covenant non-compliance was waived at September 30, 1998 and the Company had
made no draws against the Revolvers through that date. The Company and the banks
are currently in dialogue regarding the terms of the Revolvers, and until such
time as this dialogue is concluded the Company has no availability under the
Revolvers.
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock ("Series B Preferred") were
issued to certain existing stockholders of the Company for net cash proceeds of
approximately $10 million. The Series B Preferred shares entitle holders to
receive cumulative, compounding dividends at the rate of 5% percent per annum
and are convertible into shares of Class A Common Stock of the Company. The
Series B Preferred shares are currently convertible into approximately 17% of
the Company's fully-diluted equity. The proceeds of the sale of the Series B
Preferred shares will be applied to support on-going working capital needs of
the Company. The Company estimates that, including the proceeds of the sale of
such equity securities, current cash resources are sufficient to cover its needs
through the end of the first quarter of 1999. The Company is authorized to issue
up to an aggregate 400,000 shares of Series B Preferred stock, and is currently
in the process of seeking additional equity investments from existing investors
and other potential investors. There can be no assurance that the Company will
succeed in securing additional capital, either in the form of additional
investment in Series B Preferred stock or otherwise. If the Company fails to
secure additional capital or alternate sources of liquidity before the end of
the first quarter of 1999, the Company's ability to continue its current
operations will be in question.
Although the unaudited financial statements for the nine months ended
September 30, 1998 have not been audited by Arthur Andersen LLP, they have
informed the Company that if the conditions described above continue to exist at
the time of their audit of the financial statements for the year ended December
31, 1998, their report on those statements will include an explanatory fourth
paragraph because of substantial doubt about going concern.
INFLATION
The Company believes that to date inflation has not had a material
effect on its results of operations. Although inflation may in the future effect
the cost of VLU and messaging units sold by the Company, the Company expects
that technology and engineering improvements are likely to offset any
foreseeable cost increases.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
Not applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information.
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock ("Series B") were issued
for net cash proceeds of approximately $10 million. They entitle holders to
receive cumulative, compounding dividends at the rate of 5% percent per annum.
The proceeds are to support on-going working capital needs of the Company. The
Company estimates that, including the proceeds of the sale of such equity
securities, current cash resources are sufficient to cover its needs through the
end of the first quarter of 1999. The Company is authorized to issue up to an
aggregate 400,000 shares of Series B preferred stock, and is currently in the
process of seeking additional equity investments from existing investors and
other potential investors. There can be no assurance that the Company will
succeed in securing additional capital, either in the form of additional
investment in Series B preferred stock or otherwise. If the Company fails to
secure additional capital or alternate sources of liquidity before the end of
the first quarter of 1999, the Company's ability to continue its current
operations will be in question.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
10.1 Stock Purchase Agreement dated as of October 20, 1998, among the
Registrant and the Investors indentified therein.
10.2 Second Amended and Restated Registrant Rights Agreement dated as of
October 20, 1998, among the Registrant and the Holders named therein.
10.3 Amended and Restated Stockholders' Agreement dated as of October 20,
1998, by and among the Registrant and the Stockholders named therein.
27.1 Financial data schedule.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELETRAC HOLDINGS, INC.
By: /s/ Alan B. Howe
Alan B. Howe
Vice President of
Finance and Corporate
Development and on
behalf of the Registrant
November 16, 1998
<PAGE>
Exhibit Index
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
10.1 Stock Purchase Agreement dated as of October 20, 1998, among the Registrant
and the Investors indentified therein.
10.2 Second Amended and Restated Registrant Rights Agreement dated as of October
20, 1998, among the Registrant and the Holders named therein.
10.3 Amended and Restated Stockholders' Agreement dated as of October 20, 1998,
by and among the Registrant and the Stockholders named therein.
27.1 Financial data schedule.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TELETRAC HOLDINGS, INC.
The undersigned being the duly elected Vice President and Secretary of
TELETRAC HOLDINGS, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Teletrac Holdings, Inc. The date of
the filing of the Corporation's original Certificate of Incorporation with the
Secretary of State of the State of Delaware was July 14, 1997.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Certificate of Incorporation of
the Corporation as amended by a Certificate of Amendment filed with the
Secretary of State of the State of Delaware on July 31, 1997, and (i) was duly
adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware (the "DGCL"), (ii) was declared by the Board of Directors to be
advisable and in the best interests of the Corporation and was directed by the
Board of Directors to be submitted to and be considered by the stockholders of
the Corporation entitled to vote thereon for approval by the affirmative vote of
such stockholders in accordance with Section 242 of the DGCL and (iii) was duly
adopted by a stockholder consent in lieu of a meeting of the stockholders, with
the holders of eighty percent (80%) of the outstanding shares of the
Corporation's Series A Redeemable Convertible Participating Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), in addition to the
holders of a majority of the outstanding shares of the Corporation's Class A
Common Stock, par value $.01 per share, and Series A Preferred Stock (on an as
converted basis) voting together as a single class, consenting to the adoption
of this Certificate of Incorporation in accordance with the provisions of
Sections 228 and 242 of the DGCL and the terms of the Certificate of
Incorporation, as amended, such holders being all of the holders of the
Corporation's capital stock entitled to vote thereon.
3. The text of the Certificate of Incorporation, as amended, is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
The name of the Corporation is Teletrac Holdings, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
<PAGE>
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall
have authority to issue is three million one hundred twenty-seven thousand eight
hundred sixty-five (3,127,865) shares, consisting of:
(1) one million five hundred thousand (1,500,000) shares of
Class A Common Stock, par value $.01 per share (the "Class A Common Stock");
(2) seventy thousand (70,000) shares of Class B Common Stock,
par value $.01 per share (the "Class B Common Stock");
(3) one hundred sixty-seven thousand three hundred
eighty-eight (167,388) shares of Series A Redeemable Convertible Participating
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock");
(4) twenty three thousand eighty nine (23,089) shares of
Series A1 Redeemable Convertible Participating Preferred Stock, par value $.01
per share (the "First Series of Diluted Series A Preferred Stock");
(5) five hundred sixty seven thousand three hundred eighty
eight (567,388) shares of Undesignated Preferred Stock, par value $.01 per
share, with such designations, rights, preferences and privileges and such
qualifications, limitations and restrictions as the Board of Directors shall
determine from time to time pursuant to Part E of Article IV hereof (the
"Undesignated Preferred Stock");
(6) four hundred thousand (400,000) shares of Series B
Convertible Participating Preferred Stock, par value $.01 per share (the "Series
B Preferred Stock"); and
(7) four hundred thousand (400,000) shares of Redeemable
Preferred Stock, par value $.01 per share (the "Redeemable Preferred Stock").
The Class A Common Stock and the Class B Common Stock are hereafter
collectively referred to as the "Common Stock." As described in Section 4(k) of
Part A hereof, outstanding shares of Series B Preferred Stock may, from time to
time, convert on a share-for-share basis to a new series of preferred stock
(each such new series, a "New Series of Diluted Series B Preferred Stock")
issued from the Undesignated Preferred Stock. All New Series of Diluted Series B
Preferred Stock are hereafter collectively referred to as the "Diluted Series B
Preferred Stock." The Series B Preferred Stock and the Diluted Series B
Preferred Stock are hereafter collectively
<PAGE>
referred to as the "Series B Stock." As described in Section 4(k) of Part C
hereof, outstanding shares of Series A Preferred Stock may, from time to time,
convert on a share-for-share basis to a new series of preferred stock (each such
new series, a "New Series of Diluted Series A Preferred Stock") issued from the
Undesignated Preferred Stock. The First Series of Diluted Series A Preferred
Stock and all New Series of Diluted Series A Preferred Stock are hereafter
collectively referred to as the "Diluted Series A Preferred Stock." The Series A
Preferred Stock and the Diluted Series A Preferred Stock are hereafter
collectively referred to as the "Series A Stock." The Series B Preferred Stock,
the Diluted Series B Preferred Stock, the Redeemable Preferred Stock, the Series
A Preferred Stock, the Diluted Series A Preferred Stock and the Undesignated
Preferred Stock, are hereafter collectively referred to as the "Preferred
Stock."
The voting powers, designations, preferences, privileges and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions of each class of capital stock of the Corporation,
shall be as provided in this Article IV.
A. SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
1. Dividends.
(a) The holders of the Series B Preferred Stock shall
be entitled to receive cumulative, compounding dividends ("Series B
Cumulative Dividends") at a rate per annum of five percent (5%). Such
dividends shall accrue on a daily basis, shall be cumulative from the
date of original issue and shall be payable out of funds legally
available therefor, when and as declared by the Board of Directors and,
in any event, upon redemption or conversion of the Series B Preferred
Stock or any liquidation of the Corpo ration. Each such Series B
Cumulative Dividend shall be paid to the holders of record of shares of
the Series B Preferred Stock as they appear on the stock register on
the applicable record date, and in the event that Series B Cumulative
Dividends are not paid as of any calendar year end, such dividends
shall thereafter compound and accrue additional Series B Cumulative
Dividends at the applicable dividend rate.
(b) For so long as any shares of Series B Preferred
Stock are outstanding, no dividends shall be declared or paid or set
apart for payment on any shares of any other class or classes of stock
of the Corporation or any series thereof, nor shall any shares of
capital stock be redeemed, purchased or otherwise acquired for any
consideration (or any moneys to be paid to or made available for a
sinking fund for the redemption of any such shares) by the Corporation
(except (i) by conversion into or exchange for shares of the
Corporation ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation, (ii) for conversion of any series of
Preferred Stock to another series of Preferred Stock, (iii) for
conversion of Series B Preferred Stock to Redeemable Preferred Stock
and Common Stock, (iv) for redemption of Redeemable Preferred Stock
under the terms set forth in Part B hereof, and (v) for repurchases of
shares of Common Stock by the Corporation under employee stock plans
and programs approved by the Board of Directors), provided that the
repurchase price does not exceed the lesser of (A) the purchase price
paid to the Company for such shares and (B) the fair
<PAGE>
market value of such shares at the time of such repurchase (as
determined by the Board of Directors in its sole discretion).
(c) In addition, the holders of the Series B
Preferred Stock shall be entitled to receive out of funds legally
available therefor, dividends (other than dividends paid in additional
shares of Common) at the same rate as dividends are paid with respect
to the Common Stock (treating each share of Series B Preferred Stock as
being equal to the maximum number of shares of Common Stock into which
each such share of Series B Preferred Stock could then be converted
pursuant to the provisions of Section 4 hereof).
2. Liquidation Events and Corporate Dispositions.
(a) Liquidation Events. In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (a "Liquidation Event"), the holders of the
Series B Preferred Stock shall be entitled to receive, in cash, out of
the assets of the Corporation available for distribution to
stockholders: (i) before any payment shall be made to the holders of
any other capital stock of the Corporation ranking on liquidation
junior to the Series B Stock, an amount equal to $75.00 per share for
each share of Series B Preferred Stock then held by such holder
(adjusted for any stock split, combination, consolidation, or stock
distributions or stock dividends with respect to such shares), plus a
sum equal to all Series B Cumulative Dividends (whether or not earned
or declared) on such shares of the Series B Preferred Stock to the date
of final distribution (the "Series B Liquidation Preference Amount");
and (ii) after the payment of the Series B Liquidation Preference
Amount, the Series A Liquidation Preference Amount (as defined in
Section 2(a) of Part C hereof) and any other amounts to be distributed
to holders of capital stock of the Company in preference to the holders
of the Common Stock, if any, upon any Liquidation Event, any assets
remaining available for distribution shall be distributed ratably among
the holders of the Common Stock, Series A Stock (if, and only if, such
holders of Series A Stock participate in the distribution with the
holders of Common Stock pursuant to Section 2(a) of Part C hereof) and
the Series B Stock based upon the number of shares of Common Stock (i)
then held by each holder of Common Stock, (ii) issuable upon conversion
of the shares of Series A Stock held by a holder of Series A Stock
pursuant to Section 4 of Part C hereof immediately prior to the
occurrence of any such Liquidation Event, and (iii) issuable upon
conversion of the shares of Series B Stock held by a holder of Series B
Stock pursuant to Section 4 hereof immediately prior to the occurrence
of any such Liquidation Event (the "Residual Series B Liquidation
Amount" and, together with the Series B Liquidation Preference Amount,
the "Total Series B Liquidation Amount"). If the assets and funds
available for distribution among the holders of the Series B Preferred
Stock shall be insufficient to permit the payment to the holders of the
Series B Preferred Stock of the full Series B Liquidation Preference
Amount, then the assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the
Series B Preferred Stock and Diluted Series B Preferred Stock (if any).
The provisions of this Section 2 shall not in any way limit the right
of the holders of Series B Preferred Stock to elect to convert their
shares
<PAGE>
into Redeemable Preferred Stock and Common Stock pursuant to Section
4(a) hereof prior to or in connection with any such Liquidation Event.
(b) Corporate Dispositions. In the event of (i) a
merger or consoli dation of the Corporation with or into another
corporation (with the result that less than a majority of the
outstanding voting power of the surviving corporation is held by
persons who were stockholders of the Corporation immediately prior to
such event), (ii) the sale or transfer of all or substantially all of
the properties and assets of the Corporation and its subsidiaries, or
(iii) any purchase of shares of capital stock of the Corporation
(either through a negotiated stock purchase or a tender for such
shares) by a person or entity not affiliated with the Corporation or
any of its stockholders, the effect of which is that such party
beneficially owns at least a majority of the voting power of the
outstanding shares of capital stock of the Corporation immediately
after such purchase (each, a "Corporate Disposition"), the holders of
Series B Preferred Stock shall be entitled to the application of the
provisions of this Section 2(b) upon the occurrence of such Corporate
Disposition unless the holders of not less than a majority of the
outstanding shares of Series B Stock (with the Series B Preferred Stock
and the Diluted Series B Preferred Stock, if any, voting together on an
as-converted basis), shall have elected the application of the
provisions of Section 4(j) hereof. In the event of a Corporate
Disposition, then, as a part of and as a condition to the effectiveness
of such Corporate Disposition (unless such holders shall have elected
the application of the provisions of Section 4(j) hereof), the
Corporation shall, on the effective date of such Corporate Disposition,
redeem all of the outstanding shares of Series B Preferred Stock for an
amount equal to the Total Series B Liquidation Amount (as calculated
pursuant to Section 2(a) hereof). The provisions of this Section 2
shall not in any way limit the rights of the holders of Series B
Preferred Stock to elect the application of the provisions of Section
4(j) hereof or Section 4(a) of Part B hereof in connection with a
Corporate Disposition.
(c) Surrender of Certificates. On the effective date
of any Corporate Disposition, the Corporation shall pay all cash and
other consideration to which the holders of Series B Preferred Stock
shall be entitled under this Section 2. Upon receipt of such payment,
each holder of shares of Series B Preferred Stock shall surrender the
certificate or certificates representing such shares, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto), at the principal executive
office of the Corporation or the offices of the transfer agent for the
Corporation, or shall notify the Corporation or any transfer agent that
such certificates have been lost, stolen or destroyed and shall execute
an affidavit or agreement reasonably satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
therewith (an "Affidavit of Loss"), and each surrendered certificate
shall be canceled and retired.
(d) Notice. Prior to the occurrence of any
Liquidation Event or Corporate Disposition, the Corporation will
furnish each holder of Series B Preferred Stock notice in accordance
with Section 7 hereof, together with a certificate prepared by the
chief financial officer of the Corporation describing in detail the
facts of such
<PAGE>
Liquidation Event or Corporate Disposition, stating in reasonable
detail the amount(s) per share of Series B Preferred Stock each holder
of Series B Preferred Stock would receive pursuant to the provisions of
Section 2(a) hereof and stating in reasonable detail the facts upon
which such amount was determined and, in connection with any Corporate
Disposition, describing in reasonable detail all material terms of such
Corporate Disposition, including without limitation the consideration
to be delivered in connection with such Corporate Disposition, the
valuation of the Corporation at the time of such Corporate Disposition
and the identities of the parties to the Corporate Disposition.
3. Voting.
(a) General. Except as otherwise expressly provided
herein or as required by law, the holder of each share of Series B
Preferred Stock shall be entitled to vote on all matters submitted to a
stockholder vote or consent. Each share of Series B Preferred Stock
shall entitle the holder thereof to such number of votes per share as
shall equal the maximum number of shares of Common Stock into which
each share of Series B Preferred Stock is then convertible in
accordance with the provisions of Section 4 hereof at the record date
for the determination of stockholders entitled to vote on such matter
or, if no record date is established, at the date such vote is taken or
any written consent of stockholders is solicited. Except as otherwise
expressly provided herein (including without limitation the provisions
of Section 6 hereof) or as required by law, the holders of shares of
Preferred Stock and the Common Stock shall vote together as a single
class on all matters.
(b) Board of Directors. The holders of Preferred
Stock shall be entitled to vote as a class (with all series of
Preferred Stock voting together as a single class, on an as-converted
basis) for the election of two (2) directors. The remainder of the
directors shall be elected by the holders of the Preferred Stock and
the Common Stock voting together as a single class. In any vote by the
holders of the Preferred Stock each share of Series B Preferred Stock
shall be entitled to the number of votes determined as provided in
Section 3(a).
4. Conversion Rights. The holders of Series B Preferred
Stock shall have conversion rights as follows:
(a) Conversion Upon Election of Holders. At any time,
the holders of the shares of Series B Preferred Stock shall be
entitled, by written election of not less than sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of Series B Stock (with the
Series B Preferred Stock and the Diluted Series B Preferred Stock, if
any, voting together on an as-converted basis) and without the payment
of any additional consideration, to cause all of the outstanding shares
of Series B Preferred Stock to be automatically converted into (i) the
number of shares of Class A Common Stock which results from dividing
(A) the Conversion Value of the Series B Preferred Stock, which shall
be $75.00 per share by (B) the Series B Conversion Price (as defined
below) then in effect at the time of conversion and (ii) one share of
Redeemable Preferred Stock per
<PAGE>
share of Series B Preferred Stock. The "Series B Conversion Price"
shall be $75.00 subject to adjustment, from time to time, as provided
in Section 5 hereof. Upon the election to so convert in the manner and
on the basis specified in this Section 4(a), all holders of the Series
B Preferred Stock shall be deemed to have elected to voluntarily
convert all outstanding shares of Series B Preferred Stock pursuant to
this Section 4(a).
(b) Automatic Conversion. Each share of Series B
Preferred Stock shall automatically be converted, without the payment
of any additional consideration, into shares of Common Stock on the
basis provided in Section 4(a) above (i) upon the closing of an
underwritten public offering pursuant to an effective registration
statement under Securities Act of 1933, as amended (the "Securities
Act"), provided that (A) such registration statement covers the offer
and sale of Common Stock of which the aggregate gross proceeds
attributable to sales for the account of the Corporation exceed
$30,000,000 at a price per share reflecting a pre-money valuation for
the Corporation's equity of at least $180,000,000, and (B) either (x)
all outstanding shares of Redeemable Preferred Stock are redeemed
immediately upon and as of the closing of such offering or (y)
contemporaneously with such offering cash in an amount sufficient to
redeem all outstanding shares of Redeemable Preferred Stock is
segregated and irrevocably held by the Corporation for payment to
holders of Redeemable Preferred Stock in connection with the redemption
thereof pursuant to Section 4 of Part B (a "Series B Qualified Public
Offering"); or (ii) upon the written election of the holder or holders
of not less than sixty-six and two-thirds percent (662/3%) percent of
the outstanding Series B Stock (with the Series B Preferred Stock and
the Diluted Series B Preferred Stock, if any, voting together on an
as-converted basis), made in connection with the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of
Common Stock of the Corporation to the public which does not constitute
a Series B Qualified Public Offering (a "Series B Non-Qualified Public
Offer ing").
(c) Conversion Procedures. Upon conversion of the
Series B Preferred Stock pursuant to Section 4(a) or Section 4(b)
hereof, each holder of Series B Preferred Stock shall surrender the
certificate or certificates representing its Series B Preferred Stock,
duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the
transfer agent for the Series B Preferred Stock or such office or
offices in the continental United States of an agent for conversion as
may from time to time be designated by notice to the holders of the
Series B Preferred Stock by the Corporation, or shall deliver an
Affidavit of Loss with respect to such certificates. Upon surrender of
a certificate representing Series B Preferred Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the holder thereof or to such
holder's designee, at the address designated by such holder, a
certificate or certificates for the number of shares of Common Stock
and, if applicable, Redeemable Preferred Stock to which such holder
shall be entitled upon conversion. The issuance and delivery of
certificates for Common Stock and, if applicable, Redeemable Preferred
Stock upon conversion of Series B Preferred
<PAGE>
Stock will be made without charge to the holders of such shares for any
issuance tax in respect thereof or other costs incurred by the
Corporation in connection with such conver sion and the related
issuance of such stock. Notwithstanding anything to the contrary set
forth in this Section 4(c), in the event that the holders of shares of
Series B Preferred Stock elect to convert such shares in connection
with any Liquidation Event or Corporate Disposition, the holders shall
deliver notice of such conversion no later than five (5) days before
the occurrence of such Liquidation Event or the closing of such
Corporate Disposition and such notice shall be effective as of, and
shall in all cases be subject to, the occurrence of such Liquidation
Event or closing of such Corporate Disposition. If such Liquidation
Event or Corporate Disposition occurs, all outstanding shares of Series
B Preferred Stock elected to be converted shall be deemed to have been
converted into shares of Common Stock and Redeemable Preferred Stock
immediately prior thereto, and the Corporation shall make appropriate
provisions for the Common Stock issued upon such conversion to be
treated on the same basis as all other Common Stock in such Liquidation
Event or Corporate Disposition and for the Redeemable Preferred Stock
to be treated in the manner set forth in Section 2 of Part B.
(d) Effective Date of Conversion. A conversion of
Series B Preferred Stock shall be effective (i) in the case of
conversion pursuant to Section 4(a) hereof, as of the date of receipt
by the Corporation of such holders' written election to convert or such
later date as shall be specified in such election and (ii) in the case
of an automatic conversion pursuant to Section 4(b) hereof, immediately
prior to the closing of the Series B Qualified Public Offering or a
Series B Non-Qualified Public Offering, as the case may be. On and
after the effective date of conversion, the person or persons entitled
to receive the Common Stock and, if applicable, Redeemable Preferred
Stock issuable upon such conversion shall, subject, in each case, to
compliance with the conversion procedures in Section 4(c), be treated
for all purposes as the record holder or holders of such shares of
Common Stock and Redeemable Preferred Stock.
(e) No Impairment. The Corporation shall not, by
amendment of its charter documents or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but shall at all times in good
faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion and other rights of the
holders of the Series B Preferred Stock against impairment.
(f) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of Series B Preferred Stock any
fractional share of Common Stock or Redeemable Preferred Stock issuable
upon any conversion of such Series B Preferred Stock, but in lieu
thereof may make a cash payment for fair market value in respect
thereof in any manner permitted by law.
<PAGE>
(g) Reservation of Stock. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock and Redeemable Preferred Stock solely
for the purpose of effecting the conversion of the shares of Series B
Preferred Stock such number of its shares of Class A Common Stock and
Redeemable Preferred Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series B Preferred
Stock. If at any time the number of authorized but unissued shares of
Class A Common Stock and Redeemable Preferred Stock shall not be
sufficient to effect the conversion of all then outstanding shares of
Series B Preferred Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued
shares of Class A Common Stock and Redeemable Preferred Stock to such
number of shares as shall be sufficient for such purpose. The
Corporation shall prepare and shall use its best efforts to obtain and
keep in force such governmental or regulatory permits or other
authorizations as may be required by law, excluding permits or
authorizations relating to registration under Federal or state
securities laws, in order to enable the Corporation lawfully to issue
and deliver to each holder of record of Series B Preferred Stock such
number of shares of its Class A Common Stock and Redeemable Preferred
Stock as shall from time to time be sufficient to effect the conversion
of all Series B Preferred Stock then outstanding.
(h) Adjustments to Series B Conversion Price. The
Series B Conversion Price in effect from time to time shall be subject
to adjustment through the effective date of the conversion of all of
the then outstanding Series B Preferred Stock and regardless of whether
any shares of Series B Preferred Stock are then issued and outstanding
as follows:
(i) Stock Dividends, Subdivisions and
Combinations. Upon the issuance of additional shares of Common
Stock as a dividend or other distribution on outstanding
Common Stock, the subdivision of outstanding shares of Common
Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a
smaller number of shares of Common Stock, the Series B
Conversion Price shall, simultaneously with the happening of
such dividend, subdivision or split, be adjusted by
multiplying the then effective Series B Conversion Price by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event
and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Section 4(h)(i) shall be
given effect, upon payment of such a dividend or distribu
tion, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution
(on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the
effective date thereof.
(ii) Sale of Common Stock. In the event the
Corporation shall at any time, or from time to time, issue,
sell or exchange any shares of Common Stock (including shares
held in the Corporation's treasury but excluding any shares
<PAGE>
of Common Stock issued (a) upon conversion of Preferred Stock
or (b) upon the exercise of Excluded Options (as defined in
Section 4(h)(iii) below)), for a consideration per share less
than the Series B Conversion Price in effect immedi ately
prior to the issuance, sale or exchange of such shares, then,
and thereafter successively upon each such issuance, sale or
exchange, the Series B Conversion Price in effect immediately
prior to the issuance, sale or exchange of such shares shall
forthwith be reduced to an amount determined by multiplying
such Series B Conversion Price by a fraction:
(A) the numerator of which shall be
(i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding
treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange
of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable
securities), plus (ii) the number of shares of Common
Stock which the total aggregate consideration
received by the Corporation for the total number of
such additional shares of Common Stock so issued
would purchase at the Series B Conversion Price
(prior to adjustment), and
(B) the denominator of which shall
be (i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding
treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange
of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable
securities), plus (ii) the number of such additional
shares of Common Stock so issued.
(iii) Sale of Options, Rights or Convertible
Securities. In the event the Corporation shall at any time or
from time to time, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options
or warrants to purchase up to 133,042 shares of Common Stock
granted to officers, directors, employees, consultants,
advisors or agents of the Corporation granted or issued
pursuant to employee stock option plans and programs approved
by the compensation committee of the Corporation's Board of
Directors (collectively, the "Excluded Options")), or issue
any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined by
dividing the Net Aggregate Consideration (as determined below)
by the aggregate number of shares of Common Stock that would
be issued if all such options, warrants, rights or convertible
or exchangeable securities were exercised, converted or
exchanged to the fullest extent permitted by their terms) less
than the Series B Conversion Price in effect immediately prior
to the issuance of such options, warrants, rights or
convertible or exchangeable securities, the Series B
Conversion Price in effect immediately prior to the issuance
of such options, warrants, rights or convertible or
exchangeable securities shall forthwith
<PAGE>
be reduced to an amount determined by multiplying such Series
B Conversion Price by a fraction:
(A) the numerator of which shall be
(i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, rights or convertible or
exchangeable securities (excluding treasury shares
but including all shares of Common Stock issuable
upon conversion, exercise or exchange of any
outstanding Preferred Stock, options, warrants,
rights or convertible securities), plus (ii) the
number of shares of Common Stock which the total
amount of consideration received by the Corporation
for the issuance of such options, warrants, rights or
convertible or exchangeable securities plus the
minimum amount set forth in the terms of such
security as payable to the Corporation upon the
exercise, conversion or exchange thereof (the "Net
Aggregate Consideration") would purchase at the
Series B Conversion Price prior to adjustment, and
(B) the denominator of which shall
be (i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible or
exchangeable securities (excluding treasury shares
but including all shares of Common Stock issuable
upon conversion, exercise or exchange of any
outstanding Preferred Stock, options, warrants,
rights or convertible or exchangeable securities),
plus (ii) the aggregate number of shares of Common
Stock that would be issued if all such options,
warrants, rights or convertible or exchangeable
securities were exercised, converted or exchanged.
(iv) Expiration or Change in Price. If the
consideration per share provided for in any options, warrants
or rights to subscribe for shares of Common Stock or any
securities exchangeable for or convertible into shares of
Common Stock changes at any time, the Series B Conversion
Price in effect at the time of such change shall be readjusted
to the Series B Conversion Price which would have been in
effect at such time had such options, warrants rights or
convertible or exchangeable securities provided for such
changed consideration per share (determined as provided in
Section 4(h)(iii) hereof), at the time initially granted,
issued or sold; provided, that such adjustment of the Series B
Conversion Price will be made only as and to the extent that
the Series B Conversion Price effective upon such adjustment
remains less than or equal to the Series B Conversion Price
that would be in effect if such options, warrants, rights or
convertible or exchangeable securities had not been issued. No
adjustment of the Series B Conversion Price shall be made
under this Section 4 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise of any
options, warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights
in any convertible or exchangeable securities if an adjustment
shall previously have been made upon the issuance of
<PAGE>
such options, warrants, rights or convertible or exchangeable
securities. Any adjustment of the Series B Conversion Price
shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the
options, warrants, rights or convertible or exchangeable
securities which gave rise to such adjustment expire or are
canceled without having been exercised, so that the Series B
Conversion Price effective immediately upon such cancellation
or expiration shall be equal to the Series B Conversion Price
in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities,
with such additional adjustments as would have been made to
that Series B Conversion Price had the expired or canceled
warrants, options, rights or convertible securities not been
issued.
(i) Other Adjustments. In the event the Corporation
shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a non-cash dividend or
other distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event lawful and adequate
provision shall be made so that the holders of Series B Preferred Stock
shall receive upon conversion thereof in addition to the number of
shares of Common Stock receivable thereupon, the number of securities
of the Corporation which they would have received had their Series B
Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the Conversion Date (as that term is hereafter
defined), retained such securities receivable by them as aforesaid
during such period.
If the Common Stock or Redeemable Preferred Stock
issuable upon the conversion of the Series B Preferred Stock shall be
changed into the same or different number of shares of any class or
classes of stock, whether by reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this Section 4), then and
in each such event the holder of each share of Series B Preferred Stock
shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders
of the number of shares of Common Stock or Redeemable Preferred Stock,
as the case may be, into which such shares of Series B Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as
provided herein.
(j) Mergers and Other Reorganizations. If (i) at any
time or from time to time there shall be a Corporate Disposition, and
(ii) the holders of a majority of the outstanding shares of Series B
Stock (with the Series B Preferred Stock and the Diluted Series B
Preferred Stock, if any, voting together on an as-converted basis)
expressly elect in writing to have the provisions of this Section 4(j),
and not the provisions of Section 2, apply to such transaction, then,
as a part of and as a condition to the effectiveness of such
reorganization, merger, consolidation or sale, lawful and adequate
provision shall be made
<PAGE>
so that the holders of the Series B Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series B Preferred Stock the
number of shares of stock or other securities or property of the
Corporation or of the successor corporation resulting from such merger
or consolidation or sale, to which such holders would have been
entitled upon such capital reorganization, merger, consolidation or
sale had such holders converted their shares of Series B Preferred
Stock into Redeemable Preferred Stock and Common Stock immediately
prior to such capital reorganization, merger, consolidation, or sale.
In any such case, appropriate provisions shall be made with respect to
the rights of the holders of the Series B Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the
provisions of this Section 4 (including without limitation provisions
for adjustment of the Series B Conversion Price and the number of
shares purchasable upon conversion of the Series B Preferred Stock)
shall thereafter be applicable, as nearly as may be, with respect to
any shares of stock, securities or assets to be deliverable thereafter
upon the conversion of the Series B Preferred Stock. The provisions of
this Section 4(j) shall not in any way limit the rights of the holders
of Series B Preferred Stock under Sec tion 2 hereof if an election to
have this Section 4(j) apply to such transaction is not made by such
holders.
(k) Exceptions to Adjustment of Series B Conversion
Price. Notwith standing anything herein to the contrary, in the event
that (i) the Corporation completes an issuance of new securities (for
purposes of this paragraph, the "New Securities") that results in an
adjustment of the Series B Conversion Price pursuant to Section
4(h)(ii) or Section 4(h)(iii) and which the holders of Series B
Preferred Stock had a right to purchase pursuant to Article IV of a
certain Stockholders Agreement dated October 19, 1998 by and among the
Corporation and certain of its stockholders (the "Stockholders
Agreement") and (ii) any holder of the Series B Preferred Stock does
not purchase its pro rata share (as defined in Article IV of the
Stockholders Agreement) of such New Securities, then such holder (a
"Non-Participating Series B Holder") shall not be entitled to the
benefits of Section 4(h)(ii) or Section 4(h)(iii), as applicable, with
respect to any adjustment to the Series B Conversion Price resulting
from that issuance or any future issuances of New Securities and all of
such Non-Participating Holder's shares of Series B Preferred Stock
shall immediately and automatically, without further action by such
Non-Participating Series B Holder, be converted on a share-for-share
basis to a New Series of Diluted Series B Preferred Stock, which shall
be identical in all respects to the Series B Preferred Stock except
that (A) the Series B Conversion Price of such New Series of Diluted
Series B Preferred Stock shall be equal to the Series B Conversion
Price of the Series B Preferred Stock in effect immediately prior to
the issuance of such New Securities and (B) the terms of such New
Series of Diluted Series B Preferred Stock shall not contain any
provision for adjustment thereof similar to Section 4(h)(ii) or Section
4(h)(iii) hereof. Prior to the issuance of any New Series of Diluted
Series B Preferred Stock (x) the Board of Directors shall designate the
number of shares and the New Series of Diluted Series B Preferred Stock
to be issued in accordance with this Section 4(k) at that time and (y)
the Corporation shall file all certificates and take all actions
necessary to effectuate the foregoing. Any holder of Series B Preferred
Stock whose shares are automatically converted pursuant to this Section
4(k) into shares of a New
<PAGE>
Series of Diluted Series B Preferred Stock shall surrender the
certificate or certificates representing the Series B Preferred Stock
so converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the
transfer agent for the Series B Preferred Stock or such office or
offices in the continental United States of an agent for conversion as
may from time to time be designated by notice to the holders of the
Series B Preferred Stock by the Corporation, or shall deliver an
Affidavit of Loss with respect to such certificates. Upon surrender of
a certificate representing Series B Preferred Stock for conversion
under this Section 4(k), the Corporation shall issue and send by hand
delivery, by courier or by first class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated
by such holder, a certificate or certificates for the number of shares
of the New Series of Diluted Series B Preferred Stock to which such
holder shall be entitled upon such automatic conversion. The issuance
and delivery of certificates for a New Series of Diluted Series B
Preferred Stock upon conversion of Series B Preferred Stock will be
made without charge to the holders of such shares for any issuance tax
in respect thereof or other costs incurred by the Corporation in
connection with such conversion and the related issuance of such stock.
Each share of Series B Preferred Stock converted pursuant to this
Section 4(k) shall be canceled and retired as provided in Section 7
hereof. In the event that any Non-Participat ing Series B Holder fails
to surrender its certificates as provided hereunder, such certificate
shall nonetheless represent only the right to receive a New Series of
Diluted Series B Preferred Stock, as provided hereunder.
Notwithstanding anything herein to the contrary, in no event
shall the Corporation's issuance and sale of Additional Series B Preferred
Shares (as defined in that certain Stock Purchase Agreement dated as of October
19, 1998, by and among the Corporation and the purchasers of Series B Preferred
Stock (the "Purchase Agreement")), pursuant to the Purchase Agreement constitute
an issuance of New Securities hereunder.
(l) Waiver. The holder or holders of not less than
sixty-six and two-thirds percent (662/3%) of the outstanding Series B
Preferred Stock may, by written notice to the Corporation, waive any
adjustment to the Series B Conversion Price required under this Section
4.
(m) Notices. In each case of an adjustment or
readjustment of the Series B Conversion Price, the Corporation will
furnish each holder of Series B Preferred Stock with a certificate,
prepared by the chief financial officer of the Corporation, showing
such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
5. Redemption.
(a) Prior to February 1, 2008. The Corporation may,
at any time prior to February 1, 2008 redeem each share of Series B
Preferred Stock then outstanding for a cash price equal to the sum of
(i) the Series B Liquidation Preference Amount as of the
<PAGE>
date of redemption, plus (ii) an amount equal to all Series B
Cumulative Dividends (whether or not earned or declared) on such shares
of the Series B Preferred Stock to February 1, 2008.
(b) On or After February 1, 2008. At any time on or
after February 1, 2008, at the election of the holders of a majority of
the outstanding Series B Stock (with the Series B Preferred Stock and
the Diluted Series B Preferred Stock, if any, voting together on an
as-converted basis), the Corporation shall redeem each share of Series
B Preferred Stock then outstanding for a cash price equal to the
greater of (i) the Series B Liquidation Preference Amount or (ii) the
fair market value of the Series B Preferred Stock as of the date of
redemption as determined in accordance with Section 5(f) below,
together with all shares of Diluted Series B Preferred Stock in
accordance with the terms thereof.
(c) Series B Redemption Price; Dividends. Any date
upon which a redemption shall occur in accordance with Section 5(a) or
Section 5(b) hereof shall be referred to as a "Series B Redemption
Date." The redemption price for each share of Redeemable Preferred
Stock redeemed pursuant to Section 5(a) or Section 5(b) hereof shall be
referred to as the Redeemable Redemption Price. If at the Series B
Redemption Date shares of Series B Preferred Stock are unable to be
redeemed (as contemplated by Section 5(e) below), in addition to the
Series B Redemption Price the holders of Series B Preferred Stock shall
be entitled to any interest accrued pursuant to Section 5(e). The
Series B Redemption Price shall be payable in cash in immediately
available funds on the Series B Redemption Date. Until the full Series
B Redemption Price, including any interest thereon, has been paid in
cash for all shares of Series B Preferred Stock redeemed as of the
applicable Series B Redemption Date: (A) no dividend whatsoever shall
be paid or declared, and no distribution shall be made, on any capital
stock of the Corporation; and (B) no shares of capital stock of the
Corporation (other than the Series B Stock in accordance with this
Section 5) shall be purchased, redeemed or acquired by the Corporation
and no monies shall be paid into or set aside or made available for a
sinking fund for the purchase, redemption or acquisition thereof.
(d) Termination of Rights. From and after the Series
B Redemption Date, unless there shall have been a default in payment or
tender by the Corporation of the Series B Redemption Price, all rights
of the holders with respect to such redeemed shares of Series B
Preferred Stock (except the right to receive the Series B Redemption
Price in accordance with the terms hereof upon surrender of their
certificate) shall cease and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(e) Insufficient Funds. If the funds of the
Corporation legally available for redemption of shares of Series B
Preferred Stock and shares of Diluted Series B Preferred Stock (if any)
to be redeemed on the Series B Redemption Date are insufficient to
redeem the total number of shares of Series B Preferred Stock and
Diluted Series B Preferred Stock (if any), the Corporation shall use
those funds which are legally available
<PAGE>
to redeem the maximum possible number of such shares ratably among the
holders of shares of Series B Stock to be redeemed. At any time
thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series B Preferred Stock and
shares of Diluted Series B Preferred Stock (if any) (before any payment
shall be made to the holders of any capital stock of the Corporation
ranking junior to the Series B Stock), such funds will immediately be
used to redeem the balance of the shares which the Corporation has
become obligated to redeem on the Series B Redemption Date but which it
has not redeemed at the Series B Redemption Price together with any
accrued interest thereon as provided below. If any shares of Series B
Preferred Stock are not redeemed because the Corporation failed to pay
or tender to pay the aggregate Series B Redemption Price on all
outstanding shares of Series B Stock, (i) all shares which have not
been redeemed shall remain outstanding and entitled to all the rights
and preferences provided herein, and the Corporation shall pay interest
on the unpaid portion of the Series B Redemption Price for the
unredeemed portion at a per annum rate equal to twenty percent (20%) or
the maximum rate of interest permitted under applicable law, whichever
is less and (ii) if such Series B Redemption Price shall remain unpaid
for a period of nine (9) months, then the Board of Directors shall take
all actions that it deems necessary to fund the Series B Redemption
Price, including, without limitation, the sale or liquidation of the
Corporation.
(f) Fair Market Value Determination.
(i) If the Corporation's Common Stock is
publicly traded at the Series B Redemption Date, the Fair
Market Value of each share of Series B Preferred Stock shall
equal the product of the number of shares of Common Stock into
which each share of the Series B Preferred Stock may then be
converted multiplied by the average closing price for the
Corporation's Common Stock for the thirty (30) trading days
immediately preceding the Series B Redemption Date.
(ii) If the Corporation's Common Stock is
not publicly traded on the Series B Redemption Date, the Fair
Market Value shall be determined in accordance with the
following provisions. Within fifteen (15) days after the
redemption election by the Corporation or by the holders of
Series B Preferred Stock pursuant to Section 5, as the case
may be, the Corporation shall deliver to each holder of Series
B Preferred Stock its estimate of the Fair Market Value of the
Series B Preferred Stock to be redeemed. If the holders of
sixty-six and two-thirds percent (662/3%) of the outstanding
shares of the Series B Stock (with the Series B Preferred
Stock and the Diluted Series B Preferred Stock, if any, voting
together as a single class on an as-converted basis), do not
object in writing to the Corporation's estimate of the Fair
Market Value of the Series B Preferred Stock, within fifteen
(15) days after receipt of the Corporation's written notice
thereof, such estimate shall be the Fair Market Value for
purposes of determining the Series B Redemption Price of the
Series B Preferred Stock. If the holders of sixty-six and
two-thirds percent (662/3%) of the outstanding shares of the
Series B Stock (with the Series B Preferred Stock and the
Diluted Series B Preferred Stock, if
<PAGE>
any, voting together as a single class on an as-converted
basis) do timely object to the Corporation's estimate of Fair
Market Value, the Corporation and such holders shall seek for
a ten-day period thereafter to negotiate the Fair Market Value
in good faith. If the Corporation and the holders of sixty-six
and two-thirds percent (662/3%) of the outstanding shares of
the Series B Stock (with the Series B Preferred Stock and the
Diluted Series B Preferred Stock, if any, voting together as a
single class on an as-converted basis) are unable to agree
upon such Fair Market Value by the end of such period, each of
the Corporation and the holders (acting at the direction of a
majority of the outstanding shares of Series B Stock (with the
Series B Preferred Stock and the Diluted Series B Preferred
Stock, if any, voting together as a single class on an
as-converted basis) shall, within ten (10) days thereafter,
select an unaffiliated investment banking firm of nationally
recognized standing in the telecommunications industry to
appraise the Fair Market Value of the Series B Preferred
Stock. Each such firm will deliver its appraisal of the Fair
Market Value within fifteen (15) days thereafter, and if the
lower appraisal is at least ninety percent (90%) of the higher
appraisal, the arithmetic mean of the two shall be the Fair
Market Value. If the two appraisals vary by more than ten
percent (10%), the two firms shall promptly select a third
investment banking firm of nationally recognized standing in
the telecommunica tions industry. Such third firm shall,
within ten (10) days thereafter, deliver its appraisal of the
Fair Market Value of the Series B Preferred Stock, the two
appraisals which are closest together in value shall be
averaged and such amount shall be the Fair Market Value for
purposes of determining the Series B Redemption Price.
(iii) When determining the Fair Market Value
of the Series B Preferred Stock, the appraisers shall
consider, among other factors, book value, re placement value,
comparable public company valuations, earnings, the value of
future cash flows of the Corporation and its subsidiaries as
an on-going enterprise and the sale of various combinations of
the individual assets of the Corporation and its subsidiaries
as well as a sale of the Corporation and its subsidiaries as a
whole, choosing the manner of sale which maximizes the
aggregate value of the assets being sold, and shall make no
deduction, discount or other subtraction what soever for the
possible minority status of any such holder or for any lack of
marketability of any shares of stock held by such holder or
any restrictions on transfer thereof. All costs of the
appraisals under this Section 5(d) shall be borne by the
Corporation.
6. Restrictions and Limitations. So long as the Series B
Preferred Stock remains outstanding:
(a) The Corporation will not, without the affirmative
vote or written consent of the holders of a majority of the issued and
outstanding shares of Common Stock and Preferred Stock, voting as a
single class on an as converted basis:
<PAGE>
(i) Authorize or issue, or obligate itself
to issue, any shares of Common Stock (other than pursuant to
the exercise of stock options or other rights granted under
the 1995 Stock Option Plan, 1996 Stock Option Plan and 1998
Stock Option Plan, or upon conversion of the Preferred Stock);
(ii) Authorize any merger or consolidation
of the Corporation with or into any other corporation,
partnership or entity (with respect to which less than a
majority of the outstanding voting power of such surviving
corporation is held by stockholders of the Corporation
immediately prior to such event) or permit the sale of all or
any material portion of the capital stock or assets of the
Corporation (other than sales in the ordinary course of
business and consistent with past practices); or
(iii) Incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any
new or additional indebtedness or liability (other than up to
$30 million in connection with the Corporation's revolving
credit facilities with Banque Paribas and Fleet National
Bank).
(b) The Corporation will not, without the affirmative
vote or written consent of holders of sixty-six and two-thirds percent
(662/3%) of the issued and outstanding shares of Common Stock and
Preferred Stock, voting as a single class on an as converted basis:
(i) Authorize or issue, or obligate itself
to issue, any equity securities at an effective per share
price which is less than $173.25 (which price shall be
appropriately adjusted for stock splits, stock dividends,
recapitalizations and the like), other than any Additional
Series B Preferred Shares issued pursuant to the Purchase
Agreement;
(ii) Authorize or issue a class or series of
stock having rights equal or senior to the Series B Preferred
Stock, or a new class or series of Preferred Stock, other than
any Additional Series B Preferred Shares issued pursuant to
the Purchase Agreement;
(iii) Authorize any acquisition, merger or
consolidation of assets or stock of another corporation,
partnership or entity in exchange for shares of equity
securities of the Corporation which results in dilution to the
existing stockholders, on a fully diluted, as converted basis,
in excess of fifteen percent (15%); or
(iv) Authorize or permit the reorganization,
liquidation, dissolution or winding up of the Corporation.
<PAGE>
(c) The Corporation will not, without the affirmative
vote of the holders of a majority of the outstanding shares of Series B
Preferred Stock voting as a separate class:
(i) Redeem, purchase or otherwise acquire
for value (or pay into or set aside for a sinking fund for
such purpose) any shares of Common Stock or of any other class
of capital stock of the Corporation or any of the
Corporation's outstanding options, warrants or convertible or
exchangeable securities, except for repurchases of shares of
Common Stock at cost by the Company under employee stock plans
and programs approved by the Board of Directors;
(ii) Increase or decrease (other than by
conversion as permitted hereby) the total number of authorized
shares of Series B Preferred Stock; or
(iii) Amend the charter documents of the
Company so as to adversely affect the rights of the holders of
Series B Preferred Stock with respect to dividends,
liquidation preferences, redemption or any other preference,
power, right or privilege.
7. No Reissuance of Series B Preferred Stock. No share
or shares of the Series B Preferred Stock acquired by the Corporation
by reason of redemption, purchase, conversion (including, without limitation,
conversion of Series B Preferred Stock into Undesignated Preferred Stock under
Section 4(k) hereof) or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series B Preferred Stock accordingly.
8. Notices of Record Date. In the event (i) the
Corporation establishes a record date to determine the holders of any class or
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series B Preferred Stock at least twenty (20) days prior to the record
date specified therein, a notice specifying (a) the date of such record date for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (c) the time, if any, that is to
be fixed, as to when the holders of record of Preferred Stock and Common Stock
(or other securities) shall be entitled to exchange their shares of Preferred
Stock and Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
<PAGE>
9. Other Rights. Except as otherwise provided in the
charter documents of the Corporation, as amended, shares of Series B Preferred
Stock and shares of Common Stock shall be identical in all respects (each share
of Series B Preferred Stock having equivalent rights to the maximum number of
shares of Common Stock into which it is then convertible), shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share, and shall be treated as a single class of
stock for all purposes.
10. Miscellaneous.
(a) All notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or
by standard form of telecommunication, addressed: (i) if to the
Corporation, to its principal executive office (Attention: President)
and to the transfer agent, if any, for the Series B Preferred Stock or
other agent of the Corporation designated as permitted hereby, (ii) if
to any holder of the Preferred Stock or Common Stock, as the case may
be, to such holder at the address of such holder as listed in the stock
record books of the Corporation (which may include the records of any
transfer agent for the Preferred Stock or Common Stock, as the case may
be) or (iii) to such other address as the Corporation or any such
holder, as the case may be, shall have designated by notice similarly
given.
(b) The Corporation may appoint, and from time to
time discharge and change, a transfer agent of the Series B Preferred
Stock. Upon any such appointment or discharge of a transfer agent, the
Corporation shall send notice thereof by hand delivery, by courier, by
standard form of telecommunication or by first class mail (postage
prepaid), to each holder of record of Series B Preferred Stock.
(c) The Board of Directors is hereby authorized to
designate and issue additional series of Diluted Series B Preferred
Stock in accordance with Section 4(k) hereof. The terms of such
additional series of Diluted Series B Preferred Stock shall be
identical to the terms of the Series B Preferred Stock at the time of
such designation, except that (i) each additional series of Diluted
Series B Preferred Stock shall not have provisions similar to Section
4(h)(ii) or Section 4(h)(iii) above and (ii) the Board of Directors
shall designate the conversion price for such additional series of
Diluted Series B Preferred Stock which shall be equal to the conversion
price of the Series B Preferred Stock being converted pursuant to
Section 4(k) in effect immediately prior to the issuance of the New
Securities (as defined in Section 4(k) hereof).
B. REDEEMABLE PREFERRED STOCK
The relative rights, preferences, restrictions and other matters
relating to the Redeemable Preferred Stock are as follows:
<PAGE>
1. Dividends.
(a) The holders of the Redeemable Preferred Stock
shall be entitled to receive cumulative dividends on the Redeemable
Preferred Stock in cash, at the rate per annum of five percent (5%) of
the Redeemable Base Liquidation Amount (as defined in Section 2 below)
per share of Redeemable Preferred Stock (a "Redeemable Cumulative
Dividend"). Such dividends will accrue commencing as of the date of
issuance of the Redeemable Preferred Stock and be cumulative, to the
extent unpaid, whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends; provided, however, that
in the event that shares of Redeemable Preferred Stock are unable to be
redeemed and continue to be outstanding in accordance with Section 4(c)
hereof, such shares shall continue to be entitled to dividends through
such date and interest as provided in Section 4(c) hereof until the
date on which such shares are actually redeemed by the Corporation.
Redeemable Cumulative Dividends shall become due and payable with
respect to any share of Redeemable Preferred Stock as provided in
Sections 2 and 4 hereof.
(b) For so long as any shares of Redeemable Preferred
Stock are outstanding, no dividends shall be declared or paid or set
apart for payment on any shares of any other class or classes of stock
of the Corporation or any series thereof ranking junior to the
Redeemable Preferred Stock, nor shall any shares of capital stock be
redeemed, purchased or otherwise acquired for any consideration (or any
moneys to be paid to or made available for a sinking fund for the
redemption of any such shares) by the Corporation (except (i) by
conversion into or exchange for shares of the Corporation ranking
junior to the Series A Preferred Stock as to dividends and upon
liquidation, (ii) for conversion of any series of Preferred Stock to
another series of Preferred Stock, (iii) for conversion of Series B
Preferred Stock to Redeemable Preferred Stock and Common Stock, (iv)
for redemption of Redeemable Preferred Stock under the terms set forth
herein, and (v) for repurchases of shares of Common Stock by the
Corporation under employee stock plans and programs approved by the
Board of Directors), provided that the repurchase price does not exceed
the lesser of (A) the purchase price paid to the Company for such
shares and (B) the fair market value of such shares at the time of such
repurchase (as determined by the Board of Directors in its sole
discretion).
(c) All numbers relating to the calculation of
dividends pursuant to this Section 1 shall be subject to equitable
adjustment in the event of any stock split, combination,
reorganization, recapitalization, reclassification or other similar
event involving a change in the Redeemable Preferred Stock.
2. Liquidation Event. Upon any Liquidation Event, each
holder of Redeemable Preferred Stock shall be entitled to receive, in cash, out
of the assets of the Corporation available for distribution to stockholders
before any payment shall be made to the holders of any other capital stock of
the Corporation ranking on liquidation junior to the Redeemable Preferred Stock,
an amount equal to $75.00 per share for each share of Redeemable Preferred Stock
then held by such holder (adjusted for any stock split, combination,
consolidation,
<PAGE>
or stock distributions or stock dividends with respect to such shares), plus an
amount equal to the sum of (A) all unpaid Series B Cumulative Dividends on
shares of Series B Preferred Stock which converted into the Redeemable Preferred
Stock and (B) all Redeemable Cumulative Dividends (whether or not earned or
declared) on such shares of Redeemable Preferred Stock to the date of final
distribution (the "Redeemable Base Liquidation Amount"); such holder shall also
be entitled to an amount equal to any interest accrued pursuant to Section 4(c)
hereof. If the assets and funds available for distribution among the holders of
the Redeemable Preferred Stock shall be insufficient to permit the payment to
the holders of the Redeemable Preferred Stock of the full Redeemable Base
Liquidation Amount, then the assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Redeemable Pre ferred Stock.
3. Voting. Except as otherwise expressly provided herein
or as required by law, the holders of Redeemable Preferred Stock shall not be
entitled to vote on any matters submitted to a stockholder vote or consent.
4. Redemption. The holders of Redeemable Preferred Stock
shall have redemption rights as follows:
(a) Redemption Events.
(i) Automatic Redemption. Immediately upon
and as of, and in all cases subject to, the closing of a
Series B Qualified Public Offering, the Corporation shall
redeem all (and not less than all) of the outstanding shares
of Redeemable Preferred Stock at the Redeemable Redemption
Price specified in Section 4(b) below.
(ii) On or After February 1, 2008. Upon the
election of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the outstanding Redeemable
Preferred Stock (or the holders of not less than sixty-six and
two thirds percent (66 2/3%) of the outstanding Series B Stock
proposing to convert the same in order to effect a redemption
of the Redeemable Preferred Stock received upon such
conversion hereunder) made at any time on or after February 1,
2008 the Corporation shall redeem all (and not less than all,
other than pursuant to Section 4(c) below) of the outstanding
shares of Redeemable Preferred Stock. The foregoing election
shall be made by such holders giving the Corporation and each
of the other holders of Redeemable Preferred Stock (or Series
B Stock, as applicable) not less than fifteen (15) days prior
written notice which notice shall set forth the date for such
redemption.
(iii) Upon a Corporate Disposition. Upon the
election of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the outstanding Redeemable
Preferred Stock (or Series B Stock, as applicable, proposing
to convert the same in order to effect a redemption of the
Redeemable Preferred Stock received upon such conversion
hereunder), the Corporation shall
<PAGE>
redeem all (and not less than all, other than pursuant to
Section 4(c) below) of the outstanding shares of Redeemable
Preferred Stock upon the occurrence of a Corporate
Disposition. The foregoing election shall be made by such
holders giving the Corporation and each other holder of
Redeemable Preferred Stock (or Series B Stock, as applicable)
not less that five (5) days prior written notice, which notice
shall set forth the date for such redemption.
(b) Redemption Date and Redemption Price. Upon the
election of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the outstanding Redeemable Preferred Stock to
cause the Corporation to redeem the Redeemable Preferred Stock pursuant
to Section 4(a)(ii) or (iii) above, all holders of Redeemable Preferred
Stock shall be deemed to have elected to cause the Redeemable Preferred
Stock to be so redeemed. Any date upon which a redemption shall occur
in accordance with Section 4(a) shall be referred to as a "Redeemable
Redemption Date." The redemption price for each share of Redeemable
Preferred Stock redeemed pursuant to this Section 4 shall be the
Redeemable Base Liquidation Amount (the "Redeemable Redemption Price");
provided, however, that if at a Redeemable Redemption Date shares of
Redeemable Preferred Stock are unable to be redeemed (as contemplated
by Section 4(c) below), in addition to the Redeemable Redemption Price
the holders of Redeemable Preferred Stock shall be entitled to any
interest accrued pursuant to Section 4(c). The Redeemable Redemption
Price shall be payable in cash in immediately available funds on the
Redeemable Redemption Date. Until the full Redeemable Redemption Price,
including any interest thereon, has been paid in cash for all shares of
Redeemable Preferred Stock redeemed as of the applicable Redeemable
Redemption Date: (A) no dividend whatsoever shall be paid or declared,
and no distribution shall be made, on any capital stock of the
Corporation; and (B) no shares of capital stock of the Corporation
(other than the Redeemable Preferred Stock in accordance with this
Section 5) shall be purchased, redeemed or acquired by the Corporation
and no monies shall be paid into or set aside or made available for a
sinking fund for the purchase, redemption or acquisition thereof.
(c) Insufficient Funds. If the funds of the
Corporation legally available for redemption of shares of Redeemable
Preferred Stock to be redeemed on the Redeemable Redemption Date are
insufficient to redeem the total number of shares of Redeemable
Preferred Stock, the Corporation shall use those funds which are
legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Redeemable Preferred Stock,
such funds will immediately be used to redeem the balance of the shares
which the Corporation has become obligated to redeem on the Redeemable
Redemption Date but which it has not redeemed at the Redeemable
Redemption Price together with any accrued interest thereon as provided
below. If any shares of Redeemable Preferred Stock are not redeemed
because the Corporation failed to pay or tender to pay the aggregate
Redeemable Redemption Price on all outstanding shares of Redeemable
Preferred Stock, (i) all shares which have not been redeemed shall
remain outstanding and entitled to all the rights and preferences
provided herein, and the Corporation shall pay interest on the
<PAGE>
unpaid portion of the Redeemable Redemption Price for the unredeemed
portion at a per annum rate equal to twenty percent (20%) or the
maximum rate of interest permitted under applicable law, whichever is
less and (ii) if such Redeemable Redemption Price shall remain unpaid
for a period of nine (9) months, then the Board of Directors shall take
all actions that it deems necessary to fund the Redeemable Redemption
Price, including, without limitation, the sale or liquidation of the
Corporation.
(d) Surrender of Certificates. Each holder of shares
of Redeemable Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or accompanied by
duly executed stock powers relating thereto), or shall deliver an
Affidavit of Loss with respect to such certificates at the principal
executive office of the Corporation or the office of the transfer agent
for the Redeemable Preferred Stock or such office or offices in the
continental United States of an agent for redemption as may from time
to time be designated by notice to the holders of Redeemable Preferred
Stock (or the holders of Series B Stock, as applicable), and each
surrendered certificate shall be canceled and retired. Upon receipt of
the certificate or certificates, as the case may be, or an Affidavit of
Loss, the Corporation shall pay the applicable Redeemable Redemption
Price by certified check or wire transfer.
6. Restrictions. So long as any shares of Redeemable
Preferred Stock remains outstanding, the provisions of Section 6 of Part A shall
apply to all shares of Redeemable Preferred Stock as if such shares were shares
of Series B Preferred Stock.
7. No Reissuance of Redeemable Preferred Stock. No share
or shares of the Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion, or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
8. Notices of Record Date. In the event (i) the
Corporation establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Redeemable Preferred Stock at least twenty (20) days prior to the
record date specified therein, a notice specifying (a) the date of such record
date for the purpose of such dividend or distribution and a description of such
dividend or distribution, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (c) the time, if any, that is to
be fixed, as to when the holders of record of Preferred Stock and Common Stock
(or other securities) shall be entitled to exchange their shares of Preferred
Stock and Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
<PAGE>
9. Miscellaneous.
(a) All notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or
by standard form of telecommunication, addressed: (i) if to the
Corporation, to its principal executive office (Attention: President)
and to the transfer agent, if any, for the Redeemable Preferred Stock
or other agent of the Corporation designated as permitted hereby, (ii)
if to any holder of the Preferred Stock or Common Stock, as the case
may be, to such holder at the address of such holder as listed in the
stock record books of the Corporation (which may include the records of
any transfer agent for the Preferred Stock or Common Stock, as the case
may be) or (iii) to such other address as the Corporation or any such
holder, as the case may be, shall have designated by notice similarly
given.
(b) The Corporation may appoint, and from time to
time discharge and change, a transfer agent of the Redeemable Preferred
Stock. Upon any such appointment or discharge of a transfer agent, the
Corporation shall send notice thereof by hand delivery, by courier, by
standard form of telecommunication or by first class mail (postage
prepaid), to each holder of record of Redeemable Preferred Stock.
C. SERIES A REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED STOCK
1. Dividends.
(a) The holders of the Series A Preferred Stock shall
be entitled to receive cumulative, compounding dividends ("Series A
Cumulative Dividends") at a rate per annum of fifteen percent (15%).
Such dividends shall accrue on a daily basis, shall be cumulative from
July 31, 1997 and shall be payable out of funds legally available
therefor, when and as declared by the Board of Directors and, in any
event, upon redemption of the Series A Preferred Stock or any
liquidation of the Corporation. Each such Series A Cumulative Dividend
shall be paid to the holders of record of shares of the Series A
Preferred Stock as they appear on the stock register on the applicable
record date, and in the event that Series A Cumulative Dividends are
not paid as of any calendar year end, such dividends shall thereafter
compound and accrue additional Series A Cumulative Divi dends at the
applicable dividend rate.
(b) For so long as any shares of Series A Preferred
Stock are outstanding, no dividends shall be declared or paid or set
apart for payment on any shares of any other class or classes of stock
of the Corporation or any series thereof (other than the Series B
Preferred Stock, the Diluted Series B Preferred Stock and the
Redeemable Preferred Stock), nor shall any shares of capital stock be
redeemed, purchased or otherwise acquired for any consideration (or any
moneys to be paid to or made available for a sinking fund for the
redemption of any such shares) by the Corporation (except (i) by
<PAGE>
conversion into or exchange for shares of the Corporation ranking
junior to the Series A Preferred Stock as to dividends and upon
liquidation, (ii) for conversion of any series of Preferred Stock to
another series of Preferred Stock, (iii) for conversion of Series B
Preferred Stock to Redeemable Preferred Stock and Common Stock, (iv)
for redemption of Redeemable Preferred Stock under the terms set forth
herein, and (v) for repurchases of shares of Common Stock by the
Corporation under employee stock plans and programs approved by the
Board of Directors), provided that the repurchase price does not exceed
the lesser of (A) the purchase price paid to the Company for such
shares and (B) the fair market value of such shares at the time of such
repurchase (as determined by the Board of Directors in its sole
discretion).
(c) In addition, the holders of the Series A
Preferred Stock shall be entitled to receive out of funds legally
available therefor, dividends (other than dividends paid in additional
shares of Common Stock) at the same rate as dividends are paid with
respect to the Common Stock (treating each share of Series A Preferred
Stock as being equal to the maximum number of shares of Common Stock
into which each such share of Series A Preferred Stock could then be
converted pursuant to the provisions of Section 4 hereof).
2. Liquidation Events and Corporate Dispositions.
(a) Liquidation Events. In the event of any
Liquidation Event, the holders of the Series A Preferred Stock shall be
entitled to receive, in cash, out of the assets of the Corporation
available for distribution to stockholders after the payment in full of
(i) the Series B Liquidation Preference Amount due to the holders of
Series B Stock, or (ii) the Redeemable Base Liquidation Amount (as
defined in Section 2 of Part B) due to the holders of Redeemable
Preferred Stock, but before any payment shall be made to the holders of
any other capital stock of the Corporation junior to the Series A
Preferred Stock, on a pro rata basis with the holders of Diluted Series
A Preferred Stock (based on the ratio which the shares of Series A
Preferred Stock or Diluted Series A Preferred Stock of each holder
bears to all the issued and outstanding shares of Series A Preferred
Stock and Diluted Series A Preferred Stock), an amount equal to $190.86
per share for each share of Series A Preferred Stock then held by such
holder (adjusted for any stock split, combination, consolidation, or
stock distributions or stock dividends with respect to such shares),
plus a sum equal to all Series A Cumulative Dividends (whether or not
earned or declared) on such shares of the Series A Preferred Stock to
the date of final distribution (the "Series A Liquidation Preference
Amount"); provided, however, that if upon any such Liquidation Event,
the holders of the outstanding shares of Series A Preferred Stock would
receive more than the Series A Liquidation Preference Amount if their
shares were converted into Common Stock pursuant to the provisions of
Section 4 hereof immediately prior to the record date for distributions
in connection with such Liquidation Event, then the holders of the
Series A Preferred Stock shall be entitled to receive, in lieu of the
Series A Liquidation Preference Amount, in cash, out of the assets of
the Corporation available for distribution to stockholders after the
payment in full of (i) the Series B Liquidation Preference Amount due
to the holders of Series B Preferred Stock, and (ii) the
<PAGE>
Redeemable Base Liquidation Amount due to the holders of Redeemable
Preferred Stock, but before any payment shall be made to the holders of
any other capital stock of the Corporation junior to the Series A
Preferred Stock, pro rata with the holders of Diluted Series A
Preferred Stock (on an as-converted basis), an amount equal to the
ratable share of the assets and funds available for distribution to
holders of Common Stock and Series B Preferred Stock, with such
distributions to be made as if each share of Series A Preferred Stock
had been converted into the maximum number of shares of Common Stock
issuable upon the conversion of such share of Series A Preferred Stock
immediately prior to such Liquidation Event. If the assets and funds
available for distribution among the holders of the Series A Preferred
Stock shall be insufficient to permit the payment to the holders of the
Series A Preferred Stock of the full Series A Liquidation Preference
Amount, then the assets and funds of the Corporation legally available
for distribution (after the payment in full of the Series B Liquidation
Preference Amount due to the holders of Series B Stock, and the
Redeemable Base Liquidation Amount due to the holders of Redeemable
Preferred Stock) shall be distributed ratably among the holders of the
Series A Preferred Stock and the Diluted Series A Preferred Stock
(based on the ratio which the shares of Series A Preferred Stock or
Diluted Series A Preferred Stock of each holder bears to all the issued
and outstanding shares of Series A Preferred Stock and Diluted Series A
Preferred Stock). The provisions of this Section 2 shall not in any way
limit the right of the holders of Series A Preferred Stock to elect to
convert their shares into Common Stock pursuant to Section 4 prior to
or in connection with any such Liquidation Event.
(b) In the event of a Corporate Disposition, the
holders of Series A Preferred Stock shall be entitled to the
application of the provisions of this Section 2(b) upon the occurrence
of such Corporate Disposition unless the holders of not less than
sixty-six and two-thirds percent (662/3%) of the outstanding shares of
Series A Preferred Stock and Diluted Series A Preferred Stock, voting
together as a single class on an as-converted basis, shall have elected
the application of the provisions of Section 4(j) hereof. In the event
of a Corporate Disposition, then, as a part of and as a condition to
the effectiveness of such Corporate Disposition (unless such holders
shall have elected the application of the provisions of Section 4(j)
hereof), the Corporation shall (after the payment in full of the Total
Series B Liquidation Amount due to the holders of Series B Stock and
the Redeemable Redemption Price due to the holders of Redeemable
Preferred Stock), on the effective date of such Corporate Disposition,
redeem all of the outstanding shares of Series A Preferred Stock for an
amount equal to the Series A Liquidation Preference Amount; provided,
however, that if upon any such Corporate Disposition, the holders of
the outstanding shares of Series A Preferred Stock would receive more
than the Series A Liquidation Preference Amount if their shares were
converted into Common Stock pursuant to the provisions of Section 4
hereof immediately prior to such Corporate Disposition, then the
Corporation shall, on the effective date of such Corporate Disposition,
redeem all of the outstanding shares of Series A Preferred Stock and
the holders of the Series A Preferred Stock shall be entitled to
receive (after the payment in full of the Total Series B Liquidation
Amount due to the holders of Series B Stock and the Redeemable
Redemption Price due to the holders of Redeemable Preferred Stock), an
amount equal to the ratable share of the proceeds of such Corporate
Disposition available
<PAGE>
for distribution to holders of Common Stock, with such distributions to
be made as if each share of Series A Preferred Stock had been converted
into the maximum number of shares of Common Stock issuable upon the
conversion of such share of Series A Preferred Stock immediately prior
to such Corporate Disposition. Notwithstanding anything to the contrary
set forth in this Section 2, in the event of a Corporate Disposition on
or before December 4, 1998, the holders of the Series A Preferred Stock
shall be entitled to receive, in lieu of the Series A Liquidation
Preference Amount, in cash, out of the assets of the Corporation
available for distribution to stockholders after the payment in full of
(i) the Series B Liquidation Preference Amount due to the holders of
Series B Preferred Stock, and (ii) the Redeemable Liquidation
Preference Amount due to the holders of Redeemable Preferred Stock, but
before any payment shall be made to the holders of any other capital
stock of the Corporation junior to the Series A Preferred Stock, pro
rata with the holders of Diluted Series A Preferred Stock, an amount
equal to $259.88 per share of Series A Preferred Stock (adjusted for
any stock split, combination, consolidation, or stock distributions or
stock dividends with respect to such share), unless the holders of not
less than sixty-six and two-thirds percent (662/3%) of the outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred
Stock, voting together as a single class on an as-converted basis,
expressly waive in writing the application of the provisions of this
Section 2 in connection with such Corporate Disposition. The provisions
of this Section 2 shall not in any way limit the rights of the holders
of Series A Preferred Stock to elect the application of the provisions
of Section 4(j) hereof in connection with a Corporate Dispo sition.
(c) Surrender of Certificates. On the effective date
of any Corporate Disposition, the Corporation shall pay all cash and
other consideration to which the holders of Series A Preferred Stock
shall be entitled under this Section 2. Upon receipt of such payment,
each holder of shares of Series A Preferred Stock shall surrender the
certificate or certificates representing such shares, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly
executed stock powers relating thereto), at the principal executive
office of the Corporation or the offices of the transfer agent for the
Corporation, or shall notify the Corporation or any transfer agent that
such certificates have been lost, stolen or destroyed and shall execute
an Affidavit of Loss, and each surrendered certificate shall be
canceled and retired.
(d) Notice. Prior to the occurrence of any
Liquidation Event or Corporate Disposition, the Corporation will
furnish each holder of Series A Preferred Stock notice in accordance
with Section 7 hereof, together with a certificate prepared by the
chief financial officer of the Corporation describing in detail the
facts of such Liquidation Event or Corporate Disposition, stating in
reasonable detail the amount(s) per share of Series A Preferred Stock
each holder of Series A Preferred Stock would receive pursuant to the
provisions of Section 2(a) hereof and stating in reasonable detail the
facts upon which such amount was determined and, in connection with any
Corporate Disposition, describing in reasonable detail all material
terms of such Corporate Disposition, including without limitation the
consideration to be delivered in connection
<PAGE>
with such Corporate Disposition, the valuation of the Corporation at
the time of such Corporate Disposition and the identities of the
parties to the Corporate Disposition.
3. Voting.
(a) General. Except as otherwise expressly provided
herein or as required by law, the holder of each share of Series A
Preferred Stock shall be entitled to vote on all matters submitted to a
stockholder vote or consent. Each share of Series A Preferred Stock
shall entitle the holder thereof to such number of votes per share as
shall equal the maximum number of shares of Common Stock into which
each share of Series A Preferred Stock is then convertible in
accordance with the provisions of Section 4 hereof at the record date
for the determination of stockholders entitled to vote on such matter
or, if no record date is established, at the date such vote is taken or
any written consent of stockholders is solicited. Except as otherwise
expressly provided herein (including without limitation the provisions
of Section 6 hereof) or as required by law, the holders of shares of
Preferred Stock and the Common Stock shall vote together as a single
class on all matters.
(b) Board of Directors. The holders of Preferred
Stock shall be entitled to vote as a class (with all series of
Preferred Stock voting together as a single class, on an as-converted
basis) for the election of two (2) directors. The remainder of the
directors shall be elected by the holders of the Preferred Stock and
the Common Stock voting together as a single class. In any vote by the
holders of the Preferred Stock each share of Series A Preferred Stock
shall be entitled to the number of votes determined as provided in
Section 3(a).
4. Conversion Rights. The holders of Series A Preferred Stock
shall have conversion rights as follows:
(a) Voluntary Conversion. At any time, each holder of
shares of Series A Preferred Stock shall be entitled, without the
payment of any additional consideration, to cause any or all
outstanding shares of Series A Preferred Stock held by such holder to
be converted into the number of fully-paid and nonassessable shares of
Class A Common Stock which results from dividing the Series A
Conversion Price (as defined below) then in effect at the time of
conversion into the Conversion Value of the Series A Preferred Stock,
which shall be $173.25 per share. The "Series A Conversion Price" shall
be $173 .25 per share of Common Stock, subject to adjustment from time
to time as provided in this Section 4. If a holder of Series A
Preferred Stock elects to convert under this Sec tion 4(a), such holder
shall deliver to the Corporation a written notice of conversion
specifying (i) the number of shares of Series A Preferred Stock to be
converted, (ii) the name or names in which such holder wishes the
certificate or certificates for Common Stock and for any Series A
Preferred Stock not to be so converted to be issued and (iii) the
address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
<PAGE>
(b) Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted, without the payment
of any additional consideration, into shares of Common Stock on the
basis provided in Section 4(a) above (i) upon the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act, covering the offer and sale of
Common Stock of the Corporation to the public with a per share value at
least equal to the greater of $300.00 per share (subject to adjustment
for stock splits, stock dividends, recapitalizations and the like) and
the then Series A Liquidation Preference Amount per share (a "Series A
Qualified Public Offer ing"), or (ii) upon the written election of the
holder or holders of not less than sixty-six and two-thirds percent
(662/3%) percent of the outstanding Series A Preferred Stock and
Diluted Series A Preferred Stock, voting together as a single class, on
an as-converted basis, made in connection with the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of
Common Stock of the Corporation to the public which does not constitute
a Series A Qualified Public Offering (a "Series A Non-Qualified Public
Offering").
(c) Conversion Procedures. Any holder of Series A
Preferred Stock converting such shares into shares of Common Stock, or
whose shares are automatically converted pursuant to Section 4(b),
shall surrender the certificate or certificates representing the Series
A Preferred Stock being converted, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the
Corporation or the offices of the transfer agent for the Series A
Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Stock by
the Corporation, or shall deliver an Affidavit of Loss with respect to
such certificates. Upon surrender of a certificate representing Series
A Preferred Stock for conversion, the Corporation shall issue and send
by hand delivery, by courier or by first class mail (postage prepaid)
to the holder thereof or to such holder's designee, at the address
designated by such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled upon
conver sion. In the event that there shall have been surrendered a
certificate or certificates representing Series A Preferred Stock, only
part of which are to be converted, the Corporation shall issue and send
to such holder or such holder's designee, in the manner set forth in
the preceding sentence, a new certificate or certificates representing
the number of shares of Series A Preferred Stock which shall not have
been converted. The issuance and delivery of certificates for Common
Stock upon conversion of Series A Preferred Stock will be made without
charge to the holders of such shares for any issuance tax in respect
thereof or other costs incurred by the Corporation in connection with
such conversion and the related issuance of such stock.
(d) Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series A
Preferred Stock into shares of Common Stock at the option of the
holder(s) thereof pursuant to Section 4(a) or by operation of Section
4(b) hereof shall be effective as of the surrender of the certificate
or certificates for the Series A Preferred Stock to be converted, duly
assigned or endorsed
<PAGE>
for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto) or delivery of an Affidavit of Loss with
respect to such certificates. The issuance by the Corporation of shares
of Common Stock upon a conversion of Series A Preferred Stock into
Common Stock pursuant to Section 4(b) hereof upon a Series A Qualified
Public Offering or a Series A Non-Qualified Public Offering shall be
deemed to be effective immediately prior to the closing of such Series
A Qualified Public Offering or Series A Non-Qualified Public Offering.
On and after the effective date of conversion, the person or persons
entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such shares of Common Stock.
(e) No Impairment. The Corporation shall not, by
amendment of its charter documents or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but shall at all times in good
faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion and other rights of the
holders of the Series A Preferred Stock against impairment.
(f) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of Series A Preferred Stock any
fractional share of Common Stock issuable upon any conversion of such
Series A Preferred Stock, but in lieu thereof may make a cash payment
for fair market value in respect thereof in any manner permitted by
law.
(g) Reservation of Common Stock. The Corporation
shall at all times reserve and keep available out of its authorized and
unissued Class A Common Stock, solely for issuance upon the conversion
of Series A Preferred Stock as herein provided, free from any
preemptive rights or other obligations, such number of shares of Class
A Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding. The
Corporation shall prepare and shall use its best efforts to obtain and
keep in force such governmental or regulatory permits or other
authorizations as may be required by law, excluding permits or
authorizations relating to registration under Federal or state
securities laws, in order to enable the Corporation lawfully to issue
and deliver to each holder of record of Series A Preferred Stock such
number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all Series A Preferred Stock
then outstanding and convertible into shares of Class A Common Stock.
(h) Adjustments to Series A Conversion Price. The
Series A Conver sion Price in effect from time to time shall be subject
to adjustment through the effective date of the conversion of all of
the then outstanding Series A Preferred Stock and regardless of whether
any shares of Series A Preferred Stock are then issued and outstanding
as follows:
<PAGE>
(i) Stock Dividends, Subdivisions and
Combinations. Upon the issuance of additional shares of Common
Stock as a dividend or other distribution on outstanding
Common Stock, the subdivision of outstanding shares of Common
Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a
smaller number of shares of Common Stock, the Series A
Conversion Price shall, simultaneously with the happening of
such dividend, subdivision or split, be adjusted by
multiplying the then effective Series A Conversion Price by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event
and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Section 4(h)(i) shall be
given effect, upon payment of such a dividend or distribu
tion, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution
(on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the
effective date thereof.
(ii) Sale of Common Stock. In the event the
Corporation shall at any time, or from time to time, issue,
sell or exchange any shares of Common Stock (including shares
held in the Corporation's treasury but excluding any shares of
Common Stock issued (a) upon conversion of Preferred Stock, or
(b) upon the exercise of Excluded Options), for a
consideration per share less than the Series A Conversion
Price in effect immediately prior to the issuance, sale or
exchange of such shares, then, and thereafter successively
upon each such issuance, sale or exchange, the Series A
Conversion Price in effect immediately prior to the issuance,
sale or exchange of such shares shall forthwith be reduced to
an amount determined by multiplying such Series A Conversion
Price by a fraction:
(A) the numerator of which shall be
(i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding
treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange
of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable
securities), plus (ii) the number of shares of Common
Stock which the total aggregate consideration
received by the Corporation for the total number of
such additional shares of Common Stock so issued
would purchase at the Series A Conversion Price
(prior to adjustment), and
(B) the denominator of which shall
be (i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding
treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange
of any outstanding Preferred Stock, options,
<PAGE>
warrants, rights or convertible or exchangeable
securities), plus (ii) the number of such additional
shares of Common Stock so issued.
(iii) Sale of Options, Rights or Convertible
Securities. In the event the Corporation shall at any time or
from time to time, issue options, warrants or rights to
subscribe for shares of Common Stock (other than the Excluded
Options), or issue any securities convertible into or
exchangeable for shares of Common Stock, for a consideration
per share (determined by dividing the Net Aggregate
Consideration (as determined below) by the aggregate number of
shares of Common Stock that would be issued if all such
options, warrants, rights or convertible or exchangeable
securities were exercised, converted or exchanged to the
fullest extent permitted by their terms) less than the Series
A Conversion Price in effect immediately prior to the issuance
of such options, warrants, rights or convertible or
exchangeable securities, the Series A Conversion Price in
effect immediately prior to the issuance of such options,
warrants, rights or convertible or exchangeable securities
shall forthwith be reduced to an amount determined by
multiplying such Series A Conversion Price by a fraction:
(A) the numerator of which shall be
(i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, rights or convertible or
exchangeable securities (excluding treasury shares
but including all shares of Common Stock issuable
upon conversion, exercise or exchange of any
outstanding Preferred Stock, options, warrants,
rights or convertible securities), plus (ii) the
number of shares of Common Stock which the total
amount of consideration received by the Corporation
for the issuance of such options, warrants, rights or
convertible or exchangeable securities plus the
minimum amount set forth in the terms of such
security as payable to the Corporation upon the
exercise, conversion or exchange thereof (the "Net
Aggregate Consideration") would purchase at the
Series A Conversion Price prior to adjustment, and
(B) the denominator of which shall
be (i) the number of shares of Common Stock of all
classes outstanding immediately prior to the issuance
of such options, warrants, rights or convertible or
exchangeable securities (excluding treasury shares
but including all shares of Common Stock issuable
upon conversion, exercise or exchange of any
outstanding Preferred Stock, options, warrants,
rights or convertible or exchangeable securities),
plus (ii) the aggregate number of shares of Common
Stock that would be issued if all such options,
warrants, rights or convertible or exchangeable
securities were exercised, converted or exchanged.
(iv) Expiration or Change in Price. If the
consideration per share provided for in any options, warrants
or rights to subscribe for shares of Common Stock or any
securities exchangeable for or convertible into shares of
<PAGE>
Common Stock changes at any time, the Series A Conversion
Price in effect at the time of such change shall be readjusted
to the Series A Conversion Price which would have been in
effect at such time had such options, warrants rights or
convertible or exchangeable securities provided for such
changed consideration per share (determined as provided in
Section 4(h)(iii) hereof), at the time initially granted,
issued or sold; provided, that such adjustment of the Series A
Conversion Price will be made only as and to the extent that
the Series A Conversion Price effective upon such adjustment
remains less than or equal to the Series A Conversion Price
that would be in effect if such options, warrants, rights or
convertible or exchangeable securities had not been issued. No
adjustment of the Series A Conversion Price shall be made
under this Section 4 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise of any
options, warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights
in any convertible or exchangeable securities if an adjustment
shall previously have been made upon the issuance of such
options, warrants, rights or convertible or exchangeable
securities. Any adjustment of the Series A Conversion Price
shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the
options, warrants, rights or convertible or exchangeable
securities which gave rise to such adjustment expire or are
canceled without having been exercised, so that the Series A
Conversion Price effective immediately upon such cancellation
or expiration shall be equal to the Series A Conversion Price
in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities,
with such additional adjustments as would have been made to
that Series A Conversion Price had the expired or canceled
warrants, options, rights or convertible securities not been
issued.
(i) Other Adjustments. In the event the Corporation
shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a non-cash dividend or
other distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event lawful and adequate
provision shall be made so that the holders of Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of
shares of Common Stock receivable thereupon, the number of securities
of the Corporation which they would have received had their Series A
Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the Conversion Date (as that term is hereafter
defined), retained such securities receivable by them as aforesaid
during such period.
If the Common Stock issuable upon the conversion of
the Series A Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by
reorganization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 4), then and in each such event the holder of
each share of Series A Preferred
<PAGE>
Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted
immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(j) Mergers and Other Reorganizations. If (i) at any
time or from time to time there shall be a Corporate Disposition and
(ii) the holders of sixty-six and two-thirds percent (662/3%) of the
outstanding shares of Series A Preferred Stock and Diluted Series A
Preferred Stock, voting together as a single class on an as-converted
basis, ex pressly elect in writing to have the provisions of this
Section 4(j), and not the provisions of Section 2, apply to such
transaction, then, as a part of and as a condition to the effectiveness
of such reorganization, merger, consolidation or sale, lawful and
adequate provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock the number of shares of stock or other
securities or property of the Corporation or of the successor
corporation resulting from such merger or consolidation or sale, to
which such holders would have been entitled upon such capital
reorganization, merger, consolidation or sale had such holders
converted their shares of Series A Preferred Stock into Common Stock
immediately prior to such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate provisions shall
be made with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation or sale
to the end that the provisions of this Section 4 (including without
limitation provisions for adjustment of the Series A Conversion Price
and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be,
with respect to any shares of stock, securities or assets to be
deliverable thereafter upon the conversion of the Series A Preferred
Stock. The provisions of this Section 4(j) shall not in any way limit
the rights of the holders of Series A Preferred Stock under Sec tion 2
hereof if an election to have this Section 4(j) apply to such
transaction is not made by such holders.
(k) Exceptions to Adjustment of Series A Conversion
Price. Notwith standing anything herein to the contrary, in the event
that (i) the Corporation completes an issuance of new securities (for
purposes of this paragraph, the "New Securities") that results in an
adjustment of the Series A Conversion Price pursuant to Section
4(h)(ii) or Section 4(h)(iii) and which the holders of Series A
Preferred Stock had a right to purchase pursuant to Article IV of the
Stockholders Agreement and (ii) any holder of the Series A Preferred
Stock does not purchase its pro rata share (as defined in Article IV of
the Stockholders Agreement) of such New Securities, then such holder (a
"Non-Participating Holder") shall not be entitled to the benefits of
Section 4(h)(ii) or Section 4(h)(iii), as applicable, with respect to
any adjustment to the Series A Conversion Price resulting from that
issuance or any future issuances of New Securities and all of such
Non-Participating Holder's shares of Series A Preferred Stock shall
immediately and automatically, without further action by such
Non-Participating Holder, be converted on a share-for-share basis
<PAGE>
to a New Series of Diluted Series A Preferred Stock, which shall be
identical in all respects to the Series A Preferred Stock except that
(A) the Series A Conversion Price of such New Series of Diluted Series
A Preferred Stock shall be equal to the Series A Conversion Price of
the Series A Preferred Stock in effect immediately prior to the
issuance of such New Securities and (B) the terms of such New Series of
Diluted Series A Preferred Stock shall not contain any provision for
adjustment thereof similar to Section 4(h)(ii) or Section 4(h)(iii)
hereof. Prior to the issuance of any New Series of Diluted Series A
Preferred Stock (a) the Board of Directors shall designate the number
of shares and the New Series of Diluted Series A Preferred Stock to be
issued in accordance with this Section 4(k) at that time and (b) the
Corporation shall file all certificates and take all actions necessary
to effectuate the foregoing. Any holder of Series A Preferred Stock
whose shares are automatically converted pursuant to this Section 4(k)
into shares of a New Series of Diluted Series A Preferred Stock shall
surrender the certificate or certifi cates representing the Series A
Preferred Stock so converted, duly assigned or endorsed for transfer to
the Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Series A Preferred Stock or such
office or offices in the continental United States of an agent for
conversion as may from time to time be designated by notice to the
holders of the Series A Preferred Stock by the Corporation, or shall
deliver an Affidavit of Loss with respect to such certificates. Upon
surrender of a certificate representing Series A Preferred Stock for
conversion under this Section 4(k), the Corporation shall issue and
send by hand delivery, by courier or by first class mail (postage
prepaid) to the holder thereof or to such holder's designee, at the
address designated by such holder, a certificate or certificates for
the number of shares of the New Series of Diluted Series A Preferred
Stock to which such holder shall be entitled upon such automatic
conversion. The issuance and delivery of certificates for a New Series
of Diluted Series A Preferred Stock upon conversion of Series A
Preferred Stock will be made without charge to the holders of such
shares for any issuance tax in respect thereof or other costs incurred
by the Corporation in connection with such conversion and the related
issuance of such stock. Each share of Series A Preferred Stock
converted pursuant to this Section 4(k) shall be canceled and retired
as provided in Section 7 hereof. In the event that any Non-Participat
ing Holder fails to surrender its certificates as provided hereunder,
such certificate shall nonetheless represent only the right to receive
a New Series of Diluted Series A Preferred Stock, as provided
hereunder.
Notwithstanding anything herein to the contrary, in no event
shall the Corporation's issuance and sale of Additional Series B Preferred
Shares pursuant to the Purchase Agreement constitute an issuance of New
Securities hereunder.
(l) Waiver. The holder or holders of not less than
sixty-six and two-thirds percent (662/3%) of the outstanding Series A
Preferred Stock may, by written notice to the Corporation, waive any
adjustment to the Series A Conversion Price required under this Section
4.
<PAGE>
(m) Notices. In each case of an adjustment or
readjustment of the Series A Conversion Price, the Corporation will
furnish each holder of Series A Preferred Stock with a certificate,
prepared by the chief financial officer of the Corporation, showing
such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
5. Redemption.
(a) On or After February 1, 2008. At any time on or
after February 1, 2008, at the election of the holders of a majority of
the outstanding Series A Preferred Stock and Diluted Series A Preferred
Stock, voting together as a single class on an as-converted basis, the
Corporation shall redeem each share of Series A Preferred Stock and
Diluted Series A Preferred Stock then outstanding for a cash price (the
"Series A Redemption Price") equal to the greater of (i) the Series A
Liquidation Preference Amount or (ii) the fair market value of the
Series A Preferred Stock as of the date of redemption (the "Series A
Redemption Date") as determined in accordance with Section 5(d) below.
(b) Termination of Rights. From and after the Series
A Redemption Date, unless there shall have been a default in payment or
tender by the Corporation of the Series A Redemption Price, all rights
of the holders with respect to such redeemed shares of Series A
Preferred Stock (except the right to receive the Series A Redemption
Price in accordance with the terms hereof upon surrender of their
certificate) shall cease and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) Insufficient Funds. If the funds of the
Corporation legally available for redemption of shares of Series A
Preferred Stock and Diluted Series A Preferred Stock to be redeemed on
the Series A Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock and Diluted Series A
Preferred Stock, the Corporation shall use those funds which are
legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series A Preferred Stock and
Diluted Series A Preferred Stock, such funds will immediately be used
to redeem the balance of the shares which the Corporation has become
obligated to redeem on the Series A Redemption Date but which it has
not redeemed at the Series A Redemption Price together with any accrued
interest thereon as provided below. If any shares of Series A Preferred
Stock are not redeemed because the Corporation failed to pay or tender
to pay the aggregate Series A Redemption Price on all outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred
Stock, (i) all shares which have not been redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein, and the Corporation shall pay interest on the unpaid portion of
the Series A Redemption Price for the unredeemed portion at a per annum
rate equal to twenty percent (20%) or the maximum rate of interest
permitted under applicable law, whichever is less and (ii) if such
Series A Redemption Price shall remain unpaid for a period of nine (9)
months, then the Board of Directors shall take all
<PAGE>
actions that it deems necessary to fund the Series A Redemption Price,
including, without limitation, the sale or liquidation of the
Corporation.
(d) Fair Market Value Determination.
(i) If the Corporation's Common Stock is
publicly traded at the Series A Redemption Date, the Fair
Market Value of each share of Series A Preferred Stock or
Diluted Series A Preferred Stock shall equal the product of
the number of shares of Common Stock into which each share of
the Series A Pre ferred Stock or Diluted Series A Preferred
Stock may then be converted multiplied by the average closing
price for the Corporation's Common Stock for the thirty (30)
trading days immediately preceding the Series A Redemption
Date.
(ii) If the Corporation's Common Stock is
not publicly traded on the Series A Redemption Date, the Fair
Market Value shall be determined in accordance with the
following provisions. Within fifteen (15) days after the
redemption election by the holders of Series A Preferred Stock
and Diluted Series A Preferred Stock pursuant to Section 5(a),
the Corporation shall deliver to each holder of Series A
Preferred Stock and Diluted Series A Preferred Stock its
estimate of the Fair Market Value of the Series A Preferred
Stock to be redeemed. If the holders of sixty-six and
two-thirds percent (662/3%) of the outstanding shares of the
Series A Preferred Stock and Diluted Series A Preferred Stock,
voting together as a single class on an as-converted basis, do
not object in writing to the Corporation's estimate of the
Fair Market Value of the Series A Preferred Stock, within
fifteen (15) days after receipt of the Corporation's written
notice thereof, such estimate shall be the Fair Market Value
for purposes of determining the Series A Redemption Price of
the Series A Preferred Stock. If the holders of sixty-six and
two-thirds percent (662/3%) of the outstanding shares of the
Series A Preferred Stock and Diluted Series A Preferred Stock,
voting together as a single class on an as-converted basis, do
timely object to the Corporation's estimate of Fair Market
Value, the Corporation and such holders shall seek for a
ten-day period thereafter to negotiate the Fair Market Value
in good faith. If the Corpora tion and the holders of
sixty-six and two-thirds percent (662/3%) of the outstanding
shares of the Series A Preferred Stock and Diluted Series A
Preferred Stock, voting together as a single class on an
as-converted basis, are unable to agree upon such Fair Market
Value by the end of such period, each of the Corporation and
the holders (acting at the direction of a majority of the
outstanding shares of Series A Preferred Stock and Diluted
Series A Preferred Stock, voting together as a single class on
an as-converted basis) shall, within ten (10) days thereafter,
select an unaffiliated investment banking firm of nationally
recognized standing in the telecommunications industry to
appraise the Fair Market Value of the Series A Preferred
Stock. Each such firm will deliver its appraisal of the Fair
Market Value within fifteen (15) days thereafter, and if the
lower appraisal is at least ninety percent (90%) of the higher
appraisal, the arithmetic mean of the two shall be the Fair
Market Value. If the two appraisals vary by more than ten
percent (10%), the
<PAGE>
two firms shall promptly select a third investment banking
firm of nationally recognized standing in the
telecommunications industry. Such third firm shall, within ten
(10) days thereafter, deliver its appraisal of the Fair Market
Value of the Series A Preferred Stock, the two appraisals
which are closest together in value shall be averaged and such
amount shall be the Fair Market Value for purposes of
determining the Series A Redemption Price.
(iii) When determining the Fair Market Value
of the Series A Preferred Stock, the appraisers shall
consider, among other factors, book value, re placement value,
comparable public company valuations, earnings, the value of
future cash flows of the Corporation and its subsidiaries as
an on-going enterprise and the sale of various combinations of
the individual assets of the Corporation and its subsidiaries
as well as a sale of the Corporation and its subsidiaries as a
whole, choosing the manner of sale which maximizes the
aggregate value of the assets being sold, and shall make no
deduction, discount or other subtraction what soever for the
possible minority status of any such holder or for any lack of
marketability of any shares of stock held by such holder or
any restrictions on transfer thereof. All costs of the
appraisals under this Section 5(d) shall be borne by the
Corporation.
6. Restrictions and Limitations. So long as the Series A
Preferred Stock remains outstanding:
(a) The Corporation will not, without the affirmative
vote or written consent of the holders of a majority of the issued and
outstanding shares of Common Stock and Preferred Stock, voting as a
single class on an as converted basis:
(i) Authorize or issue, or obligate itself
to issue, any shares of Common Stock (other than pursuant to
the exercise of stock options or other rights granted under
the 1995 Stock Option Plan, 1996 Stock Option Plan and 1998
Stock Option Plan, or upon conversion of the Preferred Stock);
(ii) Authorize any merger or consolidation
of the Corporation with or into any other corporation,
partnership or entity (with respect to which less than a
majority of the outstanding voting power of such surviving
corporation is held by stockholders of the Corporation
immediately prior to such event) or permit the sale of all or
any material portion of the capital stock or assets of the
Corporation (other than sales in the ordinary course of
business and consistent with past practices); or
(iii) Incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any
new or additional indebtedness or liability (other than up to
$30 million in connection with the Corporation's revolving
credit facilities with Banque Paribas and Fleet National
Bank).
<PAGE>
(b) The Corporation will not, without the affirmative
vote or written consent of holders of sixty-six and two-thirds percent
(662/3%) of the issued and outstanding shares of Common Stock and
Preferred Stock, voting as a single class on an as converted basis:
(i) Authorize or issue, or obligate itself
to issue, any equity securities at an effective per share
price which is less than $173.25 (which price shall be
appropriately adjusted for stock splits, stock dividends,
recapitalizations and the like), other than any Additional
Series B Preferred Shares issued pursuant to the Purchase
Agreement;
(ii) Authorize or issue a class or series of
stock having rights equal or senior to the Series B Preferred
Stock, or a new class or series of Preferred Stock, other than
any Additional Series B Preferred Shares issued pursuant to
the Purchase Agreement;
(iii) Authorize any acquisition, merger or
consolidation of assets or stock of another corporation,
partnership or entity in exchange for shares of equity
securities of the Corporation which results in dilution to the
existing stockholders, on a fully diluted, as converted basis,
in excess of fifteen percent (15%); or
(iv) Authorize or permit the reorganization,
liquidation, dissolution or winding up of the Corporation.
(c) The Corporation will not amend the charter
documents of the Corporation so as to adversely effect the rights of
the holders of Series A Preferred Stock with respect to dividends,
liquidation preferences or redemption without the vote or affirmative
written consent of holders of eighty percent (80%) of the outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred Stock
voting together as a single class, on an as-converted basis or, amend
the charter documents or by-laws of the Corporation in any manner that
adversely affects any other preferences, powers, rights or privileges
of the holders of Series A Preferred Stock without the vote or
affirmative written consent of holders of at least sixty-six and
two-thirds percent (662/3%) of the outstanding shares of Series A
Preferred Stock and Diluted Series A Preferred Stock voting together as
a single class, on an as-converted basis;
(d) The Corporation will not, without the affirmative
vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock voting as a separate class increase or decrease (other
than by conversion as permitted hereby) the total number of authorized
shares of Series A Preferred Stock.
7. No Reissuance of Series A Preferred Stock. No share
or shares of the Series A Preferred Stock acquired by the Corporation by reason
of redemption, purchase, conversion (including, without limitation, conversion
of Series A Preferred Stock into
<PAGE>
Undesignated Preferred Stock under Section 4(k) hereof) or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue. The Corporation may
from time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series A Preferred Stock
accordingly.
8. Notices of Record Date. In the event (i) the
Corporation establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series A Preferred Stock at least twenty (20) days prior to the record
date specified therein, a notice specifying (a) the date of such record date for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (c) the time, if any, that is to
be fixed, as to when the holders of record of Preferred Stock and Common Stock
(or other securities) shall be entitled to exchange their shares of Preferred
Stock and Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
9. Other Rights. Except as otherwise provided in the
charter documents of the Corporation, as amended, shares of Series A Preferred
Stock and shares of Common Stock shall be identical in all respects (each share
of Series A Preferred Stock having equivalent rights to the maximum number of
shares of Common Stock into which it is then convertible), shall have the same
powers, preferences and rights, without preference of any such class or share
over any other such class or share, and shall be treated as a single class of
stock for all purposes.
10. Miscellaneous.
(a) All notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or
by standard form of telecommunication, addressed: (i) if to the
Corporation, to its principal executive office (Attention: President)
and to the transfer agent, if any, for the Series A Preferred Stock or
other agent of the Corporation designated as permitted hereby, (ii) if
to any holder of the Preferred Stock or Common Stock, as the case may
be, to such holder at the address of such holder as listed in the stock
record books of the Corporation (which may include the records of any
transfer agent for the Preferred Stock or Common Stock, as the case may
be) or (iii) to such other address as the Corporation or any such
holder, as the case may be, shall have designated by notice similarly
given.
<PAGE>
(b) The Corporation may appoint, and from time to
time discharge and change, a transfer agent of the Series A Preferred
Stock. Upon any such appointment or discharge of a transfer agent, the
Corporation shall send notice thereof by hand delivery, by courier, by
standard form of telecommunication or by first class mail (postage
prepaid), to each holder of record of Series A Preferred Stock.
(c) The Board of Directors is hereby authorized to
designate and issue additional series of Diluted Series A Preferred
Stock in accordance with Section 4(k) hereof. The terms of such
additional series of Diluted Series A Preferred Stock shall be
identical to the terms of the Series A Preferred Stock at the time of
such designation, except that (i) each additional series of Diluted
Series A Preferred Stock shall not have provisions similar to Section
4(h)(ii) or Section 4(h)(iii) above and (ii) the Board of Directors
shall designate the conversion price for such additional series of
Diluted Series A Preferred Stock which shall be equal to the conversion
price of the Series A Preferred Stock being converted pursuant to
Section 4(k) in effect immediately prior to the issuance of the New
Securities (as defined in Section 4(k) hereof).
D. FIRST SERIES OF DILUTED SERIES A PREFERRED STOCK
1. Dividends.
(a) The holders of the First Series of Diluted Series
A Preferred Stock shall be entitled to continue to receive the Series A
Cumulative Dividend. Such dividends shall accrue on a daily basis,
shall be cumulative from July 31, 1997 and shall be payable out of
funds legally available therefor, when and as declared by the Board of
Directors and, in any event, upon redemption of the Series A Preferred
Stock or any liquidation of the Corporation. Each such Series A
Cumulative Dividend shall be paid to the holders of record of shares of
the First Series of Diluted Series A Preferred Stock as they appear on
the stock register on the applicable record date, and in the event that
Series A Cumulative Dividends are not paid as of any calendar year end,
such dividends shall thereafter compound and accrue additional Series A
Cumulative Dividends at the applicable dividend rate.
(b) For so long as any shares of First Series of
Diluted Series A Preferred Stock are outstanding, no dividends shall be
declared or paid or set apart for payment on any shares of any other
class or classes of stock of the Corporation or any series thereof
(other than the Series B Preferred Stock, the Diluted Series B
Preferred Stock and the Redeemable Preferred Stock), nor shall any
shares of capital stock be redeemed, purchased or otherwise acquired
for any consideration (or any moneys to be paid to or made available
for a sinking fund for the redemption of any such shares) by the
Corporation (except (i) by conversion into or exchange for shares of
the Corporation ranking junior to the First Series of Diluted Series A
Preferred Stock as to dividends and upon liquidation, (ii) for
conversion of any series of Preferred Stock to another series of
Preferred Stock, (iii) for conversion of Series B Preferred Stock to
Redeemable Preferred Stock and Common Stock, (iv) for redemption of
Redeemable Preferred Stock under the
<PAGE>
terms set forth herein, and (v) for repurchases of shares of Common
Stock by the Corpo ration under employee stock plans and programs
approved by the Board of Directors), provided that the repurchase price
does not exceed the lesser of (A) the purchase price paid to the
Company for such shares and (B) the fair market value of such shares at
the time of such repurchase (as determined by the Board of Directors in
its sole discretion).
(c) In addition, the holders of the First Series of
Diluted Series A Preferred Stock shall be entitled to receive out of
funds legally available therefor, dividends (other than dividends paid
in additional shares of Common Stock) at the same rate as dividends are
paid with respect to the Common Stock (treating each share of First
Series of Diluted Series A Preferred Stock as being equal to the
maximum number of shares of Common Stock into which each such share of
First Series of Diluted Series A Preferred Stock could then be
converted pursuant to the provisions of Section 4 hereof).
2. Liquidation Events and Corporate Dispositions.
(a) Liquidation Events. In the event of any
Liquidation Event, the holders of the First Series of Diluted Series A
Preferred Stock shall be entitled to receive, in cash, out of the
assets of the Corporation available for distribution to stockholders
after the payment in full of (i) the Series B Liquidation Preference
Amount due to the holders of Series B Stock, or (ii) the Redeemable
Base Liquidation Amount (as defined in Section 2 of Part B) due to the
holders of Redeemable Preferred Stock, but before any payment shall be
made to the holders of any other capital stock of the Corporation
junior to the First Series of Diluted Series A Preferred Stock, on a
pro rata basis with the holders of Series A Preferred Stock and other
series of Diluted Series A Preferred Stock, if any (based on the ratio
which the shares of Series A Preferred Stock or Diluted Series A
Preferred Stock of each holder bears to all the issued and outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred
Stock), an amount equal to the Series A Liquidation Preference Amount;
provided, however, that if upon any such Liquidation Event, the holders
of the outstanding shares of the First Series of Diluted Series A
Preferred Stock would receive more than the Series A Liquidation
Preference Amount if their shares were converted into Common Stock
pursuant to the provisions of Section 4 hereof immediately prior to the
record date for distributions in connection with such Liquidation
Event, then the holders of the First Series of Diluted Series A
Preferred Stock shall be entitled to receive, in lieu of the Series A
Liquidation Preference Amount, in cash, out of the assets of the
Corporation available for distribution to stockholders after the
payment in full of (i) the Series B Liquidation Preference Amount due
to the holders of Series B Preferred Stock, and (ii) the Redeemable
Base Liquidation Amount due to the holders of Redeemable Preferred
Stock, but before any payment shall be made to the holders of any other
capital stock of the Corporation junior to the Series A Preferred
Stock, pro rata with the holders of Series A Preferred Stock and other
series of Diluted Series A Preferred Stock (on an as-converted basis),
an amount equal to the ratable share of the assets and funds available
for distribution to holders of Common Stock and Series B Preferred
Stock, with such distributions to be made as if each share of First
Series of Diluted Series A Preferred Stock had been converted into the
maximum number of shares of Common Stock issuable
<PAGE>
upon the conversion of such share of First Series of Diluted Series A
Preferred Stock immediately prior to such Liquidation Event. If the
assets and funds available for distribution among the holders of the
First Series of Diluted Series A Preferred Stock shall be insufficient
to permit the payment to the holders of the Diluted Series A Preferred
Stock of the full Series A Liquidation Preference Amount, then the
assets and funds of the Corporation legally available for distribution
(after the payment in full of the Series B Liquidation Preference
Amount due to the holders of Series B Stock, and the Redeemable Base
Liquidation Amount due to the holders of Redeemable Preferred Stock)
shall be distributed ratably among the holders of the First Series of
Diluted Series A Preferred Stock, Series A Preferred Stock and the
other series of Diluted Series A Preferred Stock (based on the ratio
which the shares of Series A Preferred Stock or Diluted Series A
Preferred Stock of each holder bears to all the issued and outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred
Stock). The provisions of this Section 2 shall not in any way limit the
right of the holders of Diluted Series A Preferred Stock to elect to
convert their shares into Common Stock pursuant to Section 4 prior to
or in connection with any such Liquidation Event.
(b) In the event of a Corporate Disposition, the
holders of First Series of Diluted Series A Preferred Stock shall be
entitled to the application of the provisions of this Section 2(b) upon
the occurrence of such Corporate Disposition unless the holders of not
less than sixty-six and two-thirds percent (662/3%) of the outstanding
shares of Series A Preferred Stock and Diluted Series A Preferred
Stock, voting together as a single class on an as-converted basis,
shall have elected the application of the provisions of Section 4(j)
hereof. In the event of a Corporate Disposition, then, as a part of and
as a condition to the effectiveness of such Corporate Disposition
(unless such holders shall have elected the application of the
provisions of Section 4(j) hereof), the Corporation shall (after the
payment in full of the Total Series B Liquidation Amount due to the
holders of Series B Stock and the Redeemable Redemption Price due to
the holders of Redeemable Preferred Stock), on the effective date of
such Corporate Disposition, redeem all of the outstanding shares of
First Series of Diluted Series A Preferred Stock for an amount equal to
the Series A Liquidation Preference Amount; provided, however, that if
upon any such Corporate Disposition, the holders of the outstanding
shares of First Series of Diluted Series A Preferred Stock would
receive more than the Series A Liquidation Preference Amount if their
shares were converted into Common Stock pursuant to the provisions of
Section 4 hereof immediately prior to such Corporate Disposition, then
the Corporation shall, on the effective date of such Corporate
Disposition, redeem all of the outstanding shares of First Series of
Diluted Series A Preferred Stock and the holders of the First Series of
Diluted Series A Preferred Stock shall be entitled to receive (after
the payment in full of the Total Series B Liquidation Amount due to the
holders of Series B Stock and the Redeemable Redemption Price due to
the holders of Redeemable Preferred Stock), an amount equal to the
ratable share of the proceeds of such Corporate Disposition available
for distribution to holders of Common Stock, with such distributions to
be made as if each share of First Series of Diluted Series A Preferred
Stock had been converted into the maximum number of shares of Common
Stock issuable upon the conversion of such share of First Series of
Diluted Series A Preferred Stock immediately prior to such Corporate
<PAGE>
Disposition. Notwithstanding anything to the contrary set forth in this
Section 2, in the event of a Corporate Disposition on or before
December 4, 1998, the holders of the First Series of Diluted Series A
Preferred Stock shall be entitled to receive, in lieu of the Series A
Liquidation Preference Amount, in cash, out of the assets of the
Corporation available for distribution to stockholders after the
payment in full of (i) the Series B Liquidation Preference Amount due
to the holders of Series B Preferred Stock, and (ii) the Redeemable
Liquidation Preference Amount due to the holders of Redeemable
Preferred Stock, but before any payment shall be made to the holders of
any other capital stock of the Corporation junior to the First Series
of Diluted Series A Preferred Stock, pro rata with the holders of
Series A Preferred Stock and other series of Diluted Series A Preferred
Stock, an amount equal to $259.88 per share of First Series of Diluted
Series A Preferred Stock (adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect
to such share), unless the holders of not less than sixty-six and
two-thirds percent (662/3%) of the outstanding shares of Series A
Preferred Stock and Diluted Series A Preferred Stock, voting together
as a single class on an as-converted basis, expressly waive in writing
the application of the provisions of this Section 2 in connection with
such Corporate Disposition. The provisions of this Section 2 shall not
in any way limit the rights of the holders of First Series of Diluted
Series A Preferred Stock to elect the application of the provisions of
Section 4(j) hereof in connection with a Corporate Disposition.
(c) Surrender of Certificates. On the effective date
of any Corporate Disposition, the Corporation shall pay all cash and
other consideration to which the holders of First Series of Diluted
Series A Preferred Stock shall be entitled under this Section 2. Upon
receipt of such payment, each holder of shares of First Series of
Diluted Series A Preferred Stock shall surrender the certificate or
certificates representing such shares, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the
Corporation or the offices of the transfer agent for the Corporation,
or shall notify the Corporation or any transfer agent that such
certificates have been lost, stolen or destroyed and shall execute an
Affidavit of Loss, and each surrendered certificate shall be canceled
and retired.
(d) Notice. Prior to the occurrence of any
Liquidation Event or Corporate Disposition, the Corporation will
furnish each holder of First Series of Diluted Series A Preferred Stock
notice in accordance with Section 7 hereof, together with a certificate
prepared by the chief financial officer of the Corporation describing
in detail the facts of such Liquidation Event or Corporate Disposition,
stating in reasonable detail the amount(s) per share of First Series of
Diluted Series A Preferred Stock each holder of First Series of Diluted
Series A Preferred Stock would receive pursuant to the provisions of
Section 2(a) hereof and stating in reasonable detail the facts upon
which such amount was determined and, in connection with any Corporate
Disposition, describing in reasonable detail all material terms of such
Corporate Disposition, including without limitation the consideration
to be delivered in connection with such Corporate Disposition,
<PAGE>
the valuation of the Corporation at the time of such Corporate
Disposition and the identities of the parties to the Corporate
Disposition.
3. Voting.
(a) General. Except as otherwise expressly provided
herein or as required by law, the holder of each share of First Series
of Diluted Series A Preferred Stock shall be entitled to vote on all
matters submitted to a stockholder vote or consent. Each share of First
Series of Diluted Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the maximum
number of shares of Common Stock into which each share of First Series
of Diluted Series A Preferred Stock is then convertible in accordance
with the provisions of Section 4 hereof at the record date for the
determination of stockholders entitled to vote on such matter or, if no
record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. Except as otherwise
expressly provided herein (including without limitation the provisions
of Section 6 hereof) or as required by law, the holders of shares of
Preferred Stock and the Common Stock shall vote together as a single
class on all matters.
(b) Board of Directors. The holders of Preferred
Stock shall be entitled to vote as a class (with all series of
Preferred Stock voting together as a single class, on an as-converted
basis) for the election of two (2) directors. The remainder of the
directors shall be elected by the holders of the Preferred Stock and
the Common Stock voting together as a single class. In any vote by the
holders of the Preferred Stock each share of First Series of Diluted
Series A Preferred Stock shall be entitled to the number of votes
determined as provided in Section 3(a).
4. Conversion Rights. The holders of First Series of
Diluted Series A Preferred Stock shall have conversion rights as follows:
(a) Voluntary Conversion. At any time, each holder of
shares of First Series of Diluted Series A Preferred Stock shall be
entitled, without the payment of any additional consideration, to cause
any or all outstanding shares of First Series of Diluted Series A
Preferred Stock held by such holder to be converted into the number of
fully-paid and nonassessable shares of Class A Common Stock which
results from dividing the First Series of Diluted Series A Conversion
Price (as defined below) then in effect at the time of conversion into
the Conversion Value of the First Series of Diluted Series A Preferred
Stock, which shall be $173.25 per share. The "First Series of Diluted
Series A Conversion Price" shall be $173.25 per share of Common Stock,
subject to adjustment from time to time as provided in this Section 4.
If a holder of First Series of Diluted Series A Preferred Stock elects
to convert under this Section 4(a), such holder shall deliver to the
Corpora tion a written notice of conversion specifying (i) the number
of shares of First Series of Diluted Series A Preferred Stock to be
converted, (ii) the name or names in which such holder wishes the
certificate or certificates for Common Stock and for any First Series
of Diluted Series A Preferred Stock not to be so converted to be issued
and (iii) the address
<PAGE>
to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
(b) Automatic Conversion. Each share of First Series
of Diluted Series A Preferred Stock shall automatically be converted,
without the payment of any additional consideration, into shares of
Common Stock on the basis provided in Section 4(a) above (i) upon the
closing of a Series A Qualified Public Offering, or (ii) upon the
closing of a Series A Non-Qualified Public Offering.
(c) Conversion Procedures. Any holder of First Series
of Diluted Series A Preferred Stock converting such shares into shares
of Common Stock, or whose shares are automatically converted pursuant
to Section 4(b), shall surrender the certificate or certificates
representing the First Series of Diluted Series A Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the
transfer agent for the First Series of Diluted Series A Preferred Stock
or such office or offices in the continental United States of an agent
for conversion as may from time to time be designated by notice to the
holders of the First Series of Diluted Series A Preferred Stock by the
Corporation, or shall deliver an Affidavit of Loss with respect to such
certificates. Upon surrender of a certificate representing First Series
of Diluted Series A Preferred Stock for conversion, the Corporation
shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing First
Series of Diluted Series A Preferred Stock, only part of which are to
be converted, the Corporation shall issue and send to such holder or
such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of
shares of First Series of Diluted Series A Preferred Stock which shall
not have been converted. The issuance and delivery of certificates for
Common Stock upon conversion of First Series of Diluted Series A
Preferred Stock will be made without charge to the holders of such
shares for any issuance tax in respect thereof or other costs incurred
by the Corporation in connection with such conversion and the related
issuance of such stock.
(d) Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon a conversion of First Series
of Diluted Series A Preferred Stock into shares of Common Stock at the
option of the holder(s) thereof pursuant to Section 4(a) or by
operation of Section 4(b) hereof shall be effective as of the surrender
of the certificate or certificates for the First Series of Diluted
Series A Preferred Stock to be converted, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto) or delivery of an Affidavit of Loss with
respect to such certificates. The issuance by the Corporation of shares
of Common Stock upon a conversion of First Series of Diluted Series A
Preferred Stock into Common Stock pursuant to Section 4(b) hereof upon
a Series A Qualified Public Offering or a Series A
<PAGE>
Non-Qualified Public Offering shall be deemed to be effective
immediately prior to the closing of such Series A Qualified Public
Offering or Series A Non-Qualified Public Offer ing. On and after the
effective date of conversion, the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock.
(e) No Impairment. The Corporation shall not, by
amendment of its charter documents or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but shall at all times in good
faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion and other rights of the
holders of the First Series of Diluted Series A Preferred Stock against
impairment.
(f) Fractional Shares. The Corporation shall not be
obligated to deliver to holders of First Series of Diluted Series A
Preferred Stock any fractional share of Common Stock issuable upon any
conversion of such Series A Preferred Stock, but in lieu thereof may
make a cash payment for fair market value in respect thereof in any
manner permitted by law.
(g) Reservation of Common Stock. The Corporation
shall at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for issuance upon the conversion of First
Series of Diluted Series A Preferred Stock as herein provided, free
from any preemptive rights or other obligations, such number of shares
of Class A Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding. The
Corporation shall prepare and shall use its best efforts to obtain and
keep in force such governmental or regulatory permits or other
authorizations as may be required by law, excluding permits or
authorizations relat ing to registration under Federal or state
securities laws, in order to enable the Corporation lawfully to issue
and deliver to each holder of record of First Series of Diluted Series
A Preferred Stock such number of shares of its Common Stock as shall
from time to time be sufficient to effect the conversion of all First
Series of Diluted Series A Preferred Stock then outstanding and
convertible into shares of Class A Common Stock.
(h) Adjustments to First Series of Diluted Series A
Conversion Price. The First Series of Diluted Series A Conversion Price
in effect from time to time shall be subject to adjustment through the
effective date of the conversion of all of the then outstanding First
Series of Diluted Series A Preferred Stock and regardless of whether
any shares of First Series of Diluted Series A Preferred Stock are then
issued and outstanding. Upon the issuance of additional shares of
Common Stock as a dividend or other distribution on outstanding Common
Stock, the subdivision of outstanding shares of Common Stock into a
greater number of shares of Common Stock, or the combination of
outstanding shares of Common Stock into a smaller number of shares of
Common Stock,
<PAGE>
the First Series of Diluted Series A Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
split, be adjusted by multiplying the then effective First Series of
Diluted Series A Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Section 4(h) shall be given effect,
upon payment of such a dividend or distribution, as of the record date
for the determination of stockholders entitled to receive such dividend
or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(i) Other Adjustments. In the event the Corporation
shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a non-cash dividend or
other distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event lawful and adequate
provision shall be made so that the holders of First Series of Diluted
Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon,
the number of securities of the Corporation which they would have
received had their First Series of Diluted Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and
including the Conversion Date (as that term is hereafter defined),
retained such securities receivable by them as aforesaid during such
period.
If the Common Stock issuable upon the conversion of
the First Series of Diluted Series A Preferred Stock shall be changed
into the same or different number of shares of any class or classes of
stock, whether by reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation or sale of assets
provided for else where in this Section 4), then and in each such event
the holder of each share of First Series of Diluted Series A Preferred
Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such
shares of First Series of Diluted Series A Preferred Stock might have
been converted immediately prior to such reorga nization,
reclassification or change, all subject to further adjustment as
provided herein.
(j) Mergers and Other Reorganizations. If (i) at any
time or from time to time there shall be a Corporate Disposition and
(ii) the holders of sixty-six and two-thirds percent (662/3%) of the
outstanding shares of Series A Preferred Stock and Diluted Series A
Preferred Stock, voting together as a single class on an as-converted
basis, ex pressly elect in writing to have the provisions of this
Section 4(j), and not the provisions of Section 2, apply to such
transaction, then, as a part of and as a condition to the effectiveness
of such reorganization, merger, consolidation or sale, lawful and
adequate provision shall be made so that the holders of the First
Series of Diluted Series A
<PAGE>
Preferred Stock shall thereafter be entitled to receive upon conversion
of the First Series of Diluted Series A Preferred Stock the number of
shares of stock or other securities or property of the Corporation or
of the successor corporation resulting from such merger or
consolidation or sale, to which such holders would have been entitled
upon such capital reorganization, merger, consolidation or sale had
such holders converted their shares of First Series of Diluted Series A
Preferred Stock into Common Stock immediately prior to such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the
holders of the First Series of Diluted Series A Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 4 (including without limitation provisions
for adjustment of the First Series of Diluted Series A Conversion Price
and the number of shares purchasable upon conversion of the First
Series of Diluted Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock,
securities or assets to be deliverable thereafter upon the conversion
of the First Series of Diluted Series A Preferred Stock. The provisions
of this Section 4(j) shall not in any way limit the rights of the
holders of First Series of Diluted Series A Preferred Stock under
Section 2 hereof if an election to have this Section 4(j) apply to such
transaction is not made by such holders.
Notwithstanding anything herein to the contrary, in no event
shall the Corporation's issuance and sale of Additional Series B Preferred
Shares pursuant to the Purchase Agreement constitute an issuance of New
Securities hereunder.
(k) Waiver. The holder or holders of not less than
sixty-six and two-thirds percent (662/3%) of the outstanding First
Series of Diluted Series A Preferred Stock may, by written notice to
the Corporation, waive any adjustment to the First Series of Diluted
Series A Conversion Price required under this Section 4.
(l) Notices. In each case of an adjustment or
readjustment of the First Series of Diluted Series A Conversion Price,
the Corporation will furnish each holder of First Series of Diluted
Series A Preferred Stock with a certificate, prepared by the chief
financial officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
5. Redemption.
(a) On or After February 1, 2008. At any time on or
after February 1, 2008, at the election of the holders of a majority of
the outstanding Series A Preferred Stock and Diluted Series A Preferred
Stock, voting together as a single class on an as-converted basis, the
Corporation shall redeem each share of First Series of Diluted Series A
Preferred Stock, Series A Preferred Stock and other series of Diluted
Series A Preferred Stock then outstanding for the Series A Redemption
Price equal to as of the Series A Redemption Date as determined in
accordance with Section 5(d) of Part C hereof.
<PAGE>
(b) Termination of Rights. From and after the Series
A Redemption Date, unless there shall have been a default in payment or
tender by the Corporation of the Series A Redemption Price, all rights
of the holders with respect to such redeemed shares of First Series of
Diluted Series A Preferred Stock (except the right to receive the
Series A Redemption Price in accordance with the terms hereof upon
surrender of their certificate) shall cease and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed
to be outstanding for any purpose whatsoever.
(c) Insufficient Funds. If the funds of the
Corporation legally available for redemption of shares of Series A
Preferred Stock and Diluted Series A Preferred Stock to be redeemed on
the Series A Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock and Diluted Series A
Preferred Stock, the Corporation shall use those funds which are
legally available to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series A Preferred Stock and
Diluted Series A Preferred Stock, such funds will immediately be used
to redeem the balance of the shares which the Corporation has become
obligated to redeem on the Series A Redemption Date but which it has
not redeemed at the Series A Redemption Price together with any accrued
interest thereon as provided below. If any shares of First Series of
Diluted Series A Preferred Stock are not redeemed because the
Corporation failed to pay or tender to pay the aggregate Series A
Redemption Price on all outstanding shares of Series A Preferred Stock
and Diluted Series A Preferred Stock, (i) all shares which have not
been redeemed shall remain outstanding and entitled to all the rights
and preferences provided herein, and the Corporation shall pay interest
on the unpaid portion of the Series A Redemption Price for the
unredeemed portion at a per annum rate equal to twenty percent (20%) or
the maximum rate of interest permitted under applicable law, whichever
is less and (ii) if such Series A Redemption Price shall remain unpaid
for a period of nine (9) months, then the Board of Directors shall take
all actions that it deems necessary to fund the Series A Redemption
Price, including, without limitation, the sale or liquidation of the
Corporation.
6. Restrictions and Limitations. So long as the First
Series of Diluted Series A Preferred Stock remains outstanding:
(a) The Corporation will not, without the affirmative
vote or written consent of the holders of a majority of the issued and
outstanding shares of Common Stock and Preferred Stock, voting as a
single class on an as converted basis:
(i) Authorize or issue, or obligate itself
to issue, any shares of Common Stock (other than pursuant to
the exercise of stock options or other rights granted under
the 1995 Stock Option Plan, 1996 Stock Option Plan and 1998
Stock Option Plan, or upon conversion of the Preferred Stock);
(ii) Authorize any merger or consolidation
of the Corporation with or into any other corporation,
partnership or entity (with respect to which less
<PAGE>
than a majority of the outstanding voting power of such
surviving corporation is held by stockholders of the
Corporation immediately prior to such event) or permit the
sale of all or any material portion of the capital stock or
assets of the Corporation (other than sales in the ordinary
course of business and consistent with past practices); or
(iii) Incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any
new or additional indebtedness or liability (other than up to
$30 million in connection with the Corporation's revolving
credit facilities with Banque Paribas and Fleet National
Bank).
(b) The Corporation will not, without the affirmative
vote or written consent of holders of sixty-six and two-thirds percent
(662/3%) of the issued and outstanding shares of Common Stock and
Preferred Stock, voting as a single class on an as converted basis:
(i) Authorize or issue, or obligate itself
to issue, any equity securities at an effective per share
price which is less than $173.25 (which price shall be
appropriately adjusted for stock splits, stock dividends,
recapitalizations and the like), other than any Additional
Series B Preferred Shares issued pursuant to the Purchase
Agreement;
(ii) Authorize or issue a class or series of
stock having rights equal or senior to the Series B Preferred
Stock, or a new class or series of Preferred Stock;
(iii) Authorize any acquisition, merger or
consolidation of assets or stock of another corporation,
partnership or entity in exchange for shares of equity
securities of the Corporation which results in dilution to the
existing stockholders, on a fully diluted, as converted basis,
in excess of fifteen percent (15%); or
(iv) Authorize or permit the reorganization,
liquidation, dissolution or winding up of the Corporation.
(c) The Corporation will not amend the charter
documents of the Corporation so as to adversely effect the rights of
the holders of First Series of Diluted Series A Preferred Stock with
respect to dividends, liquidation preferences or redemption without the
vote or affirmative written consent of holders of eighty percent (80%)
of the outstanding shares of Series A Preferred Stock and Diluted
Series A Preferred Stock voting together as a single class, on an
as-converted basis or, amend the charter documents or by-laws of the
Corporation in any manner that adversely affects any other preferences,
powers, rights or privileges of the holders of Series A Preferred Stock
without the vote or affirmative written consent of holders of at least
sixty-six and two-thirds percent (662/3%) of the outstanding shares of
Series A Preferred Stock and Diluted Series A Preferred Stock voting
together as a single class, on an as-converted basis;
(d) The Corporation will not, without the affirmative
vote of the holders of a majority of the outstanding shares of First
Series of Diluted Series A Preferred Stock voting as a separate class
increase or decrease (other than by conversion as permitted hereby) the
total number of authorized shares of First Series of Diluted Series A
Preferred Stock.
7. No Reissuance of First Series of Diluted Series A
Preferred Stock. No share or shares of the First Series of Diluted Series A
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the First Series of Diluted Series A Preferred Stock accordingly.
8. Notices of Record Date. In the event (i) the
Corporation establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of First Series of Diluted Series A Preferred Stock at least twenty (20)
days prior to the record date specified therein, a notice specifying (a) the
date of such record date for the purpose of such dividend or distribution and a
description of such dividend or distribution, (b) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (c) the time, if
any, that is to be fixed, as to when the holders of record of Preferred Stock
and Common Stock (or other securities) shall be entitled to exchange their
shares of Preferred Stock and Common Stock (or other securities) for securities
or other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
9. Other Rights. Except as otherwise provided in the
charter documents of the Corporation, as amended, shares of First Series of
Diluted Series A Preferred Stock and shares of Common Stock shall be identical
in all respects (each share of First Series of Diluted Series A Preferred Stock
having equivalent rights to the maximum number of shares of Common Stock into
which it is then convertible), shall have the same powers, preferences and
rights, without preference of any such class or share over any other such class
or share, and shall be treated as a single class of stock for all purposes.
<PAGE>
10. Miscellaneous.
(a) All notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or
by standard form of telecommunication, addressed: (i) if to the
Corporation, to its principal executive office (Attention: President)
and to the transfer agent, if any, for the First Series of Diluted
Series A Preferred Stock or other agent of the Corporation designated
as permitted hereby, (ii) if to any holder of the Preferred Stock or
Common Stock, as the case may be, to such holder at the address of such
holder as listed in the stock record books of the Corporation (which
may include the records of any transfer agent for the Preferred Stock
or Common Stock, as the case may be) or (iii) to such other address as
the Corporation or any such holder, as the case may be, shall have
designated by notice similarly given.
(b) The Corporation may appoint, and from time to
time discharge and change, a transfer agent of the First Series of
Diluted Series A Preferred Stock. Upon any such appointment or
discharge of a transfer agent, the Corporation shall send notice
thereof by hand delivery, by courier, by standard form of
telecommunication or by first class mail (postage prepaid), to each
holder of record of First Series of Diluted Series A Preferred Stock.
E. UNDESIGNATED PREFERRED STOCK
The Undesignated Preferred Stock may be issued from time to time in one
or more series of any number of shares pursuant to Section 4(k) of Part A and
Section 4(k) of Part C hereof, provided that the aggregate number of shares
issued and not canceled of any and all such series, together with the aggregate
number of shares of Series B Preferred Stock and Series A Preferred Stock then
outstanding, shall not exceed 590,477 shares. Subject to the foregoing, the
Board of Directors of the Corporation is hereby authorized to determine and
alter all rights, preferences and privileges and qualifications, limitations and
restrictions thereof (including, without limitation, voting rights and the
limitation and exclusion thereof) granted to or imposed upon any wholly unissued
series of Preferred Stock and the number of shares constituting any such series
and the designation thereof, and to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
series subsequent to the issue of shares of that series then outstanding.
F. COMMON STOCK
Except as otherwise provided in this Part F or as otherwise required by
applicable law, all shares of Class A Common Stock and Class B Common Stock
shall be identical in all respects and shall entitle the holders thereof to the
same rights, preferences and privileges, subject to the same qualifications,
limitations and restrictions, as set forth herein.
1. Voting Rights. Except as otherwise provided in this
Part F or as otherwise required by applicable law, the holders of Class A Common
Stock shall be entitled to one vote per
<PAGE>
share on all matters to be voted on by the Corporation's stockholders, and the
holders of Class B Common Stock shall have no right to vote on any matters to be
voted on by the Corporation's stockholders; provided that the holders of the
Class B Common Stock shall have the right to vote as a separate class on any
merger or consolidation of the Corporation with or into another entity or
entities, or any recapitalization or reorganization, in which shares of Class B
Common Stock would receive or be exchanged for consideration different on a per
share basis from the consideration received with respect to or in exchange for
shares of Class A Common Stock or would otherwise be treated differently from
shares of Class A Common Stock, except that shares of Class B Common Stock may,
without such a separate class vote, receive or be exchanged for non-voting
securities (except as otherwise required by law) which are otherwise identical
on a per share basis in amount and form to the voting securities received with
respect to or in exchange for the Class A Common Stock so long as (i) such
non-voting securities are convertible into voting securities on the same terms
as the Class B Common Stock is convertible into Class A Common Stock and (ii)
all other consideration is equal on a per share basis.
2. Dividends. As and when dividends are declared or paid
with respect to shares of Common Stock, whether in cash, property or securities
of the Corporation, the holders of Class A Common Stock and the holders of Class
B Common Stock shall be entitled to receive such dividends pro rata at the same
rate per share of each class of Common Stock; provided that (i) if dividends are
declared or paid in shares of Class A Common Stock or Class B Common Stock, the
dividends payable in shares of Class A Common Stock shall be payable to holders
of Class A Common Stock and the dividends payable in shares of Class B Common
Stock shall be payable to holders of Class A Common Stock and (ii) if the
dividends consist of other voting securities of the Corporation, the Corporation
shall make available to each holder of Class B Common Stock, at such holder's
request, dividends consisting of non-voting securities (except as otherwise
required by law) of the Corporation which are otherwise identical to the voting
securities and which are convertible into such voting securities on the same
terms as the Class B Common Stock is convertible into the Class A Common Stock.
3. Liquidation. The holders of the Class A Common Stock
and the holders of the Class B Common Stock shall be entitled to participate pro
rata at the same rate per share of each class of Common Stock in all
distributions to the holders of the Common Stock in any liquidation, dissolution
or winding up of the Corporation.
4. Conversion.
(a) Conversion of Class B Common Stock.
(i) In connection with the occurrence (or
the expected occurrence an described in (iii) below) of any
Conversion Event, each holder of Class B Common Stock shall be
entitled to convert into an equal number of shares of Class A
Common Stock any or all of the shares of such holders Class B
Common Stock being (or expected to be) distributed, disposed
of or sold in connection with such Conversion Event.
<PAGE>
(ii) For purposes of this Section 4(a), a
"Conversion Event" shall mean (a) any public offering or
public sale of securities of the Corporation (including a
public offering registered under the Securities Act and a
public sale pursuant to Rule 144 of the Securities Act or any
similar rule then in force), (b) any sale of securities of the
Corporation to a person or group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), if, after such sale, such person or group of
persons in the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to elect a
majority of the Corporation's directors (provided that such
sale has been approved by the Corporation's Board of Directors
or a committee thereof), (c) any sale of securities of the
Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or
group of persons in the aggregate would own or control
securities of the Corporation (excluding any Class B Common
Stock being converted and disposed of in connection with such
Conversion Event) which possess in the aggregate the ordinary
voting power to elect a majority of the Corporation's
directors, (d) any sale of securities of the Corporation to a
person or group of persons (within the meaning of the 1934
Act) if, after such sale, such person or group of persons
would not, in the aggregate, own, control or have the right to
acquire more than two percent (2%) of the outstanding
securities of any class of voting securities of the
Corporation, and (e) a merger, consolidation or similar
transaction involving the Corporation if, after such
transaction, a person or group of persons (within the meaning
of the 1934 Act) in the aggregate would own or control
securities which possess in the aggregate the ordinary voting
power to elect a majority of the surviving Corporation's
directors (provided that the transaction has been approved by
the Corporation's Board of Directors or a committee thereof).
For purposes of this Section 4(a), a "person" shall include
any natural person and any Corporation, partnership, joint
venture, trust, unincorporated organization and any other
entity or organization.
(iii) Each holder of Class B Common Stock
shall be entitled to convert shares of Class B Common Stock in
connection with any Conversion Event if such holder reasonably
believes that such Conversion Event shall be consummated, and
a written request for conversion from any holder of Class B
Common Stock to the Corporation stating such holder's
reasonable belief that a Conversion Event shall occur shall be
conclusive and shall obligate the Corpora tion to effect such
conversion in a timely manner so as to enable each such holder
to participate in such Conversion Event. The Corporation shall
not cancel the shares of Class B Common Stock so converted
before the tenth day following such Conversion Event and shall
reserve such shares until such tenth day for reissuance in
compliance with the next sentence. If any shares of Class B
Common Stock are converted into shares of Class A Common Stock
in connection with a Conversion Event and such shares of Class
A Common Stock are not actually distributed, disposed of or
sold pursuant to such Conversion Event, such shares of Class A
Common Stock shall be promptly exchanged back into the same
number of shares of Class B Common Stock.
<PAGE>
(iv) Notwithstanding any other provision
hereof, in the event that the initial holder of the Class B
Common Stock is licensed by the U.S. Small Business
Administration as a Small Business Investment Company (an
"SBIC") on or before September 1, 1996, then such initial
holder shall be entitled to convert the Class B Common Stock
held by such holder into Class A Common Stock within 3 months
after the date such license is effective, and in the event
that any entity controlling, controlled by or under common
control with such initial holder is licensed as an SBIC on or
before September 1, 1996, then any Class B Common Stock held
by such affiliate of the initial holder will be convertible
into Class A Common Stock within 3 months after the date such
license is effective.
(b) Conversion Procedure.
(i) Unless otherwise provided in connection
with a Conversion Event, each conversion of shares of Class B
Common Stock into shares of Class A Common Stock shall be
effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal
office of the Corporation at any time during normal business
hours, together with a written notice by the holder of such
Class B Common Stock stating that such holder desires to
convert the shares, or a stated number of the shares, of Class
B Common Stock represented by such certificate or certificates
into Class A Common Stock. Unless otherwise provided in
connection with a Conversion Event, each conversion shall be
deemed to have been effected as of the close of business on
the date on which such certificate or certificates have been
surrendered and such notice has been received, and at such
time the rights of the holder of the converted Class B Common
Stock as such holder shall cease and the person or persons in
whose name or names the certificate or certificates for shares
of Class A Common Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record
of the shares of Class A Common Stock represented thereby.
(ii) Promptly after the surrender of
certificates and the receipt of such written notice, the
Corporation shall issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or
certificates for the Class A Common Stock issuable upon such
conversion and (b) a certificate representing any Class B
Common Stock which was represented by the certificate or
certificates delivered to the Corporation in connection with
such conversion but which was not converted.
(iii) The issuance of certificates for Class
A Common Stock upon conversion of Class B Common Stock shall
be made without charge to the holders of such shares for any
issuance tax in respect thereof or other cost incurred by the
in connection with such conversion and the related issuance of
Class A Common Stock.
<PAGE>
(iv) The Corporation shall at all times
reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of
issuance upon the conversion of the Class B Common Stock, such
number of shares of Class A Common Stock issuable upon the
conversion of all outstanding Class B Common Stock. All shares
of Class A Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to
assure that all such shares of Class A Common Stock may be so
issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities
exchange upon which shares of Class A Common Stock may be
listed (except for official notice of issuance which shall be
immediately transmitted by the Corporation upon issuance).
(v) The Corporation shall not close its
books against the transfer of Class B Common Stock or of Class
A Common Stock issued or issuable upon conversion of Class B
Common Stock in any manner which would interfere with the
timely conversion of Class B Common Stock. The Corporation
shall assist and cooperate with any holder of Class B Common
Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any
conversion of Class B Common Stock hereunder (including,
without limitation, making any filings required to be made by
the Corporation).
(c) Stock Splits. If the Corporation in any
manner subdivides or combines the outstanding shares of one class of Common
Stock, the outstanding shares of the other class of Common Stock shall be
proportionately subdivided or combined in a similar manner.
5. Amendment and Waiver. No amendment or waiver of any
provision of this Part F shall be effective without the prior approval of (i)
the holders of a majority of the then outstanding shares of Class B Common Stock
voting as a separate class and (ii) the holders of a majority of the then
outstanding shares of Class A Common Stock voting as a separate class.
G. RANKING
The Series B Stock shall rank pari passu with the Redeemable Preferred
Stock and senior to the Senior A Stock and the Common Stock as to redemptions,
dividends and the distribution of assets upon a Liquidation Event or Corporate
Disposition. The Series A Stock shall rank senior to the Common Stock as to
redemptions, dividends and the distribution of assets upon a Liquidation Event
or Corporate Disposition.
<PAGE>
IN WITNESS WHEREOF, TELETRAC HOLDINGS, INC. has caused this
Certificate to be signed by its Secretary, who hereby acknowledges under
penalties of perjury that the facts herein stated are true and that this
certificate is the act and deed of the Corporation, this
th day of October, 1998.
TELETRAC HOLDINGS, INC.
By /s/ Steven D. Scheiwe
Steven D. Scheiwe
Secretary
- - --------------------------------------------------------------------------------
TELETRAC HOLDINGS, INC.
UP TO 400,000 SHARES OF SERIES B PARTICIPATING
CONVERTIBLE PREFERRED STOCK
STOCK PURCHASE AGREEMENT
Dated as of October 20, 1998
- - --------------------------------------------------------------------------------
1
<PAGE>
Teletrac Holdings, Inc.
Stock Purchase Agreement
Dated as of October 20, 1998
INDEX
Page
SECTION 1. TERMS OF PURCHASE...............................................1
1.1 Description of Securities.......................................1
1.2 Reserved Shares.................................................1
1.3 Initial Closing of Sale and Purchase............................2
1.4 Second Closing of Sale and Purchase.............................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................3
2.1 Organization and Corporate Power................................3
2.2 Authorization...................................................4
2.3 Non-contravention...............................................4
2.4 Capitalization of the Company...................................4
2.5 SEC Documents; Financial Statements.............................7
2.6 FCC Licenses....................................................7
2.7 Absence of Undisclosed Liabilities..............................9
2.8 Absence of Certain Developments.................................9
2.9 Accounts Receivable.............................................9
2.10 Title to Properties.............................................9
2.11 Tax Matters....................................................10
2.12 Contracts and Commitments......................................11
2.13 Proprietary Rights; Employee Restrictions......................11
2.14 Litigation.....................................................13
2.15 Offerees.......................................................13
2.16 Business; Compliance with Laws.................................13
2.17 Information Supplied to Investors..............................14
2.18 Investment Banking; Brokerage..................................14
2.19 Solvency.......................................................14
2.20 Environmental Matters..........................................14
2.21 Employee Benefit Programs......................................15
2.22 Product and Services Claims....................................17
2.23 Backlog........................................................18
2.24 Employees; Labor Matters.......................................18
2.25 Customers, Distributors and Suppliers..........................18
2.26 Corporate Records; Copies of Documents.........................18
2.27 Affiliate Transactions.........................................19
2.28 Small Business Concern, Etc....................................19
2.29 FIRPTA Withholding.............................................20
2.30 Investments Related to Certain Foreign Countries...............20
<PAGE>
Page
SECTION 3. CONDITIONS OF PURCHASE.........................................20
3.1 Representations................................................20
3.2 Opinions of Counsel............................................20
3.3 Authorization..................................................20
3.4 Effectiveness of Preferred Stock Terms.........................21
3.5 Stockholders' Agreement........................................21
3.6 Election of Directors..........................................21
3.7 Compensation Committee; Audit Committee........................21
3.8 Registration Rights Agreement..................................21
3.9 All Proceedings Satisfactory...................................21
3.10 No Adverse Change..............................................22
3.11 Delivery of Documents..........................................22
3.12 SBIC Deliveries................................................22
3.13 Consent of Series A Preferred Stock............................23
SECTION 4. COVENANTS OF THE COMPANY.......................................23
4.1 Financial Statements; Minutes..................................23
4.2 Budget and Operating Forecast..................................24
4.3 Conduct of Business............................................24
4.4 Payment of Taxes, Compliance with Laws, etc....................24
4.5 Insurance......................................................24
4.6 Maintenance of Properties......................................25
4.7 Affiliated Transactions........................................25
4.8 Management Compensation........................................25
4.9 Use of Proceeds................................................25
4.10 Board of Directors Meetings; Meetings with Investors...........25
4.11 Stockholders' Agreement........................................26
4.12 Distributions on, and Redemptions of, Capital Stock............26
4.13 Merger, Consolidation, Sale of Assets and Other Actions........27
4.14 No Amendments to Certificate of Incorporation..................28
4.15 Capital Expenditures...........................................28
4.16 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information Amendment....28
4.17 Non-Competition Agreements; Confidentiality and Proprietary
Rights Agreements..............................................30
SECTION 5. INVESTOR REPRESENTATIONS.......................................30
SECTION 6. INDEMNIFICATION................................................31
6.1 Indemnification for Vicarious Liability........................31
6.2 Notice; Defense of Claims......................................31
6.3 Satisfaction of Indemnification Obligations....................32
<PAGE>
Page
SECTION 7. GENERAL........................................................32
7.1 Amendments, Waivers and Consents...............................32
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights........................................33
7.3 Governing Law; Jurisdiction....................................34
7.4 Section Headings; Counterparts.................................34
7.5 Notices and Demands............................................34
7.6 Severability...................................................34
7.7 Expenses.......................................................34
7.8 Integration; Waiver of Prior Agreements........................35
7.9 Certain Provisions Applicable to SBIC and Bank Stockholders....35
APPENDIX A - Li Investors
EXHIBITS
Exhibit 3.2(a) Opinion of Company Counsel
Exhibit 3.2(b) Opinion of Company FCC Counsel
Exhibit 3.4 Amended and Restated Certificate of Incorporation
Exhibit 3.5 Stockholders' Agreement
Exhibit 3.8 Registration Rights Agreement
Exhibit 4.17 Confidentiality and Proprietary Rights Agreement
<PAGE>
Page
SCHEDULES
Schedule 2.1 - Violations
Schedule 2.4 - Capitalization and Beneficial Ownership; Options; Rights
Schedule 2.6 _ FCC Licenses
Schedule 2.7 - Undisclosed Liabilities
Schedule 2.8 - Certain Developments
Schedule 2.9 - Accounts Receivable
Schedule 2.10 - Title to Properties
Schedule 2.11 - Tax Matters
Schedule 2.12 - Contracts and Commitments
Schedule 2.13 - Proprietary Rights
Schedule 2.14 - Litigation
Schedule 2.16 - Business
Schedule 2.17 _ Disclosure
Schedule 2.20 - Environmental Matters
Schedule 2.21 - Employee Benefits
Schedule 2.22 - Product and Service Claims
Schedule 2.23 - Backlog
Schedule 2.24 - Employee Matters
Schedule 2.27 - Affiliate Transactions
Schedule 3.13 - List of Jurisdictions
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 20th day of October, 1998 by and among
Teletrac Holdings, Inc., a Delaware corporation (the "Company"), the investors
named on Appendix A hereto (the "Initial Investors"), and such additional
investors as may be identified on an addendum to Appendix A in accordance with
the terms of this Agreement (the "Additional Investors" and, together with the
Initial Investors, collectively, the "Investors"). As used herein, the term
"Company" shall include any subsidiaries of the Company (except with respect to
Section 2.4 hereof or to the extent the context otherwise requires).
The parties hereby agree as follows:
SECTION 1. TERMS OF PURCHASE
1.1 Description of Securities. The Company has authorized the
issuance and sale to the Investors of an aggregate of up to 400,000 shares (the
"Series B Preferred Shares") of its authorized but unissued Series B
Participating Convertible Preferred Stock, par value $.01 per share (the "Series
B Preferred Stock"), for a purchase price of $75.00 per Series B Preferred
Share. The Series B Preferred Stock shall have the rights, restrictions,
privileges and preferences set forth in the Amended and Restated Certificate of
Incorporation attached hereto as Exhibit A (the "Charter"), which has been duly
adopted by the Company and filed with the Secretary of State of the State of
Delaware as of this date in connection with this Agreement. Upon filing of the
Charter, the authorized capital stock of the Company will include such number of
shares of Series B Preferred Stock equal to the sum of (a) the number of Series
B Preferred Shares to be purchased by the Initial Investors pursuant to this
Agreement (the "Initial Series B Preferred Shares") and (b) the number of Series
B Preferred Shares available to be purchased by the Initial Investors and
Additional Investors pursuant to this Agreement (the "Additional Series B
Preferred Shares"). In the event that the Company does not sell all of the
Additional Series B Preferred Shares pursuant to the terms and conditions of
this Agreement, the Company shall duly amend the Charter to decrease the number
of shares of Series B Preferred Stock authorized thereunder so that such
authorized number equals the sum of the Initial Series B Preferred Shares and
the Additional Series B Preferred Shares actually sold.
1.2 Reserved Shares. The Company has authorized and has reserved and
covenants to continue to reserve (a) a sufficient number of shares of its
Redeemable Preferred Stock, par value $.01 per share (the "Redeemable Preferred
Stock") and (b) a sufficient number of shares of its Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), to satisfy the rights of
conversion of the holders of the Series B Preferred Shares. Any shares of Class
A Common Stock and Redeemable Preferred Stock or any successor class of capital
stock of the Company hereafter issued or issuable upon conversion of the Series
B Preferred Shares are herein referred to as "Conversion Shares," and the Series
B Preferred Shares and the Conversion Shares are herein collectively referred to
as the "Securities."
1.3 Initial Closing of Sale and Purchase. Subject to the terms and
conditions of this Agreement, at the Initial Closing (as hereinafter defined),
1
<PAGE>
the Company shall issue and sell to each of the Initial Investors, and each
Initial Investor severally and not jointly shall purchase from the Company, the
number of Series B Preferred Shares set forth opposite the name of such Initial
Investor in Column 1 of Appendix A hereto for the aggregate purchase price set
forth opposite the name of such Initial Investor in Column 2 of said Appendix A.
The closing (the "Initial Closing") of the sale and purchase of the
Initial Series B Preferred Shares to the Initial Investors shall take place at
the offices of Goodwin, Procter & Hoar LLP, located at Exchange Place, Boston,
Massachusetts, at 10:00 A.M. on October 20, 1998 or such other date as shall be
mutually agreed upon by the Company and the unanimous vote or written consent of
the Initial Investors (the "Initial Closing Date").
1.4 Other Financings; Second Closing of Sale and Purchase.
(a) Following the Initial Closing Date, the Investors shall
have the following rights in connection with each transaction involving the sale
by the Company of its capital stock, notes, debentures, or other securities
(each such transaction, a "Financing") until the Company shall have received an
aggregate of at least $20,000,000 in gross proceeds from one or more Financings
(including the Financing which causes the Company to receive an aggregate of at
least $20,000,000 in gross proceeds):
(i) The Company shall deliver to each Investor a
copy of the transaction documents relating to each contemplated Financing,
including any term sheet, at least ten (10) business days prior to the closing
of such Financing;
(ii) The Company shall not, without the consent
of a majority in interest of the Investors, consummate any Financing; and
(iii) Each Investor, by written notice to the Company
at least three (3) business days prior to the closing of a Financing, may elect
to receive the benefit of any terms or conditions of such Financing with respect
to its Series B Preferred Shares (or securities converted therefrom), including,
without limitation, the conversion of such Investor's Series B Preferred Shares,
including any accrued dividends (or securities converted therefrom) into the
securities sold in such Financing or the issuance by the Company to such
Investor of additional Series B Preferred Shares, and, upon such election, the
parties hereto shall take all steps necessary for such Investor to receive such
benefit.
(b) Following the Initial Closing Date and for a period of six
(6) months thereafter, the Company shall have the right to offer to sell
Additional Series B Preferred Shares to the Initial Investors or any third party
institutional investor(s) reasonably acceptable to the Initial Investors
(collectively, the "Second Investors") at the Second Closing (as hereinafter
defined) for an aggregate purchase price of $20,000,000. For purposes of Section
1.4(a) above, the sale of Additional Series B Preferred Shares at the Second
Closing pursuant to this Agreement shall constitute a Financing. Consistent with
Section 1.4(a) above, in the event that either: (i) the proposed terms and
conditions of the sale of such Additional Series B Preferred Shares differ from
the terms and conditions of the sale of the Initial Series B
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Preferred Shares, including, without limitation, the purchase price, conversion
price, liquidation or dividend preferences or redemption rights of the Series B
Preferred Shares; or (ii) the aggregate purchase price for such Additional
Series B Preferred Shares is less than $20,000,000, then prior to, and as a
condition precedent to, the Second Closing, a majority in interest of the
Initial Investors must approve the sale with such changes. Each Investor, by
written notice to the Company at least three (3) business days prior to the
Second Closing, may elect to receive the benefit of any terms or conditions of
such Additional Series B Preferred Shares with respect to its Series B Preferred
Shares and, upon such election, the parties hereto shall take all steps
necessary for such Investor to receive such benefit, including, without
limitation, the issuance of additional shares of Series B Preferred Shares to
the Initial Investors by the Company.
Subject to the terms and conditions of this Agreement, at the Second
Closing, the Company shall issue and sell to each of the Second Investors and
each Second Investor severally and not jointly shall purchase from the Company,
the number of Additional Series B Preferred Shares set forth opposite the name
of such Second Investor in Column 1A of an addendum to Appendix A for the
aggregate purchase price set forth opposite the name of such Second Investor in
Column 2A of said addendum to Appendix A. The Additional Investors shall become
parties to this Agreement by executing one or more counterparts hereof, and an
addendum to Appendix A hereto which shall identify the Second Investors and
reflect the number of Additional Series B Preferred Shares that such Second
Investors shall purchase at the Second Closing, shall be made a part hereof.
There shall be one closing (the "Second Closing") for the sale and
purchase of the Additional Series B Preferred Shares to the Second Investors.
The Second Closing shall take place at the offices of Goodwin, Procter & Hoar
LLP, located at Exchange Place, Boston, Massachusetts, at 10:00 A.M. on such
date as shall be mutually agreed upon by the Company and the unanimous vote or
written consent of the Second Investors (the "Second Closing Date").
As used herein, the term "Closing" shall refer to either the "Initial
Closing" or the "Second Closing," as the context requires, and the term "Closing
Date" shall refer to either the "Initial Closing Date" or the "Second Closing
Date," as the context requires.
At the Closing, the Company will deliver the Series B Preferred
Shares being acquired by each Investor in the form of a certificate, issued in
such Investor's name or in the name of its nominee (of which the Investor shall
notify the Company not less than two (2) business days prior to the Closing),
against payment of the full purchase price therefor by or on behalf of each
Investor to the Company by check or wire transfer.
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement, the
Company hereby represents and warrants to the Investors that as of the date
hereof:
2.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business as a foreign corporation
and in good standing in each jurisdiction in which such qualification is
required, except where failure to so qualify would not have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of the Company and its subsidiaries taken as a whole ("Material Adverse
Effect"). The Company has all required corporate power and authority to own its
property, to carry on its business as presently conducted or contemplated, to
enter into and perform this Agreement and the agreements contemplated hereby,
and generally to carry out the transactions contemplated hereby and thereby. The
copies of the Charter and By-laws of the Company, each as amended to date, which
have been furnished to counsel for the Investors, are correct and complete at
the date hereof. Except as set forth on Schedule 2.1, the Company is not in
violation of any term of its Charter or By-laws or any agreement, instrument,
judgment, decree, order, statute, rule or government regulation applicable to
the Company.
2.2 Authorization. This Agreement and all documents and instruments
executed pursuant hereto are valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms. The execution,
delivery and performance of this Agreement and all documents and instruments
contemplated hereby, and the delivery and issuance of the Series B Preferred
Shares and, upon conversion of the Series B Preferred Shares, the Conversion
Shares have been duly authorized by all necessary corporate or other action of
the Company. Assuming the accuracy of the Investor representations set forth in
Section 5 hereof, no consent, approval or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority is required of the Company in connection with the execution, delivery
and performance of this Agreement or the offer, issuance, sale and delivery by
the Company of the Series B Preferred Shares in accordance with the terms of
this Agreement and, upon conversion of the Series B Preferred Shares, the
Conversion Shares, or the performance or consummation of any other transaction
contemplated hereby, except for such filings as shall have been made prior to
and effective on and as of the Closing.
2.3 Non-contravention. The execution, delivery and performance by the
Company of this Agreement and each of the other agreements and instruments to
which it is a party and which are contemplated hereby will not: (a) violate,
conflict with or result in any material default under any contract, instrument,
obligation or commitment of the Company, or violate, conflict with or result in
any default under any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any material lien, charge, restriction or
encumbrance of any nature upon any of the properties or assets of the Company
(except as contemplated hereby); or (c) violate any instrument, agreement,
judgment, decree, order,
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statute, rule, ordinance or regulation of any federal, state or local government
or agency applicable to the Company or any of its assets or properties or to
which the Company is a party, except where such violations would not singly or
in the aggregate have a Material Adverse Effect.
2.4 Capitalization of the Company.
(a) Subject to Section 2.4(b) below, the authorized capital
stock of the Company consists of: (i) 1,000,000 shares of Class A Common Stock,
of which (A) 249,000 shares are outstanding, (B) 400,000 shares will be reserved
for issuance upon conversion of the Series B Preferred Shares, (C) 190,477
shares are reserved for issuance upon conversion of the Series A Redeemable
Convertible Participating Preferred Stock, par value $.01 per share (the "Series
A Preferred Stock"), (D) 23,089 shares are reserved for issuance upon conversion
of the First Series of Diluted Series A Preferred Stock (as hereinafter
defined), (E) 70,000 shares will be reserved for issuance upon conversion of the
Class B Common Stock (as hereinafter defined), (F) 43,060 shares have been
reserved for issuance upon the exercise of outstanding options under the
Company's 1995 Stock Option Plan (the "1995 Stock Option Plan"), (G) 25,397
shares have been reserved for issuance upon the exercise of the outstanding
options under the Company's 1996 Stock Option Plan (the "1996 Stock Option
Plan") and (H) 64,585 shares have been reserved for issuance upon the exercise
of the outstanding options under the Company's Amended and Restated 1998 Stock
Option Plan (the "1998 Stock Option Plan"); (ii) 70,000 shares of Class B Common
Stock, par value $.01 per share (the "Class B Common Stock," and, collectively
with the Class A Common Stock, the "Common Stock"), none of which 70,000 shares
are outstanding; and (iii) 190,477 shares of Series A Preferred Stock, of which
190,476.19 shares are outstanding.
(b) Upon filing of the Charter, the authorized capital stock
of the Company will include: (i) 400,000 shares of Series B Preferred Stock, of
which 132,506.76 shares will be, as of the Initial Closing, outstanding; (ii)
23,089 shares of Series A1 Redeemable Convertible Participating Preferred Stock,
par value $.01 per share (the "First Series of Diluted Series A Preferred
Stock"), of which 23,088.04 shares are outstanding and which were issued upon
the automatic conversion of 23,088.04 shares of Series A Preferred Stock in
connection with the purchase and sale of the Initial Series B Preferred Shares);
and (iii) 400,000 shares of Redeemable Preferred Stock, all of which shall be
reserved for issuance upon conversion of the Series B Preferred Stock as
provided in the Charter. The Series B Preferred Shares have been duly and
validly authorized and, when delivered and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable. The Initial Series B
Preferred Shares are convertible into an aggregate of 132,506 shares of Class A
Common Stock representing 17.02% of the Common Stock of the Company on a
fully-diluted basis after giving effect to the issuance of 43,060 shares of
Class A Common Stock reserved for issuance under the 1995 Stock Option Plan,
25,397 shares of Class A Common Stock reserved for issuance under the 1996 Stock
Option Plan and 64,585 shares of Class A Common Stock reserved for issuance
under the 1998 Stock Option Plan, and the exercise, exchange or conversion of
any other securities or options exercisable or exchangeable for or convertible
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into Common Stock. The relative rights, preferences, restrictions and other
provisions relating to the capital stock of the Company are as set forth in the
Charter. The Company has authorized and reserved for issuance upon conversion of
the Series B Preferred Shares not less than 400,000 shares of its Class A Common
Stock and the Conversion Shares issuable upon such conversion will be, when
issued in accordance with the Charter, duly and validly authorized and issued,
fully-paid and nonassessable. The Series A Preferred Stock, First Series of
Diluted Series A Preferred Stock, Series B Preferred Stock and Redeemable
Preferred Stock are herein referred to as the "Preferred Stock." All of the
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. As of the
Closing, and assuming the accuracy of the Investor representations set forth in
Section 5 hereof, all of the outstanding shares of capital stock of the Company
will have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws.
(c) Except as disclosed in Schedule 2.4 and except for 43,060
shares of Class A Common Stock reserved for issuance under the 1995 Stock Option
Plan, 25,397 shares of Class A Common Stock reserved for issuance under the 1996
Stock Option Plan and 64,585 shares of Class A Common Stock reserved for
issuance under the 1998 Stock Option Plan, the Company has not issued any other
shares of its capital stock, and there are no outstanding warrants, options or
other rights to purchase or acquire any of such shares, nor any outstanding
securities convertible into such shares or outstanding warrants, options or
other rights to acquire any such convertible securities.
(d) Except as set forth in the Stockholders' Agreement dated
as of December 6, 1996, as amended (the "1996 Stockholders' Agreement"), with
respect to which all stockholders party thereto have either exercised or waived
their preemptive rights, there are no preemptive rights or rights of first
refusal with respect to the issuance or sale of the Company's capital stock.
Except as set forth in Schedule 2.4, no officer, director or employee of the
Company or any other person or entity has, claims to have or upon the Closing
will have any right to claim to have any interest in the Company's capital
stock. There are no restrictions on the transfer of the Company's capital stock
other than those arising from federal and state securities laws or under this
Agreement, the Stockholders' Agreement (as defined in Section 3) or the
Registration Rights Agreement (as defined in Section 3). Except as set forth in
the Stockholders' Agreement and the Registration Rights Agreement, there are no
rights, obligations, or restrictions on the voting of any of the Company's
capital stock or the registration of such capital stock for offering to the
public pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The outstanding shares of the capital stock are held of record and
beneficially by the persons identified in Schedule 2.4 in the amounts indicated
therein. Upon the Initial Closing, and after giving effect to the transactions
contemplated herein, the stockholders of the Company will be as indicated on
Schedule 2.4.
(e) The Company's subsidiaries and investments in any other
corporation or business organization are listed in Schedule 2.4 (collectively,
the "Subsidiaries" or individually, a "Subsidiary"). Except as set forth in
Schedule 2.4, each Subsidiary of the
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Company is a duly organized, validly existing corporation in good standing under
the laws of the state of its incorporation with full corporate power and
authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is currently conducted or proposed to be conducted. Except as set forth
in Schedule 2.4, all of the outstanding shares of capital stock of each
Subsidiary are owned beneficially and of record by the Company, free of any
lien, restriction or encumbrance, and said shares have been duly and validly
issued and are outstanding, fully paid and non-assessable. The copies of each of
the Subsidiaries' charter and by-laws, as amended to date, which have been
furnished to counsel for the Investors prior to the date hereof, are complete
and correct, and no amendments thereto are pending. None of the Subsidiaries is
in violation of any term of its respective charter or by-laws. Except as set
forth in Schedule 2.4, (i) there are no outstanding warrants, options or other
rights to purchase or acquire any of the shares of capital stock of any
Subsidiary, or any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities, and (ii) the Company does not own or have any direct or indirect
interest in, a loan or advance to, or control over any corporation, partnership,
joint venture or other entity of any kind.
2.5 SEC Documents; Financial Statements. The Company has filed all
required forms, reports and documents (collectively, the "SEC Reports") with the
Securities and Exchange Commission ("SEC") since the earliest date on which the
Company became subject to the reporting obligations of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), all of
which were prepared in accordance with the applicable requirements of the
Exchange Act, the Securities Act, and the rules and regulations promulgated
thereunder (collectively, the "Securities Laws"). The SEC Reports were filed
with the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by the Company under the Securities Laws since the earliest
date on which the Company became subject to the reporting obligations of Section
13 or 15(d) of the Exchange Act. As of their respective dates, the SEC Reports
(i) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company and its Subsidiaries included in or
incorporated by reference into the SEC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of the Company
and its Subsidiaries as of its date and each of the consolidated statements of
income, retained earnings and cash flows of the Company included in or
incorporated by reference into the SEC Reports (including any related notes and
schedules) fairly presents the results of operations, retained earnings or cash
flows, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted therein
and except, in the case of the unaudited statements, as permitted by Form 10-Q
pursuant to Section 13 or 15(d) of the Exchange Act.
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2.6 FCC Licenses. The Company holds the licenses issued by the FCC
and set forth on Schedule 2.6 hereto (the "FCC Licenses"). The FCC Licenses
authorize the operation of radio stations ("LMS Stations") in the Location and
Monitoring Service ("LMS") from transmitters at the authorized sites and the
authorized spectrum set forth on the FCC Licenses and described in Schedule 2.6
and permit the Company to provide LMS to the metropolitan areas identified on
Schedule 2.6 from such sites. Except as set forth in Schedule 2.6:
(i) no other authorization of the FCC is required for the
operation of the LMS Stations pursuant to the FCC Licenses;
(ii) the FCC Licenses are in full force and effect in accordance with
their terms and the rules and regulations of the FCC;
(iii) none of the FCC Licenses is subject to any condition that the
Company reasonably anticipates could have any material adverse effect upon the
operation of the LMS Stations, considered in the aggregate;
(iv) all conditions to the continuation of the FCC Licenses as
grandfathered LMS licenses under the rules and regulations of the FCC have been
met and no waivers or extensions, other than waivers or extensions previously
granted, are required from the FCC to hold and use the FCC Licenses as
contemplated by the Company; and
(v) no applications for renewal or extension of the FCC Licenses are
pending or due under the rules and regulations of the FCC.
The Company has no reason to believe that the FCC is likely to modify
its rules in a manner that would materially and adversely affect the operation
of the LMS Stations pursuant to the FCC Licenses.
Except as indicated on Schedule 2.6, and except for actions or
proceedings affecting its industry generally, no petition, action,
investigation, notice of violation or apparent liability, notice of forfeiture,
orders to show cause, complaint or proceeding is pending or, to the best
knowledge of the Company, threatened before the FCC or any other forum or agency
with respect to the Company or any of the currently operating LMS Stations or
seeking to revoke, cancel, suspend or modify any of the FCC Licenses. Except as
otherwise expressly contemplated by this Agreement or as stated in Schedule 2.6
hereto, (i) there are no applications presently pending before the FCC with
respect to any of the currently operating LMS Stations, (ii) the Company does
not know of any fact that is likely to result in the denial of an application
for renewal, or the revocation, modification, nonrenewal or suspension of any of
the FCC Licenses, or the issuance of a cease-and-desist order, or the imposition
of any administrative or judicial sanction with respect to any of the currently
operating LMS Stations or other operations of the Company, which may have a
materially adverse effect on the currently operating LMS Stations, (iii) the
Company is in compliance in all material respects
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with the terms of the FCC Licenses and all applicable filing and operating
requirements related thereto and all other applicable regulations and policies
of the FCC and the Communications Act of 1934, as amended, 47 U.S.C. Section
151, et seq. (the "Communications Act"), and any other governmental entity and
(iv) all equipment used by the Company and its customers with respect to its LMS
business has, to the extent necessary, been approved by the FCC and the current
and contemplated use of all such equipment complies with all applicable FCC and
other regulatory requirements. No prior FCC consent is required in connection
with the execution, delivery and performance of this Agreement. The Company is
the licensee of the FCC Licenses listed in Schedule 2.6, free and clear of all
liens and encumbrances except those contemplated by this Agreement. Schedule 2.6
correctly sets forth all FCC Licenses required to be issued by the FCC in
connection with the Company's LMS Stations which are held by the Company and
correctly sets forth the termination date of each FCC License. To the best
knowledge of the Company, except as set forth on Schedule 2.6, there have been
no changes in the sites or facilities relating to the LMS Stations which violate
the FCC's two (2) kilometer site relocation restrictions (as interpreted by the
FCC staff engineer of the FCC Commercial Wireless Division of the Wireless
Telecommunications Bureau) or otherwise require FCC approval or authorization
except for such confirmation of construction as the FCC may require.
2.7 Absence of Undisclosed Liabilities. Since the date of the
Company's most recently filed Quarterly Report on Form 10-Q under the Exchange
Act, except as and to the extent set forth in Schedule 2.7 or incurred in the
ordinary course of business, the Company does not have any material liability or
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown which are or would be required to be
disclosed in accordance with generally accepted accounting principles and, to
the best knowledge of the Company, there exists no set of facts or circumstances
which should be reasonably anticipated to form the basis for any such material
liabilities.
2.8 Absence of Certain Developments. Except as set forth in Schedule
2.8 hereto, since the date of the Company's most recently filed Quarterly Report
on Form 10-Q under the Exchange Act there has been (i) no adverse change in the
condition, financial or otherwise, of the Company or in the assets, liabilities
or business of the Company, (ii) no declaration, setting aside or payment of any
dividend or other distribution with respect to, or any direct or indirect
redemption, repurchase or acquisition of, any of the capital stock of the
Company, (iii) no waiver of any valuable right of the Company or cancellation of
any debt or claim held by the Company, (iv) no loan by the Company to any
officer, director, employee or stockholder of the Company, or affiliates of any
of the foregoing or any agreement or commitment therefor, (v) no material loss,
destruction or damage to any property of the Company, whether or not insured,
(vi) no labor trouble involving the Company and no material change in the
personnel of the Company or the terms and conditions of their employment, and
(vii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) nor any other transaction by the Company otherwise than in
the ordinary course of business consistent with past practices.
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2.9 Accounts Receivable. Except to the extent reserved against in the
Company's financial statements filed with the SEC Reports or disclosed elsewhere
in this Agreement (including the Schedules hereto), all of the accounts
receivable of the Company represent bona fide completed sales of services or
products made in the ordinary course of business, are valid and enforceable
claims, and, to the knowledge of the Company, are not subject to asserted rights
of set-off or counterclaim and should be collectible in the ordinary course. Set
forth on Schedule 2.9 hereto is an aging schedule of all accounts receivable of
the Company on an aggregate basis, based on date of invoice, and a list of all
such accounts receivable, identified by customer, which have a balance due in
excess of $25,000. Except as disclosed on Schedule 2.9, the Company has no
accounts receivable from any person, firm or corporation which is affiliated
with it or any of its directors, officers, employees or shareholders or any
affiliates of any of the foregoing.
2.10 Title to Properties. Except as set forth in Schedule 2.10 hereto,
the Company has good and marketable title to all of its material properties and
assets, free and clear of all liens, restrictions or encumbrances, and such
properties and assets constitute all of the assets necessary for the conduct of
the Company's business as presently conducted. All machinery and equipment
included in such properties which is necessary to the business of the Company is
in good condition and repair, ordinary wear and tear excepted, and all leases of
real or personal property to which the Company is a party are in full force and
effect and afford the Company peaceful and undisturbed possession of the subject
matter of the lease. The Company is not in violation of any zoning, building or
safety ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties which individually
or in the aggregate could have a Material Adverse Effect, nor has the Company
received any notice of violation with which it has not complied.
2.11 Tax Matters. Except as set forth in Schedule 2.11 hereto:
(a) The Company has paid or caused to be paid all material
federal, state, local, foreign, and other taxes, including without limitation,
income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales
taxes, franchise taxes, employment and payroll-related taxes, withholding taxes,
transfer taxes, and all deficiencies, or other additions to tax, interest, fines
and penalties owed by it (collectively, "Taxes"), required to be paid by it
through the date hereof whether disputed or not. All taxes and other assessments
and levies which the Company is required to withhold or collect have been
withheld and collected and have been paid over to the proper governmental
authorities. The Company has, in accordance with applicable law, timely and
properly filed all federal, state, local and foreign tax returns required to be
filed by it through the date hereof, all such returns correctly and accurately
set forth the amount of any Taxes relating to the applicable period and any
deductions from, or credits against any Taxes or taxable income relating to such
returns are valid and proper items of deduction or credit.
(b) Neither the Internal Revenue Service (the "IRS") nor any
other governmental authority is now asserting or, to the knowledge of the
Company, threatening to
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assert against the Company any deficiency or claim for additional Taxes. No
claim has ever been made by an authority in a jurisdiction where the Company
does not file reports and returns that the Company is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections.
2.12 Contracts and Commitments. Except as set forth in Schedule 2.12
hereto, the Company is not a party to any contract, obligation or commitment
(whether written or oral) which involves a potential commitment in excess of
$100,000 or which is otherwise material and not entered into in the ordinary
course of business, and, except as set forth in Schedule 2.12 hereto or
expressly disclosed or contemplated elsewhere in this Agreement, the Company is
not a party to any: (i) employment contracts; (ii) stock redemption or purchase
agreements; (iii) loan or other financing agreements (including capital lease
obligations in excess of $50,000 individually); (iv) licenses or licensing
agreements (other than license agreements with customers) involving an absolute
or potential commitment or liability in excess of $100,000 per year; (v)
distributor or sales representative agreements involving an absolute commitment
or liability, or which are reasonably likely (based on historical information)
to involve a potential commitment or liability, in excess of $100,000 per year;
(vi) agreements with any officers, directors, employees or stockholders of the
Company or persons or organizations related to or affiliated with any such
persons; (vii) leases involving an absolute or potential liability in excess of
$100,000 per year; (viii) agreements relating to the licensing, distribution,
development or maintenance of software and related hardware other than such
agreements relating to off the shelf "shrink-wrap" software used by the Company
and agreements with its customers; (ix) material agreements with customers of
the Company; (x) powers of attorney; or (xi) pension, profit-sharing, retirement
or stock option plans. The Company does not know of any basis for the
termination, expiration or modification of any such agreements within one (1)
year from the date hereof, which termination, expiration or modification may
have an adverse effect on the assets, liabilities, business or financial
condition of the Company. Except as set forth on Schedule 2.12, the Company is
not in default under any material contract, obligation or commitment, and, to
the best knowledge of the Company, there is no state of facts which upon notice
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or lapse of time or both would constitute such a default. The Company is not a
party to any contract or arrangement which under circumstances now foreseeable
is likely to have a Material Adverse Effect. The Company does not have any
liability for renegotiation of any government contracts or subcontracts.
2.13 Proprietary Rights; Employee Restrictions. Set forth in Schedule
2.13 hereto is a list and brief description of all patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights owned by or registered in the name
of the Company, or of which the Company is a licensor or licensee or in which
the Company has any right, and in each case a brief description of the nature of
such right. Except as set forth on Schedule 2.13, the Company owns or possesses
exclusive licenses to use, free and clear of claims or rights of any other
person, all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, programming processes and software, algorithms, formulae, trade
secrets and know how (collectively, "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
All Intellectual Property that is used or incorporated into the Company's
products or contemplated products and which is unique or proprietary to the
Company was developed by or for the Company by the employees of the Company or
its predecessors in interests and is owned exclusively by the Company, free and
clear of claims or rights of any other person. The Company is not aware of any
infringement by any other person of any rights of the Company under any
Intellectual Property. Except as set forth on Schedule 2.13, no claim is pending
or, to the Company's best knowledge, threatened against the Company nor has the
Company received any notice from any third parties to the effect that any
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, or the operation, products or services of the
Company, infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and, to the best knowledge of the Company,
there is no basis for any such claim (whether or not pending or threatened). No
claim is pending or threatened against the Company, nor has the Company received
any notice from any third parties, to the effect that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company, as the case may be, and, to
the best knowledge of the Company, there is no basis for any such claim (whether
or not pending or threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.13 (other than such
agreements relating to off the shelf "shrink-wrap" software used by the Company
in accordance with the terms of the applicable license). All such licenses or
other agreements are in full force and effect, there is no material default by
any party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to the Investors and,
to the best knowledge of the Company, the licensors under such licenses and
other agreements have and had all requisite power and authority to grant the
rights purported to be conferred thereby.
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All material licenses or other material agreements under which the
Company has granted rights to others in Intellectual Property (including all end
user agreements) are listed in either Schedule 2.12 or Schedule 2.13. All of
said licenses or other agreements are in full force and effect and there is no
material default by any party thereto. True and complete copies of all such
licenses or other agreements, and any amendments thereto, have been made
available to the Investors.
All technical information developed by or belonging to the Company and
which is material to the business of the Company which has not been patented has
been kept confidential by the Company and its officers, directors, employees and
consultants. The Company is not, to the best knowledge of the Company, making
unlawful use of any Intellectual Property of any other person, including,
without limitation, any former employer of any past or present employees of the
Company. Except as set forth in Schedule 2.13, neither the Company nor any of
its employees, officers or consultants has any agreements or arrangements with
former employers of such employees, officers or consultants relating to any
Intellectual Property of such employers, which interfere or conflict with the
performance of such employee's, officer's or consultant's duties for the Company
or results in any former employers of such employees, officers and consultants
having any rights in, or claims on, the Company's Intellectual Property. The
activities of the Company's employees, officers and consultants, to the best
knowledge of the Company, do not violate any agreements or arrangements which
any such employees have with former employers. The Company has taken all
commercially reasonable steps required to establish and preserve its ownership
of all of the Intellectual Property.
Without limitation of any of the foregoing and except as otherwise
expressly set forth in Schedule 2.13 hereto: (a) the Company has taken
reasonable security measures to guard against unauthorized disclosure or use any
of the Intellectual Property; and (b) the Company has no reason to believe that
any person (including, without limitation, any former employee of the Company)
has unauthorized possession of any of the Intellectual Property, or any part
thereof, or that any person has obtained unauthorized access to any of the
Intellectual Property.
2.14 Litigation. Except as set forth in Schedule 2.14 hereto, there is
no litigation or governmental proceeding or investigation pending or, to the
Company's knowledge, threatened against the Company, or any officer or key
employee of the Company, which relates to the Company or its business or affairs
or which may call into question the validity or hinder the enforceability or
performance of this Agreement or the agreements and transactions contemplated
hereby or which could have a Material Adverse Effect; nor, to the best knowledge
of the Company, has there occurred any event nor does there exist any condition
on the basis of which any such litigation, proceeding or investigation might
properly be instituted.
2.15 Offerees. Neither the Company nor anyone acting on its behalf has
in the past or will in the future sell, offer for sale or solicit offers to buy
any securities of the Company so as to bring the offer, issuance or sale of the
Preferred Shares, the Conversion Shares or the shares of Diluted Preferred
Stock, as contemplated by this Agreement within the provisions of Section 5 of
the Securities Act, unless such offer, issuance or sale was within the
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exemptions of Section 4 thereof. The Company has and will comply with all
applicable state "blue-sky" or other applicable securities laws in connection
with the issuance and sale of its Common Stock, Preferred Shares, and other
securities heretofore issued and to be issued upon the Closing. The Company has
in the past complied with all applicable federal and state securities laws in
connection with the offer, solicitation of offers and sales of its securities.
2.16 Business; Compliance with Laws. Except as set forth in Schedule
2.16 hereto, the Company has all franchises, permits, licenses (other than the
FCC Licenses, which licenses are addressed in Section 2.6 hereof) and other
rights and privileges necessary to permit it to own its property and to conduct
its business as it is presently conducted by the Company or presently
contemplated to be conducted by the Company. The Company is not in violation of
any law, regulation, authorization or order of any public authority which
individually or in the aggregate could have a Material Adverse Effect. Except as
set forth in Schedule 2.16, the Company is in compliance, in all material
respects, with all federal, state and local laws and regulations (including all
applicable environmental laws and regulations) relating to its business as
presently conducted.
2.17 Information Supplied to Investors. Except as set forth in
Schedule 2.17, this Agreement, the Schedules attached hereto, the documents
referenced herein and the certificates, projections and written statements
furnished to the Investors by or on behalf of the Company taken as a whole 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 or therein not
misleading. There is no material fact directly relating to the assets,
liabilities, business or condition (financial or otherwise) of the Company
(other than facts which relate to general economic or industry trends or
conditions) presently known to the Company which has not been disclosed to the
Investors and which has a Material Adverse Effect, or should reasonably be
anticipated to have a Material Adverse Effect in the future.
2.18 Investment Banking; Brokerage. No broker, finder, agent or
similar intermediary has acted on behalf of the Company in connection with this
Agreement or the transactions contemplated hereby and there are no brokerage
commissions, finders fees or similar fees or commissions payable in connection
therewith. The Company agrees to indemnify and hold the Investors harmless from
any losses, damages, costs or expenses they may suffer or incur as a result of a
breach of this representation (including any dilution or diminution in value of
their investment in the Company).
2.19 Solvency. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated herein: (i) the Company will be able to pay its
debts as they come due in the usual course of
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business and will have adequate capital to conduct its business; and (ii) the
Company's total assets will be greater than its total liabilities (total assets
for this purpose being determined on the basis of the "fair saleable value"
thereof).
2.20 Environmental Matters.
(a) Except as set forth on Schedule 2.20, the Company has not
caused or allowed, nor has the Company contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Material in connection with the operations of its business or otherwise. The
Company, the operations of its business, and any real property that the Company
owns, leases, or otherwise occupies or uses (the "Premises") are in compliance
with all applicable Environmental Laws and orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws
including, without limitation, any Environmental Laws or orders or directives
with respect to any cleanup or remediation of any release or threat of release
of Hazardous Materials. The Company has not received any citation, directive,
letter or other communication, written or oral, or any notice of any
proceedings, claims or lawsuits, from any person, entity or governmental
authority arising out of the ownership or occupation of the Premises, or the
conduct of its operations, nor is it aware of any basis therefor. The Company
has obtained and is maintaining in full force and effect all necessary permits,
licenses and approvals required by any Environmental Laws applicable to the
Premises and the business operations conducted thereon (including operations
conducted by tenants on the Premises) and is in compliance with all such
permits, licenses and approvals. The Company has not caused, or allowed a
release, or a threat of release, of any Hazardous Material unto, at or near the
Premises, nor to the best of the Company's knowledge has the Premises or any
property at or near the Premises ever been subject to a release, or a threat of
a release, of any Hazardous Material.
(b) Except as set forth in Schedule 2.20 hereto, to the best
of the Company's knowledge, no site owned, operated, leased or used by the
Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea
formaldehyde foam insulation.
(c) Counsel to the Investors has been provided with copies of
all documents, records and information available concerning any environmental or
health and safety matter relevant to the Company, whether generated in
connection with the Company's business or otherwise, including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and reports, correspondence, permits, licenses, approvals,
consents and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(d) For purposes of this Section 2.20, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the
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environment or to human health or safety, as defined or regulated under any
Environmental Law; (ii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance or by-law at the
federal, state or local level, whether existing as of the date hereof or
subsequently enacted including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et. seq., the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. Section 11001 et. seq., and the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et. seq.; and (iii) "Company" shall include the
Company and any predecessor to the Company.
2.21 Employee Benefit Programs.
(a) Schedule 2.21 hereto sets forth a list of every Employee
Program (as defined below) that has been maintained (as such term is further
defined below) by the Company at any time prior to the Closing Date.
(b) Each Employee Program which has ever been maintained by
the Company and which has at any time been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the IRS regarding its qualification under such section and,
to the best knowledge of the Company, has, in fact, been continuously qualified
under the applicable section of the Code since the effective date of such
Employee Program. No event or omission has occurred which would cause any such
Employee Program to lose its qualification under the applicable Code section.
(c) Each Employee Program that has ever been maintained by the
Company has been maintained in compliance in all material respects with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exception), or material breach of any duty under ERISA
or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan or to any person in regard to
such plan), which could result, directly or indirectly (including, without
limitation, through any obligation of indemnification or contribution), in any
taxes, penalties or other liability to the Company or any of its Affiliates. No
officer, director or employee of the Company has committed a material breach of
any duty imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Program maintained by the Company. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or, to the
best knowledge of the Company threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate (as defined below)
(i) has ever maintained any Employee Program which has been subject to Title IV
of ERISA or Section 412 of the Code (including, but not limited to, any
Multiemployer Plan (as defined below)) or
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(ii) has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of Title I of ERISA) or has ever promised to provide such
post-termination benefits.
(e) With respect to each Employee Program maintained by or on
behalf of the Company or any Affiliate prior to the Closing, complete and
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to counsel to the Investors: (i) all
documents embodying or governing such Employee Program, and any funding medium
for the Employee Program (including, without limitation, trust agreements), as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program under
Code Section 401 or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) all IRS Forms 5500 filed, with
all applicable schedules and accountants' opinions attached thereto; (iv) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (v)
any insurance policy (including any fiduciary liability insurance policy and any
excess loss policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) all other materials reasonably necessary for the
Company to perform any of its responsibilities with respect to any Employee
Program subsequent to the Closing (including, without limitation, all health
care continuation requirements).
(f) For purposes of this Section 2.21:
(i) "Employee Program" means (A) all
employee benefit plans within the meaning of ERISA Section 3(3),
including, but not limited to, multiple employer welfare arrangements
(within the meaning of ERISA Section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit plans (such
as foreign or excess benefit plans) which are not subject to ERISA;
and (B) all stock or cash option plans, restricted stock plans, bonus
or incentive award plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements,
vacation plans, and all other employee benefit plans and benefit
agreements, and benefit arrangements not described in (A) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization.
(ii) An entity "maintains" an Employee
Program if such entity sponsors, contributes to or provides (or has
promised to provide) benefits under such Employee Program, or has any
obligation (by agreement or under applicable law) to contribute to or
provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such
entity (or their spouses, dependents, or beneficiaries).
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(iii) An entity is an "Affiliate" of the
Company if it would have ever been considered a single employer with
the Company or any entity under ERISA Section 4001(b) or part of the
same "controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension
or non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreement.
2.22 Product and Services Claims. Except as set forth in Schedule 2.22
hereto, there are no pending or, to the best of the Company's knowledge,
threatened product or service claims involving amounts in excess of $25,000
individually with respect to any products manufactured or services provided by
the Company prior to the Closing date, nor, to the best knowledge of the
Company, are there any facts upon which a claim of such nature could reasonably
be anticipated to be based. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best of the
Company's knowledge, there are no facts upon which any such claim should
reasonably be anticipated to be based.
2.23 Backlog. As of August 31, 1998, the Company had outstanding firm
orders for the sale of services and products as set forth in Schedule 2.23
hereto. All such orders represent orders for products with specifications that
can be met in accordance with the terms of such orders and in the ordinary
course of conduct of the Company's business without undue delay or extraordinary
expense.
2.24 Employees; Labor Matters. The Company generally enjoys good
employer-employee relationships. The Company is not delinquent in payments to
any of its employees for any material amount of wages, salaries, commissions,
bonuses or other direct compensation for any services performed for it to the
date hereof or amounts required to be reimbursed to such employees. The Company
does not have any policy, practice, plan or program of paying severance pay or
any form of severance compensation in connection with the termination of
employment, except as set forth in Schedule 2.24 hereto. All of the Company's
programs and/or arrangements in connection with the payment of commissions are
described in Schedule 2.24. The Company is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, work place safety and health, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work or any other concerted interference with normal operations
which are existing, pending or threatened against or involving the Company. The
Company has not received any information indicating that any of its employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency. The Company is, and at all times has been, in
compliance in all material respects with the requirements of the Immigration
Reform Control Act of 1986. Schedule 2.24 sets forth a complete list of each
major metro manager, officer, employee, salesperson and consultant who received
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or is scheduled to receive total remuneration from the Company in excess of
$100,000 for the calendar year ending December 31, 1996.
2.25 Customers, Distributors and Suppliers. Except as disclosed in
written materials provided to the Investors, the relationships of the Company
with its customers, vendors and suppliers are good commercial working
relationships. No significant customer accounting for revenues in excess of
$100,000 in any twelve (12) month period or significant vendor has canceled,
modified, or otherwise terminated its relationship with the Company, or has
during the last twelve (12) months decreased its services, supplies or materials
to the Company or its usage or purchase of the services or products of the
Company (other than with respect to such services, supplies, materials or
products which are non-recurring by their nature), nor to the knowledge of
Company does any significant customer or vendor have any plan or intention to do
any of the foregoing.
2.26 Corporate Records; Copies of Documents. The corporate record
books of the Company accurately record all corporate action taken by its
respective stockholders and board of directors and committees. The copies of the
corporate records of the Company, as made available to the Investors for review
prior to the date hereof, are true and complete copies of the originals of such
documents. The Company has made available for inspection by the Investors and
their counsel true and correct copies of all documents referred to in this
Section 2.26 or in the Schedules delivered pursuant to this Agreement.
2.27 Affiliate Transactions. Except as set forth in Schedule 2.27
hereto, neither the Company nor any officer, employee or director of the Company
or any of their respective spouses or family members or any of their affiliates,
owns, directly or indirectly, on an individual or joint basis, any material
interest in, or serves as an officer, director, partner, member or in another
similar capacity of, any competitor or supplier of the Company or any
organization which has a contract or arrangement with the Company.
2.28 Small Business Concern, Etc.
(a) The Company, together with its "affiliates" (as that term
is defined in 13 CFR Section 121.103), is a "smaller business" within the
meaning of SBIC Regulations, including 13 CFR Section 107.710. The information
regarding the Company and its affiliates set forth in SBA Form 480, Form 652 and
Section A of Form 1031 delivered prior to the Closing Date is accurate and
complete. Neither the Company nor any Subsidiary presently engages in, or shall
hereafter engage in, any activities, nor shall the Company or any Subsidiary use
the proceeds of the sale of the Securities hereunder directly or indirectly for
any purpose for which an SBIC is prohibited from providing funds by SBIC
Regulations (including 13 CFR Section 107.720).
(b) The proceeds from the purchase of the Series B Preferred
Shares will be used by the Company for purposes of product development, working
capital and capital expenditures.
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(c) As of the date hereof, the primary business activity of
the Company is (i) providing vehicle location and fleet management software and
services and related messaging services and (ii) classified under Standard
Industrial Classification Code number 4812 (Radiotelephone Communications), and
the number of employees of the Company is less than 1,500.
(d) For all purposes of this Agreement, the following terms
shall have the following meanings:
(i) "SBA" means the United States Small Business
Administration, and any successor agency performing the functions
thereof;
(ii) "SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act;
(iii) "SBIC Act" means the Small Business Investment
Act of 1958, as amended; and
(iv) "SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title 13 of the
Code of Federal Regulations ("13 CFR"), Parts 107 and 121.
2.29 FIRPTA Withholding. The Company is not a "foreign person" within
the meaning of Section 1445 of the Code and Treasury Regulations Sections
1.1445-2.
2.30 Investments Related to Certain Foreign Countries. Neither the
Company nor any affiliate of the Company has participated in, or is
participating in, an anti-Israeli boycott within the scope of Chapter 7 of Part
2 of Division 4 of Title 2 of the California Government Code, as in effect from
time to time.
SECTION 3. CONDITIONS OF PURCHASE
The Investors' obligation to purchase and pay for the Series B
Preferred Shares shall be subject to compliance by the Company with its
agreements herein contained and to the fulfillment to all of the Initial
Investors' satisfaction or to all of the Second Investors' satisfaction, or
unanimous waiver by the Initial Investors or by the Second Investors, as the
case may be, on or before the Initial Closing Date or the Second Closing Date,
as the case may be, of the following conditions:
3.1 Representations. The representations and warranties of the
Company contained in this Agreement (including but not limited to the
representations and warranties made in Section 2 hereof) shall be true and
correct in all material respects (except for those representations and
warranties which are qualified by materiality or by a dollar threshold,
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which representations and warranties shall be true and correct) on and as of the
Initial Closing Date or the Second Closing Date, as the case may be.
3.2 Opinions of Counsel. The Investors shall have received an opinion
of counsel dated as of the Initial Closing Date or the Second Closing Date, as
the case may be, in substantially the form attached hereto as Exhibit 3.2(a)
with respect to the organization and authority of the Company, the
enforceability of this Agreement and any related agreements, the absence of
conflicts with organizational documents and other agreements, the absence of
litigation and such other matters as requested by the Investors. The Investors
shall have received an opinion of FCC counsel dated as of the Initial Closing
Date or the Second Closing Date, as the case may be, in substantially the form
attached hereto as Exhibit 3.2(b) with respect to such matters as requested by
the Investors.
3.3 Authorization. The Board of Directors and the stockholders of the
Company shall have duly adopted resolutions in form reasonably satisfactory to
the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of the Secretary of the Company
certifying to such resolutions, the Charter and By-laws of the Company, the
incumbency of all officers executing any instruments and agreements therefor,
and such other matters as may be reasonably requested by the Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
the Company shall have adopted a resolution establishing the terms of the Series
B Preferred Stock as set forth in Exhibit 3.4 attached hereto, and such action
shall have been made effective by approval thereof by the stockholders of the
Company and the filing of an Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware.
3.5 Stockholders' Agreement. The Company, the existing stockholders
of the Company and the Initial Investors shall have executed and delivered the
Amended and Restated Stockholders' Agreement in the form of Exhibit 3.5 attached
hereto (the "Stockholders' Agreement"), which Stockholders' Agreement shall
supersede the stockholders' agreement previously entered into among the Company
and the existing stockholders.
3.6 Election of Directors. In accordance with the terms of the
Stockholders' Agreement and the By-laws of the Company, the size of the
Company's Board of Directors shall have been initially fixed at nine (9) members
and the composition thereof shall be as provided in the Stockholders' Agreement.
3.7 Compensation Committee; Audit Committee. The Board of Directors
shall appoint and maintain a Compensation Committee, consisting of no more than
three (3) persons. The Board of Directors shall appoint and maintain an Audit
Committee consisting of no less than two (2) persons, none of whom are officers
or employees of the Company.
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3.8 Registration Rights Agreement. The Company, the Initial Investors
and the existing stockholders of the Company shall have entered into an Amended
and Restated Registration Rights Agreement with respect to the Common Stock, the
Preferred Stock and the Conversion Shares in substantially the form of Exhibit
3.8 attached hereto (the "Registration Rights Agreement"), which Registration
Rights Agreement shall supersede the registration rights agreement previously
entered into among the Company and the existing stockholders of the Company.
3.9 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to all of the
Initial Investors or the Additional Investors, as the case may be, and the
Initial Investors or the Additional Investors, as the case may be, shall have
received such copies thereof and other materials (certified, if requested) as
they may reasonably request in connection therewith. The issuance and sale of
the Series B Preferred Shares to the Investors shall be made in conformity with
all applicable state and federal securities laws.
3.10 No Adverse Change. Since June 30, 1998, there shall have been no
material adverse change in the financial conditions, properties, assets,
liabilities, businesses or operations of the Company, whether or not in the
ordinary course of business.
3.11 Delivery of Documents. The Company shall have executed and
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate persons) the following:
(a) Certificates for the Series B Preferred Shares;
(b) Certified copies of resolutions of the Board of Directors
(and, if necessary, the stockholders) of the Company authorizing the execution
and delivery of this Agreement, the Stockholders' Agreement, the Registration
Rights Agreement, the Charter creating the Series B Preferred Shares, the
issuance of the Series B Preferred Shares (including the Option Series B
Preferred Shares) and, upon conversion of the Series B Preferred Shares, the
issuance of the Conversion Shares;
(c) Certified copy of the by-laws of the Company as in
effect as of the Closing;
(d) A copy of the Amended and Restated Certificate of
Incorporation of the Company certified as of a recent date by the Secretary of
State of the State of Delaware;
(e) A certificate dated as of a recent date issued by the
Secretary of State of the State of Delaware, certifying that the Company is in
good standing;
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(f) A certificate dated as of a recent date issued by the
Secretary of State of each of the jurisdictions set forth on Schedule 3.11,
certifying that the Company is duly qualified as a foreign corporation and in
good standing in such state;
(g) A waiver from each stockholder of the Company that is not
purchasing Series B Preferred Shares hereunder with respect to such
stockholder's preemptive rights, if any, under the 1996 Stockholders' Agreement;
and
(h) Such other supporting documents and certificates as the
Investors may reasonably request.
3.12 SBIC Deliveries. The Company shall have delivered to Toronto
Dominion Capital (U.S.A.), Inc. ("Toronto Dominion") and BancBoston Ventures
Inc. ("BancBoston"):
(a) duly completed and executed SBA Forms 480, 652 and
Part A of 1031;
(b) if not delivered prior to the Closing, a business plan
showing the Company's financial projections for a five-year period from the
Closing;
(c) a written statement from the Company regarding its
intended use of the proceeds of the Financing; and
(d) a list, after giving effect to such Closing, of (a) the
name of each of the Company's directors, (b) the name and title of each of the
Company's officers, and (c) the name of each of the Company's stockholders
setting forth the number and class of shares held.
3.13 Consent of Series A Preferred Stock. The holders of at least
eighty percent (80%) of the Series A Preferred Stock shall have affirmatively
voted or consented to adopt the Charter.
SECTION 4. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, in addition to any
subsidiaries existing as of the date hereof, for purposes of this Section 4, any
subsidiary or subsidiaries of the Company formed or acquired after the date of
this Agreement) shall comply with the following covenants:
4.1 Financial Statements; Minutes. The Company will maintain a
comparative system of accounts in accordance with generally accepted accounting
principles consistently applied, keep full and complete financial records and,
until such time as the Company has consummated an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock of the Corporation to the public
(an "IPO"), furnish to the Investors the following reports: (a) within ninety
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(90) days after the end of each fiscal year, a copy of the consolidated balance
sheet of the Company as at the end of such year, together with a consolidated
statement of income and retained earnings of the Company for such year, audited
and certified by independent public accountants of recognized national standing
reasonably satisfactory to the Investors, prepared in accordance with generally
accepted accounting principles consistently applied; (b) within thirty (30) days
after the end of each month commencing with the month ending November 30, 1996,
a consolidated unaudited balance sheet of the Company as at the end of such
month and an unaudited statement of income and retained earnings for the Company
for such month and for the year to date, each of the foregoing balance sheets
and statements of income and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period and to include a brief
written discussion and analysis by management of such annual financial
statements; and (c) such other financial information as the holders of at least
a majority of the issued and outstanding Series B Preferred Shares may
reasonably request, including without limitation certificates of the principal
financial officer of the Company concerning compliance with the covenants of the
Company under this Section 4.
4.2 Budget and Operating Forecast. Until such time as the Company has
consummated an IPO, the Company will prepare and submit to the Board of
Directors of the Company a budget for the Company for each fiscal year of the
Company at least thirty (30) days prior to the beginning of such fiscal year.
The budget shall be accepted as the budget for such fiscal year when it has been
approved by a majority of the full Board of Directors of the Company and,
thereupon, a copy of such budget promptly shall be sent to the Investors. The
Company shall review the budget periodically and may revise such budget in such
manner as approved by a majority of the full Board of Directors and shall
promptly advise the Investors of all such revisions or other changes therein and
all material deviations therefrom.
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith. The Company will
keep in full force and effect all FCC Licenses and intellectual property rights
useful in its business (except such rights as the Board of Directors has
reasonably determined are not material to the Company's continuing operations
and except to the extent that the pending litigation regarding the proprietary
rights to and use of the Teletrac name results in a loss of such intellectual
property rights and shall use its best efforts to obtain any approvals,
authorizations or waivers from the FCC which are necessary and appropriate for
the full authorization of the sites set forth on Schedule 2.6).
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
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The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, the Communications Act, all
applicable regulations and policies of the FCC, including, without limitation,
compliance with all LMS spectrum band plans implemented by the FCC, and all
applicable federal and state securities laws in connection with the issuance of
any shares of its capital stock. The Company shall file all necessary
applications for renewal of, and preserve in full force and effect, the FCC
Licenses and shall obtain all necessary waivers and permits in connection
therewith.
4.5 Insurance. The Company will keep its insurable properties
insured, upon reasonable business terms, by financially sound and reputable
insurers against liability, and the perils of casualty, fire and extended
coverage in amounts of coverage at least equal to those customarily maintained
by companies in the same or similar business as the Company. The Company will
also maintain with such insurers insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear and tear excepted, as necessary to permit
such business to be properly and advantageously conducted.
4.7 Affiliated Transactions. The Company shall not without the
affirmative vote or written consent of holders of a majority of the issued and
outstanding shares of Series B Preferred Stock voting as a separate class enter
into any transaction or agreement with (a) any officer, director or shareholder
of the Company or any wholly-or partially-owned subsidiary of the Company, or
(b) any entity that controls, is controlled by or under common control with, the
Company, except for any transaction or agreement on terms no less favorable to
the Company than would be available in a bona fide arm's-length transaction with
a non-affiliated person or entity and which has been approved by the
disinterested members of the Audit Committee of the Board of Directors of the
Company;
4.8 Management Compensation. No compensation or other remuneration
having an aggregate value in excess of $150,000 shall be paid to, nor shall any
capital stock of the Company be issued to, or options to purchase any of its
capital stock granted to, any officer or employee of the Company or any of its
subsidiaries, without the approval of the Compensation Committee of the Board of
Directors (the composition of which Committee shall be as set forth in the
Stockholders' Agreement); provided, however, that the Compensation Committee may
delegate standing authority to the Chief Executive Officer of the Company to
issue stock options and other compensation to consultants to the Company who are
not affiliates of either the Company or any of its stockholders on terms set
forth in such delegation. From and after the Closing Date, any grants of capital
stock or options hereunder shall be conditioned upon the grantee agreeing to be
bound by the terms of the Stockholders' Agreement.
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Notwithstanding the foregoing, the Compensation Committee of the Board
of Directors may, in its sole discretion, establish a cash bonus program
providing for the payment by the Company of bonuses up to an aggregate amount of
$2,000,000 or such amount to be determined by such Committee and approved by
Investors holding a majority in interest of the Series B Preferred Stock. Such
bonuses shall be paid by the Company (a) only in the event that the Company (or
substantially all of its assets) is sold within one year from the date of this
Agreement and the payment of such bonues does not, at that time, result in a
default or violation by the Company under the its applicable debt documents
(including the indenture relating to the Company's high yield notes); and (ii)
to John Sarto and such other employees of the Company and in such amounts as
shall be determined by the Compensation Committee of the Board of Directors.
4.9 Use of Proceeds. The Company shall use the proceeds from the sale
of the Series B Preferred Shares for product development, capital expenditures
and general working capital needs.
4.10 Board of Directors Meetings; Meetings with Investors.
(a) The Company will ensure that meetings of its Board of
Directors are held at least four (4) times each year and at intervals of not
more than three (3) months, and will reimburse Directors for their reasonable
and documented travel and other out-of-pocket expenses (to the extent consistent
with the Company's policies related thereto, which provide for reimbursement of
directors' travel expenses and which have been delivered to the Investors prior
to the date hereof) incurred in connection with attending meetings of the Board
of Directors or performing such other business on behalf of the Company as may
be approved by the Company in advance. The Charter or By-laws of the Company
will at all times during which any nominee of the Investors serves as director
of the Company provide for indemnification of the directors and limitations on
the liability of the directors to the fullest extent permitted under applicable
state law. The Company will use its best efforts to obtain and maintain on
reasonable business terms (including cost) directors and officers' liability
insurance coverage of at least $1,000,000 per occurrence.
(b) The Investors shall be entitled to consult with and advise
the Board of Directors on significant business issues with respect to the
Company, including management's proposed annual operating plans for the Company,
and management will meet with the Investors regularly during each year at the
Company's facilities at mutually agreeable times and intervals for such
consultation and advice and to review progress in achieving said plans. The
Investors may examine the books and records of the Company and inspect its
facilities and may request information at reasonable times and intervals
concerning the general status of the financial condition and operations of the
Company, provided that access to highly confidential proprietary information and
facilities need not be provided. If an Investor holding in excess of five
percent (5%) of the outstanding Series B Preferred Shares is not represented on
the Board of Directors, the Company shall invite a representative of such
Investor to attend all meetings of its Board of Directors relating to the
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Company in a non-voting observer capacity, and in this respect shall give such
representative copies of all notices, minutes, consents, and other material that
it provides to all of its directors and which relate to the Company.
4.11 Stockholders' Agreement. The Company will diligently enforce all
of its rights under the Stockholders' Agreement. The Company will not effect any
transfer of any of the outstanding capital stock of the Company on the stock
record books of the Company unless such transfer is made in accordance with the
terms of the Stockholders' Agreement. The Company will not waive or release any
rights under, or consent to the amendment of, the Stockholders' Agreement
without the requisite written approval of the parties thereto.
4.12 Distributions on, and Redemptions of, Capital Stock.
(a) The Company will not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Common Stock and Preferred Stock, voting as a single class on an as
converted basis, authorize or issue, or obligate itself to issue, any shares of
Common Stock (other than pursuant to the exercise of stock options or other
rights granted under the 1995 Stock Option Plan, 1996 Stock Option Plan and the
1998 Stock Option Plan or upon conversion of the Preferred Stock).
(b) The Company will not, without the affirmative vote or
written consent of holders of sixty-six and two-thirds percent (662/3%) of the
issued and outstanding shares of Common Stock and Preferred Stock, voting as a
single class on an as converted basis:
(i) Authorize or issue, or obligate itself to issue,
any equity securities at an effective per share price which is less
than $173.25 (which price shall be appropriately adjusted for stock
splits, stock dividends, recapitalizations and the like), other than
any Additional Series B Preferred Shares issued pursuant to this
Agreement;
(ii) Authorize or issue a class or series of stock
having rights equal or senior to the Series B Preferred Stock, or a new
class or series of Preferred Stock, other than any Additional Series B
Preferred Shares issued pursuant to this Agreement.
(c) The Company will not, without the affirmative vote of the
holders of a majority of the outstanding shares of Series B Preferred Stock
voting as a separate class:
(i) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose) any
shares of Common Stock or of any other class of capital stock of the
Company or any of the Company's outstanding options, warrants or
convertible or exchangeable securities, except for repurchases of
shares of Common Stock at cost by the Company under employee stock
plans and programs approved by the Board of Directors; or
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(ii) Increase or decrease (other than by conversion
as permitted hereby) the total number of authorized shares of Series B
Preferred Stock.
4.13 Merger, Consolidation, Sale of Assets and Other Actions.
(a) The Company will not, without the affirmative vote or
written consent of the holders of a majority of the issued and outstanding
shares of Common Stock and Preferred Stock, voting as a single class on an as
converted basis:
(i) Authorize any merger or consolidation of the
Company with or into any other corporation, partnership or entity (with
respect to which less than a majority of the outstanding voting power
of such surviving corporation is held by stockholders of the Company
immediately prior to such event) or permit the sale of all or any
material portion of the capital stock or assets of the Company (other
than sales in the ordinary course of business and consistent with past
practices); or
(ii) Incur, create, assume, become or be liable in
any manner with respect to, or permit to exist, any new or additional
indebtedness or liability (other than up to $30 million in connection
with the Company's revolving credit facilities with Banque Paribas and
Fleet National Bank).
(b) The Company will not, without the affirmative vote or
written consent of holders of sixty-six and two-thirds percent (662/3%)
of the issued and outstanding shares of Common Stock and Preferred
Stock, voting as a single class on an as converted basis:
(i) Authorize any acquisition, merger or
consolidation of assets or stock of another corporation, partnership or
entity in exchange for shares of equity securities of the Company which
results in dilution to the existing stockholders, on a fully diluted,
as converted basis, in excess of fifteen percent (15%); or
(ii) Authorize or permit the reorganization,
liquidation, dissolution or winding up of the Company.
4.14 No Amendments to Certificate of Incorporation. The Company will
not, without the affirmative vote of the holders of a majority of the
outstanding shares of Series B Preferred Stock voting as a separate class, amend
the charter documents of the Company so as to adversely affect the rights of the
Series B Preferred Investors with respect to dividends, liquidation preferences,
redemption or any other preference, power, right or privilege
4.15 Capital Expenditures. The Company will not, without the prior
approval of the Board of Directors of the Company, make any expenditures for
fixed or capital assets, or any commitments for such expenditures, exceeding an
amount of $1,000,000 for any one such expenditure or series of related
expenditures in any one year.
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4.16 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information Amendment.
(a) As long as an SBIC Investor holds any shares of Preferred
Stock, or Conversion Shares, the Company shall, on an annual basis, provide to
such SBIC Investor the information required under 13 CFR Section 107.620(b) and
shall provide the information and access required by 13 CFR Section 107.620(c).
(b) As long as an SBIC Investor holds any shares of Preferred
Stock or Conversion Shares, the Company shall notify such SBIC Investor:
(i) at least fifteen (15) days prior to taking any
action after which the number of record holders of the Company's voting stock
would be increased from fewer than 50 to 50 or more;
(ii) of any other action or occurrence after which
the number of record holders of the Company's voting stock was increased (or
would increase) from fewer than 50 to 50 or more, as soon as practicable after
the Company becomes aware that such other action or occurrence has occurred or
is proposed to occur. For purposes of this Agreement, an "SBIC Investor" shall
mean (i) Toronto Dominion, provided that Toronto Dominion has been licensed as
an SBIC, or an affiliate of Toronto Dominion that has been licensed as an SBIC
and holds Preferred Stock, Conversion Shares or Common Stock of the Company,
(ii) EOS, or an affiliate of EOS that has been licensed as an SBIC and holds
Preferred Stock, Conversion Shares or Common Stock of the Company and (iii)
BancBoston, or an affiliate of BancBoston that has been licensed as an SBIC and
holds Preferred Stock, Conversion Shares or Common Stock of the Company;
(c) Use of Proceeds. Within seventy-five (75) days after the
Initial Closing and the Second Closing, and at the end of each month thereafter
until all of the proceeds from the sale of the Series B Preferred Shares
hereunder have been used by the Company and its subsidiaries, the Company shall
deliver to all Investors a written statement certified by the Company's
president or chief financial officer describing in reasonable detail the use of
the proceeds of the purchase of Series B Preferred Shares hereunder by the
Company and its subsidiaries. In addition to any other rights granted hereunder,
the Company shall grant all Investors and the SBA access to the Company's
records for the purpose of verifying the use of such proceeds.
(d) Regulatory Violation. Upon the occurrence of a Regulatory
Violation (as defined below) or in the event that any SBIC Investor determines
in its reasonable good faith judgment that a Regulatory Violation has occurred,
in addition to any other rights and remedies to which it may be entitled
(whether under this Agreement or any other agreement), such SBIC Investor shall
have the right, to the extent required under SBIC Regulations, to demand the
immediate repurchase of all of the outstanding Preferred Stock owned by such
SBIC Investor at a price equal to the purchase price paid for such Preferred
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Stock hereunder plus accrued dividends by delivering written notice of such
demand to the Company; provided, however, that, in the event of a Regulatory
Violation, any SBIC Investor shall, prior to demanding the repurchase of all of
the outstanding shares of Preferred Stock owned by such SBIC Investor, use
reasonable efforts to retain its investment in the Preferred Stock, including,
without limitation, petitioning the SBA for its approval with respect to any
unforeseen changes in the principal business activity of the Company. The
Company shall pay the purchase price for such shares of Preferred Stock by a
cashier's or certified check or by wire transfer of immediately available funds
to such SBIC Investor within thirty (30) days after the Company's receipt of the
demand notice, and, upon such payment, such SBIC Investor shall deliver the
certificates, if any, evidencing the Preferred Stock being repurchased duly
endorsed for transfer or accompanied by duly executed forms of assignment.
For purposes of this Agreement, "Regulatory Violation" means a change
in the principal business activity of the Company and its subsidiaries to an
ineligible business activity (within the meaning of the SBIC Regulations), if
such change occurs within one (1) year after the date of the initial purchase of
Series B Preferred Shares hereunder.
(e) Economic Impact Information. Promptly after the end of
each fiscal year (but in any event prior to February 28 of each year), the
Company shall deliver to each Investor a written assessment of the economic
impact of the total investment by all SBIC Investors in the Company, specifying
the full-time equivalent jobs created or retained in connection with the
investment, the impact of the investment on the businesses of the Company in
terms of expanded revenue and taxes, and the other economic benefits resulting
from the investment, including but not limited to, technology development or
commercialization, minority business development, urban or rural business
development and expansion of exports.
(f) Amendment. Notwithstanding anything herein to the
contrary, the provisions of this Section 4.16 shall not be amended without the
prior written consent of holders of a majority of the issued and outstanding
Preferred Stock (or Conversion Shares) of any SBIC Investors (determined on an
as-converted basis).
4.17 Non-Competition Agreements; Confidentiality and Proprietary
Rights Agreements. The Company shall diligently enforce all of its rights under
its Non-Competition Agreements and its Confidentiality and Proprietary Rights
Agreements. From and after the Closing Date, the Company will enter into a
Confidentiality and Proprietary Rights Agreement (in the form attached hereto as
Exhibit 4.17) with each employee of the Company who is exposed to technical and
proprietary information of the Company.
SECTION 5. INVESTOR REPRESENTATIONS
Each Investor hereby severally represents to the Company and each other
Investor with respect to such Investor's purchase of Securities hereunder that:
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(a) The Investor is acquiring the Series B Preferred Shares
(and the Conversion Shares issuable upon conversion thereof) for its own
account, for investment, and not with a present view to any "distribution"
thereof within the meaning of the Securities Act. The Investor was not formed or
organized for the purpose of acquiring the Series B Preferred Shares (or the
Conversion Shares issuable upon conversion thereof).
(b) The Investor understands that because the Series B
Preferred Shares have not been registered under the Securities Act, it cannot
dispose of any or all of the Series B Preferred Shares or the Conversion Shares
issuable upon conversion thereof unless such securities are subsequently
registered under the Securities Act or exemptions from such registration are
available. The Investor understands that each certificate representing the
Series B Preferred Shares and the Conversion Shares will bear the following
legend or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). These
securities have been acquired for investment and not with a
view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such
securities under the Act or the availability of an exemption
from such registration requirements.
(c) The Investor is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act and is sufficiently
knowledgeable and experienced in the making of venture capital investments so as
to be able to evaluate the risks and merits of its investment in the Company,
and is able to bear the economic risk of loss of its investment in the Company.
(d) Such Investor has had adequate opportunity to discuss the
business, management, and financial affairs of the Company with the
representatives of the Company.
SECTION 6. INDEMNIFICATION
6.1 Indemnification for Vicarious Liability. The Company shall, to
the full extent permitted by law, and in addition to any such rights which any
Indemnified Party (as defined herein) may have pursuant to statute, the
Company's Charter or By-laws, or otherwise, indemnify and hold harmless each
Investor (including its respective directors, officers, partners, beneficiaries,
stockholders, employees, investment advisors and agents, each an "Indemnified
Investor") and each person (a "Controlling Person" and collectively with
Indemnified Investors, the "Indemnified Parties") who controls any of them
within the meaning of Section 15 of the Securities Act, or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, expenses and
liabilities, joint or several, including
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any investigation, legal and other expenses incurred in connection with the
investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a securityholder, creditor, director, agent, representative or
controlling person of the Company, (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto).
6.2 Notice; Defense of Claims. Promptly after receipt by an
Indemnified Party of notice of any third party or other claim, liability or
expense to which the indemnification obligations hereunder would apply,
including in connection with any governmental proceeding, the Indemnified Party
shall give notice thereof in writing to the Company, but the omission to so
notify the Company promptly will not relieve the Company from any liability
except, and only to the extent, that the Company shall have been materially
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Company (i) gives
written notice to the Indemnified Party or Parties stating that it intends to
defend in good faith against such claim, liability or expense at its own cost
and expense and (ii) provides assurance and security reasonably acceptable to
such Indemnified Party or Parties that such indemnification will be paid fully
and promptly if required and such Indemnified Party or Parties will not incur
cost or expense during the proceeding, then counsel for the defense shall be
selected by the Company (subject to the consent of such Indemnified Party or
Parties, which consent shall not be unreasonably withheld) and such Indemnified
Party or Parties shall not be required to make any payment with respect to such
claim, liability or expense as long as the Company is conducting a good faith
and diligent defense at its own expense; provided, however, that the assumption
of defense of any such matters by the Company shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.
If the Company assumes such defense in accordance with the preceding sentence,
it shall have the right, with the consent of such Indemnified Party or Parties,
which consent shall not be unreasonably withheld, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled provided the Company's obligation to indemnify such Indemnified Party or
Parties therefor will be fully satisfied and the settlement includes a complete
release of such Indemnified Party or Parties. The Company shall keep the such
Indemnified Party or Parties apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
such Indemnified Party or Parties with all documents and information that such
Indemnified Party or Parties shall reasonably request and shall consult with
such Indemnified Party or Parties prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, such Indemnified
Party or Parties shall at all times have the right to fully participate in such
defense at its own expense directly or
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through counsel; provided, however, if the named parties to the action or
proceeding include both the Company and the Indemnified Party or Parties and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for such Indemnified Party or Parties shall be paid by the Company. The
Indemnified Party or Parties shall make available all information and assistance
that the Company may reasonably request and shall cooperate with the Company in
such defense.
If the Company does not give notice of its intent to defend against any
third party or other claim, liability or expense in accordance with the
foregoing paragraph, or if such diligent good faith defense is not being or
ceases to be conducted, the Indemnified Party will have the right to retain its
own counsel in any such action and all fees, disbursements and other charges
incurred in the investigation, defense and/or settlement of such action shall be
advanced and reimbursed by the Company promptly as they are incurred and shall
have the right to compromise or settle, such claim, liability or expense;
provided, however, that the Indemnified Party shall agree to repay any expenses
so advanced hereunder if it is ultimately determined by a court of competent
jurisdiction that the Indemnified Party to whom such expenses are advanced is
not entitled to be indemnified as a matter of law or under the terms of this
Agreement.
6.3 Satisfaction of Indemnification Obligations. Any indemnity
payable pursuant to this Section 6 shall be paid within the later of (a) ten
(10) days after the Indemnified Party's request therefor or (b) ten (10) days
prior to the date on which the Loss upon which the indemnity is based is
required to be satisfied by the Indemnified Party. The provisions of this
Section 6 shall inure to the individual benefit of, and may be specifically
enforced by, any Indemnified Party with or without joinder of any other
Indemnified Party.
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents. For purposes of this Agreement
and all agreements, documents and instruments executed pursuant hereto, except
as otherwise specifically set forth herein or therein, no course of dealing
between the Company and any Investor and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be amended or waived otherwise than by a written instrument
signed by the party so amending or waiving such covenant or other provision;
provided, however, that except as otherwise provided herein or therein, changes
in or additions to, and any consents required by, this Agreement may be made,
and compliance with any term, covenant, condition or provision set forth herein
may be omitted or waived (either generally or in a particular instance and
either retroactively or prospectively), by a consent or consents in writing
signed by Investors holding a majority of the outstanding shares of Series B
Preferred Stock (including for such purposes, on a proportional basis, any
Conversion Shares into which any of the Series B Preferred Shares have been
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converted that have not been sold to the public) and (in the case of any such
change or addition) the Company; provided, however, that the amendment or waiver
of any provision which by its terms or by the terms of the Charter requires the
consent or approval of more than holders of a majority of the outstanding shares
of Series B Preferred Stock shall only be effective if it is signed by holders
of such requisite percentage. All references in this Agreement to holders of a
majority or a specific percentage of the outstanding shares of Series B
Preferred Stock refer to holders of a majority or such specific percentage of
the outstanding shares of Series B Preferred Stock, as the case may be, of the
outstanding Series B Preferred Shares and Conversion Shares on an as converted
basis. Any amendment or waiver effected in accordance with this Section 7.1
shall be binding upon each holder of Series B Preferred Shares purchased under
this Agreement at the time outstanding (including securities into which such
Series B Preferred Shares have been converted), each future holder of all such
securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights. All covenants, agreements, representations and
warranties of the Company made herein and in the certificates, lists, exhibits,
schedules or other written information delivered or furnished by or on behalf of
the Company to any Investor in connection herewith shall be deemed material and
to have been relied upon by such Investor, and, except as otherwise provided in
this Agreement, shall survive the delivery of the Securities regardless of any
instruction and shall not merge in the performance of any obligation and shall
bind the Company's successors, assigns and heirs, whether so expressed or not,
and, except as otherwise provided in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Investors' successors and assigns and to transferees of the Securities, whether
so expressed or not; provided, however, that the representations and warranties
made by the Company in Section 2 (other than those set forth in Sections 2.1,
2.2 and 2.4, which shall survive indefinitely, and those set forth in Section
2.11, which shall survive until six (6) months after the termination of the
applicable statute of limitations relating thereto) shall survive only for a
period of twenty-four (24) months after the Initial Closing or the Second
Closing as the case may be. The representations and warranties made by the
Investors in Section 5 of this Agreement shall survive for a period of
twenty-four (24) months after the Closing or the Second Closing, as the case may
be, and shall bind the Investors' successors and assigns and shall inure to the
benefit of the Company's successors and assigns.
7.3 Governing Law; Jurisdiction. This Agreement shall be deemed to be
a contract made under, and shall be construed in accordance with, the laws of
the Commonwealth of Massachusetts (without giving effect to choice or conflicts
of law principles the effect of which would cause the application of domestic
substantive laws of any other jurisdiction). The Company hereby irrevocably
consents to the non-exclusive personal jurisdiction, service of process and
venue in the federal and state courts of the Commonwealth of Massachusetts for
any claim, suit or proceedings arising under this Agreement or the documents and
agreements executed in connection herewith and in the event any action is
brought against the Company in the Commonwealth of Massachusetts, all of the
Investors hereby agree not to object to such action on the basis of lack of
jurisdiction, improper service of process, forum non conveniens or the like.
34
<PAGE>
7.4 Section Headings; Counterparts. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original
but shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes when delivered or five (5) days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or by express delivery providing receipt of delivery, to the
following addresses: if to the Company, at its address as shown on the signature
page hereof, or at any other address designated by the Company to each of the
Investors in writing; if to an Investor, at its mailing address as shown on the
signature pages hereto, or at any other address designated by such Investor to
the Company and the other Investors in writing; and if to an assignee of an
Investor, at its address as designated to the Company and the other Investors in
writing.
7.6 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Company shall pay all costs and expenses incurred
by Burr, Egan, Deleage & Co. and its affiliates ("BEDCO"), BancBoston, Chestnut
Hill Wireless, Inc., Toronto Dominion, Kingdon Associates and Associated RT,
Inc. in connection with the negotiation and execution of the Letter of Intent
dated September 16, 1998 by and among the Company and certain of the Investors.
The Company shall pay all costs and expenses that it incurs and all fees and
expenses of Goodwin, Procter & Hoar LLP representing the Investors with respect
to the negotiation, execution, delivery and performance of this Agreement and
the agreements, documents and instruments contemplated hereby or executed
pursuant hereto.
7.8 Integration; Waiver of Prior Agreements. This Agreement,
including the exhibits, documents and instruments referred to herein,
constitutes the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
7.9 Certain Provisions Applicable to SBIC and Bank Stockholders.
Sections 2.28, 3.12 and 4.16 hereof contain certain provisions that are included
herein solely for the benefit of certain stockholders that are or may become a
small business investment company ("SBIC") subject to the SBA or a bank holding
35
<PAGE>
company or bank holding company subsidiary subject to the Bank Holding Company
Act. A stockholder of the Company may not assert any rights or claims with
respect to such provisions arising at any time after it has ceased to be an SBIC
or a bank holding company or bank holding company subsidiary, as appropriate.
[Remainder of Page Intentionally Left Blank]
36
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as a sealed instrument as of the day and year first written above.
ADDRESS: COMPANY:
2323 Grand TELETRAC HOLDINGS, INC., a
Suite 1100 Delaware corporation
Kansas City, MO 64108-2670
Attn: Chairman/CEO By:
Name:
Title:
INVESTORS:
Toronto Dominion Capital TORONTO DOMINION CAPITAL
31 West 52nd Street, 20th
Floor (U.S.A.), INC.
New York, NY 10019
Attn: Brian A. Rich By:
Name:
Title:
Kingdon Capital Management Corporation KINGDON ASSOCIATES, L.P.
52 West 57th Street
New York, NY 10019 By: Kingdon Capital Management
Attn: Mark Kingdon Corp.,
its general partner
By:____________________________
Name:
Title:
37
<PAGE>
52 West 57th Street KINGDON PARTNERS, L.P.
New York, NY 10019
Attn: Mark Kingdon By: Kingdon Capital Management
Corp.,
its general partner
By:______________________________
Name:
Title:
52 West 57th Street M. KINGDON OFFSHORE NV
New York, NY 10019
Attn: Mark Kingdon By: Kingdon Capital Management
Corp.,
its investment advisor
By:__________________________
Name:
Title:
Burr, Egan, Deleage & Co. ALTA SUBORDINATED DEBT
One Embarcadero Center PARTNERS III, L.P.
Suite 4050
San Francisco, CA 94111 By: Alta Subordinated Debt
Attn: Robert F. Benbow Management III, L.P.
By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA V LIMITED PARTNERSHIP
One Embarcadero Center
Suite 4050 By: Alta V Management Partners,
San Francisco, CA 94111 L.P.
Attn: Robert F. Benbow
By:_________________________
General Partner
<PAGE>
Burr, Egan, Deleage & Co. CUSTOMS HOUSE PARTNERS
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Attn: Robert F. Benbow By:__________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMMUNICATIONS VI, L.P.
One Embarcadero Center
Suite 4050 By: Alta Communications VI
San Francisco, CA 94111 Management Partners, L.P.
Attn: Robert F. Benbow
By:__________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMM S by S, LLC
One Embarcadero Center
Suite 4050
San Francisco, CA 94111 By:______________________________
Attn: Robert F. Benbow Member
100 Federal Street BANCBOSTON VENTURES INC.
Boston, MA 02110
Attn: Lars Swanson
By:_____________________________
Name:
Title:
485 Underhill Boulevard NORTHWOOD VENTURES
Suite 205
Syosset, NY 11791-3419
Attn: Henry T. Wilson
By:______________________________
Name:
Title:
39
<PAGE>
1300 Boylston Street CHESTNUT HILL WIRELESS, INC.
Chestnut Hill, MA 02167
Attn: Michael A. Greeley
By:________________________________
Name:
Title:
1400 Old Country Road, Suite 313 WESTBURY EQUITY PARTNERS, L.P.
Westbury, NY 11590
Attn: Richard Sicoli By: J.P. Fogg Co.
By:____________________________
Name:
Title:
40
<PAGE>
Appendix A
<TABLE>
<CAPTION>
List of Investors
Column 1 Column 2
-------- --------
Number of Aggregate
Series B Purchase Price for
Preferred Series B
Name Shares Preferred Shares
<S> <C> <C>
Alta Subordinated Debt Partners III, L.P. 11,835.47 $ 887,660
Alta V Limited Partnership 19,895.96 1,492,197
Customs House Partners 210.85 15,814
Alta Communications VI, L.P. 9,866.69 740,002
Alta Comm S by S, LLC 124.48 9,336
Kingdon Associates, L.P. 5,995.73 449,680
Kingdon Partners L.P. 950.40 71,280
M. Kingdon Offshore NV 22,387.20 1,679,040
Toronto Dominion & Affiliates 24,317.00 1,823,775
BancBoston Ventures Inc. 15,099.82 1,132,486
Northwood Ventures 2,424.80 181,860
Chestnut Hill Wireless, Inc. 16,973.56 1,273,017
Westbury Equity Partners, L.P. 2,424.80 181,860
Total 132,506.76 $9,938,007
========== ==========
</TABLE>
41
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is entered into as of October 20, 1998, by and among TELETRAC
HOLDINGS, INC., a Delaware corporation, the undersigned holders of the capital
stock of the Company (the "Holders"), and those other persons and entities who
have executed or shall have executed this Agreement and whose names appear on
the Schedule of Registration Rights Holders attached hereto as Exhibit A, as
such Schedule may be amended from time to time pursuant to Section 13 hereof.
This Agreement amends and restates in its entirety the Amended and Restated
Registration Rights Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company (as defined below) and certain of the Holders
entered into a Registration Rights Agreement dated as of November 14, 1995, as
amended by Amendment No. 1 to Registration Rights Agreement dated March 29, 1996
(the "Amended Registration Rights Agreement");
WHEREAS, in connection with the Company's sale of its Series A
Redeemable Convertible Participating Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), to certain Holders, the Company agreed to
provide certain registration rights with respect to the Series A Preferred Stock
and, to evidence such agreement, entered into an Amended and Restated
Registration Rights Agreement dated as of December 6, 1996 with certain Holders
(the "Amended and Restated Registration Rights Agreement");
WHEREAS, the Company and certain Holders contemporaneously herewith are
entering into a Stock Purchase Agreement (the "Series B Stock Purchase
Agreement") pursuant to which such Holders shall purchase from the Company
shares of the Company's Series B Redeemable Convertible Participating Preferred
Stock, par value $.01 per share (the "Series B Preferred Shares");
WHEREAS, to induce such Holders to purchase the Series B Preferred
Shares, the Company has agreed to provide the registration rights set forth in
this Agreement and the execution of this Agreement is a condition precedent to
the purchase by the Investors (as defined in the Series B Stock Purchase
Agreement) of the Series B Preferred Shares under the Series B Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereby agree as follows:
ARTICLE 1
Definitions
As used herein, the following terms shall have the following respective
meanings:
1
<PAGE>
1.1 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 "Company" shall mean Teletrac Holdings, Inc., a Delaware
corporation, and any of its subsidiaries except to the extent the context
otherwise requires.
1.3 "Holders" shall mean and include any person or persons who have
executed this Agreement and whose names appear on the Schedule of Registration
Rights Holders or who shall, pursuant to Article 13 hereof, become parties
hereto, and any qualifying transferees under Article 11 hereof who hold
Registrable Securities.
1.4 "Initiating Holders" shall mean any Holders who in the aggregate
own not less than forty percent (40%) of the Registrable Securities; provided,
however, that after the date on which the Company has closed its Initial Public
Offering, "Initiating Holders" shall mean any Holders who in the aggregate own
not less than ten percent (10%) of the Registrable Securities.
1.5 "Initial Public Offering" shall mean the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
covering the offer and sale of Common Stock to the public at an aggregate
offering price to the public of at least $10,000,000.
1.6 The terms, "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.7 "Registrable Securities" means any and all shares of Class A Common
Stock (as defined in the Series B Stock Purchase Agreement) (i) issued or
issuable upon conversion of the Series B Preferred Stock, (ii) issued or
issuable upon conversion of the Series A Preferred Stock, (iii) issued under the
Stock Purchase Agreement dated November 14, 1995 by and among the Company and
certain Holders, (iv) issued under the Subscription Agreement dated March 29,
1996 by and among the Company and certain Holders, (v) issued or issuable upon
conversion of the Class B Common Stock (as defined in the Convertible Preferred
Stock Purchase Agreement) (disregarding any restriction on the conversion of
such Class B Common Stock into Class A Common Stock), (vi) issued upon exercise
of any options granted by the Company pursuant to the Company's 1995 Stock
Option Plan, the Company's 1996 Stock Option Plan, the Company's 1998 Stock
Option Plan or any other compensation plans which have been adopted by and
approved by the Compensation Committee of the Board of Directors, and (vii)
issued or issuable with respect to any Securities referred to in classes (i)
through (vi) above, upon any stock split, stock dividend, recapitalization or
similar event, which shares have not been sold to the public.
1.8 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Articles 2 and 3 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of legal counsel for the Company, fees and
disbursements of one legal counsel for the selling stockholders, blue sky fees
and expenses, and the expense of any special audits incident to or
2
<PAGE>
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
1.9 "S-3 Registration Expenses" shall mean all expenses incurred by the
Company in complying with Article 4 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of legal counsel for the Company, fees and disbursements
of one legal counsel for the selling stockholders, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
1.10 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.11 "Selling Expenses" shall mean all underwriting fees, discounts,
selling commissions and stock transfer taxes applicable to the Registrable
Securities registered by the Holders.
ARTICLE 2
Requested Registration
2.1 Request for Registration. In the event the Company shall receive
from the Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to Registrable Securities
with an anticipated aggregate offering price to the public of at least
$10,000,000, the Company will:
(a) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(b) use its diligent efforts to effect such registration,
qualification or compliance as soon as practicable (including, without
limitation, undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with applicable regulations issued under the Securities
Act, and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 15 days after the receipt of the written notice from the
Company described in Section 2.1(a);
provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Article 2:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
3
<PAGE>
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) Within one hundred and eighty (180) days
immediately following the effective date of any registration statement
pertaining to a firmly underwritten offering of securities of the Company for
its own account (or such lesser period as the managing underwriters of such
offering will allow);
(iii) After the Company has effected three (3) such
requested registrations pursuant to this Article 2 (not including registrations
on Form S-3 or registrations in which the number of shares of Registrable
Securities of the Holders registered in such offering was reduced by more than
fifty percent (50%) due to underwriters' marketing limitations), each such
registration has been declared or ordered effective, and the securities offered
pursuant to each such registration have been sold, or if the Company has
effected any requested registration (other than a registration for the Company's
Initial Public Offering) pursuant to this Agreement during the previous
twelve-month period (or such shorter period as the managing underwriter of the
Company's most recent public offering will allow); or
(iv) If the Company then meets the eligibility
requirements applicable to the use of Form S-3 in connection with such
registration and is able to effect such requested registration pursuant to
Article 4 hereof.
(c) Subject to the foregoing clauses (i) through (iv), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request of the Initiating Holders; provided, however, that if the Company shall
furnish to such Holders a certificate signed by the President or other chief
executive officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed, the
Company shall have the right to defer such filing for a period of not more than
120 days after receipt of the request of the Initiating Holders (provided,
however, that the Company shall not be permitted to exercise such deferral right
under this Section 2.1(c) or Section 4.1(c) hereof more than once in any 360-day
period).
2.2 Underwriting.
(a) The distribution of the Registrable Securities covered by
the request of the Initiating Holders shall be effected by means of a firm
commitment underwriting. The right of any Holder to registration pursuant to
this Article 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
other Holders and such Initiating Holders) to the extent provided herein.
(b) The Company (together with all Holders proposing to
distribute their securities through such underwriting) shall enter into an
underwriting agreement in customary form with a managing underwriter of
nationally recognized standing selected for such underwriting by a majority in
interest of the Holders of Registrable Securities included in such
4
<PAGE>
registration and approved by the Company, which approval shall not be
unreasonably withheld. Notwithstanding any other provision of this Article 2, if
the managing underwriter advises the Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
underwriters may exclude shares requested to be included in such registration
subject to the provisions of Section 2.3. The number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated amongst Holders who have requested registration of Registrable
Securities in such registration and underwriting in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration.
(c) If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration; provided, however, that if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all Holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities in the same
proportion used in determining the underwriter limitation in this Section
2.2(c).
2.3 Inclusion of Shares by Company. If the managing underwriter has not
limited the number of Registrable Securities to be underwritten, the Company may
include securities for its own account or for the account of others in such
registration if the managing underwriter so agrees and if the number of
Registrable Securities held by Holders which would otherwise have been included
in such registration and underwriting will not thereby be limited. The inclusion
of such shares shall be on the same terms as the registration of shares held by
the Holders. In the event that the underwriters exclude some of the securities
to be registered, the securities to be sold for the account of the Company and
any other holders shall be excluded in their entirety prior to the exclusion of
any Registrable Securities.
ARTICLE 3
Company Registration
3.1 Notice of Registration to Holders. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders (including,
without limitation, under Article IV), other than (i) a registration relating
solely to employee benefit plans on Form S-8 (or any successor form) or (ii) a
registration relating solely to a Commission Rule 145 transaction on Form S-4
(or any successor form), the Company will:
(a) promptly give to each Holder written notice thereof;
and
5
<PAGE>
(b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company described in Section 3.1(a), by any Holder or Holders.
3.2 Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
3.1(a). In such event, the right of any Holder to registration pursuant to this
Article 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company.
(a) Notwithstanding any other provision of this Article 3, if
the managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the underwriter may exclude some or
all Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders of Registrable Securities, and the number of shares
of Common Stock to be included in such registration shall be allocated as
follows: first, for the account of the Company, all shares of Common Stock
proposed to be sold by the Company; second, for the account of Holders of
Registrable Securities participating in such registration, the number of shares
of Common Stock requested to be included in the registration by such Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities that are proposed to be offered and sold by such Holders of
Registrable Securities at the time of filing the registration statement, and
third, for the account of any other stockholders of the Company participating in
such registration, the number of shares of Common Stock requested to be included
in the registration by such other stockholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities that are
proposed to be offered and sold by such other stockholders of Registrable
Securities at the time of filing the registration statement; provided, however,
that if the offering is not an Initial Public Offering, the number of shares of
Registrable Securities registered in such offering shall not be reduced to less
than forty percent (40%) of the total number of shares of securities registered
in such offering. No Registrable Securities excluded from the underwriting by
reason of the underwriters' marketing limitation shall be included in such
registration.
(b) The Company shall so advise all Holders and the other
holders distributing their securities through such underwriting of any such
limitation, and the number of shares of Registrable Securities held by Holders
that may be included in the registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by all such Holders at the time of filing
the registration statement. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, but the Holder
shall continue to be bound by Article 8 hereof.
6
<PAGE>
ARTICLE 4
Registration on Form S-3
4.1 Request for Registration.
(a) In addition to the rights set forth in Articles 2 and 3
hereof, if a Holder or Holders request that the Company file a registration
statement on Form S-3 (or any successor to Form S-3) for a public offering of
shares of Registrable Securities the reasonably anticipated aggregate price to
the public of which would equal at least $2,000,000 and the Company is a
registrant entitled to use Form S-3 (or any successor form to Form S-3) to
register such shares for such an offering, the Company shall use its best
efforts to cause such shares to be registered for the offering as soon as
practicable on Form S-3 (or any such successor form to Form S-3).
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Article 4:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the
receipt of the request of the Holder or Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within forty-five (45) days of receipt of such request (other than with respect
to a registration statement relating to a Rule 145 transaction or an offering
solely to employees); and
(iii) during the period starting with the date of
filing of, and ending on a date which is 180 days following the effective date
of, a registration statement described in (ii) above or filed pursuant to this
Article 4 or Articles 2 or 3 hereof (or such shorter period as the managing
underwriter of the Company's most recent public offering may agree), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and provided, further,
that no other person or entity could require the Company to file a registration
statement in such period.
(c) Subject to the foregoing clauses (i) through (iii), the
Company shall file a registration statement on Form S-3 covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Holders; provided, however, that if the Company shall furnish
to such Holders a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed on or before the date filing would
be required, and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a reasonable period of not more than ninety (90) days after receipt of the
request of the Holders (provided, however, that the Company shall not be
permitted to
7
<PAGE>
exercise such deferral right under this Section 4.1(c) or Section 2.1(c) hereof
more than once in any 360-day period).
4.2 Underwriting.
(a) The distribution of the Registrable Securities covered by
the registration on Form S-3 shall be effected by means of the method of
distribution selected by the Holders holding a majority of the Registrable
Securities covered by such registration. If such distribution is effected by
means of an underwriting, the right of any Holder to registration pursuant to
this Article 4 shall be conditioned upon such Holder's participation in such
underwriting, if any, and the inclusion of such Holder's Registrable Securities
in such underwriting.
(b) If the distribution of the Registrable Securities pursuant
to this Section 4.2 is effected by means of an underwriting, the Company
(together with all Holders proposing to distribute their securities through such
underwriting) shall enter into an underwriting agreement in customary form with
a managing underwriter of nationally recognized standing selected for such
underwriting by a majority in interest of the Holders requesting registration on
Form S-3 and approved by the Company, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Article 4, if the managing
underwriter advises the Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the underwriters may
exclude some or all of the shares requested to be included in such registration
subject to the provisions of Section 4.3; provided, however, the number of
shares of Registrable Securities registered in such offering shall not be
reduced to less than forty percent (40%) of the total number of shares of
securities registered in such offering. The number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No registrable Securities excluded
from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration.
(c) If the distribution of the Registrable Securities pursuant
to this Section 4.2 is effected by means of an underwriting and if any Holder of
Registrable Securities disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Holders. The Registrable Securities and/or other securities
so withdrawn shall also be withdrawn from registration; provided, however, that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used in determining the underwriter limitation
in this Section 4.2(c).
4.3 Inclusion of Shares by Company. If the distribution of the
Registrable Securities pursuant to this Section 4.2 is effected by means of an
underwriting and if the managing underwriter has not limited the number of
Registrable Securities to be underwritten,
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<PAGE>
the Company may include securities for its own account or for the account of
others in such registration if the managing underwriter so agrees and if the
number of Registrable Securities held by Holders requesting registration on Form
S-3 which would otherwise have been included in such registration and
underwriting will not thereby be limited. The inclusion of such shares shall be
on the same terms as the registration of shares held by the Holders. In the
event that the underwriters exclude some of the securities to be registered on
Form S-3, the securities to be sold for the account of the Company and any other
holders shall be excluded in their entirety prior to the exclusion of any
Registrable Securities.
ARTICLE 5
Expenses of Registration
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Articles 2 and 3 hereof and all S-3
Registration Expenses shall be borne by the Company. All Selling Expenses
relating to securities registered by the Holders shall be borne by the holders
of such securities pro rata on the basis of the number of shares so registered.
ARTICLE 6
Registration Procedures
In the case of each registration, qualification or compliance effected
by the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof.
At its expense the Company will:
(a) Keep such registration, qualification or compliance
effective and current for a period of one hundred eighty (180) days (or such
longer period as may be necessary to accommodate the filing of amendments or
supplements necessary to comply with the Securities Act) or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;
(c) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdiction;
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
9
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(e) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) Cause all such Registrable Securities to be quoted on the
market or listed on each securities exchange, as applicable, on which similar
securities issued by the Company are then quoted or listed;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders, in each case as soon as practicable, but not later than
forty-five (45) days after the close of the period covered thereby (ninety (90)
days in case the period covered corresponds to the fiscal year of the Company),
an earnings statement of the Company which will satisfy the provisions of
Section 11(a) of the Securities Act; and
(h) Use its best efforts to furnish to each Holder and to each
underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a
comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as the
Holders of Registrable Securities included in such offering or the managing
underwriter therefor reasonably requests.
ARTICLE 7
Indemnification
7.1 The Company will indemnify each Holder, each of its officers,
directors, partners, members, beneficiaries and stockholders and such Holder's
legal counsel, investment advisers, employees, agents and independent
accountants, if any, and each person controlling any such persons within the
meaning of Section 15 of the Securities Act (each, a "Holder Indemnified
Party"), with respect to which registration, qualification or compliance has
been effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act (each, an "Underwriter Indemnified Party"), against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereof, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein, a
material fact required to be stated therein or necessary to make the statements
therein, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act or any state securities laws
applicable to the Company
10
<PAGE>
and relating to action or inaction by the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder
Indemnified Party and Underwriter Indemnified Party for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable to any Holder Indemnified Party or Underwriter
Indemnified Party to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Company by such Holder Indemnified Party or
such Underwriter Indemnified Party, as the case may be, and expressly intended
for use in such registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereof.
7.2 Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, and each person
controlling any such persons within the meaning of Section 15 of the Securities
Act (each, a "Company Indemnified Party") and each Underwriter Indemnified
Party, if any, and each other Holder Indemnified Party against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse such Company Indemnified Party,
Underwriter Indemnified Party or Holder Indemnified Party for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, other document or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Holder and expressly intended for use in such
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereof; provided, however, that the obligations of such
Holders hereunder shall be limited to an amount equal to the proceeds to each
such Holder of Registrable Securities sold as contemplated herein.
7.3 Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same counsel would be inappropriate due to actual or
11
<PAGE>
potential conflicts of interest. The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure is prejudicial to the
ability of the Indemnifying Party to defend the action. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation.
ARTICLE 8
Lockup Agreement
8.1 In consideration for the Company agreeing to its obligations under
this Agreement, each Holder agrees:
(a) In connection with the Company's Initial Public Offering,
upon the request of the underwriters managing the underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of such underwriters for such period of time (not to exceed the period
commencing seven (7) days prior to the effective date of such registration and
ending one hundred and eighty (180) days after such effective date) as the
underwriters may specify; and
(b) In connection with any registration effected pursuant to
Articles 2, 3 and 4 hereof, any Holder electing not to participate in, or
withdrawing from, such registration shall, upon the request of the underwriters
managing the offering of the Company's securities, not sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in such registration) without
the prior written consent of such underwriters until such period of time (not to
exceed the period commencing seven (7) days prior to the effective date of such
registration and ending ninety (90) days after such effective date) from the
effective date of such registration or, if earlier, until the distribution of
such securities is completed or the underwriters have sold all securities of the
Company allotted to them pursuant to such registration.
8.2 Notwithstanding Section 8.1 hereof, (i) no Holder shall have any
obligation to enter into the agreement described in Section 8.1 hereof unless
all executive officers and directors of the Company enter into similar
agreements, (ii) nothing herein shall prevent any Holder from making a
distribution of Registrable Securities to its affiliate that is otherwise in
compliance with applicable securities laws or, for any Holder that is a
partnership, from making a distribution of Registrable Securities to partners
thereof that is otherwise in compliance with applicable securities laws and
(iii) nothing herein shall prevent any Holder which is an SBIC from making a
distribution or transfer of Registrable Securities pursuant to applicable
regulatory requirements under the SBIC Act.
12
<PAGE>
ARTICLE 9
Information by Holder
The Holder or Holders of Registrable Securities included in any
registration shall furnish in writing to the Company such information regarding
such Holder or Holders and the distribution proposed by such Holder or Holders
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
ARTICLE 10
Rule 144 Reporting
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, after such time as
a public market exists for the Common Stock of the Company, the Company agrees
to:
10.1 Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public; and
10.2 Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (at any time after it has become subject to such reporting
requirements); and
10.3 So long as a Holder owns any Registrable Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration.
ARTICLE 11
Transfer of Registration Rights
The rights to cause the Company to register securities granted to
Holders under Articles 2, 3 and 4 hereof may be assigned in connection with any
permitted transfer or assignment of the Holder's Registrable Securities. All
transferees and assignees of the rights to cause the Company to register
securities granted to Holders under Articles 2, 3 and 4
13
<PAGE>
hereof, as a condition to the transfer of such rights, shall agree in writing to
be bound by the agreements set forth herein.
ARTICLE 12
Termination of Registration Rights
The rights granted and obligations imposed pursuant to this Agreement
shall terminate as to any Holder: (i) at such time, following the Company's
registration of its Common Stock under the Exchange Act, as such Holder holds
Registrable Securities constituting less than one percent (1%) of all
outstanding shares of the Company's Common Stock; (ii) when a registration
statement with respect to the sale of all of such Holder's Registrable
Securities shall have become effective under the Securities Act and such
Registrable Securities shall have been disposed of in accordance therewith;
(iii) at such time as all of such Holder's Registrable Securities may be
distributed pursuant to Rule 144 (or any successor provisions thereto) under the
Securities Act in any three-month period; (iv) when such Holder's Registrable
Securities shall have been otherwise transferred and subsequent disposition of
such Registrable Securities shall not require registration or qualification
under the Securities Act or any similar state law then in force; or (v) on the
fifth (5th) anniversary of the closing of the Company's first firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offering and sale of Common Stock to the
public; provided, however, that the provisions of Article 10 hereof shall
survive for so long as any Holder continues to hold any Registrable Securities.
ARTICLE 13
Limitations on Registration Rights
Granted to Other Securities
The Additional Investors, to the extent that such investors are not
already parties to this Agreement, may be added as parties to this Agreement
with respect to the Additional Series B Preferred Shares. The parties hereto
agree that additional holders may, with the consent of the Company and the
Holders of at least seventy-five percent (75%) of the Registrable Securities
then outstanding, be added as parties to this Agreement with respect to any or
all securities of the Company held by them; provided, however, that from and
after the date of this Agreement, the Company shall not without the prior
written consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company providing for the grant to such holder of
registration rights superior to those granted herein. Any additional parties
shall execute a counterpart of this Agreement, and upon execution by such
additional parties and by the Company, shall be considered Holders for purposes
of this Agreement, and shall be added to the Schedule of Registration Rights
Holders attached hereto as Exhibit A.
14
<PAGE>
ARTICLE 14
Miscellaneous
14.1 Waivers and Amendments. With the written consent of the Company
and the holders of at least seventy-five percent (75%) of the Registrable
Securities then outstanding, the obligations and rights of the Company and the
Holders under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely) or amended; provided, however, that no such
waiver or amendment shall reduce the aforesaid number of shares the holders of
which are required to consent to any waiver or amendment, without the consent of
all the Holders . Upon the effectuation of each such waiver or amendment, the
Company shall promptly give written notice thereof to any Holders who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be amended, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought, except to the extent provided in this
Section 14.1.
14.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed entirely within the state without giving effect to any
choice or conflicts of law principles that would cause the application of the
domestic substantive laws of any other jurisdiction.
14.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
14.4 Entire Agreement. This Agreement amends, restates in its entirety
and supersedes the Amended Registration Rights Agreement and constitutes the
full and entire understanding and agreement among the parties hereto with regard
to the subject matter hereof. From and after the date hereof, the Amended
Registration Rights Agreement shall cease to be of force or effect.
14.5 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and received
upon delivery in person, or one business day after delivery by national
overnight courier service or by telecopier transmission with acknowledgment of
transmission receipt, or three (3) business days after deposit via certified or
registered mail, return receipt requested, in each case addressed (i) if to a
Holder, to the address set forth opposite such Holder's name on the signature
pages hereof or to such other address as such Holder shall have furnished to the
Company in writing, or (ii) if to the Company at its address as set forth on the
signature pages hereof or to such other address as the Company shall have
furnished to the Holders in writing, with a copy to the Company's legal counsel,
Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
New York 10111, to the attention of Robert A. Schwed, Esq.
15
<PAGE>
14.6 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
14.7 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
14.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
ARTICLE 15
Aggregation
Shares of capital stock of the Company owned by partnerships and
corporations having substantially common ownership interests or managed by the
same principals and owned by individual investors affiliated with one another
may be aggregated for the purposes of calculating the aggregate percentage of
capital stock of the Company owned by any Holder and any permitted transferee
hereunder.
[END OF TEXT]
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second Amended
and Restated Registration Rights Agreement as a sealed instrument as of the day
and year first written above.
ADDRESS: COMPANY:
2323 Grand TELETRAC HOLDINGS, INC., a
Suite 1100 Delaware corporation
Kansas City, MO 64108-2670
Attn: President
By:
Name:
Title:
HOLDERS:
Toronto Dominion Capital
31 West 52nd Street TORONTO DOMINION CAPITAL
20th Floor (U.S.A.), INC.
New York, NY 10019
Attn: Brian A. Rich
By:
Name:
Title:
Kingdon Capital Management Corporation KINGDON ASSOCIATES, L.P.
52 West 57th Street
New York, NY 10019
Attn: Mark Kingdon By: Kingdon Capital Management
Corp.,
its general partner
By:____________________________
Name:
Title:
17
<PAGE>
Kingdon Capital Management Corporation KINGDON PARTNERS, L.P.
52 West 57th Street
New York, NY 10019 By: Kingdon Capital Management
Attn: Mark Kingdon Corp.,
its general partner
By:____________________________
Name:
Title:
Kingdon Capital Management Corporation M. KINGDON OFFSHORE NV
52 West 57th Street
New York, NY 10019 By: Kingdon Capital Management
Attn: Mark Kingdon Corp.,
its investment advisor
By:________________________
Name:
Title:
Burr, Egan, Deleage & Co. ALTA SUBORDINATED DEBT
One Embarcadero Center PARTNERS III, L.P.
Suite 4050
San Francisco, CA 94111 By: Alta Subordinated Debt
Attn: Robert F. Benbow Management III, L.P.
By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA V LIMITED PARTNERSHIP
One Embarcadero Center
Suite 4050 By: Alta V Management Partners,
San Francisco, CA 94111 L.P.
Attn: Robert F. Benbow
By:_________________________
General Partner
18
<PAGE>
Burr, Egan, Deleage & Co. CUSTOMS HOUSE PARTNERS
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Attn: Robert F. Benbow By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMMUNICATIONS VI, L.P.
One Embarcadero Center
Suite 4050 By: Alta Communications VI
San Francisco, CA 94111 Management Partners, L.P.
Attn: Robert F. Benbow
By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMM S by S, LLC
One Embarcadero Center
Suite 4050
San Francisco, CA 94111 By:_____________________________
Attn: Robert F. Benbow Member
EOS Partners SBIC, L.P. EOS PARTNERS SBIC, L.P.
320 Madison Avenue, 22nd Floor
New York, NY 10022 By: EOS SBIC General, L.P.
Attn: Brian Young
By:_________________________
Name:
Title:
TruePosition, Inc. TRUEPOSITION, INC.
3 Bala Plaza East, Suite 502
Bala Cynwyd, PA 19004
Attn: David J. Berkman By:_____________________________
Name:
Title:
19
<PAGE>
BancBoston Ventures, Inc. BANCBOSTON VENTURES INC.
100 Federal Street
Boston, MA 02110
Attn: Lars Swanson
By:_____________________________
Name:
Title:
Northwood Ventures NORTHWOOD VENTURES
485 Underhill Boulevard
Suite 205
Syosset, NY 11791-3419
Attn: Henry T. Wilson By:_____________________________
CHESTNUT HILL WIRELESS, INC.
1300 Boylston Street
Chestnut Hill, MA 02167
Attn: Michael A. Greeley
By:_____________________________
Name:
Title:
Westbury Equity Partners WESTBURY EQUITY PARTNERS, L.P.
1400 Old Country Road, Suite 313
Westbury, NY 11590 By: J.P. Fogg Co.
Attn: Richard Sicoli
By:_____________________
Name:
Title:
20
<PAGE>
Boston Capital Ventures BOSTON CAPITAL VENTURES
Old City Hall
Boston, MA 02108-3204
Attn: Suresh Shanmugham
By:_____________________________
Name:
Title:
1701 SE Columbia River Drive HIGH POINT KELLER LIMITED
Suite 100 PARNTERSHIP
Vancouver, Washington 98661
Attn: Richard B. Keller II By: High Point Management, Inc.,
its general partner
By:_________________________
Name:
Title:
1701 SE Columbia River Drive
Suite 100
Vancouver, Washington 98661
Attn: R. B. Keller
By:_____________________________
R.B. Keller
1701 SE Columbia River Drive
Suite 100
Vancouver, Washington 98661
Attn: Richard B. Keller II
By:_____________________________
Richard B. Keller II
James A. Queen
c/o Teletrac Holdings, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
James A. Queen
Steven D. Scheiwe
c/o Teletrac Holdings, Inc.
21
<PAGE>
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
Steven D. Scheiwe
Lawrence P. Jennings
c/o Teletrac Holdings, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
Lawrence P. Jennings
Mrs. T.N. Markbreiter
16 Marigold Road ________________________________
Yau Yat Chuen Mrs. T.N. Markbreiter
Kowloon
Hong Kong
Simon Brenner
95 Kennedy Avenue ________________________________
Rockville Centre, NY 11570 Simon Brenner
c/o Kirkland & Ellis K&E PARTNERS II
200 East Randolph Drive
Chicago, IL 60601
By:_____________________________
Partner
45 Rockefeller Plaza REBOUL, MACMURRAY, HEWITT, New
York, NY 10011 MAYNARD & KRISTOL
Attn: Robert A. Schwed, Esq.
By:_____________________________
Partner
22
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
By and Among
Teletrac Holdings, Inc.
and
The Stockholders
as defined herein and set forth
on the signature pages hereto
Dated as of October 20, 1998
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.........................................................2
Section 1.1. Construction of Terms...................................2
Section 1.2. Number of Shares of Stock...............................2
Section 1.3. Defined Terms...........................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................4
Section 2.1. Representations and Warranties of the Stockholders......4
Section 2.2. Representations and Warranties of the Company...........5
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF LAST REFUSAL; CO-SALE
AND DRAG-ALONG PROVISION..............................................5
Section 3.1. Restrictions on Transfer................................5
Section 3.2. Right of Last Refusal. ................................7
Section 3.3. Co-Sale Option.........................................10
Section 3.4. Drag-Along Obligations.................................12
Section 3.5 Contemporaneous Transfers..............................14
Section 3.6 Prohibited Transfers...................................14
Section 3.7 Exchange of Voting Securities for Non-Voting Securities
for Bank Holding Company Act Purposes..................14
ARTICLE IV RIGHTS TO PARTICIPATE IN FUTURE ISSUANCES.........................15
ARTICLE V ELECTION OF DIRECTORS..............................................16
Section 5.1. Board Composition......................................16
Section 5.2. Compensation Committee; Audit Committee................18
Section 5.3. Removal................................................18
Section 5.4. Vacancies..............................................18
Section 5.5. Increase in Size of Board..............................19
Section 5.6. Assignment.............................................19
Section 5.7. No Waiver..............................................19
Section 5.8. Board of Directors of Subsidiary.......................19
Section 5.9. Expenses...............................................19
Section 5.10. Observer Rights........................................20
ARTICLE VI RESTRICTIONS AND LIMITATIONS......................................20
Section 6.1. Combined Voting........................................20
Section 6.2. Voting as a Separate Class.............................21
(i)
<PAGE>
ARTICLE VII MISCELLANEOUS PROVISIONS.........................................22
Section 7.1. Survival of Representations and Covenants..............22
Section 7.2. Term...................................................22
Section 7.3. Legend on Securities...................................22
Section 7.4. Amendment and Waiver...................................23
Section 7.5. Notices. .............................................23
Section 7.6. Acknowledgment.........................................23
Section 7.7. Headings...............................................24
Section 7.8. Counterparts...........................................24
Section 7.9. Remedies; Severability.................................24
Section 7.10. Entire Agreement.......................................24
Section 7.11. Adjustments............................................24
Section 7.12 Certain Provisions Applicable to SBIC and
Bank Stockholders....................................25
Section 7.13 Participation of Aliens. .............................25
Section 7.14. Law Governing..........................................25
Section 7.15. Successors and Assigns. ..............................25
Exhibit A - Form of Joinder Agreement
Exhibit B - Charter
(ii)
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
This Amended and Restated Stockholders' Agreement is made as of this
20th day of October, 1998 by and among Teletrac Holdings, Inc., a Delaware
corporation (the "Company"), the investors identified on Appendix A hereto as
the initial management investors (the "Founding Stockholders"), the investors
identified on Appendix A hereto that currently hold Common Stock (the "Common
Investors"), the investors identified on Appendix A hereto that currently hold
Series A Preferred Stock (the "Series A Preferred Investors"), the investors
identified on Appendix A hereto that are acquiring Series B Preferred Stock
(including any investors that purchase Series B Preferred Shares in connection
with the Second Closing and execute a Joinder Agreement in substantially the
form attached hereto as Exhibit A) (the "Series B Preferred Investors," together
with the Series A Preferred Investors, the "Preferred Investors" and together
with the Common Investors, the "Investors"), and any other stockholder,
warrantholder or optionholder of the Company who from time to time becomes party
to this Agreement by execution of a Joinder Agreement in substantially the form
attached hereto as Exhibit A (the "Management Stockholders"). The Founding
Stockholders, the Investors and any Management Stockholders are herein referred
to collectively as the "Stockholders" and individually as a "Stockholder."
Capitalized terms used but not otherwise defined herein, shall have the meanings
ascribed to them in that certain Stock Purchase Agreement, dated as of the date
hereof, by and among, inter alia, the Company and the Series B Preferred
Investors (the "Purchase Agreement").
W I T N E S S E T H
WHEREAS, reference is made to the Purchase Agreement pursuant to which
the Series B Preferred Investors have purchased up to 400,000 Series B Preferred
Shares from the Company;
WHEREAS, the effectiveness of this Agreement is a condition precedent
to the Series B Preferred Investors' obligation to purchase the Series B
Preferred Shares under the Purchase Agreement;
WHEREAS, the parties hereto desire to amend and restate the terms of
the Stockholders' Agreement, dated as of December 6, 1996 by and among certain
stockholders of the Company (the "1996 Stockholders' Agreement"), and for this
Agreement to supersede the terms of the 1996 Stockholders' Agreement; and
WHEREAS, the parties hereto desire to agree upon the terms upon which
their investment in the capital stock of the Company will be held, transferred
and voted.
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NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I DEFINITIONS
Section 1.1. Construction of Terms. As used herein, the masculine,
feminine or neuter gender, and the singular or plural number, shall be deemed to
be or to include the other genders or number, as the case may be, whenever the
context so indicates or requires.
Section 1.2. Number of Shares of Stock. Whenever any provision of this
Agreement calls for any calculation based on a number of Shares held by a
Stockholder or Investor, the number of Shares deemed to be held by that
Stockholder or Investor shall be the total number of shares of Common Stock,
either Class A or Class B, then owned by the Stockholder or Investor, plus the
total number of Shares of Common Stock, either Class A or Class B, issuable upon
conversion of any Preferred Stock or other convertible securities or exercise of
any options, warrants or subscription rights then owned by the Stockholder or
Investor.
Section 1.3. Defined Terms. The following capitalized terms, as used
in this Agreement, shall have the meanings set forth below.
"Affiliate" means, with respect to any Person, a Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with the first mentioned Person. A Person shall be
deemed to control another Person if such first Person possesses directly or
indirectly the power to direct, or cause the direction of, the management and
policies of the second Person, whether through the ownership of voting
securities, by contract or otherwise.
"Charter" has the meaning specified in the definition of Preferred
Stock below.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A or Class B Common Stock, par value
$.01 per share, of the Company, and any other shares of stock issued or issuable
with respect thereto (whether by way of a stock dividend or stock split or in
exchange for or upon conversion of such shares or otherwise in connection with a
combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Conversion Shares" shall mean the shares of Common Stock issued by the
Company upon conversion of the shares of Preferred Stock in accordance with the
Charter.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
"Offer Notice" has the meaning specified in Section 3.2(a)
"Offeror" has the meaning specified in Section 3.2.
"Permitted Transferee" has the meaning specified in Section 3.1.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust, and any other entity or organization,
governmental or otherwise.
"Preferred Stock" means the Series A Redeemable Convertible
Participating Preferred Stock, par value $.01 per share, of the Company, First
Series of Diluted Series A Preferred Stock, par value $.01 per share, of the
Company, and the Series B Convertible Participating Preferred Stock, par value
$.01 per share, of the Company, as issued or to be issued in accordance with the
Purchase Agreement and subject to the terms set forth in the Amended and
Restated Certificate of Incorporation of the Company substantially in the form
attached hereto as Exhibit B (the "Charter"), together with any other shares
issued or issuable with respect thereto including, without limitation, shares of
any New Series of Diluted Series A Preferred Stock, shares of Redeemable
Preferred Stock, shares of Diluted Series B Preferred Stock, and any shares of
Common Stock (whether by way of a stock dividend, stock split or in exchange for
or in replacement or upon conversion of such shares or otherwise in connection
with a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Qualified Series A Public Offering" means an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock to the public with a per share
value at least equal to the greater of $300.00 per share (subject to adjustment
for stock splits, stock dividends, recapitalization and the like) and the then
Series A Liquidation Preference Amount (as defined in the Charter) per share.
"Qualified Series B Public Offering" means an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock to the public, of which the
aggregate gross proceeds attributable to sales for the account of the Company
exceed $30,000,000 at a price per share reflecting a pre-money valuation for the
Company's equity of at least $180,000,000, and either (a) all outstanding shares
of Redeemable Preferred Stock are redeemed immediately upon and as of the
closing of such offering or (b) contemporaneously with such offering cash in an
amount sufficient to redeem all outstanding shares of Redeemable Preferred Stock
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is segregated and irrevocably held by the Company for payment to holders of
Redeemable Preferred Stock in connection with the redemption thereof pursuant to
the Charter.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated the date hereof, by and among, inter alia,
the Company and the Stockholders.
"Right of Last Refusal" has the meaning specified in Section 3.2(b).
"Sale of the Company" means the sale of the Company to a
non-Affiliate(s) of the Company or any of the Stockholders pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Board of Directors (whether by merger,
consolidation or sale or transfer of the Company's capital stock); or (ii) all
or substantially all of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock, Preferred Stock and any
other equity securities now or hereafter issued by the Company, together with
any options or warrants thereon and any other shares of stock issued or issuable
with respect thereto (whether by way of a stock dividend, stock split or in
exchange for or upon conversion of such shares or otherwise in connection with a
combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Transaction Offer" has the meaning specified in Section 3.2.
"Transfer" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights. "Transferred" means the accomplishment of a Transfer, and "Transferee"
means the recipient or intended recipient of a Transfer.
"Transferring Stockholder" has the meaning specified in Section 3.2.
ARTICLE II REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Stockholders. Each
of the Stockholders, individually and not jointly, hereby represents, warrants
and covenants to the Company as follows: (a) such Stockholder has full authority
and power and, if an individual, capacity, under its charter, by-laws, governing
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partnership agreement or comparable document, as applicable, to enter into this
Agreement; (b) this Agreement constitutes the valid and binding obligation of
such Stockholder; and (c) the execution, delivery and performance by such
Stockholder of this Agreement: (i) does not and will not violate any laws, rules
or regulations of the United States or any state or other jurisdiction
applicable to such Stockholder, or require such Stockholder to obtain any
approval, consent or waiver of, or to make any filing with, any Person that has
not been obtained or made (other than filings or approvals that may have to be
made or obtained in connection with any acquisition or disposition of Shares by
an Investor that is a regulated institutional investor); and (ii) does not and
will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of any indenture or loan
or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party or by
which the property of such Stockholder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets or properties of such Stockholder.
Section 2.2. Representations and Warranties of the Company. The
Company, hereby represents, warrants and covenants to the Stockholders as
follows: (a) the Company has full corporate authority and power to enter into
this Agreement; (b) this Agreement constitutes the valid and binding obligation
of the Company enforceable against it in accordance with its terms; and (c) the
execution, delivery and performance by the Company of this Agreement: (i) does
not and will not violate any laws, rules or regulations of the United States or
any state or other jurisdiction applicable to the Company or any of its
subsidiaries, or require the Company or any of its subsidiaries to obtain any
approval, consent or waiver of, or to make any filing with, any Person that has
not been obtained or made; and (ii) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any indenture or loan or credit agreement or any other
material agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Company or any of its subsidiaries is a party or
by which the property of the Company or any of its subsidiaries is bound or
affected, or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets or
properties of the Company or any of its subsidiaries.
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF LAST REFUSAL; CO-SALE
AND DRAG-ALONG PROVISIONS
Section 3.1. Restrictions on Transfer. No Transfers of any Shares
shall be made except in accordance with all applicable provisions of the
Securities Act and any relevant state securities law. In addition, each
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Stockholder agrees that he, she or it will not, without the prior written
consent of the holders of a majority of the issued and outstanding shares of
Common Stock and Preferred Stock, voting as a single class on an as converted
basis, Transfer all or any portion of the Shares now owned or hereafter acquired
by it or him, except in connection with, and strictly in compliance with the
conditions of, any of the following:
(a) Transfers effected pursuant to Sections 3.2 and
3.3 and 3.4, in each case made in accordance with the procedures set
forth therein;
(b) Any Transfers by a Stockholder to his or her
spouse or children or to a trust of which he is the settlor and a
trustee for the benefit of his or her spouse or children, provided that
any such trust does not require or permit distribution of such Shares
during the term of this Agreement, and provided further that the
Transferee shall have executed and delivered a Joinder Agreement in the
form attached hereto as Exhibit A;
(c) Transfers upon the death of any Stockholder to
his or her heirs, executors or administrators or to a trust under his
or her will or Transfers between such Stockholder and his or her
guardian or conservator, provided that the Transferee shall have
executed and delivered a Joinder Agreement in the form attached hereto
as Exhibit A;
(d) Transfers pursuant to a public offering of the
Company's Common Stock registered under the Securities Act effected in
accordance with the terms of the Registration Rights Agreement;
(e) With respect to any of the Investors, a Transfer
to any other Investor or to a partner or Affiliate of such Investor
(other than the Company) or to any other investment fund or other
entity for which such Investor and/or one or more partners thereof,
directly or indirectly through one or more intermediaries, serve as
general partner or manager or in a like capacity, provided that the
Transferee shall have executed and delivered a Joinder Agreement in the
form attached hereto as Exhibit A; and
(f) In the event that Toronto Dominion Capital
(U.S.A.), Inc. ("Toronto Dominion"), EOS Partners SBIC, L.P. ("EOS") or
BancBoston Ventures Inc. ("BancBoston") reasonably determines that it
has a Regulatory Problem (as defined below), each of Toronto Dominion,
EOS and BancBoston shall have the right to (i) Transfer its Shares to a
non-Affiliate of the Company and the other Stockholders, provided that
the transferee shall have executed and delivered a Joinder Agreement in
the form attached hereto as Exhibit A, or (ii) exchange their Shares
for non-voting securities in the Company with the same economic rights,
and the Company shall take
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all such actions as are reasonably requested by Toronto Dominion, EOS
and BancBoston in order to (a) effectuate and facilitate any such
Transfer or (b) permit Toronto Dominion, EOS and/or BancBoston, as the
case may be, to exchange for all or any portion of their Shares on a
share-for-share basis for shares of non-voting securities of the
Company, which non-voting securities shall be identical in all respects
to the Shares exchanged for it, except that such exchanged securities
shall be non-voting and shall be convertible into voting securities on
such terms as are reasonably requested by Toronto Dominion, EOS and/or
BancBoston, as the case may be, in light of regulatory considerations
then prevailing and do not alter the economic interests of the parties
hereto. For purposes of this Agreement, a "Regulatory Problem" means
any set of facts or circumstances wherein it has been asserted by any
governmental authority, including by the United States Small Business
Administration (the "SBA"), and any successor agency satisfactory to
the Company performing the functions thereof (or, based on written
advice of counsel satisfactory to the Company, Toronto Dominion, EOS
and/or BancBoston reasonably believes that there is a substantial risk
of such assertion), that, pursuant to the Small Business Act of 1958,
as amended, and the regulations issued by the SBA thereunder, codified
at Title 13 of the Code of Federal Regulations, Parts 107 and 121 (the
"SBIC Regulations"), or pursuant to the Bank Holding Company Act, as
amended, and the regulations issued thereunder, Toronto Dominion, EOS
or BancBoston, as applicable, is not entitled to hold all or a portion
of the Preferred Stock or Common Stock held by it.
Any permitted Transferee described in the preceding clauses
(b), (c), (e) or (f) shall be referred to herein as a "Permitted
Transferee." Anything to the contrary in this Agreement
notwithstanding, Permitted Transferees shall take any Shares so
Transferred subject to all provisions of this Agreement as if such
Shares were still held by the Transferring Stockholder, whether or not
they so agree with the Transferring Stockholder and/or the Company.
Without limitation of the foregoing, in connection with any otherwise
permitted transfer of Shares that are restricted shares subject to any
stock restriction or vesting agreement, any Permitted Transferee of any
such Shares shall agree in writing to be bound by the terms of such
stock restriction, vesting or similar agreement, including, without
limitation, any repurchase or similar right contained therein.
Section 3.2. Right of Last Refusal. In the event that any of the
Stockholders, including any of their Permitted Transferees, receives a bona fide
offer to purchase all or any portion of the Shares held by such Stockholder (a
"Transaction Offer") from a non-Affiliate (the "Offeror") in a transaction not
expressly permitted under Section 3.1, such Stockholder (a "Transferring
Stockholder") may, subject to the provisions of Section 3.3 hereof, Transfer
such Shares pursuant to and in accordance with the following provisions of this
Section 3.2:
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(a) Such Transferring Stockholder shall cause the
Transaction Offer and all of the terms thereof to be reduced to writing
and shall notify each Preferred Investor of its wish to accept the
Transaction Offer and otherwise comply with the provisions of this
Section 3.2 and, if applicable, Section 3.3 (such notice, the "Offer
Notice"). The Transferring Stockholder's Offer Notice shall constitute
an irrevocable offer to sell such shares to the Preferred Investors on
the basis described below at a purchase price equal to the price
contained in, and on the same terms and conditions of, the Transaction
Offer. The notice shall be accompanied by a true copy of the
Transaction Offer (which shall identify the Offeror and all relevant
information in connection therewith).
(b) Each Preferred Investor shall have the right (the
"Right of Last Refusal") to offer to purchase up to that number of
Shares covered by the Transaction Offer as shall be equal to the
product obtained by multiplying (i) the total number of Shares subject
to the Transaction Offer by (ii) a fraction, the numerator of which is
the total number of shares of Common Stock owned by such Preferred
Investor on the date of the Offer Notice on an as converted basis
(including any shares of Common Stock that may be received upon
conversion of the Preferred Stock), and the denominator of which is the
total number of shares of Common Stock then held by all Preferred
Investors (other than the Transferring Stockholder) on the date of the
Offer Notice on an as converted basis, such that Preferred Investors
shall have the right to accept the Transaction Offer with respect to
all or a portion of the shares covered thereby. (The number of Shares
that each Preferred Investor is entitled to purchase under this Section
3.2 shall be referred to as its "Pro Rata Fraction"). In the event that
a Preferred Investor shall elect to purchase all or a part of the
Shares covered by the Transaction Offer (an "Electing Investor"), such
Electing Investor shall individually communicate in writing such
election to purchase to the Transferring Stockholder within thirty (30)
days after receipt of the Offer Notice (which election notice may
specify an amount in excess of such Electing Investor's Pro Rata
Fraction in the event that one or more Preferred Investor(s) desire not
to elect to purchase their Pro Rata Fraction). Such communication shall
be delivered by hand or mailed to such Transferring Stockholder in
accordance with Section 7.5 hereof and shall, when taken in conjunction
with the Transaction Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of the
Shares covered thereby to the extent of the number of Shares, if any,
allocated to such Electing Investor in accordance with the following
paragraph. In the event that one or more Preferred Investor(s) do not
elect to purchase their full Pro Rata Fraction, then any Preferred
Investors who do so elect shall have an additional five (5) days from
the date the Preferred Investors are notified of the election by any
Preferred Investors not to purchase their Pro Rata Fraction to offer to
purchase, on a pro rata basis with any other Preferred Investors who so
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elect, the shares representing any Pro Rata Fraction not purchased by
a Preferred Investor. In the event that the price set forth in the
Offer Notice is stated in consideration other than cash or cash
equivalents, the Board of Directors of the Company may determine the
fair market value of such consideration, reasonably and in good faith,
and the Electing Investors may, at their option, exercise their Right
of Last Refusal by payment of such fair market value in cash or cash
equivalents.
Upon the expiration of thirty (30) days following receipt of
the Offer Notice by all Preferred Investors, the Transferring
Stockholder shall notify all of the Preferred Investors as to how many
of the Shares subject to the Offer Notice have been subscribed for by
the Electing Investors and, after the expiration of the five (5) day
overallotment period thereafter, the number of Shares to be purchased
by each Electing Investor shall be determined as follows: (x) there
shall first be allocated to each Electing Investor a number of Shares
equal to the lesser of (A) the number of Shares as to which such
Electing Investor accepted the Transaction Offer or (B) such Electing
Investor's Pro Rata Fraction, and (y) the balance, if any, not
allocated under clause (x) above, shall be allocated to those Electing
Investors who accepted the Transaction Offer as to a number of Shares
which exceeded their respective Pro Rata Fractions, in each case on a
pro rata basis in proportion to the amount of such excess. The closing
for any purchase of Shares to the Electing Investors hereunder shall
take place within thirty (30) days after the expiration of the first
thirty-day period following the Electing Investors' receipt of the
Offer Notice (and, if applicable, the additional five (5) day
overallotment period) at the place and on the date specified by a
majority-in-interest of the Electing Investors.
(c) In the event that the Preferred Investors do not
elect to exercise, in the aggregate, the Right of Last Refusal with
respect to all of the Shares proposed to be sold, the Transferring
Stockholder may sell all such Shares proposed to be sold to the Offeror
on the terms and conditions set forth in the Offer Notice, subject to
the restrictions set forth in the last paragraph of Section 3.1 and the
further provisions of Section 3.3. If the Transferring Stockholder's
transfer to an Offeror is not consummated in accordance with the terms
of the Transaction Offer within the later of (i) ninety (90) days after
the expiration of the periods for exercise by the Preferred
Stockholders of the Right of Last Refusal and the Co-Sale Option set
forth in Section 3.3 below, if applicable, and (ii) the satisfaction of
all governmental approval or filing requirements, the Transaction Offer
shall be deemed to lapse, and any Transfers of Shares pursuant to such
Transaction Offer shall be deemed to be in violation of the provisions
of this Agreement unless the Preferred Investors are once again
afforded the Right of Last Refusal provided for herein with respect to
such Transaction Offer.
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Section 3.3. Co-Sale Option. In the event that any Transferring
Stockholder receives a Transaction Offer from an Offeror, and the Right of Last
Refusal is not exercised with respect to all of the Shares proposed to be sold,
such Transferring Stockholder may Transfer such Shares only pursuant to and in
accordance with the following provisions of this Section 3.3:
(a) Each of the Investors and the Founding
Stockholders, other than the Transferring Stockholder if it, he or she
is also an Investor or Founding Stockholder, shall have the right,
subject to the provisions of Section 3.3(f) below, to participate in
the Transaction Offer on the terms and conditions herein stated, which
right shall be exercisable upon written notice to the Transferring
Stockholder within the later of (i) thirty (30) days after delivery to
it of the Offer Notice and (ii) ten (10) days after the Transferring
Stockholder notifies the Investors and the Founding Stockholders in
writing that the Preferred Investors have not collectively elected to
exercise the Right of Last Refusal with respect to all of the Shares
proposed to be sold (the "Co-Sale Option").
(b) Each of the Investors and the Founding
Stockholders, other than the Transferring Stockholder if it, he or she
is also an Investor or Founding Stockholder (each such Investor and
Founding Stockholder who elects to participate, a "Selling Investor"),
shall have the right, subject to the provisions of Section 3.3(f)
below, to sell a portion of its Shares pursuant to the Transaction
Offer which is equal to or less than the product obtained by
multiplying (i) the total number of Shares subject to the Transaction
Offer by (ii) a fraction, the numerator of which is the total number of
shares of Common Stock owned by such Selling Investor on the date of
the Offer Notice on an as converted basis (including any shares of
Common Stock that may be received upon conversion of the Preferred
Stock), and the denominator of which is the total number of shares of
Common Stock then held by all Investors, Founding Stockholders and the
Transferring Stockholder on the date of the Offer Notice on an as
converted basis (including any shares of Common Stock that may be
received upon conversion of the Preferred Stock). To the extent one or
more Investors and/or Founding Stockholders elect not to sell, or fail
to exercise their right to sell, the full amount of such Shares which
they are entitled to sell pursuant to this Section 3.3, the other
Investors' and/or Founding Stockholders' rights to sell Shares shall be
increased proportionately and the other Investors and/or Founding
Stockholders shall have an additional five (5) days from the date upon
which they are notified of such election or failure to exercise in
which to increase the number of Shares to be sold by them hereunder.
(c) Within ten (10) days after the date by which the
Investors and the Founding Stockholders were first required to notify
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the Transferring Stockholder of their intent to participate, the
Transferring Stockholder shall notify each Selling Investor of the
number of Shares held by such Selling Investor that will be included
in the sale and the date on which the Transaction Offer will be
consummated, which shall be no later than the later of (i) thirty (30)
days after the date by which the Selling Investors were required to
notify the Transferring Stockholder of their intent to participate and
(ii) the satisfaction of any governmental approval or filing
requirements, if any.
(d) Each of the Selling Investors may effect its
participation in any Transaction Offer hereunder by delivery to the
Offeror, or to the Transferring Stockholder for delivery to the
Offeror, of one or more instruments or certificates, properly endorsed
for transfer, representing the Shares it elects to sell therein. At the
time of consummation of the Transaction Offer, the Offeror shall remit
directly to each Selling Investor that portion of the sale proceeds to
which each Selling Investor is entitled by reason of its participation
therein (less any adjustments due to the conversion of any convertible
securities or the exercise of any exercisable securities).
(e) In the event that the Transaction Offer is not
consummated within the period required by subsection (c) hereof or the
Offeror fails to timely remit to each Selling Investor its portion of
the sale proceeds, the Transaction Offer shall be deemed to lapse, and
any Transfers of Shares pursuant to such Transaction Offer shall be
deemed to be in violation of the provisions of this Agreement unless
the Transferring Stockholder once again complies with the provisions of
Section 3.2 and this Section 3.3 hereof with respect to such
Transaction Offer.
(f) To the extent that any Investor or Founding
Stockholder holds Shares ("Junior Shares") which are junior or inferior
in terms of rights to the Shares subject to purchase under such
Transaction Offer (e.g., the Common Stock is junior to the Series A
Preferred Stock and the Series A Preferred Stock is junior to the
Series B Preferred Stock), the right of such Investor or Founding
Stockholder to participate in a Transaction Offer and to sell a portion
of its Shares pursuant to such Transaction Offer shall be conditioned
upon either (i) the consent of the Offeror to purchase such Junior
Shares on the same terms and conditions (including price) stated in the
Transaction Offer or (ii) the willingness of the Offeror to purchase
such Junior Shares on such other terms and conditions as may be
acceptable to such Investor or Founding Stockholder, as the case may
be, provided that in either case such consent or agreement is obtained
within the specified time period set forth in subsection (c) hereof.
Nothing herein shall be construed to impose any "good faith" or other
obligation on the Offeror (or any Transferring Stockholder or Selling
Investor) to grant such consent or negotiate such agreement.
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Section 3.4. Drag-Along Obligations.
(a) In the event that Investors holding both (i) the
applicable percentage of the issued and outstanding shares of Common
Stock (treating for such purposes each share of issued and outstanding
Preferred Stock as the number of issued and outstanding Conversion
Shares into which such Preferred Stock may be converted) specified
below and (ii) sixty-six and two-thirds percent (662/3%) of the issued
and outstanding shares of Preferred Stock determine (A) to sell or
otherwise dispose of all or substantially all of the assets of the
Company, or Shares representing a majority of the Common Stock on a
fully-diluted, as converted basis, to any non-Affiliate(s) of the
Company or any of the Investors, or (B) to cause the Company to merge
with or into or consolidate with any non-Affiliate(s) of the Company or
any of the Investors (in each case, the "Buyer") in a bona fide
negotiated transaction (a "Sale"), each of the Stockholders, including
any of their respective Permitted Transferees, shall be obligated to
and shall upon the written request of Investors holding both (x) the
applicable percentage of the issued and outstanding Shares of Common
Stock (treating for such purposes each share of issued and outstanding
Preferred Stock as the number of issued and outstanding Conversion
Shares into which such Preferred Stock may be converted) specified
below and (y) sixty-six and two-thirds percent (662/3%) of the issued
and outstanding shares of Preferred Stock: (I) sell, transfer and
deliver, or cause to be sold, transferred and delivered, to the Buyer,
his, her or its Shares (including for this purpose all of such
Stockholder's Shares that presently or as a result of any such
transaction may be acquired upon the exercise of options (following the
payment of the exercise price therefore)) on substantially the same
terms applicable to the Investors (with appropriate adjustments to
reflect the conversion of convertible securities, the redemption of
redeemable securities and the exercise of exercisable securities as
well as the relative preferences and priorities of the Preferred
Stock); and (II) execute and deliver such instruments of conveyance and
transfer and take such other action, including voting such Shares in
favor of any Sale proposed by the Investors and executing any purchase
agreements, merger agreements, indemnity agreements, escrow agreements
or related documents, as the Investors or the Buyer may reasonably
require in order to carry out the terms and provisions of this Section
3.4.
For purposes of this Section 3.4(a), the applicable percentage
of the Shares of the issued and outstanding Common Stock (treating for
such purposes each share of issued and outstanding Preferred Stock as
the number of issued and outstanding Conversion Shares into which such
Preferred Stock may be converted) shall mean the following percent for
the following periods:
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Period Percent
October 1, 1998 through December 31, 1998 54.0%
January 1, 1999 through March 31, 1999 52.5%
April 1, 1999 and thereafter 51.0%
(b) In the event of a Sale to a Buyer as contemplated
in Section 3.4(a) above, each of the Founding Stockholders shall, in
the event that the Investors do not exercise their "drag-along" rights
in Section 3.4(a) above, have the right to require the Investors to
include such Founding Stockholder's Shares in the Sale on the same
terms and conditions, including price and type, as the Investors'
Shares, which such right shall be exercisable by the delivery of
written notice to the Company and each of the Investors at least
fifteen (15) days prior to the date proposed for the closing of the
Sale.
(c) Not less than thirty (30) days prior to the date
proposed for the closing of any Sale, the Investors shall give written
notice to each Founding Stockholder, setting forth in reasonable detail
the name or names of the Buyer, the terms and conditions of the Sale,
including the purchase price, and the proposed closing date. In
furtherance of the provisions of this Section 3.4, each of the Founding
Stockholders hereby (i) irrevocably appoints BEDCO (as defined below)
as its agent and attorney-in-fact (the "Agent") (which such appointment
shall be deemed coupled with an interest and irrevocable and have full
power of substitution) to execute all agreements, instruments and
certificates and take all actions necessary or desirable to effectuate
any Sale hereunder, and (ii) grants to the Agent a proxy (which shall
be deemed to be coupled with an interest and irrevocable) to vote the
Shares held by such Stockholder and exercise any consent rights
applicable thereto in favor of any Sale hereunder; provided, however,
that the Agent shall not exercise such powers-of-attorney or proxies
with respect to any Stockholder unless such Stockholders are in breach
of their obligations under this Section 3.4.
(d) Each Stockholder participating in the Sale
pursuant to the "drag-along" rights in Section 3.4(a) shall deliver to
the Buyer at a closing to be held at the offices of the Company (or
such other place as the parties agree), one or more certificates,
properly endorsed for transfer, representing all the Shares (including
vested options) owned by such Stockholder, and each such Stockholder
shall make such representations and warranties, and shall enter into
such agreements, as are customary and reasonable in the context of the
Sale, including, without limitation, representations and warranties
(and indemnities with respect thereto) that the Buyer (or interests
therein) is receiving good and marketable title to such Shares (or
interests therein), free and clear of all pledges, security interests
or other liens. In addition, the Stockholders shall reasonably
cooperate and consult with each other in order to effect the Sale
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described in this Section 3.4, including the determination of the
appropriate scope of, or limitations or exceptions to, representations
and warranties to be made in connection with such Sale and the
preparation of disclosure schedules with respect thereto.
Section 3.5 Contemporaneous Transfers. If two or more Stockholders
propose concurrent transfers which are subject to this Article III, then the
relevant provisions of Sections 3.2 and 3.3 shall apply separately to each such
proposed transfer.
Section 3.6 Prohibited Transfers. If any Transfer is made or attempted
contrary to the provisions of this Agreement, such purported Transfer shall be
void ab initio; the Company, the Investors and the other Stockholders shall
have, in addition to any other legal or equitable remedies which they may have,
the right to enforce the provisions of this Agreement by actions for specific
performance (to the extent permitted by law); and the Company shall have the
right to refuse to recognize any Transferee as one of its stockholders for any
purpose. Without limitation of the foregoing, each of the Investors and
Stockholders further agrees that the provisions of Section 7.9 shall apply in
the event of any violation or threatened violation of this Agreement.
Section 3.7 Exchange of Voting Securities for Non-Voting Securities
for Bank Holding Company Act Purposes.
(a) As long as any Shares of Class B Common Stock are
outstanding, before the Company redeems, purchases or otherwise
acquires, directly or indirectly, or converts or takes any action with
respect to the voting rights of, any shares of any class of its capital
stock or any securities convertible into or exchangeable for any shares
of any class of its capital stock (other than (i) a conversion of Class
B Common Stock into Class A Common Stock, (ii) a conversion of shares
of Preferred Stock into shares of Common Stock, (iii) a conversion of
shares of Series A Preferred Stock into shares of Diluted Series A
Preferred Stock, (iv) a conversion of shares of Series B Preferred
Stock into shares of Diluted Series B Preferred Stock, and (v) a
conversion of shares of Series B Preferred Stock into shares of
Redeemable Preferred Stock and Common Stock), the Company shall give
written notice of such pending action to each holder of shares of Class
B Common Stock. Upon the written request of any such holder made within
ten (10) days after its receipt of any such notice, stating that after
giving effect to such action such holder would have a Regulatory
Problem, the Company shall defer taking such action for such period
(not to extend beyond thirty (30) days after such holder's receipt of
the Company's original notice) as such holder reasonably requests to
permit it and its Affiliates to reduce the quantity of the Company's
voting securities they own in order to avoid the Regulatory Problem.
For purposes of this Section 3.7 only, a "Regulatory Problem" (as
defined in Section 3.1(f)) shall not include prohibitions arising under
the SBIC Regulations.
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(b) At the request of Toronto Dominion or any of its
affiliates at any time (whether in connection with any action by the
Company referred to in subparagraph (a) above or otherwise), the
Company shall exchange with such Investor for such number of shares of
Class A Common Stock then held by such Investor as it designates a like
number of Shares of Class B Common Stock. In the event of any such
exchange of Shares of Class B Common Stock for Shares of Class A Common
Stock, the holders of such Shares of Class B Common Stock shall be
entitled to all the rights which such holders had pursuant to this
Agreement, the Stock Purchase Agreement and the Registration Rights
Agreement as holders of Class A Common Stock (including, without
limitation, the right to have such shares treated as "Class B Common
Stock" and as shares that may be converted into "Registrable
Securities," as applicable).
ARTICLE IV RIGHTS TO PARTICIPATE IN FUTURE ISSUANCES
The Company hereby covenants and agrees that it will not sell or issue
any shares of capital stock of the Company, or other securities convertible into
or exchangeable for capital stock of the Company, or options, warrants or rights
carrying any rights to purchase capital stock of the Company (the "Additional
Equity Securities"), other than Excluded Offerings (as defined below), unless
the Company first notifies the Investors of the proposed issuance of Additional
Equity Securities and submits an offer to the Investors identifying the terms of
the proposed sale (including price, number or aggregate principal amount of
securities and all other material terms), and offers to each Investor the
opportunity to purchase its pro rata share of such Additional Equity Securities.
Each Investor's pro rata share of any such Additional Equity Securities shall be
based upon the ratios which the shares of Common Stock held by such Investor
(determined on an as converted basis after giving effect to the conversion of
any Preferred Stock) bears to all of the Shares of the Company determined on a
fully-diluted, as converted basis. For purposes of this Article IV, "Excluded
Offerings" shall consist of (i) issuances made in connection with an acquisition
of a non-Affiliate of the Company (whether by acquisition of assets or capital
stock, merger or consolidation) or a joint venture or strategic alliance with a
non-Affiliate of the Company, (ii) issuances made to officers, directors,
employees, consultants or agents of the Company pursuant to the Company's 1995
Stock Option Plan, the Company's 1996 Stock Option Plan the Company's Amended
and Restated 1998 Stock Option Plan or other compensation plans which have been
adopted and approved by the Compensation Committee of the Board of Directors
(collectively, the "Plans"), (iii) Conversion Shares issued upon the conversion
of the Preferred Stock, (iv) capital stock issued upon the exercise, conversion
or exchange of Additional Equity Securities that were previously sold in
compliance with the terms of this Article IV, (v) shares issued in connection
with a duly authorized stock split, stock dividend or recapitalization, (vi)
shares of Redeemable Preferred Stock issued in accordance with the Charter, and
(vii) Additional Series B Preferred Shares issued to any Additional Investors
under the Purchase Agreement.
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The Company's offer to the Investors shall be irrevocable and remain
open for a period of thirty (30) days. Each Investor electing to purchase any
Additional Equity Securities shall provide a written notice to the Company
within such period indicating the amount it elects to purchase (which notice may
specify an amount in excess of such Investors pro rata share of the Additional
Equity Securities in the event that other Investors do not elect to purchase
their full pro rata share). Any Additional Equity Securities so offered to the
Investors and which are not purchased pursuant to such offer shall be sold to
the Investors which have elected to purchase in excess of their pro rata share
based upon their relative excess purchase indications and, if any Additional
Equity Securities remain unpurchased, may be sold by the Company to any other
Person on terms and conditions, including price, not more favorable to such
Person than those set forth in such offer within ninety (90) days of the date of
such offer. In the event that the Company has not sold the Additional Equity
Securities within such ninety-day period, the Company shall not thereafter issue
or sell such Additional Equity Securities without first complying with the terms
of this Article IV. For purposes of this Article IV, the purchase of Series B
Preferred Shares by Westbury Equity Partners, L.P. pursuant to the Purchase
Agreement shall be deemed to be a purchase by Westbury Capital Partners, L.P. of
its pro rata share of such Series B Preferred Stock.
ARTICLE V ELECTION OF DIRECTORS
Section 5.1. Board Composition. The number of directors of the Company
shall be as set forth in the By-laws of the Company, and the Stockholders agree
to vote all of their respective shares, and to take such other actions as are
necessary, so as to fix the number of directors at no more than nine (9)
directors initially, subject to increase to ten (10) directors as provided
herein. The Stockholders agree to vote their respective shares as follows:
The Preferred Investors shall vote as a class to elect
two directors as follows:
(i) one (1) individual nominated by
BancBoston Ventures Inc. ("BancBoston"), who shall
initially be, and is duly elected hereby, Sanford
Anstey (the "BancBoston Nominee"), and hereafter such
individual as shall be designated by BancBoston; and
(ii) one (1) individual nominated by GCC
Investments, Inc. ("GCC"), who shall initially be,
and is duly elected hereby, Michael A. Greeley (the
"GCC Nominee"), and hereafter such individual as
shall be designated by GCC.
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(b) The Stockholders, including the Preferred Investors, shall
vote together as one class to elect the remaining six (6) of the
directors, as follows:
(i) one (1) individual who shall be the duly elected
Chief Executive Officer of the Company (the "CEO"), who shall
initially be John Sarto;
(ii) two (2) individuals, neither of whom shall be an
Affiliate of any of the Preferred Stockholders, who shall be
nominated by the CEO and reasonably acceptable to a majority
of the members of the Board of Directors;
(iii) one (1) individual nominated by Burr, Egan,
Deleage & Co., and its Affiliates ("BEDCO"), who shall
initially be Robert F. Benbow;
(iv) one (1) individual nominated by EOS
Partners, L.P., SBIC, who shall initially be Marc H. Michel;
(v) one (1) individual nominated by Toronto Dominion
Capital (U.S.A.), Inc. ("Toronto Dominion"), who shall
initially be Brian A. Rich; and
(vi) one (1) individual nominated by Kingdon
Associates, L.P., and its Affiliates, who shall initially be
Michael Markbrieter.
(c) In the event that the Board of Directors determine that a
nominee of an Additional Investor (the "Additional Investor Nominee") should be
added as an additional Director to the Board of Directors in connection with the
Second Closing, the Stockholders hereby agree that the Board of Directors shall
thereupon be increased to ten (10) or, in the event that a Director resigns in
connection with or prior to the Second Closing, the Stockholders may, not
withstanding the provisions of Section 5.4 hereof, fill such vacancy with the
Additional Investor Nominee and agree to vote their respective Shares for such
Additional Director or replacement Director, as the case may be, in favor of the
Additional Investor Nominee or such successor or replacement individual as shall
be designated from time to time by such Additional Investor.
Additionally, the parties hereby acknowledge and agree that the
composition of the Board of Directors may be amended in connection with the
Second Closing.
Section 5.2. Compensation Committee; Audit Committee. The Company and
each of the Stockholders further agrees to cause the Board of Directors to
maintain the Compensation Committee of the Board of Directors which shall
continue to have exclusive authority over all compensation and employment
matters and the administration of the Plans; provided, however, that the
Compensation Committee may delegate standing authority to the Chief Executive
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Officer of the Company to issue stock options and other compensation to
consultants who are not Affiliates of either the Company or any of the
Stockholders on terms set forth in such delegation. The Compensation Committee
shall consist of no more than three (3) persons. The Company and each of the
Stockholders further agrees to cause the Board of Directors to maintain the
Audit Committee of the Board of Directors which shall continue to be charged
with, among other matters, reviewing the Company's financial statements and
accounting practices and which shall consist of no more than two (2) persons,
each of whom shall be non-management members of the Board of Directors. Except
as expressly set forth herein, the Company and each of the Stockholders hereby
further agrees to cause the Board of Directors not to create any other committee
thereof and not, except as set forth above, to delegate any other action or
authority to any existing committee thereof.
Section 5.3. Removal. Each Stockholder agrees to vote all of its shares
of the Company's capital stock having voting power (and any other shares over
which she or it exercises voting control) for the removal of any director upon
the request of the stockholder or group designating such director and for the
election to the Board of Directors of a substitute designated by such party in
accordance with the provisions of Section 5.1 hereof.
Section 5.4. Vacancies. Each Stockholder agrees to vote all shares of
the Company's capital stock having voting power (and any other shares over which
she or it exercises voting control) in such manner as shall be necessary or
appropriate to ensure that any vacancy on the Board of Directors of the Company
(occurring for any reason) shall be filled only in accordance with the
provisions of this Article V. In addition, if any Investor which is entitled to
nominate a member of the Board of Directors pursuant to the terms of Section 5.1
fails to do so within ninety (90) days after receipt of written notice from the
Company that such directorship becomes vacant, then the holders of a majority of
the issued and outstanding Common Stock (treating for such purposes each share
of issued and outstanding Preferred Stock as the number of issued and
outstanding Conversion Shares into which such Preferred Stock may be converted)
shall nominate such director (a "Replacement Director") and the Replacement
Director shall serve as a member of the Board of Directors until such Investor
exercises its rights under Section 5.1 to nominate a director, in which event
the Replacement Director shall be removed.
Section 5.5. Increase in Size of Board. Any increase in the size of
the Board of Directors shall require an amendment to this Agreement.
Section 5.6. Assignment. Each Stockholder agrees, as a condition to any
Transfer of its Shares, to cause the Transferee to agree to the provisions of
this Article V, whereupon such Transferee shall be subject to the provisions
hereof as a Preferred Investor or Stockholder, as applicable, in connection with
its ownership of the Shares Transferred for purposes of this Article V.
Notwithstanding any provision herein, Toronto Dominion shall not have the right
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to transfer to any third party its right to nominate a Director under this
Section 5.1(b) without the affirmative vote of a majority of the members of the
Board of Directors (other than any directors nominated by, or representing,
Toronto Dominion), if such transfer is made in connection with a transfer by
Toronto Dominion of its Shares under Section 3.1(f) hereof.
Section 5.7. No Waiver. Any failure by any of the parties hereto to
fully exercise their rights to designate one or more directors under this
Article V at any time shall not be construed to waive or limit their rights to
designate such director(s) hereunder at any time thereafter.
Section 5.8. Board of Directors of Subsidiary. Each of the Stockholders
agrees, with respect to the composition, election, removal and other
considerations with respect to the Board of Directors of each of the Company's
subsidiaries, Teletrac, Inc. and Teletrac License, Inc., to cause the Company to
vote, and the Company hereby agrees to vote, its shares of capital stock of each
such subsidiary in a manner consistent with and identical to the provisions set
forth above in this Article V.
Section 5.9. Expenses. The Company hereby agrees to reimburse each
member of the Board of Directors for his or her reasonable and documented travel
and other out-of-pocket expenses (to the extent consistent with the Company's
policies related thereto, which do provide for reimbursement of directors'
travel expenses and which have been delivered to the Investors prior to the date
hereof) incurred in connection with matters relating to such director's
attendance at meetings of the Board of Directors or performing such other
business on behalf of the Company.
Section 5.10. Observer Rights. For so long as any Investor and its
Affiliates (i) owns at least five percent (5%) of the issued and outstanding
Common Stock of the Company (treating for such purposes each share of issued and
outstanding Preferred Stock as the number of issued and outstanding Conversion
Shares into which such Preferred Stock may be converted) and (ii) does not have
a representative serving on the Board of Directors pursuant to Section 5.1
hereof, such Investor (or an Affiliate thereof) and James A. Queen shall be
entitled to notice of and to have one representative (an "Observer") attend, at
its own expense, meetings of the Board of Directors or any of its committees;
provided, however, that any such Observer (a) shall not be entitled to
participate in the discussions, deliberations or voting of the Board of
Directors or such committees and (b) shall be excluded from any meetings or
deliberations if the Board of Directors reasonably determines that the inclusion
of such Observer might compromise or waive the attorney-client privilege for any
material matters discussed therein.
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ARTICLE VI RESTRICTIONS AND LIMITATIONS
Section 6.1. Combined Voting. The Company shall not, without the
affirmative vote or written consent of the holders of a majority of the issued
and outstanding shares of Common Stock and Preferred Stock, voting as a single
class on an as converted basis (or the affirmative vote or written consent of
such greater percentage as provided below):
(a) Authorize any merger or consolidation of the
Company with or into any other corporation, partnership or entity (with
respect to which less than a majority of the outstanding voting power
of such surviving corporation is held by stockholders of the Company
immediately prior to such event) or permit the sale of all or any
material portion of the capital stock or assets of the Company (other
than sales in the ordinary course of business and consistent with past
practices);
(b) Authorize or issue, or obligate itself to issue,
any shares of Common Stock (other than pursuant to the exercise of
stock options or other rights granted under the Plans or upon
conversion of the Preferred Stock);
(c) Incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any new or additional
indebtedness or liability (other than up to $30 million in connection
with the Company's revolving credit facilities with Banque Paribas and
Fleet National Bank);
(d) Authorize or issue, or obligate itself to issue,
any equity securities at an effective per share price which is less
than $173.25 (which price shall be appropriately adjusted for stock
splits, stock dividends, recapitalizations and the like), without the
affirmative vote or written consent of holders of sixty-six and
two-thirds percent (662/3%) of the issued and outstanding shares of
Common Stock and Preferred Stock, voting as a single class on an as
converted basis, other than the issuance of any Additional Series B
Preferred Shares under the Purchase Agreement;
(e) Authorize any acquisition, merger or
consolidation of assets or stock of another corporation, partnership or
entity in exchange for shares of equity securities of the Company which
results in dilution to the existing Stockholders, on a fully diluted,
as converted basis, in excess of fifteen percent (15%) without the vote
or affirmative written consent of holders of sixty-six and two-thirds
percent (662/3%) of the issued and outstanding shares of Common Stock
and Preferred Stock, voting as a single class on an as converted basis;
(f) Authorize or issue a class or series of stock
having rights equal or senior to the Class B Preferred Stock, or a new
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class or series of Preferred Stock without the vote or affirmative
written consent of holders of sixty-six and two-thirds percent
(66 2/3%) of the issued and outstanding shares of Common Stock and
Preferred Stock, voting as a single class on an as converted basis,
other than the issuance of any Additional Series B Preferred Shares
under the Purchase Agreement; and
(g) Authorize or permit the reorganization,
liquidation, dissolution or winding up of the Company, without the vote
or affirmative written consent of holders of sixty-six and two-thirds
percent (662/3%) of the issued and outstanding shares of Common Stock
and Preferred Stock, voting as a single class on an as converted basis;
Section 6.2. Voting as a Separate Class. The Series B Preferred
Investors shall vote as a separate class, and the affirmative vote of the
holders of a majority of the outstanding shares of Series B Preferred Stock
shall be required for the Company to:
(a) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose) any
shares of Common Stock or of any other class of capital stock of the
Company or any of the Company's outstanding options, warrants or
convertible or exchangeable securities, except for repurchases of
shares of Common Stock at cost by the Company under employee stock
plans and programs approved by the Board of Directors;
(b) Enter into any transaction or agreement with: any
officer, director or shareholder of the Company or any wholly- or
partially-owned subsidiary of the Company, or any entity that controls,
is controlled by or under common control with the Company, except for
any transaction or agreement on terms no less favorable to the Company
than would be available in a bona fide arm's length transaction with a
non-affiliated person or entity and which has been approved by the
disinterested members of the Audit Committee of the Board of Directors
of the Company;
(c) Amend the charter documents of the Company so as
to adversely affect the rights of the Series B Preferred Investors with
respect to dividends, liquidation preferences, redemption or any other
preference, power, right or privilege; and
(d) Increase or decrease (other than by conversion as
permitted hereby) the total number of authorized shares of Preferred
Stock.
ARTICLE VII MISCELLANEOUS PROVISIONS
Section 7.1. Survival of Representations and Covenants. Each of the
parties hereto agrees that each representation, warranty, covenant and agreement
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made by each of them in this Agreement or in any certificate, instrument or
other document delivered pursuant to this Agreement is material, shall be deemed
to have been relied upon by the other parties and shall remain operative and in
full force and effect after the date hereof regardless of any investigation.
This Agreement shall not be construed so as to confer any right or benefit upon
any Person other than the parties hereto and their respective successors and
permitted assigns to the extent contemplated herein.
Section 7.2. Term. This Agreement and the provisions herein contained
shall remain in effect until the earlier of: (i) the closing of both a Qualified
Series A Public Offering and a Qualified Series B Public Offering, or the
closing of a public offering which constitutes both a Qualified Series A Public
Offering and a Qualified Series B Public Offering; (ii) a sale of the Company;
or (iii) the affirmative vote or written consent of the holders of sixty-six and
two-thirds percent (662/3%) of each of the Common Stock and the Preferred Stock.
Section 7.3. Legend on Securities. The Company, the Preferred Investors
and the Stockholders acknowledge and agree that the following legend shall be
typed on each certificate evidencing any of the securities held at any time by
any of the Stockholders or their Permitted Transferees:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. THESE
SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS OF A CERTAIN AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT, DATED AS OF OCTOBER 20, 1998, INCLUDING CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A COMPLETE AND CORRECT COPY OF SUCH
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND
WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Section 7.4. Amendment and Waiver. Any party may waive any provision
hereof intended for its benefit in writing. No failure or delay on the part of
any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to any party hereto at
law or in equity or otherwise. This Agreement may be amended with the prior
written consent of the Company and the holders of sixty-six and two-thirds
percent (662/3%) of each of the Common Stock and the Preferred Stock; provided,
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however, that any amendment which directly, materially and adversely affects any
right specifically granted to a particular Investor or Stockholder in a manner
different than the other Investors or Stockholders shall not be effective unless
such Person has consented to that amendment. All actions by the Company
hereunder shall be taken by or upon the direction of a majority of the directors
designated, from time to time, pursuant to Article V hereof.
Section 7.5. Notices. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by telex or
facsimile, registered or certified mail (return receipt requested) postage
prepaid, or by courier guaranteeing next day delivery, in each case to the party
to whom it is directed at the address set forth opposite each party's name on
the signature page hereto (or at such other address for any party as shall be
specified by notice given in accordance with the provisions hereof), provided
that notices of a change of address shall be effective only upon receipt
thereof. Notices delivered personally shall be effective on the day so
delivered, notices sent by registered or certified mail shall be effective three
days after mailing, notices sent by telex shall be effective when answered back,
notices sent by facsimile shall be effective when receipt is acknowledged, and
notices sent by courier guaranteeing next day delivery shall be effective on the
earlier of the second business day after timely delivery to the courier or the
day of actual delivery by the courier:
Section 7.6. Acknowledgment. The Stockholders hereby expressly
acknowledge and consent to the Board of Directors taking any action to sell or
otherwise liquidate the Company in furtherance of its obligations under Section
5(c) of the terms of the Preferred Stock contained in the Charter.
Section 7.7. Headings. The Article and Section headings used or
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 7.8. Counterparts. This Agreement may be executed in one or
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 7.9. Remedies; Severability. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any Person subject
hereto will result in irreparable injury to the other parties hereto, that the
remedy at law alone will be an inadequate remedy for such breach, and that, in
addition to any other legal or equitable remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law) and the Company may refuse to
recognize any unauthorized Transferee as one of its stockholders for any
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purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
Section 7.10. Entire Agreement. This Agreement, together with the
Purchase Agreement and other agreements specifically contemplated hereby and
thereby, is intended by the parties as a final expression of their agreement and
intended to be complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement and the Purchase Agreement and the other
agreements contemplated hereby and thereby (including the exhibits hereto and
thereto) supersede all prior agreements and understandings between the parties
with respect to such subject matter. In furtherance of the foregoing, the
Company and the Stockholders expressly agree that the Stockholders' Agreement
dated as of December 6, 1996 by and among the Company and the parties identified
therein is hereby terminated and of no further force and effect.
Section 7.11. Adjustments. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of the
Company.
Section 7.12 Certain Provisions Applicable to SBIC and Bank
Stockholders. Sections 3.1(f) and 3.7 hereof contain certain provisions that are
included herein solely for the benefit of certain Stockholders that are or may
become a small business investment company ("SBIC") subject to the SBA or a bank
holding company or bank holding company subsidiary subject to the Bank Holding
Company Act. A Stockholder may not assert any rights or claims with respect to
such provisions arising at any time after it has ceased to be a SBIC or bank
holding company or bank holding company subsidiary, as appropriate.
Section 7.13 Participation of Aliens. In the event that the Board of
Directors determines, after consultation with legal counsel, that the Company's
capital stock ownership structure (including, without limitation, the percentage
of the Company's capital stock held by or for the account of any Alien or
Aliens, as determined in accordance with applicable rules and policies of the
Federal Communications Commission) violates or otherwise is not in compliance
with Section 310(b) of the Communications Act of 1934, as amended (the
"Communications Act"), each of the parties hereto hereby agrees to cooperate in
24
<PAGE>
good faith, and to use their commercially reasonable, good faith efforts (which
may include seeking waivers of compliance with applicable provisions of the
Communications Act, the exchange or conversion of shares of capital stock held
by any parties hereto that are attributable to Aliens into other securities or
the disposition of such shares of capital stock on such terms as are
commercially reasonable and as may be mutually agreed to by the parties hereto),
to obtain regulatory waivers if available, to negotiate and implement such
modifications in the ownership and capital structure of the Company as may be
necessary in order to bring such ownership and capital structure into full
compliance with Section 310(b) of the Communications Act.
Section 7.14. Law Governing. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware
(without giving effect to any choice or conflicts of law principles the effect
of which would cause the application of the domestic substantive laws of any
other jurisdiction). Each party hereby waives trial by jury in any action
relating to this Agreement.
Section 7.15. Successors and Assigns. This Agreement shall be binding
upon the successors and assigns hereto and shall inure to the benefit of such
successors and assigns permitted hereunder, provided that any transfer or
assignment shall have complied in all respects with the provisions of Article
III hereof and provided, further, that each assignee of a Stockholder's shares
shall, as a condition to such consent to assignment, execute a Joinder Agreement
in the form attached hereto as Exhibit A.
[Remainder of Page Intentionally Left Blank]
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Stockholders'
Agreement as a sealed instrument as of the day and year first written above.
ADDRESS: COMPANY:
2323 Grand TELETRAC HOLDINGS, INC., a
Suite 1100 Delaware corporation
Kansas City, MO 64108-2670
Attn: Chairman/CEO By:
Name:
Title:
INVESTORS:
Toronto Dominion Capital TORONTO DOMINION
31 West 52nd Street, 20th Floor CAPITAL (U.S.A.), INC.
New York, NY 10019
Attn: Brian A. Rich By:
Name:
Title:
Kingdon Capital Management Corporation KINGDON ASSOCIATES, L.P.
52 West 57th Street
New York, NY 10019 By: Kingdon Capital Management
Attn: Mark Kingdon Corp., its general partner
By:____________________________
Name:
Title:
26
<PAGE>
52 West 57th Street KINGDON PARTNERS, L.P.
New York, NY 10019
Attn: Mark Kingdon By: Kingdon Capital Management
Corp., its general
partner
By:____________________________
Name:
Title:
52 West 57th Street M. KINGDON OFFSHORE NV
New York, NY 10019
Attn: Mark Kingdon By: Kingdon Capital Management
Corp., its investment
advisor
By:____________________________
Name:
Title:
Burr, Egan, Deleage & Co. ALTA SUBORDINATED DEBT
One Embarcadero Center PARTNERS III, L.P.
Suite 4050
San Francisco, CA 94111 By: Alta Subordinated Debt
Attn: Robert F. Benbow Management III, L.P.
By:________________________
General Partner
Burr, Egan, Deleage & Co. ALTA V LIMITED PARTNERSHIP
One Embarcadero Center
Suite 4050 By: Alta V Management Partners,
San Francisco, CA 94111 L.P.
Attn: Robert F. Benbow
By:_________________________
General Partner
27
<PAGE>
Burr, Egan, Deleage & Co. CUSTOMS HOUSE PARTNERS
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Attn: Robert F. Benbow By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMMUNICATIONS VI, L.P.
One Embarcadero Center
Suite 4050 By: Alta Communications VI
San Francisco, CA 94111 Management Partners, L.P.
Attn: Robert F. Benbow
By:_________________________
General Partner
Burr, Egan, Deleage & Co. ALTA COMM S by S, LLC
One Embarcadero Center
Suite 4050
San Francisco, CA 94111 By:_____________________________
Attn: Robert F. Benbow Member
320 Madison Avenue EOS PARTNERS SBIC, L.P.
22nd Floor
New York, NY 10022 By: EOS SBIC General, L.P.
Attn: Brian Young
By:________________________
Name:
Title:
3 Bala Plaza East TRUEPOSITION, INC.
Suite 502
Bala Cynwyd, PA 19004
Attn: David J. Berkman By:_____________________________
Name:
Title:
28
<PAGE>
100 Federal Street BANCBOSTON VENTURES INC.
Boston, MA 02110
Attn: Lars Swanson
By:_____________________________
Name:
Title:
45 Underhill Boulevard NORTHWOOD VENTURES
Suite 205
Syosset, NY 11791-3419
Attn: Henry T. Wilson
By:_____________________________
Name:
Title:
1300 Boylston Street CHESTNUT HILL WIRELESS, INC.
Chestnut Hill, MA 02167
Attn: Michael A. Greeley
By:_____________________________
Name:
Title:
1400 Old Country Road, Suite 313 WESTBURY EQUITY PARTNERS, L.P.
Westbury, NY 11590
Attn: Richard Sicoli By: J.P. Fogg Co.
By:_____________________
Name:
Title:
29
<PAGE>
Old City Hall BOSTON CAPITAL VENTURES
Boston, MA 02108-3204
Attn: Suresh Shanmugham
By:_____________________________
Name:
Title:
1701 SE Columbia River Drive HIGH POINT KELLER
Suite 100 LIMITED PARTNERSHIP
Vancouver, Washington 98661
Attn: Richard B. Keller II By: High Point Management, Inc.,
its general partner
By:_________________________
Name:
Title:
1701 SE Columbia River Drive
Suite 100
Vancouver, Washington 98661
Attn: R. B. Keller
R. B. Keller
1701 SE Columbia River Drive
Suite 100
Vancouver, Washington 98661
Attn: Richard B. Keller II
Richard B. Keller II
FOUNDING STOCKHOLDERS:
c/o Teletrac Holdings, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
James A. Queen
30
<PAGE>
c/o Teletrac Holdings, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
Steven D. Scheiwe
c/o Teletrac Holdings, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670 ________________________________
Lawrence P. Jennings
16 Marigold Road ________________________________
Yau Yat Chuen Mrs. T.N. Markbreiter
Kowloon
Hong Kong
95 Kenney Avenue ________________________________
Rockville Centre, NY 11570 Simon Brenner
c/o Kirkland & Ellis K&E PARTNERS II
200 East Randolph Drive
Chicago, IL 60601
By:_____________________________
Partner
45 Rockefeller Plaza REBOUL, MACMURRAY, HEWITT,
New York, NY 10011 MAYNARD & KRISTOL
Attn: Robert A. Schwed, Esq.
By:_____________________________
Partner
31
<PAGE>
EXHIBIT A
Form of Joinder Agreement
The undersigned hereby agrees, effective as of the date hereof, to
become a party to that certain Stockholders' Agreement (the "Agreement") dated
as of December __, 1996 by and among Teletrac, Inc. (the "Company") and the
parties named therein and for all purposes of the Agreement, the undersigned
shall be included within the term ["Management Stockholder"], ["Common
Investor"], ["Preferred Investor"] and "Stockholder" (each as defined in the
Agreement). As of the date hereof the undersigned makes each of the
representations and warranties set forth in Section 2.1 of the Agreement. The
address and facsimile number to which notices may be sent to the undersigned is
as follows:
- - ---------------------------------------------------------------------------
Facsimile No.____________________.
------------------------------
[NAME OF UNDERSIGNED]
32
<PAGE>
EXHIBIT B
Charter
33
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
Initial Management Investors Investors in Common Stock Series A Preferred Investors Series B Preferred Investors
("Founding Stockholders") ("Common Investors") ("Preferred Investors") ("Preferred Investors")
<S> <C> <C> <C>
Name Name Name Name
</TABLE>
34
<PAGE>
Exhibit Index
27.1 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,918,878
<SECURITIES> 0
<RECEIVABLES> 5,462,481
<ALLOWANCES> 484,402
<INVENTORY> 13,397,445
<CURRENT-ASSETS> 28,020,946
<PP&E> 42,744,090
<DEPRECIATION> 7,215,911
<TOTAL-ASSETS> 95,840,725
<CURRENT-LIABILITIES> 7,767,306
<BONDS> 101,202,624
42,002,500
0
<COMMON> 2,490
<OTHER-SE> 20,060,110
<TOTAL-LIABILITY-AND-EQUITY> 95,840,725
<SALES> 7,453,484
<TOTAL-REVENUES> 20,744,583
<CGS> 5,959,283
<TOTAL-COSTS> 31,176,517
<OTHER-EXPENSES> 12,096,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,783,664
<INCOME-PRETAX> (30,863,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,863,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,863,245)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
