<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MENTUS MEDIA CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7319 41-1670450
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
9531 WEST 78TH STREET
SUITE 400
MINNEAPOLIS, MINNESOTA 55344
(612) 944-7944
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
THOMAS M. PUGLIESE
CHIEF EXECUTIVE OFFICER
MENTUS MEDIA CORP.
9531 WEST 78TH STREET
SUITE 400
MINNEAPOLIS, MINNESOTA 55344
(612) 944-7944
(Name, address, including zip code and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
ROBERT L. WINIKOFF, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 688-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Series B 12% Senior Secured PIK Notes
due 2003........................... $45,000,000 100% $45,000,000 $13,275.00(1)
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 2, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
PROSPECTUS
OFFER TO EXCHANGE
SERIES B 12% SENIOR SECURED PIK NOTES DUE 2003
FOR ALL OUTSTANDING SERIES A 12% SENIOR SECURED PIK NOTES DUE 2003
OF
MENTUS MEDIA CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998 UNLESS EXTENDED.
Mentus Media Corp., a Delaware corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its Series
B 12% Senior Secured PIK Notes due 2003 (the "Series B Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus is a part, for
each $1,000 principal amount of its outstanding Series A 12% Senior Secured PIK
Notes due 2003 (the "Series A Notes"), of which $45,000,000 in aggregate
principal amount are outstanding on the date hereof. The form and terms of the
Series B Notes are the same as the form and terms of the Series A Notes except
that (i) the Series B Notes will bear a "Series B" designation, (ii) the Series
B Notes will have been registered under the Securities Act and, therefore, will
not bear legends restricting their transfer, and (iii) the holders of Series B
Notes will not be entitled to certain rights of holders of Series A Notes under
the Registration Rights Agreement (as defined), including the provisions
providing for an increase in the interest rate on the Series A Notes in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer." The Series B Notes will
evidence the same debt as the Series A Notes (which they replace) and will be
entitled to the benefits of the Indenture (as defined). See "Descriptions of
Notes."
The Series B Notes will mature on February 1, 2003. Interest on the Series B
Notes will be payable semi-annually in arrears on February 1 and August 1 of
each year, commencing August 1, 1998. Interest on the Series B Notes is payable
either in cash or in additional Series B Notes, at the option of Company, until
August 1, 2000, and thereafter is payable in cash. The Company may not redeem
the Series B Notes prior to February 1, 2000. On and after such date, the
Company may redeem the Series B Notes, in whole or in part, at the redemption
prices set forth herein, together with the accrued and unpaid interest, if any,
to the date of redemption. The Series B Notes will not be subject to any sinking
fund requirement. Upon the occurrence of a Change of Control (as defined), the
Company will be required to make an offer to repurchase the Series B Notes at a
price equal to 101% of the principal amount thereof, plus accrued unpaid
interest thereon until the date of repurchase. See "Description of
Notes"--Optional Redemption" and "--Change of Control."
The Series B Notes will be senior obligations of the Company and will, with
the exception of certain equipment, be secured by a first priority lien on
substantially all of the assets of the Company, provided that in the event that
a security interest on the Receivables (as defined) is granted to secure the
Working Capital Facility (as defined), the security interest on the Receivables
securing the Series B Notes will be a second priority lien and security
interest. See "Description of Notes--Security." The Series B Notes will rank
PARI PASSU in the right of payment with all existing and future senior
indebtedness of the Company and will rank senior to all existing and future
subordinated indebtedness of the Company. See "Description of Notes--Ranking."
The Company will accept for exchange any and all validly tendered Series A
Notes not withdrawn prior to 5:00 p.m., New York City time, on ,
1998, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Series A Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offer is subject
to certain customary conditions. See "The Exchange Offer--Conditions." Series A
Notes may be tendered only in integral multiples of $1,000. In the event the
Company terminates the Exchange Offer and
(COVER CONTINUED ON NEXT PAGE)
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR SERIES A NOTES IN THE
EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
does not accept for exchange any Series A Notes, the Company will promptly
return all previously tendered Series A Notes to the holders thereof.
The Series A Notes were sold by the Company on February 18, 1998 to the
Initial Purchaser (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchaser subsequently resold the Series A Notes to qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Series A Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Series B Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Series B Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Series
B Notes are acquired in the ordinary course of such holder's business and that
such holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such Series
B Notes. See "The Exchange Offer--Purpose and Effect of the Exchange Offer" and
"--Resale of the Series B Notes." Each holder of the Series A Notes (other than
certain specified holders) who wishes to exchange the Series A Notes for Series
B Notes in the Exchange Offer will be required to represent in the Letter of
Transmittal that (i) it is not an affiliate of the Company, (ii) the Series B
Notes to be received by it are being acquired in the ordinary course of its
business, (iii) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Series B Notes and (iv) such holder is not
acting on behalf of any person who could not truthfully make the foregoing
representations. Each broker-dealer (a "Participating Broker-Dealer") that
receives Series B Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Series B Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Series B
Notes received in exchange for Series A Notes where such Series A Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
Holders of Series A Notes not tendered and accepted in the Exchange Offer
will continue to hold such Series A Notes and will be entitled to all the rights
and benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Series A Notes or
the Series B Notes. The Company does not intend to list the Series B Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the Series
B Notes will develop. See "Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of Series B Notes." Moreover, to the extent that
Series A Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Series A Notes could be
adversely affected.
The Series B Notes will be available initially only in book-entry form. The
Company expects that the Series B Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Note (as defined), which will be
deposited with, or on behalf of, The Depositary Trust Company (the "Depositary")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the Series B Notes will be shown on,
and transfers thereof to qualified institutional buyers will be effected
through, records maintained by the Depositary and its participants. After the
initial issuance of the Global Note, Series B Notes in certified form will be
issued in exchange for the Global Note only on the terms set forth in the
Indenture. See "Book Entry--Delivery and Form."
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS PROSPECTUS UNDER THE CAPTIONS "PROSPECTUS
SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS,
TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS,
UNCERTAINTIES AND OTHER IMPORTANT FACTORS INCLUDE, AMONG OTHERS: ADVERTISING
RATES; THE ABILITY TO SECURE NEW SITES FOR NGN DISPLAYS (AS DEFINED); THE LOSS
OF KEY EXISTING SITE AGREEMENTS; CHANGES IN THE POLITICAL AND REGULATORY
CLIMATE; OUT-OF-HOME ADVERTISING INDUSTRY TRENDS; COMPETITION; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY OF QUALIFIED PERSONNEL;
CHANGES IN, OR THE FAILURE OR INABILITY TO COMPLY WITH, GOVERNMENT REGULATIONS;
AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND HISTORICAL FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS
OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE
"COMPANY" SHALL MEAN MENTUS MEDIA CORP., A DELAWARE CORPORATION. ALL DESIGNATED
MARKET AREA ("DMA") INFORMATION IN THIS PROSPECTUS ARE FROM THE NIELSEN STATION
INDEX VIEWERS AND PROFILE DATED MAY 1997, AS PREPARED BY A.C. NIELSEN COMPANY
("NIELSEN"), AS THE SAME APPLIES TO THE SIZE OF TELEVISION MARKETS IN THE UNITED
STATES.
THE COMPANY
OVERVIEW
The Company sells advertising space and provides programming through an
electronic out-of-home advertising network known as NGN--Next Generation
Network. Out-of-home advertising derives its name from reaching audiences out of
their homes. According to the Outdoor Advertising Association of America
("OAAA"), out-of-home advertising is a $3.8 billion industry, consisting
primarily of billboards, transit advertising and stadium and other signage. NGN
is a "billboard-TV" network of color video monitors ("NGN Displays") located at
high traffic public locations. NGN Displays are connected by ordinary
voice-grade telephone lines and controlled from a single operations center in
Minneapolis, Minnesota. By utilizing technology to reduce labor costs and
provide immediacy and flexibility to advertisers, NGN seeks to preserve the
positive attributes while avoiding the negative attributes of the out-of-home
advertising industry. Specifically, the Company seeks to achieve the high
operating profit margins and recurring cash flows inherent in the industry,
while reducing fixed costs and labor intensity, and avoiding zoning regulations
that may impede expansion.
By presenting a sequence of partially animated, television-quality images,
NGN is intended to capture audience attention in busy out-of-home environments,
thereby effectively delivering advertising and programming messages. NGN
Displays present repeating two-and-one-half minute sequences, or "loops," of
advertising and programming. As currently configured, the loops consist of
twelve advertising slots of approximately ten seconds each and six to eight
programming slots of approximately six seconds each. Advertising slots currently
consist of advertisements principally for local and regional advertisers, and
programming slots include information such as local and national weather,
sports, news headlines and financial information, as well as Company sponsored
promotional contests. For example, a Baltimore, Maryland 7-Eleven customer
waiting in line to purchase merchandise may view the three day Baltimore
forecast, the Baltimore Orioles baseball score and local news headlines
interspersed with advertisements for Haagen-Dazs ice cream, a Chrysler
dealership and a local dentist, among other messages.
Management believes that consumers view NGN programming as a useful source
of information, and that advertisers view NGN as a flexible, effective
advertising medium to reach a targeted audience. Additionally, Management
believes that site operators benefit from NGN because (i) site operators
generally share in the Company's advertising revenue typically at no cost to the
site operators and (ii) NGN increases customer satisfaction by making the
customer's visit to the site more enjoyable.
The Company currently operates NGN in the following nine DMAs and their
surrounding areas: Washington, D.C.; Dallas-Ft. Worth, TX; Tampa, FL; Miami, FL;
Orlando, FL; Baltimore, MD; Norfolk, VA; West Palm Beach, FL; and Fort Meyers,
FL. As of December 31, 1997, the Company had NGN Displays operating in
approximately 1,800 sites. Based on the average of the daily transaction counts
submitted to the Company by the site operators (the "Daily Audience"), the
Company estimates that NGN presently can be viewed by approximately 2 million
people daily. Additionally, the Company holds exclusive site agreements for
approximately 6,600 additional sites. Collectively with the Company's presently
installed sites, NGN could be viewed by an estimated Daily Audience of
approximately 10 million people in 41 of the top 50 DMA's in the United States.
1
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The Company targets NGN Displays for installation in high traffic, public
venues where people remain for several minutes, including convenience stores,
fast food restaurants, office building lobbies, pharmacies, movie theater
lobbies and self-serve gas pumps. Companies currently under exclusive site
agreements with the Company include The Southland Corporation (7-Eleven Stores),
Cumberland Farms, Jerry's Subs, Uni-Marts, Convenient Food Marts and Crown
Central Petroleum. Site agreements generally (i) provide operators with a share
of the Company's revenues derived from a particular site, typically at no cost
to the site operator, and (ii) establish that the Company is the exclusive
provider of video-based information, entertainment and advertising services. The
Company is solely responsible for the installation and maintenance of its NGN
Displays.
The Company seeks to take advantage of its inherent flexibility of
geographically targeted advertising by emphasizing sales to local advertisers,
the traditional area of strength for out-of-home advertising. The Company
conducts its advertising sales efforts through a dedicated, local sales force
within each of the DMAs in which it operates NGN Displays. The local sales force
is thereby able to work closely with each of the Company's advertisers to
develop advertising campaigns that match specifically targeted audience segments
with the advertisers' overall marketing strategies. The Company has attracted
over 200 advertisers to date, including The Washington Post, WRC-TV (NBC station
in Washington, D.C.), Chrysler Plymouth Florida Dealers Association, Elle
Magazine, George Magazine, The Dallas Morning News, the Virginia Lottery and Fox
Sports Southwest.
The advertising and programming loops for each NGN Display are all created
and controlled from a central hub facility in Minneapolis, allowing the Company
to quickly and cost-effectively custom-tailor both the advertising and
programming content on a regional or micro-targeted basis. NGN integrates
industry standard computer hardware and software with proprietary software
developed by the Company specifically for its out-of-home advertising
application. By utilizing the Company's network management software, the Company
customizes programming information for local markets. Attributes such as
instantaneous copy changes, minimal lead times, negligible production costs and
expedited electronic communications distinguish NGN from other out-of-home
advertising. The computer architecture of NGN is intended to make the system
"scaleable" so that the network can be expanded to facilitate growth at minimal
incremental cost. The Company believes that NGN is reliable, experiencing
"up-time" (representing the daily average of functioning units) in excess of 99%
for the six months ended December 31, 1997.
BUSINESS STRATEGY
As the American lifestyle has become increasingly busy, reaching the
consumer through traditional advertising mediums has become more difficult.
According to a report prepared by Alex. Brown & Sons Incorporated in May 1997
(the "Report"), 64.2% of the adult population read newspapers daily in 1997 as
compared to 77.6% in 1970. In addition, according to Nielsen, subscribers to
America On-Line tend to watch 15% less television than the average person. In
recognition of these trends, among other trends, Management believes that
advertisers are seeking innovative ways to reach out-of-home audiences. As a
result of the limitations that characterize many traditional forms of
out-of-home advertising, such as less desirable demographics due to zoning, long
lead times to implement advertisements, and complexity of buying space
nationally, Management believes there will be a strong demand for media vehicles
such as NGN.
The Company's objectives are to (i) increase and diversify the physical
presence of NGN in the United States by building upon the Company's existing
site agreements and negotiating additional site agreements and (ii) utilize
NGN's flexibility as an advertising medium to sell advertisements through the
Company's dedicated sales force on a local, regional and national basis. To
achieve its objectives, the Company has adopted the following business
strategies:
- INCREASE PHYSICAL PRESENCE OF NGN. The Company's expansion strategy is to
increase the Company's geographic presence in top markets and diversify
distribution venues. The Company intends to
2
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complete the installation of NGN Displays in the over 6,600 additional
sites currently under exclusive site agreements, while continuing to
secure new site agreements within its existing operating DMAs as well as
the DMAs targeted by the Company for expansion. The Company currently has
NGN Displays in two of the ten top DMAs, and has site agreements in nine
of the top ten DMAs and 41 of the top 50 DMAs. The Company's immediate
geographic expansion focuses on the top ten DMAs, with the intention of
having a presence in all of the top 25 DMAs by 2002.
- CONTINUE TO INCREASE ADVERTISING REVENUES. To date, the Company has
attracted over 200 advertisers, which Management believes indicates a
present market acceptance of NGN as an advertising medium. The Company
conducts its sales efforts through a dedicated sales force within each of
the DMAs in which it operates, which enables NGN to accommodate
micro-targeted advertising needs of local advertisers while offering both
flexibility and breadth of coverage to full-market and multi-market
advertisers. By combining its local sales presence with continued
expansion and diversification of distribution venues, the Company believes
it will broaden the audience for NGN programming and advertising, and will
appeal to an increasing pool of advertisers by providing a truly local,
regional and national advertising medium.
FINANCING PLAN
On February 18, 1998, the Company completed the sale of 45,000 Units (the
"Units Offering") to NatWest Capital Markets Limited (the "Initial Purchaser")
in a transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act. Each Unit ("Unit") consisted of $1,000
principal amount of Series A Notes and 2.78311 Warrants ("Warrants"), each to
purchase one share of the Company's common stock, $.01 par value ("Common
Stock"), presently representing in the aggregate approximately 20% of the Common
Stock on a fully diluted basis. The Initial Purchaser then resold the Units to
qualified institutional buyers pursuant to Rule 144A of the Securities Act. The
Series A Notes and the Warrants became separately transferable, subject to
compliance with applicable securities laws, on March 20, 1998.
The Company intends to use the net proceeds from the Units Offering
primarily to implement its business strategy and expand its network of NGN
Displays, including the funding of capital expenditures and general and working
capital needs over the next 24 months. Approximately $17.4 million of the net
proceeds are intended to be used to fund capital expenditures relating to the
installation of NGN Displays at sites for which the Company presently has site
agreements as well as new sites for which the Company obtains site agreements in
the future. In addition, the net proceeds are intended to be used to fund
corporate capital expenditures and operating expenses as well as for working
capital and general corporate purposes. Management believes that cash flow from
operations will be sufficient to fund its projected ongoing capital expenditure
and working capital needs following such 24-month period. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's principal corporate offices are located at 9531 West 78th
Street, Suite 400, Minneapolis, Minnesota 55344, and its telephone number is
(612) 944-7944.
3
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THE UNITS OFFERING
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Units........................... The Company sold 45,000 Units to the Initial Purchaser on
February 18, 1998 pursuant to a Purchase Agreement dated
February 12, 1998 (the "Purchase Agreement"). The Initial
Purchaser subsequently resold the Units to qualified
institutional buyers in reliance upon Rule 144A under the
Securities Act. Each Unit consisted of $1,000 principal
amount of Series A Notes and 2.78311 Warrants, each to
purchase one share of Common Stock, representing in the
aggregate at the time of issuance approximately 20% of the
Common Stock on a fully diluted basis. The Series A Notes
and the Warrants became separately transferrable, subject
to compliance with applicable securities laws, on March
20, 1998 (the "Exercisability Date").
Registration Rights............. Pursuant to the Purchase Agreement, the Company and the
Initial Purchaser entered into an Exchange Offer and
Registration Rights Agreement (the "Registration Rights
Agreement") dated February 18, 1998, which grants the
holders of the Series A Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.............. $45,000,000 aggregate principal amount of Series B 12%
Senior Secured PIK Notes due 2003 (the "Series B Notes").
The Exchange Offer.............. $1,000 principal amount of the Series B Notes in exchange
for each $1,000 principal amount of Series A Notes. As of
the date hereof, $45,000,000 aggregate principal amount of
Series A Notes are outstanding. The Company will issue the
Series B Notes to holders on or promptly after the
Expiration Date.
Based on no-action letters issued by the staff of the
Commission to third parties, the Company believes the
Series B Notes issued pursuant to the Exchange Offer may
be offered for resale, resold and otherwise transferred by
any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that such Series B Notes are
acquired in the ordinary course of such holder's business
and that such holder does not intend to participate and
has no arrangement or understanding with any person to
participate in the distribution of such Series B Notes.
Each Participating Broker-Dealer that receives Series B
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. The
Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter"
within the meeting of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection
with resales of Series B Notes received in exchange for
Series A
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4
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Notes where such Series A Notes were acquired by such
Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration
Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders Series A Notes in the Exchange
Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Series
B Notes could not rely on the position of the staff of the
Commission communicated in no-action letters and, in the
absence of an exception therefrom, must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance
may result in such holder incurring liability under the
Securities Act for which the holder is not indemnified by
the Company.
Expiration Date................. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998 unless the Exchange Offer is
extended, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offer is
extended.
Accrued Interest on Series B and
Series A Notes................ Each Series B Note will bear interest from its issuance
date. Holders of Series A Notes that are accepted for
exchange will receive, in cash or in additional Series B
Notes, at the option of the Company, accrued interest
thereon to, but not including, the issuance date of the
Series B Notes. Such interest will be paid with the first
interest payment on the Series B Notes. Interest on the
Series A Notes accepted for exchange will cease to accrue
upon issuance of the Series B Notes.
Conditions to the Exchange The Exchange Offer is subject to certain customary
Offer......................... conditions, which may be waived by the Company. See "The
Exchange Offer-- Conditions."
Procedures for Tendering Series
A Notes....................... Each holder of Series A Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together with
the Series A Notes and any other required documentation to
the Exchange Agent (as defined) at the address set forth
therein. By executing the Letter of Transmittal, each
holder will represent to the Company that, (i) it is not
an Affiliate of the Company, (ii) the Series B Notes to be
received by it are being acquired in the ordinary course
of its business, (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the
Securities Act) of the Series B Notes and (iv) it is not
acting on behalf of any person who could not truthfully
make the foregoing representations. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Series A Notes....... Following the consummation of the Exchange Offer, holders
of Series A Notes eligible to participate but who do not
tender their
</TABLE>
5
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<TABLE>
<S> <C>
Series A Notes will not have any further exchange rights
and such Series A Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the
liquidity of the market for such Series A Notes could be
adversely affected.
Consequences of Failure to The Series A Notes that are not exchanged pursuant to the
Exchange...................... Exchange Offer will remain restricted securities.
Accordingly, such Series A Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144 under
the Securities Act or pursuant to another exemption under
the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904
under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act. See "The
Exchange Offer--Consequences of Failure to Exchange."
Shelf Registration Statement.... If any holder of the Series A Notes (other than any such
holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) is not
eligible under applicable securities laws to participate
in the Exchange Offer, and such holder has provided
information regarding such holder and the distribution of
such holder's Series A Notes to the Company for use
therein, the Company has agreed to register the Series A
Notes with a shelf registration statement (the "Shelf
Registration Statement") and use its best efforts to cause
it to be declared effective by the Commission as promptly
as practical on or after the consummation of the Exchange
Offer. The Company has agreed to maintain the
effectiveness of the Shelf Registration Statement for,
under certain circumstances, a maximum of two years, to
cover resales of the Series A Notes held by any such
holders.
Special Procedures for Any beneficial owner whose Series A Notes are registered
Beneficial Owners............. in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering its
Series A Notes, either make appropriate arrangements to
register ownership of the Series A Notes in such owner's
name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time. The Company will keep the
Exchange Offer open for not less than thirty (30) business
days (or longer if required by applicable law) after
notice of the Exchange Offer is mailed to the holders of
the Series A Notes.
Guaranteed Delivery Holders of the Series A Notes who wish to tender their
Procedures.................... Series A Notes and whose Series A Notes are not
immediately available or who cannot deliver their Series A
Notes, the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for book-entry
transfer) prior to the Expiration Date must tender their
Series A Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights............... Tendered Series A Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date.
</TABLE>
6
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<TABLE>
<S> <C>
Acceptance of Series A and
Delivery of Series B Notes.... The Company will accept for exchange any and all Series A
Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration
Date. The Series B Notes issued pursuant to the Exchange
Offer will be delivered on or promptly after the
Expiration Date. See "The Exchange Offer-- Terms of the
Exchange Offer."
Use of Proceeds................. There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Exchange Agent.................. United States Trust Company of New York (the "Exchange
Agent").
THE SERIES B NOTES
General......................... The form and terms of the Series B Notes are the same as
the form and terms of the Series A Notes except that (i)
the Series B Notes will bear a "Series B" designation,
(ii) the Series B Notes will have been registered under
the Securities Act and, therefore, will not bear legends
restricting their transfer, and (iii) the holders of
Series B Notes will not be entitled to certain rights of
holders of Series A Notes under the Registration Rights
Agreement, including the provisions providing for an
increase in the interest rate on the Series A Notes in
certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer." The
Series B Notes will evidence the same debt as the Series A
Notes (which they replace) and will be entitled to the
benefits of the Indenture. See "Description of the Notes."
Securities Offered.............. $45,000,000 principal amount of Series B 12% Senior
Secured PIK Notes due 2003.
Maturity........................ February 1, 2003.
Interest........................ The Series B Notes will bear interest from their date of
issuance (the "Issue Date"). Holders of Series A Notes
that are accepted for exchange will receive, in cash or
additional Series B Notes, at the option of the Company,
accrued interest thereon to, but not including, the date
of issuance of the Series B Notes. Such interest will be
paid with the first interest payment on the Series B Notes
on August 1, 1998. Interest on the Series A Notes accepted
for exchange will cease to accrue upon issuance of the
Series B Notes. Interest on the Series B Notes is payable
either in cash or in additional Notes, at the option of
the Company, through August 1, 2000, and thereafter is
payable in cash.
Interest Payment Date........... February 1 and August 1 of each year, commencing on August
1, 1998 (each an "Interest Payment Date").
Ranking and Security............ The Series B Notes will be secured by a first priority
lien on and a security interest in substantially all of
the assets of the Company except for the Pledged Equipment
(as defined), provided that in the event that a security
interest on the Receivables (as defined) is granted to
secure the Working Capital Facility (as defined), the
security interest on the Receivables securing the Series B
Notes will
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
be a second priority lien and security interest. See
"Description of Notes--Security." The Series B Notes will
rank PARI PASSU with any future senior indebtedness of the
Company and will rank senior to all subordinated
indebtedness of the Company. See "Description of
Notes--Ranking."
Optional Redemption............. The Company may not redeem the Series B Notes prior to
February 1, 2000. On and after such date, the Company may
redeem the Series B Notes, in whole or in part, at the
redemption prices set forth herein, together with accrued
and unpaid interest, if any, to the date of redemption.
See "Description of Notes-- Optional Redemption."
Change of Control............... Upon the occurrence of a Change of Control (as defined),
the Company will be required to make an offer to
repurchase the Series B Notes at a purchase price in cash
equal to 101% of the principal amount thereof plus any
accrued and unpaid interest, if any, to the date of
repurchase. See "Description of Notes-- Optional
Redemption" and "Change of Control."
Restrictive Covenants........... The indenture under which the Series B Notes will be
issued (the "Indenture") contains certain covenants that,
among other things, will limit (i) the incurrence of
additional indebtedness by the Company and its
subsidiaries, (ii) the payment of dividends on, and
redemption of capital stock of the Company and the
redemption of certain subordinated obligations of the
Company, (iii) investments, (iv) sales of assets and
subsidiary stock, (v) transactions with affiliates and
(vi) consolidation, mergers and transfers of all or
substantially all the assets of the Company. The Indenture
also prohibits certain restrictions on distribution from
subsidiaries. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of
Notes--Certain Covenants."
</TABLE>
For a more complete description of the Series B Notes, see "Description of
Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain risks to be considered by
holders who tender their Series A Notes in the Exchange Offer.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical financial data of the
Company for the three years ended December 31, 1997, which has been derived from
the Company's audited financial statements. The unaudited pro forma statement of
operations data has been presented as if the Units Offering had been effected on
January 1, 1997 and the unaudited pro forma balance sheet data has been
presented as if the Units Offering had been effected on December 31, 1997.
The information in this table should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and the notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
HISTORICAL PRO FORMA (6)
------------------------------- ----------------
1995 1996 1997 1997
--------- --------- --------- ----------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net Advertising revenues............................................ -- -- $ 1,205 $ 1,205
Network equipment and territorial rights sales(1)................... -- $ 2,688 137 137
Network operating revenues.......................................... -- 490 485 485
--------- --------- --------- --------
Total revenue(1)................................................ -- 3,178 1,827 1,827
Cost of network equipment sales..................................... -- 2,214 61 61
Network operating expenses(2)....................................... -- 363 2,799 2,799
Selling expenses.................................................... -- -- 1,757 1,757
General and administrative expenses................................. $ 2,103 2,507 3,429 3,429
--------- --------- --------- --------
Operating loss................................................ (2,103) (1,906) (6,219) (6,219)
Nonoperating income (expense):
Interest expense.................................................... (240) (231) (281) (7,161)
Interest income..................................................... 9 82 113 113
Other expense....................................................... -- -- (1) (1)
--------- --------- --------- --------
Net loss...................................................... (2,334) (2,055) (6,388) (13,268)
Preferred stock dividends........................................... 248 541 1,631 1,631
--------- --------- --------- --------
Net loss applicable to common stockholders.................... $ (2,582) $ (2,596) $ (8,019) $ (14,899)
--------- --------- --------- --------
--------- --------- --------- --------
Net loss per common share..................................... $ (11.20) $ (10.16) $ (30.12) $ (55.96)
--------- --------- --------- --------
--------- --------- --------- --------
OTHER DATA (UNAUDITED):
EBITDA(3)........................................................... $ (1,911) $ (1,695) $ (5,506) $ (5,506)
Depreciation and amortization....................................... 192 211 714 714
Capital expenditures................................................ 92 2,141 2,275 2,275
Ratio of earnings to cover combined fixed charges and preferred
stock dividends(4)................................................ nmf nmf nmf nmf
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
HISTORICAL PRO FORMA (7)
------------------------------- -------------
1995 1996 1997 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents(5).......................................... $ 393 $ 3,821 $ 2,789 $ 43,389
Working capital....................................................... 3,245 3,202 1,261 41,939
Total assets.......................................................... 1,303 6,399 7,536 50,582
Total long term debt and other obligations (including current
maturities)......................................................... 107 2,506 3,064 38,488(8)
Mandatory redeemable preferred stock.................................. -- 7,305 14,487 14,487
Stockholders' deficit................................................. (2,901) (4,141) (12,090) (4,390)(8)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
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(FOOTNOTES FROM PREVIOUS PAGE)
- ------------------------------
(1) The Company entered into territorial agreements with two separate unrelated
owner-operators in 1996. Each agreement granted exclusive territorial rights
to NGN within certain designated markets for a period of ten years. In the
aggregate, the Company received initial payments of approximately $2,688,000
for the purchase of hardware and exclusive territorial rights. The
agreements also provided for payments to the Company based on advertising
revenue and reimbursement of certain network operating expenses. In 1997,
the Company entered into repurchase agreements with both NGN owner-operators
whereby the Company repurchased the equipment originally sold in 1996 and
the owner-operators forfeited their territorial rights and options to
purchase the exclusive rights to certain additional designated NGN
territories. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Includes direct costs necessary to run the network (i.e. site agreement
expense, local phone cost, long distance and maintenance costs).
Approximately 5,500 sites are provided for under agreements with The
Southland Corporation and its franchisees ("Southland") and are subject to
minimum payments. The agreement provides that Southland will receive a
quarterly per store payment. Some portion of the payments to Southland are
accumulated and paid in January of each year.
(3) EBITDA represents income before interest, income taxes, depreciation and
amortization. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flows statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(4) The ratio of earnings to cover combined fixed charges and preferred stock
dividends is not a meaningful figure due to the fact that in the periods
presented fixed charges, which includes interest expense, and preferred
stock dividends, exceeded earnings by an amount equal to the net loss.
(5) For the purposes of reporting cash flows, the Company considers any Treasury
bills, commercial paper, certificates of deposit and money market funds with
a maturity of three months or less to be cash equivalents.
(6) Gives effect to the pro forma adjustments related to the Units Offering and
the application of the net proceeds therefrom as if the Units Offering had
occurred as of January 1, 1997.
(7) Gives effect to the pro forma adjustments related to the Units Offering and
the application of the net proceeds therefrom as if the Units Offering had
occurred as of December 31, 1997.
(8) For reporting under generally accepted accounting principles ("GAAP"), as
reflected in these pro forma amounts, total debt reported with respect to
the Notes will be net of the value ascribed to the Warrants which will be
recorded as additional paid-in capital. The value ascribed to the Warrants
will be $7.7 million.
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RISK FACTORS
PROSPECTIVE PURCHASERS OF THE SERIES B NOTES SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE SERIES B NOTES.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged and substantially all its assets are subject
to security interests securing the Series A Notes (and, upon consummation of the
Exchange Offer, the Series B Notes). After giving pro forma effect to the Units
Offering, the Company would have had total indebtedness at December 31, 1997 of
approximately $46.1 million (however, for reporting under GAAP, total debt
reported will be net of the value ascribed to the Warrants of approximately $7.7
million which will be recorded as additional paid-in capital). See "Summary
Historical and Pro Forma Financial Data," "Capitalization" and the Financial
Statements.
The degree to which the Company is leveraged, together with the covenants
imposed by the Indenture, could have adverse consequences to holders of the
Series B Notes, including the following: (i) substantial cash flow from the
Company's operations will be required for the payment of principal and interest
on its indebtedness and will not be available for other purposes; (ii) the
Company's ability to obtain additional financing in the future, whether for
acquisitions, capital expenditures, further expansion of its network of NGN
Displays, refinancings or otherwise, may be impaired; (iii) the Company may be
more leveraged than certain of its competitors, which may place it at a
competitive disadvantage; (iv) the Indenture will impose significant financial
and operating restrictions; and (v) the Company's high degree of leverage makes
it more vulnerable to changes in economic conditions and may limit its ability
to withstand competitive pressures and technological developments, consummate
acquisitions and capitalize on significant business opportunities.
The Company will require substantial cash flow to meet its interest payment
obligations with respect to the Series B Notes and any other borrowings. The
Company's cash flow is dependent on the Company's future performance and is
subject to financial, economic and other factors, some of which are beyond its
control. If the Company is unable to generate such cash flow from operations or
otherwise to satisfy its interest obligations on the Series B Notes and other
indebtedness, it may be required to refinance all or a portion of such
obligations or to sell assets. The Company expects that any payment of the
principal of any of the Series B Notes or any other borrowings, whether upon
maturity, acceleration, redemption or other repurchase obligation, such as a
change of control, may have to be refinanced in whole or in part or financed by
the sale of assets or similar transactions. The Indenture contains restrictions
on the Company's ability to incur additional indebtedness and to sell assets
and, notwithstanding such restrictions, the Company may not be able to effect a
refinancing or sell assets on acceptable terms when needed.
INSUFFICIENT COLLATERAL
The proceeds of any sale of the Collateral (as defined in the Indenture)
following an event of default under the Indenture would most likely not be
sufficient to repay the Series B Notes in full. The tangible assets comprising
the Collateral, which, as of December 31, 1997, had a book value of
approximately $6.6 million, will consist primarily of cash and cash equivalents,
NGN Displays, computer and other equipment and Receivables. Under the Indenture,
the security interests relating to Receivables of the Company will be
subordinated to the security interest of any senior lender providing a Working
Capital Facility to the Company. If a bankruptcy proceeding were to be commenced
by or against the Company and the bankruptcy court were to conclude that the
Series B Notes were inadequately secured, the holders of the Series B Notes
would have only an unsecured deficiency claim to the extent of such inadequacy
and would not be entitled to post-petition interest. Any deficiency claim
(whether or not in a bankruptcy proceeding involving the Company) of the holders
of the Series B Notes would rank PARI PASSU with any deficiency claims of all
other general unsecured creditors. In addition, the ability of the holders of
the Series B Notes
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to effect a sale of the Collateral may be subject to certain bankruptcy
limitations in the event of a bankruptcy proceeding involving the Company.
RESTRICTIONS IMPOSED BY TERMS OF THE INDEBTEDNESS
The terms and conditions of the Indenture impose restrictions that affect
the ability of the Company, among other things, to incur debt, make
distributions, make acquisitions, create liens and make capital expenditures.
See "Description of Notes." The restrictive covenants contained in the
Indenture, as well as the highly leveraged position of the Company, could
significantly limit the Company's ability to respond to changing business or
economic conditions or to substantial declines in operating results. The ability
of the Company to comply with the provisions applicable to it in the Indenture
can be affected by events beyond its control.
LIMITED OPERATING HISTORY; SIGNIFICANT LOSSES; ACCUMULATED DEFICIT; FUTURE
LOSSES
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. To date, the Company has incurred
significant losses and has experienced substantial negative cash flow from
operations. The Company had an accumulated deficit of $18,997,555 at December
31, 1997, representing the effect of losses incurred since its inception. The
Company expects to incur substantial additional costs to install additional NGN
Displays and for operating costs to expand NGN. The Company expects to incur net
losses in fiscal 1998 and expects to operate at a loss for the foreseeable
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Advertising Sales and Marketing" and "--NGN
Display Sites."
ABILITY TO INCREASE ADVERTISING REVENUE
All or substantially all of the Company's revenue for the foreseeable future
is expected to be derived from the sale of advertising on NGN. To date, the
Company has not achieved sufficient revenue from this source to achieve overall
profitability. Accordingly, the success of the Company is dependent on its
efforts to increase advertising sales. The Company believes it can address this
issue by emphasizing the inherent flexibility of its centrally controlled
display monitor network, its demographically desirable sites and geographically
targeted advertising and directing sales efforts through its seven existing and
additional planned local and national sales offices. In addition, the Company
plans to open local and national sales offices in major media centers in order
to obtain geographically targeted advertising from major national accounts and
increasing amounts of national advertising as NGN grows. See
"Business--Advertising Sales and Marketing." However, there can be no assurance
that the Company will be successful in its sales efforts.
Because the utility and the ultimate attractiveness of NGN to advertisers is
in large part dependent on the ability to offer advertising in a wide array of
local and regional as well as national markets, the size of the Company's
installed display base significantly affects its revenue generation potential.
The Company's profitability and the success of its growth plans will be
significantly affected by its ability to contract with additional high traffic
public locations for the installation of NGN Displays and to install NGN
Displays in such locations in a rapid and orderly manner. While the Company has
contractual commitments for approximately an additional 6,600 sites, there can
be no assurance that site operators who currently or in the future have NGN
Displays installed will retain them at their sites beyond the expiration of
existing agreements or that the Company will be able to continue to increase the
number of sites in which NGN Displays are installed or for which commitments
have been made.
MANAGEMENT OF GROWTH; EARLY STAGE PRODUCTS AND SERVICES; ACCELERATED
INSTALLATION
The Company's anticipated rapid growth is expected to place significant
pressure on the Company's managerial, operational and financial systems. To
manage its growth, the Company must continue to strengthen its management team,
implement and improve its operational and financial systems and
12
<PAGE>
expand, train and manage its employee base. The Company also will be required to
develop and manage multiple relationships with site operators, advertisers,
suppliers and other third parties. The Company's systems, procedures or controls
may not be adequate to support the Company's operations and the Company may not
be able to achieve the rapid expansion necessary to exploit potential market
opportunities for NGN. The Company's future operating results will also depend
on its ability to expand its sales and marketing organization, to penetrate
markets and to expand its support organization. The failure to manage growth
effectively could create a negative image of the Company in the advertising
industry and could have a material adverse effect on the Company's business,
financial condition and results of operations.
Although it has been implemented at the Company's approximately 1,800
existing sites in commercial environments, NGN is subject to the risks inherent
in the large scale commercialization of new products and services. The Company
relies largely on third party contractors for the installation and maintenance
of NGN Displays. No assurance can be given that such third party contractors
will be able to continue to accommodate the Company's growth as NGN Displays are
installed on a greater scale. As the Company continues to install NGN Displays
on a greater scale, there could be unforeseen technical implementation problems,
some of which may be material. The occurrence of difficulties in installing and
operating a large number of NGN Displays could have a material adverse effect on
the Company's business, financial condition and results of operations.
NEW METHOD
Although out-of-home advertising is over 125 years old, NGN is a relatively
new method of providing out-of-home advertising and, as is typical in the case
of a new product or method, the ultimate level of demand for and continued
market acceptance of NGN as an advertising medium is uncertain. There can be no
assurance that NGN will achieve market acceptance from advertisers or that the
Company will be able to meet its current marketing objectives or that it will be
able to enter into site agreements for new sites.
DEPENDENCE ON ADVERTISING REVENUES
The Company's ability to generate revenues is dependent on its sale of
advertising on NGN, and is expected to be so concentrated for the foreseeable
future, thereby making the Company susceptible to a downturn in the advertising
industry. Factors affecting the advertising industry generally could also have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The competition for advertising dollars is intense. NGN competes against
other media outlets, such as television, radio, newspapers and, most directly,
other out-of-home advertising such as billboards. A number of new out-of-home
advertising vehicles and services also have been introduced, and it is likely
that other new out-of-home advertising will be developed. A number of potential
competitors have failed because of a lack of acceptance, lack of capital,
technical problems or a combination of these factors. While the Company believes
it provides a cost-effective targeted advertising medium, there are many factors
an advertiser will take into account in allocating advertising expenditures, and
there can be no assurance that the Company will compete effectively against
alternative media. Many of the Company's competitors in the media business are
larger, possess significantly greater financial resources and have longer
operating histories than the Company. See "Business--Competition."
DEPENDENCE ON KEY AGREEMENT
The Company is highly dependent on its contract (the "Southland Contract")
with The Southland Corporation and its franchisees ("Southland"), which as of
December 31, 1997 covered 1,451 of the approximately 1,800 installed NGN
Displays and 4,071 of the approximately 6,600 additional installation
13
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sites for which the Company has site agreements (representing, in the aggregate,
approximately 66% of the sites currently covered by site agreements). The
Southland Contract expires on January 1, 2001. Although there is no obligation
to renew or extend, the Southland Contract provides that Southland and the
Company will negotiate in good faith to renew or extend the Southland Contract
for at least 5 years. Under the Southland Contract, if Southland desires to
enter into an agreement with a provider of services competitive with the
Company, the Company has a right to match the competitor's terms for a
substantially similiar product. Southland may terminate the Southland Contract
in the event the Company materially breaches its obligations and fails to cure
such breach within 30 days of receiving notice thereof. Either the non-renewal
of the Southland Contract or any difficulty that might arise in the Company's
relationship with Southland would have a material adverse affect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTIES
The expected growth of NGN makes the success of the Company and its business
dependent on, among other things, the work of third parties. The Company will,
therefore, be dependent upon its ability to maintain suitable arrangements with
third parties, and the failure of third parties to perform could have a material
adverse effect on the Company's business, financial condition or results of
operations.
All NGN Displays are assembled and tested by a third party contractor
utilizing component parts that are readily available from a number of suppliers.
The Company does not presently intend to contract for assembly and testing of
NGN Displays from alternative third party suppliers. The Company does not have
any formal long-term agreement with such third party contractor. Therefore, the
contractor is not obligated to assemble NGN Displays as required by the Company
for any specific time period, or otherwise, except as may be provided in a
particular purchase order that has been accepted by the contractor. The
contractor may choose to prioritize production for other customers or cease
production for the Company's NGN Displays on short notice. The Company is also
dependent on a single independent contractor for the nationwide installation and
maintenance of all of its NGN Displays. The Company's reliance on outside
sources expose it to certain risks. Risks inherent in the use of such outside
sources may include the transportation of finished products from the outside
source, destruction, damage, loss or theft at the outside source's facilities,
delays in delivery of ordered parts, bankruptcy and other financial problems of
the outside source, and potential misappropriation of proprietary intellectual
property. The ability of the Company to realize increased revenue from
advertising sales is dependent on the success of the Company's plan to
accelerate installation of its NGN Displays at sites where the Company has or
will secure contractual commitments. Failure of the Company through its outside
sources to sustain production and satisfy demand for the installation and
maintenance of finished NGN Displays would have a material adverse effect on the
Company's business, financial condition and results of operations.
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
The Company does not hold any patents which cover any aspect of its systems
and methods. The Company believes that its early entrance into electronic
out-of-home advertising provides an advantage over later market entrants.
However, it is possible that certain aspects of the Company's software may not
be adequately protected from infringement or copying. Further, there can be no
assurance that competitors might not develop similar or superior hardware or
software outside the protection of any patents that the Company may obtain in
the future.
DEPENDENCE ON MANAGEMENT
The Company is highly dependent on certain of its key executive and
technical employees and on its ability to recruit, retain and motivate high
quality executive, sales and technical personnel. Competition for such personnel
is intense, and the inability to attract and retain additional qualified
employees or the loss
14
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of current key employees could materially and adversely affect the Company's
business, operating results and financial condition. See "Management."
POSSIBILITY OF CHANGE IN CONTROL
Gerard P. Joyce and Thomas M. Pugliese, the Chairman of the Board of
Directors and President, and the Vice Chairman of the Board of Directors and
Chief Executive Officer, of the Company, respectively, together beneficially own
approximately 78.3% of the Company's outstanding Common Stock and, accordingly,
are effectively in control of the election of a majority of the Company's Board
of Directors and thereby control the Company. The Company's policies to date
have been implemented under the direction and management of such individuals.
The Company has outstanding shares of currently convertible Preferred Stock and
Warrants which, if converted or exercised, could effectively remove control of
the Company from such individuals.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF SERIES B NOTES
Prior to the Exchange Offer, there has not been any public market for the
Series A Notes. The Series A Notes have not been registered under the Securities
Act and will be subject to restrictions on transferability to the extent that
they are not exchanged for Series B Notes by holders who are entitled to
participate in this Exchange Offer. The holders of Series A Notes (other than
any such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who are not eligible to participate in the
Exchange Offer are entitled to certain registration rights, and the Company is
required to file a Shelf Registration Statement with respect to such Series A
Notes. The Series B Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Series B
Notes on any securities exchange or to seek their admission to trading in any
automated quotation system. The Initial Purchaser has advised the Company that
it currently intends to make a market in the Series B Notes, but is not
obligated to do so and may discontinue such market making at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and may be limited during the Exchange Offer and
the pendency of any Shelf Registration Statement. Accordingly, no assurance can
be given that an active public or other market will develop for the Series B
Notes or as to the liquidity of the trading market for the Series B Notes. If a
trading market does not develop or is not maintained, holders of the Series B
Notes may experience difficulty in reselling the Series B Notes or may be unable
to sell them at all. If a market for the Series B Notes develops, any such
market may be discontinued at any time.
If a public trading market develops for the Series B Notes, future trading
prices of the Series B Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Series B Notes may trade at a discount from their
principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Series B Notes in exchange for the Series A Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
such Series A Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Series A
Notes desiring to tender such Series A Notes in exchange for Series B Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to the
tenders of Series A Notes for exchange. Series A Notes that are not tendered or
are tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer thereof
and, upon consummation of the Exchange Offer, certain registration rights under
the Registration Rights Agreement will terminate. In addition, any holder of
15
<PAGE>
Series A Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Series B Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transactions. Each holder of the Series A Notes
(other than certain specified holders) who wishes to exchange the Series A Notes
for Series B Notes in the Exchange Offer will be required to represent in the
Letter of Transmittal that (i) it is not an Affiliate of the Company, (ii) the
Series B Notes to be received by it are being acquired in the ordinary course of
its business and (iii) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Series B Notes and (iv) it is not acting
on behalf of any person who could not truthfully make the foregoing
representations. Each Participating Broker-Dealer that receives Series B Notes
for its own account in exchange for Series A Notes, where such Series A Notes
were acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. See "Plan of
Distribution." To the extent that Series A Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Series A Notes could be adversely affected. See "The Exchange Offer."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the exchange and issuance of the Series B Notes
in the Exchange Offer. The net proceeds from the issuance of the Units were
approximately $40.6 million after deducting fees and expenses of approximately
$2.5 million payable by the Company and the repayment of outstanding secured
indebtedness in the amount of approximately $1.9 million to Gerard P. Joyce, the
Company's Chairman of the Board of Directors and President. Of the net proceeds
of the Units Offering, the Company intends to use approximately (i) $17.4
million to fund capital expenditures relating to NGN Displays, (ii) $2.5 million
for corporate capital expenditures, (iii) $7.5 million to fund operating
expenses and (iv) the remaining $13.2 million for working capital and general
corporate purposes.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1997 the (i) audited
historical capitalization of the Company and (ii) unaudited pro forma
capitalization of the Company, as adjusted to give effect to the Units Offering
and the application of the proceeds therefrom as if they had occurred on such
date. See "Use of Proceeds." This table should be read in conjunction with the
Financial Statements. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
------------- -------------
Current maturities of long-term debt, including capital leases...................... $ 48,302 48,302
Long-term debt, including capital leases, less current maturities................... 3,015,208(1) 1,139,746
12% Senior Secured PIK Notes due 2003............................................... -- 45,000,000(2)
------------- -------------
Total Debt...................................................................... 3,063,510 46,188,048
------------- -------------
Mandatory Redeemable Preferred Stock:
14.8% Series B, non-voting; 91,100 shares authorized; 91,059 shares issued and
outstanding; stated at liquidation value, plus accrued dividends................ 8,429,915 8,429,915
14.8% Series C, non-voting; 90,000 shares authorized; 75,310 shares issued and
outstanding; stated at liquidation value, plus accrued dividends................ 6,057,115 6,057,115
------------- -------------
Total Mandatory Redeemable Preferred Stock 14,487,030 14,487,030
------------- -------------
Stockholders' Deficit:
8.25% Series A Cumulative Preferred Stock, non-voting; 20,000 shares authorized;
6,000 shares issued and outstanding; stated at liquidation value................ 3,000,000 3,000,000
Common Stock, $.01 par value; 1,000,000 shares authorized; 266,268 shares issued
and outstanding................................................................. 2,663 2,663
Additional paid-in capital........................................................ 3,904,889 3,904,889(3)
Accumulated deficit............................................................... (18,997,555) (18,997,555)
------------- -------------
Total stockholders' deficit....................................................... (12,090,003) (12,090,003)
------------- -------------
Total capitalization................................................................ $ 5,460,537 $ 48,585,075
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) As of December 31, 1997, long term debt includes a $1,875,462 secured loan
payable to Gerard Joyce, the Company's Chairman of the Board of Directors
and President, which was repaid with the net proceeds of the Units Offering.
See "Use of Proceeds" and "Certain Transactions."
(2) Through August 1, 2000, interest is payable in either cash or by issuing
additional Notes. The Company expects to pay interest through August 1, 2000
by issuing additional Notes, which would increase the principal amount of
the Notes to approximately $60.2 million. For reporting under GAAP, total
debt reported will be net of the value ascribed to the Warrants of
approximately $7.7 million which will be recorded as additional paid-in
capital (not reflected as such above).
(3) For reporting under GAAP, additional paid-in capital will be increased by
$7.7 million which is the value assigned to the Warrants (not reflected as
such above).
17
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company for the five years ended December 31, 1997, which has been derived from
the Company's audited financial statements. The unaudited pro forma statement of
operations data has been presented as if the Units Offering had been effected on
January 1, 1997 and the unaudited pro forma balance sheet data has been
presented as if the Units Offering had been effected on December 31, 1997.
The information in this table should be read in conjunction with the
Financial Statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. The Company has not paid dividends on its capital stock during any of
the periods presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO
HISTORICAL FORMA(6)
----------------------------------------------------- ----------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net advertising revenues........................ -- -- -- -- $ 1,205 $ 1,205
Network equipment and territorial rights
sales(1)...................................... -- -- -- $ 2,688 137 137
Network operating revenues...................... -- -- -- 490 485 485
--------- --------- --------- --------- --------- ----------
Total revenue(1).......................... -- -- -- 3,178 1,827 1,827
Cost of network equipment sales................. -- -- -- 2,214 61 61
Network operating expenses(2)................... -- -- -- 363 2,799 2,799
Selling expenses................................ -- -- -- -- 1,757 1,757
General and administrative expenses............. $ 1,650 $ 1,957 $ 2,103 2,507 3,429 3,429
--------- --------- --------- --------- --------- ----------
Operating loss............................ (1,650) (1,957) (2,103) (1,906) (6,219) (6,219)
Nonoperating income (expense):..................
Interest expense................................ (145) (191) (240) (231) (281) (7,161)
Interest income................................. 3 5 9 82 113 113
Other income (expense).......................... -- -- -- -- (1) (1)
--------- --------- --------- --------- --------- ----------
Net loss.................................. (1,792) (2,143) (2,334) (2,055) (6,388) (13,268)
Preferred stock dividends....................... 248 248 248 541 1,631 1,631
--------- --------- --------- --------- --------- ----------
Net loss applicable to common
stockholders............................ $ (2,040) $ (2,391) $ (2,582) $ (2,596) $ (8,019) $ (14,899)
--------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- ----------
Net loss per common share................. $ (10.56) $ (11.27) $ (11.20) $ (10.16) $ (30.12) $ (55.96)
--------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- ----------
OTHER DATA (UNAUDITED):
EBITDA(3)....................................... $ (1,449) $ (1,744) $ (1,911) $ (1,695) $ (5,506) $ (5,506)
Depreciation and amortization................... 201 213 192 211 714 714
Capital expenditures............................ 94 43 92 2,141 2,275 2,275
Ratio of earnings to cover combined fixed
charges and preferred stock dividends(4)...... nmf nmf nmf nmf nmf nmf
BALANCE SHEET DATA (AS OF END OF YEAR):
Cash and cash equivalents(5).................... $ 244 $ 155 $ 393 $ 3,821 $ 2,789 $ 43,389
Working capital (deficit)....................... (407) (3,260) 3,245 3,202 1,261 41,939
Total assets.................................... 929 614 1,303 6,399 7,536 50,582
Total long term debt and other obligations
(including current maturities)................ 2,390 17 107 2,506 3,064 38,488(7)
Mandatory redeemable preferred stock............ -- -- -- 7,305 14,487 14,487
Stockholders' deficit........................... (2,220) (2,858) (2,901) (4,141) (12,090) (4,390)(7)
</TABLE>
18
<PAGE>
- ------------------------
(1) The Company entered into territorial agreements with two separate unrelated
owner-operators in 1996. Each agreement granted exclusive territorial rights
to NGN within certain designated markets for a period of ten years. In the
aggregate, the Company received initial payments of approximately $2,688,000
for the purchase of hardware and exclusive territorial rights. The
agreements also provided for payment to the Company based on advertising
revenue and reimbursement of certain network operating expenses. In 1997,
the Company entered into repurchase agreements with both NGN owner-operators
whereby the Company repurchased the equipment originally sold in 1996 and
the owner-operators forfeited their territorial rights and options to
purchase the exclusive rights to certain additional designated NGN
territories. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Includes direct costs necessary to run the network (i.e. site agreement
expense, local phone cost, long distance and maintenance costs).
Approximately 5,500 sites are provided for under agreements with The
Southland Corporation and its franchisees ("Southland") and are subject to
minimum payments. The agreement provides that Southland will receive a
quarterly per store payment. Some portion of the payments to Southland are
accumulated and paid in January of each year.
(3) EBITDA represents income before interest, income taxes, depreciation and
amortization. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flows statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(4) The ratio of earnings to cover combined fixed charges and preferred stock
dividends is not a meaningful figure due to the fact that in the periods
presented fixed charges, which includes interest expense, and preferred
stock dividends, exceeded earnings by an amount equal to the net loss.
(5) For the purposes of reporting cash flows, the Company considers any Treasury
bills, commercial paper, certificates of deposit and money market funds with
a maturity of three months or less to be cash equivalents. The Company
maintains its cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
(6) Statement of operations data gives effect to the pro forma adjustments
related to the Units Offering and the application of the net proceeds
therefrom as if the Units Offering had occurred as of January 1, 1997.
Balance sheet data gives effect to the pro forma adjustments related to the
Units Offering and the application of the net proceeds therefrom as if the
Units Offering had occurred as of December 31, 1997.
(7) For reporting under GAAP, as reflected in these pro forma amounts, total
debt reported with respect to the Notes will be net of the value ascribed to
the Warrants which will be recorded as additional paid-in capital. The value
ascribed to the Warrants will be $7.7 million.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Financial Statements included in this
Prospectus.
OVERVIEW
The Company was founded in 1990 and thereafter focused its efforts, among
other things, on the development of NGN by developing and improving the NGN
technology. At the same time, the Company concentrated its efforts on securing
site agreements for the placement of NGN Displays as well as recruiting local
sales personnel and opening local sales offices in its initially developed DMAs.
The operating revenues of the Company presently are derived from the sale of
advertising on NGN. The Company's primary operating expenses are for NGN Display
operating costs and employee compensation. Advertising rates are based upon the
availability of space on the network for the location targeted by the
advertiser, the size and demographic makeup of the market served by the NGN
Displays and the availability of alternative advertising media in the market
area. Most advertising contracts are short-term, and generally run for only a
few weeks. Most of the Company's annual gross revenues are generated from local
advertising, and the remainder represents national advertising, both of which
primarily are sold directly by the Company's own sales personnel.
In 1996, the Company generated its initial revenues primarily from two
sources: (1) sales of NGN Displays and its rights under exclusive site
agreements within defined territories not then targeted by the Company; and (2)
royalties on advertising sales and network operating revenues in owner-operator
markets. At the same time, the Company continued to concentrate its efforts on
sales of advertising and establishing site agreements for its own NGN Displays.
The purpose of the sale of territorial rights to third parties was to generate
immediate cash to enable the Company to expand its own network and increase
marketing efforts for the sale of advertising in its targeted markets.
Approximately 85% of the Company's 1996 revenues were generated from network
equipment and territorial rights sales to two network owner-operators. Effective
in January and August 1997, the Company entered into agreements with these
owner-operators whereby the Company repurchased the equipment on terms that the
Company considered favorable. In addition, through this process the
owner-operators forfeited the territorial rights. See Note 7 of Notes to
Financial Statements. In 1997, the scope of the Company's business shifted from
sales of network equipment and territorial rights to sales of advertising on the
Company's own NGN installations.
The following table presents the number of NGN installations in their
respective markets as of December 31, 1996 and 1997. There were no NGN
installations at December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------- -------------------
<S> <C> <C>
Market:
Washington, D.C....................... 183 502
Dallas-Ft. Worth, TX.................. 47 226
Tampa-Clearwater-St. Petersburg, FL... 135 136
Miami, FL............................. 90 87
Orlando, FL........................... 220 233
Baltimore, MD......................... 111 208
Norfolk, VA........................... 244 239
West Palm Beach, FL................... 65 63
Ft. Meyers, FL........................ 40 43
Other................................. 4 32
----- ------
Total............................. 1,139 1,769
</TABLE>
As of December 31, 1996, 798 NGN Displays in the aforementioned table
represented owner operator installations, and 341 were Company owned. As of
December 31, 1997, 1,741 installed NGN Displays were Company owned.
20
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
As discussed above, in 1996 the Company entered into agreements with two
owner-operators for the installation of NGN Displays. Net revenues generated
during 1996, the first year of network operations, were approximately $3.2
million, including $2.7 million resulting from sales of network equipment and
territorial rights. The remaining $490,000 of revenues were network operating
revenues received from the two network owner-operators.
Net revenues for the year ended December 31, 1997 were $1.8 million, a
decrease of $1.4 million, or 43%, compared to $3.2 million for the year ended
December 31, 1996. The decrease was attributable to the shift in the Company's
business from sales of network equipment and territorial rights to sales of
advertising on the Company's own NGN installations. During 1997, the Company
realized the first net advertising revenues from Company owned installations of
approximately $1.2 million and had equipment sales of approximately $137,000,
primarily to site owners. Although the Company does not anticipate any future
equipment and territorial rights sales to owner-operators, sales of equipment to
site owners may continue. Network operating revenues from owner-operators were
approximately the same at $490,000 in 1996 and $485,000 in 1997 as a result of
equivalent months of network operating fees from owner-operators. The
owner-operators forfeited the territories and the Company repurchased the NGN
equipment in 1997. The Company does not anticipate any future owner-operator
network operating revenues. Barter revenue was $158,000 during 1997 and is
included in advertising revenue. The majority of the unused barter credit of
$104,000 at December 31, 1997 relates to a major radio promotional campaign and
will be recognized as expense in the first quarter of 1998.
Costs and expenses for the year ended December 31, 1997 were $8.0 million,
an increase of $3.0 million, or 58%, compared to $5.1 million for the year ended
December 31, 1996. Network operating expenses increased $2.4 million due to the
increase in both the number of NGN Display installations and equivalent months
in operation. Site lease expense accounted for $1.1 million of the increase
since the first Company owned units were not installed until December, 1996.
Selling expenses of $1.8 million were incurred for the first time during 1997 as
the result of the addition of sales staff and the opening of seven regional
sales offices and the generation of the first advertising revenues from Company
owned NGN installations. General and administrative expenses increased
approximately $921,000 due to the additional administrative staff in computer
operations, graphic creation and accounting added to support the sales offices
and increased advertising revenues. General and administrative expenses also
increased due to marketing efforts such as printing expenses related to
promotional material, market research, sales promotion, and public relations
expenses as well as increased consulting fees. The cost of network equipment
sales decreased $2.2 million due to the change in scope of the Company's
business as mentioned above. Research and development costs increased to
$363,000 for 1997, compared to $222,000 for 1996, primarily due to the Company's
efforts in the area of software development.
Interest expense for 1997 was $49,000 higher than in 1996 due to slightly
higher average level of long term debt and capital lease obligations. Interest
income increased $31,000 from 1996 to 1997 due to investing the unused proceeds
from the issuance of the Company's 14.8% Series B and Series C Mandatory
Redeemable Preferred Stock.
The net loss for the year ended December 31, 1997 increased to $6.4 million,
from $2.1 million in 1996, primarily as a result of the items discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues generated during 1996 were approximately $3.2 million,
including $2.7 million resulting from sales of network equipment and territorial
rights. The remaining $490,000 of revenues were network
21
<PAGE>
operating revenues received from the two network owner-operators. Prior to 1996
the Company was in the development stage and had no revenues.
The cost of the equipment sold to the two network owner-operators was
approximately $2.2 million, and network operating expenses were $363,000.
Selling, general and administrative expenses for the year ended December 31,
1996 were $2.5 million, an increase of $404,000, or 19%, compared to $2.1
million for the year ended December 31, 1995. This increase was a result of the
commencement of network operations during the year resulting in increased
depreciation, telephone and salary expense. Telephone expense is significant
since the programming sent to the NGN Displays uses standard phone lines.
Net non-operating expense dropped $81,000 for the year ended December 31,
1996 from the comparable period in 1995. This was due primarily to an increase
in interest income of $73,000 due to investments resulting from unused proceeds
from the issuance of the Series B Preferred Stock.
As a result of the factors discussed above, the Company's net loss was $2.1
million for the year ended December 31, 1996, compared to $2.3 million for the
prior year.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards of approximately $17.1
million at December 31, 1997 which are available to reduce income taxes payable
in future years. Future utilization of these loss carryforwards is subject to
certain limitations under provisions of the Internal Revenue Code including
Section 382 which relates to a 50 percent change in control over a three year
period, and are further dependent upon the Company attaining profitable
operations. The Company believes that the issuance of the Warrants resulted in
an "ownership change" under Section 382. Accordingly, the Company's ability to
use net operating loss carryforwards through February 1, 1998 would be limited
to approximately $1.3 million per year. To the extent the Company is able to
generate taxable income in a period in which this net operating loss
carryforward is available, the Company's cash requirements for the payment of
income tax would be reduced.
LIQUIDITY AND CAPITAL RESOURCES
Through December 31, 1997, the Company's primary source of liquidity has
been proceeds from the sale of equity securities.
As of December 31, 1997, total cash and cash equivalents were $2.8 million
compared to $3.8 million as of December 31, 1996. The decrease in cash was a
result of $4.7 million of cash used in operating activities and $1.4 million of
cash used in investing activities being offset by $5.1 million of cash provided
by the sale of mandatory redeemable preferred stock. The Company's increasing
sales volume has and will require additional cash to fund increased receivable
levels. In addition, the Company paid in early 1998 approximately $1.5 million
of accrued obligations to site operators relative to site agreements and
expenses related to Preferred Stock issuance and the Units Offering.
The net cash used in operating activities during 1997 primarily resulted
from an increase in accounts receivable and the year to date net loss, after add
back of depreciation, offset by an increase in accrued expenses. The increase in
accounts receivable is the result of the commencement of advertising sales
during late 1996 and the continued increases of advertising sales in 1997. The
net cash used in investing activities was primarily for capital expenditures to
expand the Company's NGN network. The net cash provided by financing activities
was primarily as a result of proceeds received from the issuance of the
Company's 14.8% Series C Mandatory Redeemable Preferred Stock (the "Series C
Preferred Stock").
In 1997, the Company issued 75,310 shares of Series C Preferred Stock to
private investors at $77 per share. Proceeds upon the issuance of this stock,
net of issuance costs of approximately $156,000, totaled approximately $5.6
million, which consisted of approximately $5.1 million of cash, and conversion
of approximately $500,000 of a shareholder note.
22
<PAGE>
In 1996, the Company issued 91,059 shares of Series B Preferred Stock to
private investors at $77 per share. Proceeds upon the issuance of this stock,
net of issuance costs of approximately $137,000, totaled approximately $6.9
million, which consisted of approximately $6.4 million of cash and conversion of
a bridge loan for $500,000.
In 1991, the Company issued 6,000 shares of Series A 8.25% Cumulative
Preferred Stock (the "Series A Preferred Stock") to private investors at $500
per share. Proceeds upon the issuance of this stock, net of issuance costs of
approximately $160,000, totaled approximately $2.8 million.
The Series B Preferred Stock and Series C Preferred Stock are on par with
each other, and are senior to all other classes of capital stock of the Company
with respect to dividend and liquidation rights. Each of the Series B and Series
C Preferred Stock accrues dividends at the rate of 14.8% per annum on the
liquidation value. The Company is permitted to make quarterly dividend payments
in cash, payable on March 1, June 1, September 1 and December 1, or in lieu of
cash dividends the Company may accrue the dividend and add the accrued amount to
the liquidation value. The initial liquidation value for each of the Series B
Preferred Stock and the Series C Preferred Stock was $77 per share. With respect
to the Series B Preferred Stock, accrued dividends that have been added to the
liquidation value totaled approximately $1.3 million at December 31, 1997, and
approximately $105,000 in respect of dividends had accrued but had not been
added to the liquidation value. With respect to the Series C Preferred Stock,
accrued dividends that have been added to the liquidation value totaled
approximately $183,000 at December 31, 1997, and approximately $75,000 in
respect of dividends had accrued but had not been added to liquidation value.
The Company has not paid cash dividends on either the Series B Preferred Stock
or the Series C Preferred Stock. See "Description of Capital Stock."
The Series A Preferred Stock is senior in rank to the Company's Common Stock
and junior in rank to the Series B and Series C Preferred Stock with respect to
dividend and liquidation rights. The Series A Preferred Stock accrues dividends
at the rate of $41.25 per share per annum. The initial liquidation value for the
Series A Preferred Stock was $500 per share. Accrued dividends that have been
added to the liquidation value totaled approximately $1.5 million at December
31, 1997.
Upon consummation of the Units Offering, the Company used approximately $1.9
million of the net proceeds therefrom to repay in full its outstanding secured
indebtedness to Gerard P. Joyce, the Company's Chairman of the Board of
Directors and President. The interest rate of such indebtedness was 8% per
annum. Of the remaining net proceeds of the Units Offering, the Company intends
to use approximately (i) $17.4 million to fund capital expenditures relating to
NGN Displays, (ii) $2.5 million for corporate capital expenditures, (iii) $7.5
million to fund operating expenses and (iv) the remaining $13.2 million for
working capital and general corporate purposes.
Interest on the Notes (which were issued as part of the Units in the Units
Offering) is payable on February 1 and August 1 of each year, commencing August
1, 1998. Interest on the Notes is payable either in cash or additional Notes, at
the option of the Company through August 1, 2000, and thereafter is payable in
cash. Accordingly, the Company will not be required to pay cash interest
payments on the Notes until the February 1, 2001 interest payment date.
Capital expenditures were approximately $2.1 million and $2.3 million for
the years ended December 31, 1996 and 1997, respectively. The majority of these
expenditures were used to expand NGN. Management believes that the minimum
capital expenditures required to enter a new market are approximately $500,000
depending on the number of sites in the market.
The Company anticipates that its $2.8 million of cash and operating cash
flow, together with the net proceeds of the Units Offering, will be sufficient
to finance the operating requirements of the Company and anticipated capital
expenditures for the next 24 months. However, if advertising revenues do not
increase as anticipated or operating expenses are higher than anticipated, the
Company may need to raise additional capital. There can be no assurance that the
additional funds will be available, or if available, will
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be available on terms acceptable to the Company. The Company believes that the
current installed base of NGN Displays is large enough to attain profitable
operations when advertising revenues reach desired levels.
YEAR 2000
The Company has performed a review of its year 2000 preparedness relative to
its NGN delivery and accounting systems. Management believes that no material
costs will be necessary to become year 2000 compliant.
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BUSINESS
COMPANY OVERVIEW
The Company sells advertising space and provides programming through an
electronic out-of-home advertising network known as NGN--Next Generation
Network. Out-of-home advertising derives its name from reaching audiences out of
their homes. According to the OAAA, out-of-home advertising is a $3.8 billion
industry, consisting primarily of billboards, transit advertising and stadium
and other signage. NGN is a "billboard-TV" network of color video monitors ("NGN
Displays") located at high traffic public locations. NGN Displays are connected
by ordinary voice-grade telephone lines and controlled from a single operations
center in Minneapolis, Minnesota. By utilizing technology to reduce labor costs
and provide immediacy and flexibility to advertisers, NGN seeks to preserve the
positive attributes while avoiding the negative attributes of the out-of-home
advertising industry. Specifically, the Company seeks to achieve the high
operating profit margins and recurring cash flows inherent in the industry,
while reducing fixed costs and labor intensity, and avoiding zoning regulations
that may impede expansion.
By presenting a sequence of partially animated, television-quality images,
NGN is intended to capture audience attention in busy out-of-home environments,
thereby effectively delivering advertising and programming messages. NGN
Displays present repeating two-and-one-half minute sequences, or "loops," of
advertising and programming. As currently configured, the loops consist of
twelve advertising slots of approximately ten seconds each and six to eight
programming slots of approximately six seconds each. Advertising slots currently
consist of advertisements principally for local and regional advertisers, and
programming slots include information such as local and national weather,
sports, news headlines and financial information, as well as Company sponsored
promotional contests. For example, a Baltimore, Maryland 7-Eleven customer
waiting in line to purchase merchandise may view the three day Baltimore
forecast, the Baltimore Orioles baseball score and local news headlines
interspersed with advertisements for Haagen-Dazs ice cream, a Chrysler
dealership and a local dentist, among other messages.
Management believes that consumers view NGN programming as a useful source
of information, and that advertisers view NGN as a flexible, effective
advertising medium to reach a targeted audience. Additionally, Management
believes that site operators benefit from NGN because (i) site operators
generally share in the Company's advertising revenue typically at no cost to the
site operators and (ii) NGN increases customer satisfaction by making the
customer's visit to the site more enjoyable.
The Company currently operates NGN in the following nine DMAs and their
surrounding areas: Washington, D.C.; Dallas-Ft. Worth, TX; Tampa, FL; Miami, FL;
Orlando, FL; Baltimore, MD; Norfolk, VA; West Palm Beach, FL; and Fort Meyers,
FL. As of December 31, 1997, the Company had NGN Displays operating in
approximately 1,800 sites. Based on the average of the daily transaction counts
submitted to the Company by the site operators (the "Daily Audience"), the
Company estimates that NGN presently can be viewed by approximately 2 million
people daily. Additionally, the Company holds exclusive site agreements for
approximately 6,600 additional sites. Collectively with the Company's presently
installed sites, NGN could be viewed by an estimated Daily Audience of
approximately 10 million people in 41 of the top 50 DMA's in the United States.
BUSINESS STRATEGY
As the American lifestyle has become increasingly busy, reaching the
consumer through traditional advertising mediums has become more difficult.
According to the Report, 64.2% of the adult population read newspapers daily in
1997 as compared to 77.6% in 1970. In addition, according to Nielsen,
subscribers to America On-Line tend to watch 15% less television than the
average person. In recognition of these trends, among other trends, management
believes that advertisers are seeking innovative ways to reach out-of-home
audiences. As a result of the limitations that characterize many traditional
forms of out-of-home advertising, such as less desirable demographics due to
zoning, long lead times to implement
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advertisements, and complexity of buying space nationally, Management believes
there will be a strong demand for media vehicles such as NGN.
The Company's objectives are to (i) increase and diversify the physical
presence of NGN in the United States by building upon the Company's existing
site agreements and negotiating additional site agreements and (ii) utilize
NGN's flexibility as an advertising medium to sell advertisements through the
Company's dedicated sales force on a local, regional and national basis. To
achieve its objectives, the Company has adopted the following business
strategies:
- INCREASE PHYSICAL PRESENCE OF NGN. The Company's expansion strategy is to
increase the Company's geographic presence in top markets and diversify
distribution venues. The Company intends to complete the installation of
NGN Displays in the over 6,600 additional sites currently under exclusive
site agreements, while continuing to secure new site agreements within its
existing operating DMAs as well as the DMAs targeted by the Company for
expansion. The Company currently has NGN Displays in two of the ten top
DMAs, and has site agreements in nine of the top ten DMAs and 41 of the
top 50 DMAs. The Company's immediate geographic expansion focuses on the
top ten DMAs, with the intention of having a presence in all of the top 25
DMAs by 2002.
- CONTINUE TO INCREASE ADVERTISING REVENUES. To date, the Company has
attracted over 200 advertisers, which Management believes indicates a
present market acceptance of NGN as an advertising medium. The Company
conducts its sales efforts through a dedicated sales force within each of
the DMAs in which it operates, which enables NGN to accommodate
micro-targeted advertising needs of local advertisers while offering both
flexibility and breadth of coverage to full-market and multi-market
advertisers. By combining its local sales presence with continued
expansion and diversification of distribution venues, the Company believes
it will broaden the audience for NGN programming and advertising, and will
appeal to an increasing pool of advertisers by providing a truly local,
regional and national advertising medium.
FINANCING PLAN
On February 18, 1998, the Company completed the sale of 45,000 Units to
NatWest Capital Markets Limited in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. Each Unit
consisted of $1,000 principal amount of Series A Notes and 2.78311 Warrants,
each to purchase one share of the Common Stock, representing in the aggregate at
the time of issuance approximately 20% of the Common Stock on a fully diluted
basis. The Initial Purchaser then resold the Units to qualified institutional
buyers pursuant to Rule 144A of the Securities Act. The Series A Notes and the
Warrants became separately transferable, subject to compliance with applicable
securities laws, on March 20, 1998.
The Company intends to use the net proceeds from the Units Offering
primarily to implement its business strategy and expand its network of NGN
Displays, including the funding of capital expenditures and general and working
capital needs over the next 24 months. Approximately $17.4 million of the net
proceeds are intended to be used to fund capital expenditures relating to the
installation of NGN Displays at sites for which the Company presently has site
agreements as well as new sites for which the Company obtains site agreements in
the future. In addition, the net proceeds are intended to be used to fund
corporate capital expenditures and operating expenses as well as for working
capital and general corporate purposes. Management believes that cash flow from
operations will be sufficient to fund its projected ongoing capital expenditure
and working capital needs following such 24-month period. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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FOUNDING VISION
The Company's co-founder and Chairman, Gerard Joyce, has over 26 years of
experience as an entrepreneur in the out-of-home advertising business. Prior to
founding the Company, Mr. Joyce founded Patrick Media Group, Inc. which, through
internal growth and acquisitions, became the largest out-of-home advertising
company in the United States.
Mr. Joyce's founding vision for the Company was to build an out-of-home
advertising network that preserved the positive attributes and avoided the
negative attributes of the outdoor advertising industry. Specifically, Mr. Joyce
sought to utilize technology to provide immediacy and flexibility to advertisers
as well as to reduce labor costs thereby achieving the high operating profit
margins and recurring cash flows inherent in the industry, while reducing the
high fixed costs and labor intensity, and avoiding zoning regulations that may
impede expansion.
This founding vision led to the development of NGN, which utilizes advanced
technology to reduce labor costs and provides immediacy and flexibility to
advertisers. Since NGN Displays are located indoors, or otherwise within
privately-owned facilities, NGN reaches into desirable demographic areas by
avoiding zoning issues that are typically associated with the outdoor
advertising business.
The Company was founded in 1990 and thereafter focused its efforts, among
other things, on the development of NGN by developing and improving the NGN
technology. At the same time, the Company concentrated its efforts on securing
site agreements for the placement of NGN Displays as well as recruiting local
sales personnel and opening local sales offices in its initially developed DMAs.
INDUSTRY OVERVIEW
NGN competes in the out-of-home advertising industry. Out-of-home
advertising derives its name from reaching audiences out of their homes, and
consists primarily of billboards, transit advertising and stadium and other
signage. According to the OAAA, the total expenditures for the out-of-home
industry in 1996 were approximately $3.8 billion, and the industry is growing at
a rate of 7.5% annually, which is 16% faster than overall advertising
expenditures. The Company believes that out-of-home advertising, which has
existed for over 125 years, is a proven, resilient industry.
Management believes that recent demographic and marketing trends, such as
changing lifestyles and habits associated with dual career households and the
high costs and audience fragmentation associated with in-home mass media, have
created a favorable environment for out-of-home advertising in general and NGN
specifically. According to the Report, the in-home market is becoming more
competitive with more TV channels per home (41 channels in 1995 compared to 9 in
1980) and rising distractions from video games and Internet usage. Tangible
evidence of this trend is the declining newspaper readership, which is now 64.2%
of the adult population on weekdays, down from 77.6% in 1970. In addition, a
recent survey by Nielsen indicates that subscribers to America On-Line watch 15%
less television than the average person.
Many traditional forms of out-of-home advertising are hampered by
limitations such as less desirable demographics due to zoning, long lead times
to implement advertisements, complexity of buying space nationally and high
production costs. For example, billboard advertisers are subject to numerous
state and local regulations restricting the permitted locations of
advertisements. Zoning regulations frequently restrict the height and size of
outdoor advertisements, and governmental authorities from time to time ban the
use of outdoor advertisements or order their removal. NGN Displays are placed in
privately-owned establishments primarily indoors and generally are not subject
to the same regulatory pressures affecting the placement of other out-of-home
media.
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NGN SYSTEM
NGN incorporates a sophisticated telephone based communication system that
includes the NGN Displays, computers and related operating and network
management software. From a central hub facility in Minneapolis, Minnesota, the
Company creates programming and advertising that is transmitted to NGN Displays
in multiple locations by means of standard telephone lines. NGN presents a
sequence of partially animated, television-quality images that are intended to
capture audience attention in busy out-of-home environments, thereby effectively
delivering advertising and programming messages.
NGN integrates industry standard computer hardware and software with
proprietary software developed by the Company specifically for its out-of-home
advertising application. The computer architecture of NGN is intended to make
the system "scaleable" so that the network can be expanded to facilitate growth
at minimal incremental cost. The Company believes that NGN is reliable,
experiencing "up-time" (representing the daily average of functioning units) in
excess of 99% for the six months ended December 31, 1997.
NGN DISPLAY SITES
The Company's objective is to place NGN Displays in thousands of locations
throughout the United States, with target sites consisting of high traffic,
public venues where people remain for several minutes, including convenience
stores, fast food restaurants, office building lobbies, pharmacies, movie
theater lobbies and self-serve gas pumps. The Company historically has targeted
convenience stores as NGN Display sites because of the existence of numerous
large regional and national chains which allow for economies of scale. Companies
currently under exclusive site agreements with the Company include The Southland
Corporation (7-Eleven Stores), Cumberland Farms, Jerry's Subs, Uni-Marts,
Convenient Food Marts and Crown Central Petroleum.
As of December 31, 1997, the Company had NGN Displays operating in
approximately 1,800 sites. Based on the average of the daily transaction counts
submitted to the Company by the site operators (the "Daily Audience"), the
Company estimates that NGN presently can be viewed by approximately 2 million
people daily. Additionally, the Company holds exclusive site agreements for
approximately 6,600 additional sites. Collectively with the Company's presently
installed sites, NGN could be viewed by an estimated Daily Audience of
approximately 10 million people in 41 of the top 50 DMAs in the United States.
The Company is highly dependent on the Southland Contract, which as of
December 31, 1997 covered 1,451 of the Company's installed NGN Displays and
4,071 of the additional sites for which the Company has agreements. A total of
97% of the Southland-owned and franchisee-owned 7-Elevens presently are party to
exclusive site agreements with the Company. The Southland Contract expires on
January 1, 2001. The Southland Contract provides that NGN Displays may be
installed in all Southland owned 7-Eleven's. In addition, Southland has agreed
to use its reasonable best efforts to solicit franchisee participation in the
program. Although there is no obligation to renew or extend, the Southland
Contract provides that Southland and the Company will negotiate in good faith to
renew or extend the Southland Contract for at least 5 years. Under the Southland
Contract, if Southland desires to enter into an agreement with a provider of
services competitive with the Company, the Company has a right to match the
competitors terms for a substantially similar product as the other provider.
Southland may terminate the Southland Contract in the event the Company
materially breaches its obligations and fails to cure such breach within 30 days
of receiving notice thereof. Either the non-renewal of the Southland Contract or
any difficulty that might arise in the Company's relationship with Southland
would have a material adverse effect on the Company's business.
Under the site agreements with site operators, the NGN Displays are
installed, maintained and operated by the Company. The store owner generally
receives a percentage of the advertising revenues derived by the Company from
the particular site, typically at no cost to the operator (other than, in
certain circumstances, the cost of the NGN Displays). The Company is solely
responsible for the installation and
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maintenance of its NGN Displays. This additional source of income provides the
site operators with an incentive to renew the agreements at the end of their
terms, which range in initial term from five to fifteen years. The Company's
agreements with convenience store chains have varying expiration dates ranging
from approximately December 2000 to December 2010 and generally provide that the
Company shall be the exclusive provider of video-based information,
entertainment and advertising services. Under the Southland Contract, the
Company is required to make minimum annual payments.
The Company intends to maximize its planned expansion through creation of a
specialized group aimed at identifying and negotiating with companies and
organizations that would provide multiple potential new locations. The Company
also intends to utilize the local knowledge of its general managers, sales
managers and sales personnel to identify locations for further expansion in
existing markets.
PROGRAMMING
NGN Displays present repeating two-and-one-half minute sequences, or
"loops," of advertising and programming. As currently configured, the loops
consist of twelve advertising slots of approximately ten seconds each and six to
eight programming slots of approximately six seconds each. Advertising slots
currently consist of advertisements principally for local and regional
advertisers, and programming slots include information such as local and
national weather, sports, news headlines and financial information, as well as
Company sponsored promotional contests. For example, a Baltimore, Maryland
7-Eleven customer waiting in line to purchase merchandise may view the three day
Baltimore forecast, the Baltimore Oriole's baseball score and local news
headlines interspersed with advertisements for Haagen-Dazs ice cream, a Chrysler
dealership and a local dentist, among other messages.
The advertising and programming loops for each NGN Display are all created
and controlled from a central hub in Minneapolis, allowing the Company to
quickly and cost-effectively custom-tailor both the advertising and programming
content on a regional or micro-targeted basis. By utilizing the Company's
network management software, the Company customizes programming information for
local markets. Attributes such as instantaneous copy changes, minimal lead
times, negligible production costs and expedited electronic communications
distinguish NGN from other out-of-home advertising. NGN is designed so that
programming information can be provided to the Company via electronic feed from
providers of such information, such as Accu-Weather, which provides weather
information. Once the feed is received at the Company's facilities, it generally
is processed automatically and distributed to the NGN Displays over telephone
lines.
ASSEMBLY, INSTALLATION AND MAINTENANCE
The Company has designed its NGN Displays so that their component parts are
readily available from a number of suppliers. All of the NGN Displays are
assembled and tested prior to installation by a third party contractor. The
principal components of NGN Displays, the monitor and embedded computer, are
purchased from separate third party contractors, with three-year warranties. All
components for NGN Displays, including electronic and computer-related
equipment, are available from a number of well-established suppliers. The
Company intends to continue to rely on its contractors for the assembly of its
NGN Displays for the foreseeable future. Although the Company to date has not
experienced any difficulties or delays in obtaining the desired quantities of
NGN Displays, there can be no assurance that assembly delays will not result in
delays in obtaining the necessary quantities of NGN Displays in the future. The
Company has utilized the services of its contractors for several years and has
maintained a good relationship. However, the Company does not have any formal
long-term agreement with such contractors. See "Risk Factors--Dependence on
Third Parties."
The Company has a contractual arrangement with an independent contractor for
the nationwide installation and maintenance of all of its NGN Displays. The
independent contractor has a network of offices and subcontractors throughout
the United States, and has been able to adequately satisfy all of the
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Company's installation and maintenance needs to date. Pursuant to its agreement
with the independent contractor, the Company pays a fixed fee per installation
and a fixed monthly maintenance fee based on the number of existing NGN Display
installations. The independent contractor maintains an inventory of spare parts
for NGN Displays at local warehouses within the vicinity of NGN Display sites.
If an NGN Display cannot be repaired on-site, it is exchanged with a new one.
Since the independent contractor is an authorized repair center for the
Company's computer manufacturer, if the malfunctioning component is the embedded
computer, it can generally be repaired at no additional cost to the Company. The
agreement with the independent contractor expires in June 1999. The Company
believes that performance under its existing agreement has been satisfactory,
and the Company does not foresee any difficulties in obtaining these services in
the future.
The Company believes it can find other outside sources to adequately satisfy
its assembly, installation and maintenance needs. However, there can be no
assurance that it will be able to do so in a timely manner or that such new
outside sources would be able to meet the Company's requirements. Although to
date the Company has not experienced any material adverse effects due to such
risks, there can be no assurance that the business of the Company will not be
adversely affected by such risks in the future.
ADVERTISING SALES AND MARKETING
The Company seeks to take advantage of its inherent flexibility of
geographically targeted advertising by emphasizing sales to local advertisers,
the traditional area of strength for out-of-home advertising. According to the
Outdoor Advertising Association of America (the "OAAA"), in 1997, an estimated
60-70% of all out-of-home advertising revenue (comprised principally of outdoor
advertising) was derived from local advertisers. The Company conducts its
advertising sales efforts through a dedicated, local sales force within each of
the DMAs in which it operates NGN Displays. The local sales force is thereby
able to work closely with each of the Company's advertisers to develop
advertising campaigns that match specifically targeted audience segments with
the advertisers' overall marketing strategies. The Company currently has sales
offices in seven DMAs, Washington, D.C., Dallas-Ft. Worth, TX, Tampa, FL, Miami,
FL, Orlando, FL, Baltimore, MD and Norfolk, VA. The Company intends to staff
each local sales office with either a general manager or a sales manager, and
with between 4 and 10 sales persons. The size of the sales staff depends on
various factors, including the physical size of the DMA and the number of NGN
locations within the DMA. In early 1997, the Company realized its first
operating revenues from advertising sales in markets where the Company has a
dedicated sales force, and has attracted over 200 advertisers, including The
Washington Post, WRC-TV (NBC station in Washington D.C.), Chrysler Plymouth
Florida Dealers Association, Elle Magazine, George Magazine, The Dallas Morning
News, the Virginia Lottery and Fox Sports Southwest. The Company is able to
locate its NGN Displays in highly desirable demographic sites as it is not
restricted by the zoning regulations that typically limit the placement of many
other forms of out-of-home advertising.
The Company generally attracts candidates for its general manager, sales
manager and sales representative positions from existing media sales personnel
in the local areas, including from radio and broadcasting and cable television
operators as well as from outdoor advertising and various print media companies.
Currently, the Company utilizes placement services and the Company's existing
industry contacts to locate qualified sales personnel. The Company believes
that, as NGN expands, the Company will continue to attract qualified sales and
sales management personnel.
All graphic design, network management, billing and other functions are
handled from the Company's main corporate headquarters in Minneapolis. Through
local links to the main database and the use of modem-equipped laptop computers,
the local offices can utilize the Company's sophisticated technology and
dedicated technical and creative staff to support local selling efforts. The
laptop computers can be linked to the Company's main database and include the
Company's proprietary proposal generating software. Such software was developed
by the Company to allow a sales person to customize advertising proposals
instantly to accommodate the stated preferences of the advertiser. For example,
a sales person
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can generate proposals based on a location within a specified radius, or site by
site purchases. The proposals can specify cost (as well as other schedule
information) and can prepare maps and location lists to show the exact NGN
Display locations on which an advertisement will appear.
In coordination with the installation of NGN Displays, the Company intends
to open sales offices in major media markets at the rate of approximately one
sales office per month. The targeted markets include New York, Los Angeles,
Chicago, Philadelphia, San Francisco, Boston, Detroit, Seattle, Cleveland and
Denver. The Company intends to continue its expansion into additional markets so
that, by the end of the year 2000, the Company has sales offices in all of the
top twenty-five DMAs.
While the Company believes that achieving its growth strategy requires
concentration on local advertisers, the Company also intends to target national
advertisers. The Company has appointed Capital Cities/ABC as its exclusive agent
for national advertising sales for NGN until March 28, 2002. The Company
believes that as it continues to grow, it will hire additional sales personnel
to concentrate on national advertising, providing the Company with the
opportunity to recognize significant national advertising sales revenues.
The Company charges a fixed daily rate for the advertising slots provided to
advertisers on its NGN Displays. Based on traffic counts at NGN Display sites,
the present cost to the Company's advertisers per thousand impressions ("CPM")
is between $3 and $4. By comparison, according to the Report, radio, newspaper
and television advertising has a CPM of between $7 and $50. Traditional outdoor
advertising, which bases impressions on the number of vehicles which pass a
site, has a CPM of between $1.50 to $3.40 depending on the size, type and
location of the display surface, plus substantial production costs. While
enjoying a substantial cost advantage over television, radio and print
advertising, the Company believes it can compete effectively with traditional
outdoor advertising because of the flexibility and efficiencies inherent in the
Company's display medium and centrally controlled network.
COMPETITION
The advertising and promotional industries are intensely competitive. The
Company will be competing for advertising dollars directly with advertising and
promotional vehicles such as broadcast and cable television, radio, magazines,
newspapers, billboards, direct mail marketers and others. In addition, the
Company also competes with a wide variety of out-of-home advertising, including
highway logo signs, advertising in shopping centers and malls, airports,
stadiums, movie theaters and supermarkets, as well as on taxis, trains, buses
and subways. Management believes that the out-of-home advertising industry is
attracting numerous alternative media products, many of which will compete
directly or indirectly with NGN. These products may be offered by companies with
greater resources and with greater industry recognition than the Company. The
Company is aware of other companies that place displays that look similar to NGN
Displays in specific venues for commercial purposes, such as in airports and
subways. Although the Company believes that these companies are not competing in
the venues targeted by the Company, there can be no assurance that such
companies will not commence marketing in the same venues and within the same
DMAs targeted by the Company. While Management believes that NGN is favorably
differentiated from other available media, in competing with existing media for
advertising sales the Company encounters media that is more established and
recognized by potential advertisers and advertising agencies.
PROTECTION OF TECHNOLOGY
The Company does not have patent or registered copyright protection on any
of the software technology that the Company utilizes in connection with NGN, and
such technology might not be eligible for patent protection. The Company
believes that significant portions of its software are entitled to copyright
protection in the United States. Should the Company seek and obtain federally
registered copyright protection for any of its software in the future, no
assurance can be given that the copyright
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application would be accepted or that a capable and adequately financed
competitor could not lawfully develop software that would perform the same
function.
The Company views the computer software technology that it has developed as
proprietary, and attempts to protect its technology and trade secrets through
the use of confidentiality and non-disclosure agreements and by other security
measures. The protection offered by trade secret law and confidentiality
agreements is limited in comparison to patent protection. Confidentiality and
non-disclosure agreements may be difficult to enforce, and the Company's
products might be subject to reverse engineering. Consequently, no assurance can
be given that competitors will not be able to develop or obtain technology
similar to the Company's and produce products similar to those the Company is
utilizing.
The Company has applied for several federal registrations of trademarks,
including "NGN," "Next Generation Network" and "Out of Home That's In Your
Face." While no assurance can be given that the trademarks will be issued, the
Company is not aware that the trademarks for which federal registration is
sought infringe on existing trademarks.
GOVERNMENT REGULATION
The Company is not aware of any material legal or other regulatory
restrictions which may adversely affect its business, other than those that
affect businesses generally. The furnishing of in-store marketing services is
subject to compliance with the Robinson-Patman Act. In general, the
Robinson-Patman Act prohibits price discrimination and discriminatory
promotional allowances and services between different purchasers of commodities
of like grade and quality, the effect of which may be substantially to lessen
competition in any line of commerce.
The Company's use of telephone lines to transmit messages to its NGN
Displays subjects the Company to regulation by the Federal Communications
Commission ("FCC") as well as laws and regulations affecting the advertising
industry generally. While the Company has not sought determination on the issue,
the FCC may attempt to prohibit the Company from transmitting tobacco
advertisements on NGN. In addition, certain state statutes restrict advertising
of alcoholic beverages on NGN.
EMPLOYEES
As of February 28, 1998, the Company had 82 employees, of which 5 were
involved in engineering, purchasing and field operations, 13 were involved in
network operations, marketing and creative services, 8 were involved in
management and administration, 15 were involved in management information
systems and accounting, and 41 were involved in the regional sales offices. The
Company's employees are not represented by a collective bargaining agreement.
Management considers relations with the Company's employees to be very good.
FACILITIES
The Company's headquarters are located in approximately 11,300 square feet
of office space in Eden Prairie, Minnesota, a suburb of Minneapolis. The Company
also leases 2,150 square feet of warehouse space in Minneapolis. Both leases
expire December 31, 1998. In addition, the Company has a regional sales office
in each of Dallas, Texas (1,811 square feet); Washington, D.C. (2,250 square
feet); Norfolk, Virginia (832 square feet); Baltimore, Maryland (1,680 square
feet); Orlando, Florida (2,399 square feet); Fort Lauderdale, Florida (1,893
square feet); and Tampa, Florida (1,964 square feet). The Company's leases
expire on various dates, ranging from February 28, 2000 to October 31, 2002, and
many provide for renewal options.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party, or
to which any of its properties is subject.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gerard P. Joyce...................................... 46 Chairman of the Board of Directors and President
Thomas M. Pugliese................................... 35 Vice Chairman of the Board of Directors, Chief
Executive Officer and Secretary
Timothy P. Hartman................................... 58 Director
Michael J. Marocco................................... 39 Director
David R. Voelker..................................... 44 Director
Thomas J. Davis...................................... 50 Director
James P. Sheehan..................................... 55 Director
Alejandro Zubillaga.................................. 30 Director
Carol A. Lundstrom................................... 46 Executive Vice President
Michael J. Kolthoff.................................. 45 Treasurer and Assistant Secretary
</TABLE>
GERARD P. JOYCE. Mr. Joyce founded the Company in 1990 and has served as
the Company's Chairman of the Board of Directors since inception and as its
President since December 1991. Prior to founding the Company, Mr. Joyce was
Chairman and Chief Executive Officer of the Patrick Media Group, Inc., a
successor to a company he formed in 1969. The Patrick Media Group, Inc., through
internal growth and a series of acquisitions, became the largest out-of-home
advertising company in the United States. Mr. Joyce sold his controlling
interest in the Patrick Media Group, Inc. in September 1989.
THOMAS M. PUGLIESE. Mr. Pugliese founded the Company together with Gerard
Joyce in 1990 and has served as the Company's Vice Chairman of the Board of
Directors since its inception. From 1988 to 1990, Mr. Pugliese was President of
Thomas More & Company Inc., a private investment banking firm. From 1984 through
1988, Mr. Pugliese was an investment banker with Shearson, Lehman, Hutton Inc.
and its predecessor firm, E.F. Hutton & Company, Inc. where he held various
positions in New York and London, including as American representative for the
firm's international investment banking operations.
TIMOTHY P. HARTMAN. Mr. Hartman has been a director of the Company since
1996. Mr. Hartman was employed by NationsBank Corporation from 1982 until his
retirement in 1995, at which time he served as Vice Chairman and as a director
as well as the Chairman of the Board of its subsidiary, NationsBank of Texas. He
is currently a private investor. Mr. Hartman serves as a Director of Sensormatic
Electronics Corporation, a public company listed on the New York Stock Exchange
("NYSE"), and chairs its Finance Committee.
MICHAEL J. MAROCCO. Mr. Marocco has been a director of the Company since
1996. Mr. Marocco has been in the securities industry since 1984, when he joined
Morgan Stanley as a fixed income research analyst, specializing in media and
entertainment companies in the high yield bond market. He moved to the
investment banking division and assisted media and entertainment companies in
raising capital and in mergers and acquisitions. In 1989, he joined Sandler
Capital Management, a communications specific capital management firm, managing
approximately $1 billion invested in both public and private companies. He is a
general partner with primary responsibility for private investment activities.
He serves as a director for Yes Entertainment and Source Media Inc., both of
which are public companies listed on Nasdaq.
DAVID R. VOELKER. Mr. Voelker has been a director of the Company since
1996. Since 1993, Mr. Voelker has been a partner of Frantzen/Voelker
Investments, LLC, and is a substantial private investor with interests in real
estate, oil & gas, media and restaurants. From 1988 until founding
Frantzen/Voelker Investments, LLC, Mr. Voelker was a partner in Johnson Rice and
Company, a New Orleans, Louisiana,
33
<PAGE>
investment brokerage firm. He is a Director of several companies including Stone
Energy Corporation, which is listed on NYSE.
THOMAS J. DAVIS, CPA. Mr. Davis has been a director of the Company since
1996. Mr. Davis is an executive with Piaker & Lyons, P.C., a New York accounting
firm where he has been employed since 1972. Mr. Davis' practice specializes in
auditing, financial reporting and planning for closely held businesses in the
communications and other industries. He is a member of numerous community
charity organizations, including Chairman of the Lourdes Hospital Foundation.
Mr. Davis is a Certified Public Accountant in the State of New York. Mr. Davis
is Gerard Joyce's brother-in-law.
JAMES P. SHEEHAN. Mr. Sheehan has been a director of the Company since
January 1998. Mr. Sheehan is a private investor who retired as the President and
Chief Operating Officer of A.H. Belo Corporation. A.H. Belo is a NYSE listed
diversified media company with interests in television and newspapers. Prior to
A.H. Belo, Mr. Sheehan held executive positions at Pratt and Whitney Aircraft
and Otis Elevator Company, both Divisions of United Technologies Corporation. He
currently serves as a Director of Goss Graphic Systems, Inc.
ALEJANDRO ZUBILLAGA. Mr. Zubillaga was elected as a director in January
1998. He is the founder and Chairman of Veninfotel LLC, Venezuela's leading
provider of cable television and other telecom services. Mr. Zubillaga is also
the Chief Executive Officer of Grupo Zubillaga, a family holding company which
holds interests in real estate and mining.
CAROL A. LUNDSTROM. Ms. Lundstrom currently serves as Executive Vice
President of the Company. She has been an employee of the Company since its
inception in 1990. From 1989 until 1990, she was a Marketing and Administration
Executive with Electric Avenue, Inc. From 1981 to 1989, she was an executive
with Apache Corporation, an asset management company, and held positions
including Project Manager, Manager of Investor Relations, Reporting, Systems and
Accounting.
MICHAEL J. KOLTHOFF, CPA. Mr. Kolthoff currently serves as the Company's
Treasurer and Assistant Secretary. From January 1993 until he joined the Company
in July 1995, Mr. Kolthoff was Chief Financial Officer for ONYX Real Estate
Services. From May 1985 until November 1992, he was Chief Financial Officer of
Maico Hearing Instruments. Prior to that time, he was Corporate Controller for
Econo-Therm Energy Systems Corporation and held various senior audit positions
with Coopers & Lybrand. Mr. Kolthoff is a Certified Public Accountant in the
State of Minnesota.
EXECUTIVE COMPENSATION
The following table summarizes the compensation for services rendered to the
Company paid to the Chief Executive Officer and the Company's executive officers
as to whom the total annual salary and bonus exceeded $100,000 in 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SALARY
----------------------------
NAME AND PRINCIPAL POSITION 1996 1997
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Gerard P. Joyce................................................. $ 278,363 $ 311,741
Chairman of the Board of Directors and President
Thomas M. Pugliese.............................................. $ 201,313 $ 212,587
Vice Chairman of the Board of Directors and Chief Executive
Officer
</TABLE>
Non-employee directors of the Company receive a director's fee of $1,000 for
each Board of Directors meeting attended in person.
34
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Gerard Joyce, its Chairman of
the Board of Directors and President. The term of Mr. Joyce's employment
agreement expires on December 31, 1999. Under the agreement, Mr. Joyce is
entitled to an annual base salary of $251,741 and an annual bonus of $60,000
payable after each calendar year if certain revenue goals for the year are met.
In addition, the agreement requires the Company to provide to Mr. Joyce if
requested by him a life insurance policy payable to his designated beneficiary,
with a death benefit of at least $1,000,000. Subject to certain exceptions, Mr.
Joyce has agreed during the term of the Agreement and for a period of two years
thereafter not to engage in certain competitive business activities and not to
solicit any employee of the Company to leave the Company's employ. Pursuant to
his employment agreement, Mr. Joyce has been granted 8,831 shares of the
Company's Common Stock which are subject to forfeiture if Mr. Joyce's employment
with the Company is terminated by him, or by the Company for cause, prior to
December 31, 2006 or the earlier happening of certain other events. Such
forfeiture provisions will be removed December 31, 2006 or earlier upon the
occurrence of such events, which include death, disability, a public offering of
the Company's Common Stock in which such shares are registered for resale, and
the merger, consolidation or sale of substantially all of the Company's assets.
Thomas Pugliese, the Company's Vice Chairman of the Board of Directors and
Chief Executive Officer, is party to a similar employment agreement with the
Company, providing for a term expiring on December 31, 1999, an annual base
salary of $212,600 and the grant of 4,983 shares of Common Stock, which are
similarly subject to forfeiture. Mr. Pugliese's agreement provides that one
third of each semi-monthly installment of his base salary payable on or after
January 1, 1998 shall be paid in the form of Series C Preferred Stock, subject
to forfeiture provisions similar to those applicable to the stock grant. The
agreement also provides for similar life insurance and disability benefits for
Mr. Pugliese.
401(K) PLAN
The Company maintains a retirement plan (the "401(k) Plan") established in
conformity with Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code"), covering all of the eligible employees of the Company. Pursuant to
the 401(k) Plan, employees may elect to defer up to 15% of their current pre-tax
compensation and have the amount of such deferral contributed to the 401(k)
Plan. The maximum elective deferral contribution was $9,500 in 1997, subject to
adjustment for cost-of-living in subsequent years. Certain highly compensated
employees may be subject to a lesser limit on their maximum elective deferral
contribution. The 401(k) Plan permits, but does not require, matching
contributions and non-matching (profit sharing) contributions to be made by the
Company up to a maximum dollar amount or maximum percentage of participant
contributions, as determined annually by the Company. The Company presently does
not match employee contributions. The 401(k) Plan is qualified under Section 401
of the Code so that contributions by employees and employer, if any, to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that contributions by the
Company, if any, will be deductible by the Company when made.
STOCK OPTION PLANS AND OTHER EMPLOYEE INCENTIVE PLANS
The Company has adopted Stock Option Plans (the "Plans") for the purpose of
advancing the interests of the Company and its stockholders by strengthening the
Company's ability to attract and retain competent employees, to make service on
the Board of Directors of the Company more attractive to present and prospective
non-employee directors and to provide a means to encourage stock ownership and
proprietary interest in the Company by officers, non-employee directors and
valued employees and other individuals upon whose judgment, initiative and
efforts the financial growth of the Company largely depend. The Plans are
currently, and have been since their adoption, administered by the Board of
Directors and the compensation committee of the Board.
35
<PAGE>
Incentive stock options ("ISOs") may be granted only to officers and key
employees of the Company. Nonqualified stock options may be granted to such
officers and employees as well as to agents and directors of and consultants to
the Company, whether or not otherwise employees of the Company. In determining
the eligibility of an individual for grants under the Plans, as well as in
determining the number of shares to be optioned to any individual, the Board
takes into account the position and responsibilities of the individual being
considered, the nature and value to the Company of his or her service or
accomplishments, his or accomplishments, his or her present or potential
contribution to the success of the Company and such other factors as the Board
may deem relevant.
The Plan provides for the granting of ISOs to purchase the Company's Common
Stock at not less than the fair market value on the date of the option grant and
the granting of nonqualified options with any exercise price. The total number
of shares with respect to which options may be granted under the Plans is
currently 12,000. As of the date of this Prospectus, options for an aggregate of
6,606 shares have been granted to various individuals. The Plans contain certain
limitations applicable only to ISOs granted thereunder. To the extent that the
aggregate fair market value, as of the date of grant, of the shares to which
ISOs become exercisable for the first time by an optionee during the calendar
year exceeds $100,000, the option will be treated as a nonqualified option. In
addition, if an optionee owns more than 10% of the total voting power of the
Company's stock at the time the individual is granted an ISO, the option price
per share cannot be less than 110% of the fair market value per share and the
term of the ISO cannot exceed five years. No option may be granted under the
Plans after January 1, 2004 with respect to 4,000 of the options, and January 1,
2005 with respect to 8,000 of the options, and no option may be outstanding for
more than four years thereafter.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made under certain circumstances in shares
of Common Stock. The Plans may be terminated at any time by the Board of
Directors, which may also amend the Plans.
In addition to the Plans, the Company intends to implement additional
incentive plans which may include stock options, stock appreciation rights,
profit sharing or similar type plans.
CERTAIN TRANSACTIONS
On September 15, 1993, Gerard P. Joyce, the Chairman of the Board of
Directors and President of the Company, loaned $2,375,000 to the Company, and
the Company granted to Mr. Joyce a security interest in all of the Company's
assets as security for its obligation. On August 29, 1997, in consideration for
the issuance of shares of Series C Preferred Stock to Mr. Joyce, the principal
amount of the obligation was reduced by $500,038. The Company repaid such
indebtedness in the amount of $1,875,462 to Mr. Joyce in full with the net
proceeds of the Units Offering and the security interest held by Mr. Joyce was
terminated. See "Use of Proceeds." See "Employment Agreements" for a discussion
of the employment agreements entered into by the Company with certain of its
executive officers.
In 1997, the Company issued 75,310 shares of its Series C Preferred Stock in
a private placement for an aggregate price of approximately $5.8 million, or $77
per share. As indicated in "Principal Stockholders," David Voelker, Timothy P.
Hartman, James P. Sheehan, Michael J. Marocco and Alejandro Zubillaga, each of
whom is a director of the Company, purchased directly or indirectly shares in
such private placement.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 28, 1998
with respect to the beneficial ownership of the outstanding shares of Common
Stock by (i) any stockholder known by the Company to beneficially own more than
five percent of such outstanding shares, (ii) the Company's directors and
executive officers and (iii) the directors and executive officers of the Company
as a group. Except as otherwise indicated, the address of each beneficial owner
of five percent or more of such Common Stock is the same as the Company. Shares
of Common Stock included in the table which are issuable upon conversion of
shares of Preferred Stock give effect to the accrual of dividends added to the
liquidation value. The Company's outstanding Preferred Stock may be converted at
any time at the holder's option. See "Description of Capital Stock."
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY OWNERSHIP
BENEFICIAL OWNER OWNED PERCENTAGE
- ------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Gerard P. Joyce.................................................... 157,182(1) 54.6%
Thomas M. Pugliese................................................. 68,316 25.7
Thomas J. Davis.................................................... 1,700(2) *
David Voelker...................................................... 9,696(3) 3.6
Timothy P. Hartman................................................. 16,851(4) 6.0
James P. Sheehan................................................... 2,098(5) *
Michael J. Marocco................................................. 93,884(6) 26.1
Alejandro Zubillaga................................................ 13,570(7) 4.8
John Strauss....................................................... 15,700 5.9
200 Crescent Court
Dallas, Texas 75201
Pulitzer Publishing Company........................................ 27,938(8) 9.5
900 North Tucker Boulevard
St. Louis, Missouri 63101
Western Asset...................................................... 41,747(9) 13.6
117 East Colorado Blvd.
Pasadena, CA 91105
SunAmerica Investments, Inc........................................ 27,831(9) 9.5
1 SunAmerica Center
38th Floor
Century City
Los Angeles, CA 90067-6022
Northstar Investment Management.................................... 23,656(9) 8.2
2 Pickwick Plaza
Greenwich, CT 06830
All directors and executive officers as a Group.................... 363,297 87.9
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 21,684 shares of Common Stock issuable upon conversion of shares of
Series A Preferred Stock and Series C Preferred Stock.
(2) Includes 800 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock and 200 shares issuable upon exercise of warrants.
(3) Represents shares owned by Frantzten/Voelker Investments, LLC, of which Mr.
Voelker is a general partner, including 1,746 shares of Common Stock
issuable upon conversion of shares of Series C Preferred Stock.
(4) Includes 13,351 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock and Series C Preferred Stock.
(5) Includes 1,398 shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock.
(6) Represents shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock and Series C Preferred Stock owned by affiliates of
21st Century Communications Partners, each of which is a limited partnership
of which Sandler Investment Partners, L.P. is a general partner. Mr. Marocco
is a general partner of Sandler Investment Partners, L.P.
(7) Represents shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock owned by Elektra Investments A.V.V., which is
controlled by Mr. Zubillaga.
(8) Represents shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock.
(9) Represents shares of Common Stock issuable upon exercise of Warrants issued
in the Units Offering.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 1,000,000 shares of
common stock, par value $.01 per share ("Common Stock"), and 500,000 shares of
preferred stock, par value $1 per share ("Preferred Stock"). The following
description of the Company's capital stock does not purport to be complete or to
give full effect to the provisions of statutory or common law and is subject in
all respects to the applicable provisions of the Company's Certificate of
Incorporation (the "Certificate"), and the information herein is qualified in
its entirety by this reference.
COMMON STOCK
The Company has one class of Common Stock. Each share of Common Stock has
equal dividend and liquidation rights. As of February 18, 1998 of the 1,000,000
authorized shares, 266,268 shares of Common Stock were outstanding, 6,606 shares
were issuable upon exercise of employee stock options and 128,340 shares were
issuable upon the exercise of presently outstanding warrants including the
125,240 Warrants issued in connection with the Units Offering (the "Warrants").
As of December 31, 1997, 221,299 shares of Common Stock were issuable upon
conversion of the outstanding shares of the Company's Series A, Series B and
Series C Preferred Stock.
Authorized shares of Common Stock may be issued from time to time, without
further action by the stockholders, for such consideration as may be fixed by
the Board of Directors in compliance with the laws of the State of Delaware. The
shares of Common Stock presently outstanding are fully paid and nonassessable.
Holders of Common Stock are entitled to one vote for each share for all
matters on which stockholders vote, including the election of directors, other
than in connection with the election of a director by any series of Preferred
Stock. There is no cumulative voting in the election of directors, enabling
holders of a majority of shares of Common Stock to elect all members of the
Board of Directors which the holders of Common Stock are entitled to elect.
Holders of Common Stock generally have no preemptive or other rights to purchase
additional shares of the Company's capital stock. Shares of Common Stock are not
subject to any redemption or sinking fund provision and are not convertible into
any other securities of the Company. Subject to the preferential rights of any
outstanding shares of Preferred Stock and any series of Preferred Stock which
may be authorized in the future, the holders of the Common Stock are entitled to
such dividends as may be declared from time to time in the discretion of the
Board of Directors out of funds legally available therefor. The Company has not
paid dividends on its Common Stock since its inception and intends to continue
following a policy of retaining funds to provide for the expansion of its
advertising network. Holders of Common Stock are entitled to share ratably in
the Company's net assets upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding.
PREFERRED STOCK
The Certificate authorizes the issuance of 500,000 shares of Preferred
Stock, of which there are presently designated 20,000 shares of Series A 8.25%
Cumulative Preferred Stock, par value $1 per share (the "Series A Preferred
Stock"), 91,100 shares of 14.8% Series B Mandatory Redeemable Preferred Stock,
par value $1 per share (the "Series B Preferred Stock"), and 90,000 shares of
14.8% Series C Mandatory Redeemable Preferred Stock, par value $1 per share (the
"Series C Preferred Stock"), and of which 6,000 shares of Series A Preferred
Stock, 91,059 shares of Series B Preferred Stock and 75,310 shares of Series C
Preferred Stock were outstanding as of December 31, 1997.
38
<PAGE>
The Board of Directors has the authority, without further action of the
holders of the Common Stock and for such consideration as may be fixed by the
Board of Directors in compliance with the Delaware General Corporation Law (the
"GCL"), to create by designation and issue and sell additional classes or series
of Preferred Stock up to the authorized number of shares of Preferred Stock with
such preferences, priorities and voting and other rights as the Board shall
determine. The Company does not have any present plans to create and issue
shares of Preferred Stock of any additional class or series. The designation of
any additional class or series of Preferred Stock is subject to the limitations
set forth in the instruments establishing the outstanding series of Preferred
Stock and agreements with certain stockholders, including in certain instances
the approval of the holders of one or more of the outstanding series of
Preferred Stock.
The Series A Preferred Stock ranks senior to the Common Stock and junior to
the Series B Preferred Stock and the Series C Preferred Stock both as to
dividends and upon liquidation. Subject to the preferential rights of the Series
B Preferred Stock and the Series C Preferred Stock, the holders of the Series A
Preferred Stock are entitled (i) to semi-annual cumulative dividends in
preference over Common Stock dividends in the amount of $41.25 per share per
annum, (ii) to a liquidation preference over the Common Stock of $500 per share
plus the amount of accrued and unpaid cumulative dividends and (iii) in case
shares of Series A Preferred Stock are called for redemption, to convert their
shares into shares of Common Stock prior to the tenth day prior to the date
fixed for redemption, at the rate of one share of Common Stock for each $135.27
in liquidation preference, including the preference arising from the amount of
accrued and unpaid cumulative dividends of the preferred stock so converted. The
Series A Preferred Stock is subject to redemption, at the option of the Company,
at a redemption price of $500 for each share plus such accrued and unpaid
dividends. The Series A Preferred Stock is not entitled to the benefit of any
mandatory "sinking" or "purchase" fund. The amount of accrued and unpaid
dividends that have been added to the liquidation preference of the shares of
such series totaled $1,485,000 at December 31, 1997.
The Series B and Series C Preferred Stock rank on a parity with each other
and senior to both the Common Stock and the Series A Preferred Stock as to
dividends and upon liquidation. The holders of the shares of Series B Preferred
Stock and Series C Preferred Stock are entitled to vote as a class on certain
significant corporate matters and each such series is entitled to elect one
member of the Company's Board of Directors whether or not dividends are in
arrears. Michael J. Marocco and Alejandro Zubillaga are presently serving as
such designees of the holders of the Series B and Series C Preferred Stock,
respectively. In addition, the holders of shares of Series B and Series C
Preferred Stock are entitled to jointly elect one member of the Company's Board
of Directors whether or not dividends are in arrears.
The holders of the shares of Series B Preferred Stock and Series C Preferred
Stock are each entitled (i) to quarterly cumulative dividends in preference over
Common Stock and Series A Preferred Stock at the rate of 14.8% of the amount of
the liquidation preference of the shares of such series, (ii) to a liquidation
preference over Common Stock and Series A Preferred Stock of $77 per share plus
the amount of accrued and unpaid cumulative dividends and (iii) to convert their
shares into shares of Common Stock at the rate of one share of Common Stock for
each $77 in liquidation preference, including the preference arising from the
amount of accrued and unpaid cumulative dividends of the preferred stock so
converted. On each dividend payment date, accrued dividends, to the extent
unpaid, are compounded upon the stock's liquidation value. The shares of Series
B and Series C Preferred Stock are also subject to conversion into shares of
Common Stock at the option of the Company in the event of certain qualifying
public offerings of the Common Stock. The Series B Preferred Stock and the
Series C Preferred Stock are each subject to redemption at the option of the
Company, in whole but not in part, at a redemption price of $308 for each share,
and are subject to mandatory redemption by the Company on September 1, 2003, in
the case of the Series B Preferred Stock, and on March 1, 2003, in the case of
the Series C Preferred Stock, in each case at a redemption price of $77 for each
share plus such accrued and unpaid dividends.
39
<PAGE>
However, the holders of the Series B and Series C Preferred Stock are precluded
from requiring redemption of their shares, as described herein, if such
redemption would not be permitted under the terms of the Indenture or other
financing documents to which the Company is subject. See "Description of
Notes--Limitation on Restricted Payments."
Upon the completion by the Company of an initial public offering generating
proceeds of at least $20 million on a pre-money equity valuation of at least
$308 per share and certain other qualifying events relating to the public
trading of the Company's securities, the Company may require conversion of the
Series B and Series C Preferred Stock in accordance with the conversion ratios
set forth above. If such public offering reflects a pre-money equity valuation
of less than $231 per share, subject to the consent of the majority holders of
the Series B Preferred Stock or Series C Preferred Stock, as the case may be,
the holders of Series B and Series C Preferred Stock shall be entitled to
receive upon conversion the greater of the following: (i) the number of shares
to be received upon a conversion as described above, and (ii) the number of
shares obtained by dividing (a) the lesser of (1) $231 and (2) $77 per share
plus the amount of accrued and unpaid cumulative dividends, plus the
Participating Amount, by (b) the pre-money value per share of the Common Stock
on a fully diluted basis implied by such public offering.
Upon liquidation, if a distribution is to be made to the holders of Common
Stock, then the holders of Series B Preferred Stock and Series C Preferred Stock
are entitled to receive, in addition to their liquidation preference, an amount
(the "Participation Amount") that such holders would have been entitled to
receive if their shares of Series B and Series C Preferred Stock had been
converted immediately prior to such distribution, provided that the total amount
that such holders shall be entitled to receive shall not exceed $308 per share.
Upon the bankruptcy or other reorganization of the Company or upon the death
of either Gerard P. Joyce or Thomas M. Pugliese, (if no acceptable replacement
is found) the holders of Series B and Series C Preferred Stock may require the
Company to redeem their shares at the liquidation price for each share plus
accrued and unpaid dividends. Such holders may also require redemption upon
certain "Participating Events" or upon a "Change of Control," which include (i)
merger or other reorganization, (ii) sale or other disposition of all or
substantially all assets, (iii) any person or group other than certain permitted
holders (including Messrs. Joyce and Pugliese) acquire 50% or more voting power,
(iv) Messrs. Joyce and Pugliese cease to serve as directors or executive
officers or (v) Messrs. Joyce and Pugliese cease to hold at least 80% of the
shares of Common Stock held by them on September 25, 1996 (other than as a
result of their death). In any such event, such holders may require the Company
to redeem their shares at a redemption price equal to the liquidation price plus
accrued and unpaid dividends, plus a Participation Amount, but in no event shall
such price exceed $308 per share.
The Company has not paid any cash dividends on either the Series B Preferred
Stock or the Series C Preferred Stock. With respect to the Series B Preferred
Stock, the amount of accrued and unpaid dividends that have been added to the
liquidation preference of the shares of such series totaled $1,313,724 as of
December 31, 1997, and $104,647 in respect of dividends had accrued but had not
been added to the liquidation preference. With respect to the Series C Preferred
Stock, the amount of accrued and unpaid dividends that have been added to the
liquidation preference of the shares of such series totaled $183,074 at December
31, 1997, and $75,192 in respect of dividends had accrued but had not been added
to the liquidation preference.
40
<PAGE>
WARRANTS
In connection with the private placement of $775,000 principal amount of
promissory notes, the Company issued warrants to purchase in the aggregate 3,100
shares of Common Stock (the "Existing Warrants"). The Existing Warrants are
exercisable at any time prior to May 1, 2000 in whole or in part at $71.43 per
share. The number of shares subject to the Existing Warrants and the exercise
price per share are subject to anti-dilution adjustments. Additionally, in
connection with the Units Offering, the Company issued 125,240 Warrants
representing in the aggregate, at the time of issuance approximately 20% of the
Common Stock on a fully-diluted basis. The Warrants will expire on February 1,
2008. Each Warrant will entitle the holder to acquire prior to February 1, 2008
one share of Common Stock at a price equal to $0.01 per share ("Warrant
Shares"). The Warrant Shares are subject to adjustment from time to time upon
the occurrence of certain changes in Common Stock, certain Common Stock
distributions, certain issuances of Common Stock options or convertible
securities, certain dividends and distributions, certain adjustments in the
Preferred Stock and certain other increases in the number of shares of Common
Stock. The Existing Warrants and the Warrants do not, prior to their exercise,
confer any of the rights and privileges of Common Stock.
REGISTRATION RIGHTS
As of December 31, 1997, holders of 253,697 shares of Common Stock
(including shares issuable upon exercise of outstanding Warrants or upon
conversion of Preferred Stock), or their transferees, are entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of various agreements between the Company and such holders, if
the Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders
exercising registration rights, certain holders (depending on the applicable
agreement) are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein subject to the terms and conditions
set forth in the various agreements, including, under certain agreements, that
the underwriters of any offering have the right to limit the number of such
shares included in such registration. In addition, certain stockholders may
require the Company on various occasions to file a registration statement under
the Securities Act with respect to shares held by them, and the Company is
required to use its best efforts to effect such registration, subject to certain
conditions and limitations.
In connection with the Units Offering, the Company entered into a Common
Stock Registration Rights and Stockholders Agreement whereby the holders of the
Warrants have the right to include their Warrant Shares in any registration
statement relating to any common equity securities of the Company under the
Securities Act filed by the Company for the account of any of its holders of
Common Stock (other than a registration statement on Form S-8) subject to PRO
RATA reduction to the extent that the Company or the selling security holders
are advised by the managing underwriter thereof that the total number of Warrant
Shares and other shares of Common Stock proposed to be included therein is such
as to materially and adversely affect the success of the offering.
PREEMPTIVE RIGHTS
As of December 31, 1997, holders of 154,204 shares of Common Stock
(including shares issuable upon exercise of outstanding Warrants or upon
conversion of Preferred Stock), or their transferees, are entitled to certain
rights permitting them to maintain their percentage common equity interest in
the Company (on a fully diluted basis). Under the terms of agreements between
the Company and such holders, subject to certain conditions and limitations, if
the Company proposes to issue securities in a manner that is not exempt from the
applicable agreement it must first provide notice to such holders containing the
terms of the proposed issuance and allow such holders to purchase a number of
the new securities that will enable it to maintain its percentage common equity
interest.
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DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203 of the
GCL. In general, these provisions prohibit a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the proposed business
combination, did own) 15% or more of the corporation's voting stock. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of the Company.
The GCL authorizes corporations to limit or eliminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of directors' fiduciary duty of care. The Certificate limits the
liability of the Company's directors to the Company or its stockholders to the
fullest extent permitted by the Delaware statute as in effect from time to time.
Specifically, directors of the Company will not be personally liable for
monetary damages except for liability: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 175 of the GCL, or (iv) for any transaction
from which the director derived an improper personal benefit.
STOCKHOLDERS' AGREEMENT
The Company is party to a Stockholders' Agreement among certain holders of
its Series B and Series C Preferred Stock. Under the Stockholders' Agreement,
the approval of a majority of the votes represented by the preferred
stockholders party to the Stockholders' Agreement is required for certain
significant corporate transactions. Pursuant to the Stockholders' Agreement,
Thomas M. Pugliese, the Company's Vice Chairman of the Board of Directors and
Chief Executive Officer, as representative of the stockholders party thereto, is
entitled to nominate six directors of the Company, four of which are independent
directors. Mr. Pugliese has nominated himself and Gerard P. Joyce as employee
directors, and Timothy P. Hartman, David R. Voelker, Thomas J. Davis and James
P. Sheehan as such independent directors. The holders of Preferred Stock are
also entitled to appoint directors, as discussed in "-- Preferred Stock" above.
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DESCRIPTION OF NOTES
GENERAL
The Series A Notes were issued and the Series B Notes will be issued under
an Indenture, dated as of February 1, 1998 (the "Indenture"), between the
Company and United States Trust Company of New York, as Trustee (the "Trustee"),
a copy of which is available upon request to the Company and is filed as an
Exhibit to the Registration Statement of which this Prospectus forms a part. The
following is a summary of certain provisions of the Indenture and the Series B
Notes and does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture (including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended) and the Series B Notes.
Principal of, premium, if any, and interest on the Series B Notes will be
payable, and the Series B Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee in New York,
New York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Register. Initially, the Trustee will act as Paying Agent and Registrar
for the Notes. The Series B Notes may be presented for registration of transfer
and exchange at the offices of the Registrar, which initially will be the
Trustee's corporate trust office. The Company may change any Paying Agent and
Registrar without notice to holders of the Series B Notes.
The Series B Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Series B Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF NOTES
The Company is offering to exchange for Series B Notes $45,000,000 in
aggregate principal amount of Series A Notes, which will mature on February 1,
2003. Each Series B Note will bear interest at a rate of 12% per annum from the
date of issuance, or from the most recent date to which interest has been paid
or provided for, and be payable in cash semi-annually on each Interest Payment
Date, commencing August 1, 1998, to holders of record at the close of business
on the January 15 or July 15 preceding such Interest Payment Date. Interest will
be payable in cash or in additional Series B Notes on each Interest Payment
Date, at the option of the Company, until August 1, 2000 and thereafter will be
payable in cash. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Series B Notes will not be entitled to
the benefit of any mandatory sinking fund.
SECURITY
The Series B Notes are secured by a first priority security interest in
substantially all of the assets of the Company except for the Pledged Equipment.
The Company assigned and pledged to the Trustee each of the following assets,
owned by the Company on the Issue Date or, if later, the date such assets are
acquired by the Company: (a) all material interests in real property (including
material real property leases) permitted to be assigned or pledged; (b) all
contracts permitted to be assigned or pledged, together with all contract rights
arising thereunder; (c) all Receivables, inventory, equipment and fixtures
(including motor vehicles, trailers and rolling stock but excluding the Pledged
Equipment); (d) all federal and state trademarks and service marks permitted to
be assigned or pledged, together with the registrations and rights to all
renewals thereof; (e) all federal and state patents and copyrights permitted to
be assigned or pledged; (f) all computer programs and all intellectual property
rights therein permitted to be assigned or pledged and all other proprietary
information, including, but not limited to, trade secrets; (g) all other federal
and state intellectual property rights, permitted to be assigned or pledged; (h)
all other goods,
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general intangibles, chattel paper, money (but only to the extent such money is
proceeds of Collateral), securities documents, instruments and tax refund claims
that are assignable; (i) all other assets of the Company having a fair market
value (as reasonably determined by the Board of Directors of the Company)
greater than $100,000 that are permitted to be assigned or pledged; (j) all
proceeds and products of any and all of the foregoing; and (k) all books and
records relating to any of the foregoing (collectively, the "Collateral").
The security interest in favor of the Trustee in the Collateral is a first
priority interest, subject only to Permitted Liens pursuant to the Indenture;
provided, however, that in the event the Company shall enter into a Working
Capital Facility as described under (i) of paragraph (b) under "Certain
Covenants-- Limitation on Indebtedness", the security interest in the
Receivables in favor of the Trustee shall be subordinate to the security
interest in the Receivables granted pursuant to the terms of the Working Capital
Facility. In addition, the Company will assign and pledge to the Trustee all
Pledged Equipment, which lien shall be subordinate to the Lien granted in favor
of the Pledged Equipment Sellers.
If the Series B Notes become due and payable prior to the final stated
maturity thereof or are not paid in full at the final stated maturity thereof
and after any applicable grace period has expired, the Trustee has the right to
foreclose upon the Collateral in accordance with instructions from the holders
of 25% in aggregate principal amount of the Notes or, in the absence of such
instructions, in such manner as the Trustee deems appropriate in its absolute
discretion; provided, however that in the event the Company shall have entered
into a Working Capital Facility, the Trustee shall have no right to foreclose on
the Receivables without 30 days prior written notice to the secured party under
the Working Capital Facility. The Trustee does not have the right to foreclose
on or otherwise enforce its second lien on the Pledged Equipment except to the
limited extent permitted by the Pledged Equipment Sellers. The proceeds received
by the Trustee will be applied by the Trustee first to pay the expenses of such
foreclosure and fees and other amounts then payable to the Trustee under the
Indenture and the Collateral Documents, and thereafter to pay all amounts owing
to the holders of the Notes under the Indenture, the Notes and the Collateral
Documents.
No assurance can be given with respect to the ultimate value of the
Collateral. The value of the Collateral at any time will depend on market and
other economic and environmental conditions including the availability of
suitable buyers for the Collateral. See "Risk Factors -- Insufficient
Collateral."
That portion of the Collateral consisting of interests in real property to
be pledged to the Trustee have been pledged by means of mortgages, deeds of
trusts, or similar instruments (the "Mortgages"). All intercompany promissory
notes to be pledged for the benefit of the Trustee have been pledged pursuant to
one or more pledge agreements (the "Pledge Agreements"). That portion of the
Collateral consisting of patents and trademarks (and related property) is
subject to one or more collateral assignments of patents and trademarks and/or
patent and trademark security agreements (the "Patent and Trademark
Assignments"). The remaining Collateral has been pledged pursuant to, and the
second Lien on the Pledged Equipment is evidenced by, one or more security
agreements (the "Security Agreements").
The Indenture and the Collateral Documents provide that the Collateral may
be released from the lien and security interest in favor of the Trustee under
the Collateral Documents (a) upon payment in full of the Notes in accordance
with the terms of the Notes and the Indenture and the other Obligations then due
and owing under the Notes, the Indenture and the Collateral Documents or (b)
upon the sale or other disposition of Collateral if such sale or other
disposition is not prohibited under the Indenture and if the proceeds of such
sale or other disposition are applied as provided in the Indenture.
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MANDATORY REDEMPTION
The Company is not required to make mandatory redemptions or sinking fund
payments prior to the maturity of the Series B Notes.
OPTIONAL REDEMPTION
GENERAL. The Series B Notes will not be redeemable by the Company prior to
February 1, 2000. On and after such date, the Series B Notes will be redeemable,
at the Company's option, in whole or in part, upon not less than 30 nor more
than 60 days' prior notice mailed by first-class mail to each holder's
registered address, at the following redemption prices (expressed in percentages
of principal amount), if redeemed during the 12-month period commencing on
February 1 of the years set forth below, plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date):
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
2000........................................................................ 106.50%
2001........................................................................ 103.25%
2002 and thereafter......................................................... 100.00%
</TABLE>
SELECTION. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a PRO RATA basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate. Series B Notes may be redeemed in part in multiples of $1,000
principal amount only. Notice of redemption will be sent, by first class mail,
postage prepaid, at least 45 days (unless a shorter period is acceptable to the
Trustee) prior to the date fixed for redemption to each holder whose Series B
Notes are to be redeemed at the last address for such holder then shown on the
Note Register. If any Series B Note is to be redeemed in part only, the notice
of redemption that relates to such Series B Note shall state the portion of the
principal amount thereof to be redeemed. A new Series B Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Series B Note. On and after any
redemption date, interest will cease to accrue on the Series B Notes or part
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the redemption price pursuant to the
Indenture.
RANKING
The Series B Notes are secured senior Indebtedness of the Company and will
rank PARI PASSU in right of payment with all existing and future senior
Indebtedness of the Company and will rank senior in right of payment to all
existing and future Subordinated Obligations of the Company.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require the Company to repurchase all or any part of such holder's Series B
Notes, at a purchase price in cash equal to 101% of the principal amount thereof
plus any accrued and unpaid interest, if any, to the date of repurchase (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant Interest Payment Date) (such applicable purchase
price being hereinafter referred to as the "Change of Control Purchase Price").
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Series B Notes at a purchase price in cash equal to the Change of
Control Purchase Price, (2) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (3) the
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procedures determined by the Company, consistent with the Indenture, that a
holder must follow in order to have its Series B Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Series B Notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries. With respect to the disposition of property or
assets, the phrase "all or substantially all" as used in the Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the choice of law under
the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to repurchase the Notes as described above.
The Company's ability to pay cash to the holders upon a repurchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases.
The existence of a holder's right to require the Company to repurchase such
holder's Series B Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; PROVIDED, HOWEVER, that the Company and
any Restricted Subsidiary may Incur Indebtedness subordinated to the Notes if
(i) no Default or Event of Default shall have occurred and be continuing at the
time of such Incurrence or would occur as a consequence of such Incurrence and
(ii) on the date thereof the Consolidated Coverage Ratio would be 2.5:1 or
greater.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to a Working Capital Facility
(including, without limitation, any renewal, extension, refunding,
restructuring, replacement or refinancing, thereof); PROVIDED, HOWEVER, that
the aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i) does not exceed (a) prior to the date on which the Company shall
have installed 11,000 NGN Displays, $3 million at any one time outstanding
or (b) from and after the date on which the Company shall have installed
11,000 NGN Displays, $8 million at any one time outstanding;
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(ii) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property or equipment used in a Permitted
Business or Incurred to refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365 days
after the date of such acquisition or the date of completion of such
construction or improvement; PROVIDED, HOWEVER, that the principal amount of
any Indebtedness Incurred pursuant to this clause (ii), together with
Indebtedness Incurred in connection with Sale/ Leaseback Transactions in
accordance with the "Limitation on Sale/Leaseback Transactions" covenant,
shall not exceed $3 million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any Wholly-Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly-Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or any Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) Indebtedness represented by (a) the Notes, (b) Subsidiary
Guarantees, (c) Existing Indebtedness and (d) any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iv) or
Incurred pursuant to paragraph (a);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred in anticipation of, or to provide all or
any portion of the funds or credit support utilized to consummate the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary or was otherwise acquired by the
Company); PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) above after giving effect
to the Incurrence of such Indebtedness pursuant to this clause (v) and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of the
Company or any of its Restricted Subsidiaries for or in connection with
pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors, licensees,
contractors, franchises or customers of obligations (other than
Indebtedness) Incurred in the ordinary course of business and (D) under
Currency Agreements and Interest Rate Agreements; PROVIDED, HOWEVER, that in
the case of Currency Agreements and Interest Rate Agreements, such Currency
Agreements and Interest Rate Agreements are entered into for bona fide
hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors of the Company) and
correspond in terms of notional amount, duration, currencies and interest
rates, as applicable, to Indebtedness of the Company or its Restricted
Subsidiaries Incurred without violation of the Indenture or to business
transactions of the Company or its Restricted Subsidiaries on customary
terms entered into in the ordinary course of business;
(vii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or
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Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
or other obligations Incurred by any Person acquiring all or any portion of
such business assets or Restricted Subsidiary of the Company for the purpose
of financing such acquisition) in a principal amount not to exceed the gross
proceeds actually received by the Company or any of its Restricted
Subsidiaries in connection with such disposition; PROVIDED, HOWEVER, that
the principal amount of any Indebtedness Incurred pursuant to this clause
(vii) when taken together with all Indebtedness Incurred pursuant to this
clause (vii) and then outstanding, shall not exceed $250,000;
(viii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of the
Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of the Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by the Company without
violation of the Indenture (so long as such Restricted Subsidiary could have
Incurred such Indebtedness directly without violation of the Indenture);
(ix) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument issued by the Company or
its Restricted Subsidiaries drawn against insufficient funds in the ordinary
course of business in an amount not to exceed $250,000 at any time, provided
that such Indebtedness is extinguished within two business days of its
incurrence; and
(x) Indebtedness (other than Indebtedness described in clauses
(i)--(ix)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this clause
(x) and then outstanding, will not exceed $500,000 (it being understood that
any Indebtedness Incurred under this clause (x) shall cease to be deemed
Incurred or outstanding for purposes of this clause (x) (but shall be deemed
to be Incurred for purposes of paragraph (a)) from and after the first date
on which the Company or its Restricted Subsidiaries could have Incurred such
Indebtedness under the foregoing paragraph (a) without reliance upon this
clause (x)).
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
or a Restricted Subsidiary unless such Indebtedness shall be subordinated to the
Notes and the Subsidiary Guarantee, as the case may be, to at least the same
extent as such Subordinated Obligations.
(d) The Company will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
LIMITATION ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire for
value any Capital Stock of the Company or any Restricted Subsidiary held by
Persons other than the Company or another Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment as described in preceding clauses (i)
through (iv) being referred to as a "Restricted Payment").
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LIMITATION ON LIENS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Liens, except for Permitted Liens.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligation owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date; (b) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness issued by such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by the Company and outstanding
on such date (other than Indebtedness Incurred in anticipation of, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary of the Company or was acquired by the
Company); (c) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement evidencing Indebtedness Incurred without
violation of the Indenture or effecting a refinancing of Indebtedness issued
pursuant to an agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses (a) or (b) or
this clause (c); PROVIDED, HOWEVER, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less favorable to
the holders of the Notes in any material respect, as determined in good faith by
the Board of Directors of the Company, than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in agreements in effect at, or
entered into on, the Issue Date; (d) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture, (C) that is included in a licensing
agreement to the extent such restrictions limit the transfer of the property
subject to such licensing agreement or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate, detract
from the value of property or assets of the Company or any of its Subsidiaries
in any manner material to the Company or any such Restricted Subsidiary; (e) in
the case of clause (iii) above, restrictions contained in security agreements,
mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject to
such security agreements; (f) in the case of clause (iii) above, any instrument
governing or evidencing Indebtedness of a Person acquired by the Company or any
Restricted Subsidiary of the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person so acquired; PROVIDED, HOWEVER, that
such Indebtedness is not Incurred in connection with or in contemplation of such
acquisition; (g) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (h) encumbrances or
restrictions arising or existing by reason of applicable law.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good faith
by the Company's Board of Directors) (including as to the value of all non-cash
consideration), of the shares and assets
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subject to such Asset Disposition, (ii) at least 80% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be): (A) FIRST, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of any senior
Indebtedness), (x) to prepay, repay or purchase senior Indebtedness or (y) to
the investment in or acquisition of Additional Assets within 365 days from the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash; (B) SECOND, within 365 days from the receipt of such Net Available Cash,
to the extent of the balance of such Net Available Cash after application in
accordance with clause (A), to make an offer to purchase Notes, at 100% of the
principal amount thereof plus accrued and unpaid interest, if any, thereon; (C)
THIRD, within 90 days after the later of the application of Net Available Cash
in accordance with clause (A) and (B) and the date that is one year from the
receipt of such Net Available Cash to prepay, repay or repurchase Indebtedness
(other than Preferred Stock) of a Wholly-Owned Subsidiary (in each case other
than Indebtedness owed to the Company); and (D) FOURTH, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to (w) the investment in or acquisition of Additional Assets,
(x) the making of Temporary Cash Investments, (y) the prepayment, repayment or
purchase of Indebtedness of the Company (other than Indebtedness owing to any
Subsidiary of the Company) or Indebtedness of any Subsidiary (other than
Indebtedness owed to the Company or any of its Subsidiaries) or (z) any other
purpose otherwise permitted under the Indenture, in each case within the later
of 45 days after the application of Net Available Cash in accordance with
clauses (A), (B) and (C) or the date that is one year from the receipt of such
Net Available Cash; PROVIDED, HOWEVER, that, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A), (B), (C) or (D)
above, the Company or such Restricted Subsidiary shall retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this covenant at any
time exceed $500,000. The Company shall not be required to make an offer for
Notes pursuant to this covenant if the Net Available Cash available therefor
(after application of the proceeds as provided in clause (A)) is less than
$500,000 for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of senior Indebtedness of the Company or
senior Indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such senior
Indebtedness or senior Indebtedness in connection with such Asset Disposition
(in which case the Company shall, without further action, be deemed to have
applied such assumed Indebtedness in accordance with clause (A) of the preceding
paragraph) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly (and in any
event within 60 days) converted by the Company or such Restricted Subsidiary
into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(B), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the purchase date in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the Notes tendered pursuant to the offer is less than the Net
Available Cash allotted to the purchase of the Notes, the Company will apply the
remaining Net Available Cash in accordance with clauses (a)(iii)(C) or (D)
above.
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Series B Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations
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conflict with provisions of this covenant, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Indenture by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
or series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any Affiliate of the Company, other than a Wholly-Owned Subsidiary
(an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of
$100,000, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
disinterested members of such Board, if any (and such majority or majorities, as
the case may be, determines that such Affiliate Transaction satisfies the
criteria in (i) above); and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $250,000, the Company has received a
written opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view;
PROVIDED, HOWEVER, that in the event advertising contracts entered into in the
ordinary course of business between the Company and Hachette Filipacchi exceed
$250,000, such contracts need only be approved in the manner contemplated in
(a)(ii) above.
(b) The foregoing paragraph (a) shall not apply to (i) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, or any stock options
and stock ownership plans for the benefit of employees, officers and directors,
consultants and advisors approved by the Board of Directors of the Company, (ii)
loans or advances to employees in the ordinary course of business of the Company
or any of its Restricted Subsidiaries in aggregate amount outstanding not to
exceed $100,000 at any time, (iii) any transaction between Wholly-Owned
Subsidiaries, (iv) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of the Company and its
Restricted Subsidiaries, in each case in the ordinary course of business, (v)
transactions pursuant to agreements in existence on the Issue Date which are (x)
described in the Prospectus or (y) otherwise, in the aggregate, immaterial to
the Company and its Restricted Subsidiaries taken as a whole, (vi) any
employment, non-competition or confidentiality agreements entered into by the
Company or any of its Restricted Subsidiaries with its employees in the ordinary
course of business, and (vii) the issuance of Capital Stock of the Company
(other than Disqualified Stock).
LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit any of its Restricted Subsidiaries to issue any
Capital Stock to any Person (other than to the Company or a Wholly-Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own any Capital Stock of a Restricted
Subsidiary of the Company, if in either case as a result thereof such Restricted
Subsidiary would no longer be a Restricted Subsidiary of the Company; PROVIDED,
HOWEVER, that this provision shall not prohibit (x) the Company or any of its
Restricted Subsidiaries from selling, leasing or otherwise disposing of all of
the Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, Guarantee or otherwise become liable with
respect to any Sale/Leaseback Transaction with respect to any property or assets
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be entitled to pursuant to the Indenture Incur Indebtedness secured by a
Permitted Lien on such property or
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assets in an amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such Sale/Leaseback
Transaction are at least equal to the fair market value of the property or
assets subject to such Sale/Leaseback Transaction (such fair market value
determined, in the event such property or assets have a fair market value in
excess of $500,000, no more than 30 days prior to the effective date of such
Sale/Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a resolution of such Board of Directors), (iii) the Net Cash
Proceeds of such Sale/Leaseback Transaction are applied in accordance with the
provisions described under "--Limitation on Sales of Assets and Subsidiary
Stock," and (iv) the Indebtedness Incurred in connection with such Sale/
Leaseback Transaction, together with Indebtedness Incurred in accordance with
(ii) of paragraph (b) of the "Limitation on Indebtedness" covenant, does not
exceed $3 million at any time outstanding.
SEC REPORTS
The Company will file with the Trustee and provide to the holders of the
Series B Notes, within 15 days after it files them with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Company files with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act. In the event that the Company is not
required to file such reports with the Commission pursuant to the Exchange Act,
the Company will nevertheless deliver such Exchange Act information to the
holders of the Notes within 15 days after it would have been required to file it
with the Commission.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of (i)
fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to Incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Indebtedness" at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"--Limitation on Restricted Payments."
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The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
FUTURE NOTE GUARANTEES
The Company will cause each newly organized or acquired Subsidiary (other
than any Unrestricted Subsidiary) to execute and deliver to the Trustee a
Guarantee of the Series B Notes in form and substance satisfactory to the
Trustee. Such Guaranty will be secured by a first priority lien on all of the
assets of such Subsidiary except that the lien on any Receivables of any such
Subsidiary may be a second priority lien in the event that a first priority lien
secures a Working Capital Facility.
CONDUCT OF BUSINESS
The Company shall not, nor shall permit any of its Subsidiaries, directly or
indirectly, to engage in any business other than a Permitted Business.
MERGER AND CONSOLIDATION
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a corporation, partnership, trust or limited liability company
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Series B Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company (A) would have a Consolidated Net Worth equal or greater to
the Consolidated Net Worth of the Company immediately prior to such transaction
and (B) would be able to Incur at least an additional $1.00 of Indebtedness
pursuant to paragraph (a) of "--Limitation on Indebtedness"; (iv) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture; and (v) there has
been delivered to the Trustee an Opinion of Counsel to the effect that holders
of Series B Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such consolidation, merger, conveyance,
transfer or lease and will be subject to U.S. federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such consolidation, merger, conveyance, transfer or lease had not occurred.
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The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Series
B Notes.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under the "Merger and Consolidation" covenant described under
"Certain Covenants" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
"Change of Control" above or under covenants described under "Certain Covenants"
above (in each case, other than a failure to purchase Notes which shall
constitute an Event of Default under clause (ii) above), other than "Merger and
Consolidation," (v) the failure by the Company or any Subsidiary Guarantor to
comply for 60 days after notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $250,000 and such default shall not have been
cured or such acceleration rescinded after a 10-day period, (vii) certain events
of bankruptcy, insolvency or reorganization of the Company or any Subsidiary
(the "bankruptcy provisions"), (viii) any judgment or decree for the payment of
money in excess of $250,000 (to the extent not covered by insurance) is rendered
against the Company or a Subsidiary and such judgment or decree shall remain
unsatisfied, undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable (the "judgment default provision"),
(ix) any Subsidiary Guarantee by a Subsidiary Guarantor ceases to be in full
force and effect (except as contemplated by the terms of the Indenture) or any
Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or
its Subsidiary Guarantee and such Default continues for 10 days, (x) an event of
default under, or if none specified therein, a failure to comply with any
provision of the Collateral Documents and the continuance of such event of
default or failure to comply, as the case may be, for a period of 30 days after
written notice is given by the Trustee to the Company or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Notes outstanding, provided that if such event of default or failure to comply,
as the case may be, adversely affects (1) any Collateral with an aggregate book
value of $100,000, (2) the priority or perfection of the security interests
purported to be created with respect to any portion of the Collateral with an
aggregate book value of $100,000 or (3) the rights and remedies of the Trustee
or the respective secured creditors in respect of any portion of the Collateral
with an aggregate book value of $100,000, then the event of default or failure,
as the case may be, need only continue for a period of 10 days after written
notice is given by the Trustee to the Company or to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the outstanding
Notes. However, a default under clause (iv) or (v) will not constitute an Event
of Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clause (iv) or (v) after receipt
of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of all outstanding series of Notes, voting
as a single class, by notice to the Company may declare to be immediately due
and payable, the principal amount thereof of all the Notes then outstanding plus
accrued interest on the Notes to the date of acceleration. Upon such a
declaration, such principal and premium and accrued and unpaid interest shall be
due and payable immediately. If an Event of Default
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relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs, the principal of and accrued and unpaid interest on all the
Notes will become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Series B Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as its board of directors, a committee of its
board of directors or a committee of its Trust officers in good faith determines
that withholding notice is in the interests of the holders of the Notes. In
addition, the Company is required to deliver to the Trustee, within 90 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the stated rate of or
extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "Optional Redemption" above,
(v) make any Note payable in money other than that stated in the Note, (vi)
impair the right of any holder to receive payment of principal of and interest
on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
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Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of the Company under the Indenture
(provided that there has been delivered to the Trustee an Opinion of Counsel to
the effect that holders of Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such assumption and will be
subject to U.S. federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such assumption had not
occurred), to provide for uncertificated Series B Notes in addition to or in
place of certificated Series B Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163 (f) (2)
(B) of the Code), to add further Guarantees with respect to the Series B Notes,
to secure the Series B Notes with additional collateral, to add to the covenants
of the Company for the benefit of the holders or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder or to comply with any requirement of the Commission in
connection with the qualification of the Indenture under the Trust Indenture
Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Series B
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Series B Notes, to replace mutilated, destroyed,
lost or stolen Series B Notes and to maintain a registrar and paying agent in
respect of the Series B Notes. The Company at any time may terminate its
obligations under covenants described under "Certain Covenants" (other than
"Merger and Consolidation"), the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Subsidiaries, the judgment default
provision and the Subsidiary Guaranty provision described under "Events of
Default" above and the limitations contained in clauses (iii) and (iv) under
"Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Series B Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Series B Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Subsidiaries), (viii) or (ix) under "Events of Default"
above or because of the failure of the Company to comply with clause (iii) or
(iv) under "Certain Covenants--Merger and Consolidation" above. If the Company
exercises either defeasance option, the Trustee shall release all Collateral.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Series B Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the Series B Notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
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SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture ceases to be of further effect (except as otherwise expressly
provided for in the Indenture) when either (i) all outstanding Notes have been
delivered (other than lost, stolen or destroyed Series B Notes which have been
replaced) to the Trustee for cancellation or (ii) all outstanding Series B Notes
have become due and payable, whether at maturity or as a result of the mailing
of a notice of redemption pursuant to the terms of the Indenture and the Company
has irrevocably deposited with the Trustee funds sufficient to pay at maturity
or upon redemption all outstanding Series B Notes, including interest thereon
(other than lost, stolen, mutilated or destroyed Series B Notes which have been
replaced), and, in either case, the Company has paid all other sums payable
under the Indenture. The Trustee is required to acknowledge satisfaction and
discharge of the Indenture on demand of the Company accompanied by an Officer's
Certificate and an Opinion of Counsel at the cost and expense of the Company.
TRANSFER AND EXCHANGE
Upon any transfer of a Series B Note, the Registrar may require a holder of
Series B Notes, among other things, to furnish appropriate endorsements and
transfer documents, and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar is not required to transfer or exchange any
Series B Notes selected for redemption nor is the Registrar required to transfer
or exchange any Series B Notes for a period of 15 days before a selection of
Series B Notes to be redeemed. The registered holder of a Series B Note may be
treated as the owner of it for all purposes.
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Series B Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture) it must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Series B Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of
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the acquisition of such Capital Stock by the Company or a Restricted Subsidiary
of the Company; (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary of the Company; or (iv)
Permitted Investments of the type and in the amounts described in clause (viii)
of the definition thereof; PROVIDED, HOWEVER, that, in the case of clauses (ii)
and (iii), such Restricted Subsidiary is primarily engaged in a Permitted
Business.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (iv) dispositions of property for net
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning of
the calendar year in which such disposition is consummated, do not exceed
$100,000, and (v) transactions permitted under "Certain Covenants--Merger and
Consolidation" above.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years (rounded upwards to the nearest month)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully Guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less
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from the date of acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable form either Moody's or S&P and (viii) Indebtedness
or Preferred Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries; or (ii) a majority of the
Board of Directors of the Company or of any direct or indirect holding company
thereof shall consist of Persons who are not Continuing Directors of the
Company; or (iii) the acquisition by any Person or group of related Persons
(other than the Controlling Group) for purposes of Section 13(d) of the Exchange
Act, of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of the Company or of any direct or indirect holding company thereof.
"Collateral Documents" means the Security Agreements, the Pledge Agreements,
the Mortgages, the Patent and Trademark Assignments and any other agreements
creating a lien in favor of the Trustee securing the Notes.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Notes) and less, to the extent added
in calculating Consolidated Net Income, (x) exchange or translation gains on
foreign currencies and (y) non-cash items (excluding such non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent two consecutive fiscal quarters ending prior to the date of such
determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such two fiscal quarters; PROVIDED, HOWEVER,
that (1) if the Company or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar
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arrangement) only that portion of such Indebtedness that constitutes the one
year projected average balance of such Indebtedness (as determined in good faith
by the Board of Directors of the Company) shall be deemed outstanding for
purposes of this calculation), and (B) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period any Indebtedness of the
Company or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and the underlying commitment terminated and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period,
(3) if since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (i) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale) and (ii) increased
by interest income attributable to the assets which are the subject of such
Asset Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result thereof)
or an acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, PLUS, to the extent not included in such interest expense (i)
interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of
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debt discount, (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) net payments (whether positive or
negative) pursuant to Interest Rate Agreements, (viii) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust and (ix) cash and Disqualified Stock dividends in respect of all
Preferred Stock of Subsidiaries and Disqualified Stock of the Company held by
Persons other than the Company or a Wholly-Owned Subsidiary and less (a) to the
extent included in such interest expense, the amortization of capitalized debt
issuance costs and (b) interest income. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of the
Company, that was not a Wholly-Owned Subsidiary, shall be included only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and its consolidated Restricted Subsidiaries determined in
accordance with GAAP; PROVIDED, HOWEVER, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any Person acquired
by the Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) cash dividends or distributions actually paid to the
Company or any of its Restricted Subsidiaries by such Person and (B) the net
income of such Person (but in no event less than zero), and the net loss of such
Person (other than an Unrestricted Subsidiary) shall be included only to the
extent of the aggregate Investment of the Company or any of its Restricted
Subsidiaries in such Person and (vii) any non-cash expenses attributable to
grants or exercises of employee stock options.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Continuing Director" of any Person means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of the Indenture; (ii) was nominated for election or elected to the Board
of Directors of such Person with the affirmative vote of a majority of the
Continuing Directors of such Person who were members of such Board of Directors
at the time of such nomination or election; or (iii) was nominated or elected to
the Board of Directors in accordance with the provisions of the Stockholders
Agreement dated as of September 25, 1996, as amended by the First Amendment to
the Stockholders Agreement dated as of August 29, 1997, as such agreement may be
further amended or supplemented from time to time.
"Controlling Group" means Gerard Joyce, Thomas Pugliese or any Related
Party.
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"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Stated Maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the Stated Maturity of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued thereon,
after application of the net proceeds of the sale of the Units as described in
this Prospectus.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
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"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v) ) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit, (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses Incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Notes (but excluding, in each case, accrued dividends) with the amount of
Indebtedness represented by such Disqualified Stock or Preferred Stock, as the
case may be, being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price; PROVIDED,
HOWEVER, that, for purposes hereof the "maximum fixed repurchase price" of any
Disqualified Stock or Preferred Stock, as the case may be, which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts payable on the balance sheet of such Person) or other extension of
credit (including by way of Guarantee or similar arrangement, but excluding any
debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to be
designated as an Unrestricted Subsidiary) of the fair market value of the net
assets of such Restricted Subsidiary of the Company at the time that such
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Restricted Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors and
evidenced by a resolution of such Board of Directors certified in an Officers'
Certificate to the Trustee.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"NGN Displays" means the Company's out-of-home electronic billboards which
display video-based information, entertainment and advertising.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to any Person owning a beneficial
interest in assets subject to sale or minority interest holders in Subsidiaries
or joint ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition, PROVIDED HOWEVER, that upon any reduction in such
reserves (other than to the extent resulting from payments of the respective
reserved liabilities), Net Available Cash shall be increased by the amount of
such reduction to reserves, and retained by the Company or any Restricted
Subsidiary of the Company after such Asset Disposition and (v) any portion of
the purchase price from an Asset Disposition placed in escrow (whether as a
reserve for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or otherwise in connection with such Asset
Disposition) PROVIDED, HOWEVER, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually Incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor, general partner or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, any Vice-President, the Treasurer or the Secretary of
the Company.
"Officer's Certificate" shall mean a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Trustee, from legal counsel who is acceptable to the Trustee.
"Paying Agent" means United States Trust Company of New York, as paying
agent under the Indenture, or any successor thereto appointed pursuant to the
Indenture.
"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture, as reasonably determined
by the Company's Board of Directors.
"Permitted Investment" means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
PROVIDED, HOWEVER, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; PROVIDED,
HOWEVER, that in each case such Person's primary business is a Permitted
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary in an aggregate amount outstanding at any one time not to exceed
$100,000; (vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any of
its Restricted Subsidiaries or in satisfaction of judgments or claims; (viii) a
Person engaged in a Permitted Business or a loan or advance to the Company the
proceeds of which are used solely to make an investment in a Person engaged in a
Permitted Business or a Guarantee by the Company of Indebtedness of any Person
in which such Investment has been made; PROVIDED, HOWEVER, that no Permitted
Investments may be made pursuant to this clause (viii) to the extent the amount
thereof would, when taken together with all other Permitted Investments made
pursuant to this clause (viii), exceed $1 million in the aggregate (plus, to the
extent not previously reinvested, any return of capital realized on Permitted
Investments made pursuant to this clause (viii), or any release or other
cancellation of any Guarantee constituting such Permitted Investment); PROVIDED,
FURTHER, that the aggregate amount of Permitted Investments made pursuant to
this clause (viii) that are not Investments in a joint venture, partnership or
similar arrangement in the out of home advertising industry shall not exceed
$250,000; (ix) Persons to the extent such Investment is received by the Company
or any Restricted Subsidiary as consideration for asset dispositions effected in
compliance with the covenant described under "Limitations on Sales of Assets and
Subsidiary Stock"; (x) prepayments and other credits to suppliers made in the
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ordinary course of business consistent with the past practices of the Company
and its Restricted Subsidiaries; and (xi) Investments in connection with
pledges, deposits, payments or performance bonds made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or environmental
obligations.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens, in each case for sums not yet due from the
Company or any Restricted Subsidiary or being contested in good faith by
appropriate proceedings by the Company or any Restricted Subsidiary, as the case
may be, or other Liens arising out of judgments or awards against the Company or
any Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary, as the case may be, will then be prosecuting an appeal or other
proceedings for review; (ii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iii) Liens in favor of issuers of
performance bonds and surety bonds issued pursuant to clause (vi) under
"--Certain Covenants--Limitation on Indebtedness"; (iv) survey exceptions,
encumbrances, easements or, reservations of, or rights of others for, licenses,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real property
of the Company or any Restricted Subsidiary incidental to the ordinary course of
conduct of the business of the Company or such Restricted Subsidiary or as to
the ownership of properties of the Company or any Restricted Subsidiary, which,
in either case, were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (v) Liens outstanding immediately after the Issue
Date as set forth in a schedule to the Indenture; (vi) Liens on property, assets
or shares of stock of any Restricted Subsidiary at the time such Restricted
Subsidiary became a Subsidiary of the Company; PROVIDED, HOWEVER, that (A) if
any such Lien has been Incurred in anticipation of such transaction, such
property, assets or shares of stock subject to such Lien will have a fair market
value at the date of the acquisition thereof not in excess of the lesser of (1)
the aggregate purchase price paid or owed by the Company in connection with the
acquisition of such Restricted Subsidiary and (2) the fair market value of all
property and assets of such Restricted Subsidiary and (B) any such Lien will not
extend to any other assets owned by the Company or any Restricted Subsidiary;
(vii) Liens on property or assets at the time the Company or any Restricted
Subsidiary acquired such assets, including any acquisition by means of a merger
or consolidation with or into the Company or such Restricted Subsidiary;
PROVIDED, HOWEVER, that (A) if any such Lien is Incurred in anticipation of such
transaction, such property or assets subject to such Lien will have a fair
market value at the date of the acquisition thereof not in excess of the lesser
of (1) the aggregate purchase price paid or owed by the Company or such
Restricted Subsidiary in connection with the acquisition thereof and of any
other property and assets acquired simultaneously therewith and (2) the fair
market value of all such property and assets acquired by the Company or such
Restricted Subsidiary and (B) any such Lien will not extend to any other
property or assets owned by the Company or any Restricted Subsidiary; (viii)
Liens securing Indebtedness or other obligations of a Restricted Subsidiary
owing to the Company or a Wholly Owned Subsidiary; (ix) Liens to secure any
extension, renewal, refinancing, replacement or refunding (or successive
extensions, renewals, refinancings, replacements or refundings), in whole or in
part, of any Indebtedness secured by Liens referred to in any of clauses (v),
(vi) and (vii); PROVIDED, HOWEVER, that any such Lien will be limited to all or
part of the same property or assets that secured the original Lien (plus
improvements on such property) and the aggregate principal amount of
Indebtedness that is secured by such Lien will not be increased to an amount
greater than the sum of (A) the outstanding principal amount, or, if greater,
the committed amount, of the Indebtedness described under clauses (v), (vi) and
(vii) at the time the original Lien became a Permitted Lien under the Indenture
and (B) an amount necessary to pay any premiums, fees and other expenses
Incurred by the Company in connection with such refinancing, refunding,
extension, renewal or replacement; (x) Liens on property or assets of the
Company securing Interest Rate Agreements and Currency Agreements so long as the
related Indebtedness is, and is
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permitted under "--Certain Covenants--Limitation on Indebtedness", secured by a
Lien on the same property securing the relevant Interest Rate Agreement or
Currency Agreement; (xi) Liens on property or assets of the Company or any
Restricted Subsidiary securing Indebtedness (1) under purchase money obligation
or Capital Lease Obligations permitted under "--Limitation on Indebtedness" or
(2) under Sale/Leaseback Transactions permitted under "--Limitation on
Sale/Leaseback Transactions"; PROVIDED, that (A) the amount of Indebtedness
Incurred in any specific case does not, at the time such Indebtedness is
Incurred, exceed the lesser of the cost or fair market value of the property or
asset acquired or constructed in connection with such purchase money obligation
or Capital Lease Obligation or subject to such Sale/Leaseback Transaction, as
the case may be, (B) such Lien will attach to such property or asset upon
acquisition of such property or asset and or upon commencement of such
Sale/Leaseback Transaction, as the case may be, and (C) no property or asset of
the Company or any Restricted Subsidiary (other than the property or asset
acquired or contracted in connection with such purchase money Obligation or
Capital Lease obligation or subject to such Sale/Leaseback Transaction, as the
case may be) are subject to any Lien securing such Indebtedness; (xii) Liens
granted to the Trustee on the assets of the Company securing the Company's
obligations under the Indenture; (xiii) Liens granted to the Trustee on the
assets of the Subsidiary Guarantors securing the Subsidiary Guarantors'
Obligations under the Guarantees; and (xiv) Liens on Receivables granted by the
Company and the Subsidiary Guarantors which secures Indebtedness to the extent
such Indebtedness is incurred pursuant to clause (i) of paragraph (b) under the
"Limitation on Indebtedness" covenant.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Pledged Equipment" means that certain equipment pledged pursuant to (i) the
Security Agreement dated as of January 1, 1997 between the Company and Adams
Outdoor Advertising, LLC and (ii) the Security Agreement dated as of August 18,
1997 between Morris Communications, Inc. and the Company.
"Pledged Equipment Notes" means those notes issued by the Company evidencing
the Company's obligations to the Pledged Equipment Sellers.
"Pledged Equipment Sellers" means Adams Outdoor Advertising, LLC and Morris
Communications, Inc.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Receivables" means any "account" as such term is defined in the Uniform
Commercial Code as in effect on the date hereof in the State of New York, now or
hereafter owned by the Company or any Restricted Subsidiary and, in any event,
shall include, but shall not be limited to, all of the Company's or any
Restricted Subsidiary's rights to payment for goods sold or leased or services
performed by the Company or any Restricted Subsidiary, whether now in existence
or arising from time to time hereafter, including, without limitation, rights
evidenced by an account, note, contract, security agreement, chattel paper, or
other evidence of indebtedness or security, together with (a) all security
pledged, assigned, hypothecated or granted to or held by the Company or any
Restricted Subsidiary to secure the foregoing, (b) all of the Company's or any
Restricted Subsidiary's right, title and interest in and to any goods, the sale
of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices related
thereto, (f) all evidences of the filing of financing statements and other
statements and the registration of other instruments in connection therewith and
amendments thereto, notices to other creditors or secured
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parties, and certificates from filing or other registration officers, (g) all
credit information, reports and memoranda relating thereto and (h) all other
writings related in any way to the foregoing.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
PROVIDED, HOWEVER, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Notes and (B) Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the lesser of (A) the
Average Life of the Notes and (B) the Average Life of the Indebtedness being
refinanced and (iii) the Refinancing Indebtedness is in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to (or 101% of, in the case of a refinancing of the Notes in
connection with a Change of Control) or less than the sum of the aggregate
principal amount (or if issued with original issue discount, the accreted value)
then outstanding of the Indebtedness being refinanced.
"Registrar" means United States Trust Company of New York, as registrar
under the Indenture, or any successor thereto appointed pursuant to the
Indenture.
"Related Party" means (A) the spouse or immediate family member of either
Gerard Joyce or Thomas Pugliese or (B) any trust, corporation, partnership or
other entity, the beneficiaries, shareholders, partners, members, owners or
Persons beneficially holding an 80% or more controlling interest of which
consist of either Gerard Joyce or Thomas Pugliese and/or such other Persons
referred to in the immediately preceding clause (A).
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"S&P" means Standard and Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means the Guarantee of the Notes by a Subsidiary
Guarantor.
"Subsidiary Guarantor" means each Subsidiary of the Company (other than
Unrestricted Subsidiaries) created or acquired by the Company after the Issue
Date.
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"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(v) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and
(vi) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of clauses (i) through (v)
above.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED,
HOWEVER, that each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of such designation, and does not thereafter create, Incur,
issue, assume, guarantee or otherwise becomes liable with respect to any
Indebtedness other than Non-Recourse Indebtedness and either (A) the Subsidiary
to be so designated has total consolidated assets of $10,000 or less or (B) if
such Subsidiary has consolidated assets greater than $10,000, then such
designation would be permitted under "Limitation on Restricted Payments." The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary subject to the limitations contained in "Limitation on Designations
of Unrestricted Subsidiaries."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Working Capital Facility" means any credit facility entered into during the
term of the Notes providing for working capital financing for the Company and
its Restricted Subsidiaries.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of counsel described below)
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. There can be no assurance that the Internal Revenue
Service (the "Service") will not take a contrary view, and no ruling from the
Service has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax adviser as to the particular tax consequences of exchanging
such holder's Series A Notes for Series B Notes, including the applicability and
effect of any state, local or foreign tax laws.
Cooperman Levitt Winikoff Lester & Newman, P.C., counsel to the Company, has
advised the Company that in its opinion, the exchange of the Series A Notes for
Series B Notes pursuant to the Exchange Offer should not be treated as an
"exchange" for federal income tax purposes because the Series B Notes should not
be considered to differ materially in kind or extent from the Series A Notes.
Rather, the Series B Notes received by a holder should be treated as a
continuation of the Series A Notes in the hands of such holder. As a result,
there should be no federal income tax consequences to holders exchanging Series
A Notes for Series B Notes pursuant to the Exchange Offer.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series A Notes were originally sold by the Company on February 18, 1998
to the Initial Purchaser pursuant to the Purchase Agreement. The Initial
Purchaser subsequently resold the Series A Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase Agreement, the Company and the Initial Purchaser entered into the
Registration Rights Agreement pursuant to which the Company agreed, for the
benefit of the holders of the Series A Notes, that the Company will, at its own
expense, (i) file no later than the 45th day after the issue date of the Series
A Notes (the "Issue Date") an Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer for Series B Notes of the Company,
which will have terms substantially identical in all material respects to the
Series A Notes (except that the Series B Notes will not contain terms with
respect to transfer restrictions as described herein), (ii) use its best efforts
to cause the Exchange Offer Registration Statement to be declared effective by
the Commission under the Securities Act no later than the 150th day after the
Issue Date and (iii) use its best efforts to cause such Exchange Offer
Registration Statement to remain effective until the closing of the Exchange
Offer and (iv) use its best efforts to consummate the Exchange Offer no later
than 180 days after the Issue Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will commence the Exchange
Offer. The Company will keep the Exchange Offer open for not less than 30
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to the holders of the Series A Notes. For
each Series A Note surrendered to the Company pursuant to the Exchange Offer,
the holder who surrendered such Series A Note will receive a Series B Note
having a principal amount equal to that of the surrendered Series A Note.
Interest on each Series B Note will accrue from the last date on which interest
was paid on the Series A Note surrendered in exchange therefor or, if no
interest has been paid on such Series A Note, from the Series A Note Issue Date.
Under existing interpretations of the staff to the Commission contained in
several no-action letters to third parties, the Series B Notes would generally
be freely transferable by holders thereof other than affiliates of the Company
after the Exchange Offer without further registration under the Securities Act
(subject to certain representations required to be made by each holder of Series
B Notes, as set forth below). In
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addition, in connection with any resales of the Series B Notes, any
broker-dealer (a "Participating Broker-Dealer") which acquired the Series B
Notes for its own account as a result of market making or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Series B
Notes (other than a resale of an unsold allotment from the original sale of the
Series A Notes) with the prospectus contained in the Exchange Offer Registration
Statement. The Company has agreed for a period of 180 days after consummation of
the Exchange Offer to make available a prospectus meeting requirements of the
Securities Act to Participating Broker-Dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
of such Series B Notes.
Each holder of the Series A Notes (other than certain specified holders) who
wishes to exchange Series A Notes for Series B Notes in the Exchange Offer will
be required to make certain representations, including representations that (i)
any Series B Notes to be received by it will be acquired in the ordinary course
of its business, (ii) at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Series B Notes,
(iii) it is not an "affiliate" (as defined in Rule 405 under the Securities Act)
of the Company and (iv) it is not acting on behalf of any person who could not
truthfully make the foregoing representations.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, (ii) for any other reason the Exchange Offer is not consummated within
180 days after the Issue Date, (iii) under certain circumstances upon the
request of the Initial Purchaser or (iv) any holder of Series A Notes (other
than the Initial Purchaser) who is not eligible to participate in the Exchange
Offer, the Company will, at its expense, (a) as promptly as reasonably
practicable file a Shelf Registration Statement relating to the offer and sale
of the then outstanding Series A Notes, (b) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
by the 180th day after the Issue Date (or promptly in the event of a request by
the Initial Purchaser pursuant to clause (iii) above) and (c) use its best
efforts to keep effective the Shelf Registration Statement until the earlier of
two years from the Issue Date (or one year from the date the Shelf Registration
Statement is declared effective if such Shelf Registration Statement is filed
upon the request of the Initial Purchaser pursuant to clause (iii) above) or
such shorter period which will terminate when all of the Series A Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or when all the Series A Notes become eligible for resale
pursuant to Rule 144 under the Securities Act without volume restrictions (the
"Effectiveness Period"). The Company, will, in the event of the filing of the
Shelf Registration Statement, provide to each holder of the Series A Notes
copies of the Prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Series A Notes. A holder of Series A Notes that sells its Series
A Notes pursuant to the Shelf Registration Statement generally will be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification rights and
obligations thereunder).
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable with
respect to the Series A Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days following the Issue Date, Additional
Interest shall accrue on the Series A Notes over and above the stated
interest at a rate of 0.50% per annum for the first 30 days commencing on
the
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46th day after the Issue Date, such Additional Interest rate increasing by
an additional 0.50% per annum at the beginning of each subsequent 30-day
period; or
(ii) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 150 days following the Issue
Date, Additional Interest shall accrue on the Series A Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the 151st day after the Issue Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period; or
(iii) if (A) the Company has not exchanged all Series A Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
180 days after the Issue Date or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the second anniversary of the
Issue Date (unless all the Notes have been sold thereunder), then Additional
Interest shall accrue on the Series A Notes over and above the stated
interest at a rate of 0.50% per annum for the first 30 days commencing on
(x) the 181st day after the Issue Date with respect to the Series A Notes
validly tendered and not exchanged by the Company, in the case of (A) above,
or (y) the day the Exchange Offer Registration ceases to be effective or
usable for its intended purpose in the case of (B) above, or (z) the day
such Shelf Registration Statement ceases to be effective in the case of (C)
above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 30-day period; PROVIDED HOWEVER,
that the Additional Interest rate on the Series A Notes may not exceed in
the aggregate 2.0% per annum; and PROVIDED FURTHER, that (1) upon the filing
of the Exchange Offer Registration Statement or Shelf Registration Statement
(in the case of clause (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement or Shelf Registration Statement (in the case of
(ii) above), or (3) upon the exchange of Series B Notes for all Series A
Notes tendered (in the case of clause (iii)(a) above), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased
to remain effective in the case of clause (iii)(B) above, or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(C) above), Additional Interest on the
Series A Notes as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable and will be determined by multiplying the applicable
Additional Interest rate by the principal amount of the Series A Notes
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be made available upon request to the Company.
Following the consummation of the Exchange Offer, holders of Series A Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Series A Notes will not have any further registration rights and such
Series A Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Series A Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Series A
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount
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of Series B Notes in exchange for each $1,000 principal amount of outstanding
Series A Notes accepted in the Exchange Offer. Holders may tender some or all of
their Series A Notes pursuant to the Exchange Offer. However, Series A Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the Series B Notes are the same as the form and terms
of the Series A Notes except that (i) the Series B Notes bear a "Series B"
designation and a different CUSIP Number from the Series A Notes, (ii) the
Series B Notes have been registered under the Securities Act and hence will not
bear legends restricting the transfer thereof and (iii) the holders of the
Series B Notes will not be entitled to certain rights under the Registration
Rights Agreement, which rights will terminate when the exchange Offer is
terminated. The Series B Notes will evidence the same debt as the Series A Notes
and will be entitled to the benefits of the New Notes Indenture.
As of the date of this Prospectus, $45,000,000 aggregate principal amount of
Series A Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Series A Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Series A Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Series B Notes from the Company.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender, the occurence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Series A Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Series A Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Series A
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the Exchange Offer. See "--Fees and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond ,
1998.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Series A Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension
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or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE SERIES B NOTES
The Series B Notes will bear interest from their date of issuance. Holders
of Series A Notes that are accepted for exchange will receive, in cash or
additional Series B Notes, at the option of the Company, accrued interest
thereon to, but not including, the date of issuance of the Series B Notes. Such
interest will be paid with the first interest payment on the Series B Notes on
August 1, 1998. Interest on the Series A Notes accepted for exchange will cease
to accrue upon issuance of the Series B Notes.
PROCEDURES FOR TENDERING
Only a holder of Series A Notes may tender such Series A Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Series A Notes and any other required documents, to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Series A Notes, Letter of Transmittal and other required
documents must be completed and received by the Exchange Agent at the address
set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time,
on the Expiration Date. Delivery of the Series A Notes may be made by book-entry
transfer in accordance with the procedures described below. Conformation of such
book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the second paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute the agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Series A Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Series A Notes tendered pursuant
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thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Series A Notes listed there, such Series A Notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Series A Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Series A Notes at the book-entry transfer facility. The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Series A Notes by causing such Book-Entry
Transfer Facility to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the
Series A Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Series A Notes and withdrawal of tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Series A Notes not properly tendered or any Series A Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole discretion
to waive any defects, irregularities or conditions of tender as to particular
Series A Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Series A Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Series A Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Series A Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Series A Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A Notes
are not immediately available, (ii) who cannot deliver their Series A Notes, the
Letter of Transmittal or any other required
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documents to the Exchange Agent or (iii) who cannot complete the procedures for
book-entry transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Series A Notes and the principal amount of Series A Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Series A Notes (or a confirmation of
book-entry transfer of such Series A Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility), and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Series A Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Series A Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth below.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Series A Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Series A Notes to be
withdrawn (the "Depositor"), (ii) identify the Series A Notes to be withdrawn
(including certificate number(s) and principal amount of such Series A Notes,
or, in the case of Series A Notes transferred by book-entry transfer, the name
and number of the account at the Book-Entry Transfer Facility to be credited),
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Series A Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Series A Notes register the
transfer of such Series A Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any Series A Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Series A Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Series B Notes will
be issued with respect thereto unless the Series A Notes so withdrawn are
validly retendered. Any Series A Notes which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Series A Notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Series B Notes for, any Series A
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Series A Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(b) any law, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer and contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Series A Notes and
return all tendered Series A Notes to the tendering holders, (ii) extend the
Exchange Offer an retain all Series A Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Series A Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Series A Notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer, Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attn: Reorg
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
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The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses includes fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Series B Notes will be recorded at the same carrying value as the Series
A Notes, as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses related to the issuance of the Notes and
of the Exchange Offer will be amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A Notes that are not exchanged for Series B Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) so long as the Series A Notes are eligible for resale pursuant
to Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant
to another exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel reasonable acceptable to the Company),
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE SERIES B NOTES
With respect to resales of Series B Notes, based on no-action letters issued
by the staff of the Commission to third parties, the Company believes that a
holder or other person who receives Series B Notes, whether or not such person
is the holder (other than a person that is an "Affiliate" of the Company within
the meaning of Rule 405 under the Securities Act), who receives Series B Notes
in exchange for Series A Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the Series
B Notes, will be allowed to resell the Series B Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the Series B Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires Series B Notes
in the Exchange Offer for the purpose of distributing or participating in a
distribution of the Series B Notes, such holder cannot rely on the position of
the staff of the Commission enunciated in such no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Series B Notes for its own account in exchange for
Series A Notes, where such Series A Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Series B Notes are to be
acquired by the holder or the person receiving such Series B Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) that at
the time of the consummation of the understanding with any person to participate
in the distribution of the Series B Notes in violation of the provisions of the
Securities Act, (iii) that such holder is not an "Affiliate" (as defined) of the
Company within the meaning of the Securities Act and (iv) that such holder is
not acting on behalf of
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any person who could not truthfully make the foregoing representations. As
indicated above, each Participating Broker-Dealer that receives a Series B Note
for its own account in exchange for Series A Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such Series B Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
See "Plan of Distribution."
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Series B Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Series B Notes
received in exchange for Series A Notes where such Series A Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the date of this Prospectus, it
will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the Series B
Notes by Participating Broker-Dealers. Series B Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Series B Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Series B Notes. Any Participating Broker-Dealer that resells the Series
B Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Series B Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Series B Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
Prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the Series B Notes initially will
be in the form of one or more registered global book-entry Notes, in global
form, (the "Global Note"). The Global Note will be deposited on the Issue Date
with, or on behalf of, DTC and registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
Accredited Investors who are not QIBs or (ii) held by QIBs who elected to take
physical delivery of their certificates instead of holding their interest
through the Global Note (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Notes"). Upon the transfer to a QIB of any
Certificated Note initially issued to a Non-Global Purchaser, such Certificated
Security will, unless the transferee requests otherwise or such Global Note has
previously been exchanged in whole for Certificated Securities, be exchanged for
an interest in such Global Note. For a description of the restrictions on the
transfer of Certificated Securities and any interest in a Global Note, see
"Transfer Restrictions."
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GLOBAL SECURITIES
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of Series B Notes of the individual
beneficial interest represented by such Global Note to the respective accounts
for persons who have accounts with DTC and (ii) ownership of beneficial
interests in the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of persons who have accounts with DTC
("participants")) and the records of participants (with respect to interests of
persons other than participants). Such accounts initially will be designated by
or on behalf of the Initial Purchaser, and ownership of beneficial interests in
the Global Note will be limited to participants or persons who hold interests
through participants. QIBs may hold their interests in the Global Note directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Series B Notes represented by the Global Note for
all purposes under the Indenture. No beneficial owner of an interest in any of
the Global Note will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture.
Payments on the Global Series B Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the applicable
Global Note as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell such note to persons in states which require physical delivery
of Certificated Notes, or to pledge such securities, such holder must transfer
its interest in the Global Note, in accordance with the normal procedures of
DTC.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Series B Notes as the case may be, (including the
presentation of Notes for exchange as described below) only at the direction of
one or more participants to whose account the DTC interests in the Global Note
are credited and only in respect of such portion of the Series B Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Note representing Series B Notes for Certificated Notes, which it
will distribute to its participants and which will be legended as set forth
under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic
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book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser or the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, Certificated Notes will be issued in exchange for the Global
Note.
LEGAL MATTERS
Certain legal matters with respect to the Series B Notes offered hereby will
be passed upon for the Company by Cooperman Levitt Winikoff Lester & Newman,
P.C., New York, New York. As of February 18, 1998 Robert L. Winikoff, a partner
of Cooperman Levitt Winikoff Lester & Newman, P.C., is the beneficial owner of
1,300 shares of Series C Preferred Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited Financial Statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus and Registration Statement have been audited by McGladrey & Pullen,
LLP, independent public accountants, to the extent indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon their authority as experts in accounting and auditing.
ADDITIONAL AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Series B
Notes offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements contained in this Prospectus as to the
contents of any contract, agreement or any other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit to the Registration Statement for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Registration Statement can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20459, and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement can be obtained from the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20459, at prescribed rates.
The Company is filing the Registration Statement with the Commission
electronically. The Commission maintains a web site that contains reports, proxy
and
81
<PAGE>
information statements and other information regarding registrants that file
electronically with the Commission. The address of that web site is
http://www.sec.gov.
The Company intends, and is required by the terms of the Indenture as long
as the Series B Notes are outstanding, to furnish the holders of the Series B
Notes with annual reports containing financial statements audited by its
independent certified public accountants and with quarterly reports containing
unaudited condensed financial statements for each of the first three quarters of
each fiscal year.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MENTUS MEDIA CORP.
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Independent Auditor's Report.......................................................... F-2
Balance Sheets as of December 31, 1996 and 1997....................................... F-3
Statements of Operations for the Years Ended December 31, 1995,
1996 and 1997....................................................................... F-4
Statements of Changes in Stockholders' Deficit for the Years Ended
December 31, 1995, 1996 and 1997.................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996,
and 1997............................................................................ F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mentus Media Corp.
Eden Prairie, Minnesota
We have audited the accompanying balance sheets of Mentus Media Corp. as of
December 31, 1996 and 1997, and the related statements of operations, changes in
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mentus Media Corp. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 2, 1998
F-2
<PAGE>
MENTUS MEDIA CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS (NOTE 2)
Current Assets
Cash and cash equivalents............................................................ $ 3,821,195 $ 2,789,142
Trade accounts receivable, less allowance of $45,000 in 1997......................... 163,140 382,108
Other current assets................................................................. -- 120,886
----------- -----------
Total current assets........................................................... 3,984,335 3,292,136
----------- -----------
Equipment and Furnishings, at cost (Notes 3 and 7)
Equipment............................................................................ 2,632,909 4,719,812
Office furniture and equipment....................................................... 209,499 381,493
Equipment under capitalized lease.................................................... 247,182 276,546
----------- -----------
3,089,590 5,377,851
Less accumulated depreciation........................................................ 688,269 1,387,665
----------- -----------
2,401,321 3,990,186
----------- -----------
Other Assets
Deposits............................................................................. 13,645 44,052
Noncurrent trade accounts receivable................................................. -- 51,562
Deferred financing costs (Note 10)................................................... -- 78,603
Other................................................................................ -- 79,109
----------- -----------
13,645 253,326
----------- -----------
$ 6,399,301 $ 7,535,648
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt................................................. $ 52,174 $ 48,302
Accounts payable..................................................................... 517,553 319,405
Accrued expenses (Note 9)............................................................ 212,599 1,663,453
----------- -----------
Total current liabilities...................................................... 782,326 2,031,160
----------- -----------
Noncurrent Accrued Site Lease Expense.................................................. -- 92,253
----------- -----------
Long-Term Debt, including capital leases, less current maturities (Notes 2 and 3)...... 2,453,618 3,015,208
----------- -----------
Commitments (Notes 3, 4, and 5)
Mandatory Redeemable Preferred Stock (Note 5)
14.8% Series B, nonvoting; authorized 91,100 shares; issued and outstanding 91,059
shares; stated at liquidation value plus accrued dividends......................... 7,304,845 8,429,915
14.8% Series C, nonvoting; authorized 90,000 shares; issued and outstanding 75,310
shares; stated at liquidation value plus accrued dividends......................... -- 6,057,115
----------- -----------
7,304,845 14,487,030
----------- -----------
Stockholders' Deficit (Notes 5 and 6)
8.25% Series A cumulative preferred stock, nonvoting; authorized 20,000 shares;
issued and outstanding 6,000 shares, stated at liquidation value, excluding
cumulative unpaid dividends (Note 5)............................................... 3,000,000 3,000,000
Common stock, $0.01 par value; authorized 1,000,000 shares; issued and outstanding
266,268 shares..................................................................... 2,663 2,663
Additional paid-in capital........................................................... 5,464,920 3,904,889
Accumulated deficit.................................................................. (12,609,071) (18,997,555)
----------- -----------
(4,141,488) (12,090,003)
----------- -----------
$ 6,399,301 $ 7,535,648
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
Revenues (Note 7):
Advertising revenues............................................... $ -- $ -- $ 1,243,868
Less agency commissions............................................ -- -- 39,325
------------- ------------- -------------
NET ADVERTISING REVENUES......................................... -- -- 1,204,543
Network equipment and territorial rights sales..................... -- 2,688,455 137,279
Network operating revenues......................................... -- 489,512 485,299
------------- ------------- -------------
TOTAL REVENUES................................................... -- 3,177,967 1,827,121
------------- ------------- -------------
Costs and expenses:
Cost of network equipment sales.................................... -- 2,213,772 60,893
Network operating expenses......................................... -- 362,889 2,799,498
Selling expenses................................................... -- -- 1,757,523
General and administrative expenses................................ 2,103,220 2,507,134 3,428,649
------------- ------------- -------------
TOTAL COSTS AND EXPENSES......................................... 2,103,220 5,083,795 8,046,563
------------- ------------- -------------
OPERATING LOSS................................................... (2,103,220) (1,905,828) (6,219,442)
Nonoperating income (expense):
Interest expense................................................... (239,859) (231,355) (280,806)
Interest income.................................................... 8,503 81,679 113,037
Other expense...................................................... -- -- (1,273)
------------- ------------- -------------
NET LOSS......................................................... (2,334,576) (2,055,504) (6,388,484)
Preferred stock dividends............................................ 247,500 540,802 1,630,836
------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS....................... $ (2,582,076) $ (2,596,306) $ (8,019,320)
------------- ------------- -------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE...................... $ (11.20) $ (10.16) $ (30.12)
------------- ------------- -------------
------------- ------------- -------------
Weighted-average number of common shares outstanding................. 230,521 255,538 266,268
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A CUMULATIVE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ----------- -------- ------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. 6,000 $ 3,000,000 219,900 $2,199 $ 2,358,661 $ (8,218,991) $ (2,858,131)
Issuance of common stock at $40 per
share............................... -- -- 3,750 38 149,962 -- 150,000
Issuance of common stock at $71 per
share (Notes 2 and 6)............... -- -- 15,000 150 1,071,204 -- 1,071,354
Issuance of common stock at $91 per
share............................... -- -- 11,042 110 999,890 -- 1,000,000
Exercise of stock options............. -- -- 1,200 12 1,188 -- 1,200
Compensation element of stock options
granted (Note 6).................... -- -- -- -- 68,669 -- 68,669
Net loss.............................. -- -- -- -- -- (2,334,576) (2,334,576)
------ ----------- -------- ------- ------------ ------------- -------------
Balance, December 31, 1995.............. 6,000 3,000,000 250,892 2,509 4,649,574 (10,553,567) (2,901,484)
Issuance of common stock at $71 per
share (Note 2)...................... -- -- 1,562 16 111,547 -- 111,563
Contribution of deferred compensation
to additional paid-in capital and
subsequent issuance of common stock
(Note 4)............................ -- -- 13,814 138 1,063,518 -- 1,063,656
Compensation element of stock options
granted (Note 6).................... -- -- -- -- 70,430 -- 70,430
Accrued dividends on mandatory
redeemable preferred stock.......... -- -- -- -- (293,302) -- (293,302)
Series B mandatory redeemable
preferred stock issuance costs...... -- -- -- -- (136,847) -- (136,847)
Net loss.............................. -- -- -- -- -- (2,055,504) (2,055,504)
------ ----------- -------- ------- ------------ ------------- -------------
Balance, December 31, 1996.............. 6,000 3,000,000 266,268 2,663 5,464,920 (12,609,071) (4,141,488)
Accrued dividends on mandatory
redeemable preferred stock.......... -- -- -- -- (1,383,336) -- (1,383,336)
Series C mandatory redeemable
preferred stock issuance costs...... -- -- -- -- (155,566) -- (155,566)
Compensation element of stock options
forfeited (Note 6).................. -- -- -- -- (21,129) -- (21,129)
Net loss.............................. -- -- -- -- -- (6,388,484) (6,388,484)
------ ----------- -------- ------- ------------ ------------- -------------
Balance, December 31, 1997.............. 6,000 $ 3,000,000 266,268 $2,663 $ 3,904,889 $(18,997,555) $ (12,090,003)
------ ----------- -------- ------- ------------ ------------- -------------
------ ----------- -------- ------- ------------ ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -----------
Cash Flows From Operating Activities
Net loss........................................................................... $(2,334,576) $(2,055,504) $(6,388,484)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................... 191,767 211,368 713,892
Deferred compensation............................................................ 191,707 -- --
Compensation element of stock options granted (forfeited)........................ 68,669 70,430 (21,129)
Loss on disposal of equipment and furnishings.................................... -- -- 1,896
Interest accretion on long-term debt............................................. -- -- 88,027
Changes in assets and liabilities:
Receivables.................................................................. -- (163,140) (270,530)
Other current assets......................................................... 49,191 -- (120,886)
Accounts payable............................................................. 115,632 339,815 (198,148)
Accrued expenses............................................................. 61,137 145,451 1,543,107
----------- ----------- -----------
Net cash used in operating activities...................................... (1,656,473) (1,451,580) (4,652,255)
----------- ----------- -----------
Cash Flows From Investing Activities
Purchase of equipment and furnishings.............................................. (91,756) (2,140,886) (1,278,775)
Deposits and other assets.......................................................... 453 (2,113) (109,516)
----------- ----------- -----------
Net cash used in investing activities...................................... (91,303) (2,142,999) (1,388,291)
----------- ----------- -----------
Cash Flows From Financing Activities
Borrowings under bridge loans and long-term debt................................... 781,618 450,000 --
Payments on bridge loans and long-term debt........................................ (17,191) (174,936) (56,149)
Net decrease in short-term shareholder debt........................................ (1,096) (126,663) --
Net proceeds from issuance of preferred stock...................................... -- 6,374,696 5,143,245
Net proceeds from issuance of common stock......................................... 1,222,554 -- --
Payment received on stock subscription receivable.................................. -- 500,000 --
Deferred financing costs........................................................... -- -- (78,603)
----------- ----------- -----------
Net cash provided by financing activities.................................. 1,985,885 7,023,097 5,008,493
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........................... 238,109 3,428,518 (1,032,053)
Cash and Cash Equivalents
Beginning.......................................................................... 154,568 392,677 3,821,195
----------- ----------- -----------
Ending............................................................................. $ 392,677 $ 3,821,195 $ 2,789,142
----------- ----------- -----------
----------- ----------- -----------
Supplemental Cash Flow Information
Cash payments for interest......................................................... $ 215,943 $ 219,479 $ 192,779
Noncash activities:
Equipment acquired under capital leases.......................................... 100,438 73,245 29,364
Common stock issued for stock subscription receivable............................ 500,000 -- --
Bridge loan converted to common stock............................................ 500,000 111,563 --
Bridge loan converted to Series B mandatory redeemable preferred stock........... -- 500,000 --
Deferred compensation contributed to capital..................................... -- 1,063,656 --
Increase in mandatory redeemable preferred stock and decrease in paid-in capital
from accrued dividends......................................................... -- 293,302 1,383,336
Reduction in paid-in capital from issuance costs on mandatory redeemable
preferred stock................................................................ -- 136,847 155,566
Stockholder note converted to Series C mandatory redeemable preferred stock (Note
5)............................................................................. -- -- 500,038
Equipment repurchased through issuance of notes payable (Note 7)................. -- -- 996,514
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Mentus Media Corp. (the Company) sells advertising
space and provides programming through an electronic out-of-home advertising
network known as the Next Generation Network (NGN). The Company was founded in
1990 and thereafter focused its efforts, among other things, on the development
of the NGN by developing and improving the NGN technology. At the same time, the
Company concentrated its efforts on securing site agreements for the placement
of NGN Displays as well as recruiting local sales personnel and opening local
sales offices in designated market areas.
Prior to 1996 the Company was in the development stage. During 1996, the
Company commenced operations and has entered into agreements for the placement
of its monitors with convenience store chains representing over 8,000 stores. In
1996, the Company began the installation of NGN in these stores. As of December
31, 1997, the NGN displays have been installed in approximately 1,800 sites in
nine market areas, principally in the states of Florida, Maryland, Texas, and
Virginia and the District of Columbia. The Company currently generates revenue
principally through the sale of advertising on the NGN and previously by selling
equipment and exclusive territorial rights to NGN within certain markets
(owner-operator networks). During 1997, the Company repurchased all NGN
equipment from the owner-operators who, in turn, forfeited their territorial
rights (see Note 7).
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION: Revenue from network equipment and territorial rights
sales was recognized upon installation of the equipment in the territory.
Network operating revenues, which consist of network operating fees and
advertising revenue for owner-operator networks, and advertising revenues for
Company networks are recognized in the period the service is provided. A full
month's advertising revenue is recognized in the first month of each advertising
service or contract period. Costs incurred for the production of media
advertising are recognized in the initial month of the advertising service or
contract period or as incurred during the advertising service period.
Advertising revenues are reduced by agency commissions on the statements of
operations. In addition, the Company provides allowances for uncollectible
revenues receivable based on Management's periodic assessment of the need for
such allowances.
BARTER TRANSACTIONS: Barter transactions, which represent the exchange of
NGN advertising for goods or services, are recorded at the estimated fair value
of the products or services received, not to exceed the estimated fair value of
the NGN advertising provided. The Company has valued all bartered advertising
credits received at a substantial discount from both the outside advertising
media's and the Company's standard rates. Barter revenues are recognized as
barter credit on the balance sheet when NGN advertising services are rendered,
and barter expense is recognized when the related products or services are
received or used. Barter revenues were $158,076 for the year ended December 31,
1997, of which $104,407 is included in other current assets on the balance sheet
at December 31, 1997. There were no barter revenues prior to 1997.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the
Company considers any Treasury bills, commercial paper, certificates of deposit,
and money market funds with a maturity of three months or less to be cash
equivalents. The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
AMORTIZATION OF PATENT: It was the policy of the Company to provide
amortization based on the patent's remaining life using the straight-line
method. During 1996, the Company determined that its patent had no remaining
value, and the unamortized balance was written off.
F-7
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development
activities performed by the Company are charged to operations as incurred.
Research and development expense was approximately $282,000, $222,000 and
$363,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
DEPRECIATION: It is the policy of the Company to provide depreciation based
on estimated useful lives of five to seven years for its equipment and
furnishings using the straight-line method.
ACCOUNTING FOR LONG-LIVED ASSETS: The Company began generating operating
revenue with its long-lived assets in 1996 and is in the process of building up
an acceptable revenue base and related cash flows. Management has and will
continue, on a periodic basis, to closely evaluate its equipment to determine
potential impairment by comparing its carrying value with the estimated future
net undiscounted cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future net
cash flows be less than the carrying value, the Company would recognize an
impairment loss at that date. An impairment loss would be measured by comparing
the amount by which the carrying value exceeds the fair value (estimated
discounted future cash flows or appraisal of assets) of the long-lived assets.
To date, management has determined that no impairment of long-lived assets
exists.
NET LOSS PER SHARE: The FASB has issued Statement No. 128, EARNINGS PER
SHARE, which supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have common stock or
potential common stock, such as options, warrants, and convertible securities,
outstanding that trade in a public market. Those entities that have only common
stock outstanding are required to present basic earnings per share amounts.
Basic per share amounts are computed, generally, by dividing net income or loss
by the weighted-average number of common shares outstanding. All other entities
are required to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise, or issuance of all potential common
stock instruments unless their effect is antidilutive, thereby reducing the loss
or increasing the income per common share.
The Company initially applied Statement No. 128 for the year ended December
31, 1997, and as required by the statement, retroactively applied it to all
periods presented. Loss per share has been adjusted for undeclared, cumulative
dividends on the Company's Series A cumulative preferred stock which totaled
$247,500 for each of the years ended December 31, 1995, 1996, and 1997, and the
dividends accrued on the Series B and C mandatory redeemable preferred stock of
$293,302 and $1,383,336 for the years ended December 31, 1996 and 1997,
respectively. As described in Note 6, the Company has options and warrants
outstanding to purchase shares of common stock, and the Series A, B, and C
preferred stock is convertible into common stock. However, because the Company
has incurred losses in all periods presented, the inclusion of those potential
common shares in the calculation of diluted loss per share would have an
antidilutive effect. Therefore, basic and diluted loss per share amounts are the
same in each period presented.
INCOME TAXES: The Company accounts for deferred taxes on an asset and
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
F-8
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include the
following financial instruments: cash and cash equivalents, trade accounts
receivable, accounts payable, and notes payable. No separate comparison of fair
values versus carrying values is presented for the aforementioned financial
instruments since their fair values are not significantly different than their
balance sheet carrying amounts. In addition, the aggregate fair values of the
financial instruments would not represent the underlying value of the Company.
NOTE 2. SHORT- AND LONG-TERM DEBT
SHORT-TERM DEBT: During 1995, the Company obtained $775,000 of financing
through 12.5 percent unsecured bridge loans. The note holders were also issued
warrants for the purchase of 3,100 shares of common stock at $71.43 per share.
In September 1995, $500,000 of the bridge loans and accrued interest thereon of
$21,354 plus an additional investment of $500,000 were exchanged for 14,300
shares of common stock at a price of $71.43 per share. During 1996, bridge loans
of $100,000 and accrued interest thereon of $11,563 were exchanged for 1,562
shares of common stock at a price of $71.43 per share. Of the remaining balance
of the bridge loans, $50,000 was converted into Series B Preferred Stock and
$125,000 was paid in full.
During 1996, the Company obtained $450,000 of financing through 9.25 percent
unsecured bridge loans. These loans were converted into Series B Preferred Stock
in 1996.
F-9
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SHORT- AND LONG-TERM DEBT (CONTINUED)
LONG-TERM DEBT: A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
8% note payable to shareholder, due November 2003, secured by
substantially all assets of the Company (1)..................... $ 2,375,500 $ 1,875,462
10.1 to 18.8% capital leases, due in varying monthly installments
to August 2001, secured by equipment and bank letters of credit
up to $35,000 (see Note 3)...................................... 130,292 103,507
Noninterest-bearing note payable, discounted at 15%, total of
$700,000 payable based on certain cash flows, if any, with
balance due December 2001, secured by equipment (see Note 7).... -- 400,226
Noninterest-bearing note payable, discounted at 15%, total of
$1,500,000 payable August 2003, plus 10% of certain net
revenues, if any, secured by equipment (see Note 7)............. -- 684,315
------------ ------------
2,505,792 3,063,510
Less current maturities........................................... 52,174 48,302
------------ ------------
$ 2,453,618 $ 3,015,208
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) During 1997, $500,038 of this debt was converted to Series C preferred stock
(see Note 5). Also, interest expense on this note was approximately $190,000
and $176,000 for the years ended December 31, 1996 and 1997, respectively.
This note was repaid in full on February 18, 1998, with a portion of the
proceeds from the sale of Senior Secured PIK Notes (see Note 10).
NOTE 3. LEASE COMMITMENTS
CAPITAL LEASES: The Company leases various equipment under capital leases.
Approximate future minimum lease payments under capital leases and the aggregate
present value of the net minimum lease payments at December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending December 31:
1998............................................................ $ 60,000
1999............................................................ 28,000
2000............................................................ 28,000
2001............................................................ 9,000
---------
$ 125,000
Less amounts representing interest 22,000
---------
$ 103,000
---------
---------
</TABLE>
F-10
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LEASE COMMITMENTS (CONTINUED)
The following is a summary of equipment under capital lease as of December
31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Cost.............................................................. $ 276,546
Accumulated depreciation.......................................... 135,959
---------
$ 140,587
---------
---------
</TABLE>
OPERATING LEASES: The Company leases its offices and warehouse facilities
under noncancelable operating leases, which require various monthly payments
including operating costs. The approximate future minimum lease payments under
operating leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending December 31:
1998............................................................ $ 357,000
1999............................................................ 246,000
2000............................................................ 197,000
2001............................................................ 57,000
2002............................................................ 49,000
---------
$ 906,000
---------
---------
</TABLE>
Rent expense amounted to approximately $150,000, $184,000, and $303,000 for
the years ended December 31, 1995, 1996, and 1997, respectively.
SITE LEASES: In connection with NGN, the Company enters into site leases
that provide for revenue-sharing arrangements (based on percentage of net
advertising revenues) with the operators of the sites in which its NGN displays
are located.
At December 31, 1997, in connection with the aforementioned arrangements,
the Company was committed to certain minimum site lease fees of approximately
$1,451,000 annually through the year 2000, based on monitors installed as of
December 31, 1997. A significant portion of the Company's NGN displays are
located in sites covered by a multistore site lease contract at December 31,
1997.
Site lease expenses included in the statements of operations were $7,917 and
$1,120,431 for the years ended December 31, 1996 and 1997, respectively.
NOTE 4. EMPLOYMENT AGREEMENTS AND DEFERRED COMPENSATION AGREEMENT
The Company has employment agreements with two officers of the Company.
These agreements, which extend to 1999, provide for an annual base salary which
is not subject to annual increases.
The agreement with one officer, who is a major shareholder, provides for an
annual bonus of $60,000 to be paid to the officer if certain established revenue
goals are met. The agreement with the other officer provides that one-third of
each installment of his base salary payable on or after January 1, 1998, shall
be paid in the form of Series C Preferred Stock, subject to forfeiture
provisions similar to those applicable to the restricted stock as described
below.
The Company previously had agreements with the two officers to defer a
portion of their compensation under prior employment agreements. The accrued
balance outstanding under these agreements at December 31, 1995, was $1,063,656.
In conjunction with the 1996 Series B preferred stock transaction, the
F-11
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. EMPLOYMENT AGREEMENTS AND DEFERRED COMPENSATION AGREEMENT (CONTINUED)
officers agreed to terminate these agreements and to contribute the accrued
balance outstanding to paid-in capital of the Company, and the Company issued
8,831 shares of restricted common stock to one officer and 4,983 shares of
restricted common stock to the other officer. The shares become unrestricted in
years 2006 and 2017, respectively, or upon the occurrence of death, disability,
or a qualifying public offering.
NOTE 5. PREFERRED STOCK
The Company's Board of Directors has authorized 500,000 shares of preferred
stock for designation and issuance, of which 298,900 were not designated as of
December 31, 1997.
SERIES A CUMULATIVE PREFERRED STOCK: The Company's 8.25 percent Series A
cumulative preferred stock is convertible at the option of the holder into
common stock, at any time prior to the close of business on the tenth day prior
to the date fixed for a redemption or exchange by the Company, at a conversion
price of $135.27 per common share (equivalent to a conversion rate of 3.696
shares of common stock for each share of preferred stock).
The preferred stock is redeemable at the option of the Company, if not
previously converted into common stock, in whole or in part, at $500 per share,
plus accrued and unpaid dividends to the redemption date.
Dividends of $247,500 for each of the years ended December 31, 1995, 1996,
and 1997, were not declared nor paid. Dividends in arrears totaled $1,237,500
and $1,485,000 at December 31, 1996 and 1997, respectively. The dividends in
arrears are also convertible into common stock at a conversion price of $135.27
per common share.
SERIES B MANDATORY REDEEMABLE PREFERRED STOCK: During 1996, the Company's
Board of Directors created and designated for issuance 91,100 shares of $1 par
Series B Senior Cumulative Compounding Convertible Redeemable Preferred Stock.
On September 25, 1996, the Company issued 91,059 shares of its Series B
preferred stock to private investors at $77 per share. Proceeds upon the
issuance of this stock, net of issuance costs of approximately $137,000, totaled
approximately $6,875,000, which consisted of approximately $6,375,000 in cash
and conversion of bridge loans totaling $500,000.
The Series B Preferred Stock is equal in all respective rights with the
Series C Preferred Stock and senior to all other classes of capital stock with
respect to dividend and liquidation rights. Dividends, which accrue at 14.8
percent on an initial liquidation value of $77 per share, are to be paid
quarterly on March 1, June 1, September 1, and December 1. On each dividend
payment date, accrued dividends, to the extent unpaid, are compounded upon the
stock's liquidation value. For the years ended December 31, 1996 and 1997,
dividends of $293,302 and $1,125,070, respectively, have been accrued and are
unpaid.
The Series B Preferred Stock and all accrued unpaid dividends are
convertible, in whole or in part, at the option of the holder into common stock
at a conversion price of $77 (representing 94,671 and 109,479 shares of common
stock at December 31, 1996 and 1997, respectively). The stock is convertible at
the option of the Company in the event of a qualifying public offering. The
stock is also redeemable in whole, but not in part, at the option of the Company
at a redemption price of $308 per share at any time prior to the mandatory
redemption date, which is September 2003. At that time, the Company is required
to redeem all outstanding shares of the Series B preferred stock at a redemption
price of $77, adjusted for cumulative compounded unpaid dividends.
F-12
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. PREFERRED STOCK (CONTINUED)
In addition, upon a qualifying change in ownership control or reorganization
event, the majority Series B preferred stockholders may require the Company to
redeem all outstanding Series B preferred stock at certain redemption prices.
The Company is also required to and has reserved from its authorized but
unissued shares of common stock, solely for the conversion of Series B preferred
stock, the full number of shares of common stock issuable if all outstanding
Series B shares were to be converted in full.
SERIES C MANDATORY REDEEMABLE PREFERRED STOCK: During 1997, the Company's
Board of Directors created and designated for issuance 90,000 shares of $1 par
Series C senior cumulative compounding convertible redeemable preferred stock.
This preferred stock contains terms and provisions that are virtually identical
to the Series B mandatory redeemable preferred stock, except for the mandatory
redemption date, which is March 2003 for Series C.
During 1997, the Company issued 75,310 shares of Series C preferred stock to
private investors at $77 per share. Proceeds upon issuance of this stock, net of
issuance costs of approximately $156,000, totaled approximately $5,643,000,
which consisted of approximately $5,143,000 in cash and conversion of a
stockholder note of $500,038. For the year ended December 31, 1997, dividends of
$258,266 have been accrued and are unpaid on this preferred stock.
NOTE 6. STOCK OPTION PLANS
The Company has a 1993 Stock Option Plan effective January 1, 1994, and a
1994 Stock Option Plan effective December 15, 1994 (the Plans). The Plans permit
the granting of incentive stock options and nonqualified options. A total of
4,000 and 8,000 shares of the Company's common stock have been reserved for
issuance pursuant to options granted under the 1993 and 1994 Plans,
respectively.
Grants under the Plans are accounted for following APB Opinion No. 25 and
related interpretations. Compensation cost charged to operations for stock
option grants was $68,669 and $70,430 for the years ended December 31, 1995 and
1996, respectively. During 1997, certain compensatory options were forfeited,
resulting in the reversal of $21,129 of compensation expense. Had compensation
cost for the options been determined using the fair value method required by
FASB Statement No. 123, the Company's basic and diluted net loss and net loss
per common share on a pro forma basis would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
Net loss:
As reported.................................... $ (2,334,576) $ (2,055,504) $ (6,388,484)
Pro forma...................................... (2,334,700) (2,080,100) (6,457,367)
Basic and diluted net loss per common share:
As reported.................................... (11.20) (10.16) (30.12)
Pro forma...................................... (11.20) (10.26) (30.38)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants: risk-free interest
F-13
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCK OPTION PLANS (CONTINUED)
rates of 6.37, 5.98, and 6.16 percent in 1995, 1996, and 1997, respectively;
expected lives of 5 years; and expected volatility of 10 percent.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1994..................................... 3,631 $ 1.00
Granted............................................................ 975 1.00
Exercised.......................................................... (1,200) 1.00
---------
Outstanding at December 31, 1995..................................... 3,406 1.00
Granted............................................................ 2,500 49.31
---------
Outstanding at December 31, 1996..................................... 5,906 21.45
Granted............................................................ 1,000 77.00
Canceled........................................................... (300) 1.00
---------
Outstanding at December 31, 1997..................................... 6,606 30.79
---------
---------
</TABLE>
The following table summarizes additional information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
NUMBER CONTRACTUAL
RANGE OF OF OPTIONS LIVES
EXERCISE PRICES OUTSTANDING (IN YEARS)
- ------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
$ 1.00............................................................. 4,106 6.0
77.00............................................................. 2,000 6.0
90.56............................................................. 500 6.0
-----
6,606
-----
-----
</TABLE>
OTHER STOCK OPTIONS: During 1994, the Company granted, outside of the above
plans, an option for the purchase of 700 shares of common stock at an exercise
price of $71.43. This option was exercised in 1995.
WARRANTS: During 1995, the Company issued warrants to purchase 3,100 shares
of common stock at a price of $71.43 per share, exercisable any time prior to
May 1, 2000.
NOTE 7. TERRITORIAL AGREEMENTS AND REPURCHASE OF NETWORK EQUIPMENT
During 1996, the Company entered into territorial agreements with two
separate unrelated owner-operators. Each agreement granted exclusive territorial
rights to NGN within certain designated markets for a period of ten years. In
the aggregate, the Company received initial payments of approximately $2,688,000
for the purchase of hardware, software, and exclusive territorial rights. The
agreements also provided for royalties on all advertising revenue and
reimbursement of certain network operating expenses. One of the agreements also
provided the grantee with the option to purchase the exclusive rights to certain
additional designated NGN Network territories.
F-14
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. TERRITORIAL AGREEMENTS AND REPURCHASE OF NETWORK EQUIPMENT (CONTINUED)
In January 1997, the Company entered into an agreement with one of its NGN
owner-operators whereby the Company repurchased equipment originally sold by the
Company in 1996 in exchange for a $700,000 note payable. In addition, the
owner-operator forfeited its territorial rights. The note is noninterest-bearing
and is payable annually at an amount equal to 40 percent of operating cash flows
generated by the former owner-operator's territory with the unpaid balance of
the note due December 31, 2001. The note is secured by the equipment being
repurchased. The Company recorded the note and the repurchased equipment at
$348,023, the present value of the note using a discount rate of 15 percent and
no assumed payments until maturity.
In April 1997, the other owner-operator gave notice of forfeiture of its
territorial rights and its option to purchase the exclusive rights to certain
additional designated NGN territories, effective as of August 18, 1997. The
Company subsequently entered into an agreement with the owner-operator whereby,
in August 1997, the Company repurchased equipment originally sold in 1996 in
exchange for $25,000 cash and a $1,500,000 note payable. The note is
noninterest-bearing and is payable in full on August 18, 2003. The note is
secured by the equipment being repurchased. The Company has also agreed to pay
the former owner-operator 10 percent of the net revenues generated by the
forfeited Florida territory for the term of the note. The Company recorded the
repurchased equipment at $25,000 plus $648,491, the present value of the note
using a discount rate of 15 percent.
NOTE 8. INCOME TAXES
Deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Deferred tax assets:
Net operating loss carryforwards.............................. $ 4,274,000 $ 6,711,000
Tax credit carryforwards...................................... 113,000 147,000
Nondeductible compensation.................................... 556,000 541,000
Allowance for uncollectible accounts and other................ -- 34,000
------------- -------------
4,943,000 7,433,000
Deferred tax liabilities:
Depreciation and amortization................................. 48,000 78,000
------------- -------------
Net deferred tax assets......................................... 4,895,000 7,355,000
Less valuation allowance........................................ (4,895,000) (7,355,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
The Company had valuation allowances of $4,895,000 and $7,355,000 against
its deferred tax assets to reduce those assets to amounts that management
believes are appropriate at December 31, 1996 and 1997, respectively.
F-15
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The Company's income tax expense differed from the statutory federal rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -------------
Statutory rate applied to loss before income taxes... $ (817,000) $ (719,000) $ (2,172,000)
State income tax benefit net of federal tax effect
and other.......................................... (131,000) (121,000) (288,000)
Change in deferred tax valuation allowance........... 948,000 840,000 2,460,000
----------- ----------- -------------
$ -- $ -- $ --
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The Company has tax net operating loss and tax credit carryforwards which
are available to reduce income taxes payable in future years. Future utilization
of these loss and credit carryforwards are subject to certain limitations under
provisions of the Internal Revenue Code including limitations subject to Section
382, which relates to a 50 percent change in control over a three-year period,
and are further dependent upon the Company attaining profitable operations. The
Company believes that the issuance of warrants subsequent to year end (see Note
10) will result in an "ownership change" under Section 382. Accordingly, the
Company's ability to use net operating loss carryforwards generated prior to
February 1998 may be limited to approximately $1.3 million per year. These
carryforwards and credits will expire as follows:
<TABLE>
<CAPTION>
OPERATING LOSS TAX CREDIT
YEAR CARRYFORWARDS CARRYFORWARDS
- -------------------------------------------------------------- -------------- -------------
<S> <C> <C>
2005.......................................................... $ 1,536,000 $ --
2006.......................................................... 1,532,000 26,000
2007.......................................................... 626,000 15,000
2008.......................................................... 1,400,000 30,000
2009.......................................................... 1,450,000 23,000
2010.......................................................... 2,161,000 16,000
2011.......................................................... 1,985,000 3,000
2012.......................................................... 6,372,000 34,000
-------------- -------------
$ 17,062,000 $ 147,000
-------------- -------------
-------------- -------------
</TABLE>
NOTE 9. ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1997
---------- ------------
Site-lease fees (Note 3)............................................ $ 61,765 $ 1,272,017
Compensation........................................................ 16,487 119,468
Legal fees.......................................................... 92,437 196,217
Other............................................................... 41,910 75,751
---------- ------------
$ 212,599 $ 1,663,453
---------- ------------
---------- ------------
</TABLE>
F-16
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. EVENT SUBSEQUENT TO BALANCE SHEET DATE
On February 18, 1998, the Company sold 45,000 units representing $45 million
of 12 percent Senior Secured PIK Notes and Warrants to purchase 125,240 shares
of common stock. The notes mature on February 1, 2003. Interest on the notes
will be payable semiannually in arrears on February 1 and August 1 of each year
commencing August 1, 1998. Interest on the notes is payable either in cash or in
additional notes, at the option of the Company, until August 1, 2000, and
thereafter is payable in cash. Each warrant will entitle the holder to purchase
one share of common stock at an exercise price of $0.01 per share. The warrants
are detachable and are exercisable to February 1, 2008. For financial reporting
purposes the aforementioned Notes will be recorded net of the value ascribed to
the Warrants. The value ascribed to the Warrants will be $7.7 million, which
will be recorded as additional paid in capital.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements................
Prospectus Summary........................ 1
Risk Factors.............................. 11
Use of Proceeds........................... 16
Capitalization............................ 17
Selected Consolidated Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 25
Management................................ 33
Certain Transactions...................... 36
Principal Stockholders.................... 37
Description of Capital Stock.............. 38
Description of Notes...................... 43
Certain Federal Income Tax Consequences... 70
The Exchange Offer........................ 70
Plan of Distribution...................... 79
Book Entry; Delivery and Form............. 79
Legal Matters............................. 81
Experts................................... 81
Additional Information.................... 81
Index to Financial Statements............. F-1
</TABLE>
---------------------
PROSPECTUS
---------------------
$45,000,000
MENTUS MEDIA CORP.
OFFER TO EXCHANGE
SERIES B 12% SENIOR
SECURED PIK NOTES DUE 2003
FOR ALL OUTSTANDING SERIES A
12% SENIOR SECURED PIK
NOTES DUE 2003
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fee)
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 10 of the Company Certificate of Incorporation provides as follows:
The liability of directors of the Company is eliminated or limited to the
full extent permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, or any successor statute [Section 145 of the Delaware General
Corporation Law]. The provisions of this section shall be deemed to be a
contract with each director of the Company who serves as such at any time while
this section is in effect, and such provisions are cumulative of and shall be in
addition to and independent of any and all other limitations on the liabilities
of directors of the Company. In any action, suit or proceeding involving the
application of the provisions of this section, the party or parties challenging
the right of a director to the benefits of this section shall have the burden of
proof.
In addition to the Certificate of Incorporation, Gerard P. Joyce and Thomas
M. Pugliese both have indemnification provisions in their respective employment
agreements with the Company. Both agreements provide that The Company shall
indemnify the Employee (Joyce and Pugliese respectively) and his legal
representatives, to the fullest extent permitted by the laws of the State of
Delaware and the existing By-laws of the Company, and the Employee shall be
entitled to the protection of any insurance policies the Company may elect to
maintain generally for the benefit of its directors and officers, against all
costs,
II-1
<PAGE>
charges and expenses whatsoever incurred or sustained by him or his legal
representatives in connection with any action, suit or proceeding, or any
threatened action, suit or proceeding, to which he or his legal representatives
may be made a party, by reason of his being or having been a director or officer
of the Company or any of its subsidiaries.
If the Employee or any Designated Representative shall be required to
initiate legal action in order to enforce or retain any right or benefit
provided by this Agreement in the event of a breach of or default under this
Agreement (the respective employment agreements) by the Company, and if the
Employee or Designated Representative shall prevail in such legal action, the
Company shall indemnify the Employee or such Designated Representative for all
reasonable legal and accounting fees and expenses incurred in connection
therewith.
The Company entered into an indemnification agreement with Michael Marocco,
(the "Indemnitee") one of its directors, which provides the following:
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company under
Section (a) shall be subject to the condition that the reviewing party shall not
have determined (in a written opinion, in any case in which the independent
legal counsel referred to in Section 3 of the Indemnification Agreement is
involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an expense
advance pursuant to Section (a) shall be subject to the condition that, if, when
and to the extent that the reviewing party determines that Indemnitee would not
be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; PROVIDED, HOWEVER, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the reviewing party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any expense advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). If there has not been a Change in Control (as defined in
the indemnification agreement), the reviewing party shall be selected by the
Board of Directors, and if there has been a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
the reviewing party shall be the independent legal counsel hereof. If there has
been no determination by the reviewing party or if the reviewing party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation in any court in the State of Delaware or the State
of New York having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any such
determination by the reviewing party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and agrees to appear in any such proceeding. Any determination by the reviewing
party otherwise shall be conclusive and binding on the Company and Indemnitee.
II-2
<PAGE>
CHANGE IN CONTROL The Company agrees that if there is a Change in Control
of the Company (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and expense
advances, the Company shall seek legal advice only from independent legal
counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonable withheld). Such counsel, among other things, shall render
its written opinions to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the independent legal counsel
referred to above and to fully indemnify such counsel against any and all
expenses.
INDEMNIFICATION FOR ADDITIONAL EXPENSES The Company shall indemnify
Indemnitee against any and all reasonable expenses (including attorneys' fees)
and, if requested by a director, shall (within two business days of such
request) advance such expenses to Indemnitee, which are incurred by Indemnitee
in connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or Company Bylaw now or hereafter in effect relating to Claims for
indemnifiable events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
PARTIAL INDEMNITY. If Indemnitee is entitled under any provision to
indemnification by the Company for some or a portion of the expenses, judgments,
fines, penalties and amounts paid in settlement of a claim but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any and or all Claims
relating in whole or in part to an indemnifiable event or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee shall
be indemnified against all expenses incurred in connection therewith.
II-3
<PAGE>
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1(a) Certificate of Incorporation, filed June 7, 1990
3.1(b) Certificate of Amendment, filed October 24, 1990*
3.1(c) Certificate of Designation, filed November 13, 1990 (Preferred Stock)*
3.1(d) Certificate of Correction, filed June 13, 1991*
3.1(e) Certificate of Amendment, filed June 13, 1991*
3.1(f) Certificate of Amendment, filed February 5, 1993
3.1(g) Certificate of Amendment, filed September 25, 1996 (Series A Preferred Stock)*
3.1(h) Certificate of Designation, filed September 25, 1996 (Series A Preferred Stock)
3.1(i) Certificate of Designation, filed September 25, 1996 (Series B Preferred Stock)
3.1(j) Certificate of Correction, filed December 6, 1996
3.1(k) Certificate of Amendment, filed January 7, 1997.
3.1(l) Certificate of Amendment, filed August 28, 1997
3.1(m) Certificate of Designation, filed August 28, 1997 (Series C Preferred Stock)
3.1(n) Certificate of Amendment, filed August 28, 1997 (Series A Preferred Stock)
3.1(o) Certificate of Amendment, filed August 28, 1997 (Series B Preferred Stock)
3.1(p) Certificate of Correction, filed August 29, 1997
3.1(q) Certificate of Correction, filed August 29, 1997 (Series A Preferred Stock)
3.1(r) Certificate of Correction, filed August 29, 1997 (Series B Preferred Stock)
3.1(s) Certificate of Amendment, filed February 4, 1998 (Series B Preferred Stock)
3.1(t) Certificate of Amendment, filed February 4, 1998 (Series C Preferred Stock)
3.1(u) Certificate of Amendment filed February 18, 1998 (Series B Preferred Stock)
3.1(v) Certificate of Amendment, filed February 18, 1998 (Series C Preferred Stock)
3.2(a) By-Laws of the Company*
3.2(b) Amendment to By-Laws
4.1(a) Indenture dated February 18, 1998 between the Company and the Trustee
4.1(b) Exchange and Registration Right Agreement dated February 18, 1998 between the Company and the Initial
Purchaser
4.1(c) Pledge Agreement dated February 18, 1998 between the Company and the Initial Purchaser
4.1(d) Security Agreement dated February 18, 1998 between the Company and the Initial Purchaser
4.1(e) Purchase Agreement dated February 12, 1998 between the Company and the Initial Purchaser
4.1(f) Unit Agreement dated February 18, 1998 between the Company and the Initial Purchaser
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding the validity of the Series B
Notes, including consent*
8.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding certain federal income tax
matters, including consent*
10.1(a) Form of Co-Investment Agreement relating to issuances of Preferred Stock in 1997
10.1(b) Stock Purchase Agreement dated September 25, 1996 between the Company and 21st Century Communication
Partners, L.P., 21st Century Communication T-E Partners, L.P. and 21st Century Communications Foreign
Partners, L.P.
10.1(c) Amended and Restated Registration Rights Agreement between the Company and Stephen Adams
10.1(d) Stock Purchase Agreement dated August 29, 1997 by and between the Company and 21st Century
Communications Partners L.P., 21st Century Communications T-E Partners, L.P., 21st Century
Communications Foreign Partners, L.P., and Pulitzer Publishing
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.1(e) Registration Rights Agreement dated September 25, 1996 by and among the Company, 21st Century
Communications Partners, L.P., 21st Century Communications T-E Partners L.P., 21st Century
Communications Foreign Partners, L.P., and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company.
10.1(f) First Amendment to Registration Rights Agreement dated August 29, 1997 between the Company, 21st
Century Communications Partners, L.P., and 21st Century Communications T-E Partners L.P., 21st Century
Communications Foreign Partners, L.P. and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company and
the Series C Stockholder.
10.1(g) Amendment to Registration Rights Agreement entered into on February 18, 1998 between the Company, 21st
Century Communications Partners, L.P., 21st Century Communications T-E Partners L.P. and 21st Century
Communications Foreign Partners, L.P.*
10.1(h) Preemptive Rights Agreement dated September 25, 1996 between the Company and 21st Century Communication
Partners L.P., 21st Century Communication T-E Partners, L.P., and 21st Century Communication Foreign
Partners, L.P.
10.1(i) First Amendment to Preemptive Rights Agreement dated August 29, 1997 between the Company, 21st Century
Communications Partners, L.P., 21st Century Communication T-E Partners, L.P., 21st Century
Communication Foreign Partners, L.P.,and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company.
10.1(j) Joinder Agreement dated December 26, 1995 by and between Stephen Adams, Gerard P. Joyce and Thomas M.
Pugliese
10.1(k) Stockholder Agreement dated September 25, 1996 by and among the Company and 21st Century Communication
Partners L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Gerard P. Joyce and Thomas M. Pugliese.
10.1(l) First Amendment to Stockholders Agreement dated August 29, 1997 and 21st Century Communication Partners
L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communication Foreign Partners,
L.P., Gerard P. Joyce, Thomas Pugliese and Pulitzer Publishing
10.1(m) Stock Purchase Agreement dated December 26, 1996 by and between Stephen Adams and the Company.
10.1(n) Letter Agreement dated March 19, 1996 by and between Stephen Adams and the Company.
10.2(a) Employment Agreement dated August 1, 1990 between the Company and Gerard P. Joyce.*
10.2(b) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Gerard P.
Joyce*
10.2(c) Employment Agreement dated August 1, 1990 between the Company and Thomas M. Pugliese as amended.*
10.3(a) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Thomas M.
Pugliese*
10.3(b) Second Amendment to Employment Agreement entered into August 29, 1997 between the Company and Thomas M.
Pugliese*
10.4 Media Network Services Agreement by and between The Southland Corporation and the Company. THIS
DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR APPLICATION
FOR "CONFIDENTIAL TREATMENT."
23.1(a) Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (included in Exhibits 5.1 and 8.1)*
23.1(b) Consent of McGladrey & Pullen, LLP
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
24.1 Power of Attorney (on Signature Page)
25.1 Statement of Eligibility of Trustee
99.1 Additional Exhibits--Letter of Transmittal
</TABLE>
- ------------------------
* To be filed by Amendment
II-6
<PAGE>
ITEM 22. UNDERTAKINGS.
Mentus Media Corp. ("the Registrant") hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts of
events arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus will contain the
information called for by the
II-7
<PAGE>
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Minneapolis, state of
Minnesota, on April 2, 1998.
MENTUS MEDIA CORP.
By: /s/ THOMAS M. PUGLIESE
------------------------------------------
Thomas M. Pugliese
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Gerard P. Joyce, Thomas M. Pugliese and Michael
J. Kolthoff as such person's true and lawful attorney-in-fact and agent, acting
alone, with full powers of substitution and revocation, for such person and in
such person's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ------------------------------ -------------------
<S> <C> <C>
/s/ GERARD P. JOYCE Chairman of the Board of
- ------------------------------ Directors and President April 2, 1998
Gerard P. Joyce (principal executive officer)
/s/ THOMAS M. PUGLIESE Vice Chairman of the Board of
- ------------------------------ Directors, Chief Executive April 2, 1998
Thomas M. Pugliese Officer and Secretary
Treasurer and Assistant
/s/ MICHAEL J. KOLTHOFF Secretary
- ------------------------------ (principal financial officer April 2, 1998
Michael J. Kolthoff and principal accounting
officer)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ------------------------------ -------------------
<S> <C> <C>
/s/ TIMOTHY P. HARTMAN
- ------------------------------ Director April 2, 1998
Timothy P. Hartman
/s/ DAVID R. VOELKER
- ------------------------------ Director April 2, 1998
David R. Voelker
/s/ THOMAS J. DAVIS
- ------------------------------ Director April 2, 1998
Thomas J. Davis
/s/ JAMES P. SHEEHAN
- ------------------------------ Director April 2, 1998
James P. Sheehan
- ------------------------------ Director
Alejandro Zubillaga
/s/ MICHAEL J. MAROCCO
- ------------------------------ Director April 2, 1998
Michael J. Marocco
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
ITEM 21.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1(a) Certificate of Incorporation, filed June 7, 1990
3.1(b) Certificate of Amendment, filed October 24, 1990*
3.1(c) Certificate of Designation, filed November 13, 1990 (Preferred Stock)*
3.1(d) Certificate of Correction, filed June 13, 1991*
3.1(e) Certificate of Amendment, filed June 13, 1991*
3.1(f) Certificate of Amendment, filed February 5, 1993*
3.1(g) Certificate of Amendment, filed September 25, 1996 (Series A Preferred Stock)*
3.1(h) Certificate of Designation, filed September 25, 1996 (Series A Preferred Stock)
3.1(i) Certificate of Designation, filed September 25, 1996 (Series B Preferred Stock)
3.1(j) Certificate of Correction, filed December 6, 1996
3.1(k) Certificate of Amendment, filed January 7, 1997.
3.1(l) Certificate of Amendment, filed August 28, 1997
3.1(m) Certificate of Designation, filed August 28, 1997 (Series C Preferred Stock)
3.1(n) Certificate of Amendment, filed August 28, 1997 (Series A Preferred Stock)
3.1(o) Certificate of Amendment, filed August 28, 1997 (Series B Preferred Stock)
3.1(p) Certificate of Correction, filed August 29, 1997
3.1(q) Certificate of Correction, filed August 29, 1997 (Series A Preferred Stock)
3.1(r) Certificate of Correction, filed August 29, 1997 (Series B Preferred Stock)
3.1(s) Certificate of Amendment, filed February 4, 1998 (Series B Preferred Stock)
3.1(t) Certificate of Amendment, filed February 4, 1998 (Series C Preferred Stock)
3.1(u) Certificate of Amendment filed February 18, 1998 (Series B Preferred Stock)
3.1(v) Certificate of Amendment, filed February 18, 1998 (Series C Preferred Stock)
3.2(a) By-Laws of the Company
3.2(b) Amendment to By-Laws
4.1(a) Indenture dated February 18, 1998 between the Company and the Trustee
4.1(b) Exchange and Registration Right Agreement dated February 18, 1998 between the Company and the Initial
Purchaser
4.1(c) Pledge Agreement dated February 18, 1998 between the Company and the Initial Purchaser
4.1(d) Security Agreement dated February 18, 1998 between the Company and the Initial Purchaser
4.1(e) Purchase Agreement dated February 12, 1998 between the Company and the Initial Purchaser
4.1(f) Unit Agreement dated February 18, 1998 between the Company and the Initial Purchaser
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding the validity of the Series B
Notes, including consent*
8.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding certain federal income tax
matters, including consent*
10.1(a) Form of Co-Investment Agreement relating to issuances of Preferred Stock in 1997
10.1(b) Stock Purchase Agreement dated September 25, 1996 between the Company and 21st Century Communication
Partners, L.P., 21st Century Communication T-E Partners, L.P. and 21st Century Communications Foreign
Partners, L.P.
10.1(c) Amended and Restated Registration Rights Agreement between the Company and Stephen Adams
10.1(d) Stock Purchase Agreement dated August 29, 1997 by and between the Company and 21st Century
Communications Partners L.P., 21st Century Communications T-E Partners, L.P., 21st Century
Communications Foreign Partners, L.P., and Pulitzer Publishing
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.1(e) Registration Rights Agreement dated September 25, 1996 by and among the Company, 21st Century
Communications Partners, L.P., 21st Century Communications T-E Partners L.P., 21st Century
Communications Foreign Partners, L.P., and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company.
10.1(f) First Amendment to Registration Rights Agreement dated August 29, 1997 between the Company, 21st
Century Communications Partners, L.P., and 21st Century Communications T-E Partners L.P., 21st Century
Communications Foreign Partners, L.P. and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company and
the Series C Stockholder.
10.1(g) Amendment to Registration Rights Agreement entered into on February 18, 1998 between the Company, 21st
Century Communications Partners, L.P., 21st Century Communications T-E Partners L.P. and 21st Century
Communications Foreign Partners, L.P.*
10.1(h) Preemptive Rights Agreement dated September 25, 1996 between the Company and 21st Century Communication
Partners L.P., 21st Century Communication T-E Partners, L.P., and 21st Century Communication Foreign
Partners, L.P.
10.1(i) First Amendment to Preemptive Rights Agreement dated August 29, 1997 between the Company, 21st Century
Communications Partners, L.P., 21st Century Communication T-E Partners, L.P., 21st Century
Communication Foreign Partners, L.P.,and certain holders of the Company's Series B Cumulative
Compounding Convertible Redeemable Preferred Stock and certain other shareholders of the Company.
10.1(j) Joinder Agreement dated December 26, 1995 by and between Stephen Adams, Gerard P. Joyce and Thomas M.
Pugliese
10.1(k) Stockholder Agreement dated September 25, 1996 by and among the Company and 21st Century Communication
Partners L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Gerard P. Joyce and Thomas M. Pugliese.
10.1(l) First Amendment to Stockholders Agreement dated August 29, 1997 and 21st Century Communication Partners
L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communication Foreign Partners,
L.P., Gerard P. Joyce, Thomas Pugliese and Pulitzer Publishing
10.1(m) Stock Purchase Agreement dated December 26, 1996 by and between Stephen Adams and the Company.
10.1(n) Letter Agreement dated March 19, 1996 by and between Stephen Adams and the Company.
10.2(a) Employment Agreement dated August 1, 1990 between the Company and Gerard P. Joyce.*
10.2(b) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Gerard P.
Joyce*
10.2(c) Employment Agreement dated August 1, 1990 between the Company and Thomas M. Pugliese as amended.*
10.3(a) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Thomas M.
Pugliese*
10.3(b) Second Amendment to Employment Agreement entered into August 29, 1997 between the Company and Thomas M.
Pugliese*
10.4 Media Network Services Agreement by and between The Southland Corporation and the Company. THIS
DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR APPLICATION
FOR "CONFIDENTIAL TREATMENT."
23.1(a) Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (included in Exhibits 5.1 and 8.1)*
23.1(b) Consent of McGladrey & Pullen, LLP
24.1 Power of Attorney (on Signature Page)
25.1 Statement of Eligibility of Trustee
99.1 Additional Exhibits--Letter of Transmittal
</TABLE>
<PAGE>
Exhibit 3.1(a)
Certificate of Incorporation
of
The Mentus Corporation
1. Name. The name of the corporation is The Mentus Corporation.
2. Registered Office and Agent. The address and registered office of
the Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
4. Authorized Capital. The Corporation shall be authorized to issue
Twenty Thousand (20,000) shares of common stock, no par value.
5. Incorporator. The name and mailing address of the incorporator
is:
Name Mailing Address
---- ---------------
Anthony A. Bonacci 2901 North Central Avenue
Phoenix, Arizona 85012
The powers of the incorporator are to terminate upon the filing of this
Certificate of Incorporation.
6. Initial Director. The following person is to serve as the
Corporation's sole director until the first annual meeting of stockholders or
until his successor or successors are elected and qualified.
Name Mailing Address
---- ---------------
Gerard P. Joyce 5001 Spring Valley Road
Suite 400E
Dallas, Texas 75244
7. Bylaws. The Board of Directors of the Corporation shall have the
power and authority, at any time and form time to time, to adopt, amend or
repeal the Bylaws of the Corporation.
<PAGE>
8. Ballots. Elections of directors need not be by written ballot
except as otherwise provided in the Bylaws of the Corporation.
9. Larger Vote. The Bylaws of the Corporation may require a larger
than majority vote of the stock or of the directors for any corporate action.
10. Liability of Directors. The liability of directors of the
Corporation is eliminated or limited to the full extent permitted by section
102(b)(7) of the General Corporation Law of the State of Delaware, or any
successor statute. The provisions of this section shall be deemed to be a
contract with each director of the Corporation who serves as such at any time
while this section is en effect, and such provisions are cumulative of and shall
be in addition to and independent of any and all other limitations on the
liabilities of directors of the Corporation. In any action, suit or proceeding
involving the application of the provisions of this section, the party or
parties challenging the right of a director to the benefits of this section
shall have the burden of proof.
11. Non-Cumulative Voting. All rights to vote and all voting power
shall be exclusively vested in the holders of the Corporation's common stock.
All voting shall be non-cumulative.
I, the undersigned, being the incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware do make, file and
record this Certificate of Incorporation, do acknowledge that the facts herein
stated are true, and, accordingly, have hereto set my hand this 6th day of June,
1990.
-----------------------------------
Anthony A. Bonacci
<PAGE>
Exhibit 3.1(f)
CERTIFICATE OF AMENDMENT
OF THE MENTUS GROUP, INC.
In accordance with Section 242 of the Delaware General Corporate Law, The
Mentus Group, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify:
First: That the Board of Directors of the Corporation by written consent
executed in lieu of a meeting of all the Directors, adopted resolutions setting
forth the proposed amendment to the Certificate of Designations, Preferences and
Relative Participating, Optional and Other Special Rights, Qualifications,
Limitations and Restrictions of 8.25% Convertible Exchangeable Preferred Stock
of the Corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Corporation shall amend the Certificate of the
Designations, Preferences and Relative Participating, Optional and
Other Special Rights, Qualifications, Limitations and Restrictions
of 8.25% Convertible Exchangeable Preferred Stock of The Mentus
Group, Inc. (the "Certificate") so that the second sentence of
paragraph 8(c) of the Certificate shall be amended in its entirety
to read as follows:
"The proper officers of the Corporation shall call a meeting for the
election of such directors, such meeting to be held not more than 12
months nor less than 45 days after the date on which the second
consecutive dividend payment is not paid in full as scheduled."
Second: That the common stockholders of the Corporation, by written
consent in lieu of a special meeting in accordance with Section 228 of the
Delaware General Corporation Law, unanimously approved the amendment.
Third: That the holders of a majority of the Corporation's 8.25%
Convertible Exchangeable Preferred Stock, by written consent in lieu of a
special meeting in accordance with Section 228 of the Delaware General
Corporation Law, approved the amendment. As provided in Section 228(d) of the
Delaware General Corporation Law, written notice of such action has been given
to all stockholders that have not consented in writing.
Fourth: The Corporation duly adopted the amendment in accordance with the
provisions of Section 242 of the Delaware General Corporation Law and the
Corporation's bylaws.
The Mentus Group, Inc., has caused this Certificate to be executed by
Gerard P. Joyce, its President,
<PAGE>
and by Thomas M. Pugliese, its Secretary as of January 28, 1993.
THE MENTUS GROUP, INC.
By:______________________________
Gerard P. Joyce, President
ATTEST:
_______________________________
Thomas M. Pugliese, Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ___ day of January, 1993, before me, the undersigned officer,
personally appeared Gerard P. Joyce, who acknowledged himself to be the
President of The Mentus Group, Inc., a Delaware corporation, and that he in such
capacity, being authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
______________________________________
Notary Public
My Commission Expires:
___________________________
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ___ day of January, 1993, before me, the undersigned officer,
personally appeared Thomas M. Pugliese, who acknowledged himself to be the
Secretary of The Mentus Group, Inc., a Delaware corporation, and that he in such
capacity, being authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
______________________________________
Notary Public
My Commission Expires:
___________________________
<PAGE>
Exhibit 3.1(h)
AMENDED CERTIFICATE OF DESIGNATIONS
FOR THE SERIES A 8.25% CONVERTIBLE
PREFERRED STOCK
(FORMERLY DESIGNATED AS THE 8.25% CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK)
OF
THE MENTUS GROUP, INC.
----------------------------
THE MENTUS GROUP, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
(1) Pursuant to authority contained in Article 4 of its Certificate of
Incorporation, as amended, and Section 151 of the General Corporation Law of the
State of Delaware, the Board of Directors of the Corporation has previously duly
adopted a resolution creating and authorizing the issuance of a series of
preferred stock, par value $1.00 per share, of the Corporation designated as the
"8.25% Convertible Exchangeable Preferred Stock" and fixing the designation,
dividend, rights, voting powers, rights on liquidation or dissolution and other
preferences, relative, participating, optional or other rights, and the
qualifications, limitations or restrictions of the shares of such series, and
the Corporation has previously filed with the Delaware Secretary of State, in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, a Certificate of Designations setting forth such resolutions, as
amended from time to time.
(2) The Board of Directors and stockholders of the Corporation have duly
approved of resolutions adopting the redesignation of the aforementioned series
of preferred stock and amendments to and a restatement of the aforementioned
resolution and the filing of an Amended and Restated Certificate of
Designations. The text of such amended and restated resolution is as follows:
RESOLVED, that this resolution amends and restates the resolution
previously adopted by the Board of Directors of the Corporation, pursuant to
authority expressly granted by Article 4 of the Certificate of Incorporation, as
amended, of the
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Corporation and Section 151 of the General Corporation Law of the State of
Delaware, creating and authorizing the issuance of a series of the preferred
stock, par value $1.00 per share, of the Corporation designated as the "8.25%
Convertible Exchangeable Preferred Stock" so that henceforth the designation,
dividend rights, voting powers, rights on liquidation or dissolution and other
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions of the shares of such series shall
be as follows:
1. Designation and Amount. The shares of the series of Preferred
Stock of the Corporation previously designated as "8.25% Convertible
Exchangeable Preferred Stock" are hereby redesignated as "Series A 8.25%
Convertible Preferred Stock" (the "Series A Preferred Stock") and the number of
shares constituting such series shall continue to be Twenty Thousand (20,000).
2. Rank. The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution and winding up, rank (a)
prior to all classes of Common Stock of the Corporation, (b) prior to any other
series or class of the Corporation's stock now existing or hereafter created if
so designated in the resolution of the Corporation's Board of Directors or the
provisions of the Corporation's Certificate of Incorporation creating such other
series or class, (c) on a parity with any other series or class of the
Corporation's stock now existing or hereafter created if so designated in the
resolution of the Corporation's Board of Directors or the provisions of the
Corporation's Certificate of Incorporation creating such other series, and (d)
junior to any series or class of the Corporation's stock if so designated in the
resolution of the Board of Directors or the provisions of the Corporation's
Certificate of Incorporation creating such other series, provided said
resolution or provisions and the creation, authorization and issuance of such
stock is approved by a majority of the outstanding shares of Series A Preferred
Stock. All equity securities of the Corporation now existing or hereafter
created which (i) rank below the Series A Preferred Stock are collectively
referred to herein as "Junior Stock," (ii) rank on a parity with the Series A
Preferred Stock are collectively referred to herein as "Parity Stock," and (iii)
rank senior to the Series A Preferred Stock are collectively referred to herein
as "Senior Stock." The term "Senior Stock" shall in any event include (without
limitation) the Series B Preferred Stock. The term "Series B Preferred Stock"
means the Series B Senior Cumulative Compounding Convertible Redeemable
Preferred Stock, par value $.01 per share, of the Corporation, and shall also
include any capital stock into which shares of the Series B Preferred Stock may
be changed.
3. Dividends. (a) Subject to the rights of the holders of Senior
Stock, the holders of Series A Preferred Stock shall be entitled to receive or
have set apart for payment, when, as and if declared by the Corporation's Board
of Directors, out of funds legally available for the payment of dividends,
cumulative dividends thereon at the rate of $41.25 per share per annum. Such
dividends shall begin to accrue on and after the date of issuance of the Series
A Preferred Stock and shall be payable (if, as and when declared) in equal
semi-annual installments (computed by
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dividing the annual dividend amount by two) on June 15 and December 15 (each, a
"Dividend Payment Date"), commencing on June 15, 1991. The amount of dividends
payable for the initial dividend period and for any period shorter than a full
semi-annual dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. Any such dividends which are declared and
paid will be payable pro rata to the holders of record as they appear on the
stock books of the Corporation on such record dates as shall be fixed by the
Board of Directors of the Corporation in accordance with the Corporation's
bylaws.
(b) Any dividend not paid when due shall be fully cumulative
and shall accrue (whether or not earned or declared). No interest or dividends
shall accrue or be payable on any accrued unpaid dividends on the Series A
Preferred Stock. Subject to paragraphs 3(a), 3(c), 3(d) and 3(e), the
Corporation may make payments in respect of accrued dividends at any time.
(c) Notwithstanding anything contained herein to the contrary,
the Board of Directors shall not declare, pay or set apart for payment any
dividends on shares of Series A Preferred Stock if any provisions of the
Corporation's Certificate of Incorporation or any resolution of the
Corporation's Board of Directors (in each case as in effect from time to time)
creating the Series B Preferred Stock or any other Senior Stock of any
agreement, instrument or debenture relating to indebtedness or any Senior Stock
of the Corporation prohibits such declaration, payment or setting apart for
payment or provides that such declaration, payment or setting apart for payment
would constitute a breach thereof or a default thereunder; provided, however,
that nothing herein contained shall in any way or under any circumstances be
construed or deemed to (i) require the Board of Directors to declare, or the
Corporation to pay or set apart for payment, any dividends on shares of the
Series A Preferred Stock at any time, whether permitted by any such provisions,
agreement, instrument or debenture or not, or (ii) adversely affect the
cumulative accrual of dividends on Series A Preferred Stock if such provisions,
agreement, instrument or debenture prohibits such declaration, payment or
setting aside for payment or provides that such declaration, payment or setting
aside for payment would constitute a breach thereof or a default thereunder.
(d) The Corporation shall not pay dividends on the Series A
Preferred Stock unless it has paid or set apart for payment or contemporaneously
pays or sets apart for payment all accrued and unpaid dividends for all prior
periods on any Parity Stock. Notwithstanding the foregoing sentence, but subject
to the rights of the holders of Senior Stock, dividends may be paid or declared
and set apart for payment of the Series A Preferred Stock if at the same time
dividends for the same or comparable dividend period or periods are paid or
declared or set apart for payment on all issued and outstanding shares of Parity
Stock, such dividends to be paid, declared or set aside pro rata in proportion
to the ratio between accrued and unpaid dividends on the Parity Stock and the
accrued and unpaid dividends on the Series A Preferred Stock.
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(e) (i) Holders of shares of the Series A Preferred Stock
shall be entitled to receive the dividends provided for in paragraph 3(a) hereof
in preference to and in priority over the payment of any dividends upon any of
the Junior Stock.
(ii) Subject to the rights of holders of Senior Stock,
if any, the Corporation shall not (A) declare, pay or set apart for payment any
dividend on any Junior Stock or Parity Stock or make any payment on account of,
or set apart for payment, money for a sinking or other similar fund, for the
purchase, redemption or other retirement of any Junior Stock or Parity Stock or
any warrants, rights, calls or options exercisable for or convertible into
Junior Stock or Parity Stock, or (B) make any distribution in respect of any
Junior Stock or Parity Stock, either directly or indirectly, other than
distributions or dividends in Junior Stock or Parity Stock to the holders of
Junior Stock or Parity Stock, respectively, or (C) permit any corporation in
which the Corporation owns directly or indirectly a majority of the outstanding
shares of capital stock, to purchase or redeem any Junior Stock or Parity Stock
or any warrants, rights, calls or options exercisable for or convertible into
Junior Stock or Parity Stock, unless in each such case the Corporation has paid
or declared or set apart for payment, or concurrently with such declaration,
payment, setting apart for payment, purchase, redemption and/or distribution in
respect of any Junior Stock or Parity Stock, pays, declares or sets apart for
payment, all accrued and unpaid dividends on shares of the Series A Preferred
Stock for all prior periods. Notwithstanding the foregoing sentence, dividends
may be paid or declared and set apart for payment on Parity Stock if at the same
time dividends for the same or comparable dividend period or periods are paid or
declared and set apart for payment on all issued and outstanding shares of
Series A Preferred Stock, such dividends to be paid, declared or set aside pro
rata in proportion to the ratio between accrued and unpaid dividends on the
Series A Preferred Stock and the accrued and unpaid dividends on the Parity
Stock.
(iii) The foregoing provisions of this paragraph 3(e),
shall not restrict or prohibit the retirement of any shares of the Corporation's
capital stock or warrants, options or rights to acquire such capital stock by
exchange for, or out of the proceeds of, the substantially concurrent sales of
shares of (A) its capital stock which, by its terms, is not subject to mandatory
redemption or redemption at the option of the holder thereof and is not
exchangeable for any indebtedness of the Corporation ("Permitted Stock") or (B)
warrants, options or rights to acquire Permitted Stock.
4. Liquidation Rights. If the Corporation is voluntarily or
involuntarily dissolved, liquidated or its affairs wound up, after payment or
provision for payment of the debts and other liabilities of the Corporation, and
after liquidation of all Senior Stock, the holders of the Series A Preferred
Stock then outstanding shall be entitled to receive, out of the net assets of
the Corporation, an amount equal to the sum of $500 per share of Series A
Preferred Stock outstanding, plus all accrued and unpaid dividends (whether or
not earned or declared) on such Series A Preferred Stock to the
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date fixed for liquidation, dissolution or winding up (the "Liquidation Price")
before any payment is made or any assets of the Corporation distributed or paid
over to the holders of any Junior Stock (in their capacity as such holders). If
the distributable assets of the Corporation are insufficient to permit payment
in full of the liquidation price of any Parity Stock and the Liquidation Price
of the Series A Preferred Stock, then such assets shall be distributed ratably
among the holders of Series A Preferred Stock and the holders of any Parity
Stock in proportion to the amount that each would have been entitled to receive
if such assets were sufficient to pay the full liquidation price of all
outstanding shares of Series A Preferred Stock and Parity Stock. The holders of
Series A Preferred Stock shall not be entitled to receive any further amounts in
respect of any dissolution, liquidation or winding up of the affairs of the
Corporation, or any other distribution of assets, after payment in full of the
Liquidation Price therefor. No payments shall be made in respect of any Junior
Stock until payment in full of the Liquidation Price of the Series A Preferred
Stock. A merger or consolidation of the Corporation with or into any other
corporation or sale or conveyance of all or any part of the assets of the
Corporation for cash, securities or other property shall not be deemed to be a
voluntary or involuntary liquidation or dissolution or winding up of the
Corporation within the meaning of this paragraph 4. Liquidation rights terminate
upon conversion of the Series A Preferred Stock into Common Stock.
5. Optional Redemption. (a) At Option of Corporation. To the extent
funds are legally available therefor and subject to the rights of holders of
Senior Stock and any agreement, instrument or debenture now existing or
hereafter arising relating to indebtedness of the Corporation or any Senior
Stock, the Series A Preferred Stock is redeemable for cash, at the option of the
Corporation, in whole or in part, at any time or from time to time at $500.00
per share, plus the total amount of all accrued and unpaid dividends on the
shares of Series A Preferred Stock to be redeemed to the redemption date.
The Corporation shall not redeem any less than all of
the then outstanding shares of Series A Preferred Stock unless and until all
accrued and unpaid dividends on the then outstanding shares of Series A
Preferred Stock and (except with respect to the shares to be redeemed) the then
current semi-annual dividends thereon have been paid in full.
(b) If less than all outstanding shares of Series A Preferred
Stock are to be redeemed, the shares to be redeemed shall be redeemed in
integral multiples of $500 by lot or in such other manner as the Board of
Directors may determine.
(c) Notice of redemption of the Series A Preferred Stock shall
be given by first class mail, postage prepaid, mailed not less than 30 days
prior to the redemption date, to each holder of record of shares to be redeemed
at such holder's address as the same appears on the stock register of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of Series A
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Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed from such holder, the number of shares to be redeemed
from such holder; (iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; (v) that dividends on the shares to be redeemed will cease to accrue on
such redemption date; and (vi) that the shares are convertible into Common Stock
until the close of business on the tenth day prior to the redemption date.
(d) Notice having been mailed as aforesaid, or if given by a
holder as set forth below, from and after the redemption date (unless default
shall be made by the Corporation in making payment of the redemption price of
the Series A Preferred Stock called for redemption) dividends on the shares of
Series A Preferred Stock so called for redemption shall cease to accrue, and
said shares shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of preferred stock, unclassified as to
series, and shall not be reissued as shares of Series A Preferred Stock, and all
rights of the holders thereof as stockholders of the Corporation (except the
right to receive from the Corporation the redemption price and any accrued and
unpaid dividends) shall cease. Upon surrender of the certificates for any shares
so redeemed in accordance with said notice the Corporation shall pay the
redemption price (or issue a redemption certificate under subparagraph 5(e), as
the case may be) for such redeemed shares and same shall then be canceled. In
the event fewer than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(e) There is no mandatory redemption or sinking fund
obligation with respect to the Series A Preferred Stock.
(f) Shares of Series A Preferred Stock that have been
converted into Common Stock have no redemption rights.
6. Conversion. (a) Each share of Series A Preferred Stock may be
converted, in whole but not in part, into such number of shares of Common Stock
of the Corporation as shall equal (i) the sum of (x) $500 plus (y) all accrued
and unpaid dividends (whether or not earned or declared) on such share
determined as of the date such share is deemed to be converted in accordance
with the last sentence of paragraph 6(c) of this resolution less (z) the amount
of funds, if any, payable with respect to such share pursuant to the last
sentence of this paragraph 6(a), divided by (ii) the Conversion Price (as
hereinafter defined). The conversion rights of Series A Preferred Stock called
for redemption expire on the close of business on the tenth day before the
redemption date, unless the Corporation defaults in making payment of the
redemption price of the shares called for redemption. As used herein, the term
"Conversion Price" means $135.27, as adjusted in accordance with the provisions
of this paragraph 6. No payment or adjustment for accrued and unpaid dividends
on the shares of Series A Preferred Stock, or on the shares of Common Stock into
which the
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Series A Preferred Stock is converted, is to be made on conversion; provided,
however, that, if a share of Series A Preferred Stock (other than a share of
Series A Preferred Stock called for redemption within such period) is converted
between the record date with respect to any dividend payment and the next
succeeding Dividend Payment Date, such share of Series A Preferred Stock must be
accompanied by funds equal to the dividend payable on such Dividend Payment Date
on the shares of Series A Preferred Stock so converted.
(b) Any holder of shares of Series A Preferred Stock electing
to convert such shares or any portion thereof shall deliver the certificates
therefor, with the form of notice of election to convert on such certificates
(which is set forth on the back of each certificate representing shares of
Series A Preferred Stock) fully completed and duly executed, to the principal
executive office of the Corporation or, if a transfer agent is named by the
Corporation for the Common Stock, to the principal office of the transfer agent.
The conversion right with respect to any such shares of Series A Preferred Stock
shall be deemed to have been exercised at the date upon which the certificates
therefor with such notice of election duly executed shall have been so
delivered, and 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 Common Stock upon said date.
(c) The Corporation shall not issue fractional shares of
Common Stock upon conversion of shares of Series A Preferred Stock. Instead of
any fractional share of Common Stock which would otherwise be issuable upon
conversion of any share or shares of Series A Preferred Stock, the Corporation
shall deliver to the holder a check in an amount equal to the fraction of the
Common Stock resulting from the conversion multiplied by the Conversion Price.
(d) If a holder converts shares of Series A Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issue of shares of Common Stock upon the conversion. The holder,
however, shall pay any such tax which is due because the shares are issued in a
name other than the name of such holder.
(e) The Corporation shall reserve out of its authorized but
unissued Common Stock or its Common Stock held in treasury enough shares of
Common Stock to permit the conversion of all of the shares of Series A Preferred
Stock. The Corporation shall from time to time, in accordance with the laws of
the State of Delaware, increase the authorized amount of its Common Stock if at
any time the authorized amount of its Common Stock remaining unissued shall not
be sufficient to permit the conversion of all shares of Series A Preferred Stock
at the time outstanding. In order that the Corporation may issue shares of
Common Stock upon conversion of shares of Series A Preferred Stock, the
Corporation will use its reasonable efforts to comply with all applicable
federal and state securities laws relating to such issuance, but this sentence
shall not be deemed to require the
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Corporation to register or qualify any of the shares of Common Stock under the
federal or any state securities law.
All shares of Common Stock which may be issued upon conversion of
the shares of Series A Preferred Stock shall be validly issued, fully paid and
nonassessable.
(f) The Conversion Price shall be subject to adjustment as
follows:
(i) No Adjustments Except as Specifically Set Forth.
Except as specifically set forth herein, there shall be no adjustment to the
Conversion Price.
(ii) Adjustments for Certain Distributions.
(A) Stock Dividends, Subdivisions, Combinations
and Recapitalization. Subject to clauses (ii)(C) and (v) of this paragraph 6, if
the Corporation shall at any time (1) declare or pay a dividend or declare, pay
or make any other distribution on the Common Stock in shares of Common Stock,
(2) subdivide the outstanding shares of Common Stock into a greater number of
shares or (3) combine the outstanding shares of Common Stock into a smaller
number of shares, then in each and every such event the number of shares of
Common Stock issuable upon conversion of each outstanding share of Series A
Preferred Stock shall be adjusted so that the holder of such share thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock which such holder would have owned and would have been entitled to
receive by virtue of the happening of any of the events described above had such
share been converted (x) in the case of a dividend or distribution, immediately
prior to the record date for determination of the stockholders entitled to
receive such dividend or distribution (or, if no such record date is fixed,
immediately prior to any other time as of which the holders of Common Stock
entitled to participate in such distribution was determined) or (y) in the case
of a subdivision or combination, on the effective date of such subdivision or
combination; and the Conversion Price shall be adjusted to equal the product
obtained by multiplying the Conversion Price in effect immediately prior to the
applicable time referred to in subclause (x) or (y) of this sentence by a
fraction the numerator of which is the number of shares of Common Stock into
which such share of Series A Preferred Stock was convertible immediately prior
to such time and the denominator of which is the number of shares of Common
Stock into which such share of Series A Preferred Stock was convertible
immediately after such adjustment. Subject to clauses (ii)(C) and (v) of this
paragraph 6, if the Corporation shall at any time issue any shares of capital
stock of the Corporation by way of reclassification of the Common Stock, then
the number and kind of shares of Common Stock and/or other capital stock
issuable upon conversion of each outstanding share of Series A Preferred Stock
and the Conversion Price shall be adjusted so that the holder of such share
thereafter
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surrendered for conversion shall be entitled to receive the kind and number of
shares of capital stock which such holder would have owned and would have been
entitled to receive by virtue of the happening of such event had such share been
converted immediately prior to the record date for determination of the
stockholders entitled to receive shares of such capital stock in such
reclassification (or, if no such record date is fixed, immediately prior to any
other time as of which the holders of Common Stock entitled to participate in
such reclassification was determined). In the event that such dividend or
distribution is not paid or made or such subdivision, combination or
reclassification is not effected, the number and kind of shares of Common Stock
and/or other capital stock issuable upon conversion of each outstanding share of
Series A Preferred Stock and the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such record date or
effective date had not been so fixed.
(B) Certain Other Distributions. Subject to
clauses (ii)(C) and (v) of this paragraph 6, if the Corporation shall at any
time declare or make any distribution to all holders of outstanding shares of
Common Stock of any cash or other assets, any debt securities or other evidences
of its indebtedness or any capital stock other than Common Stock (excluding in
any such case dividends, distributions, issuances and other events referred to
in paragraph 6(f)(ii)(A) hereof), then (1) the number of shares of Common Stock
issuable upon conversion of each outstanding share of Series A Preferred Stock
shall be adjusted so that the holder of such share thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
equal to the product of the number of shares of Common Stock into which such
share of Series A Preferred Stock was convertible immediately prior to such
adjustment multiplied by a fraction (x) the numerator of which shall be the
Current Market Price per share of the Common Stock at the date of taking such
record or, if no record is taken, at the date as of which the holders of Common
Stock entitled to participate in such distribution were determined or if no such
determination is made, on the date of such distribution, and (B) the denominator
of which shall be the absolute value of the difference between such Current
Market Price per share of Common Stock at such date and the amount allocable to
one share of Common Stock at such date of any such cash so distributable and of
the fair market value (as determined as of such date in good faith by the Board
of Directors) of such cash, other assets, debt securities, other evidences of
indebtedness or capital stock so distributed and (2) the Conversion Price shall
be adjusted to equal the product obtained by multiplying the Conversion Price in
effect immediately prior to such adjustment by a fraction the numerator of which
is the number of shares of Common Stock into which a single share of Series A
Preferred Stock is convertible immediately prior to the adjustment and the
denominator is the number of shares of Common Stock into which a single share of
Series A Preferred Stock is convertible immediately after such adjustment. Any
adjustment pursuant to this paragraph 6(f)(ii)(B) shall become effective
immediately after the record date of the distribution in question (or, if no
such record date is fixed, immediately after any other time as of which the
holders of Common Stock entitled to participate in such distribution was
determined). In the
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event that such distribution is not made, the number of shares of Common Stock
issuable upon conversion of each outstanding share of Series A Preferred Stock
and the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such record date or effective date had not been
so fixed. As used herein, the term "Current Market Price" means, in respect of
any share of Common Stock as of any time, (1) if the Common Stock is then
publicly traded, the average, for the 30 consecutive trading days before the
date in question, of the reported last sales prices, regular way, as reported on
the New York Exchange Composite Tape or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange at such time, in the
principal consolidated or composite transaction reporting system on the
principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or, if such security is not
quoted on the Nasdaq National Market, the average of the closing bid and asked
prices for each such day in the over-the-counter market as reported by the
National Association of Securities Dealers, Inc. or, if bid and asked prices
shall not be reported through the National Association of Securities Dealers,
Inc., the average of the bid and asked prices for each such day as furnished by
any New York Stock Exchange member firm regularly making a market in such
security selected for such purpose by the Board of Directors or (2) if the
Common Stock is not then publicly traded, the fair market value per share of
Common Stock as at such date as determined by the Board of Directors of the
Corporation in good faith.
(C) No adjustment pursuant to paragraph
6(f)(ii)(A) or 6(f)(ii)(B) shall be required by reason of distributions of cash
payable out of consolidated current or retained earnings if the sum of the cash
dividends payable after the date hereof does not exceed the net income of the
Corporation subsequent to the date hereof.
(D) Each adjustment pursuant to paragraph 6(f)(ii)
hereof shall become effective immediately after the record date for the event
requiring such adjustment, (or, if no such record date is fixed, immediately
after any other time as of which the holders of Common Stock entitled to
participate in such dividend or distribution was determined and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(E) All determinations of the fair market value of
any property, assets or securities required by this paragraph 6 shall be made by
the Corporation's Board of Directors in good faith.
(iii) Rounding. All calculations under this Article
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.
(iv) When Adjustment May Be Deferred. No adjustment in
the Conversion Price need be made unless the adjustment would require an
increase or decrease of at least 1% in the Conversion Price. Any adjustments
that are
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not made shall be carried forward and taken into account in any subsequent
adjustment. When the cumulative net effect of more than one adjustment would
require an increase or decrease of at least 1% in the Conversion Price, such
adjustment shall thereupon be given effect.
(v) When No Adjustment Required. No adjustment need be
made for (a) a change in the par value of the Common Stock, or from par value to
no par value, or from no par value to par value, (b) issuance of treasury shares
that have been acquired by the Corporation after the date hereof. Other than the
adjustments to the Conversion Price set forth herein, a holder of Series A
Preferred Stock shall have no preemptive right which enables said holder to
maintain a specific proportion of shares of capital stock of the Corporation or
any security convertible into or carrying rights or options to purchase such
shares. For the sake of clarity and without implying that any such adjustment
otherwise would be required by this paragraph 6, no adjustment shall be made by
reason of issuance of shares of Common Stock upon conversion of the Series A
Preferred Stock or the Series B Preferred Stock or any adjustment to conversion
price or conversion rate thereof.
(vi) Certificate of Adjustments. Whenever the Conversion
Price is adjusted, the Corporation shall file in the custody of its Secretary,
at its principal office in the United States a certificate setting forth in
reasonable detail the facts requiring the adjustment and the manner of computing
such adjustment. Each such certificate shall be made available at all reasonable
times for inspection by any holder.
(vii) Reorganization. If there is (a) any consolidation
or merger to which the Corporation is a party (other than a consolidation or
merger with a wholly-owned subsidiary or in which the Corporation is the
surviving corporation and which does not result in any reclassification of, or
change (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination)
in, outstanding shares of Common Stock), or (b) any sale or conveyance of the
properties and assets of the Corporation as, or substantially as, an entirety to
any other corporation; then the Corporation or such successor or purchasing
corporation, as the case may be, shall provide in its Certificate of
Incorporation that each share of Series A Preferred Stock shall be convertible
into the kind and amount of shares of stock and other securities or property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
conversion of each such share of Series A Preferred Stock immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. Such
Certificate of Incorporation shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
paragraph 6. The Corporation shall cause notice of the execution of any such
event contemplated by this paragraph 6 to be mailed to each holder of Series A
Preferred Stock as soon as practicable. The above provisions of this paragraph 6
shall be similarly applied to
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successive reclassification, consolidations, mergers and sales.
7. Shares Acquired By Corporation. All shares of Series A Preferred
Stock converted or redeemed, retired, purchased or otherwise acquired by the
Corporation shall cease to be issued or outstanding for all purposes and shall
be retired and shall be restored to the status of authorized, undesignated and
unissued shares of preferred stock of the Corporation and may be reissued as
part of another series of the preferred stock of the Corporation, but such
shares shall not be reissued as Series A Preferred Stock.
8. Voting.
(a) The holders of record of shares of Series A Preferred
Stock shall not be entitled to any voting rights except as required by
applicable law or as hereinafter provided in this paragraph 8.
(b) Without the affirmative vote or consent of the holders of
a majority of the outstanding shares of Series A Preferred Stock voting as a
separate class, the Corporation will not: (A) create, authorize or issue any
class or series of capital stock other than the Series B Preferred Stock,
ranking senior to the Series A Preferred Stock either as to dividends or
liquidation preference, or (B) amend, alter or repeal (whether by merger,
consolidation or otherwise) the Corporation's Certificate of Incorporation to
materially adversely affect the powers, rights or preferences of the Series A
Preferred Stock as set forth herein. Nothing in this paragraph 8 shall restrict
the Corporation from increasing the authorized preferred stock of the
Corporation or from creating, or require the consent of holders of Series A
Preferred Stock to the creation and issuance or modification of, any other
capital stock of the Corporation ranking junior to, or on parity with, the
Series A Preferred Stock, and any such increase, creation, issuance or
modification shall not be deemed to materially and adversely affect the powers,
rights and preferences of the Series A Preferred Stock.
(c) No amendment, alteration, waiver or departure from the
provisions of the Corporation's Certificate of Incorporation or the resolution
of the Corporation's Board of Directors creating the Series B Preferred Stock
shall be deemed to (i) result in any change in the powers, preferences or
special rights of the shares of Series A Preferred Stock so as to affect them
adversely within the meaning of Section 242(b)(2) of the Delaware General
Corporation Law (or any amended or successor statutory provision), or (ii)
require any vote or consent of the holders of shares of Series A Preferred Stock
pursuant to paragraph 8(b) of this resolution or otherwise.
9. Non-assessable Status of Series A Preferred Stock. All the shares
of Series A Preferred Stock for which the full consideration determined by the
Board of Directors (which shall be not less than the par value of such shares)
has been paid or delivered, in cash or property in accordance with the
resolutions of the
<PAGE>
Board of Directors authorizing the issuance of such shares, shall be deemed
fully paid stock and the holder of such shares shall not be liable for any
further call or assessment or any other payment thereon.
IN WITNESS WHEREOF, THE MENTUS GROUP, INC. has caused this
Certificate to be signed by Gerard P. Joyce, its President, and attested to by
Thomas M. Pugliese, its Secretary, this ____ day of September, 1996.
THE MENTUS GROUP, INC.
By
----------------------------------
Gerard P. Joyce
President
Attest:
Thomas M. Pugliese
Secretary
<PAGE>
STATE OF )
) ss.
County of )
On this day of September, 1996, before me, the undersigned officer,
personally appeared GERARD P. JOYCE, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------------
Notary Public
My Commission Expires:
- --------------------------
STATE OF )
) ss.
County of )
On this day of September, 1996, before me, the undersigned officer,
personally appeared THOMAS M. PUGLIESE, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged that he executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------------
Notary Public
My Commission Expires:
- --------------------------
<PAGE>
Exhibit 3.1(i)
CERTIFICATE OF DESIGNATION
OF
SERIES B SENIOR CUMULATIVE COMPOUNDING CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
THE MENTUS GROUP, INC.
Pursuant to the Provisions of
Section 151 of the General
Corporation Law of the State of Delaware
The Mentus Group, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies that, pursuant to
authority contained in Article IV of its Certificate of Incorporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation, at a meeting duly called
and held on September 20, 1996, adopted the following resolution:
RESOLVED, that pursuant to authority expressly granted by Article IV
of the Certificate of Incorporation of The Mentus Group, Inc., a Delaware
corporation (the "Corporation"), the Board of Directors of the Corporation
hereby creates and authorizes the issuance of a series of the preferred stock,
par value $1.00 per share, of the Corporation, to consist of 91,100 shares, and
hereby fixes the designation, dividend rights, voting powers, rights on
liquidation or dissolution and other preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions of
the shares of such series (in addition to any thereof set forth in the
Corporation's Certificate of Incorporation that are applicable to the
Corporation's preferred stock of all series) as follows:
1. Designation; Original Issuance; Status of Reacquired or Converted
Shares.
(a) The designation of the series of the preferred stock, par value
$1.00 per share, of the Corporation authorized hereby is "Series B Senior
Cumulative Compounding Convertible Redeemable Preferred Stock" (the "Series B
Preferred Stock"). The dividend rights, voting powers, rights on liquidation or
dissolution and other preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions of the shares of
such series are as set forth in this resolution.
(b) Shares of the Series B Preferred Stock shall be originally
issued pursuant to the Purchase Agreements (as defined in Section 2 below) and,
thereafter, no additional shares of Series B Stock shall be issued by the
Corporation (other than issuances upon permitted transfers of shares of Series B
Stock.)
(c) All shares of Series B Preferred Stock received by the
Corporation upon conversion or redeemed, retired, purchased or otherwise
acquired by the Corporation shall be retired and shall be restored to the status
of authorized, undesignated and unissued shares of preferred stock of the
Corporation and may be reissued as part of another series of the preferred stock
of the Corporation, but such shares shall not be reissued as Series B Preferred
Stock.
<PAGE>
2. Certain Definitions. The terms defined in this Section 2 shall have the
meanings herein specified:
"Accrual Date" means December 1 of each year.
"Action" has the meaning set forth in Section 3(i).
"Advisor" has the meaning set forth in Section 3(i).
"Additional Shares of Common Stock" means any shares of Common Stock
issued or deemed to be issued by the Corporation after the Closing Time other
than shares issued upon conversion of any Series B Share.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly through or with one or more intermediaries,
controls, is controlled by or is under common control with, such Person. The
term "affiliated" (whether or not capitalized) shall have a correlative meaning.
For the purposes of this definition, "control", as used with respect to any
Person, means the possession, directly or indirectly through or with one or more
intermediaries, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. The terms "controlled by" and "under common control
with" shall have correlative meanings. For purposes hereof, no holder or group
of holders (whether or not affiliated with or otherwise related to each other
and whether or not acting in concert with respect to any matter or matters) of
shares of Series B Preferred Stock shall be deemed to be an Affiliate of the
Corporation or any of its Affiliates solely by reason of the ownership of Series
B Shares or the possession or exercise of any right, power or privilege of the
holders of Series B Shares as such. For purposes hereof, neither the Corporation
nor any Subsidiary shall be deemed to be an Affiliate of any TFC Holder and no
TFC Holder nor any Affiliate of any TFC Holder shall be deemed to be an
Affiliate of the Corporation.
"Bankruptcy Code" means Title 11 of the United States Code.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
including the provision of such Rules that a Person shall be deemed to have
beneficial ownership of all securities that such Person has a right to acquire
within 60 days, provided that a Person shall not be deemed a beneficial owner
of, or to own beneficially, any securities if such beneficial ownership (i)
arises solely as a result of a revocable proxy delivered in response to a proxy
or consent solicitation made pursuant to, and in accordance with, the Exchange
Act and the applicable rules and regulations thereunder and (ii) is not also
then reportable on Schedule 13D under the Exchange Act. The terms (whether or
not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Corporation within the
United States are located are authorized or obligated by law or executive order
to close.
"capital stock" when used, with respect to any corporation, means
(unless the context otherwise indicates) any and all shares of capital stock
(however designated) of such corporation, including
<PAGE>
each class and series of common stock and preferred stock of such corporation,
any class or series, any and all stock appreciation rights and any and all
equivalents of any of the foregoing, and including any security or interest
convertible into or warrant, option or other right (absolute or contingent) to
subscribe for, purchase or otherwise acquire any of the foregoing, in each case
whether or not evidenced by any certificate, instrument or other document and
whether voting or nonvoting.
"Change in Control" means the occurrence of any of the following:
(i) any "person" (within the meaning of that term as used in
the Rules under Section 13(d) and 14(d) of the Exchange Act, as interpreted by
the Commission), other than any TFC Holder or any Affiliate of any TFC Holder or
any group or persons acting in concert which includes any TFC Holder or any
Affiliate of any TFC Holder and other than Thomas Pugliese and Gerard Joyce, who
was not, on the Closing Date, the Beneficial Owner, directly or indirectly, of
50% or more of the combined voting power represented by all then outstanding
Common Stock of the Corporation becomes (after the Closing Date) the Beneficial
Owner, directly or indirectly, of 50% or more of the combined voting power
represented by all outstanding Common Stock of the Corporation, whether as a
result of issuances, redemptions, repurchases or transfers of Common Stock or
otherwise; or
(ii) the Corporation consolidates with, or merges with or
into, another Person, sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Corporation, in any such event
pursuant to a transaction in which the outstanding Common Stock of the
Corporation is converted into or exchanged for cash, securities, equity
interests or other property and immediately after such transaction the Persons
who were the Beneficial Owners of the outstanding Common Stock of the
Corporation immediately prior to such transaction are not the beneficial owners,
directly or indirectly, of more than 50% of the combined voting power
represented by all then outstanding Common Stock of the surviving or transferee
Person; or
(iii) the Corporation, in one or more transactions, sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person or Persons; or
(iv) for any reason (including death or disability), Gerard
Joyce and Thomas Pugliese cease to be a director of the Corporation, or Gerard
Joyce ceases function as a senior executive officer of the Corporation and
Thomas Pugliese ceases to function as a senior executive officer of the
Corporation, unless in any such case the Corporation replaces such person in
such office within 90 days and such replacement is approved by the Majority
Holders, which approval shall not be unreasonably withheld; or
(v) for any reason (including death or disability), Gerard
Joyce or Thomas Pugliese cease to be the Beneficial Owners, directly or
indirectly, of 80% or more of the shares of Common Stock held by Gerard Joyce
and Thomas Pugliese, respectively, on the Closing Date (as appropriately
adjusted for any subdivision, combination, reclassification, recapitalization,
reorganization, merger or other change of or in the outstanding Common Stock).
For purposes of determining the percentage of the combined voting power of the
outstanding Common Stock beneficially owned by any particular Person as of any
time, any Common Stock not actually outstanding but which is deemed to be
beneficially owned by a Person through the application of the definition of
"Beneficial Owner" above in this Section 2 shall be deemed to be outstanding,
but no Common Stock not actually outstanding but which is deemed to be
beneficially owned by any other Person through the application of such
definition shall not be deemed to be outstanding. For purposes of clause (v) of
this definition, Mr. Joyce or
<PAGE>
Mr. Pugliese, as the case may be, shall be deemed to continue to be the
Beneficial Owner of shares of Common Stock transferred by him for estate
planning purposes to his spouse or minor children or to a trust described in
Section 664 of the Internal Revenue Code of 1986, as amended of which the income
beneficiaries consist exclusively of one or more of him, his spouse and his
minor children, so long as Mr Joyce or Mr. Pugliese, as the case may be,
continues to have the power to vote and dispose or direct the voting or
disposition of such transferred shares.
"Closing Date" means the date on which the closing of the
consummation of the issuance of Series B Shares in accordance with the Purchase
Agreements occurs.
"Closing Time" means 10:00 A.M., New York City time, on the Closing
Date.
"Common Stock" means the Common Stock, $.01 par value per share, of
the Corporation as constituted on the Closing Date, and any capital stock into
which such Common Stock may thereafter be changed, and (except where the context
otherwise unambiguously indicates) shall also include (i) capital stock of the
Corporation of each and every other class or series (regardless of how
denominated) which is also not preferred as to dividends or assets on
liquidation over any other class or series of stock of the Corporation and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 9(w)) received by or distributed to
the holders of Common Stock of the Corporation in the circumstances contemplated
by Section 9(w).
"Commission" means the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Company Parties" means the Corporation and its Subsidiaries.
"Compensation Committee" has the meaning set forth in Section 7(f).
"Conversion Price" means, as of any time, the initial price of $77,
as such initial price shall have from time to time been cumulatively adjusted
pursuant to Section 9 through such time.
"Conversion Rate" means, as of any time, the rate, determined
pursuant to the second sentence of Section 9(a), at which each share of Series B
Preferred Stock may be converted into Common Stock, as such rate shall have from
time to time been cumulatively adjusted pursuant to Section 9 through such time.
"Conversion Securities" means, with respect to any Series B Share at
any time, each class and series of Conversion Stock, each class, series and
issue of any other securities, and any Rights with respect to any of such
Conversion Stock or other securities, any shares, number or other amount of
which at such time are deliverable to a Holder upon conversion of any Series B
Share.
"Conversion Stock" means, with respect to any Series B Share at any
time, the Common Stock, each other class or series of capital stock and any
Rights with respect to any of the foregoing any shares, number or other amount
of which at such time is deliverable to a Holder upon conversion of any Series B
Share.
"Conversion Value" measured per share of the Series B Preferred
Stock
<PAGE>
(i) as of any time before the first Accrual Date means
the sum of (A) Seventy-Seven Dollars ($77) plus (B) an amount
equal to all unpaid dividends accrued on such share of Series
B Preferred Stock from and including the Issue Date through
and including such time, whether or not such unpaid dividends
have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of
dividends; or
(ii) as of any time on or after the first Accrual Date
means the sum of (A) Seventh-Seven Dollars ($77) plus (B) an
amount equal to all unpaid dividends accrued on such share of
Series B Preferred Stock from and including the Issue Date
which, pursuant to Section 4(b), have been added to and remain
part of the Conversion Value as of such time, whether or not
such unpaid dividends have been earned or declared or there
are any unrestricted funds of the Corporation legally
available for the payment of dividends plus (C) an amount
equal to all unpaid dividends accrued on such share of Series
B Preferred Stock from and including the Accrual Date
immediately preceding such time through and including such
time, whether or not such unpaid dividends have been earned or
declared or there are any unrestricted funds of the
Corporation legally available for payment of dividends.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for any Common Stock, either immediately or upon the occurrence of a
specified date or a specified event or the satisfaction or happening of any
other condition or contingency, but such term shall not include the Series B
Preferred Stock.
"Current Market Price" means, in respect of any share of Common
Stock as of any time, (i) if the Common Stock shall not then be Publicly Traded,
the Fair Market Value per share of Common Stock as at such date as determined by
the Board of Directors in good faith (subject to subdivision (F) of Section
9(p), if applicable), or (ii) if the Common Stock is then Publicly Traded, the
average of the reported last sales prices for the 30 consecutive Trading Days
commencing 40 Trading Days before the date in question. The reported last sales
price for each day shall be the reported last sales price, regular way (and if
no such sales take place on any day, such day shall not be a Trading Day), as
reported on the New York Stock Exchange Composite Tape or, if the Common Stock
is not listed or admitted to trading on the New York Stock Exchange at such
time, in the principal consolidated or composite transaction reporting system on
the principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or, if such security is not
quoted on the Nasdaq National Market, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc. or, if bid and asked prices for the
security on each such day shall not have been reported through the National
Association of Securities Dealers, Inc., the average of the bid and asked prices
for such date as furnished by any New York Stock Exchange member firm regularly
making a market in such security selected for such purpose by the Board of
Directors. As used herein, the term "Trading Day" means a day on which the New
York Stock Exchange, each national securities exchange on which the Common Stock
is listed and the Nasdaq National Market are open for business. The Common Stock
shall be considered to be "Publicly Traded" as of any date if on such date (i)
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
and (ii) the Common Stock is listed for trading on a national securities
exchange registered under the Exchange Act or traded in the over-the-counter
market and quoted in an automated quotation system of the National Association
of Securities Dealers, Inc.
<PAGE>
"Dividend Payment Date" has the meaning set forth in Section 4(a).
"Dividend Period" means each quarterly period from and including any
Dividend Payment Date (or, in the case of the first Dividend Period, from and
including the Closing Date) to but not including the next successive Dividend
Payment Date.
"Employee Option" means any option to purchase Common Stock for cash
which is granted by or with the approval of the Compensation Committee to any
director, officer, employee or consultant of the Corporation or any subsidiary
of the Corporation pursuant to either (i) the Corporation's 1993 Stock Option
Plan or the Corporation's 1994 Stock Option Plan as in effect on the Closing
Date or (ii) any other option plan adopted by the Corporation after the Closing
Date with the prior approval of the Majority Holders, in each case as the same
may be amended from time to time with the prior approval of the Majority
Holders.
"Entity" means any corporation, limited liability company, general
or limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a governmental authority or agency.
An "equity interest" in or of any Entity includes any capital stock
or other equity security issued by such Entity, any partnership (general or
limited) or joint venture interest in such Entity, any other equity, ownership,
participating or beneficial interest in such Entity, any stock appreciation or
other equity appreciation right with respect to such Entity, and any equivalent
of any of the foregoing, regardless of how denominated and whether voting or
non-voting, and any security or interest convertible into or warrant, option or
other right (absolute or contingent) to subscribe for, purchase or otherwise
acquire, any of the foregoing, in each case whether or not evidenced by any
certificate, instrument or other document and whether voting or nonvoting.
"Election Form" has the meaning set forth in Section 3(h).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Rights" means all Rights (including stock options issued
pursuant to the Corporation's 1993 Stock Option Plan and the Corporation's 1994
Stock Option Plan) and Convertible Securities, including the Series A Preferred
Stock but not including any Series B Shares, which were outstanding at the
Closing Time.
"Fair Market Value" means, in respect of any security, asset or
other property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full knowledge of
the facts, in an arm's-length auction transaction without time constraints, and
without being under any compulsion to buy or sell. The Fair Market Value of a
share of Common Stock as of any time shall be determined as of the last day of
the most recent calendar month which ended prior to such time, shall be
determined without giving effect to any discount for a minority interest, to any
lack of liquidity of the Common Stock or to the fact that the Corporation may
have no class of equity security registered under the Exchange Act. The Fair
Market Value of the Corporation shall be determined on a going concern basis,
and on the basis that the management and other key employees of the Corporation
and its subsidiaries will continue to be employed indefinitely and without
treating as liabilities the amount, if any, payable or which may be payable
pursuant to the TFC Purchase Agreement.
<PAGE>
"Holder" means a Person in whose name any Series B Share is
registered on the books of the Corporation maintained for such purpose.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Insolvency Law" means the Bankruptcy Code and any other law,
foreign, federal or state, relating to bankruptcy, receivership, reorganization,
insolvency, adjustment, compromise or extension of debt or other relief of a
debtor from creditors.
"Investor Approved Action" has the meaning set forth in Section
3(i).
"Issue Date" means the Closing Date.
"Junior Stock" means (i) each class or series of Common Stock, (ii)
the Series A Preferred Stock of the Company, (iii) any other class or series of
capital stock of the Company hereafter created, other than (A) any class or
series of Parity Stock (except to the extent provided under clause (iv) of this
sentence) and (B) any class or series of Senior Stock (except to the extent
provided under clause (iv) of this sentence), and (iv) any class or series of
Parity Stock or Senior Stock to the extent that it ranks junior to the Series B
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be. For purposes of clause (iv) above, a class or
series of Parity Stock or Senior Stock shall rank junior to the Series A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Series B Preferred Stock shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as the
case may be, in preference or priority to the holders of shares of such class or
series.
"Liquidation Price" measured per share of the Series B Preferred
Stock as of any time means the sum of (i) Seventy-Seven Dollars ($77.00) plus
(ii) an amount equal to all dividends accrued on such share of Series B
Preferred Stock since the Issue Date thereof which, pursuant to Section 4(b),
have been added to and remain part of the Liquidation Price as of such time of
determination, whether or not such unpaid dividends have been earned or declared
or there are any unrestricted funds of the Corporation legally available for the
payment of dividends.
"Majority Holders" means, as of any time, the holder or holders of
record of at least a majority of the Series B Shares then outstanding.
"Outstanding Common Shares" means, as of any time, all issued and
outstanding shares of Common Stock as of such date, except shares then owned or
held by or for the account of the Corporation or any subsidiary thereof.
Outstanding Common Shares shall not include any shares issuable upon exercise,
conversion or exchange of any Series B Shares or other Rights or Convertible
Securities or issuable in payment of any dividend or other distribution which
has been declared but not actually paid, nor any other shares which have not
actually been issued.
"Parity Stock" means (i) the Series B Preferred Stock and (ii) each
class or series of capital stock of the Corporation, if any, hereafter created
with the approval of the Majority Holders in accordance with Section 8 and
ranking on a parity basis with the Series B Preferred Stock as to any of
dividends, rights of redemption or rights on liquidation. Capital stock of any
class or series shall rank on a parity as to dividends, rights of redemption or
rights on liquidation with shares of Series B Preferred Stock, whether or not
the
<PAGE>
dividend rates, dividend payment dates, redemption or liquidation prices per
share or sinking fund provisions, if any, are different from those of the Series
B Preferred Stock if the holders of such stock shall be entitled to the receipt
of dividends, amounts distributable upon dissolution, liquidation or winding up
of the Corporation or redemption payments, as the case may be, in proportion to
their respective dividend rates, liquidation prices or redemption prices,
respectively, without preference or priority, one over the other, as between the
holders of such stock and the holders of shares of the Series B Preferred Stock.
No class or series of capital stock that ranks junior to the Series B Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series B Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series of
capital stock otherwise expressly provides.
"Person" means any individual, corporation, limited liability
company, general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Preferred Interest" as applied to the equity interests of any
Person means equity interests of any class or classes (however designated) which
are preferred as to the payments of dividends or distributions, as to rights of
redemption or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over equity interests of any other
class of such Person.
"Purchase Agreements" means the Stock Purchase Agreement, dated the
Closing Date, among the Corporation and the Purchasers, as the same may be
amended from time to time in accordance with its terms and the Stock Purchase
Agreements, dated the Closing Date, among the Corporation and certain purchasers
of shares of Series B Preferred Stock named therein, as the same may be amended
from time to time in accordance with its terms.
"Purchasers" means each of 21st Century Communications Partners,
L.P., a Delaware limited partnership, 21st Century Communications T-E Partners,
L.P., a Delaware limited partnership, and 21st Century Communications Foreign
Partners, L.P., a Delaware limited partnership.
"Qualified IPO" means either (i) consummation of an initial public
offering of the Corporation's Common Stock generating proceeds of at least $20
million on a pre-money equity valuation of at least $308 per share of Common
Stock (as appropriately adjusted for stock splits, reverse splits, stock
dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date) or (ii) any date at which all of the following
statements are true: (A) the Common Stock is registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended or traded in an
over-the-counter market and quoted in an automated quotation system of the
National Association of Securities Dealers, Inc., (B) the Common Stock is listed
for trading on a national securities exchange registered under the Exchange Act
or traded in over-the counter market and quoted in an automated quotation system
of the National Association of Securities Dealers, Inc. (C) the average daily
trading volume of shares of the Common Stock reported by such exchange or
quotation systems for the period of 5 consecutive trading days prior to such
date of closing has exceeded, 0.7% of the number of shares of Common Stock
actually issued and outstanding on such date and (D) the average closing price
for the period of 20 consecutive trading days before such date is at least $308
per share (as appropriately adjusted for stock splits, reverse splits, stock
dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date).
<PAGE>
"Record Date" means, for dividends payable on any Dividend Payment
Date, the fifteenth day of the month immediately preceding such Dividend Payment
Date or if any such day is not a Business Day, then on the next preceding or the
next following Business Day, as and if designated by the Board of Directors.
"Redeemable Equity" of any Person means any equity interest of such
Person that by its terms or otherwise, absolutely, contingently or otherwise, is
required to be redeemed or is redeemable at the option of the holder thereof at
any time.
"Redemption Agent" has the meaning set forth in Section 6(f).
"Redemption Date" as to any share of Series B Preferred Stock shall
mean:
(i) in the case of a redemption pursuant to Section 6(a), the
date specified in the notice of redemption given in accordance with Section
6(e);
(ii) in the case of a redemption pursuant to Section 6(b) on
the seventh anniversary of the Closing Date, the date of such anniversary; or
(iii) in the case of a redemption pursuant to Section 6(c),
the tenth Business Day after the Section 6(c) Election Notice is given;
provided that in none of the foregoing cases shall such date be a Redemption
Date unless (A) the applicable Redemption Price is actually indefeasibly paid in
full on such date or (B) such date is a Business Day and the consideration
sufficient for the payment thereof, and for no other purpose, has been
indefeasibly deposited in a trust fund with the Redemption Agent, with
irrevocable instructions and authority to the Redemption Agent to pay the
Redemption Price, all in accordance with Section 6(f), and if the Redemption
Price is not so indefeasibly paid in full or the consideration sufficient
therefor is not so indefeasibly deposited, then the Redemption Date will be the
date on which such Redemption Price indefeasibly and is fully paid or the first
Business Day on which the consideration sufficient for the payment thereof, and
for no other purpose, has been so indefeasibly deposited.
"Redemption Price" means, as to any share of Series B Preferred
Stock that is to be redeemed on any Redemption Date pursuant to any subsection
of Section 6, the redemption price determined pursuant to such subsection.
"Reference Price" means, as of any time, the higher of (x) the
Conversion Price then in effect or (y) the Current Market Price per share of the
Common Stock determined as of such time.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, among the Corporation, the Purchasers and the
other stockholders of the Corporation who are parties thereto as the same may be
amended from time to time in accordance with its terms.
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all or a
substantial portion of the Corporation or any Significant
Subsidiary's assets which shall remain
<PAGE>
in effect for 30 days;
(ii) the filing by the Corporation or any Significant Subsidiary of
a voluntary petition for relief under any Insolvency Law or of a
pleading in any court of record admitting in writing its inability
to pay its debts as they become due;
(iii) the making by the Corporation or any Significant Subsidiary of
a general assignment for the benefit of creditors;
(iv) the filing by the Corporation or any Significant Subsidiary of
an answer admitting the material allegations of, or its consenting
to or defaulting in answering, a petition for relief filed against
it in any proceeding under any Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Corporation or
any Significant Subsidiary in a proceeding under any Insolvency Law.
"Rights" means any options, warrants or other rights (except
Convertible Securities and the Series B Preferred Stock), however denominated,
to subscribe for, purchase or otherwise acquire any Common Stock or Convertible
Securities, with or without payment of additional consideration in cash or
property, either immediately or upon the occurrence of a specified date or a
specified event or the satisfaction or happening of any other condition or
contingency.
"Section 6(c) Election Notice" has the meaning set forth in Section
6(c).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Senior Stock" means each class or series of capital stock of the
Corporation, if any, hereafter created with the approval of the Majority Holders
in accordance with Section 8 and ranking prior to the Series B Preferred Stock
as to dividends, rights of redemption or rights on liquidation, as the case may
be. Capital stock of any class or series shall rank prior to the Series B
Preferred Stock as to dividends, upon redemption or upon liquidation if the
holders of such class or series shall be entitled to the receipt of dividends,
payments on redemption or payments of amounts distributable upon the
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Series B Preferred Stock.
No class or series of capital stock that ranks junior to or on parity with the
Series B Preferred Stock as to rights on liquidation shall rank or be deemed to
rank as senior to the Series B Preferred Stock as to dividend rights or rights
of redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly provides.
"Series A Preferred Stock" means the 8.25% Convertible Exchangeable
Preferred Stock, par value $1.00 per share, of the Corporation.
"Series B Certificate of Designation" means (i) the Certificate of
Designation setting forth this resolution, filed with the Delaware Secretary of
State pursuant to Section 151 of the Delaware General Corporation Law.
"Series B Director" has the meaning set forth in Section 7(a).
<PAGE>
"Series B Preferred Stock" has the meaning set forth in Section
1(a).
"Series B Share" means any issued and outstanding share of Series B
Preferred Stock. In no event shall shares of Series B Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"Significant Subsidiary" means a subsidiary in which the
Corporation's and its other subsidiaries' (i) investments in and advances to the
subsidiary exceed 15% of the total assets of the Corporation and its
subsidiaries consolidated as of the end of the most recently completed fiscal
year, (ii) proportionate share of the total assets of the subsidiary exceeds 15%
of the total assets of the Corporation and its subsidiaries consolidated as of
the end of the most recently completed fiscal year; or (iii) equity in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary exceeds
15% of such income of the Corporation and its subsidiaries consolidated for the
most recently completed fiscal year.
"Stockholders Agreement" means the Stockholders Agreement dated the
Closing Date, among the Corporation, the Purchasers and certain other
stockholders of the Corporation, as the same may be amended from time to time in
accordance with its terms.
"Subsidiary" means, as of any time, each Entity as to which any of
the following statements is true as of such time:
(i) such Entity is an Affiliate of the Corporation which is
controlled by the Corporation, or
(ii) the Corporation owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding
equity interests in such Entity having ordinary voting power to
elect a majority of the members of the board of directors or joint
venture, partnership or other management committee, trustees,
managers or other Persons ordinarily having the power, authority or
responsibility for managing or directing the management of such
Entity, or
(iii) the Corporation, directly or indirectly through one or more
intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of such Entity or to receive upon
dissolution and liquidation of such Entity 50% or more of the assets
available for distribution to the holders of equity interests in
such Entity, or
(iv) such Entity is a partnership (general or limited), joint
venture or other unincorporated Entity and the Corporation or
another Subsidiary is a general partner or joint venturer thereof or
has liability for the debts and obligations thereof over and above
its investment therein,
and in the case of any of clauses (i), (ii) and (iii), disregarding any voting
power, equity interests or other rights or interests which any Person other than
the Corporation or another Subsidiary Corporation would or might have upon the
happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
<PAGE>
"TFC Holder" means (i) each of 21st Century Communications Partners,
L.P., a Delaware limited partnership, 21st Century Communications T-E Partners,
L.P., a Delaware limited partnership, 21st Century Communications Foreign
Partners, L.P., a Delaware limited partnership, and (ii) each other Person who
(A) at any time acquires any Series B Shares directly or indirectly from any TFC
Holder in a transaction or chain of transactions not involving a public offering
within the meaning of the Securities Act and (B) was designated, by the TFC
Holder from whom such Series B Shares were acquired, as a TFC Holder in a
written notice delivered to the Corporation, in each case for so long as any
such Person continues to hold any Series B Share.
"TFC Purchase Agreement" means the Stock Purchase Agreement dated
the Closing Date, among the Corporation and the Purchasers, as the same may be
amended from time to time in accordance with its terms.
"Valuation Committee" means a committee of the Board of Directors
composed of (i) the Series B Director, (ii) one or more independent members of
the Board of Directors and (iii) not more than one other director.
"Wholly Owned Subsidiary" means an Entity all of the equity
interests of which at the time are owned beneficially and of record by the
Corporation, one or more Wholly Owned Subsidiaries of the Corporation or the
Corporation and one or more Wholly Owned Subsidiaries of the Corporation.
3. Rank; Certain Restrictions; Fractional Shares; Certain Notices to be
Given; Actions to Facilitate Redemption.
(a) Rank. The Series B Preferred Stock shall, with respect to
dividend rights, rights on liquidation, winding up and dissolution and rights
upon redemption rank prior to (i) the Common Stock, (ii) the Series A Preferred
Stock and (iii) any other class or series of capital stock of the Corporation,
whether now existing or hereafter created, except (in the case of this clause
(iii) only) in the case of any class or series of Parity Stock or Senior Stock
hereafter created and issued with the prior approval of the Majority Holders in
accordance with Section 8, to the extent otherwise provided for by the terms of
such Parity Stock or Senior Stock set forth in the instrument creating and
authorizing such Parity Stock or Senior Stock, provided that such terms shall
have been furnished in writing to and approved by the Majority Holders in
accordance with Section 8.
(b) Certain Restrictions on Payments in Respect of Capital Stock.
Except if and to the extent expressly authorized by Section 3(e) or with the
prior approval of the Majority Holders in accordance with Section 8, so long as
any Series B Preferred Stock is outstanding, the Corporation shall not, and
shall cause each of the Subsidiaries not to:
(i) declare or pay dividends on, or declare or make any other
distribution, whether in cash, property, securities or any other form of
consideration, to the holders of or otherwise with respect to, the Common Stock,
the Series A Preferred Stock or any other class or series of capital stock of
the Corporation now existing or hereafter created other than the Series B
Preferred Stock;
(ii) redeem, purchase or otherwise acquire for cash, property,
securities or any other form of consideration any Common Stock, Series A
Preferred Stock or any other class or series of capital stock of the Corporation
now existing or hereafter created other than the Series B Preferred Stock
<PAGE>
(iii) declare or pay dividends on, or make any other
distribution to the holders of or otherwise with respect to any Parity Stock,
whether in cash, property, securities or any other form of consideration, except
dividends declared and paid ratably on the Series B Preferred Stock and each
class or series of Parity Stock as to which dividends are payable or in arrears
so that the amount of dividends declared and paid per share of the Series B
Preferred Stock and per share of each class or series of such Parity Stock are
in proportion to the respective total amounts of unpaid dividends accrued with
respect to the Series B Preferred Stock and all such classes and series of
Parity Stock; or
(iv) set aside, pursuant to a sinking fund or otherwise, any
cash, property, securities or other form of consideration for any of the
foregoing purposes.
(c) Pro Rata Purchases. Unless otherwise approved by the Majority
Holders and otherwise than through a redemption made pursuant to Section 6
hereof, the Corporation shall not, and shall cause each of the Subsidiaries not
to purchase or otherwise acquire for value any shares of Series B Preferred
Stock unless (i) such purchase or other acquisition is made pursuant to an offer
made on the same terms to all holders of shares of Series B Preferred Stock and
(ii) there are simultaneously purchased or otherwise acquired on such terms all
shares which such holders elect to tender for purchase or other acquisition or,
if the number of shares tendered exceeds the number offered to be purchased or
otherwise acquired, a pro rata portion of such shares tendered by each tendering
holder.
(d) Restriction on Dividends, Redemptions, Etc. by Subsidiaries. So
long as any shares of Series B Preferred Stock shall be outstanding, without the
prior approval of the Majority Holders in accordance with Section 8, the
Corporation will not permit any Subsidiary that is not a Wholly Owned Subsidiary
to declare or pay any dividend on or declare or make any other distribution to
the holders of or otherwise with respect to any equity interest in such
Subsidiary (whether in cash, property, securities or any other form of
consideration) nor redeem, purchase or otherwise acquire for cash, property or
any other form of consideration any equity interest in such Subsidiary, other
than (i) distributions of available cash in excess of the amount required for
operating expenses, debt service, budgeted capital expenditures, reasonable
reserves for working capital and liabilities and other amounts reasonably
necessary for the continued efficient operation of the business of such
Subsidiary as reasonably determined by the Board of Directors or (ii)
distributions of cash to the extent necessary to permit the Corporation to pay
dividends on the Series B Preferred Stock on a current basis or to make
redemption payments or payments on liquidation to the holders of the Series B
Preferred Stock as and when required by the terms hereof, provided, in each
case, that no holder (other than the Corporation or a Wholly Owned Subsidiary)
of any equity interest in any Subsidiary making any such permitted distribution
receives more than its proportionate share (based on the percentage of
outstanding equity interests in such Subsidiary held by such holder) of any such
permitted distribution. The Corporation will not, without the prior approval of
the Majority Holders in accordance with Section 8, permit any of the
Subsidiaries to issue any Preferred Interest other than issuances to the
Corporation or a Wholly Owned Subsidiary.
(e) Certain Exceptions. Subject to Section 3(f), if, after the
Closing Date, the Corporation, with the prior approval of the Majority Holders
in accordance with Section 8 creates and issues any class or series of Parity
Stock or Senior Stock, the restrictions contained in clause (i), (ii) or (iv) of
Section 3(b) shall be subject to such exceptions, if any, expressly provided for
by the terms of such Parity Stock or Senior Stock set forth in the instrument
creating and authorizing such Parity Stock or Senior Stock, provided that such
terms shall have been furnished in writing to and approved by the Majority
Holders in accordance with Section 8.
(f) Limitations When Liquidation Preference Impaired. Unless
otherwise approved by the
<PAGE>
Majority Holders, notwithstanding any other provision of this resolution or
otherwise, neither the Corporation nor any Subsidiary shall declare or pay
dividends on, declare or make any other distribution to the holders of or
otherwise with respect to, any Junior Stock or Parity Stock, whether in cash,
property, securities or any other form of consideration, nor redeem, purchase or
otherwise acquire for cash, property, securities or any other form of
consideration any thereof, nor set aside, pursuant to a sinking fund or
otherwise, any cash, property, securities or other form of consideration for any
such purpose, if after giving effect to such dividend, distribution, redemption,
purchase or other acquisition, the amount (as reasonably determined by the Board
of Directors in good faith) that would be legally available for distribution to
the holders of the Series B Preferred Stock upon liquidation, dissolution or
winding up of the Corporation (after satisfaction of all obligations in respect
of Senior Stock) if such liquidation, dissolution or winding up were to occur on
the date fixed for such dividend, distribution, redemption, purchase or other
acquisition would be less than the aggregate Liquidation Price as of such date
of all shares of Series B Preferred Stock then outstanding, except any such
dividends, distributions, redemptions, purchases or other acquisitions approved
in the specific instance by the holders of the Series B Preferred Stock in
accordance with Section 8 after disclosure to them by the Corporation that such
impairment of the liquidation preference of the Series B Preferred Stock would
result.
(g) Fractional Shares. Fractional shares of Series B Preferred Stock
may be issued, either upon original issuance pursuant to the Purchase Agreements
or from time to time thereafter upon transfers or exchanges of outstanding
shares (or fractional shares) thereof or certificates therefor. Each fractional
share of Series B Preferred Stock, if any, outstanding shall be entitled to
ratably proportionate voting and approval rights with respect to all matters
submitted for the vote of or approval by holders of the Series B Preferred Stock
and a ratably proportionate amount of all dividends accruing, declared or paid
with respect to each outstanding whole share of Series B Preferred Stock
pursuant to Section 4 and of all payments due or made with respect to each
outstanding whole share of Series A Preferred Stock pursuant to Section 5 or
Section 6; all such dividends with respect to such outstanding fractional shares
shall be fully cumulative and shall accrue (whether or not declared) and shall
be payable in the same manner and at the same time as provided for in Section 4
with respect to dividends on each outstanding whole share of Series B Preferred
Stock; and all such payments pursuant to Section 5 or Section 6 with respect to
such outstanding fractional shares shall be payable in the same manner and at
such time as provided for in Section 5 or Section 6 (as the case may be) with
respect to such payments on each outstanding whole share of Series B Preferred
Stock. The holder of each such fractional share shall otherwise be entitled to
all of the rights, powers, preferences, and be subject to the same
qualifications, limitations and restrictions, as the holders of whole shares of
the Series B Preferred Stock, including conversion rights pursuant to Section 9.
(h) Certain Notices and Other Obligations Relating to Change in
Control or Reorganization Events. If the Corporation agrees or the Board of
Directors passes a resolution authorizing the Corporation to voluntarily
consummate or take, or assist any one or more of the holders of its Common Stock
in consummating or taking, any transaction or action which would, if
consummated, result in a Change in Control, or if the Corporation receives
formal written notice that one or more of the holders of its Common Stock have
agreed to engage in any such transaction, then it shall send to each holder of
Series B Preferred Stock, at least 15 days prior to the scheduled or anticipated
closing of such transaction (or, in the case where the Corporation receives
formal written notice of such transaction, immediately upon receiving such
formal written notice if such notice is received less than 15 days prior to the
scheduled or anticipated closing of such transaction), a written notice which
will summarize the material terms of such transaction, and if any of such terms
change in any material respect prior to such closing, the Corporation shall
promptly notify the holders of the Series B Preferred Stock in writing. If any
Change in Control occurs, the Corporation shall give the holders of the Series B
Preferred Stock written notice thereof promptly, and in any event not later than
the fifth Business Day after the Corporation has knowledge of such occurrence,
and such notice shall summarize the
<PAGE>
material facts relating to such Change in Control. If the Corporation plans or
the Board of Directors passes a resolution authorizing the Corporation, or any
Subsidiary's Board of Directors or other governing body plans or authorizes, to
take any voluntary action intended to result in any Reorganization Event, or if
the Corporation receives formal written notice that any other Person plans to
take or has taken any action intended to result in an involuntary Reorganization
Event, then it shall immediately send to each holder of Series B Preferred Stock
(or, in the case where the Corporation receives formal written notice of such
action, immediately upon receiving such formal written notice), a written notice
to that effect stating the material relevant facts relating thereto and shall
thereafter keep each such holder apprised on a current basis of all related
material developments. If any Reorganization Event occurs, the Corporation shall
give the holders of the Series B Preferred Stock written notice thereof
promptly, and in any event not later than the next Business Day after the
Corporation has knowledge of such occurrence, and such notice shall summarize
the material facts relating to such Reorganization Event. Each notice given by
the Corporation pursuant to the second or fourth sentence of this Section 3(g)
shall be accompanied by an appropriate form (an "Election Form") by which the
holders of the Series B Preferred Stock may (i) elect whether or not to require
the Corporation to redeem shares of the Series B Preferred Stock pursuant to
Section 6(c) and (ii) state the number of shares of Series B Preferred Stock
held by such holder which would be redeemed pursuant to Section 6(c) in the
event such redemption is demanded by the Majority Holders. If, at any time
within a period of 30 days after Election Forms are mailed, the Corporation
shall have received completed Election Forms from holders of at least a majority
of the outstanding shares of Series B Preferred Stock who elect to require the
Corporation to redeem shares of the Series B Preferred Stock pursuant to Section
6(c), it shall promptly thereafter redeem from all holders of Series B Preferred
Stock, in accordance with Section 6(c) and the other applicable provisions of
this resolution, all outstanding shares of Series B Preferred Stock; provided,
however, that the Corporation shall not voluntarily consummate or take, or
assist any of the holders of its Common Stock in consummating or taking, any
transaction or action which would result in a Change in Control unless (i) prior
to the date such transaction is closed or such action is taken, the procedures
specified in this Section 3(h) shall have been followed and the period of 30
days referred to in this sentence shall have expired, (ii) if the Corporation
would be required to redeem all shares of Series B Preferred Stock by virtue of
such Change in Control, the Corporation shall have deposited with a Redemption
Agent in accordance with Section 6(f) funds sufficient to redeem on the
applicable Redemption Date all such shares required to be redeemed at the
applicable Redemption Price and (iii) the Corporation shall have given written
notice of its compliance with subclause (ii) of this sentence to each holder of
Series B Preferred Stock. The provisions of this Section 3(h) shall apply
successively to each Change of Control or Reorganization Event which may occur.
(i) Actions to Facilitate Required Redemptions. If, at any time that
any redemption of shares of Series B Preferred Stock is, or with the passage of
time after any notice will be, required by any provision of this resolution, the
Corporation is in material violation or breach of the terms of any material
indebtedness of the Corporation or a default or event of default with respect to
or under any material indebtedness of the Corporation exists and has not been
waived or cured, if the Corporation is insolvent under applicable law, or if the
Corporation's capital is impaired under the law of the jurisdiction of
incorporation, or if any such violation, breach, default, event of default,
insolvency or impairment of capital or any material violation of law would
result from such redemption, then the Corporation shall, (i) promptly give
written notice to such effect to the holders of the Series B Preferred Stock,
(ii) subject to the applicable provisions of the Stockholders Agreement, take,
as hereafter provided in this Section 3(i), all reasonable lawful actions to
cure or avoid such violation, breach, default or event of default, to restore or
preserve its solvency or to cure or avoid such impairment of capital, in each
case as necessary to enable the Corporation to make such redemption to the
fullest extent possible, including (A) the sale of additional equity securities,
(B) any necessary action under applicable law to reduce the Corporation's stated
capital or otherwise increase the Corporation's surplus or other funds legally
available, (C) additional borrowings by, or a refinancing of the
<PAGE>
debt of, one or more Company Parties, (D) asset sales by one or more Company
Parties and (E) sales of one or more Company Parties to third parties and (iii)
no later than thirty days after the date of delivery of the notice referred to
in clause (i) of this sentence, engage (at the Corporation's sole expense) a
nationally recognized independent investment banking firm reasonably acceptable
to the Majority Holders (such firm, the "Advisor") in order to advise and assist
the Corporation in connection with the actions to be taken by the Corporation
(each such action, an "Action"), including without limitation the actions
enumerated in subclauses (A)-(E) of clause (ii) of this sentence. The
Corporation and the Advisor shall submit to the holders of the Series B
Preferred Stock, no later than sixty days after the date of the notice referred
to in clause (i) of the immediately preceding sentence, a proposal setting forth
the Actions proposed to be taken by the Corporation. Any proposed Action that is
approved by the affirmative vote of the Majority Holders and by the Investors
(as defined in the Stockholders Agreement), pursuant to the Stockholders
Agreement (if such approval is required by the terms thereof) (each, an
"Investor Approved Action") shall be pursued by the Corporation in good faith as
quickly as practicable. In the event that the Investor Approved Actions include
a sale of a Company Party or assets of a Company Party, then no later than 120
days after such approval (one hundred fifty days if the Advisor assisting in the
sale shall advise the Corporation in writing that such additional period is
reasonably likely, in its good faith judgment, to result in a higher price being
obtained in such sale) or such later date as may be agreed upon by the
Corporation and the Majority Holders, the Board of Directors shall accept the
highest bid submitted for such sale deemed by the Advisor to represent an
"adequate" price for such assets or such Company Party (the values of such bids
to be determined by the Advisor). Any holder of shares of Series B Preferred
Stock and any Affiliate of any such holder or of the Corporation shall be
entitled to submit its own bid in the competitive bidding process. In the event
that the Investor Approved Actions include (i) a sale of additional equity
securities or debt securities of any Company Party or (ii) additional borrowings
by or a refinancing of the debt of any Company Party, the Corporation will take
and cause each other affected Company Party to use its best efforts to
consummate such proposed Action within 120 days after such approval or by such
later date as may be agreed upon by the Corporation and the Majority Holders.
Consistent with his or her fiduciary duties as a director of the Corporation,
each director of the Corporation (whether or not a Series B Director) shall
approve the taking by the Corporation of each Investor Approved Action and, if
any approval or other action by any of the Corporation's stockholders is
required by applicable law in order to authorize, or otherwise in connection
with, the taking of such Investor Approved Action, shall recommend that such
stockholders give such approval and take such other action, but this sentence
shall not be construed as establishing any requirement for unanimous approval by
the Board of Directors in order to authorize any Investor Approved Action or
otherwise the vote required under applicable law, this resolution or the
Corporation's Certificate of Incorporation. Nothing contained in this Section
3(h) is intended to eliminate, qualify, modify or limit the rights of the
holders of the Series B Preferred Stock under any provision of this resolution
or any other rights or remedies which such holders may have at law, in equity or
by contract in the event of the failure of the Corporation to redeem shares of
Series B Preferred Stock as and when required by this resolution.
4. Dividends.
(a) Dividend Rate; Dividend Payments Dates; Etc. The holders of the
Series B Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor, cumulative
cash dividends, in preference and priority to dividends on any Junior Stock,
that shall accrue on the Liquidation Price of each share of the Series B
Preferred Stock at the rate of 15.6% per annum, from and including the Issue
Date of such share to and including the date on which the Liquidation Price or
Redemption Price of such share is made available pursuant to Section 5 or
Section 6, respectively or such share is converted pursuant to Section 9.
Accrued dividends on the Series B Preferred Stock shall be payable, on December
1, 1996 and thereafter quarterly on March 1, June 1, September 1, and
<PAGE>
December 1 of each year (each a "Dividend Payment Date"), to the holders of
record of the Series B Preferred Stock as of the close of business on the
applicable Record Date. Dividends shall be fully cumulative and shall accrue on
a daily basis based on a 365- or 366-day year, as the case may be, without
regard to the occurrence of a Dividend Payment Date or Accrual Date and whether
or not such dividends have been declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. The amount of dividends "accrued" with respect to any share of Series
B Preferred Stock as of the first Accrual Date after the Closing Date or as of
any other date after the Closing Date that is not an Accrual Date shall be
calculated on the basis of the actual number of days elapsed from and including
the Closing Date, in the case of the first Accrual Date and any date of
determination prior to the first Accrual Date, or from and including the last
preceding Accrual Date, in the case of any other date of determination, to and
including such date of determination which is to be made, in each case based on
a year of 365 or 366 days, as the case may be. Whenever the Board of Directors
declares any dividend pursuant to this Section 4(a), notice of the applicable
Record Date and related Dividend Payment Date shall be given, not more than 45
days nor less than 10 days prior to such Record Date, to the holders of record
of the Series B Preferred Stock at their respective addresses as the same appear
on the books of the Corporation or are supplied by them in writing to the
Corporation for the purpose of such notice
(b) Compounding of Dividends; Addition to Conversion Value. On each
Dividend Payment Date, all dividends that have accrued on each share of Series B
Preferred Stock during the immediately preceding Dividend Period shall, to the
extent not paid on such Dividend Payment Date for any reason (whether or not
such unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Conversion Value of such share effective as of such Dividend
Payment Date and shall remain a part thereof. All dividends that have accrued on
each share of Series B Preferred Stock during any Dividend Period shall, to the
extent not paid in full on the first Dividend Payment Date after the end of such
Dividend Period for any reason (whether or not such unpaid dividends have been
earned or declared or there are any unrestricted funds of the Corporation
legally available for the payment of dividends), be added to the Liquidation
Price of such share effective as of the first Accrual Date after the last day of
such Dividend Period and shall remain a part thereof to and including the date
on which the Liquidation Price or Redemption Price of such share is made
available pursuant to Section 5 or Section 6, respectively. No accrued dividends
(or dividends accrued thereon) which have been added to Conversion Value or
Liquidation Price of any Series B Share may be subsequently declared or, except
in accordance with Section 5 or Section 6, paid by the Corporation without the
consent of the holder of such Series B Share.
(c) Pro Rata Declaration and Payment of Dividends. All dividends
paid with respect to shares of the Series B Preferred Stock pursuant to this
Section 4 shall be declared and paid pro rata to all the holders of the shares
of Series B Preferred Stock outstanding as of the applicable Record Date.
5. Distributions Upon Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of the Series B Preferred Stock
shall be entitled to receive from the assets of the Corporation available for
distribution to stockholders, before any payment or distribution to the holders
of any Junior Stock (in their capacity as holders of such Junior Stock) shall be
declared, made or provided for or any cash, property or other consideration
shall be set aside for such purpose, an amount in cash or property at its fair
market value, as reasonably determined by the Board of Directors in good faith,
or a combination thereof, per share, equal to the sum of the Liquidation Price
as of the date of the payment or distribution thereof to the holders of the
Series B Preferred Stock plus all unpaid dividends accrued on such share during
the period from and including the Accrual Date immediately preceding such date
(or the Issue Date if there was no prior Accrual Date)
<PAGE>
through and including such date of payment or distribution (whether or not such
unpaid dividends have been earned or declared). If, upon distribution of the
Corporation's assets in liquidation, dissolution or winding up, the assets of
the Corporation available for distribution to its stockholders shall be
insufficient to permit payment in full to the holders of the Series B Preferred
Stock and the holders of all other classes or series of Parity Stock, if any,
which rank on a parity basis with the Series B Preferred Stock with respect to
distributions upon such liquidation, dissolution or winding up of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation available for distribution to stockholders shall be distributed
ratably to such holders in proportion to the respective full preferential
amounts to which the shares of Series B Preferred Stock and all such classes and
series of Parity Stock would otherwise be entitled. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 5.
6. Redemption.
(a) At Corporation's Option. Unless otherwise approved by the
Majority Holders in accordance with Section 8, at any time after the Closing
Date and prior to the seventh anniversary of the Closing Date, all but not less
than all of the Series B Preferred Stock outstanding may be redeemed at the
option of the Corporation at the Redemption Price equal to Three Hundred and
Eight Dollars ($308.00) per share. The Corporation shall not exercise its right
of redemption pursuant to this Section 6(a) unless such redemption does not and
shall not result in impairment of the Corporation's capital, otherwise result in
a violation of applicable law or result in a material breach, violation, default
or event of default under any agreement or instrument to which the Corporation
is a party or by or to which it or its assets are bound or subject and unless
the Corporation is not then insolvent and would not be rendered insolvent as a
result of such redemption.
(b) Mandatory Redemption. The Corporation shall redeem, on the
seventh anniversary of the Closing Date, all shares of Series B Preferred Stock
then outstanding at a Redemption Price per share equal to the sum of the
Liquidation Price of such share determined as of the applicable Redemption Date
plus all unpaid dividends (whether or not earned or declared) accrued on such
share during the period from and including the Accrual Date immediately
preceding such Redemption Date through and including such Redemption Date.
(c) Redemption at Option of Holders Upon Change in Control or
Reorganization Event. In the event of the occurrence of a Change in Control or
any Reorganization Event, the Majority Holders shall have the right to require
the Corporation to redeem, on the applicable Redemption Date, all of the
outstanding shares of the Series B Preferred Stock at the applicable Redemption
Price per share specified below in this Section 6(c). Such right may be
exercised by one or more Election Forms or any other written notices
(collectively, a "Section 6(c) Election Notice") to such effect which,
collectively, have been signed by the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock and given to the Corporation at
any time after the date of occurrence of such Change in Control or
Reorganization Event (as the case may be) and prior to the expiration of the
period of 30 days after written notice of such occurrence is given to the
holders of the Series B Preferred Stock pursuant to Section 3(h) or, if the
penultimate sentence of Section 3(h) is applicable, at any time within the
period of 30 consecutive days after the written notice referred to in clause
(iii) of such sentence is given; provided, however, that in the case of any
Reorganization Event, such 30-day period shall be extended by a number of days
equal to the number of days, if any, during which either the exercise of such
right or the redemption by the Corporation of the Series B Preferred Stock
pursuant to this Section 6(c) shall be enjoined, stayed or otherwise prevented
or delayed by order or decree of any court
<PAGE>
or tribunal. In the case of a redemption of the Series B Preferred Stock
pursuant to this Section 6(c), the Redemption Price per share of the Series B
Preferred Stock shall be equal to the sum of the Liquidation Price of such share
determined as of the applicable Redemption Date plus all unpaid dividends
(whether or not earned or declared) accrued on such share during the period from
and including the Accrual Date immediately preceding the applicable Redemption
Date (or the Issue Date, if the first Accrual Date has not yet occurred) through
and including such Redemption Date.
(d) Form and Source of Redemption Payments. The Redemption Price for
all shares redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c) shall
be paid in cash from unrestricted funds legally available for such purpose.
(e) Notice of Redemption. Notice of any redemption by the
Corporation pursuant to Section 6(a), Section 6(b) or Section 6(c) shall be
given to the holders of record of the shares of Series B Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the books of the
Corporation or are supplied by them in writing to the Corporation for the
purpose of such notice. In the case of a redemption pursuant to Section 6(a) or
Section 6(b), such notice shall be given not more than 45 days nor less than 10
days prior to the applicable Redemption Date; and in the case of a redemption
pursuant to Section 6(c), such notice shall be given not earlier than the date
the related Section 6(c) Election Notice is given nor later than the tenth
Business Day prior to the applicable Redemption Date. In addition to any
information required by law or by the applicable rules of any national stock
exchange or national interdealer quotation system on which the Series B
Preferred Stock may be listed or admitted to trading or quoted, such notice
shall set forth the Redemption Price, the Redemption Date, the number of shares
to be redeemed and the place at which the shares called for redemption will,
upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and shall state the name and address of the Redemption
Agent appointed in accordance with Section 6(f).
(f) Deposit of Redemption Price. If any shares of Series B Preferred
Stock are to be redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c),
then on or before the applicable Redemption Date the Corporation shall deposit,
in an irrevocable trust fund for the sole purpose of redeeming the shares of
Series B Preferred Stock to be redeemed on such Redemption Date, with any bank
or trust company organized under the laws of the United States of America or any
state thereof having capital, undivided profits and surplus aggregating at least
$250,000,000 or having capital, undivided profits and surplus aggregating at
least $250,000,000 on a consolidated basis with such bank's or trust company's
parent, provided, however, that, in such case, such parent has guaranteed all of
the existing and future obligations of such bank or trust company (the
"Redemption Agent"), immediately available unrestricted funds legally available
for such purpose sufficient to redeem for the applicable Redemption Price on
such Redemption Date the shares of Series B Preferred Stock called for
redemption or otherwise required to be redeemed in accordance with Section 6(a),
Section 6(b) or Section 6(c), with irrevocable instructions and authority to the
Redemption Agent, on behalf and at the expense of the Corporation, to pay,
commencing on such Redemption Date or prior thereto, the Redemption Price of the
shares of Series B Preferred Stock to be redeemed to their respective holders
upon the surrender of their share certificates and, from and after the later of
the date of such deposit and such Redemption Date, such shares shall be deemed
to be no longer outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto, except the right to receive payment, as provided in this resolution, of
the Redemption Price of such shares, calculated through such Redemption Date,
upon surrender of the certificates therefor. Any funds so deposited with the
Redemption Agent by the Corporation and unclaimed for six months from the
Redemption Date shall (unless an applicable escheat or abandoned property law
designates another Person) be paid to the Corporation, after which repayment the
holders of such shares of Series B Preferred Stock shall look to the Corporation
for the
<PAGE>
payment of the Redemption Price therefor, without interest.
7. Board Representation.
(a) Right to Elect Director. The holders of the Series B Preferred
Stock shall be entitled to vote as a separate class for the election of one
director of the Corporation. The director whom, at any time and from time to
time, the holders of the Series B Preferred Stock elect or are entitled to elect
voting as a separate class is sometimes herein referred to as the "Series B
Director". Subject to earlier death, resignation or removal pursuant to Section
7(c), each Series B Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's stockholders and
his or her successor shall have been elected as provided herein. At their option
and in their sole discretion and for any one or more periods of any length of
time, the Majority Holders at any time and from time to time may choose not to
exercise their right to elect a Series B Director or to fill any vacancy
existing in the office of the Series B Director, without prejudice to any
subsequent exercise of such right. In such event, the Majority Holders may (in
their sole discretion) choose to have a representative appointed by them to
attend any one or more meetings of the Board of Directors as an observer, and
such representative shall be entitled to receive the same notices of meetings of
and proposed actions by the Board of Directors as directors generally.
(b) Manner of Election. Subject to the last sentence of this Section
7(b), Series B Directors shall be elected (and if such directors previously have
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Majority Holders given in accordance with Section
8(a); or (ii) by the vote of the Majority Holders voting as a separate class and
in accordance with Section 8(b), at (A) annual meetings of the shareholders of
this Corporation, or (B) a special meeting of the holders of Series B Preferred
Stock for the purpose of electing such directors (or filling any such vacancy),
to be called by the Secretary of this Corporation upon the written request of
the holders of record of 5% or more of the number of shares of Series B
Preferred Stock then outstanding; provided, however, that if the Secretary of
this Corporation shall fail to call any such special meeting within 10 days
after any such request, such meeting may be called by any holder or holders of
5% or more of the number of shares of Series B Preferred Stock then outstanding.
Notwithstanding the foregoing, the Secretary shall not be entitled to call any
such special meeting in the case of any such request received by this
Corporation less than 45 days before the date fixed for any annual meeting of
shareholders, and if in such case such special meeting is not called, the
holders of Series B Preferred Stock shall be entitled to vote (as a class) at
such annual meeting to elect the Series B Director (or to fill any such
vacancy).
(c) Removal. Any Series B Director may at any time and from time to
time be removed, with or without cause, by and only by the Majority Holders. Any
vacancy in the office of Series B Director resulting from death, resignation or
removal or existing for any other reason whatsoever may be filled only by the
Majority Holders. Any director elected to fill a vacancy shall serve the same
remaining term as that of his or her predecessor and until his or her successor
has been chosen and has qualified.
(d) Certain Procedural Matters. So long as the holders of the Series
B Preferred Stock shall have the right to elect a Series B Director: any one or
more members of the Board of Directors or any committee thereof may participate
in meetings of the Board of Directors by conference telephone; each member of
the Board of Directors or any committee thereof shall be given not less than
three days' prior written notice of each meeting of the Board of Directors or
such committee (or two days' prior written notice in case of meetings to
consider emergency matters), specifying the time and place of such meeting and
the matters to be discussed thereat, unless such member signs (either before or
after such meeting) a written waiver of his right to be given such notice, or
attends such meeting without protesting (prior thereto or at the
<PAGE>
commencement thereof) the failure to be given such notice; each member of the
Board of Directors or any committee thereof shall be given not less than three
days' prior written notice of any action proposed to be taken by the Board of
Directors or such committee without a meeting (or two days' prior written notice
in case of proposed actions involving emergency matters), unless such member
signs (either before or after such action is taken) a written waiver of his
right to be given such notice, or gives his written consent to such action
without protesting the failure to be given such notice; no executive committee
of the Board of Directors, and no other committee of the Board of Directors
which is authorized to exercise any powers of the Board of Directors, shall be
created except as provided in Section 7(f) or otherwise with the concurrence of
the Series B Director in office at the time such committee is created (or if a
vacancy in the office of Series B Director shall exist, with the concurrence of
the Majority Holders); and at any meeting of the Board of Directors or any
committee thereof, a quorum for the purpose of taking any action shall require
the presence in person or participation by conference telephone or similar
communications equipment of a number of directors equal to at least a majority
of the entire Board of Directors or the entire committee.
(e) Indemnification. The Corporation shall (i) to the fullest extent
permitted by applicable law, indemnify each director and former Series B
Director who is made a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such Person is or
was a director of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Person in connection with such action,
suit or proceeding and (ii) pay in advance, or advance to each such director and
former director for payment of, expenses incurred in defending any such action,
suit or proceeding to the maximum extent permitted by Section 145(e) of the
General Corporation Law of the State of Delaware (or any successor statutory
provision). The rights conferred on any Person by this Section 7(e) shall not be
exclusive of any other rights which such Person may have or acquire under any
statute, under the Corporation's Certificate of Incorporation, under the
Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Audit and Compensation Committees. Unless the Majority Holders
otherwise agree, so long as the holders of the Series B Preferred Stock shall
have the right to elect a Series B Director, the Board of Directors shall have
an audit committee and a compensation committee (the "Compensation Committee"),
each of which shall have three members one of whom shall be the Series B
Director and at least one other of whom shall be an independent director (as
defined below in this Section). The audit committee will have the authority and
responsibility for the selection, engagement or discharge of independent
auditors, reviewing with the independent auditors the plan and results of the
auditing engagement, reviewing the Corporation's system of internal accounting
controls, directing investigations in matters within the scope of its functions
and performing any and all other such functions customarily performed by audit
committees of public companies. The Compensation Committee will have the
authority and responsibility for establishing and administering the stock,
incentive and other employee benefit plans of the Corporation, establishing and
changing the compensation of executive officers, approving or amending existing
and proposed employment agreements between the Corporation and its executive
officers and performing any and all other such functions customarily performed
by compensation committees of public companies. Without limiting the generality
of the foregoing, the Compensation Committee will have the authority and
responsibility, in administering any stock, incentive or other employee benefit
plans, including any such plans in effect on the Closing Date, to determine the
persons to whom awards or benefits may be made, to determine the terms and
conditions (which need not be identical) of each award made or benefit conferred
(including the timing and type of award or benefit, the exercise or purchase
price for any award of stock or stock options, and terms related to vesting,
<PAGE>
exercisability, forfeiture and termination), and to interpret the provisions of
each such plan. For purposes of this Section, an "independent director" is an
individual who (unless otherwise approved by the Majority Holders) (i) has
either a significant financial investment in the Corporation or a significant
strategic position or expertise relative to the business of the Corporation and
(ii) is not (A) an officer or employee of the Corporation or any of its
Subsidiaries, (B) a director, employee, partner, manager or other member of
management of any of Affiliate of the Corporation (except a director of a
Subsidiary of the Corporation), (C) a relative of any Person described in
subclause (ii)(A) or (ii)(B) or (C) a trustee of any trust or estate in which
any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a beneficiary
has a substantial beneficial interest.
8. Actions by Holders Generally; Consistent Charter and By-law
Provisions.
(a) Actions by Written Consent or at Meetings. With respect to
actions by the holders of the Series B Preferred Stock upon those matters on
which such holders are entitled to vote as a separate class, such actions may be
taken either at a meeting of such holders or without a stockholder meeting by
the written consent of holders of shares of Series B Preferred Stock having
voting power to cast not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
Series B Preferred Stock entitled to vote were present and voted. Notice shall
be given in accordance with the applicable provisions of the Delaware Business
Corporation Law of the taking of corporate action without a meeting by less than
unanimous written consent to those holders of Series B Preferred Stock on the
record date whose shares were not represented on the written consent.
(b) Meetings. At any meeting having as a purpose either the election
of Series B Directors or any other vote or action by holders of the Series B
Preferred Stock, the presence, in person or by proxy, of the holders of record
of at least a majority of the Series B Shares then outstanding, shall be
required and be sufficient to constitute a quorum of such class for any such
purpose, and the affirmative vote of the Majority Holders present in person or
by proxy at such meeting shall be the act of the Series B Preferred Stock. At
any such meeting or adjournment thereof, (i) the absence of a quorum of such
holders of Series B Preferred Stock shall not prevent the election of the
directors to be elected by the holders of shares other than the Series B
Preferred Stock or the taking of any other action which they are entitled to
take, and the absence of a quorum of holders of shares other than the Series B
Preferred Stock shall not prevent the election of any director to be elected by
the holders of the Series B Preferred Stock or the taking of any other action
which they are entitled to take and (ii) in the absence of such quorum, either
of holders of the Series B Preferred Stock or of shares other than the Series B
Preferred Stock (or both), a majority of the holders, present in person or by
proxy, of the class or classes of stock which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect or the taking of any other action which they are entitled to take, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
(c) Consistent By-laws and Charter. The Certificate of Incorporation
and the By-laws of the Corporation shall at all times contain provisions
consistent with the provisions, purposes and intent of Section 7, Section 8, and
Section 9 and the other provisions of this resolution.
9. Conversion.
(a) Conversion Right Generally. Unless previously redeemed in
accordance with Section 6, each share of Series B Preferred Stock may be
converted at the option of the holder thereof, in whole or in part, at any time
and from time to time on and after the Closing Date, into fully paid and
nonassessable Shares of Common Stock at the Conversion Rate in effect at the
time of conversion and in the
<PAGE>
manner and on the terms and conditions hereinafter provided in this Section 9.
The number of whole or fractional shares of Common Stock into which each share
of Series B Preferred Stock shall be convertible as of any time shall be equal
to the quotient determined by dividing (i) the Conversion Value of such share
determined as of such time by (ii) the Conversion Price determined as of such
time. The Conversion Rate, the Conversion Price and the kind, number and amount
of securities and other property deliverable upon conversion of any Series B
Share shall be subject to adjustment from time to time as set forth in this
Section 9. The conversion right provided by this Section 9 with respect to any
Series B Share redeemed in accordance with Section 6 shall terminate as of, and
may be exercised at any time prior to, the close of business on the applicable
Redemption Date. In case cash, property or securities other than Common Stock
shall be payable, deliverable or issuable upon conversion, then all references
to Common Stock in this Section 9 shall be deemed to apply, so for as
appropriate and as nearly as may be, to such cash, property or other securities.
Upon the occurrence of a Qualified IPO or on such date or dates as of which
holders of more than 75% of the shares of Series B Preferred Stock outstanding
on the Issue Date have converted their shares of Series B Preferred Stock into
Common Stock in accordance with the provisions of this Section 9, the
Corporation may elect, by written notice to that effect given to each holder of
Series B Preferred Stock within 10 Business Days after such occurrence, to
require that all, but not less than all, outstanding shares of Series B
Preferred Stock be converted in accordance with this Section 9, and the giving
of such notice by the Corporation shall have the same effect for purposes of
this Section 9 as if each holder of Series B Shares gave, on the date such
notice is given, a notice of conversion pursuant to Section 9(b). Upon the date
set by the Corporation for such conversion in accordance with this Section 9(a)
as specified in the notice to each holder of Series B Preferred Stock, each
share of Series B Preferred Stock will be deemed to be converted into such
number of shares of Common Stock of the Corporation as set forth in this Section
9 and the holders of such shares of Series B Preferred Stock shall no longer
have any rights or obligations pursuant to the Series B Certificate of
Designation but shall instead have all the rights and obligations of holders of
the Corporation's Common Stock.
(b) Mechanics of Conversion. In order to convert any Series B Share,
the Holder thereof shall deliver to the Corporation at its principal executive
offices within the United States or at another office or agency designated by
the Corporation pursuant to Section 9(x), of the certificate(s) evidencing the
Series B Share(s) to be converted, which certificate(s), if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form reasonably
satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that such holder elects to convert all or a part of
the Series B Share(s) represented by said certificate(s) in accordance with the
terms of this Section 9, and shall state in writing therein the name or names
and denomination or denominations in which such Holder wishes certificate(s) for
Common Stock to be issued. Every such notice of election to convert shall
constitute a contract between the holder of such Series B Share(s) and the
Corporation, whereby the holder of such Series B Share(s) shall be deemed to
subscribe for the amount of Common Stock which such holder shall be entitled to
receive upon conversion of the number of shares of Series B Preferred Stock to
be converted, and, in satisfaction of such subscription, to deposit the shares
of Series B Preferred Stock to be converted, and whereby the Corporation shall
be deemed to agree that the surrender of the shares of Series B Preferred Stock
to be converted shall constitute full payment of such subscription for such
Common Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Series B
Preferred Stock, accompanied by the written notice above prescribed, issue and
deliver at such offices of the Corporation or at such other office or agency to
the Person for whose account such Series B Preferred Stock was so surrendered,
or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled. Such conversion shall be
deemed to have been made as of the date of such surrender
<PAGE>
of the Series B Preferred Stock to be converted, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion of such Series B
Preferred Stock shall be treated for all purposes as the record holder or
holders of such Common Stock on such date. Notwithstanding the foregoing, if any
notice of conversion given by any Holder states that such conversion is in
connection with an offering of securities registered or to be registered
pursuant to the Securities Act, then such conversion may, at the option of such
Holder, be conditioned upon and deferred until the closing of the sale of such
securities pursuant to such offering, in which event the Series B Share(s)
covered by such notice shall not be deemed to have been converted until
immediately prior to the closing of such sale and the Corporation shall, unless
otherwise instructed by such Holder, deliver the stock certificate(s) and any
cash, securities or other property to which such Holder shall be entitled at
such time or times as such Holder shall reasonably request.
(c) Expenses and Taxes. The Corporation shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the shares of Common Stock and
cash, property or other securities which any Holder is entitled to receive upon
conversion of any Series B Share(s). The Corporation shall not be required,
however, to pay any stamp, stock transfer or other similar tax or other
governmental charge required to be paid solely by virtue of any transfer
involved in the issue of Shares of Common Stock in any name other than that of
the Holder of the Series B Share(s) converted at the order of such Holder, and
if any such transfer is involved, the Corporation shall not be required to issue
or deliver the shares of Common Stock as to which such tax or charge is
applicable until such tax or other charge shall have been paid or it has been
established to the Corporation's reasonable satisfaction that no such tax or
other charge is due.
(d) Fractional Shares of Common Stock. If the number of shares of
Common Stock purchasable on the conversion of Series B Share(s) is not a whole
number, the Corporation shall not be required to issue any fraction of a share
of Common Stock and such number of shares issuable shall be rounded up to the
nearest whole number. If a certificate or certificates evidencing more than one
Series B Share shall be surrendered for conversion at one time by the same
Holder, the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of Series B
Shares so surrendered for conversion. Notwithstanding the provisions of this
Section 9(d), in computing adjustments to the Conversion Rate pursuant to
Section 9, fractional shares of Common Stock shall be taken into account as
provided in Section 9(p)(C) and any outstanding Series B Share may at any time
represent the right to receive upon conversion less than one share of Common
Stock or some other number of shares of Common Stock which is not a whole
number.
(e) Covenant to Reserve Shares for Issuance on Conversion. The
Corporation shall at all times reserve and keep available out of the authorized
but unissued shares of Common Stock, solely for the purpose of issue upon
conversion of Series B Shares, the full number of shares of Common Stock
issuable if all outstanding Series B Shares were to be converted in full. All
shares of Common Stock which shall be issuable upon conversion of any Series B
Share shall be newly issued, duly authorized, validly issued, fully paid and
nonassessable and without any personal liability attaching to the ownership
thereof, and the issuance thereof shall not give rise or otherwise be subject to
preemptive or similar purchase rights on the part of any Person or Persons, and
the Corporation shall take any corporate and other actions that may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable all shares of Common Stock and
all shares of the Corporation's capital stock of any other class or series
issuable upon conversion of the Series B Preferred Stock. The Corporation hereby
authorizes and directs its current and future transfer agents, if any, for the
Common Stock and for any shares of the Corporation's capital stock of any other
class or series issuable upon the conversion of the Series B Preferred Stock at
all times to reserve such number of authorized shares as shall be requisite for
such purpose. The
<PAGE>
Corporation shall supply such transfer agents with duly executed stock
certificates for such purposes.
(f) Compliance with Governmental Requirements; Listing of Shares;
Hart-Scott-Rodino Act.
(A) If issuance of any Conversion Securities issuable upon conversion of
any Series B Share(s) require, under any applicable federal, state, local or
foreign law, rule or regulation or any applicable requirement of any national
securities exchange or inter-dealer quotation system, any registration,
qualification, listing or approval before such shares may be issued upon
conversion, the Corporation shall in good faith, as promptly as practicable and
at its expense, diligently endeavor to cause such shares to be duly registered,
qualified, approved or listed, as the case may be, and the conversion of such
Series B Share(s) shall be suspended for the period during which such
registration, qualification, approval or listing is being diligently pursued or
sought by the Corporation. Without limiting the generality of the foregoing, if
any shares of Common Stock or other capital stock or securities required to be
reserved for issuance upon conversion of Series B Shares require registration or
qualification with any governmental authority under any federal or state law
before such shares may be so issued, the Corporation will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered. During all periods during which shares of Common Stock or any
other capital stock or securities of the same class, series or issue as are
issuable upon conversion of any Series B Share are listed, qualified or
otherwise eligible for trading or quotation on any national securities exchange
or the Nasdaq National Market, the National Association of Securities Dealers,
Inc. Automated Quotation System or any similar quotation system, the Corporation
shall cause all shares of Common Stock, and all such other capital stock and
securities, issuable upon conversion of such Series B Share to be listed,
qualified or eligible for trading or quotation thereon upon issuance thereof.
(B) If any Holder is advised by its own legal counsel that its intended
conversion of any Series B Shares would or might be subject to the HSR Act, the
Corporation shall promptly comply with any applicable requirements under the HSR
Act relating to filing and furnishing of information (the "HSR Report") to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice, such actions to include, without limitation, (i) filing
the HSR Report and taking all other action required by the HSR Act, (ii)
coordinating with respect to the filing of the HSR Reports of such Holder and
the Corporation (and exchanging drafts thereof), so as to present all required
HSR Reports to the FTC and the Department of Justice at the time selected by
such Holder, and to avoid substantial errors or inconsistencies among such HSR
Reports in the description of the transaction, (iii) complying with any
additional request for documents or information made by the FTC or the
Department of Justice or by a court and assisting the other parties to so comply
and (iv) causing all Persons which are part of the same "person" (as defined for
purposes of the HSR Act) as the Corporation to cooperate and assist in such
filing and compliance. If any Holder is advised by its own legal counsel that
its intended conversion of any Series B Share(s) would or might be subject to
any other law, rule or regulation which requires any filing with or review or
approval by any governmental authority or agency, the Corporation shall promptly
comply with any requirements of such law, rule or regulation applicable to it
and shall cooperate with such Holder in such Holder's efforts to comply with the
requirements of such law, rule or regulation applicable to it on a timely basis.
Each of the Corporation and such Holder shall bear and pay any costs or expenses
that it incurs in complying with this Section 9(f)(B), except that each shall
pay one half of any fee payable to the FTC or the Department of Justice in
connection with the filing of an HSR Report pursuant to this Section 9(f)(B) and
the HSR Act.
(g) Intentionally omitted.
(h) Adjustment Generally. The Conversion Price and the Conversion
Rate and the kind,
<PAGE>
number and amount of securities and other property issuable upon conversion of
any Series B Share shall be subject to adjustment from time to time as
hereinafter set forth. Upon any issuance or deemed issuance of Common Stock or
other event that results in an adjustment to the Conversion Rate, the Conversion
Price shall also be adjusted by multiplying the Conversion Price in effect
immediately prior to the effective time of such adjustment in the Conversion
Rate by a fraction the numerator of which is the number of shares of Common
Stock issuable upon conversion of one share of Series B Preferred Stock
immediately prior to such adjustment, and the denominator of which is the number
of shares of Common Stock issuable upon conversion of one share of Series B
Preferred Stock immediately following such adjustment to the Conversion Rate.
Such adjustments of the Conversion Rate and the Conversion Price shall be
cumulative and shall be made successively on each and every occasion that any
event requiring any such adjustment shall occur. The form of the stock
certificate(s) evidencing the Series B Shares need not be changed because of any
adjustment made pursuant hereto.
(i) Stock Dividends, Subdivisions, Combinations and
Recapitalizations. If the Corporation shall at any time (i) declare or pay a
dividend or declare, pay or make any other distribution on the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue any shares of capital stock
of the Corporation by way of reclassification of the Common Stock, then in each
and every such event the Conversion Rate and the Conversion Price determined as
of immediately prior to the applicable time referred to in subclause (x) or (y)
of this sentence shall be adjusted so that the Holder of any Series B Share
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock (or other capital stock of the Corporation) which such
Holder would have owned and would have been entitled to receive by virtue of the
happening of any of the events described above had such Series B Share been
converted (x) in the case of a dividend or distribution, immediately prior to
the record date for the determination of the stockholders entitled to receive
such dividend or distribution (or, if no such record date is fixed, as of any
other time as of which the holders of Common Stock entitled to participate in
such distribution was determined) or (y) in the case of a subdivision,
combination or reclassification, on the effective date thereof. An adjustment
made pursuant to this Section 9(i) shall become effective immediately after such
record date (or other applicable date referred to in clause (x) of the
immediately preceding sentence) in the case of a dividend or distribution,
subject to Section 9(p)(D) and Section 9(p)(E), and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(j) Certain Other Distributions. If the Corporation shall at any
time declare or make any distribution, by dividend or otherwise, to all holders
of outstanding shares of Common Stock of any cash (subject to the last sentence
of this subsection) or other assets or property of any nature whatsoever, any
debt securities or other evidences of its indebtedness, any capital stock, any
other securities of any nature whatsoever or any warrants, options or other
Rights to subscribe for, purchase or otherwise acquire any assets, property,
capital stock, debt or other securities or evidences of indebtedness (excluding
dividends, distributions or issuances referred to in Section 9(i), Rights
referred to in Section 9(l) and Convertible Securities referred to in Section
9(m)), or shall take a record of such holders for the purpose of entitling them
to receive such a distribution, then the Conversion Rate shall be adjusted to
equal the product of the Conversion Rate determined as of immediately prior to
such adjustment multiplied a fraction the numerator of which shall be the
Current Market Price per share of the Outstanding Common Shares at the date of
taking such record or, if no record is taken, at the date as of which the
holders of Common Stock entitled to participate in such distribution were
determined or if no such determination is made, on the date of such
distribution, and the denominator of which shall be the absolute value of the
difference between such Current Market Price per share of the Outstanding Common
Shares at such date and the amount allocable to one share of the
<PAGE>
Outstanding Common Shares at such date of any such cash so distributable and of
the Fair Market Value (as determined as of such date in good faith by the Board
of Directors) of any and all such evidences of indebtedness, shares of capital
stock, debt securities, other securities, property, assets or Rights so
distributable. An adjustment made pursuant to this Section 9(j) shall become
effective, subject to Section 9(p)(D) and Section 9(p)(E), immediately after
such record date or, if no such record date is fixed, immediately after the time
as of which holders of Common Stock entitled to participate in such distribution
were determined or, if no such time is fixed, as of the date of such
distribution. No adjustment pursuant to this subsection (j) shall be required
for any cash dividend paid out of current or retained earnings to the extent the
sum of the cash dividends payable after the Issue Date does not exceed the
aggregate net income (determined in accordance with generally accepted
accounting principles consistently applied) of the Corporation since the Issue
Date.
(k) Issuance of Additional Shares of Common Stock.
(A) Subject to subdivision (B) of this Section 9(k), if at any time
the Corporation shall issue, or pursuant to Section 9(l), Section 9(m), Section
9(n) or Section 9(o) be deemed to issue, any Additional Shares of Common Stock
in exchange for consideration in an amount (determined in accordance with
subdivisions (A) and (F) of Section 9(p)) per Additional Share of Common Stock
less than the Reference Price determined as of the time such Additional Shares
of Common Stock are issued or deemed to be issued, then the Conversion Rate
shall be adjusted to equal the product obtained by multiplying the Conversion
Rate in effect immediately prior to such issuance or deemed issuance by a
fraction (i) the numerator of which shall be the number of Outstanding Common
Shares immediately after such issuance or deemed issuance, and (ii) the
denominator of which shall be the number of Outstanding Common Shares
immediately prior to such issuance or deemed issuance plus the number of shares
which the aggregate amount of consideration, if any, received by the Corporation
upon such issuance or deemed issuance of all such Additional Shares of Common
Stock would purchase at the Reference Price determined as of such time.
(B) The provisions of subdivision (A) of this Section 9(k) shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is made under Section 9(i) or Section 9(j) or to the issuance of
Additional Shares of Common Stock pursuant to the exercise of any Existing Right
in accordance with the terms thereof in effect of the Closing Date. No
adjustment of the Conversion Rate shall be made under this Section 9(k) upon the
issuance of any Additional Shares of Common Stock which are or are deemed to be
issued pursuant to (i) subject to Section 9(o) the exercise of any Existing
Rights or (ii) subject to Section 9(n), the exercise of any other Rights or the
exercise of any conversion or exchange rights in any other Convertible
Securities if, in the case of any such Rights or Convertible Securities referred
to in this clause (ii) any such adjustment shall previously have been made, or
no such adjustment shall have been required to be made, upon the issuance of
such Rights or upon the issuance of such Convertible Securities (or upon the
issuance of any Rights therefor) pursuant to Section 9(l) or Section 9(m).
(C) Each adjustment pursuant to this Section 9(k) by reason of any
issuance or sale of any Additional Shares of Common Stock shall be effective as
of the date of such issuance or sale.
(l) Issuance of Rights. Subject to the last sentence of this Section
9(l), if at any time the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution of, or shall in any manner (whether directly or indirectly by
assumption in a consolidation or in a merger in which the Corporation is the
surviving corporation or otherwise) grant, issue or sell to any Person or
Persons, any Rights to subscribe for, purchase or otherwise acquire any
Additional Shares of Common Stock or any Convertible Securities, in any case
whether or not such Rights or the right to
<PAGE>
exchange or convert such Convertible Securities are immediately exercisable, and
the consideration per share for which Common Stock is issuable upon the exercise
of such Rights or upon conversion or exchange of such Convertible Securities
(determined pursuant to subdivisions (A) and (F) of Section 9(p)) shall be less
than the Reference Price determined (x) in the case of such dividend or
distribution, as of the close of business on such record date or (y) in the case
of such grant, issuance or sale, immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon the
exercise of such Rights or, in the case of Rights for Convertible Securities,
upon the conversion or exchange of such Convertible Securities determined as of
such applicable time shall be deemed to be Additional Shares of Common Stock
issued as of such applicable time for such consideration per share and the
Conversion Rate shall be adjusted as provided in Section 9(k). Subject to
Section 9(n), no further adjustments of the Conversion Rate shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such Rights or upon the actual issuance of such Common Stock upon
such conversion or exchange of such Convertible Securities for which an
adjustment pursuant to this Section 9(l) previously had been made or was not
required to be made. No adjustment under this Section 9(l) shall be required by
reason of the grant of Employee Options.
(m) Issuance of Convertible Securities. If at any time the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution of, or
shall in any manner (whether directly or indirectly by assumption in a
consolidation or in a merger in which the Corporation is the surviving
corporation or otherwise) grant, issue or sell to any Person or Persons, any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon such conversion or exchange (determined
pursuant to subdivisions (A) and (F) of Section 9(p)) shall be less than the
Reference Price determined (x) in the case of such dividend or distribution, as
of the close of business on such record date or (y) in the case of such issuance
or sale, immediately prior to the time of such grant, issuance or sale, then the
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities determined as of such applicable time
shall be deemed to be Additional Shares of Common Stock issued as of such
applicable time for such consideration per share and the Conversion Rate shall
be adjusted as provided in Section 9(k). No further adjustment of the Conversion
Rate shall be made under this Section 9(m) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any Rights therefor if
any such adjustment shall previously have been made upon the issuance of such
Rights pursuant to Section 9(l). Subject to Section 9(n), no further adjustments
of the Conversion Rate shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of Convertible Securities for which an
adjustment pursuant to this Section 9(m) previously had been made or was not
required. If the terms of any Convertible Securities provide for any issuance of
additional Convertible Securities (whether in payment of dividends or interest
or otherwise), then each occasion on which any such additional Convertible
Securities are issued shall be deemed a new issuance of Convertible Securities
for which an adjustment pursuant to this Section 9(m) shall be made.
(n) Superseding Adjustment.
(A) If, at any time after any adjustment of the Conversion Rate
shall have been made pursuant to Section 9(l) or Section 9(m) in respect of any
Rights or Convertible Securities:
(i) the consideration paid or payable to the Corporation, or the
number of shares of Common Stock issued or issuable, upon the exercise,
conversion or exchange of the Rights or Convertible Securities in respect of
which such adjustment was made is increased or decreased by virtue of provisions
contained therein for an automatic increase or decrease (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or
<PAGE>
otherwise, the adjustments to the Conversion Rate computed upon the original
grant, issuance or sale thereof or upon the taking of a record date with respect
thereto (as the case may be), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be readjusted to
the Conversion Rate which would then be in effect had such adjustment originally
been made on the basis that such increased or decreased consideration paid or
payable or such increased or decreased number of shares of Common Stock issued
or issuable was the consideration paid or payable or the number of shares issued
or issuable in respect of such Rights or Convertible Securities which are
actually outstanding immediately prior to the effective time of such increase or
decrease (but no such readjustment shall be made with respect to any Rights or
Convertible Securities which for any reason no longer are outstanding as of such
time); or
(ii) any Rights or any rights of conversion or exchange under
Convertible Securities in respect of which such adjustment was made shall expire
without having been fully exercised, the adjustments to the Conversion Rate
computed upon the original grant, issuance or sale thereof or upon the taking of
a record date with respect thereto (as the case may be), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of such Rights or Convertible Securities, the
only Additional Shares of Common Stock issued were the shares of Common Stock,
if any, actually issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities and the consideration received for such
Additional Shares of Common Stock was, in the case of Rights, the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the consideration actually received by
the Corporation upon such exercise, or, in the case of Convertible Securities,
the consideration actually received by the Corporation for the issuance or sale
of all such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange; and
(2) in the case of any such Rights for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold upon the
exercise thereof were issued at the time of grant, issuance or sale of such
Rights, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the additional consideration, if any,
actually received by the Corporation upon the issuance or sale of the
Convertible Securities with respect to which such Rights were actually
exercised.
(B) No readjustment pursuant to this Section 9(n) shall have the
effect of (1) decreasing the number of shares of Common Stock or the amounts of
other Conversion Securities, cash or other property into which any Series B
Share is convertible below the greater of the number of such shares and the
amounts of such other Conversion Securities, cash and property as would have
resulted from any adjustment to such number of such shares and such amounts of
such other Conversion Securities, cash and other property between the original
adjustment date (before giving effect to the original adjustment) and the time
such readjustment is made or (2) requiring any surrender, return or redelivery
of any shares of Common Stock, other Conversion Securities, cash or other
property delivered upon any conversion of any Series B Share prior to the time
such readjustment is made, requiring that the converting Holder or any
subsequent holder of any such shares of Common Stock, Conversion Securities or
other property make any payment to the Corporation or otherwise affecting such
shares of Common Stock, other Conversion Securities or other property or the
rights or obligations of the converting Holder or any such subsequent holder
with respect thereto. From and after any adjustment or adjustments provided for
in this Section 9(n), the Conversion Rate shall continue to be subject to
further adjustment as provided in this Section 9.
<PAGE>
(C) If, at any time after any grant, sale or other issuance of any
Rights or Convertible Securities for which an adjustment of the Conversion Rate
shall not have been required to be made pursuant to the provisions of Section
9(l) or Section 9(m) (as the case may be), the consideration paid or payable to
the Corporation upon the exercise of such Rights or Convertible Securities is
decreased, or the number of shares of Common Stock issued or issuable upon the
exercise of such Rights or Convertible Securities is increased, in either case
by virtue of provisions contained therein for an automatic decrease or increase
(as the case may be) upon the occurrence of a specified date or event, any
amendment or modification of or departure from the terms thereof previously in
effect or otherwise, then such event shall, for purposes of Section 9(l) (in the
case of such Rights) or Section 9(m) (in the case of such Convertible
Securities) be deemed to be a new issuance, as of the date of the effectiveness
of such decrease or increase (as the case may be) of Rights or Convertible
Securities having terms reflecting such changes.
(o) Adjustment for Events Affecting Existing Rights. If the number
of shares of Common Stock issued or issuable upon exercise of any Existing Right
is increased as a direct or indirect result of any amendment or modification of
or departure from the terms thereof previously in effect, then such increased
number of shares of Common Stock issued or issuable upon exercise thereof shall
be deemed to be Additional Shares of Common Stock issued as of the effective
date of such increase for the additional consideration, if any, payable to
acquire such increased number of shares upon exercise of such Existing Right,
and the Conversion Rate shall be adjusted as provided in Section 9(k). If the
consideration payable for shares of Common Stock issued or issuable upon
exercise of any Existing Right is decreased as a direct or indirect result of
any amendment or modification of or departure from the terms thereof previously
in effect, then such event shall be deemed to be the issuance, as of the
effective date of such decrease, of a number of Additional Shares of Common
Stock equal to the excess of (1) the maximum number of shares of Common Stock
issuable upon exercise of such Existing Right over (2) the number of shares of
Common Stock determined by dividing the total consideration, if any, that would
be payable to the Corporation upon the exercise in full of such Existing Right
after giving effect to such decrease by the amount of consideration per share of
Common Stock issuable upon exercise of such Existing Right that would have been
payable to the Corporation absent such decrease. The provisions of this Section
9 are in addition to (and not exclusive of) any other rights or remedies of such
holders in the event that any such amendment, modification or departure occurs
without any required approval of the holders of Series B Shares.
(p) Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments provided for in this
Section 9:
(A) Computation of Consideration. Subject to the last sentence of
this Section 9(p)(A), to the extent that any Additional Shares of Common Stock,
any Convertible Securities or any Rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities shall be issued
or deemed to be issued for cash consideration, the consideration received or
deemed to be received by the Corporation therefor shall be the net amount of the
cash received or deemed to be received by the Corporation therefor (in any such
case subtracting any amounts received in respect of accrued interest, accrued
dividends or other similar amounts which the Corporation may be obligated to pay
to the holders thereof in the future and any compensation, discounts or expenses
paid or incurred by the Corporation in connection with the issuance thereof).
Subject to the last sentence of this Section 9(p)(A), to the extent that such
issuance or deemed issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the Fair Market Value of such consideration at the time of
such issuance or deemed issuance as determined in good faith by the Board of
Directors. Subject to the last sentence of this Section 9(p)(A), in case any
Additional Shares of Common Stock, any Convertible Securities or any Rights to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock
or Convertible Securities shall be issued or deemed to be issued in connection
with any merger, consolidation, share exchange or similar transaction, the
amount of consideration therefor shall be deemed to be the Fair Market Value, as
determined in good faith by the Board of Directors, of such portion of the
assets and business of the nonsurviving corporation as the Board of Directors in
good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, or Rights, as the case may be. Subject to
the last sentence of this Section 9(p)(A), in case any Additional Shares of
Common Stock, any
<PAGE>
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities are issued
or deemed to be issued in combination with each other or with any other
securities or property in connection with any transaction in which the
Corporation receives cash, securities, property or other consideration, or any
combination of the foregoing, then the amount of consideration therefor shall be
deemed to be such portion of the cash, securities, property and other
consideration received by the Corporation as the Board of Directors in good
faith shall determine to be attributable to such Additional Shares of Common
Stock, Convertible Securities or Rights, as the case may be, with any noncash
consideration being valued at its Fair Market Value as determined by the Board
of Directors in good faith. Subject to the last sentence of this Section
9(p)(A), the consideration for any Additional Shares of Common Stock issuable or
deemed to be issuable pursuant to any Rights to subscribe for, purchase or
otherwise acquire the same shall be the consideration received or deemed to be
received by the Corporation for issuing such Rights plus the minimum additional
consideration, if any, paid or payable to the Corporation upon the exercise or
deemed exercise of such Rights. Subject to the last sentence of this Section
9(p)(A), the consideration for any Additional Shares of Common Stock issued or
issuable pursuant to the terms of any Convertible Securities covered by any
Rights to subscribe for, purchase or otherwise acquire such Convertible
Securities shall be the consideration received or deemed to be received by the
Corporation for issuing such Rights, plus the minimum additional consideration,
if any, paid or payable to the Corporation in respect of the subscription for,
purchase or other acquisition of such Convertible Securities, plus the minimum
additional consideration, if any, paid or payable to the Corporation upon the
exercise or deemed exercise of the right of conversion or exchange in such
Convertible Securities. Subject to the last sentence of this Section 9(p)(A),
the consideration for any Additional Shares of Common Stock issuable or deemed
to be issuable pursuant to the terms of any Convertible Securities, other than
any covered by any Rights to subscribe for, purchase or acquire the same, shall
be the consideration received or deemed to be received by the Corporation for
issuing such Convertible Securities plus the minimum additional consideration,
if any, paid or payable to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. For all purposes of this
Section 9, all Rights or Convertible Securities issued or deemed to be issued to
directors, officers, employees or consultants of the Corporation or any
Subsidiary shall be deemed to be issued for no consideration except to the
extent the Corporation receives in exchange for the issuance thereof
consideration other than services rendered or to be rendered.
(B) When Adjustments to Be Made. The adjustments required by this
Section 9 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock into which a Series B Share is convertible that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock) up to, but not beyond the date of conversion if such
adjustment either by itself or with other adjustments not previously made adds
or subtracts less than 1% of the shares of Common Stock into which a Series B
Share is convertible immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 9 and not
previously made by virtue of this Section 9(p)(B), would result in a minimum
adjustment or on the date of conversion. For the purpose of any adjustment, any
specified event shall be deemed to have occurred
<PAGE>
at the close of business on the date of its occurrence.
(C) Fractional Interests. In computing adjustments under this
Section 9, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(D) When Adjustment Not Required. If the Corporation shall take a
record of the holders of any class or series of its capital stock for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required and shall, thereafter and
before the declaration, payment or delivery of such dividend or distribution to
stockholders otherwise entitled thereto, abandon its plan to pay or deliver such
dividend or distribution (so that such stockholders are legally bound by such
abandonment and have no right, remedy or recourse by reason of such taking of a
record or such abandonment), then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(E) Delivery of Due Bills. If, after the taking of any record of the
holders of any class or series of capital stock of the Corporation for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required, but prior to the occurrence
of the event for which such record is taken, any Series B Share is converted,
the Corporation shall deliver to the converting Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive the additional
shares of Common Stock, other securities, cash and other property receivable
upon conversion by reason of an adjustment pursuant to this Section 9 upon such
taking of a record upon the occurrence of the event requiring such adjustment.
(F) Certain Determinations. During each and every period that the
Board of Directors includes at least one sitting member who is a Series B
Director, each determination of the Current Market Price of any share of Common
Stock or the Fair Market Value of any other security, asset, property or
consideration which may be required to be made by the Board of Directors
pursuant to or in connection with the application of any provision of this
Agreement and each determination which may be required by Section 9(r)(B) or
Section 9(w) to be made by the Board of Directors, shall be made in good faith
by the Valuation Committee. Any such determination of Fair Market Value by the
Valuation Committee or the Board of Directors may be disputed in good faith by
the Majority Holders and any such dispute shall be resolved by an independent
investment banking firm of recognized national standing selected by the Majority
Holders and reasonably acceptable to the Corporation (and whose fees and
expenses shall be paid by the Corporation), whose decision with respect to such
dispute shall be final and conclusive and binding on the Corporation and all
Holders; provided, however, that the Majority Holders shall not have the right
to dispute under this Section 9(p)(F) any such determination that shall be made
during any period referred to in the first sentence of this Section 9(p)(F) by
the Valuation Committee by the affirmative vote or written consent of a majority
of its members, which majority includes at least one Series B Director. Any
determination by the Valuation Committee or the Board of Directors pursuant to
Section 9(r)(B) or Section 9(w) may be disputed in good faith by the Majority
Holders, and any such dispute shall be resolved in accordance with Section 9(y);
provided, however, that the Majority Holders shall not have the right to dispute
under this Section 9(p)(F) any such determination that shall be made during any
period referred to in the first sentence of this Section 9(p)(F) by the
Valuation Committee by the affirmative vote or written consent of a majority of
its members, which majority includes at least one Series B Director.
(q) Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock which is not one described in any other provision of this Section 9 as
requiring an adjustment, then, unless such action will not have an adverse
effect
<PAGE>
upon the rights and intended benefits of the Holders of Series B Shares, the
number of shares of Common Stock and the kind and amount of other securities and
property into which each Series B Share is convertible shall be increased in
such manner as may be equitable in the circumstances.
(r) Multiple Classes of Common Stock.
(A) If, at any time while any Series B Shares are outstanding, the
Corporation's authorized capital stock shall include two or more classes or
series of Common Stock, then each Holder shall have the right, upon each
conversion of any of his Series B Share(s), to elect to receive such number of
shares of each such class or series as such Holder desires, provided that the
total number of shares of all classes and series selected by such Holder shall
not exceed the aggregate number of shares of Common Stock issuable upon
conversion of such Series B Share(s).
(B) If, as a result of any adjustment made pursuant to Section 9, by
virtue of the existence of Section 9(r)(A), as a result of any action by the
Corporation referred to in Section 9(w), or otherwise, the Holder of a Series B
Share would, upon conversion thereof, become the holder of more than one class
or series of capital stock of the Corporation, then the Conversion Rate and the
Conversion Price shall be subject to adjustment in respect of each such class
and series of capital stock in a manner and on terms as nearly as equivalent as
practicable to the provisions set forth in this Section 9, which manner and
terms shall be determined by the Board of Directors promptly after each such
adjustment, each such action by the Corporation and each other event which has
or might have such result. Promptly after the Board of Directors makes any such
determination, the Corporation shall deliver to each Holder a written notice
which shall describe in reasonable detail the manner and terms so determined.
(s) Notices to Holders.
(A) Notice of Adjustments. Whenever the Conversion Rate shall be
adjusted pursuant to Section 9, the Corporation at its expense shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Corporation setting forth, in reasonable detail, the event requiring the
adjustment, the nature and amount of such adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors made any determination required by any provision of Section
9), the date as of which such adjustment was or will be effective as provided
herein, the Conversion Rate and the Conversion Price immediately prior to such
event and for and the Conversion Rate and the Conversion Price immediately after
such adjustment and all other relevant information. The Corporation shall
promptly cause to be delivered to each Holder a signed copy of such certificate.
The Corporation shall, upon the written request at any time of any Holder,
furnish or cause to be furnished to such Holder a like certificate setting forth
(i) the Conversion Rate and the Conversion Price at the time in effect and
showing how such Conversion Rate and Conversion Price was calculated, and (ii)
the number of shares of each class or series of Conversion Stock and the kind
and amount, if any, of other Conversion Securities, cash and other property
which at the time would be received upon the conversion of a Series B Share at
the time and showing how the same were calculated.
(B) Notice of Corporate Action. If at any time
(i) the Corporation shall take a record of the holders of any
class, series or issue of its capital stock or other securities for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any evidences of its indebtedness,
any shares of capital stock of any class or series, any cash or any other
securities or property, or to receive any
<PAGE>
other right, interest or benefit, or
(ii) there shall be any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any consolidation or merger or binding share exchange of the
Corporation with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Corporation to,
another Person, or
(iii) there shall be any tender offer or exchange offer for
Conversion Securities of any class, series or issue, or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then the Corporation shall (i) give to each Holder at least 20 days' prior
written notice of the date on which a record date shall be fixed for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, (ii) promptly
after learning of any such tender or exchange offer, deliver to the each Holder
notice thereof, a copy of all written offering material which the Corporation
possesses or reasonably can obtain or if no such materials exist or are
possessed or can reasonably be obtained by the Corporation, a written summary of
all material terms and conditions of and other material facts relating thereto
known to the Corporation and (iii) give each Holder at least 20 days' prior
written notice of the scheduled, planned or anticipated date when any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up shall take place. Such
notice in accordance with clause (i) of the immediately preceding sentence also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up.
(C) Notices To Stockholders. In addition to the foregoing, each
Holder shall be given the same notices of corporate action or proposed corporate
action as any holder of Common Stock.
(t) No Impairment. The Corporation shall not by or through amending
its certificate of incorporation, any reorganization, transfer of assets,
consolidation, merger, share exchange, 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 of this resolution or the Series B Certificate
of Designation, but will at all times in good faith carry out and assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights and intended benefits of the
Holders against impairment. Without limiting the generality of the foregoing,
the Corporation (i) will not directly or indirectly increase the par value of
any shares of Common Stock or other capital stock receivable upon the conversion
of any Series B Share above the Conversion Price immediately prior to such
increase in par value, (ii) will not take any action that results in any
adjustment to the Conversion Rate pursuant to Section 9 if after such adjustment
the total number of shares of Common Stock or shares of any other class or
series of Conversion Stock issuable upon the conversion of all of the
outstanding Series B Shares would exceed the total number of shares of Common
Stock or such other Conversion Stock, respectively, then authorized by the
Corporation's Certificate of
<PAGE>
Incorporation and available and reserved for the purpose of issuance upon such
conversion, (iii) will not enter into any transaction or take any action which,
by reason of any resulting adjustment hereunder, would cause the Conversion
Price to be less than the par value per share of Common Stock and (iv) will take
all such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue shares of each class and series of Conversion
Stock and other Conversion Securities upon the conversion of any Series B Share
which in each case are fully paid, non-assessable and without personal liability
attaching to the ownership thereof and not subject to preemptive and similar
purchase rights. Upon the request of any Holder, at any time, the Corporation
will acknowledge in writing, in form satisfactory to such Holder, the continuing
validity of each certificate for any Series B Share(s) then held by such Holder
and the obligations of the Corporation with respect thereto and thereunder.
(u) Taking of Record; Stock Transfer Books. In the case of all
dividends or other distributions by the Corporation to the holders of its Common
Stock with respect to which any provision of Section 9 refers to the taking of a
record of such holders, in each such case the Corporation will not declare, pay
or make any such dividend or distribution unless it shall take such a record and
the Corporation shall take each such record as of the close of business on a
Business Day. The Corporation shall not be required to convert any shares of
Series B Preferred Stock, and no surrender of Series B Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any proper purpose; but the surrender of Series B Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series B Preferred Stock was
surrendered for conversion. The Corporation will not at any time voluntarily
close its stock transfer books so as to result in preventing or delaying the
conversion or transfer of any Series B Share.
(v) Each Holder May Enforce Rights. Notwithstanding any of the
provisions hereof, any Holder, without the consent of any other Holder, or any
holder of any Conversion Securities may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation suitable to enforce, or otherwise in respect of, his
rights with respect to his Series B Shares or Conversion Securities.
(w) Reclassification, Consolidation, Merger, Sale, Conveyance or
Lease. If any of the following shall occur while any Series B Shares are
outstanding: (i) any consolidation, merger, binding share exchange or
reorganization to which the Corporation is party (other than a consolidation,
merger, share exchange or reorganization in which the Corporation is the
continuing corporation and which does not result in any reclassification of or
change in the outstanding shares of Conversion Securities issuable upon
conversion of the Series B Preferred Stock); or (ii) any sale, conveyance,
transfer or lease to another corporation of the properties and assets of the
Corporation as an entirety or substantially as an entirety, then the Corporation
or such successor or acquiring corporation, as the case may be, shall thereupon
make appropriate provision, reasonably satisfactory to the Majority Holders, so
that the Holders of the Series B Shares then outstanding shall have the right at
any time thereafter, upon conversion of the Series B Shares, to purchase the
kind and amount of shares of common stock of such successor or acquiring
corporation, other capital stock, other securities and property receivable upon
such reclassification, change, consolidation, merger, sale, conveyance, transfer
or lease as would be received by a holder of the number of shares of Common
Stock, the number of shares of each other class or series of Conversion Stock
and the kind and amount of all other Conversion Securities issuable upon
conversion of such Series B Shares immediately prior to such consolidation,
merger, sale, conveyance, transfer or lease (assuming that such holder of
Conversion Securities failed to exercise rights of election, if any, as to the
kind or amount of shares or stock, other securities or property receivable upon
consummation of any such transaction, provided that if the kind or amount of
shares of stock, other securities
<PAGE>
or property receivable upon consummation of such transaction is not the same for
each non-electing share, then the kind and amount of shares of stock, other
securities or property receivable upon consummation of such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). In case of any such merger,
consolidation, share exchange, reorganization, or disposition of assets, the
successor or acquiring corporation shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
resolution and the Series B Certificate of Designation to be performed and
observed by the Corporation and all the obligations and liabilities thereunder
or otherwise with respect thereto, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors) in
order to provide for adjustments of shares of the Common Stock into which Series
B Shares are convertible which shall be as nearly equivalent as practicable to
the adjustments provided for in Section 9. Promptly after the Board of Directors
makes any such determination, the Corporation shall deliver to each Holder a
written notice which shall describe in reasonable detail the manner and terms so
determined. For purposes of this Section 9(w) "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets on liquidation over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 9(w) shall similarly
apply to successive reorganizations, mergers, consolidations or disposition of
assets.
(x) Office of the Corporation. As long as any of the Series B Shares
are outstanding, the Corporation shall maintain one or more offices or agencies
where the Series B Shares may be presented for conversion and Series B Shares
and Conversion Securities may be presented for registration of transfer,
division or combination. Series B Shares and Conversion Securities may, in any
event, be presented for such purposes at the principal executive offices of the
Corporation in the United States.
(y) Resolution of Certain Disputes.
(A) If there shall arise any dispute between the Corporation and the
Majority Holders concerning the interpretation, application or operation of the
adjustment provisions of Section 9 (other than any such dispute referred to in
the second sentence of Section 9(p)(F), which shall be resolved as stated
therein) or any dispute which the last sentence of Section 9(p)(F) provides will
be resolved pursuant to this Section 9(y), the Corporation and the
Representative will promptly attempt to settle such dispute through consultation
and negotiation in good faith and in a spirit of mutual cooperation. If
agreement is reached concerning the resolution of such dispute, then such
agreement shall be final, conclusive and binding on the Corporation and all
Holders. If, on or before the thirtieth day after written notice of such dispute
is given by the Corporation to the Representative or the Representative to the
Corporation, such dispute has not been resolved by the agreement of the
Corporation and the Representative, such dispute shall be settled by an
expedited arbitration proceeding conducted in accordance with the then current
Commercial Arbitration rules of the American Arbitration Society in New York,
New York by a single arbitrator who satisfies the requirements of Section
9(y)(B) and who is mutually acceptable to the Corporation and the Representative
or, in the event such Persons fail to agree upon such arbitrator within ten
Business Days after such written notice of dispute is given, an arbitrator who
satisfies such requirements appointed by the American Arbitration Association
upon application of either the Corporation or the Representative. Neither the
Corporation nor the Representative shall unreasonably withhold its approval of
the selection of an arbitrator satisfying the requirements of Section 9(y)(B).
The Corporation and the Majority Holders shall provide such arbitrator with such
information as may be reasonably requested in connection with the arbitration of
such dispute and shall
<PAGE>
otherwise cooperate with each other and such arbitrator in good faith and with
the goal of resolving such dispute as promptly as reasonably practicable. The
arbitrator shall not have authority to award punitive or other non-compensatory
damages. Subject to the immediately preceding sentence and to subdivision (C) of
this Section 9(y), the arbitrator's decision and award with respect to the
dispute referred to such arbitration shall be final and binding and may be
entered in any court with jurisdiction, and the Corporation and the Holders
shall abide by such decision and award. Each party shall bear its own costs and
expenses, including attorney's fees, incurred in connection with any arbitration
proceeding, except that the Corporation and the Holders (as a group) each shall
pay one-half of all fees, costs and disbursements of the arbitrator and of or
charged by the American Arbitration Society. The provisions of this Section 9(y)
shall not in any way limit or otherwise affect (i) the right of any Holder to
seek, with regard to the matter in dispute, specific performance or other
injunctive relief in any court of competent jurisdiction or (ii) the rights or
remedies of any Holder with respect to any claim, controversy or dispute not
submitted to and decided by an arbitrator pursuant to this Section 9(y).
(B) Each arbitrator appointed pursuant to Section 9(y)(A) shall be
an attorney who practices law in New York City, who has substantial experience
in sophisticated corporate and securities transactions generally and in
negotiating and drafting "antidilution" provisions of warrants and convertible
securities in particular and who has not, and who is not a member or employee of
any firm which has, rendered legal services to any of the parties to the dispute
or any of their respective Affiliates within the preceding two years and who has
no interest (other than the receipt of customary fees for his services as an
arbitrator) in the matter in dispute.
(C) Nothing contained in this Section 9(y) or any other provision
hereof is intended to or shall preclude any holder of any Series B Share or
Conversion Securities to exercise or pursue or otherwise limit or affect the
rights or remedies which such holder may have pursuant to the Purchase Agreement
to which such holder is a party, at law, in equity or otherwise by reason of any
matter which is the subject of or basis for any dispute referred to in Section
9(y)(A) (or any other matter), and the dispute resolution mechanisms provided
for in Section 9(y)(A) are intended solely as a means of resolving bona fide
disputes concerning the interpretation, application or operation of the
adjustment provisions of Section 9 (other than any such dispute referred to in
the second sentence of Section 9(p)(F), which shall be resolved as stated
therein) or bona fide disputes which the last sentence of Section 9(p)(F)
provides will be resolved pursuant to this Section 9(y), and not for the purpose
of determining the rights of holders of Series B Shares or Conversion Securities
or the liabilities or obligations of the Corporation, for the purpose of
resolving or settling any claim by any such holder of any breach or inaccuracy
of any representation or warranty of, or any breach or failure to perform any
covenant, agreement or obligation, of the Corporation contained herein or in the
Purchase Agreements or any other Transaction Document (as defined in the
Purchase Agreements) or any other purpose. Without limiting the generality of
the immediately preceding sentence, no decision of any arbitrator appointed
pursuant to this Section 9(y) shall have or be given any res judicata or similar
effect in any action, suit or proceeding in which any claim by any holder of any
Series B Share or Conversion Securities of any breach or inaccuracy of any
representation or warranty of, or any breach or failure to perform any covenant,
agreement or obligation, of the Corporation contained herein or in the Purchase
Agreements or any other Transaction Document is to be adjudicated.
10. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
11. Terms Generally. The definitions of terms contained herein shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall
<PAGE>
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The words "herein", "hereof" and "hereunder" and
words of similar import refer to this resolution in its entirety and not to any
part hereof, unless the context shall otherwise require. All references herein
to Sections shall be deemed references to Sections of this resolution, unless
the context shall otherwise require. Unless the context shall otherwise require,
any references to any agreement or other instrument or to any statute or
regulation or any specific section or other provision thereof are to it as
amended and supplemented from time to time (and, in the case of a statute or
regulation or specific section or other provision thereof, to any successor to
such statute, regulation, section or other provision). Unless otherwise
expressly provided herein or unless the context shall otherwise require, any
provision of this Agreement using a defined term (such as "Subsidiary" or
"Wholly Owned Subsidiary") which is based on a specified relationship between
one Person and one or more other Persons shall, as of any time, refer to such
Persons who have the specified relationship as of that particular time. Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "Business") shall be interpreted as a reference to a calendar
day or number of calendar days. Unless the context clearly indicates otherwise,
"or" shall not be exclusive and means "and/or." When used with reference to any
Right or Convertible Security, the term "exercise" means to exercise the right
to subscribe for, purchase or otherwise acquire shares of Common Stock
represented by such Right or the right to exchange or convert such Convertible
Security for or into shares of Common Stock represented by such Convertible
Security, and variants of such word (including "exercised" and "exercisable")
shall have correlative meanings. Whenever used with respect to any Additional
Share of Common Stock or any other share of Common Stock, the word "issue"
includes any issuance, sale or other method of transfer or delivery of such
share, whether such share is newly issued or is a treasury share and variants of
such word (including "issued", "issuance" or "issuable") used with respect to
any Additional Share of Common Stock or any other share of Common Stock shall
have correlative meanings; therefore, any provision of this resolution which is
stated to be applicable if the Corporation issues or shall issue any share is
applicable both to a newly issued share and to a treasury share sold or
otherwise transferred or delivered. The word "property" shall include assets or
property of any kind, real, personal, tangible or intangible.
12. Actions on Non-Business Days. If any action or notice is to be
taken or given on or by a particular calendar day, and such calendar day is not
a Business Day, then such action or notice shall be deferred until, and may be
taken or given on, the next Business Day.
13. Severability. If any provision of this resolution shall be
illegal, invalid or unenforceable by reason of any rule of law or public policy,
that provision will be enforced to the maximum extent permissible so as to
effect the intent thereof and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. In
any such case, if requested by the Majority Holders, the Corporation will
negotiate in good faith to amend this resolution to replace the illegal, invalid
or unenforceable language with legal, valid and enforceable language which as
closely as possible reflects such intent.
14. Waivers. Any provision of this resolution which, for the benefit
of the holders of Series B Preferred Stock, prohibits, limits or restricts
actions by the Corporation, or imposes obligations on the Corporation, may be
waived in whole or in part, or the application of all or any part of such
provision in any particular circumstance or generally may be waived, in each
case with the consent of the Majority Holders, either in writing or by vote at a
meeting called for such purpose at which the holders of Series B Preferred Stock
shall vote as a separate class.
15. Method Of Giving Notices; Defects in Notices. All notices,
requests, consents,
<PAGE>
demands, elections and other communications required or permitted hereunder
shall be in writing and shall be given to the intended recipient at: (i) in the
case of any holder of shares of Series B Preferred Stock, to such holder at his
address appearing on the books of the Corporation or supplied by him in writing
to the Corporation for the purpose of such notice; (ii) in the case of the
Representative, to such Person at such address as such Person may from time to
time specify by written notice to the Corporation; and (iii) in the case of the
Corporation, to the Corporation at its principal office at 9531 West 78th
Street, Minneapolis, Minnesota, or at such changed address as the Corporation
may from time to time specify in writing to each holder of shares of Series B
Preferred Stock. Any such notice, request, consent, demand, election or other
communication shall be deemed to have been duly given if personally delivered or
sent by registered or certified mail, return receipt requested, Express Mail,
Federal Express or similar overnight delivery service for next Business Day
delivery or by telegram, telex or facsimile transmission and will be deemed
given, unless earlier received: (1) if sent by certified or registered mail,
return receipt requested, five calendar days after being deposited in the United
States mail, postage prepaid; (2) if sent by Express Mail, Federal Express or
similar overnight delivery service for next Business Day delivery, the next
Business Day after being entrusted to such service, with delivery charges
prepaid or charged to the sender's account; (3) if sent by telegram or telex or
facsimile transmission, on the date sent and (4) if delivered by hand, on the
date of delivery. No failure on the part of the Corporation to give any notice
required by any provision of this resolution, nor any delay or defect in any
such notice which is given or in the giving thereof, shall adversely affect the
rights which the holders of the Series B Preferred Stock would have if such
notice had been duly given on a timely basis, and such holders shall be entitled
to exercise such rights from and at any time after they acquire actual knowledge
of the matters required to be set forth in such notice.
16. Specific Performance; Injunctive Relief. In addition to any
other rights or remedies which may be available at law, in equity or by
contract, any holder from time to time of shares of Series B Preferred Stock
shall be entitled to obtain in any court of competent jurisdiction specific
performance of, or an injunction or other order restraining any act or proposed
act by the Corporation which would result in a violation of, any of the terms or
provisions of this resolution.
17. Amendment. This resolution may be amended from time to time by
the Board of Directors with the affirmative vote or written consent of the
Majority Holders, and unless otherwise required by mandatory provisions of
applicable law, no vote or consent of the holders of any other class or series
of the Corporation's stock shall be necessary.
18. Decisions by Holders Generally. Unless otherwise expressly
provided herein, all decisions and determinations required or permitted to be
made hereunder by the holders (including any decision as to whether to give any
consent or approval) shall be made by the Majority Holders. To the maximum
extent permitted by law, each Person who is or shall become a holder of any
Series B Share waives all fiduciary duties to such Person, if any, that the
Majority Holders or any other Holder of any Series B Share otherwise would or
might have.
Dated: September 20, 1996
<PAGE>
THE MENTUS GROUP, INC.
By:
Name:
Title: President
By:
Name:
Title: Secretary
<PAGE>
Exhibit 3.1(j)
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF AMENDMENT
OF
THE MENTUS GROUP, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON SEPTEMBER 25, 1996
The Mentus Group, Inc., a corporation organized and existing under
and by virtue of the General corporation Law of the Sate of Delaware, DOES
HEREBY CERTIFY:
1. The name of the corporation is the Mentus Group, Inc.
2. A Certificate of Amendment of Certificate of Incorporation of the
Mentus Group, Inc. was filed by the Secretary of State of Delaware on September
25, 1996, and that said Certificate requires correction as permitted by Section
103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy of the Certificate of Amendment to be corrected is
as follows: The third resolution contained in the First clause of the
Certificate of Amendment failed to specify the number of shares of Series B
Cumulative Compounding Convertible Redeemable Preferred Stock that were to be
created, designated and authorized to be issued by the Corporation. Said
resolution is hereby corrected in its entirety to read as follows:
"RESOLVED, that the Corporation shall create, designate and is
authorized to issue 91,100 shares of the Series B Senior Cumulative
Compounding Convertible Redeemable Preferred Stock, par value $1.00
per share, that has the rights, preferences and other designations
set forth in the Certificate of Designations of Series B Senior
Cumulative Compounding Convertible Redeemable Preferred Stock
attached hereto as Exhibit B and incorporated herein by this
reference, with such changes thereto as may be required to comply
with the Delaware General Corporation Law or which are deemed
appropriate by counsel."
<PAGE>
IN WITNESS WHEREOF: The Mentus Group, Inc. has caused this
Certificate to be signed by Gerard Joyce, its President and attested by Thomas
M. Pugliese, its Secretary, this ___ of November, 1996.
THE MENTUS GROUP, INC.
By:
-----------------------------
Gerard Joyce, President
ATTEST:
By
-------------------------------
Thomas Pugliese, Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ____ day of November, 1996, before me, the undersigned officer,
personally appeared Gerard Joyce, who acknowledged himself to be the President
of the Mentus Group, Inc., a Delaware corporation, and that he, in such
capacity, being authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My Commission Expires:
- -------------------------
<PAGE>
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ____ day of November, 1996, before me, the undersigned officer,
personally appeared Thomas Pugliese, who acknowledged himself to be the
Secretary of the Mentus Group, Inc., a Delaware corporation, and that he, in
such capacity, being authorized so to do, executed the foregoing instrument for
the purposes therein contained by signing the name of the Corporation by
himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------
Notary Public
My Commission Expires:
- -------------------------
<PAGE>
Exhibit 3.1(k)
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
THE MENTUS GROUP, INC.
The Mentus Group, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That the Board of Directors of the Corporation, at a meeting duly
held on November 8, 1996, unanimously adopted a resolution proposing and
declaring advisable an amendment to the Certificate of Incorporation of the
Corporation. The resolution setting forth the amendment is as follows:
RESOLVED, that the Corporation shall amend Article 1 of its
Certificate of Incorporation in its entirety to read as follows:
"1. Name. The name of the Corporation is Mentus Media Corp."
SECOND: That holders of a majority of common stock of the Corporation, by
written consent in lieu of a special meeting in accordance with Section 228 of
the Delaware General Corporation Law, approved the amendment. As provided in
Section 228 of the Delaware General Corporation Law, written notice of such
action has been given to all stockholders that have not consented in writing.
THIRD: The Corporation duly adopted the amendment in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
<PAGE>
The Mentus Group, Inc., has caused this Certificate to be executed by
Thomas M. Pugliese, its Vice Chairman, and by Michael Kolthoff, its Assistant
Secretary as of December 26, 1996.
THE MENTUS GROUP, INC.
By:
-----------------------------------
Thomas M. Pugliese, Vice Chairman
ATTEST:
- ------------------------------------
Michael Kolthoff, Assistant Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ___ day of December, 1996, before me, the undersigned officer,
personally appeared Thomas M. Pugliese, who acknowledged himself to be the Vice
Chairman of The Mentus Group, Inc., a Delaware corporation, and that he in such
capacity, being authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
- ----------------------------
<PAGE>
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ___ day of December, 1996, before me, the undersigned officer,
personally appeared Michael Kolthoff, who acknowledged himself to be the
Assistant Secretary of The Mentus Group, Inc., a Delaware corporation, and that
he in such capacity, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
- ----------------------------
<PAGE>
Exhibit 3.1(l)
CERTIFICATE OF DESIGNATION
OF
SERIES B SENIOR CUMULATIVE COMPOUNDING CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
THE MENTUS GROUP, INC.
Pursuant to the Provisions of
Section 151 of the General
Corporation Law of the State of Delaware
The Mentus Group, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies that, pursuant to
authority contained in Article IV of its Certificate of Incorporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation, at a meeting duly called
and held on September 20, 1996, adopted the following resolution:
RESOLVED, that pursuant to authority expressly granted by Article IV
of the Certificate of Incorporation of The Mentus Group, Inc., a Delaware
corporation (the "Corporation"), the Board of Directors of the Corporation
hereby creates and authorizes the issuance of a series of the preferred stock,
par value $1.00 per share, of the Corporation, to consist of 91,100 shares, and
hereby fixes the designation, dividend rights, voting powers, rights on
liquidation or dissolution and other preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions of
the shares of such series (in addition to any thereof set forth in the
Corporation's Certificate of Incorporation that are applicable to the
Corporation's preferred stock of all series) as follows:
1. Designation; Original Issuance; Status of Reacquired or Converted
Shares.
(a) The designation of the series of the preferred stock, par value
$1.00 per share, of the Corporation authorized hereby is "Series B Senior
Cumulative Compounding Convertible Redeemable Preferred Stock" (the "Series B
Preferred Stock"). The dividend rights, voting powers, rights on liquidation or
dissolution and other preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions of the shares of
such series are as set forth in this resolution.
(b) Shares of the Series B Preferred Stock shall be originally
issued pursuant to the Purchase Agreements (as defined in Section 2 below) and,
thereafter, no additional shares of Series B Stock shall be issued by the
Corporation (other than issuances upon permitted transfers of shares of Series B
Stock.)
(c) All shares of Series B Preferred Stock received by the
Corporation upon conversion or redeemed, retired, purchased or otherwise
acquired by the Corporation shall be retired and shall be restored to the status
of authorized, undesignated and unissued shares of preferred stock of the
Corporation and may be reissued as part of another series of the preferred stock
of the Corporation, but such shares shall not be reissued as Series B Preferred
Stock.
<PAGE>
2. Certain Definitions. The terms defined in this Section 2 shall have the
meanings herein specified:
"Accrual Date" means December 1 of each year.
"Action" has the meaning set forth in Section 3(i).
"Advisor" has the meaning set forth in Section 3(i).
"Additional Shares of Common Stock" means any shares of Common Stock
issued or deemed to be issued by the Corporation after the Closing Time other
than shares issued upon conversion of any Series B Share.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly through or with one or more intermediaries,
controls, is controlled by or is under common control with, such Person. The
term "affiliated" (whether or not capitalized) shall have a correlative meaning.
For the purposes of this definition, "control", as used with respect to any
Person, means the possession, directly or indirectly through or with one or more
intermediaries, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. The terms "controlled by" and "under common control
with" shall have correlative meanings. For purposes hereof, no holder or group
of holders (whether or not affiliated with or otherwise related to each other
and whether or not acting in concert with respect to any matter or matters) of
shares of Series B Preferred Stock shall be deemed to be an Affiliate of the
Corporation or any of its Affiliates solely by reason of the ownership of Series
B Shares or the possession or exercise of any right, power or privilege of the
holders of Series B Shares as such. For purposes hereof, neither the Corporation
nor any Subsidiary shall be deemed to be an Affiliate of any TFC Holder and no
TFC Holder nor any Affiliate of any TFC Holder shall be deemed to be an
Affiliate of the Corporation.
"Bankruptcy Code" means Title 11 of the United States Code.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
including the provision of such Rules that a Person shall be deemed to have
beneficial ownership of all securities that such Person has a right to acquire
within 60 days, provided that a Person shall not be deemed a beneficial owner
of, or to own beneficially, any securities if such beneficial ownership (i)
arises solely as a result of a revocable proxy delivered in response to a proxy
or consent solicitation made pursuant to, and in accordance with, the Exchange
Act and the applicable rules and regulations thereunder and (ii) is not also
then reportable on Schedule 13D under the Exchange Act. The terms (whether or
not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Corporation within the
United States are located are authorized or obligated by law or executive order
to close.
"capital stock" when used, with respect to any corporation, means
(unless the context otherwise indicates) any and all shares of capital stock
(however designated) of such corporation, including
<PAGE>
each class and series of common stock and preferred stock of such corporation,
any class or series, any and all stock appreciation rights and any and all
equivalents of any of the foregoing, and including any security or interest
convertible into or warrant, option or other right (absolute or contingent) to
subscribe for, purchase or otherwise acquire any of the foregoing, in each case
whether or not evidenced by any certificate, instrument or other document and
whether voting or nonvoting.
"Change in Control" means the occurrence of any of the following:
(i) any "person" (within the meaning of that term as used in
the Rules under Section 13(d) and 14(d) of the Exchange Act, as interpreted by
the Commission), other than any TFC Holder or any Affiliate of any TFC Holder or
any group or persons acting in concert which includes any TFC Holder or any
Affiliate of any TFC Holder and other than Thomas Pugliese and Gerard Joyce, who
was not, on the Closing Date, the Beneficial Owner, directly or indirectly, of
50% or more of the combined voting power represented by all then outstanding
Common Stock of the Corporation becomes (after the Closing Date) the Beneficial
Owner, directly or indirectly, of 50% or more of the combined voting power
represented by all outstanding Common Stock of the Corporation, whether as a
result of issuances, redemptions, repurchases or transfers of Common Stock or
otherwise; or
(ii) the Corporation consolidates with, or merges with or
into, another Person, sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Corporation, in any such event
pursuant to a transaction in which the outstanding Common Stock of the
Corporation is converted into or exchanged for cash, securities, equity
interests or other property and immediately after such transaction the Persons
who were the Beneficial Owners of the outstanding Common Stock of the
Corporation immediately prior to such transaction are not the beneficial owners,
directly or indirectly, of more than 50% of the combined voting power
represented by all then outstanding Common Stock of the surviving or transferee
Person; or
(iii) the Corporation, in one or more transactions, sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person or Persons; or
(iv) for any reason (including death or disability), Gerard
Joyce and Thomas Pugliese cease to be a director of the Corporation, or Gerard
Joyce ceases function as a senior executive officer of the Corporation and
Thomas Pugliese ceases to function as a senior executive officer of the
Corporation, unless in any such case the Corporation replaces such person in
such office within 90 days and such replacement is approved by the Majority
Holders, which approval shall not be unreasonably withheld; or
(v) for any reason (including death or disability), Gerard
Joyce or Thomas Pugliese cease to be the Beneficial Owners, directly or
indirectly, of 80% or more of the shares of Common Stock held by Gerard Joyce
and Thomas Pugliese, respectively, on the Closing Date (as appropriately
adjusted for any subdivision, combination, reclassification, recapitalization,
reorganization, merger or other change of or in the outstanding Common Stock).
For purposes of determining the percentage of the combined voting power of the
outstanding Common Stock beneficially owned by any particular Person as of any
time, any Common Stock not actually outstanding but which is deemed to be
beneficially owned by a Person through the application of the definition of
"Beneficial Owner" above in this Section 2 shall be deemed to be outstanding,
but no Common Stock not actually outstanding but which is deemed to be
beneficially owned by any other Person through the application of such
definition shall not be deemed to be outstanding. For purposes of clause (v) of
this definition, Mr. Joyce or
<PAGE>
Mr. Pugliese, as the case may be, shall be deemed to continue to be the
Beneficial Owner of shares of Common Stock transferred by him for estate
planning purposes to his spouse or minor children or to a trust described in
Section 664 of the Internal Revenue Code of 1986, as amended of which the income
beneficiaries consist exclusively of one or more of him, his spouse and his
minor children, so long as Mr Joyce or Mr. Pugliese, as the case may be,
continues to have the power to vote and dispose or direct the voting or
disposition of such transferred shares.
"Closing Date" means the date on which the closing of the
consummation of the issuance of Series B Shares in accordance with the Purchase
Agreements occurs.
"Closing Time" means 10:00 A.M., New York City time, on the Closing
Date.
"Common Stock" means the Common Stock, $.01 par value per share, of
the Corporation as constituted on the Closing Date, and any capital stock into
which such Common Stock may thereafter be changed, and (except where the context
otherwise unambiguously indicates) shall also include (i) capital stock of the
Corporation of each and every other class or series (regardless of how
denominated) which is also not preferred as to dividends or assets on
liquidation over any other class or series of stock of the Corporation and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 9(w)) received by or distributed to
the holders of Common Stock of the Corporation in the circumstances contemplated
by Section 9(w).
"Commission" means the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Company Parties" means the Corporation and its Subsidiaries.
"Compensation Committee" has the meaning set forth in Section 7(f).
"Conversion Price" means, as of any time, the initial price of $77,
as such initial price shall have from time to time been cumulatively adjusted
pursuant to Section 9 through such time.
"Conversion Rate" means, as of any time, the rate, determined
pursuant to the second sentence of Section 9(a), at which each share of Series B
Preferred Stock may be converted into Common Stock, as such rate shall have from
time to time been cumulatively adjusted pursuant to Section 9 through such time.
"Conversion Securities" means, with respect to any Series B Share at
any time, each class and series of Conversion Stock, each class, series and
issue of any other securities, and any Rights with respect to any of such
Conversion Stock or other securities, any shares, number or other amount of
which at such time are deliverable to a Holder upon conversion of any Series B
Share.
"Conversion Stock" means, with respect to any Series B Share at any
time, the Common Stock, each other class or series of capital stock and any
Rights with respect to any of the foregoing any shares, number or other amount
of which at such time is deliverable to a Holder upon conversion of any Series B
Share.
"Conversion Value" measured per share of the Series B Preferred
Stock
<PAGE>
(i) as of any time before the first Accrual Date means
the sum of (A) Seventy-Seven Dollars ($77) plus (B) an amount
equal to all unpaid dividends accrued on such share of Series
B Preferred Stock from and including the Issue Date through
and including such time, whether or not such unpaid dividends
have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of
dividends; or
(ii) as of any time on or after the first Accrual Date
means the sum of (A) Seventh-Seven Dollars ($77) plus (B) an
amount equal to all unpaid dividends accrued on such share of
Series B Preferred Stock from and including the Issue Date
which, pursuant to Section 4(b), have been added to and remain
part of the Conversion Value as of such time, whether or not
such unpaid dividends have been earned or declared or there
are any unrestricted funds of the Corporation legally
available for the payment of dividends plus (C) an amount
equal to all unpaid dividends accrued on such share of Series
B Preferred Stock from and including the Accrual Date
immediately preceding such time through and including such
time, whether or not such unpaid dividends have been earned or
declared or there are any unrestricted funds of the
Corporation legally available for payment of dividends.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for any Common Stock, either immediately or upon the occurrence of a
specified date or a specified event or the satisfaction or happening of any
other condition or contingency, but such term shall not include the Series B
Preferred Stock.
"Current Market Price" means, in respect of any share of Common
Stock as of any time, (i) if the Common Stock shall not then be Publicly Traded,
the Fair Market Value per share of Common Stock as at such date as determined by
the Board of Directors in good faith (subject to subdivision (F) of Section
9(p), if applicable), or (ii) if the Common Stock is then Publicly Traded, the
average of the reported last sales prices for the 30 consecutive Trading Days
commencing 40 Trading Days before the date in question. The reported last sales
price for each day shall be the reported last sales price, regular way (and if
no such sales take place on any day, such day shall not be a Trading Day), as
reported on the New York Stock Exchange Composite Tape or, if the Common Stock
is not listed or admitted to trading on the New York Stock Exchange at such
time, in the principal consolidated or composite transaction reporting system on
the principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or, if such security is not
quoted on the Nasdaq National Market, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc. or, if bid and asked prices for the
security on each such day shall not have been reported through the National
Association of Securities Dealers, Inc., the average of the bid and asked prices
for such date as furnished by any New York Stock Exchange member firm regularly
making a market in such security selected for such purpose by the Board of
Directors. As used herein, the term "Trading Day" means a day on which the New
York Stock Exchange, each national securities exchange on which the Common Stock
is listed and the Nasdaq National Market are open for business. The Common Stock
shall be considered to be "Publicly Traded" as of any date if on such date (i)
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
and (ii) the Common Stock is listed for trading on a national securities
exchange registered under the Exchange Act or traded in the over-the-counter
market and quoted in an automated quotation system of the National Association
of Securities Dealers, Inc.
<PAGE>
"Dividend Payment Date" has the meaning set forth in Section 4(a).
"Dividend Period" means each quarterly period from and including any
Dividend Payment Date (or, in the case of the first Dividend Period, from and
including the Closing Date) to but not including the next successive Dividend
Payment Date.
"Employee Option" means any option to purchase Common Stock for cash
which is granted by or with the approval of the Compensation Committee to any
director, officer, employee or consultant of the Corporation or any subsidiary
of the Corporation pursuant to either (i) the Corporation's 1993 Stock Option
Plan or the Corporation's 1994 Stock Option Plan as in effect on the Closing
Date or (ii) any other option plan adopted by the Corporation after the Closing
Date with the prior approval of the Majority Holders, in each case as the same
may be amended from time to time with the prior approval of the Majority
Holders.
"Entity" means any corporation, limited liability company, general
or limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a governmental authority or agency.
An "equity interest" in or of any Entity includes any capital stock
or other equity security issued by such Entity, any partnership (general or
limited) or joint venture interest in such Entity, any other equity, ownership,
participating or beneficial interest in such Entity, any stock appreciation or
other equity appreciation right with respect to such Entity, and any equivalent
of any of the foregoing, regardless of how denominated and whether voting or
non-voting, and any security or interest convertible into or warrant, option or
other right (absolute or contingent) to subscribe for, purchase or otherwise
acquire, any of the foregoing, in each case whether or not evidenced by any
certificate, instrument or other document and whether voting or nonvoting.
"Election Form" has the meaning set forth in Section 3(h).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Rights" means all Rights (including stock options issued
pursuant to the Corporation's 1993 Stock Option Plan and the Corporation's 1994
Stock Option Plan) and Convertible Securities, including the Series A Preferred
Stock but not including any Series B Shares, which were outstanding at the
Closing Time.
"Fair Market Value" means, in respect of any security, asset or
other property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full knowledge of
the facts, in an arm's-length auction transaction without time constraints, and
without being under any compulsion to buy or sell. The Fair Market Value of a
share of Common Stock as of any time shall be determined as of the last day of
the most recent calendar month which ended prior to such time, shall be
determined without giving effect to any discount for a minority interest, to any
lack of liquidity of the Common Stock or to the fact that the Corporation may
have no class of equity security registered under the Exchange Act. The Fair
Market Value of the Corporation shall be determined on a going concern basis,
and on the basis that the management and other key employees of the Corporation
and its subsidiaries will continue to be employed indefinitely and without
treating as liabilities the amount, if any, payable or which may be payable
pursuant to the TFC Purchase Agreement.
<PAGE>
"Holder" means a Person in whose name any Series B Share is
registered on the books of the Corporation maintained for such purpose.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Insolvency Law" means the Bankruptcy Code and any other law,
foreign, federal or state, relating to bankruptcy, receivership, reorganization,
insolvency, adjustment, compromise or extension of debt or other relief of a
debtor from creditors.
"Investor Approved Action" has the meaning set forth in Section
3(i).
"Issue Date" means the Closing Date.
"Junior Stock" means (i) each class or series of Common Stock, (ii)
the Series A Preferred Stock of the Company, (iii) any other class or series of
capital stock of the Company hereafter created, other than (A) any class or
series of Parity Stock (except to the extent provided under clause (iv) of this
sentence) and (B) any class or series of Senior Stock (except to the extent
provided under clause (iv) of this sentence), and (iv) any class or series of
Parity Stock or Senior Stock to the extent that it ranks junior to the Series B
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be. For purposes of clause (iv) above, a class or
series of Parity Stock or Senior Stock shall rank junior to the Series A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Series B Preferred Stock shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as the
case may be, in preference or priority to the holders of shares of such class or
series.
"Liquidation Price" measured per share of the Series B Preferred
Stock as of any time means the sum of (i) Seventy-Seven Dollars ($77.00) plus
(ii) an amount equal to all dividends accrued on such share of Series B
Preferred Stock since the Issue Date thereof which, pursuant to Section 4(b),
have been added to and remain part of the Liquidation Price as of such time of
determination, whether or not such unpaid dividends have been earned or declared
or there are any unrestricted funds of the Corporation legally available for the
payment of dividends.
"Majority Holders" means, as of any time, the holder or holders of
record of at least a majority of the Series B Shares then outstanding.
"Outstanding Common Shares" means, as of any time, all issued and
outstanding shares of Common Stock as of such date, except shares then owned or
held by or for the account of the Corporation or any subsidiary thereof.
Outstanding Common Shares shall not include any shares issuable upon exercise,
conversion or exchange of any Series B Shares or other Rights or Convertible
Securities or issuable in payment of any dividend or other distribution which
has been declared but not actually paid, nor any other shares which have not
actually been issued.
"Parity Stock" means (i) the Series B Preferred Stock and (ii) each
class or series of capital stock of the Corporation, if any, hereafter created
with the approval of the Majority Holders in accordance with Section 8 and
ranking on a parity basis with the Series B Preferred Stock as to any of
dividends, rights of redemption or rights on liquidation. Capital stock of any
class or series shall rank on a parity as to dividends, rights of redemption or
rights on liquidation with shares of Series B Preferred Stock, whether or not
the
<PAGE>
dividend rates, dividend payment dates, redemption or liquidation prices per
share or sinking fund provisions, if any, are different from those of the Series
B Preferred Stock if the holders of such stock shall be entitled to the receipt
of dividends, amounts distributable upon dissolution, liquidation or winding up
of the Corporation or redemption payments, as the case may be, in proportion to
their respective dividend rates, liquidation prices or redemption prices,
respectively, without preference or priority, one over the other, as between the
holders of such stock and the holders of shares of the Series B Preferred Stock.
No class or series of capital stock that ranks junior to the Series B Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series B Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series of
capital stock otherwise expressly provides.
"Person" means any individual, corporation, limited liability
company, general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Preferred Interest" as applied to the equity interests of any
Person means equity interests of any class or classes (however designated) which
are preferred as to the payments of dividends or distributions, as to rights of
redemption or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over equity interests of any other
class of such Person.
"Purchase Agreements" means the Stock Purchase Agreement, dated the
Closing Date, among the Corporation and the Purchasers, as the same may be
amended from time to time in accordance with its terms and the Stock Purchase
Agreements, dated the Closing Date, among the Corporation and certain purchasers
of shares of Series B Preferred Stock named therein, as the same may be amended
from time to time in accordance with its terms.
"Purchasers" means each of 21st Century Communications Partners,
L.P., a Delaware limited partnership, 21st Century Communications T-E Partners,
L.P., a Delaware limited partnership, and 21st Century Communications Foreign
Partners, L.P., a Delaware limited partnership.
"Qualified IPO" means either (i) consummation of an initial public
offering of the Corporation's Common Stock generating proceeds of at least $20
million on a pre-money equity valuation of at least $308 per share of Common
Stock (as appropriately adjusted for stock splits, reverse splits, stock
dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date) or (ii) any date at which all of the following
statements are true: (A) the Common Stock is registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended or traded in an
over-the-counter market and quoted in an automated quotation system of the
National Association of Securities Dealers, Inc., (B) the Common Stock is listed
for trading on a national securities exchange registered under the Exchange Act
or traded in over-the counter market and quoted in an automated quotation system
of the National Association of Securities Dealers, Inc. (C) the average daily
trading volume of shares of the Common Stock reported by such exchange or
quotation systems for the period of 5 consecutive trading days prior to such
date of closing has exceeded, 0.7% of the number of shares of Common Stock
actually issued and outstanding on such date and (D) the average closing price
for the period of 20 consecutive trading days before such date is at least $308
per share (as appropriately adjusted for stock splits, reverse splits, stock
dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date).
<PAGE>
"Record Date" means, for dividends payable on any Dividend Payment
Date, the fifteenth day of the month immediately preceding such Dividend Payment
Date or if any such day is not a Business Day, then on the next preceding or the
next following Business Day, as and if designated by the Board of Directors.
"Redeemable Equity" of any Person means any equity interest of such
Person that by its terms or otherwise, absolutely, contingently or otherwise, is
required to be redeemed or is redeemable at the option of the holder thereof at
any time.
"Redemption Agent" has the meaning set forth in Section 6(f).
"Redemption Date" as to any share of Series B Preferred Stock shall
mean:
(i) in the case of a redemption pursuant to Section 6(a), the
date specified in the notice of redemption given in accordance with Section
6(e);
(ii) in the case of a redemption pursuant to Section 6(b) on
the seventh anniversary of the Closing Date, the date of such anniversary; or
(iii) in the case of a redemption pursuant to Section 6(c),
the tenth Business Day after the Section 6(c) Election Notice is given;
provided that in none of the foregoing cases shall such date be a Redemption
Date unless (A) the applicable Redemption Price is actually indefeasibly paid in
full on such date or (B) such date is a Business Day and the consideration
sufficient for the payment thereof, and for no other purpose, has been
indefeasibly deposited in a trust fund with the Redemption Agent, with
irrevocable instructions and authority to the Redemption Agent to pay the
Redemption Price, all in accordance with Section 6(f), and if the Redemption
Price is not so indefeasibly paid in full or the consideration sufficient
therefor is not so indefeasibly deposited, then the Redemption Date will be the
date on which such Redemption Price indefeasibly and is fully paid or the first
Business Day on which the consideration sufficient for the payment thereof, and
for no other purpose, has been so indefeasibly deposited.
"Redemption Price" means, as to any share of Series B Preferred
Stock that is to be redeemed on any Redemption Date pursuant to any subsection
of Section 6, the redemption price determined pursuant to such subsection.
"Reference Price" means, as of any time, the higher of (x) the
Conversion Price then in effect or (y) the Current Market Price per share of the
Common Stock determined as of such time.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, among the Corporation, the Purchasers and the
other stockholders of the Corporation who are parties thereto as the same may be
amended from time to time in accordance with its terms.
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all or a
substantial portion of the Corporation or any Significant
Subsidiary's assets which shall remain
<PAGE>
in effect for 30 days;
(ii) the filing by the Corporation or any Significant Subsidiary of
a voluntary petition for relief under any Insolvency Law or of a
pleading in any court of record admitting in writing its inability
to pay its debts as they become due;
(iii) the making by the Corporation or any Significant Subsidiary of
a general assignment for the benefit of creditors;
(iv) the filing by the Corporation or any Significant Subsidiary of
an answer admitting the material allegations of, or its consenting
to or defaulting in answering, a petition for relief filed against
it in any proceeding under any Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Corporation or
any Significant Subsidiary in a proceeding under any Insolvency Law.
"Rights" means any options, warrants or other rights (except
Convertible Securities and the Series B Preferred Stock), however denominated,
to subscribe for, purchase or otherwise acquire any Common Stock or Convertible
Securities, with or without payment of additional consideration in cash or
property, either immediately or upon the occurrence of a specified date or a
specified event or the satisfaction or happening of any other condition or
contingency.
"Section 6(c) Election Notice" has the meaning set forth in Section
6(c).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Senior Stock" means each class or series of capital stock of the
Corporation, if any, hereafter created with the approval of the Majority Holders
in accordance with Section 8 and ranking prior to the Series B Preferred Stock
as to dividends, rights of redemption or rights on liquidation, as the case may
be. Capital stock of any class or series shall rank prior to the Series B
Preferred Stock as to dividends, upon redemption or upon liquidation if the
holders of such class or series shall be entitled to the receipt of dividends,
payments on redemption or payments of amounts distributable upon the
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Series B Preferred Stock.
No class or series of capital stock that ranks junior to or on parity with the
Series B Preferred Stock as to rights on liquidation shall rank or be deemed to
rank as senior to the Series B Preferred Stock as to dividend rights or rights
of redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly provides.
"Series A Preferred Stock" means the 8.25% Convertible Exchangeable
Preferred Stock, par value $1.00 per share, of the Corporation.
"Series B Certificate of Designation" means (i) the Certificate of
Designation setting forth this resolution, filed with the Delaware Secretary of
State pursuant to Section 151 of the Delaware General Corporation Law.
"Series B Director" has the meaning set forth in Section 7(a).
<PAGE>
"Series B Preferred Stock" has the meaning set forth in Section
1(a).
"Series B Share" means any issued and outstanding share of Series B
Preferred Stock. In no event shall shares of Series B Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"Significant Subsidiary" means a subsidiary in which the
Corporation's and its other subsidiaries' (i) investments in and advances to the
subsidiary exceed 15% of the total assets of the Corporation and its
subsidiaries consolidated as of the end of the most recently completed fiscal
year, (ii) proportionate share of the total assets of the subsidiary exceeds 15%
of the total assets of the Corporation and its subsidiaries consolidated as of
the end of the most recently completed fiscal year; or (iii) equity in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary exceeds
15% of such income of the Corporation and its subsidiaries consolidated for the
most recently completed fiscal year.
"Stockholders Agreement" means the Stockholders Agreement dated the
Closing Date, among the Corporation, the Purchasers and certain other
stockholders of the Corporation, as the same may be amended from time to time in
accordance with its terms.
"Subsidiary" means, as of any time, each Entity as to which any of
the following statements is true as of such time:
(i) such Entity is an Affiliate of the Corporation which is
controlled by the Corporation, or
(ii) the Corporation owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding
equity interests in such Entity having ordinary voting power to
elect a majority of the members of the board of directors or joint
venture, partnership or other management committee, trustees,
managers or other Persons ordinarily having the power, authority or
responsibility for managing or directing the management of such
Entity, or
(iii) the Corporation, directly or indirectly through one or more
intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of such Entity or to receive upon
dissolution and liquidation of such Entity 50% or more of the assets
available for distribution to the holders of equity interests in
such Entity, or
(iv) such Entity is a partnership (general or limited), joint
venture or other unincorporated Entity and the Corporation or
another Subsidiary is a general partner or joint venturer thereof or
has liability for the debts and obligations thereof over and above
its investment therein,
and in the case of any of clauses (i), (ii) and (iii), disregarding any voting
power, equity interests or other rights or interests which any Person other than
the Corporation or another Subsidiary Corporation would or might have upon the
happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
<PAGE>
"TFC Holder" means (i) each of 21st Century Communications Partners,
L.P., a Delaware limited partnership, 21st Century Communications T-E Partners,
L.P., a Delaware limited partnership, 21st Century Communications Foreign
Partners, L.P., a Delaware limited partnership, and (ii) each other Person who
(A) at any time acquires any Series B Shares directly or indirectly from any TFC
Holder in a transaction or chain of transactions not involving a public offering
within the meaning of the Securities Act and (B) was designated, by the TFC
Holder from whom such Series B Shares were acquired, as a TFC Holder in a
written notice delivered to the Corporation, in each case for so long as any
such Person continues to hold any Series B Share.
"TFC Purchase Agreement" means the Stock Purchase Agreement dated
the Closing Date, among the Corporation and the Purchasers, as the same may be
amended from time to time in accordance with its terms.
"Valuation Committee" means a committee of the Board of Directors
composed of (i) the Series B Director, (ii) one or more independent members of
the Board of Directors and (iii) not more than one other director.
"Wholly Owned Subsidiary" means an Entity all of the equity
interests of which at the time are owned beneficially and of record by the
Corporation, one or more Wholly Owned Subsidiaries of the Corporation or the
Corporation and one or more Wholly Owned Subsidiaries of the Corporation.
3. Rank; Certain Restrictions; Fractional Shares; Certain Notices to be
Given; Actions to Facilitate Redemption.
(a) Rank. The Series B Preferred Stock shall, with respect to
dividend rights, rights on liquidation, winding up and dissolution and rights
upon redemption rank prior to (i) the Common Stock, (ii) the Series A Preferred
Stock and (iii) any other class or series of capital stock of the Corporation,
whether now existing or hereafter created, except (in the case of this clause
(iii) only) in the case of any class or series of Parity Stock or Senior Stock
hereafter created and issued with the prior approval of the Majority Holders in
accordance with Section 8, to the extent otherwise provided for by the terms of
such Parity Stock or Senior Stock set forth in the instrument creating and
authorizing such Parity Stock or Senior Stock, provided that such terms shall
have been furnished in writing to and approved by the Majority Holders in
accordance with Section 8.
(b) Certain Restrictions on Payments in Respect of Capital Stock.
Except if and to the extent expressly authorized by Section 3(e) or with the
prior approval of the Majority Holders in accordance with Section 8, so long as
any Series B Preferred Stock is outstanding, the Corporation shall not, and
shall cause each of the Subsidiaries not to:
(i) declare or pay dividends on, or declare or make any other
distribution, whether in cash, property, securities or any other form of
consideration, to the holders of or otherwise with respect to, the Common Stock,
the Series A Preferred Stock or any other class or series of capital stock of
the Corporation now existing or hereafter created other than the Series B
Preferred Stock;
(ii) redeem, purchase or otherwise acquire for cash, property,
securities or any other form of consideration any Common Stock, Series A
Preferred Stock or any other class or series of capital stock of the Corporation
now existing or hereafter created other than the Series B Preferred Stock
<PAGE>
(iii) declare or pay dividends on, or make any other
distribution to the holders of or otherwise with respect to any Parity Stock,
whether in cash, property, securities or any other form of consideration, except
dividends declared and paid ratably on the Series B Preferred Stock and each
class or series of Parity Stock as to which dividends are payable or in arrears
so that the amount of dividends declared and paid per share of the Series B
Preferred Stock and per share of each class or series of such Parity Stock are
in proportion to the respective total amounts of unpaid dividends accrued with
respect to the Series B Preferred Stock and all such classes and series of
Parity Stock; or
(iv) set aside, pursuant to a sinking fund or otherwise, any
cash, property, securities or other form of consideration for any of the
foregoing purposes.
(c) Pro Rata Purchases. Unless otherwise approved by the Majority
Holders and otherwise than through a redemption made pursuant to Section 6
hereof, the Corporation shall not, and shall cause each of the Subsidiaries not
to purchase or otherwise acquire for value any shares of Series B Preferred
Stock unless (i) such purchase or other acquisition is made pursuant to an offer
made on the same terms to all holders of shares of Series B Preferred Stock and
(ii) there are simultaneously purchased or otherwise acquired on such terms all
shares which such holders elect to tender for purchase or other acquisition or,
if the number of shares tendered exceeds the number offered to be purchased or
otherwise acquired, a pro rata portion of such shares tendered by each tendering
holder.
(d) Restriction on Dividends, Redemptions, Etc. by Subsidiaries. So
long as any shares of Series B Preferred Stock shall be outstanding, without the
prior approval of the Majority Holders in accordance with Section 8, the
Corporation will not permit any Subsidiary that is not a Wholly Owned Subsidiary
to declare or pay any dividend on or declare or make any other distribution to
the holders of or otherwise with respect to any equity interest in such
Subsidiary (whether in cash, property, securities or any other form of
consideration) nor redeem, purchase or otherwise acquire for cash, property or
any other form of consideration any equity interest in such Subsidiary, other
than (i) distributions of available cash in excess of the amount required for
operating expenses, debt service, budgeted capital expenditures, reasonable
reserves for working capital and liabilities and other amounts reasonably
necessary for the continued efficient operation of the business of such
Subsidiary as reasonably determined by the Board of Directors or (ii)
distributions of cash to the extent necessary to permit the Corporation to pay
dividends on the Series B Preferred Stock on a current basis or to make
redemption payments or payments on liquidation to the holders of the Series B
Preferred Stock as and when required by the terms hereof, provided, in each
case, that no holder (other than the Corporation or a Wholly Owned Subsidiary)
of any equity interest in any Subsidiary making any such permitted distribution
receives more than its proportionate share (based on the percentage of
outstanding equity interests in such Subsidiary held by such holder) of any such
permitted distribution. The Corporation will not, without the prior approval of
the Majority Holders in accordance with Section 8, permit any of the
Subsidiaries to issue any Preferred Interest other than issuances to the
Corporation or a Wholly Owned Subsidiary.
(e) Certain Exceptions. Subject to Section 3(f), if, after the
Closing Date, the Corporation, with the prior approval of the Majority Holders
in accordance with Section 8 creates and issues any class or series of Parity
Stock or Senior Stock, the restrictions contained in clause (i), (ii) or (iv) of
Section 3(b) shall be subject to such exceptions, if any, expressly provided for
by the terms of such Parity Stock or Senior Stock set forth in the instrument
creating and authorizing such Parity Stock or Senior Stock, provided that such
terms shall have been furnished in writing to and approved by the Majority
Holders in accordance with Section 8.
(f) Limitations When Liquidation Preference Impaired. Unless
otherwise approved by the
<PAGE>
Majority Holders, notwithstanding any other provision of this resolution or
otherwise, neither the Corporation nor any Subsidiary shall declare or pay
dividends on, declare or make any other distribution to the holders of or
otherwise with respect to, any Junior Stock or Parity Stock, whether in cash,
property, securities or any other form of consideration, nor redeem, purchase or
otherwise acquire for cash, property, securities or any other form of
consideration any thereof, nor set aside, pursuant to a sinking fund or
otherwise, any cash, property, securities or other form of consideration for any
such purpose, if after giving effect to such dividend, distribution, redemption,
purchase or other acquisition, the amount (as reasonably determined by the Board
of Directors in good faith) that would be legally available for distribution to
the holders of the Series B Preferred Stock upon liquidation, dissolution or
winding up of the Corporation (after satisfaction of all obligations in respect
of Senior Stock) if such liquidation, dissolution or winding up were to occur on
the date fixed for such dividend, distribution, redemption, purchase or other
acquisition would be less than the aggregate Liquidation Price as of such date
of all shares of Series B Preferred Stock then outstanding, except any such
dividends, distributions, redemptions, purchases or other acquisitions approved
in the specific instance by the holders of the Series B Preferred Stock in
accordance with Section 8 after disclosure to them by the Corporation that such
impairment of the liquidation preference of the Series B Preferred Stock would
result.
(g) Fractional Shares. Fractional shares of Series B Preferred Stock
may be issued, either upon original issuance pursuant to the Purchase Agreements
or from time to time thereafter upon transfers or exchanges of outstanding
shares (or fractional shares) thereof or certificates therefor. Each fractional
share of Series B Preferred Stock, if any, outstanding shall be entitled to
ratably proportionate voting and approval rights with respect to all matters
submitted for the vote of or approval by holders of the Series B Preferred Stock
and a ratably proportionate amount of all dividends accruing, declared or paid
with respect to each outstanding whole share of Series B Preferred Stock
pursuant to Section 4 and of all payments due or made with respect to each
outstanding whole share of Series A Preferred Stock pursuant to Section 5 or
Section 6; all such dividends with respect to such outstanding fractional shares
shall be fully cumulative and shall accrue (whether or not declared) and shall
be payable in the same manner and at the same time as provided for in Section 4
with respect to dividends on each outstanding whole share of Series B Preferred
Stock; and all such payments pursuant to Section 5 or Section 6 with respect to
such outstanding fractional shares shall be payable in the same manner and at
such time as provided for in Section 5 or Section 6 (as the case may be) with
respect to such payments on each outstanding whole share of Series B Preferred
Stock. The holder of each such fractional share shall otherwise be entitled to
all of the rights, powers, preferences, and be subject to the same
qualifications, limitations and restrictions, as the holders of whole shares of
the Series B Preferred Stock, including conversion rights pursuant to Section 9.
(h) Certain Notices and Other Obligations Relating to Change in
Control or Reorganization Events. If the Corporation agrees or the Board of
Directors passes a resolution authorizing the Corporation to voluntarily
consummate or take, or assist any one or more of the holders of its Common Stock
in consummating or taking, any transaction or action which would, if
consummated, result in a Change in Control, or if the Corporation receives
formal written notice that one or more of the holders of its Common Stock have
agreed to engage in any such transaction, then it shall send to each holder of
Series B Preferred Stock, at least 15 days prior to the scheduled or anticipated
closing of such transaction (or, in the case where the Corporation receives
formal written notice of such transaction, immediately upon receiving such
formal written notice if such notice is received less than 15 days prior to the
scheduled or anticipated closing of such transaction), a written notice which
will summarize the material terms of such transaction, and if any of such terms
change in any material respect prior to such closing, the Corporation shall
promptly notify the holders of the Series B Preferred Stock in writing. If any
Change in Control occurs, the Corporation shall give the holders of the Series B
Preferred Stock written notice thereof promptly, and in any event not later than
the fifth Business Day after the Corporation has knowledge of such occurrence,
and such notice shall summarize the
<PAGE>
material facts relating to such Change in Control. If the Corporation plans or
the Board of Directors passes a resolution authorizing the Corporation, or any
Subsidiary's Board of Directors or other governing body plans or authorizes, to
take any voluntary action intended to result in any Reorganization Event, or if
the Corporation receives formal written notice that any other Person plans to
take or has taken any action intended to result in an involuntary Reorganization
Event, then it shall immediately send to each holder of Series B Preferred Stock
(or, in the case where the Corporation receives formal written notice of such
action, immediately upon receiving such formal written notice), a written notice
to that effect stating the material relevant facts relating thereto and shall
thereafter keep each such holder apprised on a current basis of all related
material developments. If any Reorganization Event occurs, the Corporation shall
give the holders of the Series B Preferred Stock written notice thereof
promptly, and in any event not later than the next Business Day after the
Corporation has knowledge of such occurrence, and such notice shall summarize
the material facts relating to such Reorganization Event. Each notice given by
the Corporation pursuant to the second or fourth sentence of this Section 3(g)
shall be accompanied by an appropriate form (an "Election Form") by which the
holders of the Series B Preferred Stock may (i) elect whether or not to require
the Corporation to redeem shares of the Series B Preferred Stock pursuant to
Section 6(c) and (ii) state the number of shares of Series B Preferred Stock
held by such holder which would be redeemed pursuant to Section 6(c) in the
event such redemption is demanded by the Majority Holders. If, at any time
within a period of 30 days after Election Forms are mailed, the Corporation
shall have received completed Election Forms from holders of at least a majority
of the outstanding shares of Series B Preferred Stock who elect to require the
Corporation to redeem shares of the Series B Preferred Stock pursuant to Section
6(c), it shall promptly thereafter redeem from all holders of Series B Preferred
Stock, in accordance with Section 6(c) and the other applicable provisions of
this resolution, all outstanding shares of Series B Preferred Stock; provided,
however, that the Corporation shall not voluntarily consummate or take, or
assist any of the holders of its Common Stock in consummating or taking, any
transaction or action which would result in a Change in Control unless (i) prior
to the date such transaction is closed or such action is taken, the procedures
specified in this Section 3(h) shall have been followed and the period of 30
days referred to in this sentence shall have expired, (ii) if the Corporation
would be required to redeem all shares of Series B Preferred Stock by virtue of
such Change in Control, the Corporation shall have deposited with a Redemption
Agent in accordance with Section 6(f) funds sufficient to redeem on the
applicable Redemption Date all such shares required to be redeemed at the
applicable Redemption Price and (iii) the Corporation shall have given written
notice of its compliance with subclause (ii) of this sentence to each holder of
Series B Preferred Stock. The provisions of this Section 3(h) shall apply
successively to each Change of Control or Reorganization Event which may occur.
(i) Actions to Facilitate Required Redemptions. If, at any time that
any redemption of shares of Series B Preferred Stock is, or with the passage of
time after any notice will be, required by any provision of this resolution, the
Corporation is in material violation or breach of the terms of any material
indebtedness of the Corporation or a default or event of default with respect to
or under any material indebtedness of the Corporation exists and has not been
waived or cured, if the Corporation is insolvent under applicable law, or if the
Corporation's capital is impaired under the law of the jurisdiction of
incorporation, or if any such violation, breach, default, event of default,
insolvency or impairment of capital or any material violation of law would
result from such redemption, then the Corporation shall, (i) promptly give
written notice to such effect to the holders of the Series B Preferred Stock,
(ii) subject to the applicable provisions of the Stockholders Agreement, take,
as hereafter provided in this Section 3(i), all reasonable lawful actions to
cure or avoid such violation, breach, default or event of default, to restore or
preserve its solvency or to cure or avoid such impairment of capital, in each
case as necessary to enable the Corporation to make such redemption to the
fullest extent possible, including (A) the sale of additional equity securities,
(B) any necessary action under applicable law to reduce the Corporation's stated
capital or otherwise increase the Corporation's surplus or other funds legally
available, (C) additional borrowings by, or a refinancing of the
<PAGE>
debt of, one or more Company Parties, (D) asset sales by one or more Company
Parties and (E) sales of one or more Company Parties to third parties and (iii)
no later than thirty days after the date of delivery of the notice referred to
in clause (i) of this sentence, engage (at the Corporation's sole expense) a
nationally recognized independent investment banking firm reasonably acceptable
to the Majority Holders (such firm, the "Advisor") in order to advise and assist
the Corporation in connection with the actions to be taken by the Corporation
(each such action, an "Action"), including without limitation the actions
enumerated in subclauses (A)-(E) of clause (ii) of this sentence. The
Corporation and the Advisor shall submit to the holders of the Series B
Preferred Stock, no later than sixty days after the date of the notice referred
to in clause (i) of the immediately preceding sentence, a proposal setting forth
the Actions proposed to be taken by the Corporation. Any proposed Action that is
approved by the affirmative vote of the Majority Holders and by the Investors
(as defined in the Stockholders Agreement), pursuant to the Stockholders
Agreement (if such approval is required by the terms thereof) (each, an
"Investor Approved Action") shall be pursued by the Corporation in good faith as
quickly as practicable. In the event that the Investor Approved Actions include
a sale of a Company Party or assets of a Company Party, then no later than 120
days after such approval (one hundred fifty days if the Advisor assisting in the
sale shall advise the Corporation in writing that such additional period is
reasonably likely, in its good faith judgment, to result in a higher price being
obtained in such sale) or such later date as may be agreed upon by the
Corporation and the Majority Holders, the Board of Directors shall accept the
highest bid submitted for such sale deemed by the Advisor to represent an
"adequate" price for such assets or such Company Party (the values of such bids
to be determined by the Advisor). Any holder of shares of Series B Preferred
Stock and any Affiliate of any such holder or of the Corporation shall be
entitled to submit its own bid in the competitive bidding process. In the event
that the Investor Approved Actions include (i) a sale of additional equity
securities or debt securities of any Company Party or (ii) additional borrowings
by or a refinancing of the debt of any Company Party, the Corporation will take
and cause each other affected Company Party to use its best efforts to
consummate such proposed Action within 120 days after such approval or by such
later date as may be agreed upon by the Corporation and the Majority Holders.
Consistent with his or her fiduciary duties as a director of the Corporation,
each director of the Corporation (whether or not a Series B Director) shall
approve the taking by the Corporation of each Investor Approved Action and, if
any approval or other action by any of the Corporation's stockholders is
required by applicable law in order to authorize, or otherwise in connection
with, the taking of such Investor Approved Action, shall recommend that such
stockholders give such approval and take such other action, but this sentence
shall not be construed as establishing any requirement for unanimous approval by
the Board of Directors in order to authorize any Investor Approved Action or
otherwise the vote required under applicable law, this resolution or the
Corporation's Certificate of Incorporation. Nothing contained in this Section
3(h) is intended to eliminate, qualify, modify or limit the rights of the
holders of the Series B Preferred Stock under any provision of this resolution
or any other rights or remedies which such holders may have at law, in equity or
by contract in the event of the failure of the Corporation to redeem shares of
Series B Preferred Stock as and when required by this resolution.
4. Dividends.
(a) Dividend Rate; Dividend Payments Dates; Etc. The holders of the
Series B Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor, cumulative
cash dividends, in preference and priority to dividends on any Junior Stock,
that shall accrue on the Liquidation Price of each share of the Series B
Preferred Stock at the rate of 15.6% per annum, from and including the Issue
Date of such share to and including the date on which the Liquidation Price or
Redemption Price of such share is made available pursuant to Section 5 or
Section 6, respectively or such share is converted pursuant to Section 9.
Accrued dividends on the Series B Preferred Stock shall be payable, on December
1, 1996 and thereafter quarterly on March 1, June 1, September 1, and
<PAGE>
December 1 of each year (each a "Dividend Payment Date"), to the holders of
record of the Series B Preferred Stock as of the close of business on the
applicable Record Date. Dividends shall be fully cumulative and shall accrue on
a daily basis based on a 365- or 366-day year, as the case may be, without
regard to the occurrence of a Dividend Payment Date or Accrual Date and whether
or not such dividends have been declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. The amount of dividends "accrued" with respect to any share of Series
B Preferred Stock as of the first Accrual Date after the Closing Date or as of
any other date after the Closing Date that is not an Accrual Date shall be
calculated on the basis of the actual number of days elapsed from and including
the Closing Date, in the case of the first Accrual Date and any date of
determination prior to the first Accrual Date, or from and including the last
preceding Accrual Date, in the case of any other date of determination, to and
including such date of determination which is to be made, in each case based on
a year of 365 or 366 days, as the case may be. Whenever the Board of Directors
declares any dividend pursuant to this Section 4(a), notice of the applicable
Record Date and related Dividend Payment Date shall be given, not more than 45
days nor less than 10 days prior to such Record Date, to the holders of record
of the Series B Preferred Stock at their respective addresses as the same appear
on the books of the Corporation or are supplied by them in writing to the
Corporation for the purpose of such notice
(b) Compounding of Dividends; Addition to Conversion Value. On each
Dividend Payment Date, all dividends that have accrued on each share of Series B
Preferred Stock during the immediately preceding Dividend Period shall, to the
extent not paid on such Dividend Payment Date for any reason (whether or not
such unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Conversion Value of such share effective as of such Dividend
Payment Date and shall remain a part thereof. All dividends that have accrued on
each share of Series B Preferred Stock during any Dividend Period shall, to the
extent not paid in full on the first Dividend Payment Date after the end of such
Dividend Period for any reason (whether or not such unpaid dividends have been
earned or declared or there are any unrestricted funds of the Corporation
legally available for the payment of dividends), be added to the Liquidation
Price of such share effective as of the first Accrual Date after the last day of
such Dividend Period and shall remain a part thereof to and including the date
on which the Liquidation Price or Redemption Price of such share is made
available pursuant to Section 5 or Section 6, respectively. No accrued dividends
(or dividends accrued thereon) which have been added to Conversion Value or
Liquidation Price of any Series B Share may be subsequently declared or, except
in accordance with Section 5 or Section 6, paid by the Corporation without the
consent of the holder of such Series B Share.
(c) Pro Rata Declaration and Payment of Dividends. All dividends
paid with respect to shares of the Series B Preferred Stock pursuant to this
Section 4 shall be declared and paid pro rata to all the holders of the shares
of Series B Preferred Stock outstanding as of the applicable Record Date.
5. Distributions Upon Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of the Series B Preferred Stock
shall be entitled to receive from the assets of the Corporation available for
distribution to stockholders, before any payment or distribution to the holders
of any Junior Stock (in their capacity as holders of such Junior Stock) shall be
declared, made or provided for or any cash, property or other consideration
shall be set aside for such purpose, an amount in cash or property at its fair
market value, as reasonably determined by the Board of Directors in good faith,
or a combination thereof, per share, equal to the sum of the Liquidation Price
as of the date of the payment or distribution thereof to the holders of the
Series B Preferred Stock plus all unpaid dividends accrued on such share during
the period from and including the Accrual Date immediately preceding such date
(or the Issue Date if there was no prior Accrual Date)
<PAGE>
through and including such date of payment or distribution (whether or not such
unpaid dividends have been earned or declared). If, upon distribution of the
Corporation's assets in liquidation, dissolution or winding up, the assets of
the Corporation available for distribution to its stockholders shall be
insufficient to permit payment in full to the holders of the Series B Preferred
Stock and the holders of all other classes or series of Parity Stock, if any,
which rank on a parity basis with the Series B Preferred Stock with respect to
distributions upon such liquidation, dissolution or winding up of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation available for distribution to stockholders shall be distributed
ratably to such holders in proportion to the respective full preferential
amounts to which the shares of Series B Preferred Stock and all such classes and
series of Parity Stock would otherwise be entitled. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 5.
6. Redemption.
(a) At Corporation's Option. Unless otherwise approved by the
Majority Holders in accordance with Section 8, at any time after the Closing
Date and prior to the seventh anniversary of the Closing Date, all but not less
than all of the Series B Preferred Stock outstanding may be redeemed at the
option of the Corporation at the Redemption Price equal to Three Hundred and
Eight Dollars ($308.00) per share. The Corporation shall not exercise its right
of redemption pursuant to this Section 6(a) unless such redemption does not and
shall not result in impairment of the Corporation's capital, otherwise result in
a violation of applicable law or result in a material breach, violation, default
or event of default under any agreement or instrument to which the Corporation
is a party or by or to which it or its assets are bound or subject and unless
the Corporation is not then insolvent and would not be rendered insolvent as a
result of such redemption.
(b) Mandatory Redemption. The Corporation shall redeem, on the
seventh anniversary of the Closing Date, all shares of Series B Preferred Stock
then outstanding at a Redemption Price per share equal to the sum of the
Liquidation Price of such share determined as of the applicable Redemption Date
plus all unpaid dividends (whether or not earned or declared) accrued on such
share during the period from and including the Accrual Date immediately
preceding such Redemption Date through and including such Redemption Date.
(c) Redemption at Option of Holders Upon Change in Control or
Reorganization Event. In the event of the occurrence of a Change in Control or
any Reorganization Event, the Majority Holders shall have the right to require
the Corporation to redeem, on the applicable Redemption Date, all of the
outstanding shares of the Series B Preferred Stock at the applicable Redemption
Price per share specified below in this Section 6(c). Such right may be
exercised by one or more Election Forms or any other written notices
(collectively, a "Section 6(c) Election Notice") to such effect which,
collectively, have been signed by the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock and given to the Corporation at
any time after the date of occurrence of such Change in Control or
Reorganization Event (as the case may be) and prior to the expiration of the
period of 30 days after written notice of such occurrence is given to the
holders of the Series B Preferred Stock pursuant to Section 3(h) or, if the
penultimate sentence of Section 3(h) is applicable, at any time within the
period of 30 consecutive days after the written notice referred to in clause
(iii) of such sentence is given; provided, however, that in the case of any
Reorganization Event, such 30-day period shall be extended by a number of days
equal to the number of days, if any, during which either the exercise of such
right or the redemption by the Corporation of the Series B Preferred Stock
pursuant to this Section 6(c) shall be enjoined, stayed or otherwise prevented
or delayed by order or decree of any court
<PAGE>
or tribunal. In the case of a redemption of the Series B Preferred Stock
pursuant to this Section 6(c), the Redemption Price per share of the Series B
Preferred Stock shall be equal to the sum of the Liquidation Price of such share
determined as of the applicable Redemption Date plus all unpaid dividends
(whether or not earned or declared) accrued on such share during the period from
and including the Accrual Date immediately preceding the applicable Redemption
Date (or the Issue Date, if the first Accrual Date has not yet occurred) through
and including such Redemption Date.
(d) Form and Source of Redemption Payments. The Redemption Price for
all shares redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c) shall
be paid in cash from unrestricted funds legally available for such purpose.
(e) Notice of Redemption. Notice of any redemption by the
Corporation pursuant to Section 6(a), Section 6(b) or Section 6(c) shall be
given to the holders of record of the shares of Series B Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the books of the
Corporation or are supplied by them in writing to the Corporation for the
purpose of such notice. In the case of a redemption pursuant to Section 6(a) or
Section 6(b), such notice shall be given not more than 45 days nor less than 10
days prior to the applicable Redemption Date; and in the case of a redemption
pursuant to Section 6(c), such notice shall be given not earlier than the date
the related Section 6(c) Election Notice is given nor later than the tenth
Business Day prior to the applicable Redemption Date. In addition to any
information required by law or by the applicable rules of any national stock
exchange or national interdealer quotation system on which the Series B
Preferred Stock may be listed or admitted to trading or quoted, such notice
shall set forth the Redemption Price, the Redemption Date, the number of shares
to be redeemed and the place at which the shares called for redemption will,
upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and shall state the name and address of the Redemption
Agent appointed in accordance with Section 6(f).
(f) Deposit of Redemption Price. If any shares of Series B Preferred
Stock are to be redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c),
then on or before the applicable Redemption Date the Corporation shall deposit,
in an irrevocable trust fund for the sole purpose of redeeming the shares of
Series B Preferred Stock to be redeemed on such Redemption Date, with any bank
or trust company organized under the laws of the United States of America or any
state thereof having capital, undivided profits and surplus aggregating at least
$250,000,000 or having capital, undivided profits and surplus aggregating at
least $250,000,000 on a consolidated basis with such bank's or trust company's
parent, provided, however, that, in such case, such parent has guaranteed all of
the existing and future obligations of such bank or trust company (the
"Redemption Agent"), immediately available unrestricted funds legally available
for such purpose sufficient to redeem for the applicable Redemption Price on
such Redemption Date the shares of Series B Preferred Stock called for
redemption or otherwise required to be redeemed in accordance with Section 6(a),
Section 6(b) or Section 6(c), with irrevocable instructions and authority to the
Redemption Agent, on behalf and at the expense of the Corporation, to pay,
commencing on such Redemption Date or prior thereto, the Redemption Price of the
shares of Series B Preferred Stock to be redeemed to their respective holders
upon the surrender of their share certificates and, from and after the later of
the date of such deposit and such Redemption Date, such shares shall be deemed
to be no longer outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto, except the right to receive payment, as provided in this resolution, of
the Redemption Price of such shares, calculated through such Redemption Date,
upon surrender of the certificates therefor. Any funds so deposited with the
Redemption Agent by the Corporation and unclaimed for six months from the
Redemption Date shall (unless an applicable escheat or abandoned property law
designates another Person) be paid to the Corporation, after which repayment the
holders of such shares of Series B Preferred Stock shall look to the Corporation
for the
<PAGE>
payment of the Redemption Price therefor, without interest.
7. Board Representation.
(a) Right to Elect Director. The holders of the Series B Preferred
Stock shall be entitled to vote as a separate class for the election of one
director of the Corporation. The director whom, at any time and from time to
time, the holders of the Series B Preferred Stock elect or are entitled to elect
voting as a separate class is sometimes herein referred to as the "Series B
Director". Subject to earlier death, resignation or removal pursuant to Section
7(c), each Series B Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's stockholders and
his or her successor shall have been elected as provided herein. At their option
and in their sole discretion and for any one or more periods of any length of
time, the Majority Holders at any time and from time to time may choose not to
exercise their right to elect a Series B Director or to fill any vacancy
existing in the office of the Series B Director, without prejudice to any
subsequent exercise of such right. In such event, the Majority Holders may (in
their sole discretion) choose to have a representative appointed by them to
attend any one or more meetings of the Board of Directors as an observer, and
such representative shall be entitled to receive the same notices of meetings of
and proposed actions by the Board of Directors as directors generally.
(b) Manner of Election. Subject to the last sentence of this Section
7(b), Series B Directors shall be elected (and if such directors previously have
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Majority Holders given in accordance with Section
8(a); or (ii) by the vote of the Majority Holders voting as a separate class and
in accordance with Section 8(b), at (A) annual meetings of the shareholders of
this Corporation, or (B) a special meeting of the holders of Series B Preferred
Stock for the purpose of electing such directors (or filling any such vacancy),
to be called by the Secretary of this Corporation upon the written request of
the holders of record of 5% or more of the number of shares of Series B
Preferred Stock then outstanding; provided, however, that if the Secretary of
this Corporation shall fail to call any such special meeting within 10 days
after any such request, such meeting may be called by any holder or holders of
5% or more of the number of shares of Series B Preferred Stock then outstanding.
Notwithstanding the foregoing, the Secretary shall not be entitled to call any
such special meeting in the case of any such request received by this
Corporation less than 45 days before the date fixed for any annual meeting of
shareholders, and if in such case such special meeting is not called, the
holders of Series B Preferred Stock shall be entitled to vote (as a class) at
such annual meeting to elect the Series B Director (or to fill any such
vacancy).
(c) Removal. Any Series B Director may at any time and from time to
time be removed, with or without cause, by and only by the Majority Holders. Any
vacancy in the office of Series B Director resulting from death, resignation or
removal or existing for any other reason whatsoever may be filled only by the
Majority Holders. Any director elected to fill a vacancy shall serve the same
remaining term as that of his or her predecessor and until his or her successor
has been chosen and has qualified.
(d) Certain Procedural Matters. So long as the holders of the Series
B Preferred Stock shall have the right to elect a Series B Director: any one or
more members of the Board of Directors or any committee thereof may participate
in meetings of the Board of Directors by conference telephone; each member of
the Board of Directors or any committee thereof shall be given not less than
three days' prior written notice of each meeting of the Board of Directors or
such committee (or two days' prior written notice in case of meetings to
consider emergency matters), specifying the time and place of such meeting and
the matters to be discussed thereat, unless such member signs (either before or
after such meeting) a written waiver of his right to be given such notice, or
attends such meeting without protesting (prior thereto or at the
<PAGE>
commencement thereof) the failure to be given such notice; each member of the
Board of Directors or any committee thereof shall be given not less than three
days' prior written notice of any action proposed to be taken by the Board of
Directors or such committee without a meeting (or two days' prior written notice
in case of proposed actions involving emergency matters), unless such member
signs (either before or after such action is taken) a written waiver of his
right to be given such notice, or gives his written consent to such action
without protesting the failure to be given such notice; no executive committee
of the Board of Directors, and no other committee of the Board of Directors
which is authorized to exercise any powers of the Board of Directors, shall be
created except as provided in Section 7(f) or otherwise with the concurrence of
the Series B Director in office at the time such committee is created (or if a
vacancy in the office of Series B Director shall exist, with the concurrence of
the Majority Holders); and at any meeting of the Board of Directors or any
committee thereof, a quorum for the purpose of taking any action shall require
the presence in person or participation by conference telephone or similar
communications equipment of a number of directors equal to at least a majority
of the entire Board of Directors or the entire committee.
(e) Indemnification. The Corporation shall (i) to the fullest extent
permitted by applicable law, indemnify each director and former Series B
Director who is made a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such Person is or
was a director of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Person in connection with such action,
suit or proceeding and (ii) pay in advance, or advance to each such director and
former director for payment of, expenses incurred in defending any such action,
suit or proceeding to the maximum extent permitted by Section 145(e) of the
General Corporation Law of the State of Delaware (or any successor statutory
provision). The rights conferred on any Person by this Section 7(e) shall not be
exclusive of any other rights which such Person may have or acquire under any
statute, under the Corporation's Certificate of Incorporation, under the
Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Audit and Compensation Committees. Unless the Majority Holders
otherwise agree, so long as the holders of the Series B Preferred Stock shall
have the right to elect a Series B Director, the Board of Directors shall have
an audit committee and a compensation committee (the "Compensation Committee"),
each of which shall have three members one of whom shall be the Series B
Director and at least one other of whom shall be an independent director (as
defined below in this Section). The audit committee will have the authority and
responsibility for the selection, engagement or discharge of independent
auditors, reviewing with the independent auditors the plan and results of the
auditing engagement, reviewing the Corporation's system of internal accounting
controls, directing investigations in matters within the scope of its functions
and performing any and all other such functions customarily performed by audit
committees of public companies. The Compensation Committee will have the
authority and responsibility for establishing and administering the stock,
incentive and other employee benefit plans of the Corporation, establishing and
changing the compensation of executive officers, approving or amending existing
and proposed employment agreements between the Corporation and its executive
officers and performing any and all other such functions customarily performed
by compensation committees of public companies. Without limiting the generality
of the foregoing, the Compensation Committee will have the authority and
responsibility, in administering any stock, incentive or other employee benefit
plans, including any such plans in effect on the Closing Date, to determine the
persons to whom awards or benefits may be made, to determine the terms and
conditions (which need not be identical) of each award made or benefit conferred
(including the timing and type of award or benefit, the exercise or purchase
price for any award of stock or stock options, and terms related to vesting,
<PAGE>
exercisability, forfeiture and termination), and to interpret the provisions of
each such plan. For purposes of this Section, an "independent director" is an
individual who (unless otherwise approved by the Majority Holders) (i) has
either a significant financial investment in the Corporation or a significant
strategic position or expertise relative to the business of the Corporation and
(ii) is not (A) an officer or employee of the Corporation or any of its
Subsidiaries, (B) a director, employee, partner, manager or other member of
management of any of Affiliate of the Corporation (except a director of a
Subsidiary of the Corporation), (C) a relative of any Person described in
subclause (ii)(A) or (ii)(B) or (C) a trustee of any trust or estate in which
any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a beneficiary
has a substantial beneficial interest.
8. Actions by Holders Generally; Consistent Charter and By-law
Provisions.
(a) Actions by Written Consent or at Meetings. With respect to
actions by the holders of the Series B Preferred Stock upon those matters on
which such holders are entitled to vote as a separate class, such actions may be
taken either at a meeting of such holders or without a stockholder meeting by
the written consent of holders of shares of Series B Preferred Stock having
voting power to cast not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
Series B Preferred Stock entitled to vote were present and voted. Notice shall
be given in accordance with the applicable provisions of the Delaware Business
Corporation Law of the taking of corporate action without a meeting by less than
unanimous written consent to those holders of Series B Preferred Stock on the
record date whose shares were not represented on the written consent.
(b) Meetings. At any meeting having as a purpose either the election
of Series B Directors or any other vote or action by holders of the Series B
Preferred Stock, the presence, in person or by proxy, of the holders of record
of at least a majority of the Series B Shares then outstanding, shall be
required and be sufficient to constitute a quorum of such class for any such
purpose, and the affirmative vote of the Majority Holders present in person or
by proxy at such meeting shall be the act of the Series B Preferred Stock. At
any such meeting or adjournment thereof, (i) the absence of a quorum of such
holders of Series B Preferred Stock shall not prevent the election of the
directors to be elected by the holders of shares other than the Series B
Preferred Stock or the taking of any other action which they are entitled to
take, and the absence of a quorum of holders of shares other than the Series B
Preferred Stock shall not prevent the election of any director to be elected by
the holders of the Series B Preferred Stock or the taking of any other action
which they are entitled to take and (ii) in the absence of such quorum, either
of holders of the Series B Preferred Stock or of shares other than the Series B
Preferred Stock (or both), a majority of the holders, present in person or by
proxy, of the class or classes of stock which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect or the taking of any other action which they are entitled to take, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
(c) Consistent By-laws and Charter. The Certificate of Incorporation
and the By-laws of the Corporation shall at all times contain provisions
consistent with the provisions, purposes and intent of Section 7, Section 8, and
Section 9 and the other provisions of this resolution.
9. Conversion.
(a) Conversion Right Generally. Unless previously redeemed in
accordance with Section 6, each share of Series B Preferred Stock may be
converted at the option of the holder thereof, in whole or in part, at any time
and from time to time on and after the Closing Date, into fully paid and
nonassessable Shares of Common Stock at the Conversion Rate in effect at the
time of conversion and in the
<PAGE>
manner and on the terms and conditions hereinafter provided in this Section 9.
The number of whole or fractional shares of Common Stock into which each share
of Series B Preferred Stock shall be convertible as of any time shall be equal
to the quotient determined by dividing (i) the Conversion Value of such share
determined as of such time by (ii) the Conversion Price determined as of such
time. The Conversion Rate, the Conversion Price and the kind, number and amount
of securities and other property deliverable upon conversion of any Series B
Share shall be subject to adjustment from time to time as set forth in this
Section 9. The conversion right provided by this Section 9 with respect to any
Series B Share redeemed in accordance with Section 6 shall terminate as of, and
may be exercised at any time prior to, the close of business on the applicable
Redemption Date. In case cash, property or securities other than Common Stock
shall be payable, deliverable or issuable upon conversion, then all references
to Common Stock in this Section 9 shall be deemed to apply, so for as
appropriate and as nearly as may be, to such cash, property or other securities.
Upon the occurrence of a Qualified IPO or on such date or dates as of which
holders of more than 75% of the shares of Series B Preferred Stock outstanding
on the Issue Date have converted their shares of Series B Preferred Stock into
Common Stock in accordance with the provisions of this Section 9, the
Corporation may elect, by written notice to that effect given to each holder of
Series B Preferred Stock within 10 Business Days after such occurrence, to
require that all, but not less than all, outstanding shares of Series B
Preferred Stock be converted in accordance with this Section 9, and the giving
of such notice by the Corporation shall have the same effect for purposes of
this Section 9 as if each holder of Series B Shares gave, on the date such
notice is given, a notice of conversion pursuant to Section 9(b). Upon the date
set by the Corporation for such conversion in accordance with this Section 9(a)
as specified in the notice to each holder of Series B Preferred Stock, each
share of Series B Preferred Stock will be deemed to be converted into such
number of shares of Common Stock of the Corporation as set forth in this Section
9 and the holders of such shares of Series B Preferred Stock shall no longer
have any rights or obligations pursuant to the Series B Certificate of
Designation but shall instead have all the rights and obligations of holders of
the Corporation's Common Stock.
(b) Mechanics of Conversion. In order to convert any Series B Share,
the Holder thereof shall deliver to the Corporation at its principal executive
offices within the United States or at another office or agency designated by
the Corporation pursuant to Section 9(x), of the certificate(s) evidencing the
Series B Share(s) to be converted, which certificate(s), if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form reasonably
satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that such holder elects to convert all or a part of
the Series B Share(s) represented by said certificate(s) in accordance with the
terms of this Section 9, and shall state in writing therein the name or names
and denomination or denominations in which such Holder wishes certificate(s) for
Common Stock to be issued. Every such notice of election to convert shall
constitute a contract between the holder of such Series B Share(s) and the
Corporation, whereby the holder of such Series B Share(s) shall be deemed to
subscribe for the amount of Common Stock which such holder shall be entitled to
receive upon conversion of the number of shares of Series B Preferred Stock to
be converted, and, in satisfaction of such subscription, to deposit the shares
of Series B Preferred Stock to be converted, and whereby the Corporation shall
be deemed to agree that the surrender of the shares of Series B Preferred Stock
to be converted shall constitute full payment of such subscription for such
Common Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Series B
Preferred Stock, accompanied by the written notice above prescribed, issue and
deliver at such offices of the Corporation or at such other office or agency to
the Person for whose account such Series B Preferred Stock was so surrendered,
or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled. Such conversion shall be
deemed to have been made as of the date of such surrender
<PAGE>
of the Series B Preferred Stock to be converted, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion of such Series B
Preferred Stock shall be treated for all purposes as the record holder or
holders of such Common Stock on such date. Notwithstanding the foregoing, if any
notice of conversion given by any Holder states that such conversion is in
connection with an offering of securities registered or to be registered
pursuant to the Securities Act, then such conversion may, at the option of such
Holder, be conditioned upon and deferred until the closing of the sale of such
securities pursuant to such offering, in which event the Series B Share(s)
covered by such notice shall not be deemed to have been converted until
immediately prior to the closing of such sale and the Corporation shall, unless
otherwise instructed by such Holder, deliver the stock certificate(s) and any
cash, securities or other property to which such Holder shall be entitled at
such time or times as such Holder shall reasonably request.
(c) Expenses and Taxes. The Corporation shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the shares of Common Stock and
cash, property or other securities which any Holder is entitled to receive upon
conversion of any Series B Share(s). The Corporation shall not be required,
however, to pay any stamp, stock transfer or other similar tax or other
governmental charge required to be paid solely by virtue of any transfer
involved in the issue of Shares of Common Stock in any name other than that of
the Holder of the Series B Share(s) converted at the order of such Holder, and
if any such transfer is involved, the Corporation shall not be required to issue
or deliver the shares of Common Stock as to which such tax or charge is
applicable until such tax or other charge shall have been paid or it has been
established to the Corporation's reasonable satisfaction that no such tax or
other charge is due.
(d) Fractional Shares of Common Stock. If the number of shares of
Common Stock purchasable on the conversion of Series B Share(s) is not a whole
number, the Corporation shall not be required to issue any fraction of a share
of Common Stock and such number of shares issuable shall be rounded up to the
nearest whole number. If a certificate or certificates evidencing more than one
Series B Share shall be surrendered for conversion at one time by the same
Holder, the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of Series B
Shares so surrendered for conversion. Notwithstanding the provisions of this
Section 9(d), in computing adjustments to the Conversion Rate pursuant to
Section 9, fractional shares of Common Stock shall be taken into account as
provided in Section 9(p)(C) and any outstanding Series B Share may at any time
represent the right to receive upon conversion less than one share of Common
Stock or some other number of shares of Common Stock which is not a whole
number.
(e) Covenant to Reserve Shares for Issuance on Conversion. The
Corporation shall at all times reserve and keep available out of the authorized
but unissued shares of Common Stock, solely for the purpose of issue upon
conversion of Series B Shares, the full number of shares of Common Stock
issuable if all outstanding Series B Shares were to be converted in full. All
shares of Common Stock which shall be issuable upon conversion of any Series B
Share shall be newly issued, duly authorized, validly issued, fully paid and
nonassessable and without any personal liability attaching to the ownership
thereof, and the issuance thereof shall not give rise or otherwise be subject to
preemptive or similar purchase rights on the part of any Person or Persons, and
the Corporation shall take any corporate and other actions that may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable all shares of Common Stock and
all shares of the Corporation's capital stock of any other class or series
issuable upon conversion of the Series B Preferred Stock. The Corporation hereby
authorizes and directs its current and future transfer agents, if any, for the
Common Stock and for any shares of the Corporation's capital stock of any other
class or series issuable upon the conversion of the Series B Preferred Stock at
all times to reserve such number of authorized shares as shall be requisite for
such purpose. The
<PAGE>
Corporation shall supply such transfer agents with duly executed stock
certificates for such purposes.
(f) Compliance with Governmental Requirements; Listing of Shares;
Hart-Scott-Rodino Act.
(A) If issuance of any Conversion Securities issuable upon conversion of
any Series B Share(s) require, under any applicable federal, state, local or
foreign law, rule or regulation or any applicable requirement of any national
securities exchange or inter-dealer quotation system, any registration,
qualification, listing or approval before such shares may be issued upon
conversion, the Corporation shall in good faith, as promptly as practicable and
at its expense, diligently endeavor to cause such shares to be duly registered,
qualified, approved or listed, as the case may be, and the conversion of such
Series B Share(s) shall be suspended for the period during which such
registration, qualification, approval or listing is being diligently pursued or
sought by the Corporation. Without limiting the generality of the foregoing, if
any shares of Common Stock or other capital stock or securities required to be
reserved for issuance upon conversion of Series B Shares require registration or
qualification with any governmental authority under any federal or state law
before such shares may be so issued, the Corporation will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered. During all periods during which shares of Common Stock or any
other capital stock or securities of the same class, series or issue as are
issuable upon conversion of any Series B Share are listed, qualified or
otherwise eligible for trading or quotation on any national securities exchange
or the Nasdaq National Market, the National Association of Securities Dealers,
Inc. Automated Quotation System or any similar quotation system, the Corporation
shall cause all shares of Common Stock, and all such other capital stock and
securities, issuable upon conversion of such Series B Share to be listed,
qualified or eligible for trading or quotation thereon upon issuance thereof.
(B) If any Holder is advised by its own legal counsel that its intended
conversion of any Series B Shares would or might be subject to the HSR Act, the
Corporation shall promptly comply with any applicable requirements under the HSR
Act relating to filing and furnishing of information (the "HSR Report") to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice, such actions to include, without limitation, (i) filing
the HSR Report and taking all other action required by the HSR Act, (ii)
coordinating with respect to the filing of the HSR Reports of such Holder and
the Corporation (and exchanging drafts thereof), so as to present all required
HSR Reports to the FTC and the Department of Justice at the time selected by
such Holder, and to avoid substantial errors or inconsistencies among such HSR
Reports in the description of the transaction, (iii) complying with any
additional request for documents or information made by the FTC or the
Department of Justice or by a court and assisting the other parties to so comply
and (iv) causing all Persons which are part of the same "person" (as defined for
purposes of the HSR Act) as the Corporation to cooperate and assist in such
filing and compliance. If any Holder is advised by its own legal counsel that
its intended conversion of any Series B Share(s) would or might be subject to
any other law, rule or regulation which requires any filing with or review or
approval by any governmental authority or agency, the Corporation shall promptly
comply with any requirements of such law, rule or regulation applicable to it
and shall cooperate with such Holder in such Holder's efforts to comply with the
requirements of such law, rule or regulation applicable to it on a timely basis.
Each of the Corporation and such Holder shall bear and pay any costs or expenses
that it incurs in complying with this Section 9(f)(B), except that each shall
pay one half of any fee payable to the FTC or the Department of Justice in
connection with the filing of an HSR Report pursuant to this Section 9(f)(B) and
the HSR Act.
(g) Intentionally omitted.
(h) Adjustment Generally. The Conversion Price and the Conversion
Rate and the kind,
<PAGE>
number and amount of securities and other property issuable upon conversion of
any Series B Share shall be subject to adjustment from time to time as
hereinafter set forth. Upon any issuance or deemed issuance of Common Stock or
other event that results in an adjustment to the Conversion Rate, the Conversion
Price shall also be adjusted by multiplying the Conversion Price in effect
immediately prior to the effective time of such adjustment in the Conversion
Rate by a fraction the numerator of which is the number of shares of Common
Stock issuable upon conversion of one share of Series B Preferred Stock
immediately prior to such adjustment, and the denominator of which is the number
of shares of Common Stock issuable upon conversion of one share of Series B
Preferred Stock immediately following such adjustment to the Conversion Rate.
Such adjustments of the Conversion Rate and the Conversion Price shall be
cumulative and shall be made successively on each and every occasion that any
event requiring any such adjustment shall occur. The form of the stock
certificate(s) evidencing the Series B Shares need not be changed because of any
adjustment made pursuant hereto.
(i) Stock Dividends, Subdivisions, Combinations and
Recapitalizations. If the Corporation shall at any time (i) declare or pay a
dividend or declare, pay or make any other distribution on the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue any shares of capital stock
of the Corporation by way of reclassification of the Common Stock, then in each
and every such event the Conversion Rate and the Conversion Price determined as
of immediately prior to the applicable time referred to in subclause (x) or (y)
of this sentence shall be adjusted so that the Holder of any Series B Share
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock (or other capital stock of the Corporation) which such
Holder would have owned and would have been entitled to receive by virtue of the
happening of any of the events described above had such Series B Share been
converted (x) in the case of a dividend or distribution, immediately prior to
the record date for the determination of the stockholders entitled to receive
such dividend or distribution (or, if no such record date is fixed, as of any
other time as of which the holders of Common Stock entitled to participate in
such distribution was determined) or (y) in the case of a subdivision,
combination or reclassification, on the effective date thereof. An adjustment
made pursuant to this Section 9(i) shall become effective immediately after such
record date (or other applicable date referred to in clause (x) of the
immediately preceding sentence) in the case of a dividend or distribution,
subject to Section 9(p)(D) and Section 9(p)(E), and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(j) Certain Other Distributions. If the Corporation shall at any
time declare or make any distribution, by dividend or otherwise, to all holders
of outstanding shares of Common Stock of any cash (subject to the last sentence
of this subsection) or other assets or property of any nature whatsoever, any
debt securities or other evidences of its indebtedness, any capital stock, any
other securities of any nature whatsoever or any warrants, options or other
Rights to subscribe for, purchase or otherwise acquire any assets, property,
capital stock, debt or other securities or evidences of indebtedness (excluding
dividends, distributions or issuances referred to in Section 9(i), Rights
referred to in Section 9(l) and Convertible Securities referred to in Section
9(m)), or shall take a record of such holders for the purpose of entitling them
to receive such a distribution, then the Conversion Rate shall be adjusted to
equal the product of the Conversion Rate determined as of immediately prior to
such adjustment multiplied a fraction the numerator of which shall be the
Current Market Price per share of the Outstanding Common Shares at the date of
taking such record or, if no record is taken, at the date as of which the
holders of Common Stock entitled to participate in such distribution were
determined or if no such determination is made, on the date of such
distribution, and the denominator of which shall be the absolute value of the
difference between such Current Market Price per share of the Outstanding Common
Shares at such date and the amount allocable to one share of the
<PAGE>
Outstanding Common Shares at such date of any such cash so distributable and of
the Fair Market Value (as determined as of such date in good faith by the Board
of Directors) of any and all such evidences of indebtedness, shares of capital
stock, debt securities, other securities, property, assets or Rights so
distributable. An adjustment made pursuant to this Section 9(j) shall become
effective, subject to Section 9(p)(D) and Section 9(p)(E), immediately after
such record date or, if no such record date is fixed, immediately after the time
as of which holders of Common Stock entitled to participate in such distribution
were determined or, if no such time is fixed, as of the date of such
distribution. No adjustment pursuant to this subsection (j) shall be required
for any cash dividend paid out of current or retained earnings to the extent the
sum of the cash dividends payable after the Issue Date does not exceed the
aggregate net income (determined in accordance with generally accepted
accounting principles consistently applied) of the Corporation since the Issue
Date.
(k) Issuance of Additional Shares of Common Stock.
(A) Subject to subdivision (B) of this Section 9(k), if at any time
the Corporation shall issue, or pursuant to Section 9(l), Section 9(m), Section
9(n) or Section 9(o) be deemed to issue, any Additional Shares of Common Stock
in exchange for consideration in an amount (determined in accordance with
subdivisions (A) and (F) of Section 9(p)) per Additional Share of Common Stock
less than the Reference Price determined as of the time such Additional Shares
of Common Stock are issued or deemed to be issued, then the Conversion Rate
shall be adjusted to equal the product obtained by multiplying the Conversion
Rate in effect immediately prior to such issuance or deemed issuance by a
fraction (i) the numerator of which shall be the number of Outstanding Common
Shares immediately after such issuance or deemed issuance, and (ii) the
denominator of which shall be the number of Outstanding Common Shares
immediately prior to such issuance or deemed issuance plus the number of shares
which the aggregate amount of consideration, if any, received by the Corporation
upon such issuance or deemed issuance of all such Additional Shares of Common
Stock would purchase at the Reference Price determined as of such time.
(B) The provisions of subdivision (A) of this Section 9(k) shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is made under Section 9(i) or Section 9(j) or to the issuance of
Additional Shares of Common Stock pursuant to the exercise of any Existing Right
in accordance with the terms thereof in effect of the Closing Date. No
adjustment of the Conversion Rate shall be made under this Section 9(k) upon the
issuance of any Additional Shares of Common Stock which are or are deemed to be
issued pursuant to (i) subject to Section 9(o) the exercise of any Existing
Rights or (ii) subject to Section 9(n), the exercise of any other Rights or the
exercise of any conversion or exchange rights in any other Convertible
Securities if, in the case of any such Rights or Convertible Securities referred
to in this clause (ii) any such adjustment shall previously have been made, or
no such adjustment shall have been required to be made, upon the issuance of
such Rights or upon the issuance of such Convertible Securities (or upon the
issuance of any Rights therefor) pursuant to Section 9(l) or Section 9(m).
(C) Each adjustment pursuant to this Section 9(k) by reason of any
issuance or sale of any Additional Shares of Common Stock shall be effective as
of the date of such issuance or sale.
(l) Issuance of Rights. Subject to the last sentence of this Section
9(l), if at any time the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution of, or shall in any manner (whether directly or indirectly by
assumption in a consolidation or in a merger in which the Corporation is the
surviving corporation or otherwise) grant, issue or sell to any Person or
Persons, any Rights to subscribe for, purchase or otherwise acquire any
Additional Shares of Common Stock or any Convertible Securities, in any case
whether or not such Rights or the right to
<PAGE>
exchange or convert such Convertible Securities are immediately exercisable, and
the consideration per share for which Common Stock is issuable upon the exercise
of such Rights or upon conversion or exchange of such Convertible Securities
(determined pursuant to subdivisions (A) and (F) of Section 9(p)) shall be less
than the Reference Price determined (x) in the case of such dividend or
distribution, as of the close of business on such record date or (y) in the case
of such grant, issuance or sale, immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon the
exercise of such Rights or, in the case of Rights for Convertible Securities,
upon the conversion or exchange of such Convertible Securities determined as of
such applicable time shall be deemed to be Additional Shares of Common Stock
issued as of such applicable time for such consideration per share and the
Conversion Rate shall be adjusted as provided in Section 9(k). Subject to
Section 9(n), no further adjustments of the Conversion Rate shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such Rights or upon the actual issuance of such Common Stock upon
such conversion or exchange of such Convertible Securities for which an
adjustment pursuant to this Section 9(l) previously had been made or was not
required to be made. No adjustment under this Section 9(l) shall be required by
reason of the grant of Employee Options.
(m) Issuance of Convertible Securities. If at any time the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution of, or
shall in any manner (whether directly or indirectly by assumption in a
consolidation or in a merger in which the Corporation is the surviving
corporation or otherwise) grant, issue or sell to any Person or Persons, any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon such conversion or exchange (determined
pursuant to subdivisions (A) and (F) of Section 9(p)) shall be less than the
Reference Price determined (x) in the case of such dividend or distribution, as
of the close of business on such record date or (y) in the case of such issuance
or sale, immediately prior to the time of such grant, issuance or sale, then the
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities determined as of such applicable time
shall be deemed to be Additional Shares of Common Stock issued as of such
applicable time for such consideration per share and the Conversion Rate shall
be adjusted as provided in Section 9(k). No further adjustment of the Conversion
Rate shall be made under this Section 9(m) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any Rights therefor if
any such adjustment shall previously have been made upon the issuance of such
Rights pursuant to Section 9(l). Subject to Section 9(n), no further adjustments
of the Conversion Rate shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of Convertible Securities for which an
adjustment pursuant to this Section 9(m) previously had been made or was not
required. If the terms of any Convertible Securities provide for any issuance of
additional Convertible Securities (whether in payment of dividends or interest
or otherwise), then each occasion on which any such additional Convertible
Securities are issued shall be deemed a new issuance of Convertible Securities
for which an adjustment pursuant to this Section 9(m) shall be made.
(n) Superseding Adjustment.
(A) If, at any time after any adjustment of the Conversion Rate
shall have been made pursuant to Section 9(l) or Section 9(m) in respect of any
Rights or Convertible Securities:
(i) the consideration paid or payable to the Corporation, or the
number of shares of Common Stock issued or issuable, upon the exercise,
conversion or exchange of the Rights or Convertible Securities in respect of
which such adjustment was made is increased or decreased by virtue of provisions
contained therein for an automatic increase or decrease (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or
<PAGE>
otherwise, the adjustments to the Conversion Rate computed upon the original
grant, issuance or sale thereof or upon the taking of a record date with respect
thereto (as the case may be), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be readjusted to
the Conversion Rate which would then be in effect had such adjustment originally
been made on the basis that such increased or decreased consideration paid or
payable or such increased or decreased number of shares of Common Stock issued
or issuable was the consideration paid or payable or the number of shares issued
or issuable in respect of such Rights or Convertible Securities which are
actually outstanding immediately prior to the effective time of such increase or
decrease (but no such readjustment shall be made with respect to any Rights or
Convertible Securities which for any reason no longer are outstanding as of such
time); or
(ii) any Rights or any rights of conversion or exchange under
Convertible Securities in respect of which such adjustment was made shall expire
without having been fully exercised, the adjustments to the Conversion Rate
computed upon the original grant, issuance or sale thereof or upon the taking of
a record date with respect thereto (as the case may be), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of such Rights or Convertible Securities, the
only Additional Shares of Common Stock issued were the shares of Common Stock,
if any, actually issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities and the consideration received for such
Additional Shares of Common Stock was, in the case of Rights, the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the consideration actually received by
the Corporation upon such exercise, or, in the case of Convertible Securities,
the consideration actually received by the Corporation for the issuance or sale
of all such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange; and
(2) in the case of any such Rights for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold upon the
exercise thereof were issued at the time of grant, issuance or sale of such
Rights, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the additional consideration, if any,
actually received by the Corporation upon the issuance or sale of the
Convertible Securities with respect to which such Rights were actually
exercised.
(B) No readjustment pursuant to this Section 9(n) shall have the
effect of (1) decreasing the number of shares of Common Stock or the amounts of
other Conversion Securities, cash or other property into which any Series B
Share is convertible below the greater of the number of such shares and the
amounts of such other Conversion Securities, cash and property as would have
resulted from any adjustment to such number of such shares and such amounts of
such other Conversion Securities, cash and other property between the original
adjustment date (before giving effect to the original adjustment) and the time
such readjustment is made or (2) requiring any surrender, return or redelivery
of any shares of Common Stock, other Conversion Securities, cash or other
property delivered upon any conversion of any Series B Share prior to the time
such readjustment is made, requiring that the converting Holder or any
subsequent holder of any such shares of Common Stock, Conversion Securities or
other property make any payment to the Corporation or otherwise affecting such
shares of Common Stock, other Conversion Securities or other property or the
rights or obligations of the converting Holder or any such subsequent holder
with respect thereto. From and after any adjustment or adjustments provided for
in this Section 9(n), the Conversion Rate shall continue to be subject to
further adjustment as provided in this Section 9.
<PAGE>
(C) If, at any time after any grant, sale or other issuance of any
Rights or Convertible Securities for which an adjustment of the Conversion Rate
shall not have been required to be made pursuant to the provisions of Section
9(l) or Section 9(m) (as the case may be), the consideration paid or payable to
the Corporation upon the exercise of such Rights or Convertible Securities is
decreased, or the number of shares of Common Stock issued or issuable upon the
exercise of such Rights or Convertible Securities is increased, in either case
by virtue of provisions contained therein for an automatic decrease or increase
(as the case may be) upon the occurrence of a specified date or event, any
amendment or modification of or departure from the terms thereof previously in
effect or otherwise, then such event shall, for purposes of Section 9(l) (in the
case of such Rights) or Section 9(m) (in the case of such Convertible
Securities) be deemed to be a new issuance, as of the date of the effectiveness
of such decrease or increase (as the case may be) of Rights or Convertible
Securities having terms reflecting such changes.
(o) Adjustment for Events Affecting Existing Rights. If the number
of shares of Common Stock issued or issuable upon exercise of any Existing Right
is increased as a direct or indirect result of any amendment or modification of
or departure from the terms thereof previously in effect, then such increased
number of shares of Common Stock issued or issuable upon exercise thereof shall
be deemed to be Additional Shares of Common Stock issued as of the effective
date of such increase for the additional consideration, if any, payable to
acquire such increased number of shares upon exercise of such Existing Right,
and the Conversion Rate shall be adjusted as provided in Section 9(k). If the
consideration payable for shares of Common Stock issued or issuable upon
exercise of any Existing Right is decreased as a direct or indirect result of
any amendment or modification of or departure from the terms thereof previously
in effect, then such event shall be deemed to be the issuance, as of the
effective date of such decrease, of a number of Additional Shares of Common
Stock equal to the excess of (1) the maximum number of shares of Common Stock
issuable upon exercise of such Existing Right over (2) the number of shares of
Common Stock determined by dividing the total consideration, if any, that would
be payable to the Corporation upon the exercise in full of such Existing Right
after giving effect to such decrease by the amount of consideration per share of
Common Stock issuable upon exercise of such Existing Right that would have been
payable to the Corporation absent such decrease. The provisions of this Section
9 are in addition to (and not exclusive of) any other rights or remedies of such
holders in the event that any such amendment, modification or departure occurs
without any required approval of the holders of Series B Shares.
(p) Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments provided for in this
Section 9:
(A) Computation of Consideration. Subject to the last sentence of
this Section 9(p)(A), to the extent that any Additional Shares of Common Stock,
any Convertible Securities or any Rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities shall be issued
or deemed to be issued for cash consideration, the consideration received or
deemed to be received by the Corporation therefor shall be the net amount of the
cash received or deemed to be received by the Corporation therefor (in any such
case subtracting any amounts received in respect of accrued interest, accrued
dividends or other similar amounts which the Corporation may be obligated to pay
to the holders thereof in the future and any compensation, discounts or expenses
paid or incurred by the Corporation in connection with the issuance thereof).
Subject to the last sentence of this Section 9(p)(A), to the extent that such
issuance or deemed issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the Fair Market Value of such consideration at the time of
such issuance or deemed issuance as determined in good faith by the Board of
Directors. Subject to the last sentence of this Section 9(p)(A), in case any
Additional Shares of Common Stock, any
<PAGE>
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities shall be
issued or deemed to be issued in connection with any merger, consolidation,
share exchange or similar transaction, the amount of consideration therefor
shall be deemed to be the Fair Market Value, as determined in good faith by the
Board of Directors, of such portion of the assets and business of the
nonsurviving corporation as the Board of Directors in good faith shall determine
to be attributable to such Additional Shares of Common Stock, Convertible
Securities, or Rights, as the case may be. Subject to the last sentence of this
Section 9(p)(A), in case any Additional Shares of Common Stock, any Convertible
Securities or any Rights to subscribe for, purchase or otherwise acquire
Additional Shares of Common Stock or Convertible Securities are issued or deemed
to be issued in combination with each other or with any other securities or
property in connection with any transaction in which the Corporation receives
cash, securities, property or other consideration, or any combination of the
foregoing, then the amount of consideration therefor shall be deemed to be such
portion of the cash, securities, property and other consideration received by
the Corporation as the Board of Directors in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible Securities
or Rights, as the case may be, with any noncash consideration being valued at
its Fair Market Value as determined by the Board of Directors in good faith.
Subject to the last sentence of this Section 9(p)(A), the consideration for any
Additional Shares of Common Stock issuable or deemed to be issuable pursuant to
any Rights to subscribe for, purchase or otherwise acquire the same shall be the
consideration received or deemed to be received by the Corporation for issuing
such Rights plus the minimum additional consideration, if any, paid or payable
to the Corporation upon the exercise or deemed exercise of such Rights. Subject
to the last sentence of this Section 9(p)(A), the consideration for any
Additional Shares of Common Stock issued or issuable pursuant to the terms of
any Convertible Securities covered by any Rights to subscribe for, purchase or
otherwise acquire such Convertible Securities shall be the consideration
received or deemed to be received by the Corporation for issuing such Rights,
plus the minimum additional consideration, if any, paid or payable to the
Corporation in respect of the subscription for, purchase or other acquisition of
such Convertible Securities, plus the minimum additional consideration, if any,
paid or payable to the Corporation upon the exercise or deemed exercise of the
right of conversion or exchange in such Convertible Securities. Subject to the
last sentence of this Section 9(p)(A), the consideration for any Additional
Shares of Common Stock issuable or deemed to be issuable pursuant to the terms
of any Convertible Securities, other than any covered by any Rights to subscribe
for, purchase or acquire the same, shall be the consideration received or deemed
to be received by the Corporation for issuing such Convertible Securities plus
the minimum additional consideration, if any, paid or payable to the Corporation
upon the exercise of the right of conversion or exchange in such Convertible
Securities. For all purposes of this Section 9, all Rights or Convertible
Securities issued or deemed to be issued to directors, officers, employees or
consultants of the Corporation or any Subsidiary shall be deemed to be issued
for no consideration except to the extent the Corporation receives in exchange
for the issuance thereof consideration other than services rendered or to be
rendered.
(B) When Adjustments to Be Made. The adjustments required by this
Section 9 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock into which a Series B Share is convertible that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock) up to, but not beyond the date of conversion if such
adjustment either by itself or with other adjustments not previously made adds
or subtracts less than 1% of the shares of Common Stock into which a Series B
Share is convertible immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 9 and not
previously made by virtue of this Section 9(p)(B), would result in a minimum
adjustment or on the date of conversion. For the purpose of any adjustment, any
specified event shall be deemed to have occurred
<PAGE>
at the close of business on the date of its occurrence.
(C) Fractional Interests. In computing adjustments under this
Section 9, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(D) When Adjustment Not Required. If the Corporation shall take a
record of the holders of any class or series of its capital stock for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required and shall, thereafter and
before the declaration, payment or delivery of such dividend or distribution to
stockholders otherwise entitled thereto, abandon its plan to pay or deliver such
dividend or distribution (so that such stockholders are legally bound by such
abandonment and have no right, remedy or recourse by reason of such taking of a
record or such abandonment), then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(E) Delivery of Due Bills. If, after the taking of any record of the
holders of any class or series of capital stock of the Corporation for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required, but prior to the occurrence
of the event for which such record is taken, any Series B Share is converted,
the Corporation shall deliver to the converting Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive the additional
shares of Common Stock, other securities, cash and other property receivable
upon conversion by reason of an adjustment pursuant to this Section 9 upon such
taking of a record upon the occurrence of the event requiring such adjustment.
(F) Certain Determinations. During each and every period that the
Board of Directors includes at least one sitting member who is a Series B
Director, each determination of the Current Market Price of any share of Common
Stock or the Fair Market Value of any other security, asset, property or
consideration which may be required to be made by the Board of Directors
pursuant to or in connection with the application of any provision of this
Agreement and each determination which may be required by Section 9(r)(B) or
Section 9(w) to be made by the Board of Directors, shall be made in good faith
by the Valuation Committee. Any such determination of Fair Market Value by the
Valuation Committee or the Board of Directors may be disputed in good faith by
the Majority Holders and any such dispute shall be resolved by an independent
investment banking firm of recognized national standing selected by the Majority
Holders and reasonably acceptable to the Corporation (and whose fees and
expenses shall be paid by the Corporation), whose decision with respect to such
dispute shall be final and conclusive and binding on the Corporation and all
Holders; provided, however, that the Majority Holders shall not have the right
to dispute under this Section 9(p)(F) any such determination that shall be made
during any period referred to in the first sentence of this Section 9(p)(F) by
the Valuation Committee by the affirmative vote or written consent of a majority
of its members, which majority includes at least one Series B Director. Any
determination by the Valuation Committee or the Board of Directors pursuant to
Section 9(r)(B) or Section 9(w) may be disputed in good faith by the Majority
Holders, and any such dispute shall be resolved in accordance with Section 9(y);
provided, however, that the Majority Holders shall not have the right to dispute
under this Section 9(p)(F) any such determination that shall be made during any
period referred to in the first sentence of this Section 9(p)(F) by the
Valuation Committee by the affirmative vote or written consent of a majority of
its members, which majority includes at least one Series B Director.
(q) Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock which is not one described in any other provision of this Section 9 as
requiring an adjustment, then, unless such action will not have an adverse
effect
<PAGE>
upon the rights and intended benefits of the Holders of Series B Shares, the
number of shares of Common Stock and the kind and amount of other securities and
property into which each Series B Share is convertible shall be increased in
such manner as may be equitable in the circumstances.
(r) Multiple Classes of Common Stock.
(A) If, at any time while any Series B Shares are outstanding, the
Corporation's authorized capital stock shall include two or more classes or
series of Common Stock, then each Holder shall have the right, upon each
conversion of any of his Series B Share(s), to elect to receive such number of
shares of each such class or series as such Holder desires, provided that the
total number of shares of all classes and series selected by such Holder shall
not exceed the aggregate number of shares of Common Stock issuable upon
conversion of such Series B Share(s).
(B) If, as a result of any adjustment made pursuant to Section 9, by
virtue of the existence of Section 9(r)(A), as a result of any action by the
Corporation referred to in Section 9(w), or otherwise, the Holder of a Series B
Share would, upon conversion thereof, become the holder of more than one class
or series of capital stock of the Corporation, then the Conversion Rate and the
Conversion Price shall be subject to adjustment in respect of each such class
and series of capital stock in a manner and on terms as nearly as equivalent as
practicable to the provisions set forth in this Section 9, which manner and
terms shall be determined by the Board of Directors promptly after each such
adjustment, each such action by the Corporation and each other event which has
or might have such result. Promptly after the Board of Directors makes any such
determination, the Corporation shall deliver to each Holder a written notice
which shall describe in reasonable detail the manner and terms so determined.
(s) Notices to Holders.
(A) Notice of Adjustments. Whenever the Conversion Rate shall be
adjusted pursuant to Section 9, the Corporation at its expense shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Corporation setting forth, in reasonable detail, the event requiring the
adjustment, the nature and amount of such adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors made any determination required by any provision of Section
9), the date as of which such adjustment was or will be effective as provided
herein, the Conversion Rate and the Conversion Price immediately prior to such
event and for and the Conversion Rate and the Conversion Price immediately after
such adjustment and all other relevant information. The Corporation shall
promptly cause to be delivered to each Holder a signed copy of such certificate.
The Corporation shall, upon the written request at any time of any Holder,
furnish or cause to be furnished to such Holder a like certificate setting forth
(i) the Conversion Rate and the Conversion Price at the time in effect and
showing how such Conversion Rate and Conversion Price was calculated, and (ii)
the number of shares of each class or series of Conversion Stock and the kind
and amount, if any, of other Conversion Securities, cash and other property
which at the time would be received upon the conversion of a Series B Share at
the time and showing how the same were calculated.
(B) Notice of Corporate Action. If at any time
(i) the Corporation shall take a record of the holders of any
class, series or issue of its capital stock or other securities for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any evidences of its indebtedness,
any shares of capital stock of any class or series, any cash or any other
securities or property, or to receive any
<PAGE>
other right, interest or benefit, or
(ii) there shall be any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any consolidation or merger or binding share exchange of the
Corporation with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Corporation to,
another Person, or
(iii) there shall be any tender offer or exchange offer for
Conversion Securities of any class, series or issue, or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then the Corporation shall (i) give to each Holder at least 20 days' prior
written notice of the date on which a record date shall be fixed for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, (ii) promptly
after learning of any such tender or exchange offer, deliver to the each Holder
notice thereof, a copy of all written offering material which the Corporation
possesses or reasonably can obtain or if no such materials exist or are
possessed or can reasonably be obtained by the Corporation, a written summary of
all material terms and conditions of and other material facts relating thereto
known to the Corporation and (iii) give each Holder at least 20 days' prior
written notice of the scheduled, planned or anticipated date when any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up shall take place. Such
notice in accordance with clause (i) of the immediately preceding sentence also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up.
(C) Notices To Stockholders. In addition to the foregoing, each
Holder shall be given the same notices of corporate action or proposed corporate
action as any holder of Common Stock.
(t) No Impairment. The Corporation shall not by or through amending
its certificate of incorporation, any reorganization, transfer of assets,
consolidation, merger, share exchange, 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 of this resolution or the Series B Certificate
of Designation, but will at all times in good faith carry out and assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights and intended benefits of the
Holders against impairment. Without limiting the generality of the foregoing,
the Corporation (i) will not directly or indirectly increase the par value of
any shares of Common Stock or other capital stock receivable upon the conversion
of any Series B Share above the Conversion Price immediately prior to such
increase in par value, (ii) will not take any action that results in any
adjustment to the Conversion Rate pursuant to Section 9 if after such adjustment
the total number of shares of Common Stock or shares of any other class or
series of Conversion Stock issuable upon the conversion of all of the
outstanding Series B Shares would exceed the total number of shares of Common
Stock or such other Conversion Stock, respectively, then authorized by the
Corporation's Certificate of
<PAGE>
Incorporation and available and reserved for the purpose of issuance upon such
conversion, (iii) will not enter into any transaction or take any action which,
by reason of any resulting adjustment hereunder, would cause the Conversion
Price to be less than the par value per share of Common Stock and (iv) will take
all such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue shares of each class and series of Conversion
Stock and other Conversion Securities upon the conversion of any Series B Share
which in each case are fully paid, non-assessable and without personal liability
attaching to the ownership thereof and not subject to preemptive and similar
purchase rights. Upon the request of any Holder, at any time, the Corporation
will acknowledge in writing, in form satisfactory to such Holder, the continuing
validity of each certificate for any Series B Share(s) then held by such Holder
and the obligations of the Corporation with respect thereto and thereunder.
(u) Taking of Record; Stock Transfer Books. In the case of all
dividends or other distributions by the Corporation to the holders of its Common
Stock with respect to which any provision of Section 9 refers to the taking of a
record of such holders, in each such case the Corporation will not declare, pay
or make any such dividend or distribution unless it shall take such a record and
the Corporation shall take each such record as of the close of business on a
Business Day. The Corporation shall not be required to convert any shares of
Series B Preferred Stock, and no surrender of Series B Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any proper purpose; but the surrender of Series B Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series B Preferred Stock was
surrendered for conversion. The Corporation will not at any time voluntarily
close its stock transfer books so as to result in preventing or delaying the
conversion or transfer of any Series B Share.
(v) Each Holder May Enforce Rights. Notwithstanding any of the
provisions hereof, any Holder, without the consent of any other Holder, or any
holder of any Conversion Securities may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation suitable to enforce, or otherwise in respect of, his
rights with respect to his Series B Shares or Conversion Securities.
(w) Reclassification, Consolidation, Merger, Sale, Conveyance or
Lease. If any of the following shall occur while any Series B Shares are
outstanding: (i) any consolidation, merger, binding share exchange or
reorganization to which the Corporation is party (other than a consolidation,
merger, share exchange or reorganization in which the Corporation is the
continuing corporation and which does not result in any reclassification of or
change in the outstanding shares of Conversion Securities issuable upon
conversion of the Series B Preferred Stock); or (ii) any sale, conveyance,
transfer or lease to another corporation of the properties and assets of the
Corporation as an entirety or substantially as an entirety, then the Corporation
or such successor or acquiring corporation, as the case may be, shall thereupon
make appropriate provision, reasonably satisfactory to the Majority Holders, so
that the Holders of the Series B Shares then outstanding shall have the right at
any time thereafter, upon conversion of the Series B Shares, to purchase the
kind and amount of shares of common stock of such successor or acquiring
corporation, other capital stock, other securities and property receivable upon
such reclassification, change, consolidation, merger, sale, conveyance, transfer
or lease as would be received by a holder of the number of shares of Common
Stock, the number of shares of each other class or series of Conversion Stock
and the kind and amount of all other Conversion Securities issuable upon
conversion of such Series B Shares immediately prior to such consolidation,
merger, sale, conveyance, transfer or lease (assuming that such holder of
Conversion Securities failed to exercise rights of election, if any, as to the
kind or amount of shares or stock, other securities or property receivable upon
consummation of any such transaction, provided that if the kind or amount of
shares of stock, other securities
<PAGE>
or property receivable upon consummation of such transaction is not the same for
each non-electing share, then the kind and amount of shares of stock, other
securities or property receivable upon consummation of such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). In case of any such merger,
consolidation, share exchange, reorganization, or disposition of assets, the
successor or acquiring corporation shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
resolution and the Series B Certificate of Designation to be performed and
observed by the Corporation and all the obligations and liabilities thereunder
or otherwise with respect thereto, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors) in
order to provide for adjustments of shares of the Common Stock into which Series
B Shares are convertible which shall be as nearly equivalent as practicable to
the adjustments provided for in Section 9. Promptly after the Board of Directors
makes any such determination, the Corporation shall deliver to each Holder a
written notice which shall describe in reasonable detail the manner and terms so
determined. For purposes of this Section 9(w) "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets on liquidation over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 9(w) shall similarly
apply to successive reorganizations, mergers, consolidations or disposition of
assets.
(x) Office of the Corporation. As long as any of the Series B Shares
are outstanding, the Corporation shall maintain one or more offices or agencies
where the Series B Shares may be presented for conversion and Series B Shares
and Conversion Securities may be presented for registration of transfer,
division or combination. Series B Shares and Conversion Securities may, in any
event, be presented for such purposes at the principal executive offices of the
Corporation in the United States.
(y) Resolution of Certain Disputes.
(A) If there shall arise any dispute between the Corporation and the
Majority Holders concerning the interpretation, application or operation of the
adjustment provisions of Section 9 (other than any such dispute referred to in
the second sentence of Section 9(p)(F), which shall be resolved as stated
therein) or any dispute which the last sentence of Section 9(p)(F) provides will
be resolved pursuant to this Section 9(y), the Corporation and the
Representative will promptly attempt to settle such dispute through consultation
and negotiation in good faith and in a spirit of mutual cooperation. If
agreement is reached concerning the resolution of such dispute, then such
agreement shall be final, conclusive and binding on the Corporation and all
Holders. If, on or before the thirtieth day after written notice of such dispute
is given by the Corporation to the Representative or the Representative to the
Corporation, such dispute has not been resolved by the agreement of the
Corporation and the Representative, such dispute shall be settled by an
expedited arbitration proceeding conducted in accordance with the then current
Commercial Arbitration rules of the American Arbitration Society in New York,
New York by a single arbitrator who satisfies the requirements of Section
9(y)(B) and who is mutually acceptable to the Corporation and the Representative
or, in the event such Persons fail to agree upon such arbitrator within ten
Business Days after such written notice of dispute is given, an arbitrator who
satisfies such requirements appointed by the American Arbitration Association
upon application of either the Corporation or the Representative. Neither the
Corporation nor the Representative shall unreasonably withhold its approval of
the selection of an arbitrator satisfying the requirements of Section 9(y)(B).
The Corporation and the Majority Holders shall provide such arbitrator with such
information as may be reasonably requested in connection with the arbitration of
such dispute and shall
<PAGE>
otherwise cooperate with each other and such arbitrator in good faith and with
the goal of resolving such dispute as promptly as reasonably practicable. The
arbitrator shall not have authority to award punitive or other non-compensatory
damages. Subject to the immediately preceding sentence and to subdivision (C) of
this Section 9(y), the arbitrator's decision and award with respect to the
dispute referred to such arbitration shall be final and binding and may be
entered in any court with jurisdiction, and the Corporation and the Holders
shall abide by such decision and award. Each party shall bear its own costs and
expenses, including attorney's fees, incurred in connection with any arbitration
proceeding, except that the Corporation and the Holders (as a group) each shall
pay one-half of all fees, costs and disbursements of the arbitrator and of or
charged by the American Arbitration Society. The provisions of this Section 9(y)
shall not in any way limit or otherwise affect (i) the right of any Holder to
seek, with regard to the matter in dispute, specific performance or other
injunctive relief in any court of competent jurisdiction or (ii) the rights or
remedies of any Holder with respect to any claim, controversy or dispute not
submitted to and decided by an arbitrator pursuant to this Section 9(y).
(B) Each arbitrator appointed pursuant to Section 9(y)(A) shall be
an attorney who practices law in New York City, who has substantial experience
in sophisticated corporate and securities transactions generally and in
negotiating and drafting "antidilution" provisions of warrants and convertible
securities in particular and who has not, and who is not a member or employee of
any firm which has, rendered legal services to any of the parties to the dispute
or any of their respective Affiliates within the preceding two years and who has
no interest (other than the receipt of customary fees for his services as an
arbitrator) in the matter in dispute.
(C) Nothing contained in this Section 9(y) or any other provision
hereof is intended to or shall preclude any holder of any Series B Share or
Conversion Securities to exercise or pursue or otherwise limit or affect the
rights or remedies which such holder may have pursuant to the Purchase Agreement
to which such holder is a party, at law, in equity or otherwise by reason of any
matter which is the subject of or basis for any dispute referred to in Section
9(y)(A) (or any other matter), and the dispute resolution mechanisms provided
for in Section 9(y)(A) are intended solely as a means of resolving bona fide
disputes concerning the interpretation, application or operation of the
adjustment provisions of Section 9 (other than any such dispute referred to in
the second sentence of Section 9(p)(F), which shall be resolved as stated
therein) or bona fide disputes which the last sentence of Section 9(p)(F)
provides will be resolved pursuant to this Section 9(y), and not for the purpose
of determining the rights of holders of Series B Shares or Conversion Securities
or the liabilities or obligations of the Corporation, for the purpose of
resolving or settling any claim by any such holder of any breach or inaccuracy
of any representation or warranty of, or any breach or failure to perform any
covenant, agreement or obligation, of the Corporation contained herein or in the
Purchase Agreements or any other Transaction Document (as defined in the
Purchase Agreements) or any other purpose. Without limiting the generality of
the immediately preceding sentence, no decision of any arbitrator appointed
pursuant to this Section 9(y) shall have or be given any res judicata or similar
effect in any action, suit or proceeding in which any claim by any holder of any
Series B Share or Conversion Securities of any breach or inaccuracy of any
representation or warranty of, or any breach or failure to perform any covenant,
agreement or obligation, of the Corporation contained herein or in the Purchase
Agreements or any other Transaction Document is to be adjudicated.
10. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
11. Terms Generally. The definitions of terms contained herein shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall
<PAGE>
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The words "herein", "hereof" and "hereunder" and
words of similar import refer to this resolution in its entirety and not to any
part hereof, unless the context shall otherwise require. All references herein
to Sections shall be deemed references to Sections of this resolution, unless
the context shall otherwise require. Unless the context shall otherwise require,
any references to any agreement or other instrument or to any statute or
regulation or any specific section or other provision thereof are to it as
amended and supplemented from time to time (and, in the case of a statute or
regulation or specific section or other provision thereof, to any successor to
such statute, regulation, section or other provision). Unless otherwise
expressly provided herein or unless the context shall otherwise require, any
provision of this Agreement using a defined term (such as "Subsidiary" or
"Wholly Owned Subsidiary") which is based on a specified relationship between
one Person and one or more other Persons shall, as of any time, refer to such
Persons who have the specified relationship as of that particular time. Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "Business") shall be interpreted as a reference to a calendar
day or number of calendar days. Unless the context clearly indicates otherwise,
"or" shall not be exclusive and means "and/or." When used with reference to any
Right or Convertible Security, the term "exercise" means to exercise the right
to subscribe for, purchase or otherwise acquire shares of Common Stock
represented by such Right or the right to exchange or convert such Convertible
Security for or into shares of Common Stock represented by such Convertible
Security, and variants of such word (including "exercised" and "exercisable")
shall have correlative meanings. Whenever used with respect to any Additional
Share of Common Stock or any other share of Common Stock, the word "issue"
includes any issuance, sale or other method of transfer or delivery of such
share, whether such share is newly issued or is a treasury share and variants of
such word (including "issued", "issuance" or "issuable") used with respect to
any Additional Share of Common Stock or any other share of Common Stock shall
have correlative meanings; therefore, any provision of this resolution which is
stated to be applicable if the Corporation issues or shall issue any share is
applicable both to a newly issued share and to a treasury share sold or
otherwise transferred or delivered. The word "property" shall include assets or
property of any kind, real, personal, tangible or intangible.
12. Actions on Non-Business Days. If any action or notice is to be
taken or given on or by a particular calendar day, and such calendar day is not
a Business Day, then such action or notice shall be deferred until, and may be
taken or given on, the next Business Day.
13. Severability. If any provision of this resolution shall be
illegal, invalid or unenforceable by reason of any rule of law or public policy,
that provision will be enforced to the maximum extent permissible so as to
effect the intent thereof and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. In
any such case, if requested by the Majority Holders, the Corporation will
negotiate in good faith to amend this resolution to replace the illegal, invalid
or unenforceable language with legal, valid and enforceable language which as
closely as possible reflects such intent.
14. Waivers. Any provision of this resolution which, for the benefit
of the holders of Series B Preferred Stock, prohibits, limits or restricts
actions by the Corporation, or imposes obligations on the Corporation, may be
waived in whole or in part, or the application of all or any part of such
provision in any particular circumstance or generally may be waived, in each
case with the consent of the Majority Holders, either in writing or by vote at a
meeting called for such purpose at which the holders of Series B Preferred Stock
shall vote as a separate class.
15. Method Of Giving Notices; Defects in Notices. All notices,
requests, consents,
<PAGE>
demands, elections and other communications required or permitted hereunder
shall be in writing and shall be given to the intended recipient at: (i) in the
case of any holder of shares of Series B Preferred Stock, to such holder at his
address appearing on the books of the Corporation or supplied by him in writing
to the Corporation for the purpose of such notice; (ii) in the case of the
Representative, to such Person at such address as such Person may from time to
time specify by written notice to the Corporation; and (iii) in the case of the
Corporation, to the Corporation at its principal office at 9531 West 78th
Street, Minneapolis, Minnesota, or at such changed address as the Corporation
may from time to time specify in writing to each holder of shares of Series B
Preferred Stock. Any such notice, request, consent, demand, election or other
communication shall be deemed to have been duly given if personally delivered or
sent by registered or certified mail, return receipt requested, Express Mail,
Federal Express or similar overnight delivery service for next Business Day
delivery or by telegram, telex or facsimile transmission and will be deemed
given, unless earlier received: (1) if sent by certified or registered mail,
return receipt requested, five calendar days after being deposited in the United
States mail, postage prepaid; (2) if sent by Express Mail, Federal Express or
similar overnight delivery service for next Business Day delivery, the next
Business Day after being entrusted to such service, with delivery charges
prepaid or charged to the sender's account; (3) if sent by telegram or telex or
facsimile transmission, on the date sent and (4) if delivered by hand, on the
date of delivery. No failure on the part of the Corporation to give any notice
required by any provision of this resolution, nor any delay or defect in any
such notice which is given or in the giving thereof, shall adversely affect the
rights which the holders of the Series B Preferred Stock would have if such
notice had been duly given on a timely basis, and such holders shall be entitled
to exercise such rights from and at any time after they acquire actual knowledge
of the matters required to be set forth in such notice.
16. Specific Performance; Injunctive Relief. In addition to any
other rights or remedies which may be available at law, in equity or by
contract, any holder from time to time of shares of Series B Preferred Stock
shall be entitled to obtain in any court of competent jurisdiction specific
performance of, or an injunction or other order restraining any act or proposed
act by the Corporation which would result in a violation of, any of the terms or
provisions of this resolution.
17. Amendment. This resolution may be amended from time to time by
the Board of Directors with the affirmative vote or written consent of the
Majority Holders, and unless otherwise required by mandatory provisions of
applicable law, no vote or consent of the holders of any other class or series
of the Corporation's stock shall be necessary.
18. Decisions by Holders Generally. Unless otherwise expressly
provided herein, all decisions and determinations required or permitted to be
made hereunder by the holders (including any decision as to whether to give any
consent or approval) shall be made by the Majority Holders. To the maximum
extent permitted by law, each Person who is or shall become a holder of any
Series B Share waives all fiduciary duties to such Person, if any, that the
Majority Holders or any other Holder of any Series B Share otherwise would or
might have.
Dated: September 20, 1996
<PAGE>
THE MENTUS GROUP, INC.
By:
-----------------------------
Name:
Title: President
By:
-----------------------------
Name:
Title: Secretary
<PAGE>
Exhibit 3.1(m)
CERTIFICATE OF DESIGNATION
OF
SERIES C SENIOR CUMULATIVE COMPOUNDING CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
MENTUS MEDIA CORP.
Pursuant to the Provisions of
Section 151 of the General
Corporation Law of the State of Delaware
Mentus Media Corp., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies that, pursuant to authority
contained in Article IV of its Certificate of Incorporation and in accordance
with Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation duly adopted the following resolution:
RESOLVED, that pursuant to authority expressly granted by Article IV
of the Certificate of Incorporation of Mentus Media Corp., a Delaware
corporation (the "Corporation"), the Board of Directors of the Corporation
hereby creates and authorizes the issuance of a series of the preferred stock,
par value $1.00 per share, of the Corporation, to consist of 90,000 shares, and
hereby fixes the designation, dividend rights, voting powers, rights on
liquidation or dissolution and other preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions of
the shares of such series (in addition to any thereof set forth in the
Corporation's Certificate of Incorporation that are applicable to the
Corporation's preferred stock of all series) as follows:
1. Designation; Original Issuance; Status of Reacquired or Converted
Shares.
(a) The designation of the series of the preferred stock, par value
$1.00 per share, of the Corporation authorized hereby is "Series C Senior
Cumulative Compounding Convertible Redeemable Preferred Stock" (the "Series C
Preferred Stock"). The dividend rights, voting powers, rights on liquidation or
dissolution and other preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions of the shares of
such series are as set forth in this resolution.
(b) Shares of the Series C Preferred Stock shall be originally
issued pursuant to the Purchase Agreements (as defined in Section 2 below) and,
thereafter, no additional shares of Series C Stock shall be issued by the
Corporation other than issuances (i) expressly provided for in Section 2.4 of
the Series C Purchase Agreement, (ii) pursuant to the Pugliese Employment
Agreement (as defined in Section 2 below), (iii) pursuant to the Co-Investment
Agreement (as defined in Section 2 below), (i) upon permitted transfers of
shares of Series C Stock or (iv) with the prior written consent of the Majority
Senior Holders.
(c) All shares of Series C Preferred Stock received by the
Corporation upon conversion or redeemed, retired, purchased or otherwise
acquired by the Corporation shall be retired and shall be restored
<PAGE>
to the status of authorized, undesignated and unissued shares of preferred stock
of the Corporation and may be reissued as part of another series of the
preferred stock of the Corporation, but such shares shall not be reissued as
Series C Preferred Stock or Series B Preferred Stock.
2. Certain Definitions. The terms defined in this Section 2 shall have the
meanings herein specified:
"Action" has the meaning set forth in Section 3(h).
"Advisor" has the meaning set forth in Section 3(h).
"Additional Shares of Common Stock" means any shares of Common Stock
issued or deemed to be issued by the Corporation after the Closing Time other
than shares issued upon conversion of any Series C Share.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly through or with one or more intermediaries,
controls, is controlled by or is under common control with, such Person. The
term "affiliated" (whether or not capitalized) shall have a correlative meaning.
For the purposes of this definition, "control", as used with respect to any
Person, means the possession, directly or indirectly through or with one or more
intermediaries, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. The terms "controlled by" and "under common control
with" shall have correlative meanings. For purposes hereof, no holder or group
of holders (whether or not affiliated with or otherwise related to each other
and whether or not acting in concert with respect to any matter or matters) of
shares of Series B Preferred Stock or Series C Preferred Stock shall be deemed
to be an Affiliate of the Corporation or any of its Affiliates solely by reason
of the ownership of Series B Shares or Series C Shares or the possession or
exercise of any right, power or privilege of the holders of Series B Shares or
Series C Shares as such. For purposes hereof, neither the Corporation nor any
Subsidiary shall be deemed to be an Affiliate of any TFC Holder and no TFC
Holder nor any Affiliate of any TFC Holder shall be deemed to be an Affiliate of
the Corporation.
"Bankruptcy Code" means Title 11 of the United States Code.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
including the provision of such Rules that a Person shall be deemed to have
beneficial ownership of all securities that such Person has a right to acquire
within 60 days, provided that a Person shall not be deemed a beneficial owner
of, or to own beneficially, any securities if such beneficial ownership (i)
arises solely as a result of a revocable proxy delivered in response to a proxy
or consent solicitation made pursuant to, and in accordance with, the Exchange
Act and the applicable rules and regulations thereunder and (ii) is not also
then reportable on Schedule 13D under the Exchange Act. The terms (whether or
not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the
<PAGE>
principal executive offices of the Corporation within the United States are
located are authorized or obligated by law or executive order to close.
"capital stock" when used with respect to any corporation means
(unless the context otherwise indicates) any and all shares of capital stock
(however designated) of such corporation, including each class and series of
common stock and preferred stock of such corporation, any class or series, any
and all stock appreciation rights and any and all equivalents of any of the
foregoing, and including any security or interest convertible into or warrant,
option or other right (absolute or contingent) to subscribe for, purchase or
otherwise acquire any of the foregoing, in each case whether or not evidenced by
any certificate, instrument or other document and whether voting or nonvoting.
"Change in Control" means the occurrence of any of the following:
(i) any "person" (within the meaning of that term as used in
the Rules under Section 13(d) and 14(d) of the Exchange Act, as interpreted by
the Commission), other than any TFC Holder or any Affiliate of any TFC Holder or
any group or persons acting in concert which includes any TFC Holder or any
Affiliate of any TFC Holder and other than Thomas Pugliese and Gerard Joyce, who
was not, on the Closing Date, the Beneficial Owner, directly or indirectly, of
50% or more of the combined voting power represented by all then outstanding
Common Stock of the Corporation becomes (after the Closing Date) the Beneficial
Owner, directly or indirectly, of 50% or more of the combined voting power
represented by all outstanding Common Stock of the Corporation, whether as a
result of issuances, redemptions, repurchases or transfers of Common Stock or
otherwise; or
(ii) the Corporation consolidates with, or merges with or
into, another Person or any Person consolidates with, or merges with or into,
the Corporation, in any such event pursuant to a transaction in which the
outstanding Common Stock of the Corporation is converted into or exchanged for
cash, securities, equity interests or other property and immediately after such
transaction the Persons who were the Beneficial Owners of the outstanding Common
Stock of the Corporation immediately prior to such transaction are not the
beneficial owners, directly or indirectly, of more than 50% of the combined
voting power represented by all then outstanding common stock of the surviving
or transferee Person; or
(iii) the Corporation, in one or more transactions, sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person or Persons; or
(iv) for any reason (including death or disability), Gerard
Joyce and Thomas Pugliese cease to be directors of the Corporation, or Gerard
Joyce ceases function as a senior executive officer of the Corporation and
Thomas Pugliese ceases to function as a senior executive officer of the
Corporation, unless in any such case the Corporation replaces such person in
such office within 90 days and such replacement is approved by the Majority
Senior Holders, which approval shall not be unreasonably withheld; or
(v) for any reason (including death or disability), Gerard
Joyce or Thomas
<PAGE>
Pugliese ceases to be the Beneficial Owner, directly or indirectly, of 80% or
more of the shares of Common Stock held by him on September 25, 1996 (as
appropriately adjusted for any subdivision, combination, reclassification,
recapitalization, reorganization, merger or other change of or in the
outstanding Common Stock), other than any shares thereof which were "Restricted
Shares" issued subject to forfeiture pursuant to his employment agreement with
the Corporation as amended and in effect on September 25, 1996.
For purposes of determining the percentage of the combined voting power of the
outstanding Common Stock beneficially owned by any particular Person as of any
time, any Common Stock not actually outstanding but which is deemed to be
beneficially owned by a Person through the application of the definition of
"Beneficial Owner" above in this Section 2 shall be deemed to be outstanding,
but no Common Stock not actually outstanding but which is deemed to be
beneficially owned by any other Person through the application of such
definition shall not be deemed to be outstanding. For purposes of clause (v) of
this definition, Mr. Joyce or Mr. Pugliese, as the case may be, shall be deemed
to continue to be the Beneficial Owner of shares of Common Stock transferred by
him for estate planning purposes to his spouse or minor children or to a trust
described in Section 664 of the Internal Revenue Code of 1986, as amended, of
which the income beneficiaries consist exclusively of one or more of him, his
spouse and his minor children, so long as Mr Joyce or Mr. Pugliese, as the case
may be, continues to have the power to vote and dispose or direct the voting or
disposition of such transferred shares.
"Closing Date" means the date on which the closing of the
consummation of the first issuance of Series C Shares to the Purchasers in
accordance with the Series C Purchase Agreement occurs.
"Closing Time" means 4:30 P.M., New York City time, on the Closing
Date.
"Co-Investment Agreement" means a stock purchase agreement pursuant
to which Lazard, Freres & Co., any of its Affiliates or one or more other
Persons who are designated by it and reasonably acceptable to the Corporation
acquire shares of the Series C Preferred Stock after the Closing Date and that
either is (i) substantially in the form of the Series C Purchase Agreement,
provides for the purchase of Series C Preferred Stock for a total purchase price
of not less than $1,000,000 and provides for the closing thereunder to occur not
later than 15 Business Days after the Closing Date or (ii) is in such form and
provides for the purchase and sale of such number of shares of Series C
Preferred Stock for such price, at such time and on such terms and conditions as
may be approved by a majority of the Board of Directors, which majority includes
the Series B Director, in each case as the same may be amended from time to time
in accordance with its terms and with the prior written consent of the Majority
Senior Holders.
"Commission" means the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" means the Common Stock, $.01 par value per share, of
the Corporation as constituted on the Closing Date, and any capital stock into
which such Common
<PAGE>
Stock may thereafter be changed, and (except where the context otherwise
unambiguously indicates) shall also include (i) capital stock of the Corporation
of each and every other class or series (regardless of how denominated) which is
also not preferred as to dividends or assets on liquidation over any other class
or series of stock of the Corporation and which is not subject to redemption and
(ii) shares of common stock of any successor or acquiring corporation (as
defined in Section 9(w)) received by or distributed to the holders of Common
Stock of the Corporation in the circumstances contemplated by Section 9(w).
"Company Parties" means the Corporation and its Subsidiaries.
"Compensation Committee" has the meaning set forth in Section 7(f).
"Conversion Price" means, as of any time, the initial price of
Seventy-Seven Dollars ($77), as such initial price shall have from time to time
been cumulatively adjusted pursuant to Section 9 through such time.
"Conversion Rate" means, as of any time, the rate, determined
pursuant to the second sentence of Section 9(a), at which each share of Series C
Preferred Stock may be converted into Common Stock, as such rate shall have from
time to time been cumulatively adjusted pursuant to Section 9 through such time.
"Conversion Securities" means, with respect to any Series C Share at
any time, each class and series of Conversion Stock, each class, series and
issue of any other securities, and any Rights with respect to any of such
Conversion Stock or other securities, any shares, number or other amount of
which at such time are deliverable to a Holder upon conversion of any Series C
Share.
"Conversion Stock" means, with respect to any Series C Share at any
time, the Common Stock, each other class or series of capital stock and any
Rights with respect to any of the foregoing any shares, number or other amount
of which at such time is deliverable to a Holder upon conversion of any Series C
Share.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for any Common Stock, either immediately or upon the occurrence of a
specified date or a specified event or the satisfaction or happening of any
other condition or contingency.
"Current Market Price" means, in respect of any share of Common
Stock as of any time, (i) if the Common Stock shall not then be Publicly Traded,
the Fair Market Value per share of Common Stock as at such date as determined by
the Board of Directors in good faith (subject to subdivision (F) of Section
9(p), if applicable), or (ii) if the Common Stock is then Publicly Traded, the
average of the reported last sales prices for the 30 consecutive Trading Days
commencing 40 Trading Days before the date in question. The reported last sales
price for each day shall be the reported last sales price, regular way (and if
no such sales take place on any day, such day shall not be a Trading Day), as
reported on the New York Stock
<PAGE>
Exchange Composite Tape or, if the Common Stock is not listed or admitted to
trading on the New York Stock Exchange at such time, in the principal
consolidated or composite transaction reporting system on the principal national
securities exchange on which such security is listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such security is not quoted on the Nasdaq National
Market, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by the National Association of Securities
Dealers, Inc. or, if bid and asked prices for the security on each such day
shall not have been reported through the National Association of Securities
Dealers, Inc., the average of the bid and asked prices for such date as
furnished by any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board of Directors. As used
herein, the term "Trading Day" means a day on which the New York Stock Exchange,
each national securities exchange on which the Common Stock is listed and the
Nasdaq National Market are open for business. The Common Stock shall be
considered to be "Publicly Traded" as of any date if on such date (i) the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange Act and (ii)
the Common Stock is listed for trading on a national securities exchange
registered under the Exchange Act or traded in the over-the-counter market and
quoted in an automated quotation system of the National Association of
Securities Dealers, Inc.
"Dividend Date" means (i) in the case of the Series C Preferred
Stock, any Dividend Payment Date; and (ii) in the case of the Series B Preferred
Stock, any "Dividend Payment Date" as defined in the Series B Certificate of
Designation.
"Dividend Payment Date" has the meaning set forth in Section 4(a).
"Dividend Period" means each quarterly period from and including any
Dividend Payment Date (or, in the case of the first Dividend Period, from and
including the Closing Date) to but not including the next successive Dividend
Payment Date.
"Employee Option" means any option to purchase Common Stock for cash
which is granted by or with the approval of the Compensation Committee to any
director, officer, employee or consultant of the Corporation or any subsidiary
of the Corporation pursuant to either (i) the Corporation's 1993 Stock Option
Plan or the Corporation's 1994 Stock Option Plan as in effect on the Closing
Date or (ii) any other option plan adopted by the Corporation after the Closing
Date with the prior approval of the Majority Senior Holders, in each case as the
same may be amended from time to time with the prior approval of the Majority
Senior Holders.
"Entity" means any corporation, limited liability company, general
or limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a governmental authority or agency.
An "equity interest" in or of any Entity includes any capital stock
or other equity security issued by such Entity, any partnership (general or
limited) or joint venture interest in
<PAGE>
such Entity, any other equity, ownership, participating or beneficial interest
in such Entity, any stock appreciation or other equity appreciation right with
respect to such Entity, and any equivalent of any of the foregoing, regardless
of how denominated and whether voting or non-voting, and any security or
interest convertible into or warrant, option or other right (absolute or
contingent) to subscribe for, purchase or otherwise acquire, any of the
foregoing, in each case whether or not evidenced by any certificate, instrument
or other document and whether voting or nonvoting.
"Election Form" has the meaning set forth in Section 3(g).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Rights" means all Rights (including stock options issued
pursuant to the Corporation's 1993 Stock Option Plan and the Corporation's 1994
Stock Option Plan) and Convertible Securities, including the Series A Preferred
Stock and the Series B Preferred Stock, but not including any Series C Shares,
which were outstanding at the Closing Time.
"Fair Market Value" means, in respect of any security, asset or
other property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full knowledge of
the facts, in an arm's-length auction transaction without time constraints, and
without being under any compulsion to buy or sell. The determination of the Fair
Market Value of the Corporation, the Common Stock or any other capital stock of
the Corporation shall be determined on a going concern or liquidation basis,
whichever yields the higher result, on the basis of the assumption that the
management and other key employees of the Corporation and its subsidiaries will
continue to be employed indefinitely and without treating as liabilities the
amount, if any, (i) payable or which may become payable by the Corporation
pursuant to the indemnification provisions of the TFC Series B Purchase
Agreement, the Co-Investment Agreement or any Purchase Agreement, (ii) any
indebtedness of the Corporation to Gerard P. Joyce subject to the Agreement,
dated as of September 25, 1996, among the Corporation, Mr. Joyce and the TFC
Partnerships, as amended, or (iii) in the case of any Participation Event, any
indebtedness or liability of the Corporation or any of its subsidiaries to its
controlling Person or Persons or any of their respective Affiliates. In the case
of a determination of the Fair Market Value of a share of capital stock of the
Corporation as of any time, if such capital stock is Publicly Traded at such
time, the Fair Market Value of a share of such capital stock shall be the
Current Market Price thereof as of such time and (ii) if such capital stock is
not Publicly Traded at such time, the Fair Market Value of a share of such
capital stock shall be the price determined as of such time in accordance with
the first three sentences of this definition, without giving effect to any
discount for a minority interest, to the fact that such capital stock is not
Publicly Traded, to any lack of liquidity of such capital stock or to the fact
(if true) that the Corporation has no class of equity security registered under
the Exchange Act.
"Holder" means a Person in whose name any Series C Share is
registered on the
<PAGE>
books of the Corporation maintained for such purpose.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Insolvency Law" means the Bankruptcy Code and any other law,
foreign, federal or state, relating to bankruptcy, receivership, reorganization,
insolvency, adjustment, compromise or extension of debt or other relief of a
debtor from creditors.
"Investor Approved Action" has the meaning set forth in Section
3(h).
"Investor Preferred Stock" means the Series B Preferred Stock or the
Series C Preferred Stock.
"Investor Preferred Share" means any Series B Share or Series C
Share.
"Issue Date" means, with respect to any Investor Preferred Share,
the date of original issuance of such Investor Preferred Share. The date of
original issuance of the Series C Shares issued pursuant to any Purchase
Agreement or the Co-Investment Agreement is or shall be deemed to be the Closing
Date. The date of original issuance of each Series B Share issued pursuant to
the TFC Series B Purchase Agreement or any of the "Other Purchase Agreements"
referred to therein is September 25, 1996.
"Junior Stock" means (i) each class or series of Common Stock, (ii)
the Series A Preferred Stock of the Corporation, (iii) any other class or series
of capital stock of the Corporation hereafter created, other than (A) the Series
B Preferred Stock, (B) any class or series of Parity Stock (except to the extent
provided under clause (iv) of this sentence) and (C) any class or series of
Senior Stock (except to the extent provided under clause (iv) of this sentence),
and (iv) any class or series of Parity Stock or Senior Stock to the extent that
it ranks junior to the Series C Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation, as the case may be. For purposes of clause
(iv) above, a class or series of Parity Stock or Senior Stock shall rank junior
to the Series C Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of Series C Preferred Stock shall
be entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or series.
"Liquidation Price" means, as of any time:
(i) in the case of any Series C Share, the sum of (A)
Seventy-Seven Dollars ($77.00) plus (B) an amount equal to all
unpaid dividends accrued on such Series C Share since the
Issue Date thereof which, pursuant to
<PAGE>
Section 4(b) hereof, have been added to and remain part of the
Liquidation Price as of such time of determination, whether or
not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally
available for the payment of dividends; and
(ii) in the case of any Series B Share, the "Liquidation
Price" of such Series B Share as of such time as defined in
and determined in accordance with the Series B Certificate of
Designation.
"Majority Holders" means, as of any time, the holder or holders of
record of at least a majority of the Series C Shares then outstanding.
"Majority Senior Holders" means, as of any time, the holder or
holders of Series B Shares, Series C Shares or both having an aggregate
Liquidation Price representing more than 50% of the total Liquidation Price of
all Series B Shares and Series C Shares then outstanding.
"Outstanding Common Shares" means, as of any time, all issued and
outstanding shares of Common Stock as of such date, except shares then owned or
held by or for the account of the Corporation or any subsidiary thereof.
Outstanding Common Shares shall not include any shares issuable upon exercise,
conversion or exchange of any Series B Shares, Series C Shares or other Rights
or Convertible Securities or issuable in payment of any dividend or other
distribution which has been declared but not actually paid, nor any other shares
which have not actually been issued.
"Parity Stock" means (i) the Series B Preferred Stock, (ii) the
Series C Preferred Stock and (iii) each class or series of capital stock of the
Corporation, if any, hereafter created with the approval of the Majority Senior
Holders and ranking on a parity basis with the Series C Preferred Stock as to
any of dividends, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank on a parity as to dividends, rights of
redemption or rights on liquidation with shares of Series C Preferred Stock,
whether or not the dividend rates, dividend payment dates, redemption or
liquidation prices per share or sinking fund provisions, if any, are different
from those of the Series C Preferred Stock if the holders of such stock shall be
entitled to the receipt of dividends, amounts distributable upon dissolution,
liquidation or winding up of the Corporation or redemption payments, as the case
may be, in proportion to their respective dividend rates, liquidation prices or
redemption prices, respectively, without preference or priority, one over the
other, as between the holders of such stock and the holders of shares of the
Series C Preferred Stock. No class or series of capital stock that ranks junior
to the Series C Preferred Stock as to rights on liquidation shall rank or be
deemed to rank on a parity basis with the Series C Preferred Stock as to
dividend rights or rights of redemption, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides.
<PAGE>
"Participation Amount" means, with respect to any share of Investor
Preferred Stock as of any time, the aggregate amount that would be payable to
the holder of such share pursuant subsections (a) and (b) of Section 5 hereof if
it were assumed that at such time (i) the assets of the Corporation were sold in
a tax-free transaction for cash equal to the Fair Market Value of the
Corporation determined as of such time and (ii) the Corporation was dissolved
and liquidated, and the cash proceeds of the deemed sale of the Corporation's
assets were distributed to the Corporation's stockholders, including the holders
of the Investor Preferred Stock, the Series A Preferred Stock and the Common
Stock, in accordance with their respective preferences and priorities upon
dissolution and liquidation of the Corporation. For purposes of the calculation
of the Participation Amount as of any time, it shall be assumed that (i) all
Rights and Convertible Securities, including the Series A Preferred Stock, but
excluding the Series B Preferred Stock and the Series C Preferred Stock, that
are exercisable at such time were either exercised or not exercised, whichever
would result in the greatest payment to the holders thereof in the event of the
assumed dissolution and liquidation of the Corporation at such time as provided
in the first sentence of this definition, and (ii) all shares of Series B
Preferred Stock or Series C Preferred Stock then outstanding continue to be
outstanding and are not converted into Common Stock.
"Participation Event" means (i) any Change in Control, or (ii) any
consolidation, merger, binding share exchange or reorganization to which the
Corporation is party, except a consolidation, merger, share exchange or
reorganization in which the Corporation is the continuing corporation and which
does not result in any exchange or conversion of the outstanding shares of any
class or series of capital stock of the Corporation, any distribution, issuance
of securities or payment of other consideration to the holders of the
outstanding shares of any class or series of capital stock of the Corporation,
or change in the outstanding shares of any class or series of capital stock of
the Corporation (other than an increase in the number of shares thereof issued
and outstanding) or (iii) any sale, assignment, conveyance, leasing or other
disposition, in one or more transactions, of all or substantially all of its
assets to any Person or Persons.
"Person" means any individual, corporation, limited liability
company, general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Preferred Interest" as applied to the equity interests of any
Person means equity interests of any class or classes (however designated) which
are preferred as to the payments of dividends or distributions, as to rights of
redemption or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over equity interests of any other
class of such Person.
"Publicly Traded" is defined under the definition of "Current Market
Price" above
<PAGE>
in this Section 2.
"Pugliese Employment Agreement" means the Employment Agreement,
dated August 1, 1990, between the Corporation and Thomas Pugliese, as amended
pursuant to the Amendment to Employment Agreement dated September 25, 1996 and
the Second Amendment to Employment Agreement dated the Closing Date, as the same
may be amended from time to time with the approval of the Series B Director, the
Series C Director or the Majority Senior Holders.
"Purchase Agreements" means (i) the Series C Purchase Agreement; and
(ii) one or more other stock purchase agreements, dated as of the Closing Date,
among the Corporation and certain purchasers named therein of shares of Series C
Preferred Stock, as the same may be amended from time to time in accordance with
its or their respective terms and with the prior written consent of the Majority
Senior Holders.
"Purchasers" means each of the TFC Partnerships and Pulitzer
Publishing Company.
"Qualified IPO" means either (i) consummation of an initial public
offering of the Corporation's Common Stock generating proceeds of at least $20
million on a pre-money equity valuation of at least $308 per share of Common
Stock (as appropriately adjusted for stock splits, reverse splits, stock
dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date) or (ii) any date at which all of the following
statements are true: (A) the Common Stock is registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended, (B) the Common
Stock is listed for trading on a national securities exchange registered under
the Exchange Act or traded in over-the-counter market and quoted in an automated
quotation system of the National Association of Securities Dealers, Inc., (C)
the average daily trading volume of shares of the Common Stock reported by such
exchange or quotation systems for the period of 5 consecutive trading days prior
to such date of closing has exceeded 0.7% of the number of shares of Common
Stock actually issued and outstanding on such date and (D) the average closing
price for the period of 20 consecutive trading days before such date is at least
$308 per share (as appropriately adjusted for stock splits, reverse splits,
stock dividends or other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record date for which occurs
after the Closing Date).
"Record Date" means, for dividends payable on any Dividend Payment
Date, the fifteenth day of the month immediately preceding such Dividend Payment
Date or if any such day is not a Business Day, then on the next preceding or the
next following Business Day, as and if designated by the Board of Directors.
"Redeemable Equity" of any Person means any equity interest of such
Person that
<PAGE>
by its terms or otherwise, absolutely, contingently or otherwise, is required to
be redeemed or is redeemable at the option of the holder thereof at any time.
"Redemption Agent" has the meaning set forth in Section 6(f).
"Redemption Date" as to any share of Series C Preferred Stock shall
mean:
(i) in the case of a redemption pursuant to Section 6(a), the
date specified in the notice of redemption given in accordance with Section
6(e); or
(ii) in the case of a redemption pursuant to Section 6(b) on
the fifth anniversary of the Closing Date, the date of such anniversary; or
(iii) in the case of a redemption pursuant to Section 6(c),
the tenth Business Day after the Section 6(c) Election Notice is given;
provided that in none of the foregoing cases shall such date be a Redemption
Date unless (A) the applicable Redemption Price is actually indefeasibly paid in
full on such date or (B) such date is a Business Day and the consideration
sufficient for the payment thereof, and for no other purpose, has been
indefeasibly deposited in a trust fund with the Redemption Agent, with
irrevocable instructions and authority to the Redemption Agent to pay the
Redemption Price, all in accordance with Section 6(f), and if the Redemption
Price is not so indefeasibly paid in full or the consideration sufficient
therefor is not so indefeasibly deposited, then the Redemption Date will be the
date on which such Redemption Price indefeasibly and is fully paid or the first
Business Day on which the consideration sufficient for the payment thereof, and
for no other purpose, has been so indefeasibly deposited.
"Redemption Price" means:
(i) as to any share of Series C Preferred Stock that is to be
redeemed on any Redemption Date pursuant to any subsection of
Section 6, the redemption price determined pursuant to such
subsection; and
(ii) in the case of any Series B Share as of any time, the
"Redemption Price" of such Series B Share as of such time as defined in and
determined in accordance with the Series B Certificate of Designation.
"Reference Price" means, as of any time, the higher of (x) the
Conversion Price then in effect or (y) the Current Market Price per share of the
Common Stock determined as of such time.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated
<PAGE>
September 25, 1996, among the Corporation, the TFC Partnerships and certain
other stockholders of the Corporation, as amended by the First Amendment thereto
dated as of the Closing Date and as the same may be further amended from time to
time in accordance with its terms.
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all or a
substantial portion of the Corporation or any Significant
Subsidiary's assets which shall remain in effect for 30 days;
(ii) the filing by the Corporation or any Significant Subsidiary of
a voluntary petition for relief under any Insolvency Law or of a
pleading in any court of record admitting in writing its inability
to pay its debts as they become due;
(iii) the making by the Corporation or any Significant Subsidiary of
a general assignment for the benefit of creditors;
(iv) the filing by the Corporation or any Significant Subsidiary of
an answer admitting the material allegations of, or its consenting
to or defaulting in answering, a petition for relief filed against
it in any proceeding under any Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Corporation or
any Significant Subsidiary in a proceeding under any Insolvency Law.
"Rights" means any options, warrants or other rights (except
Convertible Securities and the Series C Preferred Stock), however denominated,
to subscribe for, purchase or otherwise acquire any Common Stock or Convertible
Securities, with or without payment of additional consideration in cash or
property, either immediately or upon the occurrence of a specified date or a
specified event or the satisfaction or happening of any other condition or
contingency.
"Section 6(c) Election Notice" has the meaning set forth in Section
6(c).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Senior Stock" means each class or series of capital stock of the
Corporation, if
<PAGE>
any, hereafter created with the approval of the Majority Senior Holders and
ranking prior to the Series C Preferred Stock as to dividends, rights of
redemption or rights on liquidation, as the case may be. Capital stock of any
class or series shall rank prior to the Series C Preferred Stock as to
dividends, upon redemption or upon liquidation if the holders of such class or
series shall be entitled to the receipt of dividends, payments on redemption or
payments of amounts distributable upon the dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of Series C Preferred Stock. No class or series of capital
stock that ranks junior to or on parity with the Series C Preferred Stock as to
rights on liquidation shall rank or be deemed to rank as senior to the Series C
Preferred Stock as to dividend rights or rights of redemption, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Series A Preferred Stock" means the 8.25% Convertible Preferred
Stock, par value $1.00 per share, of the Corporation.
"Series B Certificate of Designation" means the Certificate of
Designation setting forth the resolution of the Board of Directors creating and
authorizing the issuance of the Series B Preferred Stock and filed with the
Delaware Secretary of State pursuant to Section 151 of the Delaware General
Corporation Law or any successor provisions of the Corporation's Certificate of
Incorporation, as the same may have been amended prior to or concurrently with
the Closing Time and thereafter may be further amended.
"Series B Director" means any director of the Corporation elected by
the holders of the Series B Shares voting as a separate class.
"Series B Preferred Stock" means the Series B Senior Cumulative
Compounding Redeemable Convertible Preferred Stock, par value $1.00 per share,
of the Corporation.
"Series B Share" means any issued and outstanding share of Series B
Preferred Stock. In no event shall shares of Series B Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"Series C Certificate of Designation" means the Certificate of
Designation setting forth the resolution of the Board of Directors creating and
authorizing the issuance of the Series C Preferred Stock and filed with the
Delaware Secretary of State pursuant to Section 151 of the Delaware General
Corporation Law or any successor provisions of the Corporation's Certificate of
Incorporation, as the same may have been amended prior to or concurrently with
the Closing Time and thereafter may be amended.
"Series C Director" has the meaning set forth in Section 7(a).
<PAGE>
"Series C Preferred Stock" has the meaning set forth in Section
1(a).
"Series C Purchase Agreement" means the Stock Purchase Agreement,
dated the Closing Date, among the Corporation and the Purchasers, as the same
may be amended from time to time in accordance with its terms.
"Series C Share" means any issued and outstanding share of Series C
Preferred Stock. In no event shall shares of Series C Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"Significant Subsidiary" means a subsidiary in which the
Corporation's and its other subsidiaries' (i) investments in and advances to the
subsidiary exceed 15% of the total assets of the Corporation and its
subsidiaries consolidated as of the end of the most recently completed fiscal
year, (ii) proportionate share of the total assets of the subsidiary exceeds 15%
of the total assets of the Corporation and its subsidiaries consolidated as of
the end of the most recently completed fiscal year; or (iii) equity in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary exceeds
15% of such income of the Corporation and its subsidiaries consolidated for the
most recently completed fiscal year.
"Stockholders Agreement" means the Stockholders Agreement, dated
September 25, 1996, among the Corporation, the TFC Partnerships and certain
other stockholders of the Corporation, as amended by the First Amendment
thereto, dated the Closing Date, among the original parties thereto and the
Purchasers other than the TFC Partnerships and as the same may be further
amended from time to time in accordance with its terms.
"Subsidiary" means, as of any time, each Entity as to which any of
the following statements is true as of such time:
(i) such Entity is an Affiliate of the Corporation which is
controlled by the Corporation, or
(ii) the Corporation owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding
equity interests in such Entity having ordinary voting power to
elect a majority of the members of the board of directors or joint
venture, partnership or other management committee, trustees,
managers or other Persons ordinarily having the power, authority or
responsibility for managing or directing the management of such
Entity, or
(iii) the Corporation, directly or indirectly through one or more
intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of
<PAGE>
such Entity or to receive upon dissolution and liquidation of such
Entity 50% or more of the assets available for distribution to the
holders of equity interests in such Entity, or
(iv) such Entity is a partnership (general or limited), joint
venture or other unincorporated Entity and the Corporation or
another Subsidiary is a general partner or joint venturer thereof or
has liability for the debts and obligations thereof over and above
its investment therein,
and in the case of any of clauses (i), (ii) and (iii), disregarding any voting
power, equity interests or other rights or interests which any Person other than
the Corporation or another Subsidiary Corporation would or might have upon the
happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
"TFC Holder" means (i) each of the TFC Partnerships and (ii) each
other Person who (A) at any time acquires any Investor Preferred Shares directly
or indirectly from any TFC Holder in a transaction or chain of transactions not
involving a public offering within the meaning of the Securities Act and (B) was
designated, by the TFC Holder from whom such Investor Preferred Shares were
acquired, as a TFC Holder in a written notice delivered to the Corporation, in
each case for so long as any such Person continues to hold any Investor
Preferred Share.
"TFC Partnerships" means 21st Century Communications Partners, L.P.,
a Delaware limited partnership, 21st Century Communications T-E Partners, L.P.,
a Delaware limited partnership, and 21st Century Communications Foreign
Partners, L.P., a Delaware limited partnership.
"TFC Series B Purchase Agreement" means the Stock Purchase
Agreement, dated September 25, 1996, among the Corporation and the TFC
Partnerships, as the same may be amended from time to time in accordance with
its terms.
"Valuation Committee" means a committee of the Board of Directors
composed of (i) the Series B Director or, during any period that there is no
Series B Director, the Series C Director, (ii) one or more independent directors
(as defined in Section 8(f) hereof) and (iii) not more than one other director.
"Wholly Owned Subsidiary" means an Entity all of the equity
interests of which at the time are owned beneficially and of record by the
Corporation, one or more Wholly Owned Subsidiaries of the Corporation or the
Corporation and one or more Wholly Owned Subsidiaries of the Corporation.
<PAGE>
3. Rank; Certain Restrictions; Fractional Shares; Certain Notices to be
Given; Actions to Facilitate Redemption.
(a) Rank. The Series C Preferred Stock shall, with respect to
dividend rights, rights on liquidation, winding up and dissolution and rights
upon redemption (i) rank on a parity basis with the Series B Preferred Stock and
(ii) rank prior to (A) the Common Stock, (B) the Series A Preferred Stock and
(C) any other class or series of capital stock of the Corporation, whether now
existing or hereafter created, except (in the case of this subclause (ii)(C)
only) the Series B Preferred Stock or any other class or series of Parity Stock
or Senior Stock hereafter created and issued with the prior approval of the
Majority Senior Holders, to the extent otherwise provided for by the terms of
such other class or series of Parity Stock or Senior Stock set forth in the
instrument creating and authorizing such Parity Stock or Senior Stock, provided
that such terms shall have been furnished in writing to and approved by the
Majority Senior Holders.
(b) Certain Restrictions on Payments in Respect of Capital Stock.
Except if and to the extent expressly authorized by Section 3(e) or with the
prior approval of the Majority Senior Holders so long as any Series C Preferred
Stock is outstanding, the Corporation shall not, and shall cause each of the
Subsidiaries not to:
(i) declare or pay dividends on, or declare or make any other
distribution, whether in cash, property, securities or any other form of
consideration, to the holders of or otherwise with respect to, the Common Stock,
the Series A Preferred Stock or any other class or series of capital stock of
the Corporation now existing or hereafter created other than the Series B
Preferred Stock or the Series C Preferred Stock;
(ii) redeem, purchase or otherwise acquire for cash, property,
securities or any other form of consideration any Common Stock, Series A
Preferred Stock or any other class or series of capital stock of the Corporation
now existing or hereafter created other than the Series B Preferred Stock or the
Series C Preferred Stock;
(iii) declare or pay dividends on, or make any other
distribution to the holders of or otherwise with respect to any Parity Stock,
whether in cash, property, securities or any other form of consideration, except
dividends declared and paid ratably on the Series C Preferred Stock and each
class or series of Parity Stock as to which dividends are payable or in arrears
so that the amount of dividends declared and paid per share of the Series C
Preferred Stock and per share of each class or series of such Parity Stock are
in proportion to the respective total amounts of unpaid dividends accrued with
respect to the Series C Preferred Stock and all such classes and series of
Parity Stock;
(iv) subject to Section 3(c) hereof, redeem, purchase or
otherwise acquire for cash, property, securities or any other form of
consideration any Series B Shares or Series C Shares otherwise than in
accordance with the respective terms thereof, but conversion of
<PAGE>
any Series B Shares or Series C Shares in accordance with their respective terms
shall not be deemed to be a redemption, purchase or other acquisition subject to
this clause or Section 3(c) hereof; or
(v) set aside, pursuant to a sinking fund or otherwise, any
cash, property, securities or other form of consideration for any of the
foregoing purposes.
(c) Pro Rata Redemptions and Purchases. If any date or event shall
occur that requires the Corporation to redeem any Series B Shares or Series C
Shares and the Corporation has insufficient legally available funds to redeem
all Series B Shares and Series C Shares then required to be redeemed, then: (i)
the Corporation shall give written notice to such effect to the holders of
Investor Preferred Shares as soon as practicable (and in any event not later
than ten Business Days) prior to the applicable Redemption Date; and (ii)
subject to the third sentence of this subsection, (A) the funds legally
available for such purpose shall be applied to redeem the Series B Shares and
Series C Shares then required to be redeemed ratably in proportion to the
respective full amounts to which the holders of shares of each such series would
be entitled if the Corporation had sufficient legally available funds to redeem
all Series B Shares and Series C Shares then required to be redeemed and (B) as
and when the Corporation has additional legally available funds, it shall apply
such funds to redeem the balance of the Series B Shares and Series C Shares so
required to be redeemed proportionately as provided in subclause (ii)(A) of this
sentence. In the event of any such partial redemption, the shares of either
series to be redeemed shall be selected on a pro rata basis from among all
holders of the shares that series required to be redeemed. At any time after a
notice from the Corporation is given pursuant to the first sentence of this
subsection and before the applicable Redemption Date, either the Majority
Holders or the holders of a majority of the shares of Series B Preferred Stock
then outstanding (the "Majority Series B Holders") may notify the Corporation in
writing that such Majority Holders or Majority Series B Holders, as the case may
be, object to partial redemptions as provided in the first sentence of this
subsection. If such a written objection is given, the Corporation shall not make
any such redemption of any Series B Shares or Series C Shares unless or until it
is otherwise instructed in writing by both the Majority Holders and the Majority
Series B Holders. Unless otherwise determined by the Majority Senior Holders,
the Corporation shall not, and shall cause each of the Subsidiaries not to,
otherwise purchase or acquire for value any shares of Series B Preferred Stock
or Series C Preferred Stock unless (i) such purchase or other acquisition is
made pursuant to an offer made on the same terms to all holders of shares of
Series B Preferred Stock and all holders of Series C Preferred Stock, except for
differences in price proportionate to any differences in the respective
Liquidation Prices of the two series and (ii) there are simultaneously purchased
or otherwise acquired on such terms all shares which such holders elect to
tender for purchase or other acquisition; provided, that if the aggregate
purchase price for all shares tendered for purchase exceeds the aggregate amount
offered by the Corporation, the purchase shall be made proportionately between
the Series B Shares and the Series C Shares tendered so that the aggregate
amount received by the holders of tendered shares of either series shall be
proportionate to the ratio that the aggregate Liquidation Price of all tendered
shares of that series
<PAGE>
bears to the aggregate Liquidation Price of all shares of both series tendered
for purchase, and the shares of either series purchased by the Corporation shall
be selected on a pro rata basis from among all holders who tendered shares of
that series. Nothing contained in this Section 3(c) is intended to eliminate,
qualify, modify or limit the rights of the holders of any Investor Preferred
Shares under any provision of this resolution, including Section 3(h), or the
Series B Certificate of Designation, including the provisions thereof
corresponding to Section 3(h) hereof, or any other rights or remedies which such
holders may have at law, in equity, by contract or otherwise in the event of the
failure of the Corporation to redeem any Investor Preferred Shares as and at the
times that would be required but for the provisions of this Section 3(c).
(d) Restriction on Dividends, Redemptions, Etc. by Subsidiaries. So
long as any shares of Series C Preferred Stock or Series C Preferred Stock shall
be outstanding, without the prior approval of the Majority Senior Holders, the
Corporation will not permit any Subsidiary that is not a Wholly Owned Subsidiary
to declare or pay any dividend on or declare or make any other distribution to
the holders of or otherwise with respect to any equity interest in such
Subsidiary (whether in cash, property, securities or any other form of
consideration) nor redeem, purchase or otherwise acquire for cash, property or
any other form of consideration any equity interest in such Subsidiary, other
than (i) distributions of available cash in excess of the amount required for
operating expenses, debt service, budgeted capital expenditures, reasonable
reserves for working capital and liabilities and other amounts reasonably
necessary for the continued efficient operation of the business of such
Subsidiary as reasonably determined by the Board of Directors or (ii)
distributions of cash to the extent necessary to permit the Corporation to pay
dividends on the Series B Preferred Stock or Series C Preferred Stock on a
current basis or to make redemption payments or payments on liquidation to the
holders of the Series B Preferred Stock or Series C Preferred Stock as and when
required, provided, in each case, that no holder (other than the Corporation or
a Wholly Owned Subsidiary) of any equity interest in any Subsidiary making any
such permitted distribution receives more than its proportionate share (based on
the percentage of outstanding equity interests in such Subsidiary held by such
holder) of any such permitted distribution. The Corporation will not, without
the prior approval of the Majority Senior Holders, permit any of the
Subsidiaries to issue any Preferred Interest other than issuances to the
Corporation or a Wholly Owned Subsidiary.
(e) Certain Exceptions. If, after the Closing Date, the Corporation,
with the prior approval of the Majority Senior Holders, creates and issues any
class or series of Parity Stock or Senior Stock, the restrictions contained in
Section 3(b) shall be subject to such exceptions, if any, expressly provided for
by the terms of such Parity Stock or Senior Stock set forth in the instrument
creating and authorizing such Parity Stock or Senior Stock, provided that such
terms shall have been furnished in writing to and approved by the Majority
Senior Holders.
(f) Fractional Shares. Fractional shares of Series C Preferred Stock
may be issued, either upon original issuance pursuant to any Purchase Agreement
or the Co-Investment Agreement or otherwise as permitted by Section 1(b) or from
time to time thereafter upon
<PAGE>
transfers or exchanges of outstanding shares (or fractional shares) thereof or
certificates therefor. Each fractional share of Series C Preferred Stock, if
any, outstanding shall be entitled to ratably proportionate voting and approval
rights with respect to all matters submitted for the vote of or approval by
holders of the Series C Preferred Stock and a ratably proportionate amount of
all dividends accruing, declared or paid with respect to each outstanding whole
share of Series C Preferred Stock pursuant to Section 4 and of all payments due
or made with respect to each outstanding whole share of Series C Preferred Stock
pursuant to Section 5 or Section 6; all such dividends with respect to such
outstanding fractional shares shall be fully cumulative and shall accrue
(whether or not declared) and shall be payable in the same manner and at the
same time as provided for in Section 4 with respect to dividends on each
outstanding whole share of Series C Preferred Stock; and all such payments
pursuant to Section 5 or Section 6 with respect to such outstanding fractional
shares shall be payable in the same manner and at such time as provided for in
Section 5 or Section 6 (as the case may be) with respect to such payments on
each outstanding whole share of Series C Preferred Stock. The holder of each
such fractional share shall otherwise be entitled to all of the rights, powers,
preferences, and be subject to the same qualifications, limitations and
restrictions, as the holders of whole shares of the Series C Preferred Stock,
including conversion rights pursuant to Section 9.
(g) Certain Notices and Other Obligations Relating to Participation
Event or Reorganization Event. If the Corporation agrees or the Board of
Directors passes a resolution authorizing the Corporation to voluntarily
consummate or take, or assist any one or more of the holders of its Common Stock
in consummating or taking, any transaction or action which would, if
consummated, result in a Participation Event, or if the Corporation receives
formal written notice that one or more of the holders of its Common Stock have
agreed to engage in any such transaction, then it shall send to each holder of
Series C Preferred Stock and each holder of the Series B Preferred Stock, at
least 15 days prior to the scheduled or anticipated closing of such transaction
(or, in the case where the Corporation receives formal written notice of such
transaction, immediately upon receiving such formal written notice if such
notice is received less than 15 days prior to the scheduled or anticipated
closing of such transaction), a written notice which will summarize the material
terms of such transaction, and if any of such terms change in any material
respect prior to such closing, the Corporation shall promptly notify the holders
of the Series C Preferred Stock and the holders of the Series B Preferred Stock
in writing. If any Participation Event occurs, the Corporation shall give the
holders of the Series C Preferred Stock and the holders of the Series B
Preferred Stock written notice thereof promptly, and in any event not later than
the fifth Business Day after the Corporation has knowledge of such occurrence,
and such notice shall summarize the material facts relating to such
Participation Event. If the Corporation plans or the Board of Directors passes a
resolution authorizing the Corporation, or any Significant Subsidiary's Board of
Directors or other governing body plans or authorizes such Significant
Subsidiary, to take any voluntary action intended to result in any
Reorganization Event, or if the Corporation receives formal written notice that
any other Person plans to take or has taken any action intended to result in an
involuntary Reorganization Event, then it shall immediately send to each holder
of Series C Preferred Stock and each holder of the Series B
<PAGE>
Preferred Stock (or, in the case where the Corporation receives formal written
notice of such action, immediately upon receiving such formal written notice), a
written notice to that effect stating the material relevant facts relating
thereto and shall thereafter keep each such holder apprised on a current basis
of all related material developments. If any Reorganization Event occurs, the
Corporation shall give the holders of the Series C Preferred Stock and the
holders of the Series B Preferred Stock written notice thereof promptly, and in
any event not later than the next Business Day after the Corporation has
knowledge of such occurrence, and such notice shall summarize the material facts
relating to such Reorganization Event. Each notice given by the Corporation
pursuant to the second or fourth sentence of this Section 3(g) shall be
accompanied by an appropriate form (an "Election Form") by which the holders of
the Series C Preferred Stock and the holders of the Series B Preferred Stock may
elect whether or not to require the Corporation to redeem their shares of the
Series C Preferred Stock in accordance with the terms of Section 6(c) or their
shares of the Series B Preferred Stock in accordance with the terms thereof (as
the case may be). If, at any time within a period of 15 days after Election
Forms are mailed, the Corporation shall have received completed Election Forms
from the Majority Senior Holders electing to require the Corporation to redeem
the Series B Shares, Series C Shares or both held by them, the Corporation shall
promptly thereafter redeem from all holders of Series C Preferred Stock and all
holders of Series B Preferred Stock, in accordance with Section 6(c) and the
other applicable provisions of this resolution and the applicable provisions of
the Series B Certificate of Designation, respectively, all outstanding shares of
Series C Preferred Stock and Series B Preferred Stock; provided, however, that
the Corporation shall not voluntarily consummate or take, or assist any of the
holders of its Common Stock in consummating or taking, any transaction or action
which would result in a Participation Event unless (i) prior to the date such
transaction is closed or such action is taken, the procedures specified in this
Section 3(g) shall have been followed and the period of 15 days referred to in
this sentence shall have expired; (ii) if the Corporation would be required to
redeem all shares of Series B Preferred Stock and all shares of Series C
Preferred Stock by virtue of such Participation Event, the Corporation shall
have (A) deposited with a Redemption Agent funds sufficient to redeem on the
applicable Redemption Date all Series C Shares required to be redeemed at the
applicable Redemption Price and (B) deposited with a "Redemption Agent" funds
sufficient to redeem on the applicable "Redemption Date" all Series B Shares
required to be redeemed at the applicable "Redemption Price," as such quoted
terms are defined in and determined in accordance with the Series B Certificate
of Designation; and (iii) the Corporation shall have given written notice of its
compliance with clause (ii) of this sentence to each holder of Series C
Preferred Stock or Series B Preferred Stock. The provisions of this Section 3(g)
shall apply successively to each Change of Control or Reorganization Event which
may occur.
(h) Actions to Facilitate Required Redemptions. If, at any time that
any redemption of any shares of Investor Preferred Stock is, or with the passage
of time after any notice will be, required by any provision of this resolution,
the Corporation is in material violation or breach of the terms of any material
indebtedness of the Corporation or a default or event of default with respect to
or under any material indebtedness of the Corporation exists and
<PAGE>
has not been waived or cured, if the Corporation is insolvent under applicable
law, or if the Corporation's capital is impaired under the law of the
jurisdiction of incorporation, or if any such violation, breach, default, event
of default, insolvency or impairment of capital or any material violation of law
would result from such redemption, then the Corporation shall (i) promptly give
written notice to such effect to the holders of the Series B Preferred Stock and
the holders of the Series C Preferred Stock, (ii) subject to the applicable
provisions of the Stockholders Agreement, take, as hereafter provided in this
Section 3(h), all reasonable lawful actions to cure or avoid such violation,
breach, default or event of default, to restore or preserve its solvency or to
cure or avoid such impairment of capital, in each case as necessary to enable
the Corporation to make such redemption to the fullest extent possible,
including (A) the sale of additional equity securities, (B) any necessary action
under applicable law to reduce the Corporation's stated capital or otherwise
increase the Corporation's surplus or other funds legally available, (C)
additional borrowings by, or a refinancing of the debt of, one or more Company
Parties, (D) asset sales by one or more Company Parties and (E) sales of one or
more Company Parties to third parties and (iii) no later than thirty days after
the date of delivery of the notice referred to in clause (i) of this sentence,
engage (at the Corporation's sole expense) a nationally recognized independent
investment banking firm reasonably acceptable to the Majority Senior Holders
(such firm, the "Advisor") in order to advise and assist the Corporation in
connection with the actions to be taken by the Corporation (each such action, an
"Action"), including without limitation the actions enumerated in subclauses
(A)-(E) of clause (ii) of this sentence. The Corporation and the Advisor shall
submit to the holders of the Series C Preferred Stock and the holders of the
Series B Preferred Stock, no later than sixty days after the date of the notice
referred to in clause (i) of the immediately preceding sentence, a proposal
setting forth the Actions proposed to be taken by the Corporation. Any proposed
Action that is approved by the affirmative vote of the Majority Senior Holders
and by the Investors (as defined in the Stockholders Agreement), pursuant to the
Stockholders Agreement (if such approval is required by the terms thereof)
(each, an "Investor Approved Action") shall be pursued by the Corporation in
good faith as quickly as practicable. In the event that the Investor Approved
Actions include a sale of a Company Party or assets of a Company Party, then no
later than 120 days after such approval (one hundred fifty days if the Advisor
assisting in the sale shall advise the Corporation in writing that such
additional period is reasonably likely, in its good faith judgment, to result in
a higher price being obtained in such sale) or such later date as may be agreed
upon by the Corporation and the Majority Senior Holders, the Board of Directors
shall accept the highest bid submitted for such sale deemed by the Advisor to
represent an "adequate" price for such assets or such Company Party (the values
of such bids to be determined by the Advisor). Any holder of shares of Series C
Preferred Stock or Series B Preferred Stock and any Affiliate of any such holder
or of the Corporation shall be entitled to submit its own bid in the competitive
bidding process. In the event that the Investor Approved Actions include (i) a
sale of additional equity securities or debt securities of any Company Party or
(ii) additional borrowings by or a refinancing of the debt of any Company Party,
the Corporation will take and cause each other affected Company Party to use its
best efforts to consummate such proposed Action within 120 days after such
approval or by such later date as may be agreed upon by the Corporation and the
Majority Senior Holders. Consistent
<PAGE>
with his or her fiduciary duties as a director of the Corporation, each director
of the Corporation (whether or not a Series C Director) shall approve the taking
by the Corporation of each Investor Approved Action and, if any approval or
other action by any of the Corporation's stockholders is required by applicable
law in order to authorize, or otherwise in connection with, the taking of such
Investor Approved Action, shall recommend that such stockholders give such
approval and take such other action, but this sentence shall not be construed as
establishing any requirement for unanimous approval by the Board of Directors in
order to authorize any Investor Approved Action or otherwise the vote required
under applicable law, this resolution or the Corporation's Certificate of
Incorporation. Nothing contained in this Section 3(h) is intended to eliminate,
qualify, modify or limit the rights of the holders of the Series C Preferred
Stock or the holders of the Series B Preferred Stock under any provision of the
Series C Certificate of Designation or the Series B Certificate of Designation,
respectively, or any other rights or remedies which such holders may have at
law, in equity or by contract in the event of the failure of the Corporation to
redeem shares of Series C Preferred Stock or Series B Preferred Stock as and
when required by the Series C Certificate of Designation or the Series B
Certificate of Designation.
4. Dividends.
(a) Dividend Rate; Dividend Payments Dates; Etc. The holders of the
Series C Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor, cumulative
cash dividends, in preference and priority to dividends on any Junior Stock,
that shall accrue on the Liquidation Price of each share of the Series C
Preferred Stock at the rate of fourteen and eight-tenths percent (14.8%) per
annum, from and including the Issue Date of such share to and including the date
on which the Liquidation Price (plus unpaid dividends as described in Section
5(a) hereof) or Redemption Price of such share is made available pursuant to
Section 5 or Section 6, respectively, or such share is converted pursuant to
Section 9 or Section 10. Accrued dividends on the Series C Preferred Stock shall
be payable on September 1, 1997 and thereafter quarterly on each December 1,
March 1, June 1 and September 1 of each year (each a "Dividend Payment Date"),
to the holders of record of the Series C Preferred Stock as of the close of
business on the applicable Record Date. Dividends shall be fully cumulative and
shall accrue on a daily basis based on a 365- or 366-day year, as the case may
be, without regard to the occurrence of a Dividend Payment Date and whether or
not such dividends have been declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. Whenever the Board of Directors declares any dividend pursuant to
this Section 4(a), notice of the applicable Record Date and related Dividend
Payment Date shall be given, not more than 45 days nor less than 10 days prior
to such Record Date, to the holders of record of the Series C Preferred Stock at
their respective addresses as the same appear on the books of the Corporation or
are supplied by them in writing to the Corporation for the purpose of such
notice.
(b) Compounding of Dividends. On each Dividend Payment Date, all
dividends that have accrued on each share of Series C Preferred Stock during the
immediately
<PAGE>
preceding Dividend Period shall, to the extent not paid on such Dividend Payment
Date for any reason (whether or not such unpaid dividends have been earned or
declared or there are any unrestricted funds of the Corporation legally
available for the payment of dividends), be added to the Liquidation Price of
such share effective as of such Dividend Payment Date and shall remain a part
thereof to and including the date on which the Liquidation Price (plus unpaid
dividends as described in Section 5(a) hereof) or Redemption Price of such share
is made available pursuant to Section 5 or Section 6, respectively. No accrued
dividends (or dividends accrued thereon) which have been added to Liquidation
Price of any Series C Share may be subsequently declared or, except in
accordance with Section 5 or Section 6, paid by the Corporation without the
consent of the Majority Senior Holders.
(c) Pro Rata Declaration and Payment of Dividends. All dividends
paid with respect to shares of the Series C Preferred Stock pursuant to this
Section 4 shall be declared and paid pro rata to all the holders of the shares
of Series C Preferred Stock outstanding as of the applicable Record Date.
5. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) Payment of Liquidation Price. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of shares of the Investor Preferred Stock shall be entitled to
receive from the assets of the Corporation available for distribution to
stockholders, before any payment or distribution to the holders of any Junior
Stock (in their capacities as holders of such Junior Stock) shall be declared,
made or provided for or any cash, property or other consideration shall be set
aside for such purpose, an amount in cash or property at its Fair Market Value,
as reasonably determined by the Board of Directors in good faith, or a
combination thereof, for each share of Investor Preferred Stock, equal to the
sum of the Liquidation Price of such share of Investor Preferred Stock as of the
date of the payment or distribution thereof to the holders of the Investor
Preferred Stock plus all unpaid dividends accrued on such share during the
period from and including the applicable Dividend Date immediately preceding
such date (or the Issue Date for such share if there was no prior Dividend Date)
through and including such date of payment or distribution (whether or not such
unpaid dividends have been earned or declared).
(b) Participating Distributions. Subject to Section 5(c), if, in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment in full to the holders of the
Series C Preferred Stock, the Series B Preferred Stock and the holders of all
other classes or series of Parity Stock, if any, which rank on a parity basis
with the Investor Preferred Stock with respect to distributions upon such
liquidation, dissolution or winding up of the respective preferential amounts to
which they are entitled, the Corporation shall at any time distribute to the
holders of its shares of Common Stock or any other class or series of Junior
Stock any cash, property or other consideration, the holders of the Investor
Preferred Stock shall be entitled to receive, for each share of Investor
Preferred
<PAGE>
Stock held, an amount per share of the Investor Preferred Stock equal to the
amount that a holder of one share of the Investor Preferred Stock would have
been entitled to receive as a record holder of the number of shares of Common
Stock or such class or series of other Junior Stock (as the case may be) had
such share of Investor Preferred Stock been converted in accordance with Section
9 hereof, in the case of the Series C Preferred Stock, or in accordance with the
Series B Certificate of Designation, in the case of the Series B Preferred
Stock, immediately prior to the record date for such distribution (or, if no
such record date is fixed, immediately prior to any other time as of which the
holders of Common Stock or other Junior Stock entitled to participate in such
distribution was determined). The holders of the Investor Preferred Stock shall
be entitled to a distribution of fractional shares or interests in any
securities or other property distributed as contemplated by this subsection to
the extent that holders of Common Stock or such other Junior Stock are entitled
to receive the same. The holders of shares of the Investor Preferred Stock on
the applicable record date (or other effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same consideration as
is payable to holders of the Common Stock or other Junior Stock in respect of
which such distribution is made. If there are no fractional shares or interests
payable to holders of the Common Stock or such other Junior Stock, the holders
of shares of the Investor Preferred Stock on the applicable record date (or
other effective time) shall receive in lieu of such fractional shares or
interests the Fair Market Value thereof as determined by the Board of Directors
in good faith. If the holders of Common Stock or such other Junior Stock are
entitled to make any election with respect to the kind or amount of securities
or other property receivable by them in any distribution that is subject to this
subsection, the kind and amount of securities or other property that shall be
distributable to each holder of shares of Investor Preferred Stock shall be
based on (i) the election, if any, made by such holder of Investor Preferred
Stock in writing to the Corporation on or prior to the last date on which a
holder of Common Stock or such other Junior Stock may make such an election or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable by holders of shares of
Investor Preferred Stock who do not make such election on a timely basis shall
be based on the kind or amount of securities or other property receivable by a
plurality of the shares held by the nonelecting holders of Common Stock or such
other Junior Stock). Concurrently with the delivery to holders of Common Stock
or such other Junior Stock of any document pursuant to which such holders may
make an election of the type referred to in this subsection, the Corporation
shall deliver a copy thereof to the holders of record of shares of the Investor
Preferred Stock as of the date used for determining the holders of record of
Common Stock or such other Junior Stock entitled to such delivery, which
document shall be used by the holders of record of shares of the Investor
Preferred Stock to make such an election. Distributions to which holders of
Investor Preferred Stock are entitled to receive pursuant to this Section 5(b)
are in addition to those distributions to which they are entitled pursuant to
Section 5(a).
(c) Limit on Participating Payments. The right of the holders of
Investor
<PAGE>
Preferred Stock to participate in distributions to holders of the Common Stock
or any other class or series of Junior Stock pursuant to Section 5(b) shall
terminate at such time as the total amount distributed to the holders of the
Investor Preferred Stock pursuant to Section 5(a) and Section 5(b) equal, for
each share of Investor Preferred Stock held, Three Hundred and Eight Dollars
($308) per share.
(d) Pro Rata Distributions to Senior Holders. If, upon distribution
of the Corporation's assets in liquidation, dissolution or winding up, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to permit payment in full to the holders of the Investor
Preferred Stock and the holders of all other classes or series of Parity Stock,
if any, which rank on a parity basis with the Investor Preferred Stock with
respect to distributions upon such liquidation, dissolution or winding up of the
respective preferential amounts to which they are entitled, then the entire
assets of the Corporation available for distribution to stockholders shall be
distributed ratably to such holders in proportion to the respective full
preferential amounts to which the shares of Investor Preferred Stock and all
such other classes and series of Parity Stock would otherwise be entitled. For
purposes of this subsection (d), the "preferential amounts" to which the holders
of the Series C Preferred Stock or the Series B Preferred Stock are entitled
shall be the amounts determined pursuant to Section 5(a) and shall not include
any amounts to which they are or may become entitled pursuant to Section 5(b).
(e) Merger, Sale of Assets, Etc. For purposes of this Section 5, no
Participation Event shall in and of itself be considered to be a liquidation or
winding up of the Corporation; provided, however, that if the Corporation shall
fail to redeem, as and when required by Section 6 hereof and the corresponding
provisions of the Series B Certificate of Designation, all shares of Investor
Preferred Stock required to be redeemed as a result of such Participation Event,
then the Majority Senior Holders may elect, by written notice to the Corporation
at any time (either before, after or during any proceedings initiated under
Section 3(h) hereof or the corresponding provisions of the Series B Certificate
of Designation), to require that such Participation Event be treated as a
liquidation, dissolution or winding up of the Corporation entitling the holders
of the Series B Preferred Stock and the Series C Preferred Stock and the holders
of the Common Stock and other Junior Stock, if any, to receive, at the closing,
the respective amounts specified above in this Section 5. Nothing contained in
this Section 5(e) is intended to eliminate, qualify, modify or limit the rights
of the holders of the Series C Preferred Stock or the holders of the Series B
Preferred Stock under any provision of the Series C Certificate of Designation
or the Series B Certificate of Designation, respectively, or any other rights or
remedies which such holders may have at law, in equity or by contract in the
event of the failure of the Corporation to redeem shares of Series C Preferred
Stock or Series B Preferred Stock as and when required by the Series C
Certificate of Designation or the Series B Certificate of Designation.
(f) Record Date and Notice. Unless the Majority Senior Holders
otherwise
<PAGE>
agree in writing, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary:
(i) Any distribution to the holders of capital stock of the
Corporation of any class or series of assets of the Corporation
available for distribution to its stockholders will be made to the
holders of record of such class or series on a record date that is
not less than 10 days nor more than 30 days prior to the date such
distribution is proposed to be made (each, a "Distribution Date").
(ii) The Corporation shall give to each holder of Investor Preferred
Stock at least 20 days' prior written notice of the record date to be fixed for
any payment or distribution to any of the holders of any capital stock of the
Corporation of any class or series. In addition to any other information
required by this resolution, the Series B Certificate of Designation, any
contract or applicable law, such notice shall describe in reasonable detail each
payment or distribution proposed to be made, identify all classes and series of
capital stock that will participate in such payment or distribution and the
relative participations of the holders of each such class or series and state
the record date and Distribution Date for such payment or distribution. Such
notice shall be accompanied by a statement, in reasonable detail, showing the
amount, kind and value of all assets of the Corporation available for payment or
distribution to its stockholders. After any such notice is given, the
Corporation shall promptly furnish to each holder of Investor Preferred Stock
any information that such holder may reasonably request relating to the
liquidation, dissolution or winding up of the Corporation and its assets and
liabilities, including any information reasonably requested and in the
possession of the Corporation in order to assist such holder in determining
whether to exercise any right to convert any or all of such holder's shares of
Investor Preferred Stock into Common Stock or other Junior Stock.
(iii) The Investor Preferred Shares shall continue to be convertible
into Common Stock in accordance with the respective terms thereof unless and
until such holders have received indefeasible payment of the full preferential
amounts to which they are entitled pursuant to Section 5(a). Once such payment
in full has been indefeasibly made, the Investor Preferred Shares no longer
shall be convertible, but the holders thereof shall continue to be entitled to
participating distributions pursuant to Section 5(b).
6. Redemption.
(a) At Corporation's Option. At any time after the Closing Date and
prior to the fifth anniversary of the Closing Date, all but not less than all of
the Series B Shares and the Series C Shares may be redeemed at the option of the
Corporation at the Redemption Price equal to Three Hundred and Eight Dollars
($308.00) per share. Unless otherwise approved by the Majority Senior Holders,
the Corporation shall not exercise its right of redemption pursuant to
<PAGE>
this Section 6(a) unless such redemption does not and shall not result in
impairment of the Corporation's capital, otherwise result in a violation of
applicable law or result in a material breach, violation, default or event of
default under any agreement or instrument to which the Corporation is a party or
by or to which it or its assets are bound or subject and unless the Corporation
is not then insolvent and would not be rendered insolvent as a result of such
redemption.
(b) Mandatory Redemption. The Corporation shall redeem, on the fifth
anniversary of the Closing Date, all shares of Series C Preferred Stock then
outstanding at a Redemption Price per share equal to the sum of the Liquidation
Price of such share determined as of the applicable Redemption Date plus all
unpaid dividends (whether or not earned or declared) accrued on such share
during the period from and including the Dividend Payment Date immediately
preceding such Redemption Date through and including such Redemption Date.
(c) Redemption at Option of Holders Upon Participation Event or
Reorganization Event. In the event of the occurrence of a Participation Event or
any Reorganization Event, the Majority Senior Holders shall have the right to
require the Corporation to redeem, on the applicable Redemption Date, all of the
outstanding shares of the Investor Preferred Stock. Such right may be exercised
by one or more Election Forms or any other written notices (collectively, a
"Section 6(c) Election Notice") to such effect which, collectively, have been
signed by the Majority Senior Holders and given to the Corporation at any time
after the date of occurrence of such Participation Event or Reorganization Event
(as the case may be) and prior to the expiration of the period of 15 days after
written notice of such occurrence is given to the holders of the Investor
Preferred Stock pursuant to Section 3(g) or, if the penultimate sentence of
Section 3(g) is applicable, at any time within the period of 15 consecutive days
after the written notice referred to in clause (iii) of such sentence is given;
provided, however, that in the case of any Reorganization Event, such 15-day
period shall be extended by a number of days equal to the number of days, if
any, during which either the exercise of such right or the redemption by the
Corporation of the Investor Preferred Stock shall be enjoined, stayed or
otherwise prevented or delayed by order or decree of any court or tribunal. In
the case of a redemption of the Investor Preferred Stock pursuant to this
Section 6(c) in connection with a Reorganization Event or in connection with a
Participation Event under clause (v) of the definition of "Change in Control" in
Section 2 resulting solely from the death of Gerard Joyce or Thomas Pugliese,
the Redemption Price per share of the Series C Preferred Stock shall be equal to
the sum of the Liquidation Price of such share determined as of the applicable
Redemption Date plus all unpaid dividends (whether or not earned or declared)
accrued on such share during the period from and including the Dividend Payment
Date immediately preceding the applicable Redemption Date (or the Issue Date of
such share, if the first Dividend Payment Date for such share has not yet
occurred) through and including such Redemption Date. In the case of a
redemption of the Investor Preferred Stock pursuant to this Section 6(c) in
connection with a Participation Event other than any under clause (v) of the
definition of "Change in Control" in Section 2 resulting solely from the death
of Gerard Joyce or Thomas Pugliese, the Redemption
<PAGE>
Price per share of the Series C Preferred Stock shall be equal to the lesser of
(i) Three Hundred and Eight Dollars ($308) or (ii) the sum of (x) the
Liquidation Price of such share determined as of the applicable Redemption Date,
plus (y) all unpaid dividends (whether or not earned or declared) accrued on
such share during the period from and including the Dividend Payment Date
immediately preceding the applicable Redemption Date (or the Issue Date of such
share, if the first Dividend Payment Date for such share has not yet occurred)
through and including such Redemption Date plus (z) the Participation Amount
calculated as of the Redemption Date.
(d) Form and Source of Redemption Payments. The Redemption Price for
all shares redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c) shall
be paid in cash from unrestricted funds legally available for such purpose.
(e) Notice of Redemption. Notice of any redemption by the
Corporation pursuant to Section 6(a), Section 6(b) or Section 6(c) shall be
given to the holders of record of the shares of Investor Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the books of the
Corporation or are supplied by them in writing to the Corporation for the
purpose of such notice. In the case of a redemption pursuant to Section 6(a) or
Section 6(b), such notice shall be given not more than 45 days nor less than 10
days prior to the applicable Redemption Date; and in the case of a redemption
pursuant to Section 6(c), such notice shall be given not earlier than the date
the related Section 6(c) Election Notice is given nor later than the tenth
Business Day prior to the applicable Redemption Date. In addition to any
information required by law or by the applicable rules of any national stock
exchange or national interdealer quotation system, such notice shall set forth
the Redemption Price, the Redemption Date, the number of shares to be redeemed
and the place at which the shares called for redemption will, upon presentation
and surrender of the stock certificates evidencing such shares, be redeemed, and
shall state the name and address of the Redemption Agent appointed in accordance
with Section 6(f).
(f) Deposit of Redemption Price. If any shares of Investor Preferred
Stock are to be redeemed pursuant to Section 6(a), Section 6(b) or Section 6(c),
then on or before the applicable Redemption Date the Corporation shall deposit,
in an irrevocable trust fund for the sole purpose of redeeming the shares of
Investor Preferred Stock to be redeemed on such Redemption Date, with any bank
or trust company organized under the laws of the United States of America or any
state thereof having capital, undivided profits and surplus aggregating at least
$250,000,000 or having capital, undivided profits and surplus aggregating at
least $250,000,000 on a consolidated basis with such bank's or trust company's
parent, provided, however, that, in such case, such parent has guaranteed all of
the existing and future obligations of such bank or trust company (a "Redemption
Agent"), immediately available unrestricted funds legally available for such
purpose sufficient to redeem for the applicable Redemption Price on such
Redemption Date the shares of Investor Preferred Stock called for redemption or
otherwise required to be redeemed in accordance with Section 6(a), Section 6(b)
or Section 6(c) with irrevocable instructions and authority to the Redemption
Agent, on behalf and at the expense of
<PAGE>
the Corporation, to pay, commencing on such Redemption Date or prior thereto,
the Redemption Price of the shares of Investor Preferred Stock to be redeemed to
their respective holders upon the surrender of their share certificates and,
from and after the later of the date of such deposit and such Redemption Date,
such shares shall be deemed to be no longer outstanding and the holders thereof
shall cease to be stockholders with respect to such shares and shall have no
rights with respect thereto, except the right to receive payment, as provided in
this resolution, of the Redemption Price of such shares, calculated through such
Redemption Date, upon surrender of the certificates therefor. Any funds so
deposited with the Redemption Agent by the Corporation and unclaimed for six
months from the Redemption Date shall (unless an applicable escheat or abandoned
property law designates another Person) be paid to the Corporation, after which
repayment the holders of such shares of Investor Preferred Stock shall look to
the Corporation for the payment of the Redemption Price therefor, without
interest.
7. Board Representation.
(a) Right to Elect Director. The holders of the Series C Preferred
Stock shall be entitled to vote as a separate class for the election of one
director of the Corporation. The director whom, at any time and from time to
time, the holders of the Series C Preferred Stock elect or are entitled to elect
voting as a separate class is sometimes herein referred to as the "Series C
Director". Subject to earlier death, resignation or removal pursuant to Section
7(c), each Series C Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's stockholders and
his or her successor shall have been elected as provided herein. At their option
and in their sole discretion and for any one or more periods of any length of
time, the Majority Holders at any time and from time to time may choose not to
exercise their right to elect a Series C Director or to fill any vacancy
existing in the office of the Series C Director, without prejudice to any
subsequent exercise of such right. In such event, the Majority Holders may (in
their sole discretion) choose to have a representative appointed by them attend
any one or more meetings of the Board of Directors as an observer, and such
representative shall be entitled to receive the same notices of meetings of and
proposed actions by the Board of Directors as directors generally.
(b) Manner of Election. Subject to the last sentence of this Section
7(b), Series C Directors shall be elected (and if such directors previously have
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Majority Holders given in accordance with Section
8(a); or (ii) by the vote of the Majority Holders voting as a separate class and
in accordance with Section 8(b), at (A) annual meetings of the shareholders of
this Corporation, or (B) a special meeting of the holders of Series C Preferred
Stock for the purpose of electing such directors (or filling any such vacancy),
to be called by the Secretary of this Corporation upon the written request of
the holders of record of 5% or more of the number of shares of Series C
Preferred Stock then outstanding; provided, however, that if the Secretary of
this Corporation shall fail to call any such special meeting within 10 days
after any such request, such meeting may be called by any holder or holders of
5% or more of the number
<PAGE>
of shares of Series C Preferred Stock then outstanding. Notwithstanding the
foregoing, the Secretary shall not be entitled to call any such special meeting
in the case of any such request received by this Corporation less than 45 days
before the date fixed for any annual meeting of shareholders, and if in such
case such special meeting is not called, the holders of Series C Preferred Stock
shall be entitled to vote (as a class) at such annual meeting to elect the
Series C Director (or to fill any such vacancy).
(c) Removal. Any Series C Director may at any time and from time to
time be removed, with or without cause, by and only by the Majority Holders. Any
vacancy in the office of Series C Director resulting from death, resignation or
removal or existing for any other reason whatsoever may be filled only by the
Majority Holders. Any director elected to fill a vacancy shall serve the same
remaining term as that of his or her predecessor and until his or her successor
has been chosen and has qualified.
(d) Certain Procedural Matters. So long as the holders of the Series
C Preferred Stock shall have the right to elect a Series C Director: any one or
more members of the Board of Directors or any committee thereof may participate
in meetings of the Board of Directors by conference telephone; each member of
the Board of Directors or any committee thereof shall be given not less than
three days' prior written notice of each meeting of the Board of Directors or
such committee (or two days' prior written notice in case of meetings to
consider emergency matters), specifying the time and place of such meeting and
the matters to be discussed thereat, unless such member signs (either before or
after such meeting) a written waiver of his right to be given such notice, or
attends such meeting without protesting (prior thereto or at the commencement
thereof) the failure to be given such notice; each member of the Board of
Directors or any committee thereof shall be given not less than three days'
prior written notice of any action proposed to be taken by the Board of
Directors or such committee without a meeting (or two days' prior written notice
in case of proposed actions involving emergency matters), unless such member
signs (either before or after such action is taken) a written waiver of his
right to be given such notice, or gives his written consent to such action
without protesting the failure to be given such notice; no executive committee
of the Board of Directors, and no other committee of the Board of Directors
which is authorized to exercise any powers of the Board of Directors, shall be
created except (i) for the Valuation Committee, (i) as provided in Section 7(f)
or (i) otherwise with the concurrence of the Series B Director or, if there is
no Series B Director, by the Series C Director or, if there is no Series C
Director, by the Majority Senior Holders; and at any meeting of the Board of
Directors or any committee thereof, a quorum for the purpose of taking any
action shall require the presence in person or participation by conference
telephone or similar communications equipment of a number of directors equal to
at least a majority of the entire Board of Directors or the entire committee.
(e) Indemnification. The Corporation shall (i) to the fullest extent
permitted by applicable law, indemnify each director and former Series C
Director who is made a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding,
<PAGE>
whether civil, criminal, administrative or investigative, by reason of the fact
that such Person is or was a director of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such Person in connection
with such action, suit or proceeding and (ii) pay in advance, or advance to each
such director and former director for payment of, expenses incurred in defending
any such action, suit or proceeding to the maximum extent permitted by Section
145(e) of the General Corporation Law of the State of Delaware (or any successor
statutory provision). The rights conferred on any Person by this Section 7(e)
shall not be exclusive of any other rights which such Person may have or acquire
under any statute, under the Corporation's Certificate of Incorporation, under
the Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Audit and Compensation Committees. Unless the Majority Senior
Holders otherwise agree, so long as the holders of the Series C Preferred Stock
shall have the right to elect a Series C Director, the Board of Directors shall
have an audit committee and a compensation committee (the "Compensation
Committee"), each of which shall have three members one of whom shall be the
Series B Director or, during any period when there is no Series B Director, the
Series C Director, and at least one other of whom shall be an independent
director (as defined below in this Section). The audit committee will have the
authority and responsibility for the selection, engagement or discharge of
independent auditors, reviewing with the independent auditors the plan and
results of the auditing engagement, reviewing the Corporation's system of
internal accounting controls, directing investigations in matters within the
scope of its functions and performing any and all other such functions
customarily performed by audit committees of public companies. The Compensation
Committee will have the authority and responsibility for establishing and
administering the stock, incentive and other employee benefit plans of the
Corporation, establishing and changing the compensation of executive officers,
approving or amending existing and proposed employment agreements between the
Corporation and its executive officers and performing any and all other such
functions customarily performed by compensation committees of public companies.
Without limiting the generality of the foregoing, the Compensation Committee
will have the authority and responsibility, in administering any stock,
incentive or other employee benefit plans, including any such plans in effect on
the Closing Date, to determine the persons to whom awards or benefits may be
made, to determine the terms and conditions (which need not be identical) of
each award made or benefit conferred (including the timing and type of award or
benefit, the exercise or purchase price for any award of stock or stock options,
and terms related to vesting, exercisability, forfeiture and termination), and
to interpret the provisions of each such plan. For purposes hereof, an
"independent director" is an individual who (unless otherwise approved by the
Series B Director or, if there is no Series B Director, by the Series C Director
or, if there is no Series C Director, by the Majority Senior Holders) (i) has
either a significant financial investment in the Corporation or a significant
strategic position or expertise relative to the business of the Corporation and
(ii) is not (A) an officer or employee of the Corporation or any
<PAGE>
of its Subsidiaries, (B) a director, employee, partner, manager or other member
of management of any of Affiliate of the Corporation (except a director of a
Subsidiary of the Corporation), (C) a relative of any Person described in
subclause (ii)(A) or (ii)(B) or (D) a trustee of any trust or estate in which
any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a beneficiary
has a substantial beneficial interest.
8. Actions by Holders Generally; Consistent Charter and By-law Provisions.
(a) Actions by Written Consent or at Meetings.
(i) With respect to action by the holders of the Series C Preferred
Stock upon any matter on which such holders are entitled to vote as a separate
series or class, such action may be taken either at a meeting of such holders or
without a stockholder meeting by the written consent of holders of shares of
Series C Preferred Stock having voting power to cast not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares of Series C Preferred Stock entitled to vote were
present and voted. Notice shall be given in accordance with the applicable
provisions of the Delaware General Corporation Law of the taking of corporate
action without a meeting by less than unanimous written consent to those holders
of Series C Preferred Stock whose shares were not represented on the written
consent.
(ii) With respect to actions by the holders of the Series B
Preferred Stock and the Series C Preferred Stock upon those matters on which
such holders are entitled to vote as a single series or class (including any
action which this resolution states is within the authority or discretion of the
Majority Senior Holders), such actions may be taken either at a meeting of such
holders or without a stockholder meeting by the written consent of holders of
shares of Investor Preferred Stock having an aggregate Liquidation Price
representing more than 50% of the total Liquidation Price of all Series B Shares
and Series C Shares then outstanding. Notice shall be given in accordance with
the applicable provisions of the Delaware General Corporation Law of the taking
of corporate action without a meeting by less than unanimous written consent to
those holders of Investor Preferred Stock whose shares were not represented on
the written consent.
(b) Meetings.
(i) At any meeting having as a purpose either the election of
a Series C Director or any action upon any other matter on which the holders of
the Series C Preferred Stock are entitled to vote as a separate series or class,
the presence, in person or by proxy, of the holders of record of at least a
majority of the Series C Shares then outstanding shall be required and be
sufficient to constitute a quorum of such series or class for any such purpose,
and the affirmative vote of the holders of a majority of the shares of Series C
Preferred Stock then outstanding and entitled to vote at such meeting shall be
the act of the Series C Preferred Stock. At any such meeting or adjournment
thereof, (A) the absence of a quorum of such holders of
<PAGE>
Series C Preferred Stock shall not prevent the election of the directors to be
elected by the holders of shares other than the Series C Preferred Stock or the
taking of any other action which they are entitled to take, and the absence of a
quorum of holders of shares other than the Series C Preferred Stock shall not
prevent the election of any director to be elected by the holders of the Series
C Preferred Stock or the taking of any other action which they are entitled to
take and (A) in the absence of such quorum, either of holders of the Series C
Preferred Stock or of shares other than the Series C Preferred Stock (or both),
a majority of the holders, present in person or by proxy, of the series, class
or classes of stock which lack a quorum shall have power to adjourn the meeting
for the election of directors which they are entitled to elect or the taking of
any other action which they are entitled to take, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
(ii) At any meeting having as a purpose any vote or action by
holders of the Series B Preferred Stock and the Series C Preferred Stock as a
single series or class (including any action which this resolution states is
within the authority or discretion of the Majority Senior Holders), the
presence, in person or by proxy, of the holders of record of shares of Investor
Preferred Stock having an aggregate Liquidation Price representing more than 50%
of the total Liquidation Price of all Series B Shares and Series C Shares then
outstanding shall be required and be sufficient to constitute a quorum of such
class for any such purpose, and the affirmative vote of the shares of Investor
Preferred Stock having an aggregate Liquidation Price representing more than 50%
of the total Liquidation Price of all Series B Shares and Series C Shares then
outstanding and entitled to vote at such meeting shall be the act of the
Investor Preferred Stock. At any such meeting or adjournment thereof, (A) the
absence of a quorum of such holders of Investor Preferred Stock shall not
prevent the taking of any action by the holders of shares other than the
Investor Preferred Stock which they are entitled to take, and the absence of a
quorum of holders of shares other than the Investor Preferred Stock shall not
prevent the holders of the Investor Preferred Stock from taking of any action
which they are entitled to take and (B) in the absence of such quorum, either of
holders of the Investor Preferred Stock or of shares other than the Investor
Preferred Stock (or both), a majority of the holders, present in person or by
proxy, of the class or classes of stock which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect or the taking of any other action which they are entitled to take, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
(c) Consistent By-laws and Charter. The Certificate of Incorporation
and the By-laws of the Corporation shall at all times contain provisions
consistent with the provisions, purposes and intent of Section 7, Section 8, and
Section 9 and the other provisions of this resolution.
9. Conversion.
(a) Conversion Right Generally. Unless previously redeemed in
accordance
<PAGE>
with Section 6, each share of Series C Preferred Stock may be converted at the
option of the holder thereof, in whole or in part, at any time and from time to
time on and after the Closing Date, into fully paid and nonassessable shares of
Common Stock at the Conversion Rate in effect at the time of conversion and in
the manner and on the terms and conditions hereinafter provided in this Section
9. The number of whole or fractional shares of Common Stock into which each
share of Series C Preferred Stock shall be convertible as of any time shall be
equal to the quotient determined by dividing (i) the sum of (A) the Liquidation
Price of such share plus (B) an amount equal to all unpaid dividends accrued on
such share of Series C Preferred Stock from and including the Dividend Payment
Date immediately preceding such date (or the Issue Date if there was no prior
Dividend Payment Date) through and including such time, whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends; by (ii)
the Conversion Price determined as of such time. Each of the initial Liquidation
Price and Conversion Price is $77 and so the initial Conversion Rate is one
share of Common Stock for each Series C Share converted. The Conversion Rate,
the Conversion Price and the kind, number and amount of securities and other
property deliverable upon conversion of any Series C Share shall be subject to
adjustment from time to time as set forth in this Section 9. The conversion
right provided by this Section 9 with respect to any Series C Share redeemed in
accordance with Section 6 shall terminate as of, and may be exercised at any
time prior to, the close of business on the applicable Redemption Date. In case
cash, property or securities other than Common Stock shall be payable,
deliverable or issuable upon conversion, then all references to Common Stock in
this Section 9 or, if applicable, Section 10 shall be deemed to apply, so for as
appropriate and as nearly as may be, to such cash, property or other securities.
(b) Mechanics of Conversion. In order to convert any Series C Share,
the Holder thereof shall deliver to the Corporation at its principal executive
offices within the United States or at another office or agency designated by
the Corporation pursuant to Section 9(x), of the certificate(s) evidencing the
Series C Share(s) to be converted, which certificate(s), if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form reasonably
satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that such holder elects to convert all or a part of
the Series C Share(s) represented by said certificate(s) in accordance with the
terms of this Section 9, and shall state in writing therein the name or names
and denomination or denominations in which such Holder wishes certificate(s) for
Common Stock to be issued. Every such notice of election to convert shall
constitute a contract between the holder of such Series C Share(s) and the
Corporation, whereby the holder of such Series C Share(s) shall be deemed to
subscribe for the amount of Common Stock which such holder shall be entitled to
receive upon conversion of the number of shares of Series C Preferred Stock to
be converted, and, in satisfaction of such subscription, to deposit the shares
of Series C Preferred Stock to be converted, and whereby the Corporation shall
be deemed to agree that the surrender of the shares of Series C Preferred Stock
to be converted shall constitute full payment of such subscription for
<PAGE>
such Common Stock to be issued upon such conversion. The Corporation will as
soon as practicable after such deposit of a certificate or certificates for
Series C Preferred Stock, accompanied by the written notice above prescribed,
issue and deliver at such offices of the Corporation or at such other office or
agency to the Person for whose account such Series C Preferred Stock was so
surrendered, or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series C
Preferred Stock to be converted, and the Person or Persons entitled to receive
the Common Stock issuable upon conversion of such Series C Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date and the holder of the share or shares of Series C Preferred Stock
so converted shall no longer have any rights or obligations pursuant to the
Series C Certificate of Designation (except the right of such holder to receive,
and the obligation of the Corporation to issue and deliver, such shares of
Common Stock and all other securities, cash or other property, if any, issuable
upon such conversion). Notwithstanding the foregoing, if any notice of
conversion given by any Holder states that such conversion is in connection with
an offering of securities registered or to be registered pursuant to the
Securities Act, then such conversion may, at the option of such Holder, be
conditioned upon and deferred until the closing of the sale of such securities
pursuant to such offering, in which event the Series C Share(s) covered by such
notice shall not be deemed to have been converted until immediately prior to the
closing of such sale and the Corporation shall, unless otherwise instructed by
such Holder, deliver the stock certificate(s) and any cash, securities or other
property to which such Holder shall be entitled at such time or times as such
Holder shall reasonably request.
(c) Expenses and Taxes. The Corporation shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the shares of Common Stock and
cash, property or other securities which any Holder is entitled to receive upon
conversion of any Series C Share(s). The Corporation shall not be required,
however, to pay any stamp, stock transfer or other similar tax or other
governmental charge required to be paid solely by virtue of any transfer
involved in the issue of shares of Common Stock in any name other than that of
the Holder of the Series C Share(s) converted at the order of such Holder, and
if any such transfer is involved, the Corporation shall not be required to issue
or deliver the shares of Common Stock as to which such tax or charge is
applicable until such tax or other charge shall have been paid or it has been
established to the Corporation's reasonable satisfaction that no such tax or
other charge is due.
(d) Fractional Shares of Common Stock. If the number of shares of
Common Stock purchasable on the conversion of Series C Share(s) is not a whole
number, the Corporation shall not be required to issue any fraction of a share
of Common Stock and such number of shares issuable shall be rounded up to the
nearest whole number. If a certificate or certificates evidencing more than one
Series C Share shall be surrendered for conversion at one time by the same
Holder, the number of full shares which shall be issuable upon conversion
thereof shall be
<PAGE>
computed on the basis of the aggregate number of Series C Shares so surrendered
for conversion. Notwithstanding the provisions of this Section 9(d), in
computing adjustments to the Conversion Rate pursuant to Section 9, fractional
shares of Common Stock shall be taken into account as provided in Section
9(p)(C) and any outstanding Series C Share may at any time represent the right
to receive upon conversion less than one share of Common Stock or some other
number of shares of Common Stock which is not a whole number.
(e) Covenant to Reserve Shares for Issuance on Conversion. The
Corporation shall at all times reserve and keep available out of the authorized
but unissued shares of Common Stock, solely for the purpose of issue upon
conversion of Series C Shares, the full number of shares of Common Stock
issuable if all outstanding Series C Shares were to be converted in full. All
shares of Common Stock which shall be issuable upon conversion of any Series C
Share shall be newly issued, duly authorized, validly issued, fully paid and
nonassessable and without any personal liability attaching to the ownership
thereof, and the issuance thereof shall not give rise or otherwise be subject to
preemptive or similar purchase rights on the part of any Person or Persons, and
the Corporation shall take any corporate and other actions that may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable all shares of Common Stock and
all shares of the Corporation's capital stock of any other class or series
issuable upon conversion of the Series C Preferred Stock. The Corporation hereby
authorizes and directs its current and future transfer agents, if any, for the
Common Stock and for any shares of the Corporation's capital stock of any other
class or series issuable upon the conversion of the Series C Preferred Stock at
all times to reserve such number of authorized shares as shall be requisite for
such purpose. The Corporation shall supply such transfer agents with duly
executed stock certificates for such purposes.
(f) Compliance with Governmental Requirements; Listing of Shares;
Hart-Scott-Rodino Act.
(A) If issuance of any Conversion Securities issuable upon conversion of
any Series C Share(s) require, under any applicable federal, state, local or
foreign law, rule or regulation or any applicable requirement of any national
securities exchange or inter-dealer quotation system, any registration,
qualification, listing or approval before such shares may be issued upon
conversion, the Corporation shall in good faith, as promptly as practicable and
at its expense, diligently endeavor to cause such shares to be duly registered,
qualified, approved or listed, as the case may be, and the conversion of such
Series C Share(s) shall be suspended for the period during which such
registration, qualification, approval or listing is being diligently pursued or
sought by the Corporation. Without limiting the generality of the foregoing, if
any shares of Common Stock or other capital stock or securities required to be
reserved for issuance upon conversion of Series C Shares require registration or
qualification with any governmental authority under any federal or state law
before such shares may be so issued, the Corporation will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered. During all periods during which shares of Common Stock or any
other
<PAGE>
capital stock or securities of the same class, series or issue as are issuable
upon conversion of any Series C Share are listed, qualified or otherwise
eligible for trading or quotation on any national securities exchange or the
Nasdaq National Market, the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar quotation system, the Corporation
shall cause all shares of Common Stock, and all such other capital stock and
securities, issuable upon conversion of such Series C Share to be listed,
qualified or eligible for trading or quotation thereon upon issuance thereof.
(B) If any Holder is advised by its own legal counsel that its intended
conversion of any Series C Shares would or might be subject to the HSR Act, the
Corporation shall promptly comply with any applicable requirements under the HSR
Act relating to filing and furnishing of information (the "HSR Report") to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice, such actions to include, without limitation, (i) filing
the HSR Report and taking all other action required by the HSR Act, (ii)
coordinating with respect to the filing of the HSR Reports of such Holder and
the Corporation (and exchanging drafts thereof), so as to present all required
HSR Reports to the FTC and the Department of Justice at the time selected by
such Holder, and to avoid substantial errors or inconsistencies among such HSR
Reports in the description of the transaction, (iii) complying with any
additional request for documents or information made by the FTC or the
Department of Justice or by a court and assisting the other parties to so comply
and (iv) causing all Persons which are part of the same "person" (as defined for
purposes of the HSR Act) as the Corporation to cooperate and assist in such
filing and compliance. If any Holder is advised by its own legal counsel that
its intended conversion of any Series C Share(s) would or might be subject to
any other law, rule or regulation which requires any filing with or review or
approval by any governmental authority or agency, the Corporation shall promptly
comply with any requirements of such law, rule or regulation applicable to it
and shall cooperate with such Holder in such Holder's efforts to comply with the
requirements of such law, rule or regulation applicable to it on a timely basis.
Each of the Corporation and such Holder shall bear and pay any costs or expenses
that it incurs in complying with this Section 9(f)(B), except that each shall
pay one half of any fee payable to the FTC or the Department of Justice in
connection with the filing of an HSR Report pursuant to this Section 9(f)(B) and
the HSR Act.
(g) Intentionally omitted.
(h) Adjustment Generally. The Conversion Price and the Conversion
Rate and the kind, number and amount of securities and other property issuable
upon conversion of any Series C Share shall be subject to adjustment from time
to time as hereinafter set forth. Upon any issuance or deemed issuance of Common
Stock or other event that results in an adjustment to the Conversion Rate, the
Conversion Price shall also be adjusted by multiplying the Conversion Price in
effect immediately prior to the effective time of such adjustment in the
Conversion Rate by a fraction the numerator of which is the number of shares of
Common Stock issuable upon conversion of one share of Series C Preferred Stock
immediately prior to such
<PAGE>
adjustment, and the denominator of which is the number of shares of Common Stock
issuable upon conversion of one share of Series C Preferred Stock immediately
following such adjustment to the Conversion Rate. Such adjustments of the
Conversion Rate and the Conversion Price shall be cumulative and shall be made
successively on each and every occasion that any event requiring any such
adjustment shall occur. The form of the stock certificate(s) evidencing the
Series C Shares need not be changed because of any adjustment made pursuant
hereto.
(i) Stock Dividends, Subdivisions, Combinations and
Recapitalizations. If the Corporation shall at any time (i) declare or pay a
dividend or declare, pay or make any other distribution on the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue any shares of capital stock
of the Corporation by way of reclassification of the Common Stock, then in each
and every such event the Conversion Rate and the Conversion Price determined as
of immediately prior to the applicable time referred to in subclause (x) or (y)
of this sentence shall be adjusted so that the Holder of any Series C Share
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock (or other capital stock of the Corporation) which such
Holder would have owned and would have been entitled to receive by virtue of the
happening of any of the events described above had such Series C Share been
converted (x) in the case of a dividend or distribution, immediately prior to
the record date for the determination of the stockholders entitled to receive
such dividend or distribution (or, if no such record date is fixed, as of any
other time as of which the holders of Common Stock entitled to participate in
such distribution was determined) or (y) in the case of a subdivision,
combination or reclassification, on the effective date thereof. An adjustment
made pursuant to this Section 9(i) shall become effective immediately after such
record date (or other applicable date referred to in clause (x) of the
immediately preceding sentence) in the case of a dividend or distribution,
subject to Section 9(p)(D) and Section 9(p)(E), and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(j) Certain Other Distributions. Subject to the second and third
sentences of this Section 9(j), if the Corporation shall at any time declare or
make any distribution, by dividend or otherwise, to all holders of outstanding
shares of Common Stock of any cash (subject to the last sentence of this
subsection) or other assets or property of any nature whatsoever, any debt
securities or other evidences of its indebtedness, any capital stock, any other
securities of any nature whatsoever or any warrants, options or other Rights to
subscribe for, purchase or otherwise acquire any assets, property, capital
stock, debt or other securities or evidences of indebtedness (excluding
dividends, distributions or issuances referred to in Section 9(i), Rights
referred to in Section 9(l) and Convertible Securities referred to in Section
9(m)), or shall take a record of such holders for the purpose of entitling them
to receive such a distribution, then the Conversion Rate shall be adjusted to
equal the product of the Conversion Rate determined as of immediately prior to
such adjustment multiplied a fraction the numerator of which shall be the
<PAGE>
Current Market Price per share of the Outstanding Common Shares at the date of
taking such record or, if no record is taken, at the date as of which the
holders of Common Stock entitled to participate in such distribution were
determined or if no such determination is made, on the date of such
distribution, and the denominator of which shall be the excess of (x) such
Current Market Price per share of the Outstanding Common Shares at such date
over (y) the amount allocable to one share of the Outstanding Common Shares at
such date of any such cash so distributable and of the Fair Market Value (as
determined as of such date in good faith by the Board of Directors) of any and
all such evidences of indebtedness, shares of capital stock, debt securities,
other securities, property, assets or Rights so distributable. No adjustment
pursuant to the foregoing provisions of this Section 9(j) shall be made if such
adjustment would result in a Conversion Rate that is lower than the Conversion
Rate in effect prior to such adjustment or in a Conversion Price higher than
that in effect prior to such adjustment. In the event that, with respect to any
such distribution, the result of subtracting the amount referred to in clause
(y) of the first sentence of this Section from the Current Market Price referred
to in clause (x) of such sentence is less than one-half of such Current Market
Price or such amount referred to in such clause (y) is greater than the amount
of such Current Market Price referred to in such clause (x), then the adjustment
provided for above in this Section shall not be made and in lieu thereof the
Conversion Rate and the Conversion Price determined as of immediately prior to
the applicable time referred to in clause (i) or (ii) of this sentence shall be
adjusted so that the Holder of any Series C Share thereafter surrendered for
conversion shall be entitled to receive the kind and number or amount of shares
of Common Stock (or other capital stock of the Corporation), other Conversion
Securities and other property or assets which such Holder would have received
had such Series C Share been converted prior to the record date for the
determination of the stockholders entitled to receive such distribution or, if
no such record date is fixed, as of any other time as of which the holders of
Common Stock entitled to participate in such distribution was determined, plus
the kind and amount of cash, other assets or property, debt securities, other
evidences of indebtedness, other securities or Rights which such Holder would
have been entitled to receive by virtue of being the record holder, as of such
record date or other time, of such kind and number or amount of shares of Common
Stock or other Conversion Securities (assuming that such holder of Common Stock
or other Conversion Securities failed to exercise rights of election, if any, as
to the kind or amount of shares or stock, other securities or property
receivable in such distribution, provided that if the kind or amount of shares
of stock, other securities or property receivable in such distribution is not
the same for each non-electing share, then the kind and amount of shares of
stock, other securities or property receivable upon consummation of such
transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). An
adjustment made pursuant to this Section 9(j) shall become effective, subject to
Section 9(p)(D) and Section 9(p)(E), immediately after such record date or, if
no such record date is fixed, immediately after the time as of which holders of
Common Stock entitled to participate in such distribution were determined or, if
no such time is fixed, as of the date of such distribution. No adjustment
pursuant to this subsection (j) shall be required for any cash dividend paid out
of current or retained earnings to the extent the sum of the cash dividends
payable after the Issue Date does
<PAGE>
not exceed the aggregate net income (determined in accordance with generally
accepted accounting principles consistently applied) of the Corporation since
the Issue Date.
(k) Issuance of Additional Shares of Common Stock.
(A) Subject to subdivision (B) of this Section 9(k), if at any time
the Corporation shall issue, or pursuant to Section 9(l), Section 9(m), Section
9(n) or Section 9(o) be deemed to issue, any Additional Shares of Common Stock
in exchange for consideration in an amount (determined in accordance with
subdivisions (A) and (F) of Section 9(p)) per Additional Share of Common Stock
less than the Reference Price determined as of the time such Additional Shares
of Common Stock are issued or deemed to be issued, then the Conversion Rate
shall be adjusted to equal the product obtained by multiplying the Conversion
Rate in effect immediately prior to such issuance or deemed issuance by a
fraction (i) the numerator of which shall be the number of Outstanding Common
Shares immediately after such issuance or deemed issuance, and (ii) the
denominator of which shall be the number of Outstanding Common Shares
immediately prior to such issuance or deemed issuance plus the number of shares
which the aggregate amount of consideration, if any, received by the Corporation
upon such issuance or deemed issuance of all such Additional Shares of Common
Stock would purchase at the Reference Price determined as of such time.
(B) The provisions of subdivision (A) of this Section 9(k) shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is made under Section 9(i) or Section 9(j) or to the issuance of
Additional Shares of Common Stock pursuant to the exercise of any Existing Right
in accordance with the terms thereof in effect of the Closing Date. No
adjustment of the Conversion Rate shall be made under this Section 9(k) upon the
issuance of any Additional Shares of Common Stock which are or are deemed to be
issued pursuant to (i) subject to Section 9(o), the exercise of any Existing
Rights or (ii) subject to Section 9(n), the exercise of any other Rights or the
exercise of any conversion or exchange rights in any other Convertible
Securities if, in the case of any such Rights or Convertible Securities referred
to in this clause (ii) any such adjustment shall previously have been made, or
no such adjustment shall have been required to be made, upon the issuance of
such Rights or upon the issuance of such Convertible Securities (or upon the
issuance of any Rights therefor) pursuant to Section 9(l) or Section 9(m).
(C) Each adjustment pursuant to this Section 9(k) by reason of any
issuance or sale of any Additional Shares of Common Stock shall be effective as
of the date of such issuance or sale.
(l) Issuance of Rights. Subject to the last sentence of this Section
9(l), if at any time the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution of, or shall in any manner (whether directly or indirectly by
assumption in a consolidation or in a merger in which the Corporation is
<PAGE>
the surviving corporation or otherwise) grant, issue or sell to any Person or
Persons, any Rights to subscribe for, purchase or otherwise acquire any
Additional Shares of Common Stock or any Convertible Securities, in any case
whether or not such Rights or the right to exchange or convert such Convertible
Securities are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of such Rights or upon
conversion or exchange of such Convertible Securities (determined pursuant to
subdivisions (A) and (F) of Section 9(p)) shall be less than the Reference Price
determined (x) in the case of such dividend or distribution, as of the close of
business on such record date or (y) in the case of such grant, issuance or sale,
immediately prior to the time of such issue or sale, then the maximum number of
shares of Common Stock issuable upon the exercise of such Rights or, in the case
of Rights for Convertible Securities, upon the conversion or exchange of such
Convertible Securities determined as of such applicable time shall be deemed to
be Additional Shares of Common Stock issued as of such applicable time for such
consideration per share and the Conversion Rate shall be adjusted as provided in
Section 9(k). Subject to Section 9(n), no further adjustments of the Conversion
Rate shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon exercise of such Rights or upon the actual issuance
of such Common Stock upon such conversion or exchange of such Convertible
Securities for which an adjustment pursuant to this Section 9(l) previously had
been made or was not required to be made. No adjustment under this Section 9(l)
shall be required by reason of the grant of Employee Options.
(m) Issuance of Convertible Securities. Subject to the last sentence
of this Section 9(m), if at any time the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution of, or shall in any manner (whether directly or
indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) grant, issue or sell to
any Person or Persons, any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
consideration per share for which Common Stock is issuable upon such conversion
or exchange (determined pursuant to subdivisions (A) and (F) of Section 9(p))
shall be less than the Reference Price determined (x) in the case of such
dividend or distribution, as of the close of business on such record date or (y)
in the case of such issuance or sale, immediately prior to the time of such
grant, issuance or sale, then the maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities
determined as of such applicable time shall be deemed to be Additional Shares of
Common Stock issued as of such applicable time for such consideration per share
and the Conversion Rate shall be adjusted as provided in Section 9(k). No
further adjustment of the Conversion Rate shall be made under this Section 9(m)
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any Rights therefor if any such adjustment shall previously have
been made upon the issuance of such Rights pursuant to Section 9(l). Subject to
Section 9(n), no further adjustments of the Conversion Rate shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of
Convertible Securities for which an adjustment pursuant to this Section 9(m)
previously had been made or was not required. If the terms of any Convertible
Securities provide for any issuance of additional
<PAGE>
Convertible Securities (whether in payment of dividends or interest or
otherwise), then each occasion on which any such additional Convertible
Securities are issued shall be deemed a new issuance of Convertible Securities
for which an adjustment pursuant to this Section 9(m) shall be made. No
adjustment under this Section 9(m) shall be required by reason of the issuance
of any shares of the Series C Preferred Stock (i) pursuant to the Series C
Purchase Agreement or the Co-Investment Agreement, (ii) that is expressly
provided for in either (A) Section 2.4 of the Series C Purchase Agreement or (B)
the Pugliese Employment Agreement, or (iii) with the prior consent of the
Majority Senior Holders given in a written instrument that expressly states that
no such adjustment shall be required.
(n) Superseding Adjustment.
(A) If, at any time after any adjustment of the Conversion Rate
shall have been made pursuant to Section 9(l) or Section 9(m) in respect of any
Rights or any Convertible Securities other than Shares of the Series C Preferred
Stock referred to in the last sentence of Section 9(m):
(i) the consideration paid or payable to the Corporation, or the
number of shares of Common Stock issued or issuable, upon the exercise,
conversion or exchange of the Rights or Convertible Securities in respect of
which such adjustment was made is increased or decreased by virtue of provisions
contained therein for an automatic increase or decrease (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or otherwise, the
adjustments to the Conversion Rate computed upon the original grant, issuance or
sale thereof or upon the taking of a record date with respect thereto (as the
case may be), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be readjusted to the Conversion Rate
which would then be in effect had such adjustment originally been made on the
basis that such increased or decreased consideration paid or payable or such
increased or decreased number of shares of Common Stock issued or issuable was
the consideration paid or payable or the number of shares issued or issuable in
respect of such Rights or Convertible Securities which are actually outstanding
immediately prior to the effective time of such increase or decrease (but no
such readjustment shall be made with respect to any Rights or Convertible
Securities which for any reason no longer are outstanding as of such time); or
(ii) any Rights or any rights of conversion or exchange under
Convertible Securities in respect of which such adjustment was made shall expire
without having been fully exercised, the adjustments to the Conversion Rate
computed upon the original grant, issuance or sale thereof or upon the taking of
a record date with respect thereto (as the case may be), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of such Rights or Convertible Securities, the
only Additional Shares of Common Stock issued were the shares of Common Stock,
if any, actually
<PAGE>
issued upon the exercise of such Rights or the conversion or exchange of such
Convertible Securities and the consideration received for such Additional Shares
of Common Stock was, in the case of Rights, the consideration actually received
by the Corporation for the grant, issuance or sale of all such Rights, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or, in the case of Convertible Securities, the consideration
actually received by the Corporation for the issuance or sale of all such
Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(2) in the case of any such Rights for Convertible Securities,
only the Convertible Securities, if any, actually issued or sold upon the
exercise thereof were issued at the time of grant, issuance or sale of such
Rights, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the additional consideration, if any,
actually received by the Corporation upon the issuance or sale of the
Convertible Securities with respect to which such Rights were actually
exercised.
(B) No readjustment pursuant to this Section 9(n) shall have the
effect of (1) decreasing the number of shares of Common Stock or the amounts of
other Conversion Securities, cash or other property into which any Series C
Share is convertible below the greater of the number of such shares and the
amounts of such other Conversion Securities, cash and property as would have
resulted from any adjustment to such number of such shares and such amounts of
such other Conversion Securities, cash and other property between the original
adjustment date (before giving effect to the original adjustment) and the time
such readjustment is made or (2) requiring any surrender, return or redelivery
of any shares of Common Stock, other Conversion Securities, cash or other
property delivered upon any conversion of any Series C Share prior to the time
such readjustment is made, requiring that the converting Holder or any
subsequent holder of any such shares of Common Stock, Conversion Securities or
other property make any payment to the Corporation or otherwise affecting such
shares of Common Stock, other Conversion Securities or other property or the
rights or obligations of the converting Holder or any such subsequent holder
with respect thereto. From and after any adjustment or adjustments provided for
in this Section 9(n), the Conversion Rate shall continue to be subject to
further adjustment as provided in this Section 9.
(C) If, at any time after any grant, sale or other issuance of any
Rights or Convertible Securities for which an adjustment of the Conversion Rate
shall not have been required to be made pursuant to the provisions of Section
9(l) or Section 9(m) (as the case may be), the consideration paid or payable to
the Corporation upon the exercise of such Rights or Convertible Securities is
decreased, or the number of shares of Common Stock issued or issuable upon the
exercise of such Rights or Convertible Securities is increased, in either case
by virtue of provisions contained therein for an automatic decrease or increase
(as the case may be) upon the
<PAGE>
occurrence of a specified date or event, any amendment or modification of or
departure from the terms thereof previously in effect or otherwise, then such
event shall, for purposes of Section 9(l) (in the case of such Rights) or
Section 9(m) (in the case of such Convertible Securities) be deemed to be a new
issuance, as of the date of the effectiveness of such decrease or increase (as
the case may be) of Rights or Convertible Securities having terms reflecting
such changes.
(o) Adjustment for Events Affecting Existing Rights. If the number
of shares of Common Stock issued or issuable upon exercise of any Existing Right
is increased as a direct or indirect result of any amendment or modification of
or departure from the terms thereof previously in effect, then such increased
number of shares of Common Stock issued or issuable upon exercise thereof shall
be deemed to be Additional Shares of Common Stock issued as of the effective
date of such increase for the additional consideration, if any, payable to
acquire such increased number of shares upon exercise of such Existing Right,
and the Conversion Rate shall be adjusted as provided in Section 9(k). If the
consideration payable for shares of Common Stock issued or issuable upon
exercise of any Existing Right is decreased as a direct or indirect result of
any amendment or modification of or departure from the terms thereof previously
in effect, then such event shall be deemed to be the issuance, as of the
effective date of such decrease, of a number of Additional Shares of Common
Stock equal to the excess of (1) the maximum number of shares of Common Stock
issuable upon exercise of such Existing Right over (2) the number of shares of
Common Stock determined by dividing the total consideration, if any, that would
be payable to the Corporation upon the exercise in full of such Existing Right
after giving effect to such decrease by the amount of consideration per share of
Common Stock issuable upon exercise of such Existing Right that would have been
payable to the Corporation absent such decrease. The provisions of this Section
9 are in addition to (and not exclusive of) any other rights or remedies of such
holders in the event that any such amendment, modification or departure occurs
without any required approval of the holders of Series C Shares.
(p) Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments provided for in this
Section 9:
(A) Computation of Consideration. Subject to the last sentence of
this Section 9(p)(A), to the extent that any Additional Shares of Common Stock,
any Convertible Securities or any Rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities shall be issued
or deemed to be issued for cash consideration, the consideration received or
deemed to be received by the Corporation therefor shall be the net amount of the
cash received or deemed to be received by the Corporation therefor (in any such
case subtracting any amounts received in respect of accrued interest, accrued
dividends or other similar amounts which the Corporation may be obligated to pay
to the holders thereof in the future and any compensation, discounts or expenses
paid or incurred by the Corporation in connection with the issuance thereof).
Subject to the last sentence of this Section 9(p)(A), to the extent that such
issuance or deemed issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed
<PAGE>
to be the Fair Market Value of such consideration at the time of such issuance
or deemed issuance as determined in good faith by the Board of Directors.
Subject to the last sentence of this Section 9(p)(A), in case any Additional
Shares of Common Stock, any Convertible Securities or any Rights to subscribe
for, purchase or otherwise acquire Additional Shares of Common Stock or
Convertible Securities shall be issued or deemed to be issued in connection with
any merger, consolidation, share exchange or similar transaction, the amount of
consideration therefor shall be deemed to be the Fair Market Value, as
determined in good faith by the Board of Directors, of such portion of the
assets and business of the nonsurviving corporation as the Board of Directors in
good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, or Rights, as the case may be. Subject to
the last sentence of this Section 9(p)(A), in case any Additional Shares of
Common Stock, any Convertible Securities or any Rights to subscribe for,
purchase or otherwise acquire Additional Shares of Common Stock or Convertible
Securities are issued or deemed to be issued in combination with each other or
with any other securities or property in connection with any transaction in
which the Corporation receives cash, securities, property or other
consideration, or any combination of the foregoing, then the amount of
consideration therefor shall be deemed to be such portion of the cash,
securities, property and other consideration received by the Corporation as the
Board of Directors in good faith shall determine to be attributable to such
Additional Shares of Common Stock, Convertible Securities or Rights, as the case
may be, with any noncash consideration being valued at its Fair Market Value as
determined by the Board of Directors in good faith. Subject to the last sentence
of this Section 9(p)(A), the consideration for any Additional Shares of Common
Stock issuable or deemed to be issuable pursuant to any Rights to subscribe for,
purchase or otherwise acquire the same shall be the consideration received or
deemed to be received by the Corporation for issuing such Rights plus the
minimum additional consideration, if any, paid or payable to the Corporation
upon the exercise or deemed exercise of such Rights. Subject to the last
sentence of this Section 9(p)(A), the consideration for any Additional Shares of
Common Stock issued or issuable pursuant to the terms of any Convertible
Securities covered by any Rights to subscribe for, purchase or otherwise acquire
such Convertible Securities shall be the consideration received or deemed to be
received by the Corporation for issuing such Rights, plus the minimum additional
consideration, if any, paid or payable to the Corporation in respect of the
subscription for, purchase or other acquisition of such Convertible Securities,
plus the minimum additional consideration, if any, paid or payable to the
Corporation upon the exercise or deemed exercise of the right of conversion or
exchange in such Convertible Securities. Subject to the last sentence of this
Section 9(p)(A), the consideration for any Additional Shares of Common Stock
issuable or deemed to be issuable pursuant to the terms of any Convertible
Securities, other than any covered by any Rights to subscribe for, purchase or
acquire the same, shall be the consideration received or deemed to be received
by the Corporation for issuing such Convertible Securities plus the minimum
additional consideration, if any, paid or payable to the Corporation upon the
exercise of the right of conversion or exchange in such Convertible Securities.
For all purposes of this Section 9, all Rights or Convertible Securities issued
or deemed to be issued to directors, officers, employees or consultants of the
Corporation or any Subsidiary, except Shares of Series C Preferred Stock
<PAGE>
issued to Thomas Pugliese pursuant to the Pugliese Employment Agreement, shall
be deemed to be issued for no consideration except to the extent the Corporation
receives in exchange for the issuance thereof consideration other than services
rendered or to be rendered.
(B) When Adjustments to Be Made. The adjustments required by this
Section 9 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock into which a Series C Share is convertible that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock) up to, but not beyond the date of conversion if such
adjustment either by itself or with other adjustments not previously made adds
or subtracts less than 1% of the shares of Common Stock into which a Series C
Share is convertible immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 9 and not
previously made by virtue of this Section 9(p)(B), would result in a minimum
adjustment or on the date of conversion. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(C) Fractional Interests. In computing adjustments under this
Section 9, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(D) When Adjustment Not Required. If the Corporation shall take a
record of the holders of any class or series of its capital stock for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required and shall, thereafter and
before the declaration, payment or delivery of such dividend or distribution to
stockholders otherwise entitled thereto, abandon its plan to pay or deliver such
dividend or distribution (so that such stockholders are legally bound by such
abandonment and have no right, remedy or recourse by reason of such taking of a
record or such abandonment), then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(E) Delivery of Due Bills. If, after the taking of any record of the
holders of any class or series of capital stock of the Corporation for the
purpose of entitling them to receive a dividend or distribution for which an
adjustment pursuant to this Section 9 is required, but prior to the occurrence
of the event for which such record is taken, any Series C Share is converted,
the Corporation shall deliver to the converting Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive the additional
shares of Common Stock, other securities, cash and other property receivable
upon conversion by reason of an adjustment pursuant to this Section 9 upon such
taking of a record upon the occurrence of the event requiring such adjustment.
<PAGE>
(F) Certain Determinations. During each and every period that the
Board of Directors includes at least one sitting member who is a Series B
Director or, during any period that no shares of Series B Preferred Stock shall
be outstanding, the Series C Director, each determination of the Current Market
Price of any share of Common Stock or the Fair Market Value of any other
security, asset, property or consideration which may be required to be made by
the Board of Directors pursuant to or in connection with the application of any
provision of this resolution and each determination which may be required by
Section 9(r)(B) or Section 9(w) to be made by the Board of Directors, shall be
made in good faith by the Valuation Committee. Any such determination of Fair
Market Value by the Valuation Committee or the Board of Directors may be
disputed in good faith by the Majority Senior Holders and any such dispute shall
be resolved by an independent investment banking firm of recognized national
standing selected by the Majority Senior Holders and reasonably acceptable to
the Corporation (and whose fees and expenses shall be paid by the Corporation),
whose decision with respect to such dispute shall be final and conclusive and
binding on the Corporation and all Holders; provided, however, that the Majority
Senior Holders shall not have the right to dispute under this Section 9(p)(F)
any such determination that shall be made during any period referred to in the
first sentence of this Section 9(p)(F) by the Valuation Committee by the
affirmative vote or written consent of a majority of its members, which majority
includes the Series B Director, or during any period that no shares of Series B
Preferred Stock shall be outstanding, the Series C Director. Any determination
by the Valuation Committee or the Board of Directors pursuant to Section 9(r)(B)
or Section 9(w) may be disputed in good faith by the Majority Senior Holders,
and any such dispute shall be resolved in accordance with Section 9(y);
provided, however, that the Majority Senior Holders shall not have the right to
dispute under this Section 9(p)(F) any such determination that shall be made
during any period referred to in the first sentence of this Section 9(p)(F) by
the Valuation Committee by the affirmative vote or written consent of a majority
of its members, which majority includes at least one Series B Director or,
during any period that no shares of Series B Preferred Stock shall be
outstanding, the Series C Director.
(q) Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock which is not one described in any other provision of this Section 9 as
requiring an adjustment, then, unless such action will not have an adverse
effect upon the rights and intended benefits of the Holders of Series C Shares,
the number of shares of Common Stock and the kind and amount of other securities
and property into which each Series C Share is convertible shall be increased in
such manner as may be equitable in the circumstances.
(r) Multiple Classes of Common Stock.
(A) If, at any time while any Series C Shares are outstanding, the
Corporation's authorized capital stock shall include two or more classes or
series of Common Stock, then each Holder shall have the right, upon each
conversion of any of his Series C
<PAGE>
Share(s), to elect to receive such number of shares of each such class or series
as such Holder desires, provided that the total number of shares of all classes
and series selected by such Holder shall not exceed the aggregate number of
shares of Common Stock issuable upon conversion of such Series C Share(s).
(B) If, as a result of any adjustment made pursuant to Section 9, by
virtue of the existence of Section 9(r)(A), as a result of any action by the
Corporation referred to in Section 9(w), or otherwise, the Holder of a Series C
Share would, upon conversion thereof, become the holder of more than one class
or series of capital stock of the Corporation, then the Conversion Rate and the
Conversion Price shall be subject to adjustment in respect of each such class
and series of capital stock in a manner and on terms as nearly as equivalent as
practicable to the provisions set forth in this Section 9, which manner and
terms shall be determined by the Board of Directors promptly after each such
adjustment, each such action by the Corporation and each other event which has
or might have such result. Promptly after the Board of Directors makes any such
determination, the Corporation shall deliver to each Holder a written notice
which shall describe in reasonable detail the manner and terms so determined.
(s) Notices to Holders.
(A) Notice of Adjustments. Whenever the Conversion Rate shall be
adjusted pursuant to Section 9, the Corporation at its expense shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Corporation setting forth, in reasonable detail, the event requiring the
adjustment, the nature and amount of such adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors made any determination required by any provision of Section
9), the date as of which such adjustment was or will be effective as provided
herein, the Conversion Rate and the Conversion Price immediately prior to such
event and for and the Conversion Rate and the Conversion Price immediately after
such adjustment and all other relevant information. The Corporation shall
promptly cause to be delivered to each Holder a signed copy of such certificate.
The Corporation shall, upon the written request at any time of any Holder,
furnish or cause to be furnished to such Holder a like certificate setting forth
(i) the Conversion Rate and the Conversion Price at the time in effect and
showing how such Conversion Rate and Conversion Price was calculated, and (ii)
the number of shares of each class or series of Conversion Stock and the kind
and amount, if any, of other Conversion Securities, cash and other property
which at the time would be received upon the conversion of a Series C Share at
the time and showing how the same were calculated.
(B) Notice of Corporate Action. If at any time
(i) the Corporation shall take a record of the holders of any
class, series or issue of its capital stock or other securities for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any
<PAGE>
evidences of its indebtedness, any shares of capital stock of any class or
series, any cash or any other securities or property, or to receive any other
right, interest or benefit, or
(ii) there shall be any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any consolidation or merger or binding share exchange of the
Corporation with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Corporation to,
another Person, or
(iii) there shall be any tender offer or exchange offer for
Conversion Securities of any class, series or issue, or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then the Corporation shall (i) give to each Holder at least 20 days' prior
written notice of the date on which a record date shall be fixed for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, (ii) promptly
after learning of any such tender or exchange offer, deliver to the each Holder
notice thereof, a copy of all written offering material which the Corporation
possesses or reasonably can obtain or if no such materials exist or are
possessed or can reasonably be obtained by the Corporation, a written summary of
all material terms and conditions of and other material facts relating thereto
known to the Corporation and (iii) give each Holder at least 20 days' prior
written notice of the scheduled, planned or anticipated date when any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up shall take place. Such
notice in accordance with clause (i) of the immediately preceding sentence also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up.
(C) Notices To Stockholders. In addition to the foregoing, each
Holder shall be given the same notices of corporate action or proposed corporate
action as any holder of Common Stock.
(t) No Impairment. The Corporation shall not by or through amending
its
<PAGE>
certificate of incorporation, any reorganization, transfer of assets,
consolidation, merger, share exchange, 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 of this resolution, but will at all times in
good faith carry out and assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights and intended benefits of the Holders against impairment. Without limiting
the generality of the foregoing, the Corporation (i) will not directly or
indirectly increase the par value of any shares of Common Stock or other capital
stock receivable upon the conversion of any Series C Share above the Conversion
Price immediately prior to such increase in par value, (ii) will not take any
action that results in any adjustment to the Conversion Rate pursuant to Section
9 if after such adjustment the total number of shares of Common Stock or shares
of any other class or series of Conversion Stock issuable upon the conversion of
all of the outstanding Series C Shares would exceed the total number of shares
of Common Stock or such other Conversion Stock, respectively, then authorized by
the Corporation's Certificate of Incorporation and available and reserved for
the purpose of issuance upon such conversion, (iii) will not enter into any
transaction or take any action which, by reason of any resulting adjustment
hereunder, would cause the Conversion Price to be less than the par value per
share of Common Stock and (iv) will take all such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue shares
of each class and series of Conversion Stock and other Conversion Securities
upon the conversion of any Series C Share which in each case are fully paid,
non-assessable and without personal liability attaching to the ownership thereof
and not subject to preemptive and similar purchase rights. Upon the request of
any Holder, at any time, the Corporation will acknowledge in writing, in form
satisfactory to such Holder, the continuing validity of each certificate for any
Series C Share(s) then held by such Holder and the obligations of the
Corporation with respect thereto and thereunder.
(u) Taking of Record; Stock Transfer Books. In the case of all
dividends or other distributions by the Corporation to the holders of its Common
Stock with respect to which any provision of Section 9 refers to the taking of a
record of such holders, in each such case the Corporation will not declare, pay
or make any such dividend or distribution unless it shall take such a record and
the Corporation shall take each such record as of the close of business on a
Business Day. The Corporation shall not be required to convert any shares of
Series C Preferred Stock, and no surrender of Series C Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any proper purpose; but the surrender of Series C Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series C Preferred Stock was
surrendered for conversion. The Corporation will not at any time voluntarily
close its stock transfer books so as to result in preventing or delaying the
conversion or transfer of any Series C Share.
(v) Each Holder May Enforce Rights. Notwithstanding any of the
provisions hereof, any Holder, without the consent of any other Holder, or any
holder of any Conversion
<PAGE>
Securities may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Corporation
suitable to enforce, or otherwise in respect of, his rights with respect to his
Series C Shares or Conversion Securities.
(w) Reclassification, Consolidation, Merger, Sale, Conveyance or
Lease. If any of the following shall occur while any Series C Shares are
outstanding: (i) any consolidation, merger, binding share exchange or
reorganization to which the Corporation is party (other than a consolidation,
merger, share exchange or reorganization in which the Corporation is the
continuing corporation and which does not result in any reclassification of or
change in the outstanding shares of Conversion Securities issuable upon
conversion of the Series C Preferred Stock); or (ii) any sale, conveyance,
transfer or lease to another corporation of the properties and assets of the
Corporation as an entirety or substantially as an entirety, then the Corporation
or such successor or acquiring corporation, as the case may be, shall thereupon
make appropriate provision, reasonably satisfactory to the Majority Holders, so
that the Holders of the Series C Shares then outstanding shall have the right at
any time thereafter, upon conversion of the Series C Shares, to receive or
purchase (as the case may be) the kind and amount of shares of common stock of
such successor or acquiring corporation, other capital stock, other securities
and property receivable or purchasable (as the case may be) upon such
reclassification, change, consolidation, merger, sale, conveyance, transfer or
lease as would be received by a holder of the number of shares of Common Stock,
the number of shares of each other class or series of Conversion Stock and the
kind and amount of all other Conversion Securities issuable upon conversion of
such Series C Shares immediately prior to such consolidation, merger, sale,
conveyance, transfer or lease (assuming that such holder of Conversion
Securities failed to exercise rights of election, if any, as to the kind or
amount of shares or stock, other securities or property receivable or
purchasable, as the case may be, upon consummation of any such transaction,
provided that if the kind or amount of shares of stock, other securities or
property receivable or purchasable, as the case may be, upon consummation of
such transaction is not the same for each non-electing share, then the kind and
amount of shares of stock, other securities or property receivable upon
consummation of such transaction for each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
non-electing shares). In case of any such merger, consolidation, share exchange,
reorganization, or disposition of assets, the successor or acquiring corporation
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this resolution to be performed and observed
by the Corporation and all the obligations and liabilities thereunder or
otherwise with respect thereto, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors) in order to
provide for adjustments of shares of the Common Stock into which Series C Shares
are convertible which shall be as nearly equivalent as practicable to the
adjustments provided for in Section 9. Promptly after the Board of Directors
makes any such determination, the Corporation shall deliver to each Holder a
written notice which shall describe in reasonable detail the manner and terms so
determined. For purposes of this Section 9(w) "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any class
which is not preferred
<PAGE>
as to dividends or assets on liquidation over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 9(w) shall similarly apply to successive
reorganizations, mergers, consolidations or disposition of assets. The
provisions of this Section 9(w) are supplemental to, and are not intended to
eliminate, qualify, modify or limit the rights of the holders of any Investor
Preferred Shares under any other provision of this resolution, including
Sections 3(h), 6(c) and 5(e), or the Series B Certificate of Designation,
including the provisions thereof corresponding to Sections 3(h), 6(c) and 5(e)
hereof, or any other rights or remedies which such holders may have at law, in
equity, by contract or otherwise in the event of any transaction referred to in
this Section 9(w).
(x) Office of the Corporation. As long as any of the Series C Shares
are outstanding, the Corporation shall maintain one or more offices or agencies
where the Series C Shares may be presented for conversion and Series C Shares
and Conversion Securities may be presented for registration of transfer,
division or combination. Series C Shares and Conversion Securities may, in any
event, be presented for such purposes at the principal executive offices of the
Corporation in the United States.
(y) Resolution of Certain Disputes.
(A) If there shall arise any dispute between the Corporation and the
Majority Holders concerning the calculation of the Redemption Price in the case
of a redemption pursuant to Section 6(c), the interpretation, application or
operation of the adjustment provisions of Section 9 (other than any such dispute
referred to in the second sentence of Section 9(p)(F), which shall be resolved
as stated therein) or the interpretation, application or operation of the
provisions of Section 10, the Corporation and the Majority Holders will promptly
attempt to settle such dispute through consultation and negotiation in good
faith and in a spirit of mutual cooperation. If agreement is reached concerning
the resolution of such dispute, then such agreement shall be final, conclusive
and binding on the Corporation and all Holders. If, on or before the thirtieth
day after written notice of such dispute is given by the Corporation to the
Majority Holders or by the Majority Holders to the Corporation, such dispute has
not been resolved by the agreement of the Corporation and the Majority Holders,
such dispute shall be settled by an expedited arbitration proceeding conducted
in accordance with the then current Commercial Arbitration rules of the American
Arbitration Society in New York, New York by a single arbitrator who satisfies
the requirements of Section 9(y)(B) and who is mutually acceptable to the
Corporation and the Majority Holders or, in the event such Persons fail to agree
upon such arbitrator within ten Business Days after such written notice of
dispute is given, an arbitrator who satisfies such requirements appointed by the
American Arbitration Association upon application of either the Corporation or
the Majority Holders. Neither the Corporation nor the Majority Holders shall
unreasonably withhold its approval of the selection of an arbitrator
<PAGE>
satisfying the requirements of Section 9(y)(B). The Corporation and the Majority
Holders shall provide such arbitrator with such information as may be reasonably
requested in connection with the arbitration of such dispute and shall otherwise
cooperate with each other and such arbitrator in good faith and with the goal of
resolving such dispute as promptly as reasonably practicable. The arbitrator
shall not have authority to award punitive or other non-compensatory damages.
Subject to the immediately preceding sentence and to subdivision (C) of this
Section 9(y), the arbitrator's decision and award with respect to the dispute
referred to such arbitration shall be final and binding and may be entered in
any court with jurisdiction, and the Corporation and the Holders shall abide by
such decision and award. Each party shall bear its own costs and expenses,
including attorney's fees, incurred in connection with any arbitration
proceeding, except that the Corporation and the Holders (as a group) each shall
pay one-half of all fees, costs and disbursements of the arbitrator and of or
charged by the American Arbitration Society. The provisions of this Section 9(y)
shall not in any way limit or otherwise affect (i) the right of any Holder to
seek, with regard to the matter in dispute, specific performance or other
injunctive relief in any court of competent jurisdiction or (ii) the rights or
remedies of any Holder with respect to any claim, controversy or dispute not
submitted to and decided by an arbitrator pursuant to this Section 9(y).
(B) Each arbitrator appointed pursuant to Section 9(y)(A) shall be
an attorney who practices law in New York City, who has substantial experience
in sophisticated corporate and securities transactions generally and in
negotiating and drafting "antidilution" provisions of warrants and convertible
securities in particular and who has not, and who is not a member or employee of
any firm which has, rendered legal services to any of the parties to the dispute
or any of their respective Affiliates within the preceding two years and who has
no interest (other than the receipt of customary fees for his services as an
arbitrator) in the matter in dispute.
(C) Nothing contained in this Section 9(y) or any other provision
hereof is intended to or shall preclude any holder of any Series C Share or
Conversion Securities from exercising or pursuing or otherwise limiting or
affecting the rights or remedies which such holder may have pursuant to any
Purchase Agreement or the Co-Investment Agreement, at law, in equity or
otherwise by reason of any matter which is the subject of or basis for any
dispute referred to in Section 9(y)(A) (or any other matter), and the dispute
resolution mechanisms provided for in Section 9(y)(A) are intended solely as a
means of resolving bona fide disputes concerning the interpretation, application
or operation of the adjustment provisions of Section 9 (other than any such
dispute referred to in the second sentence of Section 9(p)(F), which shall be
resolved as stated therein) or bona fide disputes which the last sentence of
Section 9(p)(F) provides will be resolved pursuant to this Section 9(y), and not
for the purpose of determining the rights of holders of Series C Shares or
Conversion Securities or the liabilities or obligations of the Corporation, for
the purpose of resolving or settling any claim by any such holder of any breach
or inaccuracy of any representation or warranty of, or any breach or failure to
perform any covenant, agreement or obligation, of the Corporation contained
herein or in any Purchase Agreement, any Co-Investment Agreement or any other
Transaction Document (as defined in the
<PAGE>
Series C Purchase Agreement) or any other purpose. Without limiting the
generality of the immediately preceding sentence, no decision of any arbitrator
appointed pursuant to this Section 9(y) shall have or be given any res judicata
or similar effect in any action, suit or proceeding in which any claim by any
holder of any Series C Share or Conversion Securities or any holder of Series B
Shares or of any securities into which any Series B Share is converted of any
breach or inaccuracy of any representation or warranty of, or any breach or
failure to perform any covenant, agreement or obligation, of the Corporation
contained herein or in the Series B Certificate of Designation, any Purchase
Agreement, the TFC Series B Purchase Agreement, any Co-Investment Agreement or
any other agreement or instrument is to be adjudicated.
10. Initial Public Offering.
(a) Qualified IPO. Subject to Section 10(e), upon the
occurrence of a Qualified IPO or on such date or dates as of which holders of
more than 75% of the total number of shares of Series C Preferred Stock issued
pursuant to the Purchase Agreements and the Co-Investment Agreement have
converted their shares of Series C Preferred Stock into Common Stock in
accordance with the provisions of Section 9, the Corporation may elect, by
written notice to that effect given to each holder of Series C Preferred Stock
within 10 Business Days after the date of such closing, to require that all, but
not less than all, outstanding shares of Series C Preferred Stock be converted,
effective as of such tenth Business Days, into duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock at the Conversion Rate
determined as of such tenth Business Day and otherwise in accordance with
Section 9 and the applicable provisions of this Section 10 (after giving effect
or pro forma effect to all adjustments, if any, to the Conversion Rate and the
Conversion Price required by the provisions of Section 9 as a result of any
issuances or deemed issuances of shares of Common Stock in or in connection with
the Qualified IPO, including all issuances or sales of shares of Common Stock,
Rights or Convertible Securities to the public, to any underwriter as
compensation or otherwise for such underwriter's own account and not for resale
to the public, and all "over-allotment options" and similar rights granted to
any underwriter).
(b) Other IPO. Subject to Section 10(e), if the Corporation,
with the prior consent of the Majority Senior Holders, consummates an initial
public offering of the Corporation's Common Stock at a price to the public
reflecting a pre-money common equity valuation of less than $231 per share of
Common Stock on a fully diluted basis (as such price per share shall be
appropriately adjusted for stock splits, reverse splits, stock dividends or
other reclassifications, reorganizations or similar events affecting the capital
stock of the Corporation, the record date for which occurs after the Closing
Date), other than an initial public offering that is initiated by a demand for
registration made in accordance with the provisions of Article II of the
Registration Rights Agreement by the Investors (as defined therein), then unless
the Majority Senior Holders and the Corporation otherwise agree in writing,
effective as of the date of the closing of the consummation of such initial
public offering, all Series C Shares (other than any Series C Shares as to which
a notice of conversion has been given prior to such date and not
<PAGE>
revoked by the holders thereof) shall be converted into duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock in accordance with
Section 9 hereof and the applicable provisions of this Section 10. The number of
shares into which each outstanding Series C Share shall be converted shall be
the greater of (i) the Conversion Rate determined as of the date of the closing
of the consummation of such public offering (after giving effect or pro forma
effect to all adjustments, if any, to the Conversion Rate and the Conversion
Price required by the provisions of Section 9 as a result of any issuances or
deemed issuances of shares of Common Stock in or in connection with such initial
public offering, including all issuances or sales of shares of Common Stock,
Rights or Convertible Securities to the public, to any underwriter as
compensation or otherwise for such underwriter's own account and not for resale
to the public, and all "over-allotment options" and similar rights granted to
any underwriter); or (ii) the quotient obtained by dividing the lesser of "A" or
"B" by "C" where
A = Two Hundred and Thirty-One Dollars ($231),
B = the sum of (x) the Liquidation Price of such share of Series C
Preferred Stock as of the date of the closing of the consummation of
such public offering, plus (y) all unpaid dividends accrued on such
share during the period from and including the applicable Dividend
Payment Date immediately preceding such date (or the Issue Date for
such share if there was no prior Dividend Date) through and
including such date of payment or distribution (whether or not such
unpaid dividends have been earned or declared), plus (z) the
Participation Amount of such share of Series C Preferred Stock as of
the date of the closing of the consummation of such public offering,
and
C = the pre-money value per share of the Common Stock on a fully
diluted basis implied by such initial public offering.
(c) Effect of Closing of IPO. Except as otherwise expressly provided
in this Section 10, the conversion of the Series C Shares into Common Stock
pursuant to subsection (a) or (b) of this Section 10 shall, for purposes of
Section 9 hereof, have the same effect as if each holder of Series C Shares gave
a notice of conversion pursuant to Section 9(b). Upon the effective date for
such conversion determined in accordance with this Section 10, each share of
Series C Preferred Stock will be deemed to be converted into the number of
shares of Common Stock of the Corporation determined as set forth in this
Section 10 and the holder of such share of Series C Preferred Stock shall no
longer have any rights or obligations pursuant to the Series C Certificate of
Designation (except the right of such holder to receive, and the obligation of
the Corporation to issue and deliver, such shares of Common Stock and all other
securities, cash or other property, if any, issuable upon such conversion), but
shall instead have all the rights and obligations of holders of the
Corporation's Common Stock.
(d) Notices; Continued Convertibility; Effective Date of Conversion.
In the case
<PAGE>
of any initial public offering of the Common Stock (or any Rights or Convertible
Securities), the Corporation shall, promptly after the price to the public is
determined, the Corporation shall give written notice to each holder of any
Investor Preferred Shares of such price to the public and shall also give each
such holder at least three Business Days advance notice of the date of the
closing of the consummation of such public offering. The calculations required
by Section 10(a) or Section 10(b) (whichever is applicable) shall be made
promptly after the exercise, expiration or termination of any "over-allotment
option" granted to the underwriters, and the Corporation shall promptly provide
each holder of Investor Preferred Shares with a written statement of the number
of shares of Common Stock into which each Series B Share and each Series C Share
is convertible in sufficient detail to permit such holder to confirm the
Corporation's calculations. Each Series C Share shall continue to be
convertible, at the election of the holder thereof, into Common Stock in
accordance with Section 9 through and including the eighth Business Day after
such holder receives the written statement of the Corporation's calculations
referred to in the immediately preceding sentence. If such holder does not elect
to so convert any Series C Share, such share shall be converted into shares of
Common Stock pursuant to Section 10(a) or Section 10(b) (whichever is
applicable) and such conversion shall be effective as of the date of the closing
of the consummation of the initial public offering.
(e) Simultaneous Conversion of Series B Shares. Unless the Majority
Senior Holders otherwise agree in writing, the Corporation may not require the
conversion of the Series B Preferred Stock pursuant to Section 10(a) by reason
of the occurrence of a Qualified IPO or pursuant to Section 10(b) unless all
shares of the Series C Preferred Stock are simultaneously required to be
converted in accordance with the corresponding provisions of the Series B
Certificate of Designation.
11. Headings. The headings of the various sections and subsections hereof
are for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
12. Terms Generally. The definitions of terms contained herein shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The words "herein",
"hereof" and "hereunder" and words of similar import refer to this resolution in
its entirety and not to any part hereof, unless the context shall otherwise
require. All references herein to Sections shall be deemed references to
Sections of this resolution, unless the context shall otherwise require. Unless
the context shall otherwise require, any references to any agreement or other
instrument or to any statute or regulation or any specific section or other
provision thereof are to it as amended and supplemented from time to time (and,
in the case of a statute or regulation or specific section or other provision
thereof, to any successor to such statute, regulation, section or other
provision). Unless otherwise expressly provided herein or unless the context
shall otherwise require, any provision of this Agreement
<PAGE>
using a defined term (such as "Subsidiary" or "Wholly Owned Subsidiary") which
is based on a specified relationship between one Person and one or more other
Persons shall, as of any time, refer to such Persons who have the specified
relationship as of that particular time. Any reference in this Agreement to a
"day" or number of "days" (without the explicit qualification of "Business")
shall be interpreted as a reference to a calendar day or number of calendar
days. Unless the context clearly indicates otherwise, "or" shall not be
exclusive and means "and/or." When used with reference to any Right or
Convertible Security, the term "exercise" means to exercise the right to
subscribe for, purchase or otherwise acquire shares of Common Stock represented
by such Right or the right to exchange or convert such Convertible Security for
or into shares of Common Stock represented by such Convertible Security, and
variants of such word (including "exercised" and "exercisable") shall have
correlative meanings. Whenever used with respect to any Additional Share of
Common Stock or any other share of Common Stock, the word "issue" includes any
issuance, sale or other method of transfer or delivery of such share, whether
such share is newly issued or is a treasury share and variants of such word
(including "issued", "issuance" or "issuable") used with respect to any
Additional Share of Common Stock or any other share of Common Stock shall have
correlative meanings; therefore, any provision of this resolution which is
stated to be applicable if the Corporation issues or shall issue any share is
applicable both to a newly issued share and to a treasury share sold or
otherwise transferred or delivered. The word "property" and the word "assets"
shall each include assets or property of any kind, whether real, personal,
tangible or intangible.
13. Actions on Non-Business Days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
Business Day, then such action or notice shall be deferred until, and may be
taken or given on, the next Business Day.
14. Severability. If any provision of this resolution shall be illegal,
invalid or unenforceable by reason of any rule of law or public policy, that
provision will be enforced to the maximum extent permissible so as to effect the
intent thereof and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. In any such
case, if requested by the Majority Holders, the Corporation will negotiate in
good faith to amend this resolution to replace the illegal, invalid or
unenforceable language with legal, valid and enforceable language which as
closely as possible reflects such intent.
15. Waivers.
(a) Any provision of this resolution which, for the benefit of the
holders of Series C Preferred Stock, prohibits, limits or restricts actions by
the Corporation, or imposes obligations on the Corporation, may be waived in
whole or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the Majority Holders, either in writing or by vote at a meeting
called for such purpose at which the holders of Series C Preferred Stock shall
vote as a separate class, unless such waiver, by its terms, has an adverse
effect upon the shares of Series C Preferred Stock of any
<PAGE>
holder that does not affect all shares of Series C Preferred Stock on an equal
per share basis, in which case such waiver shall require the prior approval of
such holder.
(b) Any provision of this resolution which, for the benefit of the
holders of Investor Preferred Stock without distinction as to series or class,
prohibits, limits or restricts actions by the Corporation, or imposes
obligations on the Corporation, may be waived in whole or in part, or the
application of all or any part of such provision in any particular circumstance
or generally may be waived, in each case with the consent of the Majority Senior
Holders, either in writing or by vote at a meeting called for such purpose at
which the holders of the Investor Preferred Stock shall vote as a separate,
single class, unless such waiver, by its terms, has an adverse effect upon the
shares of the Series B Preferred Stock or the Series C Preferred Stock of any
holder that does not affect all shares of the other series on an equal per share
basis, in which case such waiver shall require the prior approval of the holders
of a majority of the shares of the affected series.
(c) Any waiver given as provided in subsection (a) of this Section
shall be binding on all holders of the Series C Preferred Stock. Any waiver
given as provided in subsection (b) of this Section shall be binding on all
holders of the Investor Preferred Stock.
16. Method Of Giving Notices; Defects in Notices. All notices, requests,
consents, demands, elections and other communications required or permitted
hereunder shall be in writing and shall be given or delivered to the intended
recipient at: (i) in the case of any holder of shares of Investor Preferred
Stock, to such holder at his address appearing on the books of the Corporation
or supplied by him in writing to the Corporation for the purpose of such notice;
and (ii) in the case of the Corporation, to the Corporation at its principal
office at 9531 West 78th Street, Minneapolis, Minnesota, or at such changed
address as the Corporation may from time to time specify in writing to each
holder of shares of Investor Preferred Stock. Any such notice, request, consent,
demand, election or other communication shall be deemed to have been duly given
or delivered if personally delivered or sent by registered or certified mail,
return receipt requested, Express Mail, Federal Express or similar overnight
delivery service for next Business Day delivery or by telegram, telex or
facsimile transmission and will be deemed given or delivered, unless earlier
received: (1) if sent by certified or registered mail, return receipt requested,
five calendar days after being deposited in the United States mail, postage
prepaid; (2) if sent by Express Mail, Federal Express or similar overnight
delivery service for next Business Day delivery, the next Business Day after
being entrusted to such service, with delivery charges prepaid or charged to the
sender's account; (3) if sent by telegram or telex or facsimile transmission, on
the date sent and (4) if delivered by hand, on the date of delivery. No failure
on the part of the Corporation to give any notice required by any provision of
this resolution, nor any delay or defect in any such notice which is given or
delivered or in the giving or delivery thereof, shall adversely affect the
rights which the holders of the Series C Preferred Stock or the holders of the
Investor Preferred Stock would have if such notice had been duly given on a
timely basis, and such holders shall be entitled to exercise such rights from
and at any time after
<PAGE>
they acquire actual knowledge of the matters required to be set forth in such
notice.
17. Specific Performance; Injunctive Relief. In addition to any other
rights or remedies which may be available at law, in equity or by contract, any
holder from time to time of shares of Series C Preferred Stock shall be entitled
to obtain in any court of competent jurisdiction specific performance of, or an
injunction or other order restraining any act or proposed act by the Corporation
which would result in a violation of, any of the terms or provisions of this
resolution.
18. Amendment; Voting Rights.
(a) This resolution may be amended from time to time by the Board of
Directors with the affirmative vote or written consent of the Majority Holders
and, if any Series B Shares are outstanding, with the affirmative vote or
written consent of the holders of a majority of the Series C Shares then
outstanding; provided, however, any such amendment which, by its terms, would
have an adverse effect upon the shares of Series C Preferred Stock of any
holders that does not affect all shares of Series C Preferred Stock on an equal
per share basis shall also require the prior approval of such holder. Unless
otherwise required by mandatory provisions of applicable law or the Series B
Certificate of Designation, no vote or consent of the holders of any other class
or series of the Corporation's stock shall be necessary.
(b) The Series C Shares shall not carry voting rights except as
provided in this resolution and except for any voting rights to which the
holders thereof may be or become entitled under the General Corporation Law of
the State of Delaware as in effect from time to time (or any successor statutory
provisions) or other applicable law. The foregoing shall not prevent the
Corporation from granting, by contract (including the Stockholders Agreement),
or otherwise, to any Holder or Holders of any Series C Shares any consent or
approval, veto or similar rights of any nature whatsoever.
(c) Without the consent of the holders of at least 80% of the number
of shares of Series C Preferred Stock then outstanding, the Corporation shall
not amend, alter or repeal any provision of the Corporation's Certificate of
Incorporation or any resolution of the Board of Directors establishing and
designating any series or class of capital stock and determining the relative
rights and preferences thereof, so as to effect any adverse change in the
rights, privileges, powers or preferences of the holders of the Series C
Preferred Stock.
19. Decisions by Holders Generally. Unless otherwise expressly provided
herein, all decisions and determinations required or permitted to be made
hereunder by the Holders (including any decision as to whether to give any
consent or approval) shall be made by the Majority Holders. To the maximum
extent permitted by law, each Person who is or shall become a holder of any
Series C Share waives all fiduciary duties to such Person, if any, that the
Majority Holders, the Majority Senior Holders, any other Holder of any Series C
Share or any
<PAGE>
holder of any Series B Share otherwise would or might have.
Dated: ___________, 1997
MENTUS MEDIA CORP.
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
Exhibit 3.1(n)
CERTIFICATE OF AMENDMENT
OF THE
AMENDED CERTIFICATE OF DESIGNATION
FOR SERIES A 8.25%
CONVERTIBLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
-----------------------
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Amended Certificate of Designation for the Series A 8.25% Convertible
Preferred Stock, par value $1.00 per share of the Corporation, of the
Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Amended Certificate of Designation for the
Corporation's Series A 8.25% Convertible Preferred Stock, par value $1.00 per
share, be amended as follows:
1. The last two sentences of paragraph 2, Rank, are amended to read
in their entirety as follows:
"The term 'Senior Stock' shall in any event include (without
limitation) the Series B Preferred Stock and the Series C Preferred
Stock. The term `Series B Preferred Stock' means the Series B Senior
Cumulative Compounding Convertible Redeemable Preferred Stock, par
value $1.00 per share, of the Corporation, and shall also include
any capital stock into which shares of the Series B Preferred Stock
may be changed, and the term 'Series C Preferred Stock' means the
Series C Senior Cumulative Compounding Convertible Redeemable
Preferred Stock, par value $1.00 per share, of the Corporation, and
shall also include any capital stock into which shares of the Series
C Preferred Stock may be changed."
2. Paragraph 3(c) is amended by inserting, "the Series C Preferred
Stock" immediately following the term "Series B Preferred Stock" appearing
therein.
3. Paragraph 4 is amended as follows:
(i) By adding at the end of the fifth sentence thereof the words
"unless the holders of the Series B Preferred Stock or the Series C
Preferred Stock elect to treat such event as such
<PAGE>
a liquidation, dissolution or winding up in accordance with the
terms thereof."
(ii) By adding the following new sentence at the end thereof: "For
purposes of the foregoing, the phrase 'after liquidation of all
Senior Stock' in the first sentence of this Paragraph 4 shall mean,
in the case of the Series B Preferred Stock or the Series C
Preferred Stock, the payment to the holders thereof of the full
amounts provided for in Section 5(a) of the resolution of the Board
of Directors of the Corporation creating such series (or any
successor provisions of the Corporation's Certificate of
Incorporation), as the same has been or from time to time may be
amended."
4. The last sentence of clause (v) of paragraph 6(f) is amended to
read in its entirety as follows:
"For the sake of clarity and without implying that any such
adjustment otherwise would be required by this paragraph 6, no
adjustment shall be made by reason of issuance of shares of Common
Stock upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock or the Series C Preferred Stock or any adjustment to
the conversion price or conversion rate thereof."
5. The following is inserted as the second sentence of Paragraph
8(a):
"Any provision of this resolution which, for the benefit of the
holders of Series A Preferred Stock, prohibits, limits or restricts
actions by the Corporation, or imposes obligations on the
Corporation, may be waived in whole or in part, or the application
of all or any part of such provision in any particular circumstance
or generally may be waived, in each case with the consent of the
holders of a majority of the shares of Series A Preferred Stock then
outstanding, either in writing or by vote at a meeting called for
such purpose at which the holders of Series A Preferred Stock shall
vote as a separate class, unless such waiver, by its terms, has an
adverse effect upon the shares of Series A Preferred Stock of any
holder that does not affect all shares of Series A Preferred Stock
on an equal per share basis, in which case such waiver shall require
the prior approval of such holder."
6. The first sentence of paragraph 8(b) is amended by (i) inserting "or the
Series C Preferred Stock" immediately following the term "Series B Preferred
Stock" appearing therein and (ii) deleting from clause (A) thereof the phrase
"authorize or issue" and deleting the comma appearing after the word "create"
appearing in such clause.
7. Paragraph 8(c) is amended by inserting "or the Series C Preferred
Stock" immediately following the term "Series B Preferred Stock" appearing
therein.
SECOND: That the appropriate stockholders of the Corporation approved such
amendment by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its duly authorized officers this ___ day of August, 1997.
<PAGE>
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
Exhibit 3.1(o)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
FOR SERIES B SENIOR CUMULATIVE
COMPOUNDING CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
-----------------------
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Certificate of Designation for the Series B Senior Cumulative Compounding
Convertible Preferred Stock, par value $1.00 per share of the Corporation, of
the Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designation for the Corporation's
Series B Senior Cumulative Compounding Convertible Redeemable Preferred Stock,
par value $1.00 per share, be amended as follows:
1. The definition of "Affiliate" in Section 2 is amended by adding
"or Series C Shares" immediately after the term "Series B Shares" appearing in
such definition.
2. The definition of "Affiliate" in Section 2 is further amended by
adding "or Series C Preferred Stock" immediately after the term "Series B
Preferred Stock" in each place that such term appears in such definition.
3. Clause (ii) of the first sentence of the definition of "Change in
Control" in Section 2 is amended to read in its entirety as follows:
"(ii) the Corporation consolidates with, or merges with or
into, another Person or any Person consolidates with, or merges with
or into, the Corporation, in any such event pursuant to a
transaction in which the outstanding Common Stock of the Corporation
is converted into or exchanged for cash, securities, equity
interests or other property and immediately after such transaction
the Persons who were the Beneficial Owners of the outstanding Common
Stock of the Corporation immediately prior to such transaction are
not the beneficial owners, directly or indirectly, of more than 50%
of the combined voting power represented by all then outstanding
common stock of the surviving or transferee
<PAGE>
Person; or"
4. Clause (v) of the first sentence of the definition of "Change in
Control" in Section 2 is amended to read in its entirety as follows:
"(v) for any reason (including death or disability), Gerard
Joyce or Thomas Pugliese ceases to be the Beneficial Owner, directly
or indirectly, of 80% or more of the shares of Common Stock held by
him on September 25, 1996 (as appropriately adjusted for any
subdivision, combination, reclassification, recapitalization,
reorganization, merger or other change of or in the outstanding
Common Stock), other than any shares thereof which were 'Restricted
Shares' issued subject to forfeiture pursuant to his employment
agreement with the Corporation as amended and in effect on September
25, 1996."
5. The definition of "Existing Rights" in Section 2 is amended by
(i) adding "(i)" immediately after the word "means" appearing therein and (i)
adding "and (ii) all Series C Shares from time to time outstanding" at the end
of such definition.
6. The definition of "Fair Market Value" in Section 2 is amended to
read in its entirety as follows:
"'Fair Market Value' means, in respect of any security,
asset or other property, the price at which a willing seller would sell and a
willing buyer would buy such security, asset or other property having full
knowledge of the facts, in an arm's-length auction transaction without time
constraints, and without being under any compulsion to buy or sell. The
determination of the Fair Market Value of the Corporation, the Common Stock or
any other capital stock of the Corporation shall be determined on a going
concern or liquidation basis, whichever yields the higher result, on the basis
of the assumption that the management and other key employees of the Corporation
and its subsidiaries will continue to be employed indefinitely and without
treating as liabilities the amount, if any, (i) payable or which may become
payable by the Corporation pursuant to the indemnification provisions of the TFC
Purchase Agreement, the Series C TFC Purchase Agreement or any other purchase
agreement pursuant to which any Series C Shares are acquired by any Person, (ii)
any indebtedness of the Corporation to Gerard P. Joyce subject to the Agreement,
dated as of September 25, 1996, among the Corporation, Mr. Joyce and the
Purchasers or (iii) in the case of any Participation Event, any indebtedness or
liability of the Corporation or any of its subsidiaries to its controlling
Person or Persons or any of their respective Affiliates. In the case of a
determination of the Fair Market Value of a share of capital stock of the
Corporation as of any time, (i) if such capital stock is Publicly Traded at such
time, the Fair Market Value of a share of such capital stock shall be the
Current Market Price thereof as of such time and (ii) if such capital stock is
not Publicly Traded at such time, the Fair Market Value of a share of such
capital stock shall be the price determined as of such time in accordance with
the first three sentences of this definition, without giving effect to any
discount for a minority interest, to the fact that such capital stock is not
Publicly Traded, to any lack of liquidity of such capital stock or to the fact
(if true) that the Corporation has no class of equity security registered under
the Exchange Act."
7. The definition of "Issue Date" in Section 2 is amended to read in
its entirety as follows:
"'Issue Date' means, with respect to any Investor Preferred
Share, the date of original issuance of such Investor Preferred
Share. The date of original issuance of the Series B Shares issued
pursuant to any Purchase Agreement is the Closing Date. The date of
original issuance of each Series C Share issued pursuant to the TFC
Series C Purchase
<PAGE>
Agreement or any of the Other Purchase Agreements or the
Co-Investment Agreement referred to therein is the date of the TFC
Series C Purchase Agreement."
8. The definition of "Junior Stock" in Section 2 is amended by (i)
substituting "Corporation" for the term "Company" in the last sentence thereof,
(ii) (i)substituting "Series B Preferred Stock" for the term "Series A Preferred
Stock" appearing in the last sentence thereof and (iii) amending the first
sentence thereof to read in its entirety as follows:
"Junior Stock" means (i) each class or series of Common Stock,
(ii) the Series A Preferred Stock of the Corporation, (iii) any
other class or series of capital stock of the Corporation hereafter
created, other than (A) the Series C Preferred Stock, (B) any class
or series of Parity Stock (except to the extent provided under
clause (iv) of this sentence) and (C) any class or series of Senior
Stock (except to the extent provided under clause (iv) of this
sentence), and (iv) any class or series of Parity Stock or Senior
Stock to the extent that it ranks junior to the Series B Preferred
Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be.
9. The definition of "Liquidation Price" in Section 2 is amended to
read in its entirety as follows:
"'Liquidation Price'" means, as of any time:
"(i) in the case of any Series B Share, the sum of (A)
Seventy-Seven Dollars ($77.00) plus (B) an amount equal to all
unpaid dividends accrued on such Series B Share since the
Issue Date thereof which, pursuant to Section 4(b) hereof,
have been added to and remain part of the Liquidation Price as
of such time of determination, whether or not such unpaid
dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for
the payment of dividends; and
"(ii) in the case of any Series C Share, the 'Liquidation
Price' of such Series C Share as of such time as defined in
and determined in accordance with the Series C Certificate of
Designation".
10. The first sentence of the definition of "Parity Stock" in
Section 2 is amended by redesignating clause (ii) thereof as clause (iii) and
adding ", (ii) the Series C Preferred Stock" immediately after the end of clause
(i) thereof.
11. The definition of "Qualified IPO" in Section 2 is amended to
read in its entirety as follows:
"'Qualified IPO' means either (i) consummation of
an initial public offering of the Corporation's Common Stock
generating proceeds of at least $20 million on a pre-money
equity valuation of at
<PAGE>
least $308 per share of Common Stock (as appropriately
adjusted for stock splits, reverse splits, stock dividends or
other reclassifications, reorganizations or similar events
affecting the capital stock of the Corporation, the record
date for which occurs after the Closing Date) or (ii) any date
at which all of the following statements are true: (A) the
Common Stock is registered under Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended, (B)
the Common Stock is listed for trading on a national
securities exchange registered under the Exchange Act or
traded in over-the counter market and quoted in an automated
quotation system of the National Association of Securities
Dealers, Inc., (C) the average daily trading volume of shares
of the Common Stock reported by such exchange or quotation
systems for the period of 5 consecutive trading days prior to
such date of closing has exceeded 0.7% of the number of shares
of Common Stock actually issued and outstanding on such date
and (D) the average closing price for the period of 20
consecutive trading days before such date is at least $308 per
share (as appropriately adjusted for stock splits, reverse
splits, stock dividends or other reclassifications,
reorganizations or similar events affecting the capital stock
of the Corporation, the record date for which occurs after the
Closing Date)."
12. The definition of "Series A Preferred Stock" is amended by
deleting the word "Exchangeable" therefrom.
13. The definition of "Series B Certificate of Designation" in
Section 2 is amended to read in its entirety as follows:
"'Series B Certificate of Designation' means the
Certificate of Designation setting forth the resolution of the
Board of Directors creating and authorizing the issuance of
the Series B Preferred Stock and filed with the Delaware
Secretary of State pursuant to Section 151 of the Delaware
General Corporation Law or any successor provisions of the
Corporation's Certificate of Incorporation, as the same may
have been or be amended."
14. The definition of "Valuation Committee" in Section 2 is amended
to read in its entirety as follows:
"'Valuation Committee' means a committee of the Board of
Directors composed of (i) the Series B Director or, during any
period that there is no Series B Director, the Series C
Director, (ii) one or more independent directors (as defined
in Section 8(f) hereof) and (iii) not more than one other
director."
<PAGE>
15. Section 2 is further amended by deleting therefrom the
definitions of (i) "Accrual Date" and "Conversion Value."
16. Section 2 is further amended by adding thereto, in the proper
alphabetical order, the following additional defined terms:
"Dividend Date" means (i) in the case of the Series B Preferred
Stock, any Dividend Payment Date; and (ii) in the case of the Series C Preferred
Stock, any "Dividend Payment Date" as defined in the Series C Certificate of
Designation.
"Investor Preferred Stock" means the Series B Preferred Stock or the
Series C Preferred Stock.
"Investor Preferred Share" means any Series B Share or Series C
Share.
"Majority Senior Holders" means, as of any time, the holder or
holders of Series B Shares, Series C Shares or both having an aggregate
Liquidation Price representing more than 50% of the total Liquidation Price of
all Series B Shares and Series C Shares then outstanding.
"Participation Amount" means, with respect to any share of Investor
Preferred Stock as of any time, the aggregate amount that would be payable to
the holder of such share pursuant to subsections (a) and (b) of Section 5 hereof
if it were assumed that at such time (i) the assets of the Corporation were sold
in a tax-free transaction for cash equal to the Fair Market Value of the
Corporation determined as of such time, (ii) the Corporation was dissolved and
liquidated, and the cash proceeds of the deemed sale of the Corporation's assets
were distributed to the Corporation's stockholders, including the holders of the
Investor Preferred Stock, the Series A Preferred Stock and the Common Stock, in
accordance with their respective preferences and priorities upon dissolution and
liquidation of the Corporation. For purposes of the calculation of the
Participation Amount as of any time, it shall be assumed that (i) all Rights and
Convertible Securities, including the Series A Preferred Stock, but excluding
the Series B Preferred Stock and the Series C Preferred Stock, that are
exercisable at such time were either exercised or not exercised, whichever would
result in the greatest payment to the holders thereof in the event of the
assumed dissolution and liquidation of the Corporation at such time as provided
in the first sentence of this definition, and (ii) all shares of Series B
Preferred Stock or Series C Preferred Stock then outstanding continue to be
outstanding and are not converted into Common Stock.
"Participation Event" means (i) any Change in Control, or (ii) any
consolidation, merger, binding share exchange or reorganization to which the
Corporation is party, except a consolidation, merger, share exchange or
reorganization in which the Corporation is the continuing corporation and which
does not result in any exchange or conversion of the outstanding shares of any
class or series of capital stock of the Corporation, any distribution, issuance
of securities or payment of other consideration to the holders of the
outstanding shares of any class or series of capital stock of the Corporation,
or change in the outstanding shares of
<PAGE>
any class or series of capital stock of the Corporation (other than an increase
in the number of shares thereof issued and outstanding) or (iii) any sale,
assignment, conveyance, leasing or other disposition, in one or more
transactions, of all or substantially all of its assets to any Person or
Persons.
"Publicly Traded" is defined under the definition of "Current Market
Price" above in this Section 2.
"Pugliese Employment Agreement" means the Employment Agreement,
dated August 1, 1990, between the Corporation and Thomas Pugliese, as amended
pursuant to the Amendment to Employment Agreement dated September 25, 1996 and
the Second Amendment to Employment Agreement dated the date of the TFC Series C
Purchase Agreement, as the same may be amended from time to time with the
approval of the Series B Director or the Majority Holders.
"Redemption Price" means:
(i) as to any share of Series B Preferred Stock that is to be
redeemed on any Redemption Date pursuant to any subsection of
Section 6, the redemption price determined pursuant to such
subsection.
(ii) in the case of any Series C Share as of any time, the
"Redemption Price" of such Series C Share as of such time as defined in and
determined in accordance with the Series C Certificate of Designation.
"Series B Certificate of Designation" means the Certificate of
Designation setting forth the resolution of the Board of Directors creating and
authorizing the issuance of the Series B Preferred Stock and filed with the
Delaware Secretary of State pursuant to Section 151 of the Delaware General
Corporation Law or any successor provisions of the Corporation's Certificate of
Incorporation, as the same may have been or may be amended.
"Series C Certificate of Designation" means the Certificate of
Designation setting forth the resolution of the Board of Directors creating and
authorizing the issuance of the Series C Preferred Stock and filed with the
Delaware Secretary of State pursuant to Section 151 of the Delaware General
Corporation Law or any successor provisions of the Corporation's Certificate of
Incorporation, as the same may have been amended prior to or concurrently with
the Closing Time and thereafter may be amended.
"Series C Director" means any director of the Corporation elected by
the holders of the Series C Shares voting as a separate class.
"Series C Preferred Stock" means the Series C Senior Cumulative
Compounding Redeemable Convertible Preferred Stock, par value $1.00 per share,
of the Corporation.
<PAGE>
"Series C Share" means any issued and outstanding share of Series C
Preferred Stock. In no event shall shares of Series C Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"TFC Series C Purchase Agreement" means the Stock Purchase Agreement
among the Corporation, the Purchasers and Pulitzer Publishing Company pursuant
to which the Purchasers and Pulitzer Publishing Company first acquired Series C
Shares, as the same may be amended from time to time in accordance with its
terms.
17. Subsections (a), (b) and (c) of Section 3 are amended to read in
their entirety as follows:
"(a) Rank. The Series B Preferred Stock shall, with respect to
dividend rights, rights on liquidation, winding up and dissolution and rights
upon redemption (i) rank on a parity basis with the Series C Preferred Stock and
(ii) rank prior to (A) the Common Stock, (B) the Series A Preferred Stock and
(C) any other class or series of capital stock of the Corporation, whether now
existing or hereafter created, except (in the case of this subclause (ii)(C)
only) the Series B Preferred Stock or any other class or series of Parity Stock
or Senior Stock hereafter created and issued with the prior approval of the
Majority Senior Holders, to the extent otherwise provided for by the terms of
such other class or series of Parity Stock or Senior Stock set forth in the
instrument creating and authorizing such Parity Stock or Senior Stock, provided
that such terms shall have been furnished in writing to and approved by the
Majority Senior Holders.
"(b) Certain Restrictions on Payments in Respect of Capital
Stock. Except if and to the extent expressly authorized by Section
3(e) or with the prior approval of the Majority Senior Holders so
long as any Series B Preferred Stock is outstanding, the Corporation
shall not, and shall cause each of the Subsidiaries not to:
(i) declare or pay dividends on, or declare or make any
other distribution, whether in cash, property, securities or
any other form of consideration, to the holders of or
otherwise with respect to, the Common Stock, the Series A
Preferred Stock or any other class or series of capital stock
of the Corporation now existing or hereafter created other
than the Series B Preferred Stock or the Series C Preferred
Stock;
(ii) redeem, purchase or otherwise acquire for cash,
property, securities or any other form of consideration any
Common Stock, Series A Preferred Stock or any other class or
series of capital stock of the Corporation now existing or
hereafter created other than the Series B Preferred Stock or
the Series C Preferred Stock;
<PAGE>
(iii) declare or pay dividends on, or make any other
distribution to the holders of or otherwise with respect to any Parity Stock,
whether in cash, property, securities or any other form of consideration, except
dividends declared and paid ratably on the Series B Preferred Stock and each
class or series of Parity Stock as to which dividends are payable or in arrears
so that the amount of dividends declared and paid per share of the Series B
Preferred Stock and per share of each class or series of such Parity Stock are
in proportion to the respective total amounts of unpaid dividends accrued with
respect to the Series B Preferred Stock and all such classes and series of
Parity Stock;
(iv) subject to Section 3(c) hereof, redeem, purchase or
otherwise acquire for cash, property, securities or any other
form of consideration any Series B Shares or Series C Shares
otherwise than in accordance with the respective terms
thereof, but conversion of any Series B Shares or Series C
Shares in accordance with their respective terms shall not be
deemed to be a redemption, purchase or other acquisition
subject to this clause or Section 3(c) hereof; or
(v) set aside, pursuant to a sinking fund or otherwise,
any cash, property, securities or other form of consideration
for any of the foregoing purposes.
"(c) Pro Rata Redemptions and Purchases. If any date or
event shall occur that requires the Corporation to redeem any
Series B Shares or Series C Shares and the Corporation has
insufficient legally available funds to redeem all Series B
Shares and Series C Shares then required to be redeemed, then:
(i) the Corporation shall give written notice to such effect
to the holders of Investor Preferred Shares as soon as
practicable (and in any event not later than ten Business
Days) prior to the applicable Redemption Date; and (ii)
subject to the third sentence of this subsection, (A) the
funds legally available for such purpose shall be applied to
redeem the Series B Shares and Series C Shares then required
to be redeemed ratably in proportion to the respective full
amounts to which the holders of shares of each such series
would be entitled if the Corporation had sufficient legally
available funds to redeem all Series B Shares and Series C
Shares then required to be redeemed and (B) as and when the
Corporation has additional legally available funds, it shall
apply such funds to redeem the balance of the Series B Shares
and Series C Shares required to be redeemed proportionately as
provided in subclause (ii)(A) of this sentence. In the event
of any such partial redemption, the shares of either series to
be redeemed shall be selected on a pro rata basis from among
all holders of the shares that series required to be redeemed.
At any time after a notice from the Corporation is given
pursuant to the first sentence of this subsection and before
the applicable Redemption Date, either the Majority Holders or
the holders of a majority of the
<PAGE>
shares of Series C Preferred Stock then outstanding (the
'Majority Series C Holders') may notify the Corporation in
writing that such Majority Holders or Majority Series C
Holders, as the case may be, object to partial redemptions as
provided in the first sentence of this subsection. If such a
written objection is given, the Corporation shall not make any
such redemption of any Series B Shares or Series C Shares
unless or until it is otherwise instructed in writing by both
the Majority Holders and the Majority Series C Holders. Unless
otherwise determined by the Majority Senior Holders, the
Corporation shall not, and shall cause each of the
Subsidiaries not to, otherwise purchase or acquire for value
any shares of Series B Preferred Stock or Series C Preferred
Stock unless (i) such purchase or other acquisition is made
pursuant to an offer made on the same terms to all holders of
shares of Series B Preferred Stock and all holders of Series C
Preferred Stock, except for differences in price proportionate
to any differences in the respective Liquidation Prices of the
two series and (ii) there are simultaneously purchased or
otherwise acquired on such terms all shares which such holders
elect to tender for purchase or other acquisition; provided,
that if the aggregate purchase price for all shares tendered
for purchase exceeds the aggregate amount offered by the
Corporation, the purchase shall be made proportionately
between the Series B Shares and the Series C Shares tendered
so that the aggregate amount received by the holders of
tendered shares of either series shall be proportionate to the
ratio that the aggregate Liquidation Price of all tendered
shares of that series bears to the aggregate Liquidation Price
of all shares of both series tendered for purchase, and the
shares of either series purchased by the Corporation shall be
selected on a pro rata basis from among all holders who
tendered shares of that series. Nothing contained in this
Section 3(c) is intended to eliminate, qualify, modify or
limit the rights of the holders of any Investor Preferred
Shares under any provision of this resolution, including
Section 3(i), or the Series C Certificate of Designation,
including the provisions thereof corresponding to Section 3(i)
hereof, or any other rights or remedies which such holders may
have at law, in equity, by contract or otherwise in the event
of the failure of the Corporation to redeem any Investor
Preferred Shares as and at the times that would be required
but for the provisions of this Section 3(c)."
18. Subsection (d) of Section 3 is amended by (i) substituting
"Majority Senior Holders" for the term "Majority Holders" in each place such
term appears in such subsection, (ii) adding "or Series C Preferred Stock"
immediately after the term "Series B Preferred Stock" in each place such term
appears in such subsection, (iii) deleting the phrase "in accordance with
Section 8" in each place such term appears in such subsection and (iv) deleting
the words "by the terms hereof" that appear therein immediately before
"provided" in the first sentence thereof.
<PAGE>
19. Subsection (e) of Section 3 is amended by (i) deleting the
phrase "Subject to Section 3(f)," and capitalizing the first letter of the word
"if" immediately following such phrase, (ii) deleting "clause (i), (ii) or (iv)
of" therefrom, (iii) deleting the phrase "in accordance with Section 8" in each
place such phrase appears in such subsection, and (iv) substituting "Majority
Senior Holders" for the term "Majority Holders" appearing in such subsection.
20. Section 3 is further amended by deleting the entire text of
subsection (f) thereof and substituting "[Intentionally Omitted]", so that
subsection (f) reads in its entirety as "(f)[Intentionally Omitted]."
21. Subsection (g) of Section 3 is amended by substituting "Series B
Preferred Stock" for the term "Series A Preferred Stock" appearing in the second
sentence thereof.
22. Subsection (h) of Section 3 is amended to read in its entirety
as follows:
"(h) Certain Notices and Other Obligations Relating to
Participation Event or Reorganization Events. If the
Corporation agrees or the Board of Directors passes a
resolution authorizing the Corporation to voluntarily
consummate or take, or assist any one or more of the holders
of its Common Stock in consummating or taking, any transaction
or action which would, if consummated, result in a
Participation Event, or if the Corporation receives formal
written notice that one or more of the holders of its Common
Stock have agreed to engage in any such transaction, then it
shall send to each holder of Series C Preferred Stock and each
holder of the Series B Preferred Stock, at least 15 days prior
to the scheduled or anticipated closing of such transaction
(or, in the case where the Corporation receives formal written
notice of such transaction, immediately upon receiving such
formal written notice if such notice is received less than 15
days prior to the scheduled or anticipated closing of such
transaction), a written notice which will summarize the
material terms of such transaction, and if any of such terms
change in any material respect prior to such closing, the
Corporation shall promptly notify the holders of the Series C
Preferred Stock and the holders of the Series B Preferred
Stock in writing. If any Participation Event occurs, the
Corporation shall give the holders of the Series C Preferred
Stock and the holders of the Series B Preferred Stock written
notice thereof promptly, and in any event not later than the
fifth Business Day after the Corporation has knowledge of such
occurrence, and such notice shall summarize the material facts
relating to such Participation Event. If the Corporation plans
or the Board of Directors passes a resolution authorizing the
Corporation, or any Significant Subsidiary's Board of
<PAGE>
Directors or other governing body plans or authorizes such
Significant Subsidiary, to take any voluntary action intended
to result in any Reorganization Event, or if the Corporation
receives formal written notice that any other Person plans to
take or has taken any action intended to result in an
involuntary Reorganization Event, then it shall immediately
send to each holder of Series C Preferred Stock and each
holder of the Series B Preferred Stock (or, in the case where
the Corporation receives formal written notice of such action,
immediately upon receiving such formal written notice), a
written notice to that effect stating the material relevant
facts relating thereto and shall thereafter keep each such
holder apprised on a current basis of all related material
developments. If any Reorganization Event occurs, the
Corporation shall give the holders of the Series C Preferred
Stock and the holders of the Series B Preferred Stock written
notice thereof promptly, and in any event not later than the
next Business Day after the Corporation has knowledge of such
occurrence, and such notice shall summarize the material facts
relating to such Reorganization Event. Each notice given by
the Corporation pursuant to the second or fourth sentence of
this Section 3(h) shall be accompanied by an appropriate form
(an 'Election Form') by which the holders of the Series C
Preferred Stock and the holders of the Series B Preferred
Stock may elect whether or not to require the Corporation to
redeem their shares of the Series B Preferred Stock in
accordance with the terms of Section 6(c) or their shares of
the Series C Preferred Stock in accordance with the terms
thereof (as the case may be). If, at any time within a period
of 15 days after Election Forms are mailed, the Corporation
shall have received completed Election Forms from the Majority
Senior Holders electing to require the Corporation to redeem
the Series B Shares, Series C Shares or both held by them, the
Corporation shall promptly thereafter redeem from all holders
of Series C Preferred Stock and all holders of Series B
Preferred Stock, in accordance with Section 6(c) and the other
applicable provisions of this resolution and the applicable
provisions of the Series B Certificate of Designation,
respectively, all outstanding shares of Series C Preferred
Stock and Series B Preferred Stock; provided, however, that
the Corporation shall not voluntarily consummate or take, or
assist any of the holders of its Common Stock in consummating
or taking, any transaction or action which would result in a
Participation Event unless (i) prior to the date such
transaction is closed or such action is taken, the procedures
specified in this Section 3(h) shall have been followed and
the period of 15 days referred to in this sentence shall have
expired; (ii) if the Corporation would be required to redeem
all shares of Series B Preferred Stock and all shares of
Series C Preferred Stock by virtue of such Participation
Event, the Corporation shall have (A) deposited with a
Redemption Agent funds sufficient to redeem on the applicable
Redemption Date all Series B
<PAGE>
Shares required to be redeemed at the applicable Redemption
Price and (B) deposited with a 'Redemption Agent' funds
sufficient to redeem on the applicable 'Redemption Date' all
Series C Shares required to be redeemed at the applicable
'Redemption Price,' as such quoted terms are defined in and
determined in accordance with the Series C Certificate of
Designation; and (iii) the Corporation shall have given
written notice of its compliance with clause (ii) of this
sentence to each holder of Series C Preferred Stock or Series
B Preferred Stock. The provisions of this Section 3(h) shall
apply successively to each Change of Control or Reorganization
Event which may occur."
23. Subsection (i) of Section 3 is amended as follows:
(i) by replacing the words "If, at any time that any redemption of
shares of Series B Preferred Stock is" which appear at the beginning
of the first sentence of such subsection with the words "If, at any
time that any redemption of any shares of Investor Preferred Stock
is";
(ii) by adding the words "and the holders of the Series C Preferred
Stock" immediately after the term "Series B Preferred Stock"
appearing in clause (i) of the first sentence of such subsection;
(iii) substituting the term "Majority Senior Holders" for the term
"Majority Holders" in each place that such term appears in such
subsection;
(iv) by adding the words "and the holders of the Series C Preferred
Stock" immediately after the term "Series B Preferred Stock"
appearing in the second sentence of such subsection;
(v) by adding or "Series C Preferred Stock" immediately after the
term "Series B Preferred Stock" in the fifth sentence of such
subsection; and
(vi) amending the last sentence of such subsection amended to read
in its entirety as follows:
"Nothing contained in this Section 3(i) is intended to
eliminate, qualify, modify or limit the rights of the holders
of the Series B Preferred Stock or the holders of the Series C
Preferred Stock under any provision of Series B Certificate of
Designation or the Series C Preferred Certificate of
Designation, respectively, or any other rights or remedies
which such holders may have at law, in equity or by contract
in the event of the failure of the Corporation to redeem
shares of Series B Preferred Stock or Series C Preferred Stock
as and when required by the Series B Certificate of
Designation or the Series C Certificate of Designation."
<PAGE>
24. The first sentence of subsection (a) of Section 4 is amended to read
in its entirety as follows:
"The holders of the Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, cumulative cash dividends, in
preference and priority to dividends on any Junior Stock, that shall
accrue on the Liquidation Price of each share of the Series B
Preferred Stock at the rate of fourteen and eight-tenths percent
(14.8%) per annum, from and including the Issue Date of such share
to and including the date on which the Liquidation Price (plus
unpaid dividends as described in Section 5(a) hereof) or Redemption
Price of such share is made available pursuant to Section 5 or
Section 6, respectively or such share is converted pursuant to
Section 9 or Section 10."
25. The third sentence of Section 4(a) is amended by deleting the phrase
"or Accrual Date" therefrom.
26. Section 4(a) is further amended by deleting the fourth sentence
thereof.
27. Subsection (b) of Section 4 is amended to read in its entirety as
follows:
"(b) Compounding of Dividends. On each Dividend Payment Date,
all dividends that have accrued on each share of Series B Preferred
Stock during the immediately preceding Dividend Period shall, to the
extent not paid on such Dividend Payment Date for any reason
(whether or not such unpaid dividends have been earned or declared
or there are any unrestricted funds of the Corporation legally
available for the payment of dividends), be added to the Liquidation
Price of such share effective as of such Dividend Payment Date and
shall remain a part thereof to and including the date on which the
Liquidation Price (plus unpaid dividends as described in Section
5(a) hereof) or Redemption Price of such share is made available
pursuant to Section 5 or Section 6, respectively. No accrued
dividends (or dividends accrued thereon) which have been added to
Liquidation Price of any Series B Share may be subsequently declared
or, except in accordance with Section 5 or Section 6, paid by the
Corporation without the consent of the Majority Senior Holders."
28. Section 5 is amended to read in its entirety as follows:
"5. Distributions Upon Liquidation, Dissolution or Winding Up.
"(a) Payment of Liquidation Price. In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of the Investor
Preferred Stock shall be entitled to receive
<PAGE>
from the assets of the Corporation available for distribution to
stockholders, before any payment or distribution to the holders of
any Junior Stock (in their capacities as holders of such Junior
Stock) shall be declared, made or provided for or any cash, property
or other consideration shall be set aside for such purpose, an
amount in cash or property at its Fair Market Value, as reasonably
determined by the Board of Directors in good faith, or a combination
thereof, for each share of Investor Preferred Stock, equal to the
sum of the Liquidation Price of such share of Investor Preferred
Stock as of the date of the payment or distribution thereof to the
holders of the Investor Preferred Stock plus all unpaid dividends
accrued on such share during the period from and including the
applicable Dividend Date immediately preceding such date (or the
Issue Date for such share if there was no prior Dividend Date)
through and including such date of payment or distribution (whether
or not such unpaid dividends have been earned or declared).
"(b) Participating Distributions. Subject to Section 5(c), if,
in connection with any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment in full
to the holders of the Series C Preferred Stock, the Series B
Preferred Stock and the holders of all other classes or series of
Parity Stock, if any, which rank on a parity basis with the Investor
Preferred Stock with respect to distributions upon such liquidation,
dissolution or winding up of the respective preferential amounts to
which they are entitled, the Corporation shall at any time
distribute to the holders of its shares of Common Stock or any other
class or series of Junior Stock any cash, property or other
consideration, the holders of the Investor Preferred Stock shall be
entitled to receive, for each share of Investor Preferred Stock
held, an amount per share of the Investor Preferred Stock equal to
the amount that a holder of one share of the Investor Preferred
Stock would have been entitled to receive as a record holder of the
number of shares of Common Stock or such class or series of other
Junior Stock (as the case may be) had such share of Investor
Preferred Stock been converted in accordance with Section 9 hereof,
in the case of the Series B Preferred Stock, or in accordance with
the Series C Certificate of Designation, in the case of the Series C
Preferred Stock, immediately prior to the record date for such
distribution (or, if no such record date is fixed, immediately prior
to any other time as of which the holders of Common Stock or such
other Junior Stock entitled to participate in such distribution was
determined). The holders of the Investor Preferred Stock shall be
entitled to a distribution of fractional shares or interests in any
securities or other property distributed as contemplated by this
subsection to the extent that holders of Common Stock are entitled
to receive the same. The holders of shares of the Investor Preferred
Stock on the applicable record date (or other effective time) shall
be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of the
Common Stock or other Junior Stock in respect of which such
distribution is made. If there are no fractional shares or interests
payable to holders of the
<PAGE>
Common Stock or such other Junior Stock, the holders of shares of
the Investor Preferred Stock on the applicable record date (or other
effective time) shall receive in lieu of such fractional shares or
interests the Fair Market Value thereof as determined by the Board
of Directors in good faith. If the holders of Common Stock or such
other Junior Stock are entitled to make any election with respect to
the kind or amount of securities or other property receivable by
them in any distribution that is subject to this subsection, the
kind and amount of securities or other property that shall be
distributable to each holder of shares of Investor Preferred Stock
shall be based on (i) the election, if any, made by such holder of
Investor Preferred Stock in writing to the Corporation on or prior
to the last date on which a holder of Common Stock or such other
Junior Stock may make such an election or (ii) if no such election
is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then
the kind and amount of securities or other property receivable by
holders of shares of Investor Preferred Stock who do not make such
election on a timely basis shall be based on the kind or amount of
securities or other property receivable by a plurality of the shares
held by the nonelecting holders of Common Stock or such other Junior
Stock). Concurrently with the delivery to holders of Common Stock or
such other Junior Stock of any document pursuant to which such
holders may make an election of the type referred to in this
subsection, the Corporation shall deliver a copy thereof to the
holders of record of shares of the Investor Preferred Stock as of
the date used for determining the holders of record of Common Stock
or such other Junior Stock entitled to such delivery, which document
shall be used by the holders of record of shares of the Investor
Preferred Stock to make such an election. Distributions to which
holders of Investor Preferred Stock are entitled to receive pursuant
to this Section 5(b) are in addition to those distributions to which
they are entitled pursuant to Section 5(a).
"(c) Limit on Participating Payments. The right of the holders
of Investor Preferred Stock to participate in distributions to
holders of the Common Stock or any other class or series of Junior
Stock pursuant to Section 5(b) shall terminate at such time as the
total amount distributed to the holders of the Investor Preferred
Stock pursuant to Section 5(a) and Section 5(b) equal, for each
share of Investor Preferred Stock held, Three Hundred and Eight
Dollars ($308) per share.
"(d) Pro Rata Distributions to Senior Holders. If, upon
distribution of the Corporation's assets in liquidation, dissolution
or winding up, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to permit
payment in full to the holders of the Investor Preferred Stock and
the holders of all other classes or series of Parity Stock, if any,
which rank on a parity basis with the Investor Preferred Stock with
respect to distributions upon such liquidation, dissolution or
winding up of the respective preferential amounts
<PAGE>
to which they are entitled, then the entire assets of the
Corporation available for distribution to stockholders shall be
distributed ratably to such holders in proportion to the respective
full preferential amounts to which the shares of Investor Preferred
Stock and all such other classes and series of Parity Stock would
otherwise be entitled. For purposes of this subsection (d), the
'preferential amounts' to which the holders of the Series C
Preferred Stock or the Series B Preferred Stock are entitled shall
be the amounts determined pursuant to Section 5(a) and shall not
include any amounts to which they are or may become entitled
pursuant to Section 5(b).
"(e) Merger, Sale of Assets, Etc. For purposes of this Section
5, no Participation Event shall in and of itself be considered to be
a liquidation or winding up of the Corporation; provided, however,
that if the Corporation shall fail to redeem, as and when required
by Section 6 hereof and the corresponding provisions of the Series C
Certificate of Designation, all shares of Investor Preferred Stock
required to be redeemed as a result of such Participation Event,
then the Majority Senior Holders may elect, by written notice to the
Corporation at any time (either before, after or during any
proceedings initiated under Section 3(i) hereof or the corresponding
provisions of the Series C Certificate of Designation), to require
that such Participation Event be treated as a liquidation,
dissolution or winding up of the Corporation entitling the holders
of the Series B Preferred Stock and the Series C Preferred Stock and
the holders of the Common Stock and other Junior Stock, if any, to
receive, at the closing, the respective amounts specified above in
this Section 5. Nothing contained in this Section 5(e) is intended
to eliminate, qualify, modify or limit the rights of the holders of
the Series C Preferred Stock or the holders of the Series B
Preferred Stock under any provision of the Series C Certificate of
Designation or the Series B Certificate of Designation,
respectively, or any other rights or remedies which such holders may
have at law, in equity or by contract in the event of the failure of
the Corporation to redeem shares of Series C Preferred Stock or
Series B Preferred Stock as and when required by the Series C
Certificate of Designation or the Series B Certificate of
Designation.
"(f) Record Date and Notice. Unless the Majority Senior
Holders otherwise agree in writing, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary:
"(i) Any distribution to the holders of capital stock of the
Corporation of any class or series of assets of the
Corporation available for distribution to its stockholders
will be made to the holders of record of such class or series
on a record date that is not less than 10 days nor more than
30 days prior to the date such distribution is proposed to be
made (each, a 'Distribution Date').
<PAGE>
"(ii) The Corporation shall give to each holder of
Investor Preferred Stock at least 20 days' prior written notice of the
record date to be fixed for any payment or distribution to any of the
holders of any capital stock of the Corporation of any class or series. In
addition to any other information required by this resolution, the Series
B Certificate of Designation, any contract or applicable law, such notice
shall describe in reasonable detail each payment or distribution proposed
to be made, identify all classes and series of capital stock that will
participate in such payment or distribution and the relative
participations of the holders of each such class or series and state the
record date and Distribution Date for such payment or distribution. Such
notice shall be accompanied by a statement, in reasonable detail, showing
the amount, kind and value of all assets of the Corporation available for
payment or distribution to its stockholders. After any such notice is
given, the Corporation shall promptly furnish to each holder of Investor
Preferred Stock any information that such holder may reasonably request
relating to the liquidation, dissolution or winding up of the Corporation
and its assets and liabilities, including any information reasonably
requested and in the possession of the Corporation in order to assist such
holder in determining whether to exercise any right to convert any or all
of such holder's shares of Investor Preferred Stock into Common Stock or
other Junior Stock.
"(iii)The Investor Preferred Shares shall continue to be
convertible into Common Stock in accordance with the respective terms
thereof unless and until such holders have received indefeasible payment
of the full preferential amounts to which they are entitled pursuant to
Section 5(a). Once such payment in full has been indefeasibly made, the
Investor Preferred Shares no longer shall be convertible, but the holders
thereof shall continue to be entitled to participating distributions
pursuant to Section 5(b)."
29. Subsection (a) of Section 6 is amended by (i) deleting from the
first sentence the phrase "Unless otherwise approved by the Majority Holders in
accordance with Section 8," and capitalizing the first letter of the word "at"
immediately following such phrase and (ii) deleting the first word of the second
sentence and adding at the beginning of such second sentence the phrase "Unless
otherwise approved by the Majority Holders in accordance with Section 8, the".
30. Subsection (b) of Section 6 is amended by substituting "Dividend
Payment Date" for the term "Accrual Dates" appearing in such subsection.
31. Section 6(c) is amended to read in its entirety as follows:
"(c) Redemption at Option of Holders Upon Participation
Event or Reorganization Event. In the event of the occurrence
of a Participation Event or any Reorganization Event, the
Majority Senior Holders shall have the right to require the
Corporation to redeem, on the applicable Redemption Date, all
of the outstanding shares of the Investor Preferred
<PAGE>
Stock. Such right may be exercised by one or more Election
Forms or any other written notices (collectively, a 'Section
6(c) Election Notice') to such effect which, collectively,
have been signed by the Majority Senior Holders and given to
the Corporation at any time after the date of occurrence of
such Participation Event or Reorganization Event (as the case
may be) and prior to the expiration of the period of 15 days
after written notice of such occurrence is given to the
holders of the Investor Preferred Stock pursuant to Section
3(h) or, if the penultimate sentence of Section 3(h) is
applicable, at any time within the period of 15 consecutive
days after the written notice referred to in clause (iii) of
such sentence is given; provided, however, that in the case of
any Reorganization Event, such 15-day period shall be extended
by a number of days equal to the number of days, if any,
during which either the exercise of such right or the
redemption by the Corporation of the Investor Preferred Stock
shall be enjoined, stayed or otherwise prevented or delayed by
order or decree of any court or tribunal. In the case of a
redemption of the Investor Preferred Stock pursuant to this
Section 6(c) in connection with a Reorganization Event or in
connection with a Participation Event under clause (v) of the
definition of "Change in Control" in Section 2 resulting
solely from the death of Gerard Joyce or Thomas Pugliese, the
Redemption Price per share of the Series B Preferred Stock
shall be equal to the sum of the Liquidation Price of such
share determined as of the applicable Redemption Date plus all
unpaid dividends (whether or not earned or declared) accrued
on such share during the period from and including the
Dividend Payment Date immediately preceding the applicable
Redemption Date (or the Issue Date of such share, if the first
Dividend Payment Date for such share has not yet occurred)
through and including such Redemption Date. In the case of a
redemption of the Investor Preferred Stock pursuant to this
Section 6(c) in connection with a Participation Event other
than any under clause (v) of the definition of "Change in
Control" in Section 2 resulting solely from the death of
Gerard Joyce or Thomas Pugliese, the Redemption Price per
share of the Series B Preferred Stock shall be equal to the
lesser of (i) Three Hundred and Eight Dollars ($308) or (ii)
the sum of (x) the Liquidation Price of such share determined
as of the applicable Redemption Date, plus (y) all unpaid
dividends (whether or not earned or declared) accrued on such
share during the period from and including the Dividend
Payment Date immediately preceding the applicable Redemption
Date (or the Issue Date of such share, if the first Dividend
Payment Date for such share has not yet occurred) through and
including such Redemption Date plus (z) the Participation
Amount calculated as of the Redemption Date."
32. Subsections (e) and (f) of Section 6 are amended by substituting
the term "Investor Preferred Stock" for the term "Series B Preferred Stock" in
each place that such term
<PAGE>
appears in either subsection.
33. Subsection (f) of Section 7 is amended by substituting "Majority
Senior Holders" for the term "Majority Holders" in each place in which such term
appears in such Section. The last sentence of Section 7(f) is amended to read in
its entirety as follows:
"For purposes hereof, an 'independent director' is an individual who
(unless otherwise approved by the Series B Director or, if there is
no Series B Director, by the Series C Director or, if there is no
Series C Director, by the Majority Senior Holders) (i) has either a
significant financial investment in the Corporation or a significant
strategic position or expertise relative to the business of the
Corporation and (ii) is not (A) an officer or employee of the
Corporation or any of its Subsidiaries, (B) a director, employee,
partner, manager or other member of management of any of Affiliate
of the Corporation (except a director of a Subsidiary of the
Corporation), (C) a relative of any Person described in subclause
(ii)(A) or (ii)(B) or (D) a trustee of any trust or estate in which
any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a
beneficiary has a substantial beneficial interest. "
34. Subsection (a) of Section 8 is amended by (i) substituting
"General" for "Business" in the last sentence and (ii) adding the following two
sentences at the end of such subsection:
"With respect to actions by the holders of the Series B Preferred
Stock and the Series C Preferred Stock upon those matters on which
such holders are entitled to vote as a single series or class
(including any action which this resolution states is within the
authority or discretion of the Majority Senior Holders), such
actions may be taken either at a meeting of such holders or without
a stockholder meeting by the written consent of holders of shares of
Investor Preferred Stock having an aggregate Liquidation Price
representing more than 50% of the total Liquidation Price of all
Series B Shares and Series C Shares then outstanding. Notice shall
be given in accordance with the applicable provisions of the
Delaware General Corporation Law of the taking of corporate action
without a meeting by less than unanimous written consent to those
holders of Investor Preferred Stock whose shares were not
represented on the written consent."
35. The first sentence of subsection (b) of Section 8 is amended to
read in its entirety as follows:
"At any meeting having as a purpose either the election of a Series
B Director or any action upon any other matter on which the holders
of the Series B Preferred Stock are entitled to vote as a separate
series or class, the presence, in person or by proxy, of the holders
of record of at least a majority of the Series B Shares then
outstanding, shall be required and be sufficient to constitute a
quorum of
<PAGE>
such series or class for any such purpose, and the affirmative vote
of the holders of a majority of the shares of Series B Preferred
Stock then outstanding and entitled to vote at such meeting shall be
the act of the Series B Preferred Stock."
36. Subsection (b) of Section 8 is further amended by adding the
following at the end of such subsection:
"At any meeting having as a purpose any vote or action by holders of
the Series B Preferred Stock and the Series C Preferred Stock as a
single series or class (including any action which this resolution
states is within the authority or discretion of the Majority Senior
Holders), the presence, in person or by proxy, of the holders of
record of shares of Investor Preferred Stock having an aggregate
Liquidation Price representing more than 50% of the total
Liquidation Price of all Series B Shares and Series C Shares then
outstanding shall be required and be sufficient to constitute a
quorum of such class for any such purpose, and the affirmative vote
of the shares of Investor Preferred Stock having an aggregate
Liquidation Price representing more than 50% of the total
Liquidation Price of all Series B Shares and Series C Shares then
outstanding and entitled to vote at such meeting shall be the act of
the Investor Preferred Stock. At any such meeting or adjournment
thereof, (A) the absence of a quorum of such holders of Investor
Preferred Stock shall not prevent the taking of any action by the
holders of shares other than the Investor Preferred Stock which they
are entitled to take, and the absence of a quorum of holders of
shares other than the Investor Preferred Stock shall not prevent the
holders of the Investor Preferred Stock from taking of any action
which they are entitled to take and (B) in the absence of such
quorum, either of holders of the Investor Preferred Stock or of
shares other than the Investor Preferred Stock (or both), a majority
of the holders, present in person or by proxy, of the class or
classes of stock which lack a quorum shall have power to adjourn the
meeting for the election of directors which they are entitled to
elect or the taking of any other action which they are entitled to
take, from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
37. Subsection (a) of Section 9 is amended by deleting the last two
sentences thereof.
38. Subsection (a) of Section 9 is further amended by substituting
the following for the second sentence thereof:
"The number of whole or fractional shares of Common Stock into which
each share of Series B Preferred Stock shall be convertible as of
any time shall be equal to the quotient determined by dividing (i)
the sum of (A) the Liquidation Price of such share plus (B) an
amount equal to all unpaid dividends accrued on such share of Series
B Preferred Stock from and including the Dividend Payment
<PAGE>
Date immediately preceding such date (or the Issue Date if there was
no prior Dividend Payment Date) through and including such time,
whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally
available for the payment of dividends; by (ii) the Conversion Price
determined as of such time."
39. The penultimate sentence of subsection (b) of Section 9 is
amended by adding the following immediately after the last word in such
sentence: "and the holder of the share or shares of Series B Preferred Stock so
converted shall no longer have any rights or obligations pursuant to the Series
B Certificate of Designation (except the right of such holder to receive, and
the obligation of the Corporation to issue and deliver, such shares of Common
Stock and all other securities, cash or other property, if any, issuable upon
such conversion)."
40. Subsection (j) of Section 9 is amended to read in its entirety
as follows:
"(j) Certain Other Distributions. Subject to the second and
third sentences of this Section 9(j), if the Corporation shall at any time
declare or make any distribution, by dividend or otherwise, to all holders of
outstanding shares of Common Stock of any cash (subject to the last sentence of
this subsection) or other assets or property of any nature whatsoever, any debt
securities or other evidences of its indebtedness, any capital stock, any other
securities of any nature whatsoever or any warrants, options or other Rights to
subscribe for, purchase or otherwise acquire any assets, property, capital
stock, debt or other securities or evidences of indebtedness (excluding
dividends, distributions or issuances referred to in Section 9(i), Rights
referred to in Section 9(l) and Convertible Securities referred to in Section
9(m)), or shall take a record of such holders for the purpose of entitling them
to receive such a distribution, then the Conversion Rate shall be adjusted to
equal the product of the Conversion Rate determined as of immediately prior to
such adjustment multiplied a fraction the numerator of which shall be the
Current Market Price per share of the Outstanding Common Shares at the date of
taking such record or, if no record is taken, at the date as of which the
holders of Common Stock entitled to participate in such distribution were
determined or if no such determination is made, on the date of such
distribution, and the denominator of which shall be the excess of (x) such
Current Market Price per share of the Outstanding Common Shares at such date
over (y) the amount allocable to one share of the Outstanding Common Shares at
such date of any such cash so distributable and of the Fair Market Value (as
determined as of such date in good faith by the Board of Directors) of any and
all such evidences of indebtedness, shares of capital stock, debt securities,
other securities, property, assets or Rights so distributable. No adjustment
pursuant to the foregoing provisions of this Section 9(j) shall be made if such
adjustment would result in a Conversion Rate that is lower than the Conversion
Rate in effect prior to such adjustment or in a Conversion Price higher than
that in effect prior to such adjustment. In the event that, with respect to any
such distribution, the result of subtracting the amount referred to in clause
(y) of the first sentence of this Section from the Current Market Price referred
to in clause (x) of such sentence is less than one-half of such Current Market
Price or such amount referred to in such clause (y) is greater than the amount
of such Current Market Price referred to in such clause (x), then the adjustment
provided for above
<PAGE>
in this Section shall not be made and in lieu thereof the Conversion Rate and
the Conversion Price determined as of immediately prior to the applicable time
referred to in clause (i) or (ii) of this sentence shall be adjusted so that the
Holder of any Series B Share thereafter surrendered for conversion shall be
entitled to receive the kind and number or amount of shares of Common Stock (or
other capital stock of the Corporation), other Conversion Securities and other
property or assets which such Holder would have received had such Series B Share
been converted prior to the record date for the determination of the
stockholders entitled to receive such distribution or, if no such record date is
fixed, as of any other time as of which the holders of Common Stock entitled to
participate in such distribution was determined, plus the kind and amount of
cash, other assets or property, debt securities, other evidences of
indebtedness, other securities or Rights which such Holder would have been
entitled to receive by virtue of being the record holder, as of such record date
or other time, of such kind and number or amount of shares of Common Stock or
other Conversion Securities (assuming that such holder of Common Stock or other
Conversion Securities failed to exercise rights of election, if any, as to the
kind or amount of shares or stock, other securities or property receivable in
such distribution, provided that if the kind or amount of shares of stock, other
securities or property receivable in such distribution is not the same for each
non-electing share, then the kind and amount of shares of stock, other
securities or property receivable upon consummation of such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). An adjustment made pursuant to
this Section 9(j) shall become effective, subject to Section 9(p)(D) and Section
9(p)(E), immediately after such record date or, if no such record date is fixed,
immediately after the time as of which holders of Common Stock entitled to
participate in such distribution were determined or, if no such time is fixed,
as of the date of such distribution. No adjustment pursuant to this subsection
(j) shall be required for any cash dividend paid out of current or retained
earnings to the extent the sum of the cash dividends payable after the Issue
Date does not exceed the aggregate net income (determined in accordance with
generally accepted accounting principles consistently applied) of the
Corporation since the Issue Date."
41. Subsection (m) of Section 9 is amended by (i) deleting the "If"
appearing as the first word of the first sentence of such Section and
substituting therefor the phrase "Subject to the last sentence of this Section
9(m), if" and (ii) by adding the following sentence at the end of such Section:
"No adjustment under this Section 9(m) shall be required by reason
of the issuance of any shares of the Series C Preferred Stock that
(i) is expressly provided for in (A) the TFC Series C Purchase
Agreement or the Co-Investment Agreement referred to therein, (B)
Section 2.4 of the TFC Series C Purchase Agreement or (C) in the
Pugliese Employment Agreement; or (ii) with the prior consent of the
Majority Senior Holders given in a written instrument that expressly
states that no such adjustment shall be required."
42. Clause (A) of subsection (n) of Section 9 is amended by adding
the following, immediately after the term "Convertible Securities" in the first
place that such term
<PAGE>
appears in such clause:
"other than shares of the Series C Preferred Stock referred to in
the last sentence of Section 9(m):"
43. The last sentence of clause (A) of subsection (p) of Section 9
is amended by adding the phrase "except shares of Series C Preferred Stock
issued to Thomas Pugliese pursuant to the Pugliese Employment Agreement"
immediately after the term "Subsidiary" appearing in such sentence.
44. Section 9(p)(F) is amended by (i) substituting "Majority Senior
Holders" for the term "Majority Holders" in each place such term appears
therein, (ii) adding "or during any period that no shares of Series B Preferred
Stock shall be outstanding, the Series C Director" immediately after the term
"Series B Director" in each place such term appears therein and (iii)
substituting "this resolution" for the words "this Agreement" appearing in the
first sentence of such Section.
45. Subsection (w) of Section 9 is amended by (i) substituting the
words "receive or purchase (as the case may be)" for the word "purchase" in the
first place that such word appears; (ii) adding the words "or purchasable (as
the case may be)" immediately after the word "receivable" in each place that
such word appears; and (iii) adding the following sentence at the end thereof:
"The provisions of this Section 9(w) are supplemental to, and are
not intended to eliminate, qualify, modify or limit the rights of
the holders of any Investor Preferred Shares under any other
provision of this resolution, including Sections 3(i), 6(c) and
5(e), or the Series C Certificate of Designation, including the
provisions thereof corresponding to Sections 3(i), 6(c) and 5(e)
hereof, or any other rights or remedies which such holders may have
at law, in equity, by contract or otherwise in the event of any
transaction referred to in this Section 9(w)."
46. Subsection (y) of Section 9 is amended by (i) substituting
"Majority Holders" for the word "Representative" in each place that such word
appears therein and (ii) amending the last sentence of clause C of such
subsection to read in its entirety as follows:.
"Without limiting the generality of the immediately preceding
sentence, no decision of any arbitrator appointed pursuant to this
Section 9(y) shall have or be given any res judicata or similar
effect in any action, suit or proceeding in which any claim by any
holder of any Series B Share or Conversion Securities or any holder
of Series C Shares or of any securities into which any Series C
Share is converted of any breach or inaccuracy of any representation
or warranty of, or any breach or failure to perform any covenant,
agreement or obligation, of the Corporation contained herein or in
the Series C Certificate of Designation, the
<PAGE>
TFC Series C Purchase Agreement, any Purchase Agreement or any other
agreement or instrument is to be adjudicated."
47. The first sentence of Section 9(y)(A) is amended to read in its
entirety as follows:
"If there shall arise any dispute between the Corporation and the
Majority Holders concerning the calculation of the Redemption Price
in the case of a redemption pursuant to Section 6(c), the
interpretation, application or operation of the adjustment
provisions of Section 9 (other than any such dispute referred to in
the second sentence of Section 9(p)(F), which shall be resolved as
stated therein) or the interpretation, application or operation of
the provisions of Section 10, the Corporation and the Majority
Holders will promptly attempt to settle such dispute through
consultation and negotiation in good faith and in a spirit of mutual
cooperation."
48. The last sentence of Section 11 is amended to read in its
entirety as follows:
"The word 'property' and the word 'assets' shall each include assets
or property of any kind, whether real, personal, tangible or
intangible."
49. Section 14 is amended to read in its entirety as follows:
"14. Waivers.
"(a) Any provision of this resolution which, for the
benefit of the holders of Series B Preferred Stock, prohibits,
limits or restricts actions by the Corporation, or imposes
obligations on the Corporation, may be waived in whole or in
part, or the application of all or any part of such provision
in any particular circumstance or generally may be waived, in
each case with the consent of the Majority Holders, either in
writing or by vote at a meeting called for such purpose at
which the holders of Series B Preferred Stock shall vote as a
separate class, unless such waiver, by its terms, has an
adverse effect upon the shares of Series B Preferred Stock of
any holder that does not affect all shares of Series B
Preferred Stock on an equal per share basis, in which case
such waiver shall require the prior approval of such holder.
"(b) Any provision of this resolution which, for the
benefit of the holders of Investor Preferred Stock without
distinction as to series or class, prohibits, limits or
restricts actions by the Corporation, or imposes obligations
on the Corporation, may be waived in whole or in part, or the
application of all or any part of such provision in any
particular
<PAGE>
circumstance or generally may be waived, in each case with the
consent of the Majority Senior Holders, either in writing or
by vote at a meeting called for such purpose at which the
holders of the Investor Preferred Stock shall vote as a
separate, single class, unless such waiver, by its terms, has
an adverse effect upon the shares of the Series B Preferred
Stock or the Series C Preferred Stock of any holder that does
not affect all shares of the other series on an equal per
share basis, in which case such waiver shall require the prior
approval of the holders of a majority of the shares of the
affected series.
"(c) Any waiver given as provided in subsection (a) of
this Section shall be binding on all holders of the Series B
Preferred Stock. Any waiver given as provided in subsection
(b) of this Section shall be binding on all holders of the
Investor Preferred Stock."
50. Section 15 is amended to read in its entirety as follows:
"All notices, requests, consents, demands, elections and other
communications required or permitted hereunder shall be in
writing and shall be given or delivered to the intended
recipient at: (i) in the case of any holder of shares of
Investor Preferred Stock, to such holder at his address
appearing on the books of the Corporation or supplied by him
in writing to the Corporation for the purpose of such notice;
and (ii) in the case of the Corporation, to the Corporation at
its principal office at 9531 West 78th Street, Minneapolis,
Minnesota, or at such changed address as the Corporation may
from time to time specify in writing to each holder of shares
of Investor Preferred Stock. Any such notice, request,
consent, demand, election or other communication shall be
deemed to have been duly given or delivered if personally
delivered or sent by registered or certified mail, return
receipt requested, Express Mail, Federal Express or similar
overnight delivery service for next Business Day delivery or
by telegram, telex or facsimile transmission and will be
deemed given or delivered, unless earlier received: (1) if
sent by certified or registered mail, return receipt
requested, five calendar days after being deposited in the
United States mail, postage prepaid; (2) if sent by Express
Mail, Federal Express or similar overnight delivery service
for next Business Day delivery, the next Business Day after
being entrusted to such service, with delivery charges prepaid
or charged to the sender's account; (3) if sent by telegram or
telex or facsimile transmission, on the date sent and (4) if
delivered by hand, on the date of delivery. No failure on the
part of the Corporation to give any notice required by any
provision of this resolution, nor any delay or defect in any
such notice which is given or delivered or in the giving or
delivery thereof, shall adversely affect the rights which the
holders of the Series B Preferred Stock or the holders of
<PAGE>
the Investor Preferred Stock would have if such notice had
been duly given on a timely basis, and such holders shall be
entitled to exercise such rights from and at any time after
they acquire actual knowledge of the matters required to be
set forth in such notice."
51. The last sentence of Section 15 is amended by adding the words
"or the holders of the Investor Preferred Stock" immediately after the term
"Series B Preferred Stock appearing therein.
52. Section 17 is amended to read in its entirety as follows:
"17. Amendment; Voting Rights.
"(a) This resolution may be amended from time to
time by the Board of Directors with the affirmative vote
or written consent of the Majority Holders; provided,
however, any such amendment which, by its terms, would
have an adverse effect upon the shares of Series B
Preferred Stock of any holders that does not affect all
shares of Series B Preferred Stock on an equal per share
basis shall also require the prior approval of such
holder. Unless otherwise required by mandatory
provisions of applicable law or the Series C Certificate
of Designation, no vote or consent of the holders of any
other class or series of the Corporation's stock shall
be necessary.
"(b) The Series B Shares shall not carry voting
rights except as provided in this resolution and except
for any voting rights to which the holders thereof may
be or become entitled under the General Corporation Law
of the State of Delaware as in effect from time to time
(or any successor statutory provisions) or other
applicable law. The foregoing shall not prevent the
Corporation from granting, by contract (including the
Stockholders Agreement) or otherwise, to any Holder or
Holders of any Series B Shares any consent or approval,
veto or similar rights of any nature whatsoever.
"(c) Without the consent of the holders of a
majority of the number of shares of Series B Preferred
Stock then outstanding, the Corporation shall not amend,
alter or repeal any provision of the Corporation's
Certificate of Incorporation, this resolution or any
resolution of the Board of Directors establishing and
designating any series or class of capital stock and
determining the relative rights and preferences thereof,
so as to
<PAGE>
effect any adverse change in the rights, privileges,
powers or preferences of the holders of the Series B
Preferred Stock."
53. Section 18 is amended to read in its entirety as follows:
"18. Decisions by Holders Generally. Unless otherwise
expressly provided herein, all decisions and determinations
required or permitted to be made hereunder by the Holders
(including any decision as to whether to give any consent or
approval) shall be made by the Majority Holders. To the
maximum extent permitted by law, each Person who is or shall
become a holder of any Series B Share waives all fiduciary
duties to such Person, if any, that the Majority Holders, the
Majority Senior Holders, any other Holder of any Series B
Share or any holder of any Series C Share otherwise would or
might have."
54. The Certificate of Designation for the Corporation's Series B
Senior Cumulative Compounding Convertible Redeemable Preferred Stock is hereby
further amended by (i) renumbering Sections 10, 11, 12, 13, 14, 15, 16, 17 and
18 as Sections 11, 12, 13, 14, 15, 16, 17, 18 and 19, respectively, and (ii) by
adding thereto, immediately after the end of Section 9, the following new
Section 10:
10. Initial Public Offering.
"(a) Qualified IPO. Subject to Section 6(e), upon the
occurrence of a Qualified IPO or on such date or dates as of
which holders of more than 75% of the total number of shares
of Series B Preferred Stock issued pursuant to the Purchase
Agreements have converted their shares of Series B Preferred
Stock into Common Stock in accordance with the provisions of
Section 9, the Corporation may elect, by written notice to
that effect given to each holder of Series B Preferred Stock
within 10 Business Days after the date of such closing, to
require that all, but not less than all, outstanding shares of
Series B Preferred Stock be converted, effective as of such
tenth Business Days, into duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock at the
Conversion Rate determined as of such tenth Business Day and
otherwise in accordance with Section 9 and the applicable
provisions of this Section 10 (after giving effect or pro
forma effect to all adjustments, if any, to the Conversion
Rate and the Conversion Price required by the provisions of
Section 9 as a result of any issuances or deemed issuances of
shares of Common Stock in or in connection with the Qualified
IPO, including all issuances or sales of shares of Common
Stock, Rights or Convertible Securities to the public, to any
underwriter as compensation or otherwise for such
underwriter's own account and not for resale to the public,
and all 'over-allotment options' and similar rights granted to
any underwriter).
<PAGE>
"(b) Other IPO. Subject to Section 10(e), if the
Corporation, with the prior consent of the Majority Senior
Holders, consummates an initial public offering of the
Corporation's Common Stock at a price to the public reflecting
a pre-money common equity valuation of less than $231 per
share of Common Stock on a fully diluted basis (as such price
per share shall be appropriately adjusted for stock splits,
reverse splits, stock dividends or other reclassifications,
reorganizations or similar events affecting the capital stock
of the Corporation, the record date for which occurs after the
Closing Date), other than an initial public offfering that is
initiated by a demand for registration made in acordance with
the provisions of Article II of the Registration Rights
Agreement by the Investors (as defined therein), then unless
the Majority Senior Holders and the Corporation otherwise
agree in writing, effective as of the date of the closing of
the consummation of such initial public offering, all Series B
Shares (other than any Series B Shares as to which a notice of
conversion has been given prior to such date and not revoked
by the holders thereof) shall be converted into duly
authorized, validly issued, fully paid and non-assessable
shares of Common Stock in accordance with Section 9 hereof and
the applicable provisions of this Section 10. The number of
shares into which each outstanding Series B Share shall be
converted shall be the greater of (i) the Conversion Rate
determined as of the date of the closing of the consummation
of such public offering (after giving effect or pro forma
effect to all adjustments, if any, to the Conversion Rate and
the Conversion Price required by the provisions of Section 9
as a result of any issuances or deemed issuances of shares of
Common Stock in or in connection with such initial public
offering, including all issuances or sales of shares of Common
Stock, Rights or Convertible Securities to the public, to any
underwriter as compensation or otherwise for such
underwriter's own account and not for resale to the public,
and all 'over-allotment options' and similar rights granted to
any underwriter); or (ii) the quotient obtained by dividing
the lesser of "A" or "B" by "C" where
A = Two Hundred and Thirty-One Dollars ($231),
B = the sum of (x) the Liquidation Price of such share
of Series B Preferred Stock as of the date of the
closing of the consummation of such public offering,
plus (y) all unpaid dividends accrued on such share
during the period from and including the applicable
Dividend Payment Date immediately preceding such date
(or the Issue Date for such share if there was no prior
Dividend Date) through and including such date of
payment or distribution (whether or not such unpaid
dividends
<PAGE>
have been earned or declared), plus (z) the
Participation Amount of such share of Series B Preferred
Stock as of the date of the closing of the consummation
of such public offering, and
C = the pre-money value per share of the Common Stock on
a fully diluted basis implied by such initial public
offering.
"(c) Effect of Closing of IPO. Except as otherwise
expressly provided in this Section 10, the conversion of the
Series B Shares into Common Stock pursuant to subsection (a)
or (b) of this Section 10 shall, for purposes of Section 9
hereof, have the same effect as if each holder of Series B
Shares gave a notice of conversion pursuant to Section 9(b).
Upon the effective date for such conversion determined in
accordance with this Section 10 as specified in the notice to
each holder of Series B Preferred Stock, each share of Series
B Preferred Stock will be deemed to be converted into the
number of shares of Common Stock of the Corporation determined
as set forth in this Section 10 and the holder of such share
of Series B Preferred Stock shall no longer have any rights or
obligations pursuant to the Series B Certificate of
Designation (except the right of such holder to receive, and
the obligation of the Corporation to issue and deliver, such
shares of Common Stock and all other securities, cash or other
property, if any, issuable upon such conversion), but shall
instead have all the rights and obligations of holders of the
Corporation's Common Stock.
"(d) Notices; Continued Convertibility; Effective Date
of Conversion. In the case of any initial public offering of
the Common Stock (or any Rights or Convertible Securities),
the Corporation shall, promptly after the price to the public
is determined, the Corporation shall give written notice to
each holder of any Investor Preferred Shares of such price to
the public and shall also give each such holder at least three
Business Days advance notice of the date of the closing of the
consummation of such public offering. The calculations
required by Section 10(a) or Section 10(b) (whichever is
applicable) shall be made promptly after the exercise,
expiration or termination of any "over-allotment option"
granted to the underwriters, and the Corporation shall
promptly provide each holder of Investor Preferred Shares with
a written statement of the number of shares of Common Stock
into which each Series B Share and each Series C Share is
convertible in sufficient detail to permit such holder to
confirm the Corporation's calculations. Each Series B Share
shall continue to be convertible, at the election of the
holder thereof, into Common Stock in accordance with Section 9
through and including the eighth Business Day after such
holder receives the written statement of the Corporation's
calculations referred to in the
<PAGE>
immediately preceding sentence. If such holder does not elect
to so convert any Series B Share, such share shall be
converted into shares of Common Stock pursuant to Section
10(a) or Section 10(b) (whichever is applicable) and such
conversion shall be effective as of the date of the closing of
the consummation of the initial public offering.
"(e) Simultaneous Conversion of Series C Shares. Unless
the Majority Senior Holders otherwise agree in writing, the
Corporation may not require the conversion of the Series B
Preferred Stock pursuant to Section 10(a) by reason of the
occurrence of a Qualified IPO or pursuant to Section 10(b)
unless all shares of the Series C Preferred Stock are
simultaneously required to be converted in accordance with the
corresponding provisions of the Series C Certificate of
Designation."
SECOND: That the appropriate stockholders of the Corporation approved such
amendment by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by duly authorized officers of the Corporation this ___ day of
__________, 1997.
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
Exhibit 3.1(p)
CERTIFICATE OF CORRECTION TO THE
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
MENTUS MEDIA CORP.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON AUGUST 28, 1997
Mentus Media Corp., a corporation organized and existing under and
by virtue of the General corporation Law of the Sate of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is the Mentus Media Corp.
2. A Certificate of Amendment of Certificate of Incorporation of
Mentus Media Corp. was filed by the Secretary of State of Delaware on August 28,
1997, and that said Certificate requires correction as permitted by Section 103
of the General Corporation Law of the State of Delaware.
3. The defect in the Certificate of Amendment to be corrected is as
follows: The Second clause of the Certificate of Amendment should state that
notice has been given to shareholders that did not consent in writing. Such
clause is hereby restated as follows:
SECOND: The foregoing amendment to the Certificate of Incorporation
of the Corporation was submitted to and duly approved and adopted by the
stockholders of the Corporation by written consent in accordance with Section
228 of the General Corporation Law of the State of Delaware, and notice has been
given to stockholders that did not consent in writing.
4. The Certificate of Amendment identifies the signers thereof as
the President and Secretary. Such clause should have stated that the signers
were authorized officers of the Corporation. Such clause is restated as follows:
"IN WITNESS WHEREOF, the Corporation has caused this certificate to
be signed by its duly authorized officers this 28 day of August, 1997.
<PAGE>
IN WITNESS WHEREOF: Mentus Media Corp. has caused this Certificate
to be signed by Thomas M. Pugliese, its Vice-Chairman and attested by Michael
Kolthoff, its Assistant Secretary, this 29th of August, 1997.
MENTUS MEDIA CORP.
By:
-----------------------------------
ATTEST: Thomas M. Pugliese, Vice-Chairman
By
-------------------------------------
Michael Kolthoff, Assistant Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ____ day of August, 1997, before me, the undersigned officer,
personally appeared Thomas M. Pugliese and Michael Kolthoff who acknowledged
themselves to be the Vice Chairman and Assistant Secretary, respectively, of
Mentus Media Corp., a Delaware corporation, and that he, in such capacity, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------
Notary Public
My Commission Expires:
- -----------------------
<PAGE>
Exhibit 3.1(q)
CERTIFICATE OF CORRECTION TO THE
CERTIFICATE OF AMENDMENT
TO THE
AMENDED CERTIFICATE OF DESIGNATION FOR
SERIES A 8.25% CONVERTIBLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON AUGUST 28, 1997
Mentus Media Corp., a corporation organized and existing under and
by virtue of the General corporation Law of the Sate of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is the Mentus Media Corp.
2. A Certificate of Amendment of the Amended Certificate of
Designation for Series A 8.25% Convertible Preferred Stock of Mentus Media Corp.
was filed by the Secretary of State of Delaware on August 28, 1997, and that
said Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The defect in the Certificate of Amendment to be corrected is as
follows: The Second clause of the Certificate of Amendment should state that
notice has been given to shareholders that did not consent in writing. Such
clause is hereby restated as follows:
SECOND: The appropriate stockholders of the Corporation approved
such amendment by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware, and notice has been given to
stockholders that did not consent in writing.
<PAGE>
IN WITNESS WHEREOF: Mentus Media Corp. has caused this Certificate
to be signed by Thomas M. Pugliese, its Vice-Chairman and attested by Michael
Kolthoff, its Assistant Secretary, this 29th of August, 1997.
MENTUS MEDIA CORP.
By:
-----------------------------------
ATTEST: Thomas M. Pugliese, Vice-Chairman
By
-------------------------------------
Michael Kolthoff, Assistant Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ____ day of August, 1997, before me, the undersigned officer,
personally appeared Thomas M. Pugliese and Michael Kolthoff who acknowledged
themselves to be the Vice Chairman and Assistant Secretary, respectively, of
Mentus Media Corp., a Delaware corporation, and that he, in such capacity, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------
Notary Public
My Commission Expires:
- -----------------------
<PAGE>
Exhibit 3.1(r)
CERTIFICATE OF CORRECTION TO THE
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF DESIGNATION FOR
SERIES B CUMULATIVE COMPOUNDING
CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON AUGUST 28, 1997
Mentus Media Corp., a corporation organized and existing under and
by virtue of the General corporation Law of the Sate of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is the Mentus Media Corp.
2. A Certificate of Amendment of the Certificate of Designation for
Series B Cumulative Compounding Convertible Redeemable Preferred Stock of Mentus
Media Corp. was filed by the Secretary of State of Delaware on August 28, 1997,
and that said Certificate requires correction as permitted by Section 103 of the
General Corporation Law of the State of Delaware.
3. The defect in the Certificate of Amendment to be corrected is as
follows: The Second clause of the Certificate of Amendment should state that
notice has been given to shareholders that did not consent in writing. Such
clause is hereby restated as follows:
SECOND: The appropriate stockholders of the Corporation approved
such amendment by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware, and notice has been given to
stockholders that did not consent in writing.
<PAGE>
IN WITNESS WHEREOF: Mentus Media Corp. has caused this Certificate
to be signed by Thomas M. Pugliese, its Vice-Chairman and attested by Michael
Kolthoff, its Assistant Secretary, this 29th of August, 1997.
MENTUS MEDIA CORP.
By:
-----------------------------------
ATTEST: Thomas M. Pugliese, Vice-Chairman
By
-------------------------------------
Michael Kolthoff, Assistant Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this ____ day of August, 1997, before me, the undersigned officer,
personally appeared Thomas M. Pugliese and Michael Kolthoff who acknowledged
themselves to be the Vice Chairman and Assistant Secretary, respectively, of
Mentus Media Corp., a Delaware corporation, and that he, in such capacity, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the Corporation by himself.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-----------------------
Notary Public
My Commission Expires:
- -----------------------
<PAGE>
Exhibit 3.1(s)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
FOR SERIES B SENIOR CUMULATIVE
COMPOUNDING CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Certificate of Designation for the Series B Senior Cumulative Compounding
Convertible Preferred Stock, par value $1.00 per share of the Corporation, of
the Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designation for the Corporation's
Series B Senior Cumulative Compounding Convertible Redeemable Preferred Stock,
par value $1.00 per share, be amended as follows:
1. Section 1 is hereby amended to add a definition of "Joint
Director" as follows: "Joint Director" means any director of the Corporation
elected by the holders of the Series B Preferred Stock and the holders of the
Series C Preferred Stock, voting together as a single class.
2. Section 7 is hereby amended in its entirety to read as follows:
7. Board Representation.
(a) (i) Right to Elect Series B Director. The holders of the Series
B Preferred Stock shall be entitled to vote as a separate class for the election
of one director of the Corporation. The director whom, at any time and from time
to time, the holders of the Series B Preferred Stock elect or are entitled to
elect voting as a separate class is
<PAGE>
sometimes herein referred to as the "Series B Director". Subject to
earlier death, resignation or removal pursuant to Section 7(c), each
Series B Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's
stockholders and his or her successor shall have been elected as provided
herein. At their option and in their sole discretion and for any one or
more periods of any length of time, the Majority Holders at any time and
from time to time may choose not to exercise their right to elect a Series
B Director or to fill any vacancy existing in the office of the Series B
Director, without prejudice to any subsequent exercise of such right. In
such event, the Majority Holders may (in their sole discretion) choose to
have a representative appointed by them attend any one or more meetings of
the Board of Directors as an observer, and such representative shall be
entitled to receive the same notices of meetings of and proposed actions
by the Board of Directors as directors generally.
(ii) Right to Elect Joint Director. For such time as the
holders of both the Series B Preferred Stock and the holders of the Series C
Preferred Stock have the right to elect the Series B Director and the Series C
Director, respectively, the holders of the Series C Preferred Stock and the
holders of the Series B Preferred Stock shall be entitled to vote together as a
single class for the election of one director of the Corporation. The director
whom, at any time and from time to time, the holders of the Series C Preferred
Stock and Series B Preferred Stock elect or are entitled to elect voting
together as a single class is sometimes herein referred to as the "Joint
Director". Subject to earlier death, resignation or removal pursuant to Section
7(c), each Joint Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's stockholders and
his or her successor shall have been elected as provided herein. At their option
and in their sole discretion and for any one or more periods of any length of
time, the Majority Senior Holders at any time and from time to time may choose
not to exercise their right to elect a Joint Director or to fill any vacancy
existing in the office of the Joint Director, without prejudice to any
subsequent exercise of such right. In such event, the Majority Senior Holders
may (in their sole discretion) choose to have a representative appointed by them
attend any one or more meetings of the Board of Directors as an observer, and
such representative shall be entitled to receive the same notices of meetings of
and proposed actions by the Board of Directors as directors generally. As nearly
as possible, and to the extent not specifically addressed herein, the procedure
for electing the Joint Director and all other matters pertaining to the Joint
Director, shall follow the procedure established below for the election of the
Series B Director, taking into account that the holders of the Series C
Preferred Stock and the Series B Preferred Stock vote together as a single class
with respect to the election of the Joint Director.
(b) Manner of Election. Subject to the last sentence of this Section
7(b), Series B Directors shall be elected (and if such directors previously have
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Majority Holders given in accordance with Section
8(a); or (ii) by the vote of the Majority Holders voting as a separate class and
in accordance with Section
<PAGE>
8(b), at (A) annual meetings of the shareholders of this Corporation, or (B) a
special meeting of the holders of Series B Preferred Stock for the purpose of
electing such directors (or filling any such vacancy), to be called by the
Secretary of this Corporation upon the written request of the holders of record
of 5% or more of the number of shares of Series B Preferred Stock then
outstanding; provided, however, that if the Secretary of this Corporation shall
fail to call any such special meeting within 10 days after any such request,
such meeting may be called by any holder or holders of 5% or more of the number
of shares of Series B Preferred Stock then outstanding. Subject to the last
sentence of this Section 7(b), the Joint Director shall be elected (and if such
director previously has been elected and any vacancy shall exist, such vacancy
shall be filled) either (i) by written consent of the Majority Senior Holders
voting together as a single class given in accordance with Section 8(a); or (ii)
by the vote of the Majority Senior Holders voting together as a single class and
in accordance with Section 8(b), at (A) annual meetings of the shareholders of
this Corporation, or (B) a special meeting of the holders of Series C Preferred
Stock and Series B Preferred Stock for the purpose of electing such director (or
filling any such vacancy), to be called by the Secretary of this Corporation
upon the written request of the holders of record of 5% or more of the number of
shares of Series C Preferred Stock then outstanding and 5% or more of the number
of shares of Series B Preferred Stock then outstanding; provided, however, that
if the Secretary of this Corporation shall fail to call any such special meeting
within 10 days after any such request, such meeting may be called by any holder
or holders of 5% or more of the number of shares of Series C Preferred Stock
then outstanding and 5% or more of the number of Series B Preferred Stock then
outstanding. Notwithstanding the foregoing, the Secretary shall not be entitled
to call any such special meeting in the case of any such request received by
this Corporation less than 45 days before the date fixed for any annual meeting
of shareholders, and if in such case such special meeting is not called, the
holders of Series B Preferred Stock shall be entitled to vote (as a class) at
such annual meeting to elect the Series B Director (or to fill any such
vacancy), or shall be entitled to vote as a single class together with the
holders of the Series C Preferred Stock at such annual meeting to elect the
Joint Director.
(c) Removal. Any Series B Director may at any time and from time to
time be removed, with or without cause, by and only by the Majority Holders. A
Joint Director may at any time and from time to time be removed, with or without
cause, by and only by the Majority Senior Holders. Any vacancy in the office of
Series B Director resulting from death, resignation or removal or existing for
any other reason whatsoever may be filled only by the Majority Holders, or by
the holders of a majority of the Series C Preferred Stock and the Series B
Preferred Stock in the case of any vacancy in the office of the Joint Director.
Any director elected to fill a vacancy shall serve the same remaining term as
that of his or her predecessor and until his or her successor has been chosen
and has qualified.
(d) Certain Procedural Matters. So long as the holders of the Series
B Preferred Stock shall have the right to elect a Series B Director: any one or
more members of the Board of Directors or any committee thereof may participate
in
<PAGE>
meetings of the Board of Directors by conference telephone; each member of the
Board of Directors or any committee thereof shall be given not less than three
days' prior written notice of each meeting of the Board of Directors or such
committee (or two days' prior written notice in case of meetings to consider
emergency matters), specifying the time and place of such meeting and the
matters to be discussed thereat, unless such member signs (either before or
after such meeting) a written waiver of his right to be given such notice, or
attends such meeting without protesting (prior thereto or at the commencement
thereof) the failure to be given such notice; each member of the Board of
Directors or any committee thereof shall be given not less than three days'
prior written notice of any action proposed to be taken by the Board of
Directors or such committee without a meeting (or two days' prior written notice
in case of proposed actions involving emergency matters), unless such member
signs (either before or after such action is taken) a written waiver of his
right to be given such notice, or gives his written consent to such action
without protesting the failure to be such notice; no executive committee of the
Board of Directors, and no other committee of the Board of Directors which is
authorized to exercise any powers of the Board of Directors, shall be created
except (i) for the Valuation Committee, (i) as provided in Section 7(f), or (i)
otherwise with the concurrence of the Series B Director or, if there is no
Series B Director, by the Series C Director or, if there is no Series C
Director, by the Majority Senior Holders; and at any meeting of the Board of
Directors or any committee thereof, a quorum for the purpose of taking any
action shall require the presence in person or participation by conference
telephone or similar communications equipment of a number of directors equal to
at least a majority of the entire Board of Directors or the entire committee.
(e) Indemnification. The Corporation shall (i) to the fullest extent
permitted by applicable law, indemnify each director, former Joint Director and
former Series B Director who is made a party or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
Person is or was a director of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such Person in connection with
such action, suit or proceeding and (ii) pay in advance, or advance to each such
director and former director for payment of, expenses incurred in defending any
such action, suit or proceeding to the maximum extent permitted by Section
145(e) of the General Corporation Law of the State of Delaware (or any successor
statutory provision). The rights conferred on any Person by this Section 7(e)
shall not be exclusive of any other rights which such Person may have or acquire
under any statute, under the Corporation's Certificate of Incorporation, under
the Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Audit and Compensation Committees. Unless the Majority Senior
Holders otherwise agree, so long as the holders of the Series B Preferred Stock
shall
<PAGE>
have the right to elect a Series B Director, the Board of Directors shall have
an audit committee and a compensation committee (the "Compensation Committee"),
each of which shall have three members one of whom shall be the Series B
Director or, during any period when there is no Series B Director, the Series C
Director, and at least one other of whom shall be an independent director (as
defined below in this Section). The audit committee will have the authority and
responsibility for the selection, engagement or discharge of independent
auditors, reviewing with the independent auditors the plan and results of the
auditing engagement, reviewing the Corporation's system of internal accounting
controls, directing investigations in matters within the scope of its functions
and performing any and all other such functions customarily performed by audit
committees of public companies. The Compensation Committee will have the
authority and responsibility for establishing and administering the stock,
incentive and other employee benefit plans of the Corporation, establishing and
changing the compensation of executive officers, approving or amending existing
and proposed employment agreements between the Corporation and its executive
officers and performing any and all other such functions customarily performed
by compensation committees of public companies. Without limiting the generality
of the foregoing, the Compensation Committee will have the authority and
responsibility, in administering any stock, incentive or other employee benefit
plans, including any such plans in effect on the Closing Date, to determine the
persons to whom awards or benefits may be made, to determine the terms and
conditions (which need not be identical) of each award made or benefit conferred
(including the timing and type of award or benefit, the exercise or purchase
price for any award of stock or stock options, and terms related to vesting,
exercisability, forfeiture and termination), and to interpret the provisions of
each such plan. For purposes hereof, an "independent director" is an individual
who (unless otherwise approved by the Series B Director or, if there is no
Series B Director, by the Series C Director or, if there is no Series C
Director, by the Majority Senior Holders) (i) has either a significant financial
investment in the Corporation or a significant strategic position or expertise
relative to the business of the Corporation and (ii) is not (A) an officer or
employee of the Corporation or any of its Subsidiaries, (B) a director,
employee, partner, manager or other member of management of any of Affiliate of
the Corporation (except a director of a Subsidiary of the Corporation), (C) a
relative of any Person described in subclause (ii)(A) or (ii)(B) or (D) a
trustee of any trust or estate in which any Person described in subclause
(ii)(A), (ii)(B) or (ii)(C) is a beneficiary has a substantial beneficial
interest.
SECOND: That the appropriate stockholders of the Corporation
approved such amendment by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by duly authorized officers of the Corporation this 30th day of January,
1998.
<PAGE>
By:
-------------------------------
Name: Gerard P. Joyce
Title: Chairman, President
By:
-------------------------------
Name: Thomas M. Pugliese
Title: Vice Chairman, CEO
<PAGE>
Exhibit 3.1(t)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
FOR SERIES C SENIOR CUMULATIVE
COMPOUNDING CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Certificate of Designation for the Series C Senior Cumulative Compounding
Convertible Preferred Stock, par value $1.00 per share of the Corporation, of
the Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designation for the Corporation's
Series C Senior Cumulative Compounding Convertible Redeemable Preferred Stock,
par value $1.00 per share, be amended as follows:
1. Section 1 is hereby amended to add a definition of "Joint
Director" as follows: "Joint Director" means any director of the Corporation
elected by the holders of the Series B Preferred Stock and the holders of the
Series C Preferred Stock, voting together as a single class.
2. Section 7 is hereby amended in its entirety to read as follows:
7. Board Representation.
(a) (i) Right to Elect Series C Director. The holders of the Series
C Preferred Stock shall be entitled to vote as a separate class for the election
of one director of the Corporation. The director whom, at any time and from time
to time, the holders of the Series C Preferred Stock elect or are entitled to
elect voting as a separate class is sometimes herein referred to as the "Series
C Director". Subject to earlier death,
<PAGE>
resignation or removal pursuant to Section 7(c), each Series C Director elected
or appointed at any time as provided herein shall serve until the next annual
meeting of the Corporation's stockholders and his or her successor shall have
been elected as provided herein. At their option and in their sole discretion
and for any one or more periods of any length of time, the Majority Holders at
any time and from time to time may choose not to exercise their right to elect a
Series C Director or to fill any vacancy existing in the office of the Series C
Director, without prejudice to any subsequent exercise of such right. In such
event, the Majority Holders may (in their sole discretion) choose to have a
representative appointed by them attend any one or more meetings of the Board of
Directors as an observer, and such representative shall be entitled to receive
the same notices of meetings of and proposed actions by the Board of Directors
as directors generally.
(ii) Right to Elect Joint Director. For such time as the
holders of both the Series B Preferred Stock and the holders of the Series C
Preferred Stock have the right to elect the Series B Director and the Series C
Director, respectively, the holders of the Series C Preferred Stock and the
holders of the Series B Preferred Stock shall be entitled to vote together as a
single class for the election of one director of the Corporation. The director
whom, at any time and from time to time, the holders of the Series C Preferred
Stock and Series B Preferred Stock elect or are entitled to elect voting
together as a single class is sometimes herein referred to as the "Joint
Director". Subject to earlier death, resignation or removal pursuant to Section
7(c), each Joint Director elected or appointed at any time as provided herein
shall serve until the next annual meeting of the Corporation's stockholders and
his or her successor shall have been elected as provided herein. At their option
and in their sole discretion and for any one or more periods of any length of
time, the Majority Senior Holders at any time and from time to time may choose
not to exercise their right to elect a Joint Director or to fill any vacancy
existing in the office of the Joint Director, without prejudice to any
subsequent exercise of such right. In such event, the Majority Senior Holders
may (in their sole discretion) choose to have a representative appointed by them
attend any one or more meetings of the Board of Directors as an observer, and
such representative shall be entitled to receive the same notices of meetings of
and proposed actions by the Board of Directors as directors generally. As nearly
as possible, and to the extent not specifically addressed herein, the procedure
for electing the Joint Director and all other matters pertaining to the Joint
Director, shall follow the procedure established below for the election of the
Series C Director, taking into account that the holders of the Series C
Preferred Stock and the Series B Preferred Stock vote together as a single class
with respect to the election of the Joint Director.
(b) Manner of Election. Subject to the last sentence of this Section
7(b), Series C Directors shall be elected (and if such directors previously have
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Majority Holders given in accordance with Section
8(a); or (ii) by the vote of the Majority Holders voting as a separate class and
in accordance with Section 8(b), at (A) annual meetings of the shareholders of
this Corporation, or (B) a special
<PAGE>
meeting of the holders of Series C Preferred Stock for the purpose of electing
such directors (or filling any such vacancy), to be called by the Secretary of
this Corporation upon the written request of the holders of record of 5% or more
of the number of shares of Series C Preferred Stock then outstanding; provided,
however, that if the Secretary of this Corporation shall fail to call any such
special meeting within 10 days after any such request, such meeting may be
called by any holder or holders of 5% or more of the number of shares of Series
C Preferred Stock then outstanding. Subject to the last sentence of this Section
7(b), the Joint Director shall be elected (and if such director previously has
been elected and any vacancy shall exist, such vacancy shall be filled) either
(i) by written consent of the Manority Senior Holders voting together as a
single class given in accordance with Section 8(a); or (ii) by the vote of the
Majority Senior Holders voting together as a single class and in accordance with
Section 8(b), at (A) annual meetings of the shareholders of this Corporation, or
(B) a special meeting of the holders of Series C Preferred Stock and Series B
Preferred Stock for the purpose of electing such director (or filling any such
vacancy), to be called by the Secretary of this Corporation upon the written
request of the holders of record of 5% or more of the number of shares of Series
C Preferred Stock then outstanding and 5% or more of the number of shares of
Series B Preferred Stock then outstanding; provided, however, that if the
Secretary of this Corporation shall fail to call any such special meeting within
10 days after any such request, such meeting may be called by any holder or
holders of 5% or more of the number of shares of Series C Preferred Stock then
outstanding and 5% or more of the number of Series B Preferred Stock then
outstanding. Notwithstanding the foregoing, the Secretary shall not be entitled
to call any such special meeting in the case of any such request received by
this Corporation less than 45 days before the date fixed for any annual meeting
of shareholders, and if in such case such special meeting is not called, the
holders of Series C Preferred Stock shall be entitled to vote (as a class) at
such annual meeting to elect the Series C Director (or to fill any such
vacancy), or shall be entitled to vote as a single class together with the
holders of the Series B Preferred Stock at such annual meeting to elect the
Joint Director.
(c) Removal. Any Series C Director may at any time and from time to
time be removed, with or without cause, by and only by the Majority Holders. A
Joint Director may at any time and from time to time be removed, with or without
cause, by and only by the Majority Senior Holders. Any vacancy in the office of
Series C Director resulting from death, resignation or removal or existing for
any other reason whatsoever may be filled only by the Majority Holders. Any
vacancy in the office of Joint Director resulting from death, resignation or
removal or existing for any other reason whatsoever may be filled by and only by
the Majority Senior Holders. Any director elected to fill a vacancy shall serve
the same remaining term as that of his or her predecessor and until his or her
successor has been chosen and has qualified.
(d) Certain Procedural Matters. So long as the holders of the Series
C Preferred Stock shall have the right to elect a Series C Director: any one or
more members of the Board of Directors or any committee thereof may participate
in meetings of the Board of Directors by conference telephone; each member of
the
<PAGE>
Board of Directors or any committee thereof shall be given not less than three
days' prior written notice of each meeting of the Board of Directors or such
committee (or two days' prior written notice in case of meetings to consider
emergency matters), specifying the time and place of such meeting and the
matters to be discussed thereat, unless such member signs (either before or
after such meeting) a written waiver of his right to be given such notice, or
attends such meeting without protesting (prior thereto or at the commencement
thereof) the failure to be given such notice; each member of the Board of
Directors or any committee thereof shall be given not less than three days'
prior written notice of any action proposed to be taken by the Board of
Directors or such committee without a meeting (or two days' prior written notice
in case of proposed actions involving emergency matters), unless such member
signs (either before or after such action is taken) a written waiver of his
right to be given such notice, or gives his written consent to such action
without protesting the failure to be such notice; no executive committee of the
Board of Directors, and no other committee of the Board of Directors which is
authorized to exercise any powers of the Board of Directors, shall be created
except (i) for the Valuation Committee, (i) as provided in Section 7(f), or (i)
otherwise with the concurrence of the Series B Director or, if there is no
Series B Director, by the Series C Director or, if there is no Series C
Director, by the Majority Senior Holders; and at any meeting of the Board of
Directors or any committee thereof, a quorum for the purpose of taking any
action shall require the presence in person or participation by conference
telephone or similar communications equipment of a number of directors equal to
at least a majority of the entire Board of Directors or the entire committee.
(e) Indemnification. The Corporation shall (i) to the fullest extent
permitted by applicable law, indemnify each director, former Joint Director and
former Series C Director who is made a party or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
Person is or was a director of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such Person in connection with
such action, suit or proceeding and (ii) pay in advance, or advance to each such
director and former director for payment of, expenses incurred in defending any
such action, suit or proceeding to the maximum extent permitted by Section
145(e) of the General Corporation Law of the State of Delaware (or any successor
statutory provision). The rights conferred on any Person by this Section 7(e)
shall not be exclusive of any other rights which such Person may have or acquire
under any statute, under the Corporation's Certificate of Incorporation, under
the Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
(f) Audit and Compensation Committees. Unless the Majority Senior
Holders otherwise agree, so long as the holders of the Series C Preferred Stock
shall have the right to elect a Series C Director, the Board of Directors shall
have an audit
<PAGE>
committee and a compensation committee (the "Compensation Committee"), each of
which shall have three members one of whom shall be the Series B Director or,
during any period when there is no Series B Director, the Series C Director, and
at least one other of whom shall be an independent director (as defined below in
this Section). The audit committee will have the authority and responsibility
for the selection, engagement or discharge of independent auditors, reviewing
with the independent auditors the plan and results of the auditing engagement,
reviewing the Corporation's system of internal accounting controls, directing
investigations in matters within the scope of its functions and performing any
and all other such functions customarily performed by audit committees of public
companies. The Compensation Committee will have the authority and responsibility
for establishing and administering the stock, incentive and other employee
benefit plans of the Corporation, establishing and changing the compensation of
executive officers, approving or amending existing and proposed employment
agreements between the Corporation and its executive officers and performing any
and all other such functions customarily performed by compensation committees of
public companies. Without limiting the generality of the foregoing, the
Compensation Committee will have the authority and responsibility, in
administering any stock, incentive or other employee benefit plans, including
any such plans in effect on the Closing Date, to determine the persons to whom
awards or benefits may be made, to determine the terms and conditions (which
need not be identical) of each award made or benefit conferred (including the
timing and type of award or benefit, the exercise or purchase price for any
award of stock or stock options, and terms related to vesting, exercisability,
forfeiture and termination), and to interpret the provisions of each such plan.
For purposes hereof, an "independent director" is an individual who (unless
otherwise approved by the Series B Director or, if there is no Series B
Director, by the Series C Director or, if there is no Series C Director, by the
Majority Senior Holders) (i) has either a significant financial investment in
the Corporation or a significant strategic position or expertise relative to the
business of the Corporation and (ii) is not (A) an officer or employee of the
Corporation or any of its Subsidiaries, (B) a director, employee, partner,
manager or other member of management of any of Affiliate of the Corporation
(except a director of a Subsidiary of the Corporation), (C) a relative of any
Person described in subclause (ii)(A) or (ii)(B) or (D) a trustee of any trust
or estate in which any Person described in subclause (ii)(A), (ii)(B) or (ii)(C)
is a beneficiary has a substantial beneficial interest.
SECOND: That the appropriate stockholders of the Corporation
approved such amendment by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by duly authorized officers of the Corporation this 30th day of January,
1998.
<PAGE>
By:
----------------------------------
Name: Gerard P. Joyce
Title: Chairman, President
By:
----------------------------------
Name: Thomas M. Pugliese
Title: Vice Chairman, CEO
<PAGE>
Exhibit 3.1(u)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
FOR SERIES B SENIOR CUMULATIVE
COMPOUNDING CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
----------------------
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Certificate of Designation for the Series B Senior Cumulative Compounding
Convertible Preferred Stock, par value $1.00 per share of the Corporation, of
the Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designation for the Corporation's
Series B Senior Cumulative Compounding Convertible Redeemable Preferred Stock,
par value $1.00 per share, be amended as follows:
1. The definition of "Employee Option" in Section 2 is amended to
read in its entirety as follows:
"Employee Option" means any option to purchase Common Stock for cash
which is granted by or with the approval of the Compensation
Committee to any director, officer, employee or consultant of the
Corporation or any subsidiary of the Corporation pursuant to either
(i) the Corporation's 1993 Stock Option Plan or the Corporation's
1994 Stock Option Plan as in effect on the Closing Date, (ii) any
other option plan adopted by the Corporation after the Closing Date
with the prior approval of the Majority Senior Holders, in each case
as the same may be amended from time to time with the prior approval
of the Majority Senior Holders, or (iii) any stock option plan in
the
<PAGE>
form approved by the Compensation Committee for the issuance of
Common Stock which shall not exceed 53,000 shares of Common Stock
(as adjusted for stock splits, combinations, recapitalization,
reorganizations and similar transactions) provided that the options
granted pursuant to such plans shall not be issued with an exercise
price per share of Common Stock less than the lesser of (a) $77 (as
adjusted for stock splits, combinations, recapitalizations,
reorganizations and other similar transactions) or (b) the
Conversion Price at the time of issuance, without the consent of the
Series B Director.
2. The definition of "Rights" in Section 2 is amended to add ", and
specifically includes the Warrants" immediately after the word "contingency" at
the end of the definition.
3. Section 2 is further amended by adding thereto, in the proper
alphabetical order, the following additional defined terms:
"Refinancing Obligations" shall have the meaning set forth in
Section 3(h).
"Senior Note Indenture" means the Indenture dated as of February 18,
1998, as the same may be amended from time to time with the approval of the
majority of the Board of Directors of the Corporation, which majority includes
the Series B Director.
"Senior Notes" means the 12% Senior Secured PIK Notes due 2003, any
promissory notes or replacement obligations issued in exchange therefor in
connection with an exchange offering conducted by the Corporation, as the same
may be amended from time to time with the approval of the majority of the Board
of Directors of the Corporation, which majority includes the Series B Director.
"Warrants" means the 125,240 warrants to purchase Common Stock of
the Corporation that are issued pursuant to and subject to that certain Warrant
Agreement dated as of February 18, 1998, as the same may be amended from time to
time with the approval of the majority of the Board of Directors of the
Corporation, which majority includes the Series B Director.
4. Section 3(i) is amended by adding the following at the end of the
Section:
"If, at any time while the Senior Notes, or any obligation or
obligations incurred by the Company in refinancing of the Senior Notes (the
"Refinancing Obligations"), are outstanding, a redemption of shares of Series B
Preferred Stock is required by the terms hereof (or would be required but for
the provisions of this clause), but the payment to the holders of the Series B
Preferred Stock of the redemption price therefor would result in a breach of or
event of default under the Senior Note Indenture (or other governing document in
respect of the Senior Notes or Refinancing Obligations), then the Corporation
shall comply with this Section 3(i), but unless and until otherwise approved by
<PAGE>
the requisite holders of the Senior Notes or Refinancing Obligations, or the
outstanding Senior Notes or Refinancing Obligations are paid in full, the
Corporation shall not pay such redemption price or consummate any Investor
Approved Action to the extent that such a breach or event of default would
occur; however, nothing contained herein is intended to impair, as between the
Corporation and the holders of the Series B Preferred Stock, the obligations of
the Corporation, which are absolute and unconditional, to redeem the shares
thereof when and as otherwise would be required, to affect the relative rights
of the holders of such shares and creditors of the Corporation other than the
holders of the Senior Notes and Refinancing Obligations, or to prevent the
holders of the Series B Preferred Stock from exercising all rights and remedies
otherwise permitted by applicable law, subject to the express terms of this
provision for the benefit of the holders of the Senior Notes and Refinancing
Obligations.
5. Subsection (l) of Section 9 is amended by deleting the word
"sentence" in the first time such word appears, and adding the words "two
sentences" in its place, and by adding the following sentence at the end of such
Section:
"No adjustment under this Section 9(l) shall be required by reason
of the issuance of Warrants."
6. Clause (A) of subsection (n) of Section 9 is amended by deleting
the phrase "shares of the Series C Preferred Stock referred to in the last
sentence of Section 9(m)" in the first place such words appear in such clause
and adding the following, in lieu thereof:
"(1) shares of the Series C Preferred Stock referred to in the last
sentence of Section 9(m), and (2) Warrants."
7. Clause (C) of subsection (n) of Section 9 is amended by adding
the following at the end of the Section:
"; provided, however, that except in the case of an amendment or
modification of or departure from the terms thereof that is not approved by the
Series B Director, the foregoing shall not apply to any Rights described in the
last two sentences of Section 9(l) or any Convertible Securities described in
the last sentence of Section 9(m)."
SECOND: That the appropriate stockholders of the Corporation
approved such amendment by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by duly authorized officers of the Corporation this 17th day of February,
1998.
<PAGE>
By:
-------------------------------
Name: Thomas Pugliese
Title: CEO
By:
-------------------------------
Name: Michael Kolthoff
Title: Asst. Secretary
<PAGE>
Exhibit 3.1(v)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATION
FOR SERIES C SENIOR CUMULATIVE
COMPOUNDING CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
MENTUS MEDIA CORP.
PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW
---------------------------
MENTUS MEDIA CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent, duly adopted resolutions setting forth a proposed amendment to
the Certificate of Designation for the Series C Senior Cumulative Compounding
Convertible Preferred Stock, par value $1.00 per share of the Corporation, of
the Corporation, declaring such amendment to be advisable and authorizing the
solicitation of written consents of the stockholders of the Corporation with
respect thereto. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designation for the Corporation's
Series C Senior Cumulative Compounding Convertible Redeemable Preferred Stock,
par value $1.00 per share, be amended as follows:
1. The definition of "Employee Option" in Section 2 is amended to
read in its entirety as follows:
"Employee Option" means any option to purchase Common Stock for cash
which is granted by or with the approval of the Compensation
Committee to any director, officer, employee or consultant of the
Corporation or any subsidiary of the Corporation pursuant to either
(i) the Corporation's 1993 Stock Option Plan or the Corporation's
1994 Stock Option Plan as in effect on the Closing Date, (ii) any
other option plan adopted by the Corporation after the Closing Date
with the prior approval of the Majority Senior Holders, in each case
as the same may be amended from time to time with the prior approval
of the Majority Senior Holders, or (iii) any stock option plan in
the form approved by the Compensation Committee for the issuance of
Common Stock which shall not exceed 53,000 shares of Common Stock
(as
<PAGE>
adjusted for stock splits, combinations, recapitalization,
reorganizations and similar transactions) provided that the options
granted pursuant to such plans shall not be issued with an exercise
price per share of Common Stock less than the lesser of (a) $77 (as
adjusted for stock splits, combinations, recapitalizations,
reorganizations and other similar transactions) or (b) the
Conversion Price at the time of issuance, without the consent of the
Series B Director.
2. The definition of "Rights" in Section 2 is amended to add ", and
specifically includes the Warrants" immediately after the word "contingency" at
the end of the definition.
3. Section 2 is further amended by adding thereto, in the proper
alphabetical order, the following additional defined terms:
"Refinancing Obligations" shall have the meaning set forth in
Section 3(h).
"Senior Note Indenture" means the Indenture dated as of February 18,
1998, as the same may be amended from time to time with the approval of the
majority of the Board of Directors of the Corporation, which majority includes
the Series B Director.
"Senior Notes" means the 12% Senior Secured PIK Notes due 2003, any
promissory notes or replacement obligations issued in exchange therefor in
connection with an exchange offering conducted by the Corporation, as the same
may be amended from time to time with the approval of the majority of the Board
of Directors of the Corporation, which majority includes the Series B Director.
"Warrants" means the 125,240 warrants to purchase Common Stock of
the Corporation that are issued pursuant to and subject to that certain Warrant
Agreement dated as of February 18, 1998, as the same may be amended from time to
time with the approval of the majority of the Board of Directors of the
Corporation, which majority includes the Series B Director.
4. Section 6(a) is amended by deleting "the fifth anniversary of the
Closing Date" immediately after the words "prior to" in the first sentence, and
adding "March 1, 2003" in its place.
5. Section 3(h) is amended by adding the following at the end of the
Section:
"If, at any time while the Senior Notes, or any obligation or
obligations incurred by the Company in refinancing of the Senior Notes (the
"Refinancing Obligations"), are outstanding, a redemption of shares of Series C
Preferred Stock is required by the terms hereof (or would be required but for
the provisions of this clause), but the payment to the holders of the Series C
Preferred Stock of the redemption price therefor would result in a breach of or
event of default under the Senior Note Indenture (or other governing document in
respect of the Senior Notes or Refinancing Obligations), then the Corporation
shall comply with this Section 3(h), but unless and until otherwise approved by
<PAGE>
the requisite holders of the Senior Notes or Refinancing Obligations, or the
outstanding Senior Notes or Refinancing Obligations are paid in full, the
Corporation shall not pay such redemption price or consummate any Investor
Approved Action to the extent that such a breach or event of default would
occur; however, nothing contained herein is intended to impair, as between the
Corporation and the holders of the Series C Preferred Stock, the obligations of
the Corporation, which are absolute and unconditional, to redeem the shares
thereof when and as otherwise would be required, to affect the relative rights
of the holders of such shares and creditors of the Corporation other than the
holders of the Senior Notes and Refinancing Obligations, or to prevent the
holders of the Series C Preferred Stock from exercising all rights and remedies
otherwise permitted by applicable law, subject to the express terms of this
provision for the benefit of the holders of the Senior Notes and Refinancing
Obligations.
6. Subsection (l) of Section 9 is amended by deleting the word
"sentence" in the first time such word appears, and adding the words "two
sentences" in its place, and by adding the following sentence at the end of such
Section:
"No adjustment under this Section 9(l) shall be required by reason
of the issuance of Warrants."
7. Clause (A) of subsection (n) of Section 9 is amended by deleting
the phrase "shares of the Series C Preferred Stock referred to in the last
sentence of Section 9(m)" in the first place such words appear in such clause
and adding the following, in lieu thereof:
"(1) shares of the Series C Preferred Stock referred to in the last
sentence of Section 9(m), and (2) Warrants."
8. Clause (C) of subsection (n) of Section 9 is amended by adding
the following at the end of the Section:
"; provided, however, that except in the case of an amendment or
modification of or departure from the terms thereof that is not approved by the
Series B Director, the foregoing shall not apply to any Rights described in the
last two sentences of Section 9(l) or any Convertible Securities described in
the last sentence of Section 9(m)."
SECOND: That the appropriate stockholders of the Corporation
approved such amendment by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by duly authorized officers of the Corporation this 17th day of February,
1998.
<PAGE>
By:
-------------------------------
Name: Thomas Pugliese
Title: CEO
By:
-------------------------------
Name: Michael Kolthoff
Title: Asst. Secretary
<PAGE>
Exhibit 3.2(b)
AMENDMENT TO BYLAWS OF
MENTUS MEDIA CORP.
Pursuant to a resolution duly adopted by the directors of the Corporation,
the Bylaws of the Corporation are amended as follows:
1. All references in the Bylaws to the Mentus Corporation shall be modified to
refer to "Mentus Media Corp."
2. Article III, Section 2 shall be amended in its entirety as follows:
"2. NUMBER. The number of Directors which shall constitute the whole
board shall be not fewer than one (1) and not more than ten (10). The
number of Directors shall be set by the Directors. The Directors shall be
elected at the annual meeting of the stockholders or at a special meeting
for the purpose of electing such directors, except as provided in Section
3 of this Article, and each Director elected shall hold office until the
next annual meeting and his or her successor is elected and qualified,
subject to either death, resignation or removal. Directors need not be
stockholders.
For the election of directors by the holders of the Corporation's
Series B Senior Cumulative Compounding Convertible Redeemable Preferred
Stock ("Series B Preferred Stock") or the Company's Series C Senior
Cumulative Compounding Convertible Redeemable Preferred Stock ("Series C
Preferred Stock"), other than at an annual meeting of the stockholders,
the Secretary of the Corporation shall call a special meeting upon the
written request of 5% or more of the number of shares of Series B
Preferred Stock or Series C Preferred Stock, as appropriate, then
outstanding for the purpose of electing a Series B Director or Series C
Director, as those terms are defined in the Certificates of Designation
for the Series B Preferred Stock and Series C Preferred Stock,
respectively. Notwithstanding the foregoing, the Secretary shall not call
any such meeting in the case of any request received by the Corporation
less than forty-five (45) days before the date fixed for any annual
meeting of the stockholders, and if in such case such special meeting is
not called, the holders of Series B Preferred Stock or Series C Preferred
Stock, as applicable, shall be entitled to vote as a class at such annual
meeting to elect the Series B Director or Series C Director, or to fill
such vacancy."
3. The following shall be added as a second paragraph to Article III, Section 3:
"Notwithstanding the foregoing, a vacancy for a director position
designated as a Series B Director or a Series C Director shall be filled
by the holders of the Series B Preferred Stock or Series C Preferred
Stock, respectively."
<PAGE>
4. The following shall be added as a second paragraph to Article III, Section
11:
"Any Series C Director may at any time be removed, with or without
cause, by and only by the vote of a majority of the Series C Preferred
Stockholders. Any Series B Director may at any time be removed, with or
without cause, by and only by the vote of a majority of the Series B
Preferred Stockholders."
5. The following shall be added as Article III, Section 16:
"16. Procedural Matters Concerning Series B Preferred Stock and Series C
Preferred Stock. So long as the holders of the Series B Preferred Stock
and the Series C Preferred Stock shall have the right to elect a Series B
Director and Series C Director:
(a) any one or more members of the Board of Directors or any
committee thereof may participate in meetings of the Board of Directors by
conference telephone;
(b) each member of the Board of Directors or any committee thereof
shall be given not less than three days' prior written notice of each
meeting of the Board of Directors or such committee (or two days' prior
written notice in case of meetings to consider emergency matters),
specifying the time and place of such meeting and the matters to be
discussed thereat, unless such member signs (either before or after such
meeting) a written waiver of his right to be given such notice, or attends
such meeting without protesting (prior thereto or at the commencement
thereof) the failure to be given such notice;
(c) each member of the Board of Directors or any committee thereof
shall be given not less than three days' prior written notice of any
action proposed to be taken by the Board of Directors or such committee
without a meeting (or two days' prior written notice in case of proposed
actions involving emergency matters), unless such member signs (either
before or after such action is taken) a written waiver of his right to be
given such notice, or gives his written consent to such action without
protesting the failure to be given such notice;
(d) no executive committee of the Board of Directors, and no other
committee of the Board of Directors which is authorized to exercise any
powers of the Board of Directors, shall be created except (i) for the
Valuation Committee, Audit Committee and Compensation Committee (in such
case as defined in the Certificate of Designations for the Series B
Preferred Stock and Series C Preferred Stock), or (ii) otherwise with the
concurrence of the Series B Director or, if there is no Series B Director,
by the Series C Director
<PAGE>
or, if there is no Series C Director, by the Majority Senior Holders (as
defined in the Series C Certificate of Designation); and
(e) at any meeting of the Board of Directors or any committee
thereof, a quorum for the purpose of taking any action shall require the
presence in person or participation by conference telephone or similar
communications equipment of a number of directors equal to at least a
majority of the entire Board of Directors or the entire committee."
6. Article II, Section 10C shall be amended in its entirety as follows:
"C. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the corporation as provided in subsection 10A above. In the
event that the action which is consented to is such as would have required
the filing of a certificate under Title 8 of the Delaware General
Corporation Law, if such action had been voted on by stockholders at a
meeting thereof, the certificate filed thereunder shall state, in lieu of
any statement required by such section concerning any vote of
stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.
Dated as of November 21, 1997.
-------------------------------
Thomas M. Pugliese, CEO
Attest:
- -------------------------------------
Michael Kolthoff, Assistant Secretary
<PAGE>
Exhibit 4.1(a)
[W&C Draft 2/16/98]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------------------
MENTUS MEDIA CORP.
as Issuer,
The Subsidiary Guarantors
each to become a party
hereto pursuant to
Article 11 herein
and
United States Trust Company of New York
as Trustee
$45,000,000
12% SENIOR SECURED PIK NOTES DUE 2003, SERIES A
12% SENIOR SECURED PIK NOTES DUE 2003, SERIES B
---------------------------------
--------------------
INDENTURE
Dated as of February 1, 1998
--------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1).............................................. 7.10
(a)(2).............................................. 7.10
(a)(3).............................................. N.A.
(a)(4).............................................. N.A.
(a)(5).............................................. 7.10
(b)................................................. 7.10
(c)................................................. N.A.
311(a)................................................. 7.11
(b)................................................. 7.11
(c)................................................. N.A.
312(a)................................................. 2.05
(b)................................................. 11.03
(c)................................................. 11.03
313(a)................................................. 7.06
(b)(1).............................................. 7.06
(b)(2).............................................. 7.06
(c)................................................. 7.06
(d)................................................. 7.06
314(a)................................................. 4.04
(b)................................................. 10.04
(c)(1).............................................. 11.05
(c)(2).............................................. 11.05
(c)(3).............................................. N.A.
(d)................................................. 10.04
(e)................................................. 11.05
(f)................................................. N.A.
315(a)................................................. 7.01
(b)................................................. 7.05
(c)................................................. 7.01
(d)................................................. 6.05;7.01
(e)................................................. 6.11
316(a)................................................. 1.01
(a)(1)(A)........................................... 6.02
(a)(1)(B)........................................... 6.04
(a)(2).............................................. N.A.
(b)................................................. 6.07
(c)................................................. 2.19
317(a)(1).............................................. 6.08
(a)(2).............................................. 6.09
(b)................................................. 2.04
318(a)................................................. 11.01
(b)................................................. N.A.
(c)................................................. 11.01
(i)
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Trust Indenture
Act Section Indenture Section
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* This Cross-Reference Table is not part of the Indenture.
N.A. means not applicable.
(ii)
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE...................... 1
SECTION 1.01. DEFINITIONS........................................... 1
SECTION 1.02. OTHER DEFINITIONS..................................... 22
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT........................................ 23
SECTION 1.04. RULES OF CONSTRUCTION................................. 24
ARTICLE 2 THE SECURITIES.................................................. 24
SECTION 2.01. FORM AND DATING....................................... 24
SECTION 2.02. EXECUTION AND AUTHENTICATION.......................... 25
SECTION 2.03. REGISTRAR AND PAYING AGENT............................ 26
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST................... 27
SECTION 2.05. SECURITYHOLDER LISTS.................................. 27
SECTION 2.06. TRANSFER AND EXCHANGE................................. 27
SECTION 2.07. REPLACEMENT SECURITIES................................ 28
SECTION 2.08. OUTSTANDING SECURITIES................................ 29
SECTION 2.09. TREASURY SECURITIES................................... 29
SECTION 2.10. TEMPORARY SECURITIES.................................. 29
SECTION 2.11. CANCELLATION.......................................... 30
SECTION 2.12. DEFAULTED INTEREST.................................... 30
SECTION 2.13. CUSIP NUMBER.......................................... 30
SECTION 2.14. DEPOSIT OF MONEYS..................................... 31
SECTION 2.15. RESTRICTIVE LEGENDS................................... 31
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL
SECURITY............................................. 33
SECTION 2.17. SPECIAL TRANSFER PROVISIONS........................... 34
SECTION 2.18. PERSONS DEEMED OWNERS................................. 36
ARTICLE 3 REDEMPTION...................................................... 37
SECTION 3.01. NOTICES TO TRUSTEE.................................... 37
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED................ 37
SECTION 3.03. NOTICE OF REDEMPTION.................................. 38
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION........................ 39
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE........................... 39
SECTION 3.06. SECURITIES REDEEMED IN PART........................... 39
SECTION 3.07. OPTIONAL REDEMPTION................................... 40
SECTION 3.08. MANDATORY REDEMPTION.................................. 40
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF
EXCESS PROCEEDS...................................... 40
ARTICLE 4 COVENANTS....................................................... 42
SECTION 4.01. PAYMENT OF SECURITIES................................. 42
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY....................... 43
(iii)
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SECTION 4.03. SEC REPORTS........................................... 44
SECTION 4.04. COMPLIANCE CERTIFICATES............................... 45
SECTION 4.05. TAXES................................................. 46
SECTION 4.06. STAY, EXTENSION AND USURY LAWS........................ 46
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS..................... 46
SECTION 4.08. LIMITATION ON RESTRICTIONS ON
DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES......................................... 47
SECTION 4.09. LIMITATION ON INDEBTEDNESS............................ 48
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND
SUBSIDIARY STOCK..................................... 51
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS.................. 53
SECTION 4.12. LIMITATION ON LIENS................................... 54
SECTION 4.13. CORPORATE EXISTENCE................................... 54
SECTION 4.14. CHANGE OF CONTROL..................................... 54
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES..................... 56
SECTION 4.16. CONDUCT OF BUSINESS................................... 56
SECTION 4.17. LIMITATION ON SALE/LEASEBACK
TRANSACTIONS......................................... 56
SECTION 4.18. LIMITATION ON DESIGNATIONS OF
UNRESTRICTED SUBSIDIARIES............................ 57
SECTION 4.19. FUTURE NOTE GUARANTEES................................ 58
SECTION 4.20. FURTHER INSTRUMENTS AND ACTS.......................... 58
SECTION 4.21. REAL PROPERTY......................................... 58
SECTION 4.22. COLLATERAL DOCUMENTS.................................. 59
SECTION 4.23. FURTHER ASSURANCES.................................... 59
ARTICLE 5 SUCCESSORS...................................................... 60
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION
OR SALE OF ASSETS.................................... 60
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED..................... 61
ARTICLE 6 DEFAULTS AND REMEDIES........................................... 61
SECTION 6.01. EVENTS OF DEFAULT..................................... 61
SECTION 6.02. ACCELERATION.......................................... 63
SECTION 6.03. OTHER REMEDIES........................................ 64
SECTION 6.04. WAIVER OF PAST DEFAULTS............................... 64
SECTION 6.05. CONTROL BY MAJORITY................................... 65
SECTION 6.06. LIMITATION ON SUITS................................... 65
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE
PAYMENT.............................................. 66
SECTION 6.08. COLLECTION SUIT BY TRUSTEE............................ 66
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM...................... 66
SECTION 6.10. PRIORITIES............................................ 67
SECTION 6.11. UNDERTAKING FOR COSTS................................. 67
(iv)
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ARTICLE 7 TRUSTEE......................................................... 68
SECTION 7.01. DUTIES OF TRUSTEE..................................... 68
SECTION 7.02. RIGHTS OF TRUSTEE..................................... 69
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.......................... 70
SECTION 7.04. TRUSTEE'S DISCLAIMER.................................. 70
SECTION 7.05. NOTICE OF DEFAULTS.................................... 71
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS................. 71
SECTION 7.07. COMPENSATION AND INDEMNITY............................ 71
SECTION 7.08. REPLACEMENT OF TRUSTEE................................ 73
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC...................... 74
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION......................... 74
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST THE COMPANY.................................. 74
ARTICLE 8 DISCHARGE OF INDENTURE.......................................... 75
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES;
DEFEASANCE........................................... 75
SECTION 8.02. CONDITIONS TO DEFEASANCE.............................. 76
SECTION 8.03. APPLICATION OF TRUST MONEY............................ 77
SECTION 8.04. REPAYMENT TO THE COMPANY.............................. 77
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.................. 78
SECTION 8.06. REINSTATEMENT......................................... 78
ARTICLE 9 AMENDMENTS...................................................... 79
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.................... 79
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS....................... 80
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT................... 82
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS..................... 82
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES................. 83
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC....................... 83
ARTICLE 10 COLLATERAL AND SECURITY........................................ 84
SECTION 10.01. COLLATERAL DOCUMENTS................................. 84
SECTION 10.02. RECORDING AND OPINIONS............................... 85
SECTION 10.03. RELEASE OF COLLATERAL................................ 85
SECTION 10.04. SUBORDINATION........................................ 86
SECTION 10.05. CERTIFICATES OF THE COMPANY.......................... 87
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN
BY THE TRUSTEE UNDER THE COLLATERAL
DOCUMENTS........................................... 87
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY
THE TRUSTEE UNDER THE COLLATERAL
DOCUMENTS........................................... 87
ARTICLE 11 SUBSIDIARY GUARANTEE OF SECURITIES............................. 88
(v)
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SECTION 11.01. SUBSIDIARY GUARANTEE................................. 88
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY
GUARANTEE........................................... 89
SECTION 11.03. SUBSIDIARY GUARANTEE UNCONDITIONAL,
ETC................................................. 90
SECTION 11.04. LIMITATION OF SUBSIDIARY GUARANTOR'S
LIABILITY........................................... 91
SECTION 11.05. CONTRIBUTION......................................... 91
SECTION 11.06. RELEASE.............................................. 92
SECTION 11.07. ADDITIONAL SUBSIDIARY GUARANTORS..................... 92
SECTION 11.08. SUCCESSORS AND ASSIGNS............................... 92
SECTION 11.09. WAIVER OF STAY, EXTENSION OR USURY
LAWS................................................ 93
ARTICLE 12 MISCELLANEOUS.................................................. 93
SECTION 12.01. TRUST INDENTURE ACT CONTROLS......................... 93
SECTION 12.02. NOTICES.............................................. 93
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS
WITH OTHER SECURITYHOLDERS.......................... 95
SECTION 12.04. CERTIFICATE AND OPINION AS TO
CONDITIONS PRECEDENT................................ 95
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR
OPINION............................................. 95
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.......................... 96
SECTION 12.07. LEGAL HOLIDAYS....................................... 96
SECTION 12.08. NO RECOURSE AGAINST OTHERS........................... 96
SECTION 12.09. DUPLICATE ORIGINALS.................................. 96
SECTION 12.10. GOVERNING LAW........................................ 96
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER
AGREEMENTS.......................................... 96
SECTION 12.12. SUCCESSORS........................................... 97
SECTION 12.13. SEVERABILITY......................................... 97
SECTION 12.14. COUNTERPART ORIGINALS................................ 97
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC..................... 97
EXHIBIT A - FORM OF INITIAL SECURITY
EXHIBIT B - FORM OF EXCHANGE SECURITY
EXHIBIT C - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS TO NON-QIB
ACCREDITED INVESTORS
EXHIBIT D - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO
REGULATION S
EXHIBIT E - FORM OF SECURITY AGREEMENT
EXHIBIT F - FORM OF PLEDGE AGREEMENT
(vi)
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SCHEDULE A - SCHEDULE OF LIENS
(vii)
<PAGE>
INDENTURE, dated as of February 1, 1998, among Mentus Media Corp., a
Delaware corporation (the "Company"), and United States Trust Company of New
York, a banking corporation organized and existing under the laws of the State
of New York, in its capacity as trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 12%
Senior Secured PIK Notes due 2003, Series A (the "Initial Securities") and 12%
Senior Secured PIK Notes due 2003, Series B (the "Exchange Securities") and, to
provide therefor, the Company has duly authorized the execution and delivery of
this Indenture. All things necessary to make the Securities (as defined), when
duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, have been done.
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of
the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall
mean the lesser of the amount by which (x) the fair market value of the property
of such Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, the probable liability of such Subsidiary Guarantor with
respect to its contingent liabilities (after giving effect to all other fixed
and contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary by such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under the
Subsidiary Guarantee), excluding debt in respect of the Subsidiary Guarantee, as
<PAGE>
they become absolute and matured.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Disposition" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (iv) dispositions of property for net
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning of
the calendar year in which such disposition is consummated, do not exceed
$100,000 and (v) transactions permitted under Section 5.01.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Securities, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the product of the numbers of years (rounded upwards to the nearest
month) from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bankruptcy Code" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
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Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully Guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500 million, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii) Indebtedness
or Preferred Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries; or (ii) a
majority of the Board of Directors of the Company or of any direct or indirect
holding company thereof shall consist of Persons who are not Continuing
Directors of the Company; or (iii) the acquisition by any Person or
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<PAGE>
group of related Persons (other than the Controlling Group) for purposes of
Section 13 (d) of the Exchange Act, of the power, directly or indirectly, to
vote or direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Company or of any direct or
indirect holding company thereof.
"Collateral" means, collectively, the Collateral as defined in the
Collateral Documents.
"Collateral Documents" means the Security Agreement (a form of which
is attached hereto as Exhibit E), the Pledge Agreement (a form of which is
attached hereto as Exhibit F), the Mortgages, the Patent and Trademark
Assignments and any other agreements creating a lien in favor of the Trustee
securing the Securities.
"Commission" means the U.S. Securities and Exchange Commission or
its successor.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means Mentus Media Corp., a Delaware corporation, until a
successor replaces it in accordance with Article 5 hereof and thereafter means
the successor.
"Consolidated Cash Flow" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Securities) and less, to the extent
added in calculating Consolidated Net Income, (x) exchange or translation gains
on foreign currencies and (y) non-cash items (excluding such non-cash items to
the extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Securities), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
of the most recent two consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such two fiscal quarters; provided, however,
that (1) if the Company or any of its Restricted
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Subsidiaries has Incurred any Indebtedness since the beginning of such period
and through the date of determination of the Consolidated Coverage Ratio that
remains outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (A) such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(provided that if such Indebtedness is Incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes the
one year projected average balance of such Indebtedness (as determined in good
faith by the Board of Directors of the Company) shall be deemed outstanding for
purposes of this calculation), and (B) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period any Indebtedness of the
Company or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and the underlying commitment terminated and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period,
(3) if since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (i) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale) and (ii) increased
by interest income attributable to the assets which are the subject of such
Asset Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result thereof)
or an acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
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Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries determined in
accordance with GAAP, plus, to the extent not included in such interest expense
(i) interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly-Owned
Subsidiary and less (a) to the extent included in such interest expense, the
amortization of capitalized debt issuance costs and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company, that was not a Wholly-Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated
net income (loss) of the Company and its consolidated Restricted Subsidiaries
determined in accordance with GAAP; provided, however, that there shall not be
included in such Consolidated Net Income: (i) any net income (loss) of any
Person acquired by the Company or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of the Company if
such Restricted Subsidiary is subject to restrictions, directly or indirectly,
on
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the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company (other than restrictions in
effect on the Issue Date with respect to a Restricted Subsidiary of the Company
and other than restrictions that are created or exist in compliance with Section
4.08, (iii) any gain or loss realized upon the sale or other disposition of any
assets of the Company or its consolidated Restricted Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which are not sold or otherwise
disposed of in the ordinary course of business and any gain or loss realized
upon the sale or other disposition of any Capital Stock of any Person, (iv) any
extraordinary gain or loss, (v) the cumulative effect of a change in accounting
principles, (vi) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of the lesser of (A) cash dividends or
distributions actually paid to the Company or any of its Restricted Subsidiaries
by such Person and (B) the net income of such Person (but in no event less than
zero), and the net loss of such Person (other than an Unrestricted Subsidiary)
shall be included only to the extent of the aggregate Investment of the Company
or any of its Restricted Subsidiaries in such Person and (vii) any non-cash
expenses attributable to grants or exercises of employee stock options.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of such
Person on the date of the Indenture; (ii) was nominated for election or elected
to the Board of Directors of such Person with the affirmative vote of a majority
of the Continuing Directors of such Person who were members of such Board of
Directors at the time of such nomination or election; or (iii) was nominated or
elected to the Board of Directors in accordance with the provisions of the
Stockholders Agreement dated as of September 25, 1996, as amended by the First
Amendment to the Stockholders Agreement dated as of August 29, 1997, as such
agreement may be further amended or supplemented from time to time.
"Controlling Group" means Gerard P. Joyce, Thomas M. Pugliese or any
Related Party.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 or such other address as to which the
Trustee may give notice to the Company.
"Currency Agreement" means in respect of a Person any foreign
exchange
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contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Stated Maturity of the Securities, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the Stated Maturity of the Securities.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Offer" means the registration by the Company under the
Securities Act pursuant to a registration statement of the offer by the Company
to each Securityholder of the Initial Securities to exchange all the Initial
Securities held by such Securityholder for the Exchange Securities in an
aggregate principal amount equal to the aggregate principal amount of the
Initial Securities held by such Securityholder, all in accordance with the terms
and conditions of the Registration Rights Agreement.
"Exchange Securities" has the meaning set forth in the preamble to
this Indenture.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issue Date, plus interest accrued
thereon, after application of the net proceeds of the sale of the Securities.
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board
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of Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit, (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses Incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such
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Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person, (vii)
all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary of the Company, any Preferred Stock of such
Restricted Subsidiary to the extent such obligation arises on or before the
Stated Maturity of the Securities (but excluding, in each case, accrued
dividends) with the amount of Indebtedness represented by such Disqualified
Stock or Preferred Stock, as the case may be, being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price; provided, however, that, for purposes hereof the "maximum fixed
repurchase price" of any Disqualified Stock or Preferred Stock, as the case may
be, which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock or Preferred Stock, as the
case may be, as if such Disqualified Stock or Preferred Stock, as the case may
be, were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based on the fair
market value of such Disqualified Stock or Preferred Stock, as the case may be,
such fair market value shall be determined in good faith by the Board of
Directors of the Company and (ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate Agreements.
Unless specifically set forth above, the amount of Indebtedness of any Person at
any date shall be the outstanding principal amount of all unconditional
obligations as described above, as such amount would be reflected on a balance
sheet prepared in accordance with GAAP, and the maximum liability of such
Person, upon the occurrence of the contingency giving rise to the obligation, of
any contingent obligations described above at such date.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Purchaser" means NatWest Capital Markets Limited.
"Initial Securities" has the meaning set forth in the preamble to
this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities which shall be each February 1, and August 1 of
each year, commencing February 1, 2001.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
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"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
Section 4.07, (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary) of the fair market value of the net assets of such
Restricted Subsidiary of the Company at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a Board Resolution delivered to
the Trustee.
"Issue Date" means the date on which the Initial Securities are
originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Material Real Property" means (i) any real property owned by the
Company or any Subsidiary Guarantor or subject to a capitalized lease under
which the Company or a Subsidiary Guarantor is lessee with a fair market value
of greater than $50,000 and (ii) any other lease of real property under which
the Company or Subsidiary Guarantor is lessee the annual payments of which are
greater than $50,000.
"Moody's" means Moody's Investors Service, Inc, or any successor
thereto.
"Mortgages" means any mortgage, deed of trust or similar instrument
whereby real property will be pledged.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring
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Person of Indebtedness or other obligations relating to the properties or assets
subject to, such Asset Disposition) therefrom in each case net of (i) all legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition, (iv) the deduction of appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition);
provided, however, that upon any reduction in such reserves (other than to the
extent resulting from payments of the respective reserved liabilities), Net
Available Cash shall be increased by the amount of such reduction to reserves,
and retained by the Company or any Restricted Subsidiary of the Company after
such Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually Incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"NGN Displays" means the Company's out-of-home electronic billboards
which display video-based information, entertainment and advertising.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor, general partner or otherwise) and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S of the Securities Act.
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"Note Register" means the register of names and addresses of the
Holders of the Securities maintained by the Registrar.
"Obligations" means any principal, premium, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated February
12, 1998, pursuant to which the Initial Securities were offered, and any
supplements thereto.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, any Vice-President, the Treasurer or the
Secretary of the Company
"Officers' Certificate" shall mean a certificate signed by two
Officers of the Company, at least one of whom shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee and which complies, if applicable, with the
provisions of Section 12.04 hereof. The counsel may be an employee of or counsel
to the Company or the Trustee.
"Patent and Trademark Assignments" means any collateral assignments
of patents or trademarks and/or patent or trademark security agreements.
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the date of this Indenture, as reasonably
determined by the Company's Board of Directors.
"Permitted Investment" means an Investment by the Company or any of
its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary
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course of business consistent with past practices of the Company or such
Restricted Subsidiary in an aggregate amount outstanding at any one time not to
exceed $100,000; (vii) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
any of its Restricted Subsidiaries or in satisfaction of judgments or claims;
(viii) a Person engaged in a Permitted Business or a loan or advance to the
Company the proceeds of which are used solely to make an investment in a Person
engaged in a Permitted Business or a Guarantee by the Company of Indebtedness of
any Person in which such Investment has been made; provided, however, that no
Permitted Investments may be made pursuant to this clause (viii) to the extent
the amount thereof would, when taken together with all other Permitted
Investments made pursuant to this clause (viii), exceed $1 million in the
aggregate (plus, to the extent not previously reinvested, any return of capital
realized on Permitted Investments made pursuant to this clause (viii), or any
release or other cancellation of any Guarantee constituting such Permitted
Investment); provided, further, that the aggregate amount of Permitted
Investments made pursuant to this clause (viii) that are not Investments in a
joint venture, partnership or similar arrangement in the out of home advertising
industry shall not exceed $250,000; (ix) Persons to the extent such Investment
is received by the Company or any Restricted Subsidiary as consideration for
asset dispositions effected in compliance with the covenant described under
Section 4.10; (x) prepayments and other credits to suppliers made in the
ordinary course of business consistent with the past practices of the Company
and its Restricted Subsidiaries; and (xi) Investments in connection with
pledges, deposits, payments or performance bonds made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or environmental
obligations.
"Permitted Liens" means: (i) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due from the Company or any Restricted Subsidiary or being contested in good
faith by appropriate proceedings by the Company or any Restricted Subsidiary, as
the case may be, or other Liens arising out of judgments or awards against the
Company or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary, as the case may be, will then be prosecuting an appeal or
other proceedings for review; (ii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iii) Liens in favor of issuers of
performance bonds and surety bonds issued pursuant to clause (vi) under Section
4.09; (iv) survey exceptions, encumbrances, easements or, reservations of, or
rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph
and telephone lines and other similar purposes or zoning or other restrictions
as to the use of real property of the Company or any Restricted Subsidiary
incidental to the ordinary course of conduct of the business of the Company or
such Restricted Subsidiary or as to the ownership of properties of the Company
or any Restricted Subsidiary, which, in either case, were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of the Company or any Restricted
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Subsidiary; (v) Liens outstanding immediately after the Issue Date as set forth
in Schedule A to this Indenture; (vi) Liens on property, assets or shares of
stock of any Restricted Subsidiary at the time such Restricted Subsidiary became
a Subsidiary of the Company; provided, however, that (A) if any such Lien has
been Incurred in anticipation of such transaction, such property, assets or
shares of stock subject to such Lien will have a fair market value at the date
of the acquisition thereof not in excess of the lesser of (1) the aggregate
purchase price paid or owed by the Company in connection with the acquisition of
such Restricted Subsidiary and (2) the fair market value of all property and
assets of such Restricted Subsidiary and (B) any such Lien will not extend to
any other assets owned by the Company or any Restricted Subsidiary; (vii) Liens
on property or assets at the time the Company or any Restricted Subsidiary
acquired such assets, including any acquisition by means of a merger or
consolidation with or into the Company or such Restricted Subsidiary; provided,
however, that (A) if any such Lien is Incurred in anticipation of such
transaction, such property or assets subject to such Lien will have a fair
market value at the date of the acquisition thereof not in excess of the lesser
of (1) the aggregate purchase price paid or owed by the Company or such
Restricted Subsidiary in connection with the acquisition thereof and of any
other property and assets acquired simultaneously therewith and (2) the fair
market value of all such property and assets acquired by the Company or such
Restricted Subsidiary and (B) any such Lien will not extend to any other
property or assets owned by the Company or any Restricted Subsidiary; (viii)
Liens securing Indebtedness or other obligations of a Restricted Subsidiary
owing to the Company or a Wholly-Owned Subsidiary; (ix) Liens to secure any
extension, renewal, refinancing, replacement or refunding (or successive
extensions, renewals, refinancings, replacements or refundings), in whole or in
part, of any Indebtedness secured by Liens referred to in any of clauses (v),
(vi) and (vii); provided, however, that any such Lien will be limited to all or
part of the same property or assets that secured the original Lien (plus
improvements on such property) and the aggregate principal amount of
Indebtedness that is secured by such Lien will not be increased to an amount
greater than the sum of (A) the outstanding principal amount, or, if greater,
the committed amount, of the Indebtedness described under clauses (v), (vi) and
(vii) at the time the original Lien became a Permitted Lien under this Indenture
and (B) an amount necessary to pay any premiums, fees and other expenses
Incurred by the Company in connection with such refinancing, refunding,
extension, renewal or replacement; (x) Liens on property or assets of the
Company securing Interest Rate Agreements or Currency Agreements so long as the
related Indebtedness is permitted under Section 4.09 and is secured by a Lien on
the same property securing the relevant Interest Rate Agreement or Currency
Agreement; (xi) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness (1) under purchase money obligation, or Capital
Lease Obligations permitted under Section 4.09 or (2) under Sale/Leaseback
Transactions permitted under Section 4.17; provided, that (A) the amount of
Indebtedness Incurred in any specific case does not, at the time such
Indebtedness is Incurred, exceed the lesser of the cost or fair market value of
the property or asset acquired or constructed in connection with such purchase
money obligation or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be, (B) such Lien will attach to such property or
asset upon acquisition of such property or asset and/or upon commencement of
such Sale/Leaseback Transaction, as the case may be, and (C) no property or
asset of the
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Company or any Restricted Subsidiary (other than the property or asset acquired
or contracted in connection with such purchase money Obligation or Capital Lease
Obligation or subject to such Sale/Leaseback Transaction, as the case may be)
are subject to any Lien securing such Indebtedness; (xii) Liens granted to the
Trustee on the assets of the Company securing the Company's obligations under
this Indenture and the Securities; (xiii) Liens granted to the Trustee on the
assets of the Subsidiary Guarantors securing the Subsidiary Guarantors'
Obligations under the Guarantees; and (xiv) Liens on Receivables granted by the
Company and the Subsidiary Guarantors which secures Indebtedness to the extent
such Indebtedness is incurred pursuant to Section 4.09(b)(i).
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
hereof or any other entity.
"Pledge Agreement" means that certain pledge agreement dated as of
February 18, 1998 among the pledgors named therein and the Trustee, as
Collateral Agent.
"Pledged Equipment" means that certain equipment pledged pursuant to
(i) the Security Agreement dated as of January 1, 1997 between the Company and
Outdoor Advertising, LLC or (ii) the Security Agreement dated as of August 18,
1997 between Morris Communications, Inc. and the Company.
"Pledged Equipment Notes" means the notes issued by the Company
evidencing the Company's obligations with respect to the Pledged Equipment
Sellers.
"Pledged Equipment Sellers" means Adams Outdoor Advertising LLC and
Morris Communications, Inc.
"Preferred Stock," as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Market" exists at any time with respect to the common stock
of the Company if (a) the common stock of the Company is then registered with
the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and traded
either on a national securities exchange or in the National Association of
Securities Dealers Automated Quotation System and (b) at least 15% of the total
issued and outstanding common stock of the Company has been distributed prior to
such time by means of an effective registration statement under the Securities
Act.
"Qualified Capital Stock" shall mean any Capital Stock which is not
Disqualified Stock.
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"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the record dates specified in the Securities,
whether or not a Legal Holiday.
"Receivables" means any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by the Company or any Restricted Subsidiary and, in
any event, shall include, but not be limited to, all the Company's or any
Restricted Subsidiary's rights to payment for goods sold or leased or services
performed by the Company or any Restricted Subsidiary, whether now in existence
or arising from time to time hereafter, including without limitation, rights
evidenced by an account, note, contract, security agreement, chattel paper or
other evidence of indebtedness or security, together with (a) all security
pledged, assigned, hypothecated or granted to or held by the Company or any
Restricted Subsidiary to secure the foregoing, (b) all of the Company's or any
Restricted Subsidiary's right, title and interest in and to any goods, the sale
of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards and invoices related
thereto, (f) all evidences of the filing of financing statements and other
statements and the registration of other instruments in connection therewith and
amendments thereto, notices to other creditors or secured parties, and
certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto and (h) all other writings
related in any way to the foregoing.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of this
Indenture or Incurred in compliance with this Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Securities and (B) Stated Maturity of
the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the lesser of (A) the Average Life of the Securities and (B)
the Average Life of the Indebtedness being refinanced and (iii) the Refinancing
Indebtedness is in an aggregate principal amount (or if issued with original
issue discount, an aggregate issue price) that is equal to (or 101% of, in the
case of a refinancing of the Securities in connection with a Change of Control)
or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the accredit value) then outstanding of the
Indebtedness being refinanced.
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"Registration Rights Agreement" means the Registration Rights
Agreement dated February 18, 1998 between the Company and the Initial Purchaser
for the benefit of itself and the Securityholders, as the same may be amended or
modified from time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"Related Party" means (A) the spouse or immediate family member of
either Gerard Joyce or Thomas Pugliese or (B) any trust, corporation,
partnership or other entity, the beneficiaries, shareholders, partners, members,
owners or Persons beneficially holding an 80% or more controlling interest of
which consist of either Gerard Joyce or Thomas Pugliese and/or such other
Persons referred to in the immediately preceding clause (A).
"Responsible Officer" when used with respect to the Trustee, means
any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Services, or any successor
organization thereto.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"Securities" means the Initial Securities (including any Additional
Notes) and the Exchange Securities treated as a single class of securities, as
amended or supplemented from time to time in accordance with the terms hereof,
that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Securityholder" or "Holder" means a registered holder of one or
more Securities.
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"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means the Guarantee of the Securities by a
Subsidiary Guarantor.
"Subsidiary Guarantor" means each Subsidiary of the Company (other
than Unrestricted Subsidiaries) created or acquired by the Company after the
Issue Date.
"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital surplus and undivided
profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(v) Investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by
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any political subdivision or taxing authority thereof, and rated at least "A" by
S&P or "A" by Moody's and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) and the rules and regulations thereunder as in effect on the date
on which this Indenture is qualified under the TIA, except as provided in
Section 9.03 hereof; provided, however, that, in the event the Trust Indenture
Act of 1939 is amended after such date, "TIA" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means United States Trust Company of New York, a banking
corporation organized and existing under the laws of the State of New York,
until a successor replaces it in accordance with Article 7 and thereafter means
the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of such designation, and does not
thereafter create, Incur, issue, assume, guarantee or otherwise becomes liable
with respect to any Indebtedness other than Non-Recourse Indebtedness and either
(A) the Subsidiary to be so designated has total consolidated assets of $10,000
or less or (B) if such Subsidiary has consolidated assets greater than $10,000,
then such designation would be permitted under Section 4.07. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary subject to the limitations contained in Section 4.18.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" with respect to any Person means all classes of
Capital Stock of such Person then outstanding and normally entitled to vote in
elections of directors of such Person.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
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"Working Capital Facility" means any credit facility entered into
during the term of the Securities providing for working capital financing for
the Company and its Restricted Subsidiaries.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"actual knowledge"....................................................7.02
"Additional Mortgages"................................................4.21
"Additional Notes"....................................................2.02
"Affiliate Transaction"...............................................4.11
"Agent Members".......................................................2.16
"Asset Disposition Offer".............................................3.09
"Bankruptcy Law"......................................................6.01
"Change of Control Payment Date"......................................4.14
"Change of Control Purchase Price"....................................4.14
"Code"................................................................2.03
"covenant defeasance option"..........................................8.01
"Custodian"...........................................................6.01
"Declaration of Acceleration".........................................6.02
"Default Amount"......................................................6.02
"Designation".........................................................4.18
"Event of Default"....................................................6.01
"Global Note".........................................................2.01
"Guaranteed Obligations".............................................11.01
"judgment default provision"..........................................6.01
"legal defeasance option".............................................8.01
"Legal Holiday"......................................................11.07
"Notice of Default"...................................................6.01
"Offer Amount"........................................................3.09
"Offer Period"........................................................3.09
"Offshore Physical Securities"........................................2.01
"Paying Agent"........................................................2.03
"Physical Securities".................................................2.01
"Private Placement Legend"............................................2.15
"Registrar"...........................................................2.03
"Restricted Payment"..................................................1.02
"Revocation"..........................................................4.18
"Successor Company"...................................................5.01
"Taxes"...............................................................4.05
"U.S. Physical Securities"............................................2.01
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SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities and the Subsidiary
Guarantees;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company, the Subsidiary
Guarantors and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the
plural include the singular; and
(v) provisions apply to successive events and transactions.
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ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of
authentication thereon shall be substantially in the form of Exhibit A hereto.
The Exchange Securities and the Trustee's certificate of authentication thereon
shall be substantially in the form of Exhibit B hereto. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
Depository rule or usage. The Company and the Trustee shall approve the form of
the Securities and any notation, legend or endorsement on them. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the forms of the Securities,
annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly
made, a part of this Indenture and, to the extent applicable, the Company and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global notes in registered form,
in substantially the form set forth in Exhibit A (the "Global Note"), deposited
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Global Note may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of permanent certificated Securities in
registered form in substantially the form set forth in Exhibit A (the "Offshore
Physical Securities"). Securities offered and sold in reliance on any other
exemption from registration under the Securities Act other than as described in
the preceding paragraph shall be issued, and Securities offered and sold in
reliance on Rule 144A may be issued, in the form of permanent certificated
Securities in registered form, in substantially the form set forth in Exhibit A
(the "U.S. Physical Securities"). The Offshore Physical Securities and the U.S.
Physical Securities are sometimes collectively herein referred to as the
"Physical Securities."
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SECTION 2.02. EXECUTION AND AUTHENTICATION.
(a) Two Officers of the Company (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall sign the
Securities for the Company by manual or facsimile signature. If an Officer whose
signature is on a Security no longer holds that office at the time the Security
is authenticated, the Security shall nevertheless be valid.
(b) A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture.
(c) The Trustee shall authenticate (i) Initial Securities for
original issue in the aggregate principal amount not to exceed $45,000,000; (ii)
Exchange Securities from time to time for issue only in exchange for a like
principal amount of Initial Securities; and (iii) additional Initial Securities
("Additional Notes") issued pursuant to this Indenture as interest on the
Securities (not to exceed $15,220,000) plus the principal amount of any
Securities issued in lieu of cash for Additional Interest (as defined in the
Registration Rights Agreement) due on the Securities pursuant to the
Registration Rights Agreement, in each case upon receipt of a written order of
the Company signed by one Officer.
(d) The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate.
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SECTION 2.03. REGISTRAR AND PAYING AGENT.
(a) The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (i) Securities may be presented for registration of transfer or for
exchange ("Registrar"), (ii) Securities may be presented for payment ("Paying
Agent") and (iii) notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Registrar shall keep a register
of the Securities and of their transfer and exchange. The Company may appoint
one or more co-registrars and one or more additional paying agents. The term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent, Registrar or co-registrar without prior notice to any
Securityholder. The Company shall notify the Trustee and the Trustee shall
notify the Securityholders of the name and address of any Agent not a party to
this Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
Subsidiary Guarantor may act as Paying Agent, Registrar or co-registrar. The
Company shall enter into an appropriate agency agreement with any Agent not a
party to this Indenture, which shall incorporate the provisions of the TIA. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to
give the foregoing notice, the Trustee shall act as such, and shall be entitled
to appropriate compensation in accordance with Section 7.07 hereof.
(b) The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the
Securities.
(c) The Company shall, or shall cause the Paying Agent to, comply
with all withholding tax, information reporting and backup withholding tax
requirements under the United States Internal Revenue Code of 1986, as amended
(the "Code"), and the Treasury Regulations issued thereunder in respect of any
payment on, or in respect of, a Security (including, without limitation, the
collection of Internal Revenue Service ("IRS") Forms 1001, 4224, W-8 or W-9 (or
any successor form), as the case may be, and the filing of IRS Form 1042-S with
respect thereto).
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SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company, the Subsidiary Guarantors or any other obligor on the
Securities shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent shall hold in trust for the benefit of the
Securityholders and the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Company, any of the Subsidiary
Guarantors or any other obligor on the Securities in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company, the Subsidiary Guarantors or
any other obligor on the Securities at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary Guarantor) shall have no
further liability for the money delivered to the Trustee. If the Company, the
Subsidiary Guarantors or any other obligor on the Securities acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Securityholders all money held by it as Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders and shall otherwise comply with TIA ss. 312(a). If the Trustee
is not the Registrar, the Company, the Subsidiary Guarantors or any other
obligor on the Securities shall furnish to the Trustee at least seven Business
Days before each Interest Payment Date and at such other times as the Trustee
may request in writing a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Securityholders, including
the aggregate principal amount of the Securities held by each thereof, and the
Company, the Subsidiary Guarantors or any other obligor on the Securities shall
otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Where Securities are presented to the Registrar or a
co-registrar with a request to register the transfer thereof or exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall, subject to Section 2.17, register the transfer or make the
exchange if its requirements for such transactions are met; provided, that any
Security presented or surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the
Securityholder thereof or his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Securities at the Registrar's request.
(b) Neither the Registrar nor the Company shall be required (i) to
issue, to register the transfer of or to exchange Securities during a period
beginning at the opening of business on a Business Day 15 days before the day of
any selection of Securities for redemption under Section 3.02 hereof and ending
at the close of business on the day of
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selection, (ii) to register the transfer of or exchange any Security so selected
for redemption in whole or in part, except the unredeemed portion of any
Security being redeemed in part or (iii) to register the transfer or exchange of
a Security between the Record Date and the next succeeding Interest Payment
Date.
(c) No service charge by the Company shall be made for any
registration of a transfer or exchange (except as otherwise expressly permitted
herein), but the Registrar may require payment by the Securityholder of a sum
sufficient to cover any transfer tax or similar governmental charge payable, or
fee in connection therewith (other than such transfer tax or similar
governmental charge payable upon exchanges pursuant to Section 2.10, 3.06, 3.09,
4.14 or 9.05 hereof).
(d) Any Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of beneficial interests in such Global Note
may be effected only through a book entry system maintained by the Holder of
such Global Note (or its agent), and that ownership of a beneficial interest in
the Global Note shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon receipt by it of the written order of the Company signed by two
Officers of the Company, shall authenticate a replacement Security if the
Trustee's requirements for replacements of Securities are met. If required by
the Trustee or the Company, an indemnity bond must be supplied by the Holder
that is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Subsidiary Guarantors, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Company and the Trustee may charge a Securityholder for reasonable out-of-pocket
expenses in replacing a Security.
(b) Every replacement Security is an obligation of the Company and
each of the Subsidiary Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
(a) The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by the Company or by the
Trustee, those delivered to the Trustee for cancellation and those described in
this Section as not outstanding.
(b) If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
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(c) If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
(d) Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company or a Subsidiary
Guarantor holds the Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Subsidiary Guarantors, or any of their respective
Affiliates shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which a Responsible Officer
of the Trustee has actual knowledge are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon written
order of the Company signed by two Officers of the Company. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that the Company, the Subsidiary Guarantors and the Trustee consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee, upon receipt of the written order of the Company
signed by two Officers of the Company, shall authenticate definitive Securities
in exchange for temporary Securities. Until such exchange, temporary Securities
shall be entitled to the same rights, benefits and privileges as definitive
Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) shall cancel all Securities, if not already
cancelled, surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy cancelled Securities (subject to
the record retention requirement of the Exchange Act), and deliver certification
of their destruction to the Company, unless by a written order, signed by two
Officers of the Company, the Company shall direct that cancelled Securities be
returned to it. The Company may not issue new Securities to replace Securities
that it has redeemed or paid or that have been delivered to the Trustee for
cancellation. If the Company acquires any of the Securities, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless or until the same are surrendered to the
Trustee (or its Agent) for cancellation pursuant to this Section.
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SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Securities and in
Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each such special record date and payment date. At least 15
days before the special record date, the Company (or, upon the written request
of the Company, the Trustee, in the name of and at the expense of the Company)
shall mail to Securityholders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Securityholders; provided that no representation
shall be deemed to be made by the Trustee as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Company shall promptly notify the Trustee of any change in the
CUSIP number.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 10:00 a.m. New York City time on each Interest Payment Date
and Maturity Date, the Company shall deposit with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Securityholders on
such Interest Payment Date or Maturity Date, as the case may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and Physical Security that constitutes a Restricted
Security shall bear the following legend (the "Private Placement Legend") unless
otherwise agreed by the Company and the Securityholder thereof:
THIS NOTE OR ITS PREDECESSORS HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
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BENEFIT OF, UNITED STATES PERSONS OR A BENEFICIAL INTEREST HEREIN EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) or (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING
THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO MENTUS MEDIA CORP. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO MENTUS MEDIA CORP. THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO MENTUS
MEDIA CORP.) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATES
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE
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THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS;
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR DEPOSITARY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) The Global Note initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Section 2.15.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the
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Depository may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of the Global Note for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interest of beneficial owners in the Global Note may be transferred or
exchanged for Physical Securities in accordance with the rules and procedures of
the Depository and the provisions of Section 2.17. In addition, Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in the Global Note if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for the Global
Note and a successor depository is not appointed by the Company within 90 days
of such notice or (ii) an Event of Default has occurred and is continuing and
the Registrar has received a written request from the Depository or the Trustee
to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b) above, the Registrar shall (if one or more Physical Securities are
to be issued) reflect on its books and records the date and a decrease in the
principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Note, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to paragraph
(b) or (c) above shall, except as otherwise provided by paragraphs (a)(i)(x) and
(c) of Section 2.17, bear the Private Placement Legend.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Securityholder is
entitled to take under this Indenture or the Securities.
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SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after February
18, 2000 or (y) (1) in the case of a transfer to an Institutional
Accredited Investor which is not a QIB (excluding Non-U.S.Persons), the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto or (2) in the case of a
transfer to a Non-U.S. Person, the proposed transferor has delivered to
the Registrar a certificate substantially in the form of Exhibit D hereto;
and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the Registrar's
procedures, whereupon (a) the Registrar shall reflect on its books and
records the date and (if the transfer does not involve a transfer of
outstanding Physical Securities) a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and (b) the Company shall
execute and the Trustee shall authenticate and deliver one or more
Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for
on the form of Security stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been effected in compliance
with the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Security for its own account or an account with respect to
which it exercises sole investment discretion and that any such account is
a QIB within the meaning of Rule 144A, and it is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined
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not to request such information and that it is aware that the transferor
is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Global Note in an amount equal to the principal amount of the
Physical Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred.
(c) Private Placement Legend. Upon the registration of the transfer,
exchange or replacement of Securities not bearing the Private Placement Legend,
the Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the registration of the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar shall deliver
only Securities that bear the Private Placement Legend unless (i) the
circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17 exists or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain for at least two years copies of all
letters, notices and other written communications received pursuant to Section
2.16 or this Section 2.17. The Company shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
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SECTION 2.18. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer
and subject to Section 2.12, the Company, the Trustee, any Paying Agent, any
Registrar and any co-registrar and Agent of the foregoing shall deem and treat
the Person in whose name any Security shall be registered upon the register of
Securities kept by the Registrar as the absolute owner of such Security (whether
or not such Security shall be overdue and notwithstanding any notation of the
ownership or other writing thereon made by anyone other than the Company, any
Registrar or any co-registrar) for the purpose of receiving payments of
principal of or interest on such Security and for all other purposes; and none
of the Company, the Trustee, any Paying Agent, any Registrar or any co-registrar
or any Agent of the foregoing shall be affected by any notice to the contrary.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 45 days (unless a shorter period is acceptable to the Trustee)
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the Section of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Securities
to be redeemed, (iv) the redemption price and accrued and unpaid interest and
(v) whether it requests the Trustee to give notice of such redemption.
(b) If the Company is required to make an offer to purchase
Securities pursuant to the provisions of Sections 3.09 or 4.14 hereof, it shall
furnish to the Trustee at least 30 days but not more than 60 days before a
purchase date, an Officers' Certificate setting forth (i) the Section of this
Indenture pursuant to which the offer to purchase shall occur, (ii) the proposed
purchase date, (iii) the maximum principal amount of Securities to be purchased,
(iv) the purchase price and accrued and unpaid interest, (v) whether it requests
the Trustee to give notice of such redemption and (vi) further setting forth a
statement to the effect that (a) the Company or one of its Subsidiaries has
effected an Asset Disposition and the conditions set forth in Section 4.10 have
been satisfied or (b) a Change of Control has occurred and the conditions set
forth in Section 4.14 have been satisfied, as applicable.
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SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
(a) If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed among the Securityholders on
a pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate (and in such manner as complies with applicable
legal and stock exchange requirements, if any), unless such method is otherwise
prohibited. In the event of partial redemption by lot, the particular Securities
to be redeemed shall be selected, unless otherwise provided herein, not less
than 30 nor more than 60 days prior to the redemption date by the Trustee from
the outstanding Securities not previously called for redemption.
(b) The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities may
be redeemed in part in multiples of $1,000 principal amount only. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
(a) Subject to the provisions of Section 3.09 hereof, at least 30
days before a redemption date, the Company shall mail or cause to be mailed a
notice of redemption by first class mail, postage prepaid to each Holder whose
Securities are to be redeemed at the last address for such Holder then shown on
the Note Register books.
The notice shall identify the Securities to be redeemed and shall
state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Security is being redeemed in part only, the portion of
the principal amount of such Security to be redeemed and that, after the
redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be
issued;
(iv) the name and address of the Paying Agent;
(v) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the redemption date;
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(vii) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are being
redeemed; and
(viii) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption.
(b) At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Trustee at least 45 days
(unless a shorter period is acceptable to the Trustee) prior to the proposed
redemption date an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Securities called for redemption become due and payable on the
redemption date at the redemption price plus accrued and unpaid interest, if
any.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
(a) Prior to 10:00 a.m., New York City time, on the redemption date,
the Company shall deposit with the Paying Agent (other than the Company or any
of its Subsidiaries) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date. The Paying Agent shall
promptly return to the Company any money deposited with the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Securities to be redeemed.
(b) If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest ceases to accrue on the
Securities or the portions of Securities called for redemption whether or not
such Securities are presented for payment, and the only remaining right of the
Holders of such Securities shall be to receive payment of the redemption price
upon surrender to Paying Agent if the Securities are redeemed. If a Security is
redeemed on or after an Interest Record Date but on or prior to the related
Interest Payment Date, then any accrued and unpaid interest shall be paid to the
Person in whose name such Security was registered at the close of business on
such record date. If any Security called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid and, to the extent lawful,
on any interest not paid on such unpaid principal, in each case at the rate
provided in the Securities and in Section 4.01 hereof.
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SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and upon the Company's written request, the Trustee shall
authenticate for the Securityholder at the expense of the Company a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
The Securities will not be redeemable at the option of the Company
prior to February 1, 2000. On and after such date, the Company may redeem all or
any portion of the Securities at a redemption price equal to a percentage of the
principal amount thereof plus accrued and unpaid interest to the redemption
date. The redemption price as a percentage of the principal amount shall be as
follows, if the Securities are redeemed during the period commencing on February
1 of the years set forth below, plus in each case, accrued and unpaid interest
to the date of redemption:
Period Redemption Price
------ ----------------
2000 106.50%
2001 103.25%
2002 and thereafter 100.00%
SECTION 3.08. MANDATORY REDEMPTION.
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Securities.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
(a) In the event that, pursuant to Section 4.10 hereof, the Company
shall commence an offer to all Securityholders to purchase Securities (an "Asset
Disposition Offer"), it shall follow the procedures specified below:
(i) The Asset Disposition Offer shall remain open for a period of 30
Business Days following its commencement and no longer, except to the
extent that a longer period is required by applicable law (the "Offer
Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the
principal amount of Securities required to be purchased pursuant to
Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount
has been tendered, all Securities tendered in response to the Asset
Disposition Offer.
(ii) If the Purchase Date is on or after a Record Date and on or
before the related Interest Payment Date, any accrued interest shall be
paid to the Person under
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whose name a Security is registered at the close of business on such
Record Date, and no additional interest shall be payable to holders who
tender Securities pursuant to the Asset Disposition Offer.
(iii) Upon the commencement of any Asset Disposition Offer, the
Company shall send or cause to be sent in accordance with Section 3.03, a
notice to each Securityholder. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Securities
pursuant to the Asset Disposition Offer. The notice, which shall govern
the terms of the Asset Disposition Offer, shall state:
(1) that the Asset Disposition Offer is being made pursuant to
this Section 3.09 and Section 4.10 hereof and the length of time the
Asset Disposition Offer shall remain open;
(2) the Offer Amount, the purchase price and the Purchase
Date;
(3) that any Security not tendered or accepted for payment
shall continue to accrue interest;
(4) that any Security accepted for payment pursuant to the
Asset Disposition Offer shall cease to accrue interest after the
Purchase Date;
(5) that Holders electing to have a Security purchased
pursuant to any Asset Disposition Offer shall be required to
surrender the Security, with the form entitled "Option of
Securityholder to Elect Purchase" on the reverse of the Security
completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice at
least three days before the Purchase Date;
(6) that Holders shall be entitled to withdraw their election
if the Company, depositary or Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have the Security purchased;
(7) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(8) that Holders whose Securities were purchased only in part
shall
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be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
(iv) On or before the Purchase Date, the Trustee shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent
necessary, the Offer Amount of Securities or portions thereof tendered
pursuant to the Asset Disposition Offer or, if less than the Offer Amount
has been tendered, all Securities or portions thereof tendered, and
deliver to the Trustee an Officers' Certificate stating that such
Securities or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Paying Agent shall
promptly (but in any case not later than five days after the Purchase
Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Security tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Security,
and at the written request of the Company the Trustee shall authenticate
and mail or deliver such new Security to such Holder equal in principal
amount to any unpurchased portion of the Security surrendered. Any
Security not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Disposition Offer on the Purchase Date.
(b) In the event the Company is required to make an offer to
purchase Securities pursuant to Sections 3.09 and 4.10 hereof and the amount of
the Excess Proceeds from the Asset Disposition are not evenly divisible by
$1,000, the Trustee shall promptly refund to the Company any remaining Excess
Proceeds.
(c) Other than as specifically provided in this Section 3.09, any
offer to purchase pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
(a) The Company shall pay the principal of, premium, if any, and
interest on the Securities on the dates and in the manner provided in the
Securities and in this Indenture. Principal, premium, if any, and interest shall
be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary, holds as of 10:00 a.m. New York City time on the due
date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. Such Paying Agent shall return to the Company, no later than
five Business Days following the date of payment, any money that exceeds such
amount of principal, premium, if any, and interest paid or payable on the
Securities.
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(b) The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 2% per annum in excess of the then applicable interest rate on the
Securities to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.
(c) Through and including August 1, 2000, on each Interest Payment
Date, the Company may, at its option and in its sole discretion, in lieu of the
payment of interest on the Securities in whole or in part in cash, pay such
interest on the Securities through the issuance of Additional Notes in an
aggregate principal amount equal to the amount of interest that would otherwise
be payable with respect to the Securities in cash; provided, however, that the
Company may issue Additional Notes only in denominations of $1,000 and integral
multiples of $1,000. The Company shall notify the Trustee in writing of its
election to pay interest through the issuance of Additional Notes and the
aggregate amount of Additional Notes to be issued not less than 10 nor more than
45 days prior to the record date for an Interest Payment Date on which
Additional Notes will be issued. On each such Interest Payment Date, the Trustee
shall authenticate Additional Notes for original issuance to each Holder on the
relevant record date in the aggregate principal amount required to pay such
interest. Each Additional Note is an additional obligation of the Company and
shall be governed by, and entitled to the benefits of, this Indenture and shall
be subject to the terms of this Indenture and shall be pari passu with and
subject to the same terms (including the rate of interest from time to time
payable thereon) as the Securities (except, as the case may be, with respect to
the issuance date and aggregate principal amount). The Company shall pay
interest on Global Notes through the issuance of Additional Notes only in
accordance with the rules and regulations of the Depository as in effect from
time to time. From and after August 1, 2000, interest on the Securities will be
payable only in cash.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company shall maintain in the Borough of Manhattan, in the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
(b) The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all
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such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, in the City of New York for such purposes. The Company shall give
prior written notice to the Trustee of any such designation or rescission and of
any change in the location of any such other office or agency.
(c) The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. SEC REPORTS.
(a) Upon consummation of the Exchange Offer and the issuance of the
Exchange Securities, the Company (at its own expense) shall file with the
Commission and shall furnish to the Trustee and each Securityholder within 15
days after it files them with the Commission copies of the quarterly and annual
reports and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act
(without regard to whether the Company is subject to the requirements of such
Section 13 or 15(d) of the Exchange Act); provided, that prior to the
consummation of the Exchange Offer and the issuance of the Exchange Securities,
the Company (at its own expense), will mail to the Trustee and the
Securityholders in accordance with paragraph (b) of this Section 4.03
substantially the same information that would have been required by the
foregoing documents within 15 days of when any such document would otherwise
have been required to be filed with the Commission. Upon qualification of this
Indenture under the TIA, the Company shall also comply with the provisions of
TIA ss. 314(a).
(b) At the Company's expense, the Company shall cause an annual
report if furnished by it to stockholders generally and each quarterly or other
financial report if furnished by it to stockholders generally to be filed with
the Trustee and mailed to the Securityholders at their addresses appearing in
the register of Securities maintained by the Registrar at the time of such
mailing or furnishing to stockholders.
(c) The Company shall provide to any Securityholder any information
reasonably requested by such Securityholder concerning the Company (including
financial statements) necessary in order to permit such Securityholder to sell
or transfer Securities in compliance with Rule 144A under the Securities Act.
(d) If the Company instructs the Trustee to distribute any of the
documents described in Section 4.03(a) to the Securityholders, the Company shall
provide the Trustee with a sufficient number of copies of all such documents.
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SECTION 4.04. COMPLIANCE CERTIFICATES.
(a) The Company and each Subsidiary Guarantor shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate signed by its principal executive officer, principal financial
officer or principal accounting officer stating that a review of the activities
of the Company and its Subsidiaries, as the case may be, during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether each has kept, observed, performed and fulfilled its
Obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge each has
kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action each is taking or
proposes to take with respect thereto).
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of (x) the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4, 5 or 6 of this Indenture insofar as they relate to
accounting matters or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation and (y) if any Restricted Subsidiary's financial
statements are not prepared on a consolidated basis with the Company's, such
Restricted Subsidiary's independent public accountants (who shall be a firm of
established national reputation) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
which would lead them to believe that any of the Restricted Subsidiaries is in
Default under this Indenture or, if any such Default has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of (i) any Default or Event of Default or (ii) any event of default under any
other mortgage, indenture or instrument to which the Company is a party, an
Officers' Certificate specifying such Default, Event of Default or event of
default and what action the Company is taking or proposes to take with respect
thereto.
(d) The Company shall also comply with TIA ss. 314(a)(4).
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SECTION 4.05. TAXES.
The Company will, and will cause its Restricted Subsidiaries to, pay
and discharge when due and pay all taxes, levies, imposts, duties or other
governmental charges ("Taxes") imposed on its income or profits or on any of its
properties except such Taxes which are being contested in good faith in
appropriate proceedings, and for which adequate reserves have been established
with GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture (including, but not limited to,
the payment of the principal of or interest on the Securities); and the Company
and each Subsidiary Guarantor (to the extent that they may lawfully do so)
hereby expressly waive all benefit or advantage of any such law, and covenant
that they shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make
any distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire for
value any Capital Stock of the Company held by Persons other than a Wholly-Owned
Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the
Company held by any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (in either case, other than in exchange for its Capital Stock (other
than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
purchase, repurchase or acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
as described in preceding clauses (i) through (iv) being referred to as a
"Restricted Payment").
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SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS
FROM RESTRICTED SUBSIDIARIES.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligation owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date; (b) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness issued by such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by the Company and outstanding
on such date (other than Indebtedness Incurred in anticipation of, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary of the Company or was acquired by the
Company); (c) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement evidencing Indebtedness Incurred without
violation of this Indenture or effecting a refinancing of Indebtedness issued
pursuant to an agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses (a) or (b) or
this clause (c); provided, however, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less favorable to
the Holders of the Securities in any material respect, as determined in good
faith by the Board of Directors of the Company, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in agreements
in effect at, or entered into on, the Issue Date; (d) in the case of clause
(iii), of this Section 4.08, any encumbrance or restriction (A) that restricts
in a customary manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, (B) by virtue of any transfer of, agreement to transfer, option, or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, (C) that is
included in a licensing agreement to the extent such restrictions limit the
transfer of the property subject to such licensing agreement or (D) arising or
agreed to in the ordinary course of business and that does not, individually or
in the aggregate, detract from the value of property or assets of the Company or
any of its Subsidiaries in any manner material to the Company or any such
Restricted Subsidiary; (e) in the case of clause (iii) of this Section 4.08
above, restrictions contained in security agreements, mortgages or similar
documents securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements; (f) in the case of clause (iii) of this Section 4.08 above, any
instrument governing or evidencing Indebtedness of a Person acquired by the
Company or any Restricted Subsidiary of the Company at the time of such
acquisition, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person so acquired;
provided, however, that such Indebtedness is not Incurred in connection with or
in contemplation of such acquisition; (g) any restriction with respect to such a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or disposition; and
(h) encumbrances or
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restrictions arising or existing by reason of applicable law.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company and any of its Restricted Subsidiaries may Incur Indebtedness if (i) no
Default or Event of Default shall have occurred and be continuing at the time of
such Incurrence or would occur as a consequence of such Incurrence and (ii) on
the date thereof the Consolidated Coverage Ratio would be greater than 2.5:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to a Working Capital Facility
(including, without limitation, any renewal, extension, refunding,
restructuring, replacement or refinancing, thereof); provided, however,
that the aggregate principal amount of all Indebtedness Incurred pursuant
to this clause (i) does not exceed (a) prior to the date on which the
Company shall have installed 11,000 NGN Displays, $3 million at any one
time outstanding or (b) from and after the date on which the Company shall
have installed 11,000 NGN Displays, $8 million at any one time
outstanding;
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property or equipment used in a
Permitted Business or Incurred to refinance any such purchase price or
cost of construction or improvement, in each case Incurred no later than
365 days after the date of such acquisition or the date of completion of
such construction or improvement; provided, however, that the principal
amount of any Indebtedness Incurred pursuant to this clause (ii), together
with Indebtedness Incurred in connection with Sale/Leaseback Transactions
in accordance with Section 4.17, shall not exceed $3 million at any time
outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing
to and held by the Company or any Wholly-Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock or
any other event which results in any such Wholly-Owned Subsidiary ceasing
to be a Wholly-Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or any Wholly-Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof;
(iv) Indebtedness represented by (a) the Securities, (b) any
Subsidiary Guarantees, (c) Existing Indebtedness and (d) any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (iv) or Incurred
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pursuant to paragraph (a);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired
by the Company (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $ 1.00 of additional Indebtedness pursuant to paragraph
(a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (v) and (B) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors, licensees,
contractors, franchises or customers of obligations (other than
Indebtedness) Incurred in the ordinary course of business and (D) under
Currency Agreements and Interest Rate Agreements; provided, however, that
in the case of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements are entered into for bona
fide hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors of the Company) and
correspond in terms of notional amount, duration, currencies and interest
rates, as applicable, to Indebtedness of the Company, or its Restricted
Subsidiaries Incurred without violation of this Indenture or to business
transactions of the Company or its Restricted Subsidiaries on customary
terms entered into in the ordinary course of business;
(vii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness or other
obligations Incurred by any Person acquiring all or any portion of such
business assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition) in a principal amount not to exceed the gross
proceeds actually received by the Company or any of its Restricted
Subsidiaries in connection with such
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disposition; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (vii) when taken together
with all Indebtedness Incurred pursuant to this clause (vii) and then
outstanding, shall not exceed $250,000;
(viii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of
this Indenture (so long as the Company could have Incurred such
Indebtedness directly without violation of this Indenture) and (B)
Guarantees by a Restricted Subsidiary of senior Indebtedness Incurred by
the Company without violation of this Indenture (so long as such
Restricted Subsidiary could have Incurred such Indebtedness directly
without violation of this Indenture);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by
the Company or its Restricted Subsidiaries drawn against insufficient
funds in the ordinary course of business in an amount not to exceed
$250,000 at any time, provided that such Indebtedness is extinguished
within two Business Days of its incurrence; and
(x) Indebtedness (other than Indebtedness described in clauses
(i)-(ix)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this
clause (x) and then outstanding, will not exceed $500,000 (it being
understood that any Indebtedness Incurred under this clause (x) shall
cease to be deemed Incurred or outstanding for purposes of this clause (x)
(but shall be deemed to be Incurred for purposes of paragraph (a)) from
and after the first date on which the Company or its Restricted
Subsidiaries could have Incurred such Indebtedness under the foregoing
paragraph (a) without reliance upon this clause (x)).
(c) Neither the Company nor any Restricted Subsidiary shall Incur
any Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
or a Restricted Subsidiary unless such Indebtedness shall be subordinated to the
Securities and the Subsidiary Guarantees, as the case may be, to at least the
same extent as such Subordinated Obligations.
(d) The Company will not permit any Unrestricted Subsidiary to Incur
any Indebtedness other than Non-Recourse Debt.
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company or
such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined in good faith
by the Company's Board of Directors)
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(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 80% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be): (A) first, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of any senior
Indebtedness), (x) to prepay, repay or purchase senior Indebtedness or (y) to
the investment in or acquisition of Additional Assets within 365 days from the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash; (B) second, within 365 days from the receipt of such Net Available Cash,
to the extent of the balance of such Net Available Cash after application in
accordance with clause (A), to make an offer to purchase Securities at 100% of
the principal amount thereof plus accrued and unpaid interest, if any, thereon;
(C) third, within 90 days after the later of the application of Net Available
Cash in accordance with clauses (A) and (B) and the date that is one year from
the receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to
prepay, repay or repurchase Indebtedness (other than Preferred Stock) of a
Wholly-Owned Subsidiary (in each case other than Indebtedness owned to the
Company); and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C), to (w) the
investment in or acquisition of Additional Assets, (x) the making of Temporary
Cash Investments, (y) the prepayment, repayment or purchase of Indebtedness of
the Company (other than Indebtedness owing to any Subsidiary of the Company) or
Indebtedness of any Subsidiary (other than Indebtedness owed to the Company, or
any of its Subsidiaries) or (z) any other purpose otherwise permitted under this
Indenture, in each case within the later of 45 days after the application of Net
Available Cash in accordance with clauses (A), (B) and (C) or the date that is
one year from the receipt of such Net Available Cash; provided, however, that,
in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (B), (C) or (D) above, the Company or such Restricted
Subsidiary shall retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant at any time exceed $500,000. The
Company shall not be required to make an offer for Securities pursuant to this
covenant if the Net Available Cash available therefor (after application of the
proceeds as provided in clause (A)) is less than $500,000 for any particular
Asset Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to
be cash: (x) the assumption by the transferee of senior Indebtedness of the
Company or senior Indebtedness of any Restricted Subsidiary and the release of
the Company or such Restricted Subsidiary from all liability on such senior
Indebtedness in connection with such Asset Disposition (in which case the
Company shall, without further action, be deemed to have
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applied such assumed Indebtedness in accordance with clause (A) of the preceding
paragraph) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly (and in any
event within 60 days) converted by the Company or such Restricted Subsidiary
into cash.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (a)(iii)(B), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities at a purchase price of 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the purchase date in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
this Indenture. If the aggregate purchase price of the Securities tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company will apply the remaining Net Available
Cash in accordance with clauses (a)(iii)(C) or (D) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this Indenture by virtue thereof.
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any transaction
or series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any Affiliate of the Company, other than a Wholly-Owned Subsidiary
(an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of
$100,000, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
disinterested members of such Board, if any (and such majority or majorities, as
the case may be, determines that such Affiliate Transaction satisfies the
criteria in (i) above); and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $250,000, the Company has received a
written opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view;
provided, however, that in the event advertising contracts entered into in the
ordinary course of business between the Company and Hachette Filipacchi exceed
$250,000, such contracts need only be approved in the manner contemplated in
(a)(ii) above.
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(b) The foregoing paragraph (a) shall not apply to (i) any issuance
of securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, or any stock
options and stock ownership plans for the benefit of employees, officers and
directors, consultants and advisors approved by the Board of Directors of the
Company, (ii) loans or advances to employees in the ordinary course of business
of the Company or any of its Restricted Subsidiaries in aggregate amount
outstanding not to exceed $100,000 at any time, (iii) any transaction between
Wholly-Owned Subsidiaries, (iv) indemnification agreements with, and the payment
of fees and indemnities to, directors, officers and employees of the Company and
its Restricted Subsidiaries, in each case in the ordinary course of business,
(v) transactions pursuant to agreements in existence on the Issue Date which are
(x) described in the Offering Memorandum or (y) otherwise, in the aggregate,
immaterial to the Company and its Restricted Subsidiaries taken as a whole, (vi)
any employment, non-competition or confidentiality agreements entered into by
the Company or any of its Restricted Subsidiaries with its employees in the
ordinary course of business and (vii) the issuance of Capital Stock of the
Company (other than Disqualified Stock).
SECTION 4.12. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Liens,
except for Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence in accordance with its organizational documents (as the same
may be amended from time to time) and the rights (charter and statutory),
licenses and franchises of the Company.
SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control each Securityholder
will have the right to require the Company to repurchase all or any part of such
Securityholder's Securities at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Securityholders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date) (such
applicable purchase price being hereinafter referred to as the "Change of
Control Purchase Price").
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail a
notice to each Securityholder with a copy to the Trustee stating:
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(i) that a Change of Control has occurred and that such
Securityholder has the right to require the Company to purchase such
Securityholder's Securities at a purchase price in cash equal to the
Change of Control Purchase Price;
(ii) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of
Control Payment Date"); and
(iii) the procedures determined by the Company, consistent with this
Indenture, that a Securityholder must follow in order to have its
Securities purchased.
(c) Securityholders electing to have a Security repurchased will be
required to surrender the Security, with the form entitled "Option of
Securityholder to Elect Purchase" on the reverse of the Security completed, to
the Company at the address specified in the notice at least 10 Business Days
prior to the Change of Control Payment Date. Securityholders will be entitled to
withdraw their election if the Trustee or the Company receives not later than
three Business Days prior to the Change of Control Payment Date a telegram,
telex, facsimile transmission or letter setting forth the name of the
Securityholder, the principal amount of the Security which was delivered for
repurchase by the Securityholder and a statement that such Securityholder is
withdrawing his election to have such Security purchased.
(d) On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Trustee an amount equal to the Change of Control Payment in respect of all
Securities or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Trustee will promptly mail to each
Securityholder so tendered the Change of Control Payment for such Securities,
and the Trustee will promptly authenticate and mail (or cause to be transferred
by book entry) to each Securityholder a new Security equal in principal amount
to any unpurchased portion of the Securities surrendered, if any; provided that
each such new Security will be in a principal amount of $1,000 or an integral
multiple thereof. Unless the Company defaults in the payment for any Securities
properly tendered pursuant to the Change of Control Offer, any Securities
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date.
(e) The Company will to the extent applicable comply with any tender
offer rules under the Exchange Act which may then be applicable, including Rule
14e-1, in connection with any offer required to be made by the Company to
repurchase the Securities as a result of a Change of Control. To the extent that
the provisions of any securities laws
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or regulations conflict with the provisions of this Indenture relative to the
Company's obligation to make an offer to repurchase the Securities as a result
of a Change of Control, the Company will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under such provisions of the Indenture by virtue thereof.
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any of its Restricted Subsidiaries to
issue any Capital Stock to any Person (other than to the Company or a
Wholly-Owned Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly-Owned Subsidiary of the Company) to own any Capital Stock of
a Restricted Subsidiary of the Company, if in either case as a result thereof
such Restricted Subsidiary would no longer be a Restricted Subsidiary of the
Company; provided, however, that this provision shall not prohibit (x) the
Company or any of its Restricted Subsidiaries from selling or otherwise
disposing of all of the Capital Stock of any, Restricted Subsidiary or (y) the
designation, of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this Indenture.
SECTION 4.16. CONDUCT OF BUSINESS.
The Company shall not, nor shall permit any of its Subsidiaries,
directly or indirectly, to engage in any business other than a Permitted
Business.
SECTION 4.17. LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, Guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction with respect to any property or
assets unless (i) the Company or such Restricted Subsidiary, as the case may be,
would be entitled to pursuant to this Indenture Incur Indebtedness secured by a
Permitted Lien on such property or assets in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, (ii) the Net Cash
Proceeds from such Sale/Leaseback Transaction are at least equal to the fair
market value of the property or assets subject to such Sale/Leaseback
Transaction (such fair market value determined, in the event such property or
assets have a fair market value in excess of $500,000, no more than 30 days
prior to the effective date of such Sale/Leaseback Transaction, by the Board of
Directors of the Company as evidenced by a resolution of such Board of
Directors), (iii) the Net Cash Proceeds of such Sale/Leaseback Transaction are
applied in accordance with the provisions described under Section 4.10 and (iv)
the Indebtedness Incurred in connection with such Sale/Leaseback Transaction,
together with Indebtedness Incurred in accordance with (ii) of paragraph (b) of
Section 4.09, does not exceed $3 million at any time outstanding.
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SECTION 4.18. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
(a) The Company may designate any Subsidiary of the Company (other
than a Subsidiary of the Company which owns Capital Stock of a Restricted
Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default shall have occurred and be continuing at the time of
or, after giving effect to such Designation; and
(ii) the Company would be permitted under this Indenture to make an
Investment at the time of such Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the sum
of (i) fair market value of the Capital Stock of such Subsidiary owned by
the Company and the Restricted Subsidiaries on such date and (ii) the
aggregate amount of other Investments of the Company and the Restricted
Subsidiaries in such Subsidiary on such date; and
(iii) the Company would be permitted to Incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.09
at the time of Designation (assuming the effectiveness of such
Designation).
(b) In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant to
the covenant described under Section 4.07 for all purposes of this Indenture in
the Designation Amount. The Company shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a Guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except, in the case of clause (x) or (y), to the extent permitted
under Section 4.07.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been
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permitted to be incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
SECTION 4.19. FUTURE NOTE GUARANTEES.
The Company will cause each newly organized or acquired Subsidiary
(other than any Unrestricted Subsidiary) to execute and deliver to the Trustee
pursuant to Section 11.02 a Subsidiary Guarantee of the Securities in form and
substance satisfactory to the Trustee. Such Guaranty will be secured by a first
priority Lien on all of the assets of such Subsidiary except that the Lien on
any Receivables of any such Subsidiary may be a second priority Lien in the
event that a first priority Lien secures a Working Capital Facility.
SECTION 4.20. FURTHER INSTRUMENTS AND ACTS.
The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the part
of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein, and upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
SECTION 4.21. REAL PROPERTY.
(a) The Company and each Subsidiary Guarantor will grant to the
Trustee security interests and mortgages in any Material Real Property acquired
after the Issue Date (collectively, the "Additional Mortgages") within 15 days
of such acquisition and shall deliver to the Trustee an Opinion of Counsel that
the Additional Mortgages comply with the requirements of this Indenture. All
such Additional Mortgages shall constitute valid and enforceable Liens superior
to and prior to the rights of all third Persons and subject to no other Liens
except Permitted Liens. The Additional Mortgages or instruments related thereto
shall have been duly recorded or filed in such manner and in such places as are
required by law to establish and perfect the Liens in favor of the Trustee
required to be granted pursuant to the Additional Mortgages and all taxes, fees
and other charges payable in connection therewith shall have been paid in full.
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SECTION 4.22. COLLATERAL DOCUMENTS.
Neither the Company nor any Subsidiary Guarantor will amend, waive
or modify, or take or refrain from taking any action which has the effect of
amending, waiving or modifying, any provision of the Collateral Documents
unless, in connection therewith, the Company shall have furnished to the Trustee
an Opinion of Counsel to the effect that such amendment, waiver, modification or
action would not have an adverse effect on the rights of the Trustee or the
Securityholders (as provided in the Collateral Documents), provided that:
(1) Collateral may be released or modified as expressly provided
herein and in the Collateral Documents;
(2) Subsidiary Guarantees, Liens, and pledges may be released as
expressly provided herein and in the Collateral Documents; and
(3) this Indenture and any of the Collateral Documents may be
otherwise amended, waived or modified pursuant to Article 9 hereof.
SECTION 4.23. FURTHER ASSURANCES.
The Company and each Subsidiary Guarantor shall execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as may be reasonably
required from time to time in order (i) to carry out more effectively the
purposes of the Collateral Documents, (ii) to subject to the Liens created by
any of the Collateral Documents any of the properties, rights or interests
covered by any of the Collateral Documents, (iii) to perfect and maintain the
validity, effectiveness and priority of any of the Collateral Documents and the
Liens intended to be created thereby and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Trustee any of the rights
granted or now or hereafter intended to be granted to the Trustee or under any
other instrument executed in connection therewith or granted to the Company
under the Collateral Documents or under any other instrument executed in
connection therewith.
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ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all of its assets to any Person,
unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited liability
company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Company under the Securities and
this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company (A) would have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior
to such transaction and (B) would be able to Incur at least an additional
$1.00 of Indebtedness pursuant to paragraph (a) of Section 4.09;
(iv) there has been delivered to the Trustee an Opinion of Counsel
to the effect that Holders of the Securities will not recognize income,
gain or loss for U.S. Federal income tax purposes as a result of such
consolidation, merger, conveyance, transfer or lease and will be subject
to U.S. Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such consolidation,
merger, conveyance, transfer or lease had not occurred; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
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The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture, but, in
the case of a lease of all or substantially all its assets, the Company will not
be released from the obligation to pay the principal of and interest on the
Securities.
Notwithstanding clauses (ii) and (iii) of Section 5.01, any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
(a) An "Event of Default" occurs if:
(i) there is a default in any payment of interest on any Security
when due, continued for 30 days;
(ii) there is a default in the payment of principal of any Security
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise;
(iii) there is a failure by the Company to comply with its
obligations under Section 5.01 hereof;
(iv) there is failure by the Company to comply for 30 days after
notice with any of its obligations under Sections 4.01, 4.03, 4.04, 4.05,
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 or
4.19 hereof (in each case, other than a failure to purchase Securities
which shall constitute an Event of Default under clause (ii) above);
(v) there is a failure by the Company or any Subsidiary Guarantor to
comply for 60 days after notice with its other agreements contained in
this Indenture;
(vi) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $250,000 and
such default shall not have been cured or such acceleration rescinded
after a 10-day period;
(vii) any judgment or decree for the payment of money in excess of
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$250,000 (to the extent not covered by insurance) is rendered against the
Company or a Subsidiary and such judgment or decree shall remain
unsatisfied, undischarged or unstayed for a period of 60 days after such
judgment becomes final and non-appealable (the"judgment default
provision");
(viii) any Subsidiary Guarantee by a Subsidiary Guarantor ceases to
be in full force and effect (except as contemplated by the terms of this
Indenture) or any Subsidiary Guarantor denies or disaffirms its
obligations under this Indenture or its Subsidiary Guarantee and such
Default continues for 10 days;
(ix) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors,
(E) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, or
(F) takes any corporate action to authorize or effect any of
the foregoing;
(x) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of the property of the
Company or any of its Subsidiaries, or
(C) orders the liquidation of the Company or any of its
Subsidiaries, and the order or decree remains unstayed and in effect
for 60 consecutive days; or
(xi) an event of default under, or if none specified therein, a
failure to comply with any provision of the Collateral Documents for a
period of 30 days after
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notice provided that if such event of default adversely affects (1)
Collateral with an aggregate book value of $100,000, (2) the priority or
perfection of the security interests purported to be created with respect
to any portion of the Collateral with an aggregate book value of $100,000
or (3) the rights and remedies of the Trustee or the respective secured
creditors in respective of any portion of the Collateral with an aggregate
book value of $100,000, then the event of default need only continue for a
period of 10 days after notice.
(b) The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
(c) A Default under clause (iv), (v) or (xi) of Section 6.01(a)
hereof is not an Event of Default until the Trustee notifies the Company or such
Subsidiary Guarantor, as the case may be, or the Holders of 25% in principal
amount of the outstanding Securities notifies the Company or such Subsidiary
Guarantor, as the case may be, and the Trustee of the Default and the Company or
such Subsidiary Guarantor, as the case may be, does not cure such Default within
the time specified in such clause (iv), (v) or (xi) after receipt of the notice.
The written notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clause (ix) or (x) of Section 6.01(a) with respect to the Company or any
Subsidiary Guarantor) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the then outstanding
Securities by notice to the Company (and to the Trustee if given by the
Holders), may declare (a "Declaration of Acceleration") the principal amount of,
and any accrued and unpaid interest on, all the Securities to be due and payable
(the "Default Amount"). Upon any such Declaration of Acceleration the Default
Amount shall be due and payable immediately. If an Event of Default specified in
clause (ix) or (x) of Section 6.01(a) occurs with respect to the Company or any
of the Subsidiary Guarantors, the Default Amount shall ipso facto become and be
immediately due and payable without any Declaration of Acceleration or other act
on the part of the Trustee or any Securityholder. The Holders of a majority in
aggregate principal amount of the then outstanding Securities by written notice
to the Trustee and to the Company may rescind any Declaration of Acceleration if
(i) the rescission would not conflict with any judgment or decree and (ii) if
all Events of Default then continuing (other than any Events of Default with
respect to the nonpayment of principal of or interest on any Security which has
become due solely as a result of such Declaration of Acceleration) have been and
(iii) all amounts due to the Trustee under Section 7.07 have been paid, and may
waive any Default other than a Default with respect to a covenant or provision
that cannot be modified or amended without the consent of each Securityholder
pursuant to Section 9.02 hereof.
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SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the Trustee and
the Securityholders may pursue any available remedy (under this Indenture, the
Collateral Documents or otherwise) to collect the payment of principal, premium,
if any, or interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
(c) If the Securities become due and payable prior to the Stated
Maturity thereof or not paid in full at the Stated Maturity thereof and after
any applicable grace period has expired, the Trustee has a right to foreclose
upon the Collateral in accordance with the instructions from the Holders of 25%
percent in aggregate principal amount of the Securities or, in the absence of
such instructions, in such manner as the Trustee deems appropriate in its
absolute discretion; provided, however, that in any event such foreclosure shall
be done in a manner consistent with the Collateral Documents.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Prior to a Declaration of Acceleration, Securityholders of not less
than a majority in aggregate principal amount of the then outstanding Securities
by notice to the Trustee may, on behalf of all the Securityholders, waive an
existing Default or Event of Default and its consequences, except a continuing
Default or Event of Default in the payment of the principal, premium, if any, or
interest on any Security (other than principal, premium (if any) or interest
which has become due solely as a result of a Declaration of Acceleration) or a
Default or Event of Default that cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
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SECTION 6.05. CONTROL BY MAJORITY.
Securityholders of a majority in principal amount of the Securities
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Securityholders or that may involve
the Trustee in personal liability. The Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction.
SECTION 6.06. LIMITATION ON SUITS.
(a) A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:
(i) the Securityholder has previously given to the Trustee written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(iii) such Securityholder or Securityholders offer, and, if
requested, provide, to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee, in the
reasonable opinion of such Trustee, a direction inconsistent with the
request.
(b) A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Securityholder to receive payment of principal, premium, if any, interest on
the Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Securityholder.
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SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or (ii) or an
acceleration pursuant to Section 6.02 occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company or any Subsidiary Guarantor or any other obligor on
the Securities for the whole amount of principal, premium, if any, and accrued
interest remaining unpaid on the Securities and interest on overdue principal,
premium, if any, and, to the extent lawful, interest on overdue installments of
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including any advances made by the Trustee and the
reasonable compensation, expenses and disbursements of the Trustee, its agents
and counsel, and any other amounts due to the Trustee under Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due to the Trustee under Section 7.07) and the Securityholders allowed
in any judicial proceedings relative to the Company or any Subsidiary Guarantor
(or any other obligor on the Securities), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Securityholder to make
such payments to the Trustee, and in the event that the Trustee shall consent to
the making of such payments directly to the Securityholders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties which the Securityholders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Securityholder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
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SECTION 6.10. PRIORITIES.
(a) If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
(i) First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
(ii) Second: if the Securityholders are forced to proceed against
the Company directly without the Trustee, to the Securityholders for their
collection costs;
(iii) Third: to the Securityholders for amounts due and unpaid on
the Securities for principal, premium, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal, premium, if any, and
interest, respectively; and
(iv) Fourth: to the Company or, to the extent the Trustee collects
any amount pursuant to a Collateral Document from any Subsidiary
Guarantor, to such Subsidiary Guarantor, or to such party as a court of
competent jurisdiction shall direct.
(b) The Trustee may fix a record date and payment date for any
payment to Securityholders. At least 15 calendar days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and the amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Securityholder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
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ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Collateral Documents, and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances and in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform only those duties as are
specifically set forth in this Indenture and the duties of the Trustee
shall be determined solely by the express provisions of this Indenture,
the Trustee need perform only those duties that are specifically set forth
in this Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture, but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine the same to determine whether or not
they conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liabilities for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of
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this Section 7.01.
(e) No provision of this Indenture or the Collateral Documents shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or
thereunder or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of Section 7.01 and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Subsidiary
Guarantor shall be sufficient if signed by an Officer of the Company or any
Subsidiary Guarantor.
(f) The permissive rights of the Trustee to do certain things
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or wilful default with
respect to such permissive rights.
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(g) Except for an Event of Default under 6.01(a)(i) (other than with
respect to Additional Interest) or (ii) hereof, the Trustee shall not be deemed
to have notice of any Default or Event of Default, or the identity of any
Restricted Subsidiary or of the existence of any Asset Sale or Change of Control
unless specifically notified in writing of such event by the Company or the
Securityholders of not less than 25% in aggregate principal amount of Securities
outstanding.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Subsidiary Guarantor or any Affiliate of the Company or any Subsidiary Guarantor
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Collateral Documents, the
Securities or the Subsidiary Guarantees, it shall not be accountable for the
Company's use of the proceeds from the Securities or any money paid to the
Company or upon the Company's direction under any provision of this Indenture,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be responsible for any
statement or recital herein or any statement in the Securities or the Subsidiary
Guarantees or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication. The
Trustee makes no representation as to the validity, value or condition of any
property covered or intended to be covered by the Lien of the Collateral
Documents or any part thereof or as to the title of the Company or any
Subsidiary Guarantor to such property or as to the security afforded by the
Collateral Documents or hereby, including the perfection or priority of any
security interest granted to the Trustee.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder a notice
of the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in any payment of principal or interest on
any Security, the Trustee may withhold the notice so long as its board of
directors, a committee of its board of directors or a committee of its trust
officers in good faith determines that withholding the notice is in the interest
of the Securityholders.
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SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.
(a) Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as the Securities remain
outstanding, the Trustee shall mail to the Securityholders a brief report dated
as of such reporting date that complies with TIA ss. 313(a) (but if no event
described in TIA ss. 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA ss. 313(b)(2) and (c).
(b) A copy of each report at the time of its mailing to the
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed, in accordance with and to the extent
required by TIA ss. 313(d). The Company shall promptly notify the Trustee if and
when the Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
(a) The Company and the each of the Subsidiary Guarantors, jointly
and severally, shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder and
under the Collateral Documents, including extraordinary services such as default
administration. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company and each of the
Subsidiary Guarantors, jointly and severally, shall reimburse the Trustee upon
request for all reasonable disbursements, advances and expenses incurred or made
by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
(b) The Company and each of the Subsidiary Guarantors, jointly and
severally, shall indemnify the Trustee against any and all losses, liabilities
or expenses incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture and the Collateral
Documents, including the costs and expenses of enforcing this Indenture and the
Collateral Documents against the Company (including this Section 7.07) and
defending itself against any claim (whether asserted by the Company, any Holder
or any other Person) or liability in connection with the exercise or performance
of any of its powers or duties hereunder, except as set forth below in
subparagraph (d). The Trustee shall notify the Company and each of the
Subsidiary Guarantors promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company or any Subsidiary Guarantor
shall not relieve the Company or any of the Subsidiary Guarantors of their
Obligations hereunder. The Trustee may have separate counsel and the Company and
each of the Subsidiary Guarantors, jointly and severally, shall pay the
reasonable fees and expenses of such counsel. Neither the Company nor any
Subsidiary Guarantor need pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
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(c) The obligations of the Company and each of the Subsidiary
Guarantors under this Section 7.07 shall survive the resignation or removal of
the Trustee and the satisfaction and discharge or termination of this Indenture.
(d) Notwithstanding subparagraphs (a) or (b) above, neither the
Company nor any Subsidiary Guarantor need reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own
negligence, bad faith or willful misconduct.
(e) To secure the Company's and each of the Subsidiary Guarantor's
payment obligations in this Section, the Trustee shall have a Lien prior to the
Securities on all money or property held or collected by the Trustee, except
that held in trust to pay principal, premium, if any, and interest on particular
Securities. Such Lien shall survive the resignation or removal of the Trustee
and the satisfaction and discharge of this Indenture.
(f) When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(ix) or (x) hereof occurs, the
expenses and the compensation for such services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
(a) A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign at any time and be discharged from the
trust hereby created by so notifying the Company. The Securityholders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(iii) a Custodian, receiver or other public officer takes charge of
the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each
Securityholder of such event and promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
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(d) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to each Securityholder. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's and each of the Subsidiary Guarantor's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
(e) If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
any of the Subsidiary Guarantors or the Securityholders of at least 10% in
principal amount of the then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee after written request by any Securityholder who
has been a Securityholder for at least six months fails to comply with Section
7.10, such Securityholder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
(a) There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or any State or Territory thereof or the District of Columbia authorized
under such laws to exercise corporate trustee power, shall be subject to
supervision or examination by Federal, State, Territorial, or District of
Columbia authority and shall have (or be a part of a holding company with) a
combined capital and surplus of at least $100 million as set forth in its most
recent published annual report of condition.
(b) This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee shall comply with
TIA ss. 310(b); including, but not limited to the provisions regarding
"conflicting interest".
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The provisions of TIA ss. 310 shall also apply to the Company and each of the
Subsidiary Guarantors, as obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The
provisions of TIA ss. 311 shall apply to the Company and each of the Subsidiary
Guarantors as obligor on the Securities.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07 hereof)
canceled or for cancellation or (ii) all outstanding Securities have become due
and payable and the Company irrevocably deposits with the Trustee funds
sufficient to pay at maturity all outstanding Securities, including interest
thereon (other than Securities replaced pursuant to Section 2.07 hereof), and if
in either case the Company pays all other sums payable hereunder by the Company,
then this Indenture shall, subject to Sections 8.01(e) and 8.06 hereof, cease to
be of further effect. The Trustee shall acknowledge satisfaction and discharge
of this Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel reasonably acceptable to the Trustee and
at the cost and expense of the Company.
(b) Subject to Sections 8.01(e), 8.02 and 8.06 hereof, the Company
at any time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) all obligations under Sections
3.09, 4.04(a), (b) and (c), 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14,
4.15, 4.16, 4.17, 4.18, 4.19, 5.01(iii) and the operation of Sections
6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi), 6.01(a)(vii), 6.01(viii), 6.01(a)(xi) as
well as 6.01(a)(ix) and 6.01(a)(x) hereof (but only with respect to
Subsidiaries) ("covenant defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
(c) If the Company exercises its legal defeasance option, payment of
the Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section
6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi), 6.01(a)(vii), 6.01(a)(viii), 6.01(a)(xi)
as well as 6.01(a)(ix) and 6.01(a)(x) (but only with respect to Subsidiaries) or
because of the failure of the Company or the Subsidiary Guarantors to comply
with Sections 5.01(iii). If the Company exercises either defeasance option, the
Trustee shall release all Collateral pursuant to Section 10.03.
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(d) Upon satisfaction of the conditions set forth herein and Section
8.02 and upon request of the Company, the Trustee shall acknowledge in writing
the discharge of those obligations that the Company terminates.
(e) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.01(d), 8.04,
8.05 and 8.06 hereof shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 hereof
shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE.
(a) The Company may exercise its legal defeasance option or its
covenant defeasance option only if:
(i) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations in amounts (including interest, but without
consideration of any reinvestment of such interest) and maturities
sufficient, but in the case of the legal defeasance option only, not more
than such amounts (in each case as certified by a nationally recognized
firm of independent public accountants), to pay and discharge at their
Stated Maturity (or such earlier redemption date as the Company shall have
specified to the Trustee) the principal of, premium, if any, interest on
all outstanding Securities to maturity or redemption, as the case may be,
and to pay all of the sums payable by it hereunder; provided, that the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
principal, premium, if any, and interest with respect to the Securities;
(ii) in the case of the legal defeasance option only, 123 days pass
after the deposit is made and during the 123 day period no Default or
Event of Default specified in Section 6.01(ix) or (x) hereof with respect
to the Company or any Subsidiary Guarantor occurs which is continuing at
the end of the period;
(iii) no Default or Event of Default has occurred and is continuing
on the date of such deposit and after giving effect thereto;
(iv) the deposit does not constitute a default under any other
agreement binding on the Company;
(v) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940, as amended;
(vi) in the case of the legal defeasance option, the Company shall
have
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delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for U.S. Federal income tax purposes as a result of such defeasance and
will be subject to U.S. Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; and
(viii) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
(b) In order to have money available on a payment date to pay
principal, premium, if any, or interest on the Securities, the U.S. Government
Obligations deposited pursuant to preceding clause (a) shall be payable as to
principal or interest at least one Business Day before such payment date in such
amounts as shall provide the necessary money. U.S. Government Obligations shall
not be callable at the issuer's option.
(c) Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3 hereof.
SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal, premium, if any, and
interest on the Securities.
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SECTION 8.04. REPAYMENT TO THE COMPANY.
(a) The Trustee and the Paying Agent shall promptly pay to the
Company upon written request any excess money or securities held by them at any
time; provided, however, that the Trustee shall not pay any such excess to the
Company unless the amount remaining on deposit with the Trustee, after giving
effect to such transfer are sufficient to pay principal, premium, if any, and
interest on the outstanding Securities, which amount shall be certified to the
Trustee by independent public accountants.
(b) The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years after the date upon which
such payment shall have become due; provided, however, that the Company shall
have either caused notice of such payment to be mailed to each Securityholder
entitled thereto no less than 30 days prior to such repayment or within such
period shall have published such notice in a financial newspaper of widespread
circulation published in the City of New York. After payment to the Company,
Securityholders entitled to the money must look to the Company and the
Subsidiary Guarantors for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Company and the Subsidiary Guarantors, jointly and severally,
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and each of the Subsidiary Guarantor's Obligations under this
Indenture and the Securities and the Subsidiary Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 8 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article 8; provided,
however, that if the Company or any Subsidiary Guarantor has made any payment of
principal of, premium, if any, or interest on any Securities because of the
reinstatement of its Obligations, the Company or any of the Subsidiary
Guarantors, as the case may be, shall be subrogated to the rights of the
Securityholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
(a) Notwithstanding Section 9.02 of this Indenture, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture or
the Securities without the consent of any Securityholder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5 hereof and Section 10.01 (concerning
amendments to the Collateral Documents expressly called for therein);
(iii) to provide for uncertificated Securities in addition to or in
place of certificated Securities (provided that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code);
(iv) to add Subsidiary Guarantees with respect to the Securities;
(v) to add to the covenants of the Company for the benefit of the
Securityholders or to surrender any right or power conferred upon the
Company;
(vi) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
(vii) to make any change that would provide additional rights or
benefits to the Holders of the Securities or that does not, as evidenced
by an Opinion of Counsel delivered to the Trustee, adversely affect the
rights of any Securityholder in any respect;
(viii) to evidence or provide for a replacement Trustee under
Section 7.08 hereof;
(ix) to execute and deliver any documents necessary or appropriate
to release Liens on any Collateral as permitted by Section 10.03 hereof;
or
(x) to provide a security interest in any additional Collateral for
the benefit of the Securityholders;
provided, that the Company has delivered to the Trustee an Opinion of Counsel
stating that any such amendment or supplement complies with the provisions of
this Section 9.01.
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(b) Upon the request of the Company and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 7.02 and Section 9.06
hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in
the execution of any supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such supplemental indenture which affects its own
rights, duties or immunities under this Indenture, the Collateral Documents or
otherwise.
(c) After an amendment or supplement under this Section 9.01 becomes
effective, the Company shall mail to all Securityholders a notice briefly
describing such amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment or supplement under this Section.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a) Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Securityholders of not less than a majority in aggregate
principal amount of the Securities then outstanding (including consents obtained
in connection with a purchase of, or tender offer or exchange offer for the
Securities) and subject to Section 6.04 and 6.07 any existing Default or Event
of Default and its consequences (other than a Default or Event of Default in the
payment of principal premium, if any, or interest, if any, on the Securities
except a payment default resulting from an acceleration of the Securities that
has been rescinded) or compliance with any provision of this Indenture or the
Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities (including consents obtained
in connection with a purchase of, or tender offer or exchange offer for the
Securities). Furthermore, subject to Sections 6.04 and 6.07 hereof, the Holders
of a majority in aggregate principal amount of the Securities then outstanding
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Securities) may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment,
supplement or waiver under this Section 9.02 may not (with respect to any
Securities held by a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the stated rate of or extend the stated time for payment
of any interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity of any
Security
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or alter the redemption provisions (including, without limitation,
Sections 3.07, 3.09, 4.11 and 4.14 hereof) with respect thereto;
(iv) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may be redeemed in
accordance with Section 3.07;
(v) make any Security payable in money other than that stated in the
Security;
(vi) make any change in Section 6.04 or 6.07 hereof or in this
Section 9.02(a);
(vii) waive a Default or Event of Default in the payment of
principal of premium, if any, or interest, if any, on, or redemption
payment with respect to, any or Security (except a rescission of
acceleration of the Securities by the Holders of at least a majority in
aggregate principal amount of the Securities and a waiver of the payment
default that resulted from such acceleration);
(viii) impair the right of any Holder to receive payment of
principal of and interest on such holder's Securities on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's Securities;
(ix) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or requiring any Guaranty
hereof or in the provisions of any such Guaranty;
(x) release any Subsidiary Guarantor from its Subsidiary Guarantee,
except as provided herein; or
(xi) directly or indirectly release Liens on all or substantially
all of the Collateral securing the obligations under this Indenture, the
Securities or any Guaranty thereof.
(b) Upon the request of the Company and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent
of the Securityholders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 7.02 and Section 9.06 hereof, the Trustee shall
join with the Company and the Subsidiary Guarantors in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
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(c) It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
(d) After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to all Securityholders a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Securityholder is a continuing consent by the Securityholder
and every subsequent Securityholder or portion of a Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
is not made on any Security. However, any such Securityholder or subsequent
Securityholder may revoke the consent as to its Security if the Trustee receives
written notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective when
approved by the requisite Holders and executed by the Trustee (or, if otherwise
provided in such waiver, amendment or supplement, in accordance with its terms)
and thereafter binds every Securityholder, unless it makes a change described in
any of clauses (i) through (xi) of Section 9.02, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has consented
to it and every subsequent Holder of a Security or portion of a Security that
evidences the same indebtedness as the consenting Holder's Security.
(b) The Company may fix a record date for determining which
Securityholders must consent to such amendment, supplement or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Securityholders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof, or (ii) such other date as the
Company shall designate. If a record date is fixed, then notwithstanding the
last sentence of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 890
days after such record date except to the extent that the requisite number of
consents to the amendment, supplement or waiver have been obtained within
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such 90-day period or as set forth in the preceding paragraph of this Section
9.04.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
(a) Securities authenticated and delivered after the execution of
any supplemental indenture may bear a notation in form approved by the Trustee
as to any matter provided for in such amendment, supplement or waiver on any
Security thereafter authenticated. The Company in exchange for all Securities
may issue and the Trustee shall authenticate new Securities that reflect the
amendment, supplement or waiver.
(b) Failure to make the appropriate notation or issue a new Security
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, waiver or supplemental
indenture authorized pursuant to this Article 9 if the amendment, waiver or
supplemental indenture does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such amendment, waiver or supplemental
indenture, the Trustee shall be entitled to receive and, subject to Section
7.01, shall be fully protected in relying upon, in addition to the documents
required by Sections 7.02 and 12.04, an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that such amendment, waiver or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company
and each Subsidiary Guarantor in accordance with its terms.
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ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.01. COLLATERAL DOCUMENTS.
The due and punctual payment of the principal of, premium, if any,
and interest on the Securities when and as the same shall be due and payable,
whether on an interest payment date, at maturity, by acceleration, repurchase,
redemption or otherwise, and interest on the overdue principal of and interest
(to the extent permitted by law), if any, on the Securities and performance of
all other Obligations of the Company and the Subsidiary Guarantors to the
Securityholders or the Trustee under this Indenture and the Securities,
according to the terms hereunder or thereunder, shall be secured as provided in
the Collateral Documents. Each Securityholder, by its acceptance of a Security,
consents and agrees to the terms of the Collateral Documents (including, without
limitation, the provisions providing for foreclosure and release of Collateral)
as the same may be in effect or may be amended from time to time in accordance
with the terms thereof and hereof and authorizes and directs the Trustee as
collateral agent to enter into each of the Collateral Documents and to perform
its respective obligations and exercise its respective rights thereunder in
accordance therewith. The Company and the Subsidiary Guarantors will do or cause
to be done all such acts and things as may be necessary or proper, or as may be
required by the provisions of the Collateral Documents, to assure and confirm to
the Trustee the security interest in the Collateral contemplated hereby and by
the Collateral Documents including, except as hereinafter provided, in all
Material Real Property of the Company and the Subsidiary Guarantors acquired
after the Securities are issued, as from time to time constituted, so as to
render the same available for the security and benefit of this Indenture and of
the Securities secured hereby, according to the intent and purposes herein
expressed. The Company and each Subsidiary Guarantor shall take any and all
actions required to cause the Collateral Documents to create and maintain, as
security for the Obligations of the Company and the Subsidiary Guarantors under
this Indenture and the Securities, valid and enforceable, perfected (except as
expressly provided therein) Liens in and on all the Collateral and such real
property, in favor of the Trustee, superior to and prior to the rights of all
third persons, and subject to no other Liens, other than as provided herein and
therein.
In the event that at any time after the date of this Indenture, the
Company or any Subsidiary Guarantor acquires any Collateral, or it is determined
that any Collateral is not then subject to a perfected security interest in
favor of the Trustee pursuant to the relevant Collateral Document (after giving
effect to any express exceptions contained in such Collateral Document), then
(i) in the case of Receivables, a second priority perfected security interest in
favor of the Trustee subject only to a first priority security interest granted
pursuant to a Working Capital Facility and (ii) in the case of all other
Collateral, a first priority perfected security interest in favor of the
Trustee, shall immediately be granted in such Collateral, pursuant to the
respective Collateral Documents and, to the extent necessary, additional
security documents shall be entered into in order to effectively grant such
perfected security interests, together with such other documents, mortgage title
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insurance policies, certificates, resolutions, instruments, financing
statements, opinions and writings that would have been required to be delivered
if such perfected security interests had been created on the date of this
Indenture, all of which shall be in form and substance satisfactory to the
Trustee.
Anything in the Collateral Documents to the contrary
notwithstanding, none of the Company or any Subsidiary Guarantor will be
required to grant Liens on real property acquired after the Securities are
issued if such Lien on such real property is expressly prohibited from being
pledged pursuant to another contractual obligation binding on any such Person,
such prohibition was not incurred by such Person with the intent of negating the
requirements of this Section 10.01, such Person, after using reasonable efforts,
has been unable to terminate or modify such prohibition in order to permit such
pledge and such real property is not pledged to any other Person.
SECTION 10.02. RECORDING AND OPINIONS.
(a) The Company shall furnish to the Trustee promptly after the
execution and delivery of this Indenture or any Collateral Documents executed
and delivered after the date of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, the
Collateral Documents, financing statements or other instruments necessary to
make effective the Liens intended to be created by the Collateral Documents, and
reciting the details of such action or (ii) stating that, in the opinion of such
counsel, no such action is necessary to make such Liens effective.
(b) The Company shall furnish to the Trustee within three months
after each anniversary of the date of this Indenture, an Opinion of Counsel,
dated as of such date, stating either that (i) in the opinion of such counsel,
all action has been taken with respect to the recording, registering, filing,
re-recording, re-registering and refiling of all supplemental indentures,
financing statements, continuation statements or other instruments of further
assurance as is necessary to maintain the Liens of the Collateral Documents and
reciting the details of such action or (ii) in the opinion of such counsel, no
such action is necessary to maintain such Liens.
SECTION 10.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b) and (c) of this Section 10.03,
Collateral may be released from the Lien and security interest created by the
Collateral Documents at any time or from time to time at the sole cost and
expense of the Company (x)(i) upon payment in full of the Securities in
accordance with the terms thereof and of this Indenture and all other
Obligations of the Company and the Subsidiary Guarantors then due and owing
under this Indenture, the Securities and the Collateral Documents, including any
defeasance pursuant to Section 8.01; (ii) upon the sale or other disposition of
such Collateral constituting an Asset Sale if such sale or other disposition is
not prohibited under this Indenture and if the Net Proceeds of such sale or
other disposition are applied in accordance
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with this Indenture; (iii) upon the sale or other disposition of such Collateral
not constituting an Asset Sale by virtue of clauses (ii), (iii) and (iv) of the
definition of Asset Sales contained in Section 1.01 of this Indenture and (y)
the delivery to the Trustee of an Opinion of Counsel that such release of the
Collateral is authorized and permitted by this Section 10.03 and the applicable
Collateral Documents and that all conditions precedent to such release contained
in this Indenture and the Collateral Documents have been satisfied. Upon
compliance with the above provisions and the provisions of Section 12.04 hereof,
the Trustee shall execute, deliver or acknowledge any necessary or proper
instruments or termination, satisfaction or release provided by or on behalf of
the Company to evidence the release of any Collateral permitted to be released
pursuant to this Indenture or the Collateral Documents.
(b) At any time when a Default or Event of Default shall have
occurred and be continuing and the maturity of the Securities shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
delivered a notice of acceleration to the Company, no release of Collateral
pursuant hereto shall be effective as against the Securityholders.
SECTION 10.04. SUBORDINATION.
(a) The Securityholders hereby acknowledge that the security
interest granted to the Trustee in the Receivables may be junior and subordinate
to the security interest in the Receivables of any lender under a Working
Capital Facility (the "Working Capital Lender"), provided, that the amount of
such Working Capital Facility shall not exceed the amount permitted by this
Indenture and provided further that such subordination shall be limited to the
Receivables and provided further, that if the Working Capital Lender receives
any cash proceeds from the sale or other disposition of the Receivables arising
from any creditor enforcement proceeding or otherwise, any cash proceeds
received in excess of the amount necessary to pay in full all outstanding
obligations of the Company to the Working Capital Lender shall be held in trust
by the Working Capital Lender for the benefit of the Trustee and promptly
delivered to the Trustee at such address specified by the Trustee.
(b) The priorities set forth herein regarding the Receivables are
applicable irrespective of the time, order or method of attachment or perfection
of the respective security interest of the Trustee or the Working Capital Lender
or of the time or order of filing of financing statements.
(c) Notwithstanding the provisions of this Indenture or any
Collateral Documents, the Trustee can enforce its rights in the Receivables only
upon 30 days written notice to the Working Capital Lender.
SECTION 10.05. CERTIFICATES OF THE COMPANY.
To the extent applicable, the Company and the Subsidiary Guarantors
shall
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comply with (a) TIA ss. 314(b), relating to Opinions of Counsel regarding the
Lien of the Collateral Documents and (b) TIA ss. 314(d), relating to the release
of Collateral from the Lien of the Collateral Documents and Officers'
Certificates or other documents regarding fair value of the Collateral. Any
certificate or opinion required by TIA ss. 314(d) may be made by an Officer of
the Company or any other obligor upon the Securities, as applicable, to the
extent permitted by TIA ss. 314(d).
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE
TRUSTEE UNDER THE COLLATERAL DOCUMENTS.
The Trustee may, in its sole discretion and without the consent of
the Securityholders, on behalf of the Securityholders, take all actions it deems
necessary or appropriate in order to (a) enforce any of the terms of the
Collateral Documents and (b) collect and receive any and all amounts payable in
respect of the Obligations of the Company and the Subsidiary Guarantors
hereunder. The Trustee shall have the power to institute and to maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Collateral
Documents or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Securityholders in the Collateral (including power to institute and maintain
suits or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Securityholders or of the Trustee).
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE
TRUSTEE UNDER THE COLLATERAL DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of
the Securityholders distributed under the Collateral Documents, and to make
further distributions of such funds to the Securityholders according to the
provisions of this Indenture and the Collateral Documents.
ARTICLE 11
SUBSIDIARY GUARANTEE OF SECURITIES
SECTION 11.01. SUBSIDIARY GUARANTEE.
(a) Each Subsidiary Guarantor, by execution and delivery of a
supplemental Indenture pursuant to Section 9.01(a)(iv) and 11.07 agreeing to be
bound by the terms hereof, jointly and severally irrevocably and unconditionally
guarantees, as a primary obligor and not a surety, to each Securityholder of a
Security now or hereafter
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authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Securities or the Obligations of the Company hereunder or thereunder, (i)
the due and punctual payment of the principal, premium, if any, interest
(including post-petition interest in any proceeding under any Bankruptcy Law
whether or not an allowed claim in such proceeding) on overdue principal,
premium, if any, and interest, if lawful on such Security, and (ii) all other
monetary Obligations payable by the Company under this Indenture (including
under Section 7.07 hereof) and the Securities (all of the foregoing being
hereinafter collectively called the "Guaranteed Obligations"), when and as the
same shall become due and payable, whether by acceleration thereof, call for
redemption or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code), in
accordance with the terms of any such Security and of this Indenture, subject,
however, in the case of (i) and (ii) above, to the limitations set forth in
Section 9.04 hereof. Each Subsidiary Guarantor hereby agrees that its
Obligations hereunder shall be absolute and unconditional, irrespective of, and
shall be unaffected by, any failure to enforce the provisions of any such
Security or this Indenture, any waiver, modification or indulgence granted to
the Company with respect thereto, the recovery of any judgment against the
Company, any action to enforce the same, by the Securityholders or the Trustee,
the recovery of any judgment against the Company, any action to enforce the
same, or any other circumstances which may otherwise constitute a legal or
equitable discharge of a surety or guarantor. Each Subsidiary Guarantor hereby
waives diligence, presentment, filing of claims with a court in the event of a
merger or bankruptcy of the Company, any right to require a proceeding first
against the Company, the benefit of discussion, protest or notice with respect
to any such Security or the Indebtedness evidenced thereby and all demands
whatsoever, and covenants that its Subsidiary Guarantee shall not be discharged
as to any such Security except by payment in full of the principal thereof,
premium, if any, and all accrued interest thereon.
(b) Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Securityholder or the Trustee to any security held
for payment of the Guaranteed Obligations.
(c) Each Subsidiary Guarantor agrees that it shall not be entitled
to, and hereby irrevocably waives, any right of subrogation in relation to the
Securityholders or the Trustee in respect of any Guaranteed Obligations. Each
Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor,
on the one hand, and the Securityholders and the Trustee, on the other hand, (x)
the maturity of the Guaranteed Obligations may be accelerated as provided in
Article 6 for the purposes of such Subsidiary Guarantor's Subsidiary Guarantee
herein, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Guaranteed Obligations, and (y) in the event
of any Declaration of Acceleration of such Guaranteed Obligations as provided in
Article 6 hereof, such Guaranteed Obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of this Article 11.
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(d) Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Noteholder in enforcing any rights under this Article 11.
(e) Each Subsidiary Guarantor also agrees that the Guaranteed
Obligations will be secured by a first priority lien on all the assets of such
Subsidiary Guarantor.
(f) Each Subsidiary Guarantor agrees to become a party to the
Collateral Documents whereby the Guaranteed Obligations will be secured in the
manner set forth in such Collateral Documents.
(g) The Subsidiary Guarantee set forth in this Article 11 shall not
be valid or become obligatory for any purpose with respect to a Security until
the certificate of authentication on such Security shall have been signed by or
on behalf of the Trustee.
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
(a) To evidence each Subsidiary Guarantor's Subsidiary Guarantee set
forth in this Article 11, each Subsidiary Guarantor hereby agrees that a
notation of such Subsidiary Guarantee shall be placed on each Security
authenticated and delivered by the Trustee.
(b) This Indenture shall be executed on behalf of each Subsidiary
Guarantor, and an Officer of each Subsidiary Guarantor shall sign the notation
of the Subsidiary Guarantee on the Security, by manual or facsimile signature.
If an Officer whose signature is on this Indenture or the notation of Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Security on which the Subsidiary Guarantee is endorsed, the Subsidiary Guarantee
shall be valid nevertheless. Each Subsidiary Guarantor hereby agrees that the
Subsidiary Guarantee set forth in Section 11.01 hereof shall remain in full
force and effect notwithstanding any failure to endorse on each Security a
notation of the Subsidiary Guarantee.
(c) The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of each Subsidiary
Guarantor.
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SECTION 11.03. SUBSIDIARY GUARANTEE UNCONDITIONAL, ETC.
Upon failure of payment when due of any Guaranteed Obligation for
whatever reason, each Subsidiary Guarantor will be obligated to pay the same
immediately. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be continuing, absolute and unconditional, irrespective of: the
recovery of any judgment against the Company or any Subsidiary Guarantor; any
extension, renewal, settlement, compromise, waiver or release in respect of any
obligation of the Company under this Indenture or any Security, by operation of
law or otherwise; any modification or amendment of or supplement to this
Indenture or any Security; any change in the corporate existence, structure or
ownership of the Company, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Company or its assets or any resulting release
or discharge of any obligation of the Company contained in this Indenture or any
Security; the existence of any claim, set-off or other rights which any
Subsidiary Guarantor may have at any time against the Company, the Trustee, any
Securityholder or any other Person, whether in connection herewith or any
unrelated transactions; provided, that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim; any
invalidity or unenforceability relating to or against the Company for any reason
of this Indenture or any Security, or any provision of applicable law or
regulation purporting to prohibit the payment by the Company of the principal,
premium, if any, or interest on any Security or any other Guaranteed Obligation;
or any other act or omission to act or delay of any kind by the Company, the
Trustee, any Securityholder or any other Person or any other circumstance
whatsoever which might, but for the provisions of this paragraph, constitute a
legal or equitable discharge of the Subsidiary Guarantors' obligations
hereunder. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demand whatsoever and covenants that this
Subsidiary Guarantee will not be discharged except by the complete performance
of the obligations contained in the Securities, this Indenture and in this
Article 11. Each Subsidiary Guarantor's obligations hereunder shall remain in
full force and effect until this Indenture shall have terminated and the
principal of and interest on the Securities and all other Guaranteed Obligations
shall have been paid in full. If at any time any payment of the principal of or
interest on any Security or any other payment in respect of any Guaranteed
Obligation is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the Company or otherwise, each
Subsidiary Guarantor's obligations hereunder with respect to such payment shall
be reinstated as though such payment had been due but not made at such time, and
this Article 11, to the extent theretofore discharged, shall be reinstated in
full force and effect. Each Subsidiary Guarantor irrevocably waives any and all
rights to which it may be entitled, by operation of law or otherwise, upon
making any payment hereunder to be subrogated to the rights of the payee against
the Company with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by the Company in respect thereof.
SECTION 11.04. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
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Each Subsidiary Guarantor, and by its acceptance of a Security each
Securityholder, hereby confirms that it is the intention of all such parties
that the guarantee by such Subsidiary Guarantor pursuant to its Subsidiary
Guarantee not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, Federal and state fraudulent conveyance laws or other legal
principles. To effectuate the foregoing intention, the Securityholders and each
Subsidiary Guarantor hereby irrevocably agree that the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to Section 11.05 hereof, result in the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting such fraudulent transfer or conveyance under federal or state law.
SECTION 11.05. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Subsidiary Guarantor") under the Subsidiary Guarantee, such Funding
Subsidiary Guarantor shall be entitled to a contribution from all other
Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of
each Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all
payments, damages and expenses incurred by that Funding Subsidiary Guarantor in
discharging the Company's obligations with respect to the Securities or any
other Subsidiary Guarantor's obligations with respect to the Subsidiary
Guarantee.
SECTION 11.06. RELEASE.
Upon the sale or disposition of all of the Equity Interests of a
Subsidiary Guarantor to a Person which is not the Company or a Subsidiary of the
Company, which is otherwise in compliance with this Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under this Indenture
without any further action required on the part of the Trustee or any
Securityholder; provided, however, that any such termination shall occur if and
only to the extent that all Obligations of each Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, Indebtedness of the Company and the other Subsidiary
Guarantors shall also terminate upon such release, sale or transfer; provided
further, that without limiting the foregoing, any proceeds received by the
Company or any Subsidiary of the Company from such transaction shall be applied
as provided in Section 4.10 and Section 3.09. The Trustee shall execute an
appropriate instrument prepared by the Company evidencing such release upon
receipt of a request by the Company accompanied by an Officers' Certificate
certifying as to the compliance with this Section 11.06. Any Subsidiary
Guarantor not so released remains liable for the full amount of principal,
premium, if any, and interest on the Securities as provided in this Article 11.
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SECTION 11.07. ADDITIONAL SUBSIDIARY GUARANTORS.
Any Person that was not a Subsidiary Guarantor on the date of this
Indenture may become a Subsidiary Guarantor by executing and delivering to the
Trustee (a) a supplemental indenture in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions of this Indenture as a
Subsidiary Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning creditors' rights and equitable
principles as may be acceptable to the Trustee in its discretion). The
Subsidiary Guarantee of each Person described in this Section 11.07 shall apply
to all Securities theretofore executed and delivered, notwithstanding any
failure of such Securities to contain a notation of such Subsidiary Guarantee
thereon.
SECTION 11.08. SUCCESSORS AND ASSIGNS.
This Article 11 shall be binding upon each Subsidiary Guarantor and
its successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any transfer
or assignment of rights by any Securityholder or the Trustee, the rights and
privileges conferred upon that party in this Indenture and in the Securities
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of this Indenture.
SECTION 11.09. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive each
such Subsidiary Guarantor from performing its Subsidiary Guarantee as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each such Subsidiary Guarantor hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with another
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provision which is required to be included in this Indenture by the TIA, the
required provision shall control. Until such time as this Indenture becomes
qualified under the TIA, the Company, the Subsidiary Guarantors and the Trustee
shall be deemed subject to and governed by the TIA as if the Indenture were so
qualified on the date hereof.
SECTION 12.02. NOTICES.
(a) Any notice or communication by the Company, any Subsidiary
Guarantor or the Trustee to the other is duly given if in writing and delivered
in person or mailed by first class mail (registered or certified, return receipt
requested), confirmed facsimile transmission or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company or any of the Subsidiary Guarantors:
Mentus Media Corp.
9531 West 78th Street
Suite 400
Minneapolis, MN 55344
Attention: Chief Executive Officer
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, NY 10036
Attention: Corporate Trust Department
(b) The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications.
(c) All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged, if by facsimile
transmission; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
(d) Any notice or communication to a Securityholder shall be mailed
by first class mail, postage prepaid, to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Securityholder or any defect in it shall
not affect its sufficiency with respect to other Securityholders.
-90-
<PAGE>
(e) If a notice or communication is mailed to any Person in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
(f) If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS
WITH OTHER SECURITYHOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA ss. 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any of the
Subsidiary Guarantors to the Trustee to take any action under this Indenture,
the Company and/or any of the Subsidiary Guarantors, as the case may be, shall
furnish to the Trustee:
(i) an Officer's Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e), shall comply with the definition of the term "Officers' Certificate"
and shall include:
(i) a statement that the person making such certificate or opinion
has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
-91-
<PAGE>
(iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York City, or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 12.08. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee, agent,
manager, stockholder or partner of the Company or its predecessors shall have
any liability for any Obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of, or by reason of such
Obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. This waiver and release are part of the
consideration for issuance of the Securities.
SECTION 12.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 12.10. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
-92-
<PAGE>
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Subsidiary Guarantors, the Company or their
respective Subsidiaries. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
SECTION 12.12. SUCCESSORS.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture and the Securities shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 12.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 12.14. COUNTERPART ORIGINALS.
This Indenture may be executed in any number of counterparts, each
of which so executed shall be an original, but all of them together represent
the same agreement.
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
-93-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
SIGNATURES
MENTUS MEDIA CORP.
By
---------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By
---------------------------------
Name:
Title:
-94-
<PAGE>
EXHIBIT A
THIS NOTE OR ITS PREDECESSORS HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED, SOLD OR PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS OR A BENEFICIAL
INTEREST HEREIN EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) or
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT
A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE
ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT
AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO MENTUS
MEDIA CORP. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE),
AND IF SUCH
<PAGE>
EXHIBIT A
Page 2
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO MENTUS
MEDIA CORP. THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO MENTUS MEDIA CORP.) AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATES SECURITIES LAWS
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE
902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING RESTRICTIONS;
THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH
ORIGINAL ISSUE DISCOUNT ("OID") FOR PURPOSES OF
SECTIONS 1271 ET SEQ. OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. THE ISSUE DATE OF THIS NOTE IS
FEBRUARY 18, 1998. FOR INFORMATION REGARDING THE
ISSUE PRICE, AMOUNT OF OID PER $1,000 OF PRINCIPAL
AMOUNT AND YIELD TO MATURITY FOR PURPOSES OF THE OID
RULES, PLEASE CONTACT THE TREASURER OF THE COMPANY AT
9531 WEST 78TH STREET, SUIT 400, MINNEAPOLIS, MN
55344.
<PAGE>
EXHIBIT A
Page 3
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF
THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF
SUCH SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT A
Page 4
CUSIP No:
(Front of Security)
No. 1 $___________
MENTUS MEDIA CORP.
12% Senior Secured PIK Note due 2003, Series A
MENTUS MEDIA CORP., a Delaware corporation promises to pay to ____________, or
its registered assigns, the principal sum of $___________ [in the case of a
Global Security, insert --, as such amount may be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depository,] on February 1, 2003.
Interest Payment Dates: February 1 and August 1, commencing February 1, 1998.
Record Dates: January 15 and July 15 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
MENTUS MEDIA CORP.
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
Page 5
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
United States Trust Company of New York, as Trustee
By
---------------------------------
Authorized Signatory
<PAGE>
EXHIBIT A
Page 6
(Reverse of Security)
12% SENIOR SECURED PIK NOTE DUE 2003, Series A
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. Interest. Mentus Media Corp., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below. The Company shall pay, in cash,
interest on the principal amount of this Security at the rate per annum of 12%;
provided, however, that through and including August 1, 2000, on each Interest
Payment Date (as defined below), the Company may, at its option and in its sole
discretion, in lieu of the payment in whole or in part of interest due on this
Security, pay interest on this Security through the issuance of additional
Securities in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Security, if such interest were paid in
cash. After August 1, 2000 (as defined below), the Company shall pay interest on
this Security in cash. The Company shall notify the Trustee in writing of its
election to pay interest on this Security through the issuance of additional
Securities not less than 10 nor more than 45 days prior to the record date for
the Interest Payment Date on which additional Securities will be issued.
Additional Securities shall be governed by, and entitled to the benefits of, the
Indenture and shall be subject to the terms of the Indenture and shall be
subject to the same terms (including the rate of interest from time to time
payable thereon) as this Security (except, as the case may be, with respect to
the issuance date and aggregate principal amount). The Company will pay interest
semiannually in arrears on February 1 and August 1 of each year (each an
"Interest Payment Date"), commencing August 1, 1998, or if any such day is not a
Business Day, on the next succeeding Business Day. Interest will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Interest shall
accrue from the most recent Interest Payment Date to which interest has been
paid or, if no interest has been paid, from the date of the original issuance of
this Security. To the extent lawful, the Company shall pay interest on overdue
principal at the rate of 2% per annum in excess of the then applicable interest
rate on the Securities; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the same rate to
the extent lawful. The rate of interest payable on this Security shall be
subject to the assessment of additional interest (the "Additional Interest") as
follows:
(i) if the Exchange Offer Registration Statement (as defined below)
or Shelf Registration Statement (as defined below) is not filed within 45 days
following the Issue Date, Additional Interest shall accrue on the Securities
over and above the stated interest at a rate of 0.50% per annum for the first 30
days commencing on the 46th day after the Issue Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration
<PAGE>
EXHIBIT A
Page 7
Statement is not declared effective within 150 days following the Issue Date,
Additional Interest shall accrue on the Securities over and above the stated
interest at a rate of 0.50% per annum for the first 30 days commencing on the
151st day after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 30-day period; or
(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to 180 days after the Issue Date or (B) the Exchange
Offer Registration Statement ceases to be effective at any time prior to the
time that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary of
the Issue Date (unless all the Securities have been sold thereunder), then
Additional Interest shall accrue on the Securities over and above the stated
interest at a rate of 0.50% per annum for the first 30 days commencing on (x)
the 181st day after the Issue Date with respect to the Securities validly
tendered and not exchanged by the Company, in the case of (A) above, or (y) the
day the Exchange Offer Registration Statement ceases to be effective or usable
for its intended purpose in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period; provided, however, that the
Additional Interest rate on the Securities under clauses (i), (ii) and (iii)
above may not exceed in the aggregate 2.0% per annum; and provided further, that
(1) upon the filing of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or Shelf Registration
Statement (in the case of (ii) above), or (3) upon the exchange of Exchange
Securities for all Securities tendered (in the case of clause (iii)(A) above),
or upon the effectiveness of the Exchange Offer Registration Statement which had
ceased to remain effective (in the case of clause (iii)(B) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(C) above), Additional Interest on the
Securities as a result of such clause (or the relevant subclause thereof), as
the case may be, shall cease to accrue. Any amounts of Additional interest due
pursuant to clauses (i), (ii) or (iii) above will be payable and will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Notes multiplied by a fraction, the numerator of which
is the number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360 but in any event shall not exceed
in the aggregate 2.0% per annum.
"Exchange Offer" shall mean the exchange offer by the Company of
Initial Securities for Exchange Securities pursuant to Section 2(a) of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" shall mean an exchange offer
<PAGE>
EXHIBIT A
Page 8
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Offering Memorandum or prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Record Date" shall have the meaning provided on the front of this
Security.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Subsidiary Guarantors pursuant to the
provisions of the Registration Rights Agreement which covers all of the Initial
Securities on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Offering Memorandum contained therein, all exhibits
thereto and all material incorporated by reference therein.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the Record Date immediately preceding
the Interest Payment Date, even if such Securities are cancelled after such
Record Date and on or before such Interest Payment Date. Securityholders must
surrender Securities to a Paying Agent to collect principal payments. Except as
provided above, the Company shall pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal, premium, if any, and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Securityholder at the Securityholder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Securityholder. The Company or any
Guarantor of the Company may act in any such capacity, except that none of the
Company, its Subsidiaries or their Affiliates shall act (i) as Paying Agent in
connection with any redemption, offer to purchase, discharge or defeasance, as
otherwise specified in the Indenture, and (ii) as Paying Agent or Registrar if a
Default or Event of Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an Indenture,
dated as of February 1, 1998 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the TIA as in effect on the
date the Indenture is qualified, except as the Indenture otherwise provides. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the
Securities. The Securities are senior Obligations of the Company limited to
$60,220,151 in
<PAGE>
EXHIBIT A
Page 9
aggregate principal amount.
5. Optional Redemption. The Company may not redeem the Notes prior
to February 1, 2000. On or after such date, the Securities will be redeemable,
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days prior notice mailed by first class mail to each holder's
registered address, at the redemption prices (expressed as percentages of the
principal amount of the Securities) set forth below, if redeemed during the
12-month period commencing on February 1 of the years set forth below, plus
accrued interest to the redemption date:
Period Redemption Price
------ ----------------
2000..................................... 106.50%
2001..................................... 103.25%
2002 and thereafter.......................100.00%
6. Mandatory Redemption. The Securities are not subject to mandatory
redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a Change
of Control, each Holder of Securities will have the right to require the Company
to repurchase all or any part of such Holder's Securities at a repurchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all of the outstanding
Securities in connection with such Change in Control, the Company will mail a
notice to each Securityholder stating (i) that a Change of Control has occurred
and that such Securityholder has the right to require the Company to repurchase
all or any part of such Securityholder's Securities at a repurchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant Record Date to receive interest due on the relevant
Interest Payment Date); (ii) the repurchase date (which will be no earlier then
30 days nor later than 60 days from the date such notice is mailed); and (iii)
the procedures, determined by the Company consistent with the Indenture, that a
Securityholder must follow in order to have its Securities repurchased.
Securityholders that are subject to an offer to repurchase may elect to have
such Securities repurchased by completing the form entitled "Option of
Securityholder to Elect Purchase" appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds $500,000, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Net Available Cash at 100%
of the principal amount thereof, plus
<PAGE>
EXHIBIT A
Page 10
accrued and unpaid interest, if any, to the date fixed for the closing of such
offer in accordance with the procedures set forth in the Indenture. If the
aggregate purchase price of Securities surrendered by Holders thereof pursuant
to the offer exceeds the amount of Net Available Cash, the Securities to be
redeemed shall be selected on a pro rata basis, subject to the terms of the
Indenture. Securityholders that are the subject of an offer to purchase will
receive an Asset Disposition Offer from the Company prior to any related
purchase date and may elect to have such Securities purchased by completing the
form entitled "Option of Securityholder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at
least 30 but not more than 60 days before the redemption date to each Holder
whose Securities are to be redeemed at its registered address. Securities may be
redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption as long as the Company has deposited with the Paying Agent
funds for such redemption.
9. Registration Rights. Pursuant to the Registration Rights
Agreement, and subject to certain terms and conditions stated therein, the
Company will be obligated to consummate an Exchange Offer pursuant to which the
Holders of the Initial Securities shall have the right to exchange this Security
for Exchange Securities, which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respect to the
Initial Security.
10. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Securityholder among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. The Registrar need not exchange or register the
transfer of any Security or portion of a Security selected for redemption. Also,
it need not exchange or register the transfer of any Securities during a period
beginning at the opening of business on a Business Day 15 days before the day of
any selection of Securities to be redeemed and ending at the close of business
on the day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Paying
Agent, any Registrar, any Co-Registrar and Agent of the foregoing and the
Company shall deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes;
and none of the Company, the
<PAGE>
EXHIBIT A
Page 11
Trustee, any Paying Agent, and Registrar or Co-Registrar or any Agent of the
foregoing shall be affected by any notice to the contrary.
12. Amendments and Waivers. Subject to certain exceptions provided
in the Indenture, the Indenture or the Securities may be amended with the
consent of the Holders of a majority in principal amount of the then outstanding
Securities, and any existing Default or Event of Default (except a payment
default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA or to make any change that does not adversely affect
the rights of any Securityholder.
13. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities voting as a single class by notice to the
Company may declare the unpaid principal of, and any accrued and unpaid interest
on, all the Securities to be due and payable immediately; provided, that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any Subsidiary Guarantor, all
outstanding Securities shall become due and payable immediately without further
action or notice. Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
14. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Subsidiary Guarantors
or any Affiliate of the Company or the Subsidiary Guarantors, and may otherwise
deal with the Company, the Subsidiary Guarantors and their respective Affiliates
as if it were not Trustee.
15. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Indenture. The Company must
annually report to the Trustee on compliance with such limitations.
<PAGE>
EXHIBIT A
Page 12
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Future Note Guarantees. The Company will cause each newly
organized or acquired Subsidiary (other than any Unrestricted Subsidiary) to
execute and deliver to the Trustee a Guarantee of the Notes in form and
substance satisfactory to the Trustee.
18. Security. The Securities will, with the exception of certain
equipment, be secured by a first priority lien on substantially all of the
assets of the Company, provided that in the event that a security interest in
the Company's receivables is granted to secure a working capital facility as
provided in the Indenture, the security interest on such receivables will be a
second priority lien and security interest.
19. Defeasance. Subject to certain conditions provided for in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Securities and the Indenture if the Company deposits with the Trustee
money or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Securities to redemption or maturity, as the case may
be.
20. Governing Law. The Laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
21. Abbreviations. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption.
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Mentus Media Corp.
9531 West 78th Street
Suite 400
Minneapolis, MN 55344
<PAGE>
EXHIBIT A
Page 13
Attn: Chief Executive Officer
<PAGE>
EXHIBIT A
Page 14
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
<PAGE>
EXHIBIT A
Page 15
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date:______________
Your Signature:
(Sign exactly as your name appears on the face of
this Security)
-------------------------------------
Signature Guarantee:
- --------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements will include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.)
<PAGE>
EXHIBIT A
Page 16
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Security
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) February 18, 2000 the undersigned confirms that it has
not utilized any general solicitation or general advertising in connection with
the transfer and that this Security is being transferred:
Check One
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) ___ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can
be obtained from the Trustee); or
(4) ___ outside the United States to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act; or
(5) ___ pursuant to the exemption from registration provided by Rule
144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement under the
Securities Act; or
(7) ___ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any Person other
than the registered Securityholder thereof; provided that if box (3), (4), (5)
or (7) is checked, the Company or the Trustee may require, prior to registering
any such transfer of the Securities, in its sole discretion, such legal
opinions, certifications (including an investment letter in the case of box (3)
or (4)) and other information as the Trustee or the Company has reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act. If none of the foregoing boxes is checked, the Trustee or
Registrar shall not be obligated to register this Security in the name of any
Person other than the Securityholder hereof unless and until the
<PAGE>
EXHIBIT A
Page 17
conditions to any such transfer of registration set forth herein and in Section
2.17 of the Indenture shall have been satisfied.
Dated:__________________________ Signed:_________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:________________________________________________
- --------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements will include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.)
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
<PAGE>
EXHIBIT A
Page 18
Dated:_______________________ _____________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
EXHIBIT A
Page 19
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
|_| Section 4.10 |_| Section 4.14
If you want to have only part of the Security purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased:
$______________________
Date:_________________
Your Signature:
(Sign exactly as your name appears on the face of
this Security)
-------------------------------------
Signature Guarantee:
- --------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements will include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.)
<PAGE>
EXHIBIT B
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF
THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY
THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE.
THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH ORIGINAL
ISSUE DISCOUNT ("OID") FOR PURPOSES OF SECTIONS 1271 ET SEQ. OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE DATE
OF THIS NOTE IS FEBRUARY 18, 1997. FOR INFORMATION REGARDING
THE ISSUE PRICE, AMOUNT OF OID PER $1,000 OF PRINCIPAL AMOUNT
AND YIELD TO MATURITY FOR PURPOSES OF THE OLD RULES, PLEASE
CONTACT THE TREASURER OF THE COMPANY 9531 WEST 78TH STREET,
SUIT 400, MINNEAPOLIS, MN 55344.
<PAGE>
EXHIBIT B
Page 2
CUSIP No:
(Front of Security)
No. 1 $___________
MENTUS MEDIA CORP.
12% Senior Secured PIK Note due 2003, Series B
MENTUS MEDIA CORP., a Delaware corporation, promises to pay to ______________,
or its registered assigns, the principal sum of $_______________ [in the case of
a Global Security, insert --, as such amount may be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depository,] on February 1, 2003.
Interest Payment Dates: February 1 and August 1, commencing February 1, 1998.
Record Dates: January 15 and July 15 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
MENTUS MEDIA CORP.
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
United States Trust Company of New York, as Trustee
By:
-------------------------------
Authorized Signatory
<PAGE>
EXHIBIT B
Page 3
(Reverse of Security)
12% SENIOR SECURED PIK NOTE DUE 2003, SERIES B
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. Interest. Mentus Media Corp., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below. The Company shall pay, in cash,
interest on the principal amount of this Security at the rate per annum of 12%;
provided, however, that through and including August 1, 2000, on each Interest
Payment Date (as defined below), the Company may, at its option and in its sole
discretion, in lieu of the payment in whole or in part of interest due on this
Security, pay interest on this Security through the issuance of additional
Securities in an aggregate principal amount equal to the amount of interest that
would be payable with respect to this Security, if such interest were paid in
cash. After August 1, 2000, the Company shall pay interest on this Security in
cash. The Company shall notify the Trustee in writing of its election to pay
interest on this Security through the issuance of additional Securities not less
than 10 nor more than 45 days prior to the record date for the Interest Payment
Date on which additional Securities will be issued. Additional Securities shall
be governed by, and entitled to the benefits of, the Indenture and shall be
subject to the terms of the Indenture and shall be subject to the same terms
(including the rate of interest from time to time payable thereon) as this
Security (except, as the case may be, with respect to the issuance date and
aggregate principal amount). The Company will pay interest semiannually in
arrears on February 1 and August 1 of each year (each an "Interest Payment
Date"), commencing August 1, 1998, or if any such day is not a Business Day on
the next succeeding Business Day. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months. Interest shall accrue from the
most recent Interest Payment Date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of this Security.
To the extent lawful, the Company shall pay interest on overdue principal at the
rate of 2% per annum in excess of the then applicable interest rate on the
Securities; it shall pay interest on overdue installments of interest (without
regard to any applicable grace periods) at the same rate to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Securityholders at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are cancelled after
such Record Date and on or before such Interest Payment Date. Securityholders
must surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts ("U.S. Legal Tender"). However, the Company may pay principal and
interest by its check payable in such U.S. Legal Tender. The Company may deliver
any such interest
<PAGE>
EXHIBIT B
Page 4
payment to the Paying Agent or to a Securityholder at the Securityholder's
registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Securityholder. The Company, or any
Subsidiary Guarantor of the Company may act in any such capacity, except that
none of the Company, its Subsidiaries or their Affiliates shall act (i) as
Paying Agent in connection with any redemption, offer to purchase, discharge or
defeasance, as otherwise specified in the Indenture, and (ii) as Paying Agent or
Registrar if a Default or Event of Default has occurred and is continuing.
4. Indenture. The Company issued the Securities under an Indenture,
dated as of February 1, 1998 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the TIA as in effect on the
date the Indenture is qualified, except as the Indenture otherwise provides. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the
Securities. The Securities are senior Obligations of the Company limited to
$60,220,151 in aggregate principal amount.
5. Optional Redemption. The Company may not redeem the Notes prior
to February 1, 2000. On or after such date, the Securities will be redeemable,
at the option of the Company, in whole or in part, at the redemption prices
(expressed as percentages of the principal value of the Securities) set forth
below, if redeemed during the 12-month period commencing on February 1 of the
years set forth below, plus accrued interest to the redemption date:
Period Redemption Price
------ ----------------
2000..................................... 106.50%
2001..................................... 103.25%
2002 and thereafter .....................100.00%
6. Mandatory Redemption. The Securities are not subject to mandatory
redemption or sinking fund payments.
<PAGE>
EXHIBIT B
Page 5
7. Repurchase at Option of Securityholder. (a) If there is a Change
of Control, each Holder of Securities will have the right to require the Company
to repurchase all or any part of such Holder's Securities at a repurchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date). Within 45 days following any Change of Control, the Company will
mail a notice to each Securityholder stating (i) that a Change of Control has
occurred and that such Securityholder has the right to require the Company to
repurchase all or any part of such Securityholder's Securities at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date); (ii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to
such Change of Control; (iii) the repurchase date (which will be no earlier then
30 days nor later than 30 days from the date such notice is mailed); and (iv)
the procedures, determined by the Company consistent with the Indenture, that a
Securityholder must follow in order to have its Securities repurchased.
Securityholders that are subject to an offer to repurchase may elect to have
such Securities repurchased by completing the form entitled "Option of
Securityholder to Elect Purchase" appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds $500,000, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Net Available Cash, at an
offer price in cash in an amount equal to 100% of principal value thereof, plus
accrued and unpaid interest, if any, to the date fixed for the closing of such
offer in accordance with the procedures set forth in the Indenture. If the
aggregate principal amount of Securities surrendered by Holders thereof exceeds
the amount of Net Available Cash, the Securities to be redeemed shall be
selected on a pro rata basis, subject to the terms of the Indenture.
Securityholders that are the subject of an offer to purchase will receive an
Asset Disposition Offer from the Company prior to any related purchase date and
may elect to have such Securities purchased by completing the form entitled
"Option of Securityholder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Securities are to be redeemed at its registered address. Securities
may be redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The
<PAGE>
EXHIBIT B
Page 6
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a
Securityholder among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities during a period beginning on
the opening of business on a Business Day 15 days before the day of any
selection of Securities to be redeemed and ending on the close of business on
the day of selection or during the period between a Record Date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Agent and
the Company shall deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions provided
in the Indenture, the Indenture or the Securities may be amended with the
consent of the Holders of a majority in principal amount of the then outstanding
Securities, and any existing default or Event of Default (except a payment
default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA Securityholders or to make any change that does not
adversely affect the rights of any Securityholder.
12. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Subsidiary Guarantor, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not enforce
the Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Securityholders notice of
any continuing default (except a default in payment of principal or interest) if
it determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
13. Trustee Dealings with the Company. The Trustee under the
Indenture,
<PAGE>
EXHIBIT B
Page 7
in its individual or any other capacity may make loans to, accept deposits from,
and perform services for the Company, the Subsidiary Guarantor or any Affiliate
of the Company or the Subsidiary Guarantor, and may otherwise deal with the
Company, the Subsidiary Guarantor and their respective Affiliates as if it were
not Trustee.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions provided for in the Indenture. The Company must
annually report to the Trustee on compliance with such limitations.
15. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. Future Note Guarantees. The Company will cause each newly
organized or acquired Subsidiary (other than any Unrestricted Subsidiary) to
execute and deliver to the Trustee a Guarantee of the Notes in form and
substance satisfactory to the Trustee.
17. Security. The Securities will, with the exception of certain
equipment, be secured by a first priority lien on substantially all of the
assets of the Company, provided that in the event that a security interest in
the Company's receivables is granted to secure a working capital facility as
provided in the Indenture, the security interest on such receivables will be a
second priority lien and security interest.
18. Defeasance. Subject to certain conditions provided for in the
Indenture, the Company at any time may terminate some or all of its obligations
under the Securities and the Indenture if the Company deposits with the Trustee
money or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Securities to redemption or maturity, as the case may
be.
19. Governing Law. The Laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
20. Abbreviations. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
<PAGE>
EXHIBIT B
Page 8
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption.
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Mentus Media Corp.
9531 West 78th Street
Suite 400
Minneapolis, MN 55344
Attn: Chief Executive Officer
<PAGE>
EXHIBIT B
Page 9
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
<PAGE>
EXHIBIT B
Page 10
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date:______________
Your Signature:
(Sign exactly as your name appears on the face of
this Security)
---------------------------
Signature Guarantee:
- --------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements will include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.)
<PAGE>
EXHIBIT B
Page 11
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
|_| Section 4.10 |_| Section 4.14
If you want to have only part of the Security purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased:
$______________________
Date:_________________
Your Signature:
(Sign exactly as your name appears on the face of
this Security)
----------------------------
Signature Guarantee:
- --------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar,
which requirements will include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.)
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: Mentus Media Corp.
12% Senior Secured PIK Notes due 2003
Ladies and Gentlemen:
In connection with our proposed purchase of 12% Senior Secured PIK
Notes due 2003 (the "Securities") of Mentus Media Corp. (the "Company"), we
confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated February 12, 1998 relating to the Securities and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated on pages (i),
(ii) and (iii) of the Offering Memorandum and in the section entitled "Transfer
Restrictions" of the Offering Memorandum including the restrictions on
duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Securities (as described in the Offering Memorandum) and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Securities prior to the
date which is two years after the original issuance of the Securities, we will
do so only (i) to the Company or any of its subsidiaries, (ii) inside the
<PAGE>
EXHIBIT C
Page 2
United States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act), (iii) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes (or has furnished on
its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture
relating to the Securities), a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the Securities, (iv)
outside the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (v) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available), or (vi) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Securities from us a notice advising such
purchaser that resales of the Securities are restricted as stated herein.
4. We are not acquiring the Securities for or on behalf of, and will
not transfer the Securities to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974), except as
permitted in the section entitled "Transfer Restrictions" of the Offering
Memorandum.
5. We understand that, on any proposed resale of any Securities, we
will be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
<PAGE>
EXHIBIT C
Page 3
By
-----------------------------------
Name:
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
---------------, ----
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: Mentus Media Corp.
(the "Company") 12% Senior Secured PIK
Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a Person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration
<PAGE>
EXHIBIT D
Page 2
requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By
---------------------------------
Authorized Signature
<PAGE>
Exhibit 4.1(b)
SCHEDULE I
Copyrights and Copyright Licenses
---------------------------------
<PAGE>
===================================
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of February 18, 1998
by and between
MENTUS MEDIA CORP.
and
NATWEST CAPITAL MARKETS LIMITED
as the Initial Purchaser
===================================
$45,000,000
12% SENIOR SECURED PIK NOTES DUE 2003
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions............................................................ 1
2. Exchange Offer......................................................... 5
3. Shelf Registration..................................................... 8
4. Additional Interest.................................................... 9
5. Registration Procedures................................................ 11
6. Registration Expenses.................................................. 20
7. Indemnification........................................................ 21
8. Rules 144 and 144A..................................................... 25
9. Underwritten Registrations............................................. 25
10. Miscellaneous. ........................................................ 25
(a) No Inconsistent Agreements........................................ 25
(b) Adjustments Affecting Registrable Notes........................... 25
(c) Amendments and Waivers............................................ 26
(d) Notices........................................................... 26
(e) Successors and Assigns........................................ 27
(f) Counterparts.................................................. 27
(g) Headings...................................................... 27
(h) Governing Law................................................. 28
(i) Severability.................................................. 28
(j) Notes Held by the Company or its Affiliates................... 28
(k) Third Party Beneficiaries..................................... 28
-2-
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement") is
dated as of February 18, 1998, by and between Mentus Media Corp., a Delaware
corporation (the "Company") and NatWest Capital Markets Limited (the "Initial
Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated February 12, 1998, between the Company and the Initial
Purchaser (the "Purchase Agreement"), which provides for the sale by the Company
to the Initial Purchaser of Units, consisting of, among other things,
$45,000,000 aggregate principal amount of the Company's 12% Senior Secured PIK
Notes due 2003 (the "Notes"). In order to induce the Initial Purchaser to enter
into the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement for the benefit of the Initial Purchaser and
their direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the obligation of the Initial Purchaser to purchase
the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: Has the meaning provided in Section 4(a)
hereof.
Advice: Has the meaning provided in the last paragraph of Section 5
hereof.
Agreement: Has the meaning provided in the first introductory
paragraph hereto.
Applicable Period: Has the meaning provided in Section 2(b) hereof.
Closing Date: Has the meaning provided in the Purchase Agreement.
Company: Has the meaning provided in the first introductory
paragraph hereto.
<PAGE>
Effectiveness Date: The 150th day after the Issue Date.
Effectiveness Period: Has the meaning provided in Section 3(a)
hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: Has the meaning provided in Section 2(a) hereof.
Exchange Offer: Has the meaning provided in Section 2(a) hereof.
Exchange Offer Registration Statement: Has the meaning provided in
Section 2(a) hereof.
Filing Date: The 45th day after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: Has the meaning provided in Section 7(c) hereof.
Indemnifying Person: Has the meaning provided in Section 7(c)
hereof.
Indenture: The Indenture, dated as of February 1, 1998 between the
Company and United States Trust Company of New York, as trustee, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
Initial Purchaser: Has the meaning provided in the first
introductory paragraph hereto.
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to the
Initial Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 5(s) hereof.
Notes: Has the meaning provided in the second introductory paragraph
hereto.
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<PAGE>
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in Section
2(b) hereof.
Persons: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: Has the meaning provided in Section 2(b) hereof.
Private Exchange Notes: Has the meaning provided in Section 2(b)
hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second
introductory paragraph hereto.
Records: Has the meaning provided in Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and
at all times subsequent thereto, each Exchange Note as to which Section 2(c)(v)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(v) hereof is applicable, the Exchange Offer Registration Statement)
covering such Note, Exchange Note or Private Exchange Note, as the case may be,
has been declared effective by the SEC and such Note (unless such Note was not
tendered for exchange by the Holder thereof), Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is, or may be, sold in compliance with Rule 144, or (iii)
such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to
be outstanding
-3-
<PAGE>
for purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Offer Registration Statement, that
covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
Shelf Registration: Has the meaning provided in Section 3(a) hereof.
Shelf Registration Statement: shall mean a "shelf" registration
statement of the Company which covers all of the Registrable Notes on an
appropriate form under Rule 415, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee(s): The trustee under the Indenture and, if existent, the
trustee
-4-
<PAGE>
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
Underwritten registration or underwritten offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than the Filing
Date an offer to exchange (the "Exchange Offer") any and all of the Registrable
Notes (other than the Private Exchange Notes, if any) for a like aggregate
principal amount of debt securities of the Company which are identical in all
material respects to the Notes (the "Exchange Notes") (and which are entitled to
the benefits of the Indenture or a trust indenture which is identical in all
material respects to the Indenture (other than such changes to the Indenture or
any such identical trust indenture as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA) and which, in either case, has been qualified under the TIA), except
that the Exchange Notes (but not Private Exchange Notes, if any) shall have been
registered pursuant to an effective Registration Statement under the Securities
Act and shall contain no restrictive legend thereon. The Exchange Offer shall be
registered under the Securities Act on the appropriate form (the "Exchange Offer
Registration Statement") and shall comply with all applicable tender offer rules
and regulations under the Exchange Act. The Company agrees to use its best
efforts to (x) cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act no later than the 150th day after the Issue
Date; (y) keep the Exchange Offer open for at least 30 business days (or longer
if required by applicable law) after the date that notice of the Exchange Offer
is mailed to the Holders; and (z) consummate the Exchange Offer on or prior to
the 180th day following the Issue Date. If after such Exchange Offer
Registration Statement is declared effective by the SEC, the Exchange Offer or
the issuance of the Exchange Notes thereunder is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Exchange Offer Registration Statement shall
be deemed not to have become effective for purposes of this Agreement until such
stop order, injunction or other order or requirement is no longer in effect.
Each Holder who participates in the Exchange Offer (other than certain specified
holders) will be required to represent that any Exchange Notes received by it
will be acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act, that such Holder is
not an "affiliate" of the Company within the meaning of the Securities Act and
that such Holder is not acting on behalf of any person who could not truthfully
make the foregoing representations. Upon consummation of the Exchange Offer in
accordance with this Section 2, the Company shall have no further obligation to
register Registrable
-5-
<PAGE>
Notes (other than Private Exchange Notes and other than in respect of any
Exchange Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3
hereof. No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes;
provided, however, that such period shall not exceed 180 days after the
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, immediately prior to consummation of the Exchange Offer, the
Initial Purchaser holds any Notes acquired by it and having the status of an
unsold allotment in the initial distribution, the Company shall, upon the
request of the Initial Purchaser, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer issue and deliver to the Initial Purchaser
in exchange (the "Private Exchange") for such Notes held by the Initial
Purchaser a like principal amount of debt securities of the Company that are
identical in all material respects to the Exchange Notes (the "Private Exchange
Notes") (and which are issued pursuant to the same Indenture as the Exchange
Notes) except for the placement of a restrictive legend on such Private Exchange
Notes. The Private Exchange Notes shall if permissible bear the same CUSIP
number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was payable on the
Notes
-6-
<PAGE>
surrendered in exchange therefor or, if no interest has become payable on the
Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder tendering Notes, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Notes of such Holder so
accepted for exchange.
The Exchange Notes and the Private Exchange Notes are to be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that (1) the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture and (2) the Private Exchange Notes shall be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such indenture shall
provide that the Exchange Notes, the Private Exchange Notes and the Notes shall
vote and consent together on all matters as to which they have the right to vote
or consent as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter.
-7-
<PAGE>
(c) If, (i) because of any change in law or in applicable
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days
after the Issue Date, (iii) any holder of Private Exchange Notes so requests at
any time after the consummation of the Private Exchange, or (iv) any Holder
(other than the Initial Purchaser) is not eligible to participate in the
Exchange Offer, then the Company shall promptly deliver written notice thereof
(the "Shelf Notice") to the Trustee and, in the case of clauses (i) and (ii)
above, all Holders, in the case of clause (iii) above, the Holders of the
Private Exchange Notes and, in the case of clause (iv) above, the affected
Holder, and shall file a Shelf Registration pursuant to Section 3 hereof;
provided, however, that in the case of clause (iii) above such Holders shall pay
all reasonable registration expenses of the Company as described in Section 6
hereof in connection with such Shelf Registration.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company shall as promptly as reasonably
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Notes (the "Shelf Registration"). If the Company shall not have yet filed an
Exchange Offer Registration Statement, the Company shall use its best efforts to
file with the SEC the Shelf Registration on or prior to the Filing Date. The
Shelf Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them (including, without limitation, one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Notes to be included in the Shelf Registration.
The Company shall use its best efforts to cause the Shelf
Registration to be declared effective under the Securities Act by the 150th day
after the Shelf Request and to keep the Shelf Registration continuously
effective under the Securities Act until the date which is two years from the
Issue Date (or one year from the date of the Shelf Registration Statement is
declared effective if such Shelf Registration Statement is filed upon the
request of the Initial Purchaser pursuant to clause 2(c)(iii) above), subject to
extension pursuant to the last paragraph of Section 5 hereof, or such shorter
period ending when all Registrable Notes covered by the Shelf Registration have
been sold in the manner set forth and as contemplated in the Shelf Registration
or when the Notes become eligible for registration without volume restrictions,
pursuant to Rule 144 under the Securities Act (the "Effectiveness Period").
-8-
<PAGE>
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested for such purpose by the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement or by any
underwriter of such Registrable Notes.
4. Additional Interest
(a) The Company and the Initial Purchaser agree that the Holders of
Registrable Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages and as the sole and exclusive
remedy therefor, additional interest on the Notes ("Additional Interest") under
the circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not filed within 45 days following the Issue
Date Additional Interest shall accrue on the Notes over and above the
stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 46th day after the Issue Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period; or
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 150 days following
the Issue Date, Additional Interest shall accrue on the Notes over and
above the stated interest at a rate of 0.50% per annum for the first 90
days commencing on the 151st day after the Issue Date such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 30-day period; or
(iii) if (A) the Company has not exchanged all Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
180 days after the Issue Date or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective
-9-
<PAGE>
and such Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of the Issue Date (unless all the Notes
have been sold thereunder), then Additional Interest shall accrue on the
Notes over and above the stated interest at a rate of 0.50% per annum for
the first 30 days commencing on (x) the 181st day after the Issue Date
with respect to the Notes validly tendered and not exchanged by the
Company, in the case of (A) above, or (y) the day the Exchange Offer
Registration Statement ceases to be effective or usable for its intended
purpose in the case of (B) above, or (z) the day such Shelf Registration
Statement ceases to be effective in the case of (C) above, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 30-day period; provided, however, that the Additional
Interest rate on the Notes under clauses (i), (ii) or (iii) above, may not
exceed in the aggregate 2.0% per annum; and provided further, that (1)
upon the filing of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of (ii) above), or (3) upon the
exchange of Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case
of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case
of clause (iii)(C) above), Additional Interest on the Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
pay the Additional Interest due on the transfer restricted Notes by depositing
with the paying agent (which shall not be the Company for these purposes) for
the transfer restricted Notes, in trust, for the benefit of the holders thereof,
prior to 11:00 A.M. on the next interest payment date specified by the Indenture
(or such other indenture), sums sufficient to pay the Additional Interest then
due. Any amounts of Additional Interest due pursuant to clauses (a)(i), (a)(ii)
or (a)(iii) of this Section 4 will be payable to the Holders of affected Notes
in cash semi-annually on each interest payment date specified by the Indenture
(or such other indenture) to the record holders entitled to receive the interest
payment to be made on such date, commencing with the first such date occurring
after any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the affected Registrable Notes of such Holders,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months and, in the case of a
partial month, the actual number of days elapsed), and the denominator of which
is 360.
-10-
<PAGE>
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company shall effect such registration(s) to
permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder, the
Company shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use their best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is pursuant
to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to
be delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company shall, if requested in writing, furnish
to and afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least three
business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity to
review prior to the filing of such document under the immediately
preceding sentence, if the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement, or
any such Participating Broker-Dealer, as the case may be, their counsel,
or the managing underwriters, if any, shall object thereto in writing,
which writing shall set forth a reasonable basis for such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period
or the Applicable Period or until consummation of the Exchange Offer, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of
the Securities Act and the Exchange Act
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applicable to it with respect to the disposition of all securities covered
by such Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities
being sold by a Participating Broker-Dealer covered by any such
Prospectus; the Company shall be deemed not to have used its best efforts
to keep a Registration Statement effective during the Applicable Period if
it voluntarily takes any action that would result in selling Holders of
the Registrable Notes covered thereby or Participating Broker-Dealers
seeking to sell Exchange Notes not being able to sell such Registrable
Notes or such Exchange Notes during that period unless such action is
required by applicable law or unless the Company complies with this
Agreement, including without limitation, the provisions of paragraph 5(k)
hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, notify the selling
Holders of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their counsel and the managing underwriters, if any,
promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole
expense of the Company, one conformed copy of such Registration Statement
or post-effective amendment including financial statements and schedules,
and, if requested, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when
a Prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes or resales of Exchange
Notes by Participating Broker-Dealers the representations and warranties
of the Company contained in any agreement (including any underwriting
agreement), contemplated by Section 5(n) hereof cease to be true and
correct in all material respects, (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of
any event, the existence of any condition or any information becoming
known that makes any statement made in such
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Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in or amendments or
supplements to such Registration Statement, Prospectus or documents so
that, in the case of the Registration Statement, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the determination by the Company that a
post-effective amendment to a Registration Statement would be
appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Notes or the Exchange Notes for sale in any jurisdiction, and, if any such
order is issued, to use its best efforts to obtain the withdrawal of any
such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof
and if requested by the managing underwriter or underwriters (if any), or
the Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such
Holders, or counsel for any of them reasonably request to be included
therein, (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-Dealer
who so requests and to counsel and each managing underwriter, if any, at
the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment
thereto, including financial statements and schedules, and, if requested,
all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
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(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their respective counsel, and the underwriters, if any,
at the sole expense of the Company, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each
amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to
the last paragraph of this Section 5, the Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such Participating
Broker- Dealer, as the case may be, and the underwriters or agents, if
any, and dealers (if any), in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating Broker-Dealers
of the Exchange Notes pursuant to, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use its best efforts to register or
qualify such Registrable Notes (and to cooperate with selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case
may be, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Notes) for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriter or underwriters
reasonably request in writing; provided, however, that where Exchange
Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Company agrees to
cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers
or the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not
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then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof or the underwriter or underwriters, if any, to dispose of
such Registrable Notes, except as may be required solely as a consequence
of the nature of a selling Holder's business, in which case the Company
will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as
promptly as practicable prepare and (subject to Section 5(a) hereof) file
with the SEC, at the sole expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom
such Prospectus will be delivered by a Participating Broker-Dealer, any
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, that this Section 5(k) shall not
be deemed to require the Company to disclose any information that, in the
good faith opinion of the management of the Company, is not yet required
to be disclosed and would not be in the best interests of the Company to
disclose, so long as the Company complies with all applicable laws and
government regulations and the last paragraph of this Section 5.
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<PAGE>
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may
be, in a form eligible for deposit with The Depositary Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or Exchange Notes,
as the case may be.
(m) In connection with any underwritten offering initiated by the
Company of Registrable Notes pursuant to a Shelf Registration, enter into
an underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Notes and take all such other actions as
are reasonably requested by the managing underwriter or underwriters in
order to facilitate the registration or the disposition of such
Registrable Notes and, in such connection, (i) make such representations
and warranties to, and covenants with, the underwriters with respect to
the business of the Company and its respective subsidiaries and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by the Company to underwriters in underwritten offerings
of debt securities similar to the Notes, and confirm the same in writing
if and when requested; (ii) obtain the written opinion of counsel to the
Company and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters,
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings of debt similar to the Notes
and such other matters as may be reasonably requested by the managing
underwriter or underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters from the independent certified
public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to each of the
underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt similar to the Notes and such other matters
as reasonably requested by the managing underwriter or underwriters; and
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set
forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents) with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each
closing under such underwriting agreement, or as and to the extent
required thereunder.
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(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and
any attorney, accountant or other agent retained by any such selling
Holder or each such Participating Broker-Dealer, as the case may be, or
underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and,
if any, its subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and
employees of the Company and, if any, its subsidiaries to make available
for inspection all information reasonably requested by any such Inspector
in connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (iii) disclosure of such
information is, in the opinion of counsel (a copy of which shall be
delivered to the Company) for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and arising
out of, based upon, relating to, or involving this Agreement, or any
transactions contemplated hereby or arising hereunder, or (iv) the
information in such Records has been made generally available to the
public. Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such
information is generally available to the public other than as a result of
a disclosure or failure to safeguard by such Inspector. Each selling
Holder of such Registrable Notes and each such Participating Broker-Dealer
will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company to undertake appropriate
action to prevent disclosure of the Records deemed confidential at the
Company's sole expense.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
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indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable
Notes; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes
or the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
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any Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such Registration Statement the Registrable Notes of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Company of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes or
Exchange Notes, as the case may be, covered by such Registration Statement or
Prospectus to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-Dealer's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof, or until it is advised in writing (the "Advice") by the Company that the
use of the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker- Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice. In the event the Company does not give
any such notice within five business days, each Holder shall return such
Registration Statement or Prospectus to the Company or destroy all copies of
such Registration Statement or Prospectus; and if so requested by the Company,
shall certify that all copies of the Registration Statement or Prospectus were
destroyed.
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6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of the Company's counsel
in connection with Blue Sky qualifications of the Registrable Notes or Exchange
Notes and determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the holders
of Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing Prospectuses if
the printing of Prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or sold by any
Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company, (v)
fees and disbursements of all independent certified public accountants referred
to in Section 5(n)(iii) hereof (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, and any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vii) Securities Act
liability insurance, if the Company desires such insurance, (viii) fees and
expenses of all other Persons retained by the Company, (ix) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(x) the expense of any annual audit, (ix) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange or any inter-dealer quotation system, if applicable, and (xii) the
expenses relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Notes
being registered in a Shelf Registration for the reasonable fees and
disbursements of not more than one counsel chosen in writing by the Holders of a
majority in aggregate principal amount of the Registrable Notes to be included
in such Registration Statement.
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7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder of Registrable Notes offered pursuant to a Shelf
Registration Statement and each Participating Broker-Dealer selling Exchange
Notes during the Applicable Period, the affiliates, directors, officers, agents,
representatives and employees of each such Person or its affiliates, and each
other Person, if any, who controls any such Person or its affiliates within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (each, a "Participant") from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement pursuant to which the offering of such Registrable Notes
or Exchange Notes, as the case may be, is registered (or any amendment thereto)
or related Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Notes or Exchange Notes which
are the subject of such claim and such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and such Participant failed to deliver or provide a copy
of the Prospectus (as amended or supplemented) to such Person with or prior to
the confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable laws, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company, its respective directors and officers and each
Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only (i) with
reference to information furnished to the Company in writing by or on behalf of
such Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any
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preliminary prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such reasonable fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants and any such
separate firm for the Company, its directors, its officers and such control
Persons of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent or
if there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party,
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<PAGE>
and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b)
hereof is for any reason unavailable to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or
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<PAGE>
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time the Company is not required to file such reports, it will,
upon the request of any Holder of Registrable Notes, make publicly available
annual reports and such information, documents and other reports of the type
specified in Sections 13 and 15(d) of the Exchange Act. The Company further
covenants for so long as any Registrable Notes remain outstanding, to make
available to any Holder or beneficial owner of Registrable Notes in connection
with any sale thereof and any prospective purchaser of such Registrable Notes
from such Holder or beneficial owner the information required by Rule 144(d)(4)
under the Securities Act in order to permit resales of such Registrable Notes
pursuant to Rule 144A.
9. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering and
reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous. (a) No Inconsistent Agreements. The Company has
not entered, as of the date hereof, and the Company shall not, after the date of
this Agreement, enter into any agreement with respect to any its securities that
(i) would by it terms preclude the exercise by the Holders of Registrable Notes
of any rights of such Holder granted in this Agreement or (ii) preclude the
Company from performing its obligations under this Agreement. Other than as
provided in Schedule A attached hereto the Company has not entered and the
Company will not enter into any agreement
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<PAGE>
with respect to any of its securities which will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Notes. Other than as provided
in Schedule B attached hereto the Company shall not, directly or indirectly,
take any action with respect to the Registrable Notes as a class that would
adversely affect the ability of the Holders of Registrable Notes to include such
Registrable Notes in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate principal amount
of the then outstanding Registrable Notes. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold by such Holders
pursuant to such Registration Statement; provided, however, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of such
Holder or Participating Broker-Dealer, as the case may be, set forth
on the records of the registrar under the Indenture, with a copy in
like manner to the Initial Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Mr. Roger Hoit
with a copy to:
White & Case
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<PAGE>
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to the Company, as follows:
Mentus Media Corp.
9531 West 78th Street
Eden Praire, MN 55344
Attention: Mr. Thomas M. Pugliese
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue, 30th Floor
New York, NY 10022
Attention: Robert L. Winikoff, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; provided, however, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a Holder unless and to the extent
such successor or assign holds Registerable Notes.
(f) Counterparts. This Agreement may be executed in any number of
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 taken
together shall constitute one and the same agreement.
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<PAGE>
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Notes Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registerable Notes
is required hereunder, Registerable Notes held by the Company or its affiliates
(as such term is defined in Rule 405 under the Securities Act) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(k) Third Party Beneficiaries. Holders of Registerable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
IN WITNESS WHEREOF, the parties have executed the Agreement as of
the date first written above.
MENTUS MEDIA CORP.
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<PAGE>
By:__________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first
above written:
NATWEST CAPITAL MARKETS LIMITED
By:__________________________
Name:
Title:
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<PAGE>
SCHEDULE A
Piggy-Back Registration Rights
<PAGE>
SCHEDULE B
Adjustments Reflecting Registrable Notes
<PAGE>
Exhibit 4.1(c)
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February 18, 1998, made by each
pledgor listed on the signature pages hereto (each individually a "Pledgor" and
collectively the "Pledgors"), in favor of United States Trust Company of New
York, as trustee (in such capacity, the "Trustee") under the Indenture referred
to below, in its capacity as collateral agent (in such capacity, the "Collateral
Agent") for the ratable benefit of the registered holders (the "Noteholders") of
the 12% Senior Secured PIK Notes due 2003 (the "Notes") issued by Mentus Media
Corp., a Delaware corporation (the "Company"), under the Indenture dated as of
February 1, 1998 (the "Indenture") between the Company and the Trustee. Unless
otherwise defined herein, terms which are defined in the Indenture and used
herein are so used as so defined, and the meanings assigned to terms defined
herein or in the Indenture shall be equally applicable to both the singular and
plural forms of such terms.
W I T N E S S E T H :
WHEREAS, NatWest Capital Markets Limited (the "Initial Purchaser")
and the Company have entered into a Purchase Agreement dated February 12, 1998
(the "Purchase Agreement"), pursuant to which, among other things, the Initial
Purchaser has agreed to purchase the Notes from the Company; and
WHEREAS, the Pledgors are the legal and beneficial owners of the
shares of Pledged Stock (as hereinafter defined) listed on Annex A hereto; and
WHEREAS, the Pledgors are the obligees of the Pledged Notes (as
hereinafter defined) listed on Annex B hereto;
WHEREAS, it is a condition precedent to the obligations of the
Initial Purchasers to purchase the Notes under the Purchase Agreement, that the
Pledgors shall have executed and delivered to the Collateral Agent this
Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the
Initial Purchaser to enter into the Purchase Agreement and to purchase the
Notes, the Pledgors hereby agree with the Collateral Agent, as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
for the benefit of the Noteholders and the Trustee to secure the unpaid
principal of, any premium applicable to, and interest on the Notes (including,
without limitation, interest accruing after the maturity of the Notes and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
any Pledgor, whether or not a claim for post-filing or post-petition interest is
<PAGE>
allowed in such proceeding) and all other obligations and liabilities of each
Pledgor to the Noteholders or the Trustee, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Notes, the Indenture
or this Pledge Agreement (in each such case as the same may be amended,
supplemented or modified from time to time) and any other document made,
delivered or given in connection therewith or herewith, whether on account of
principal, premium, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all fees and disbursements of
counsel) or otherwise (collectively, the "Obligations").
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i)
the term "Stock" shall mean all of the issued and outstanding shares of capital
stock of any corporation at any time owned by each Pledgor, (ii) the term
"Promissory Notes" shall mean all promissory notes from time to time issued to,
or held by, each Pledgor; and (iii) the term "Securities" shall mean all of the
Stock and Promissory Notes. Each Pledgor represents and warrants that on the
date hereof (i) each Subsidiary of such Pledgor, and the direct ownership
thereof, is listed in Annex A hereto; (ii) the Stock held by such Pledgor
consists of the number and type of shares of the stock of the corporations as
described in Annex A hereto; (iii) such Stock constitutes that percentage of the
issued and outstanding capital stock of the issuing corporation as is set forth
in Annex A hereto; (iv) the Promissory Notes held by such Pledgor consist of the
promissory notes described in Annex B hereto where such Pledgor is listed as the
obligee; (v) such Pledgor is the holder of record and sole beneficial owner of
the Stock and the Promissory Notes held by such Pledgor and there exist no
options or preemption rights in respect of any of such Stock; and (vi) on the
date hereof, such Pledgor owns no other Securities.
3. PLEDGE OF SECURITIES, ETC.
3.1. Pledge. To secure the Obligations of such Pledgor and for the
purposes set forth in Section 1 hereof, each Pledgor hereby (i) grants to the
Collateral Agent a security interest in all of the Collateral (as defined
herein) owned by such Pledgor, (ii) pledges and deposits as security with the
Collateral Agent the Securities owned by such Pledgor on the date hereof, and
delivers to the Collateral Agent certificates or instruments therefor, duly
endorsed in blank by such Pledgor in the case of Promissory Notes and
accompanied by undated stock powers duly executed in blank by such Pledgor (and
accompanied by any transfer tax stamps required in connection with the pledge of
such Securities) in the case of Stock, or such other instruments of transfer as
are reasonably acceptable to the Collateral Agent and (iii) hypothecates,
mortgages, charges and sets over to the Collateral Agent all of such Pledgor's
right, title and interest in and to such Securities (and in and to the
certificates or instruments evidencing such Securities), to be held by the
Collateral Agent upon the terms and conditions set forth in this Agreement.
3.2. Subsequently Acquired Securities. If any Pledgor shall acquire
(by purchase, stock dividend or otherwise) any additional Securities at any time
or from time to time after the date hereof, such Pledgor will promptly
thereafter pledge and deposit such
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<PAGE>
Securities (or certificates or instruments representing such Securities) as
security with the Collateral Agent and deliver to the Collateral Agent
certificates or instruments therefor, duly endorsed in blank in the case of such
Promissory Notes, and accompanied by undated stock powers duly executed in blank
by such Pledgor (and accompanied by any transfer tax stamps required in
connection with the pledge of such Securities) in the case of such Stock, or
such other instruments of transfer as are reasonably acceptable to the
Collateral Agent, and will promptly thereafter deliver to the Collateral Agent a
certificate executed by a principal executive officer of such Pledgor describing
such Securities and certifying that the same has been duly pledged with the
Collateral Agent hereunder.
3.3. Uncertificated Securities. Notwithstanding anything to the
contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether
now owned or hereafter acquired) are uncertificated securities, the relevant
Pledgor shall promptly notify the Collateral Agent thereof, and shall promptly
take all actions required to perfect the security interest of the Collateral
Agent under applicable law (including, in any event, under Sections 8-313 and
8-321 of the New York Uniform Commercial Code, if applicable). Each Pledgor
further agrees to take such actions as the Collateral Agent deems reasonably
necessary or desirable to effect the foregoing and to permit the Collateral
Agent to exercise any of its rights and remedies hereunder.
3.4. Definitions of Pledged Stock; Pledged Notes; Pledged Securities
and Collateral. All Stock at any time pledged or required to be pledged
hereunder is hereinafter called the "Pledged Stock;" all Promissory Notes at any
time pledged or required to be pledged hereunder are hereinafter called the
"Pledged Notes;" all Pledged Stock and Pledged Notes together are called the
"Pledged Securities;" and the Pledged Securities, together with all proceeds
thereof, including any securities and moneys received and at the time held by
the Collateral Agent hereunder, are hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Collateral
Agent shall have the right to appoint one or more sub-agents for the purpose of
retaining physical possession of the Pledged Securities, which may be held (in
the discretion of the Collateral Agent) in the name of the relevant Pledgor,
endorsed or assigned in blank or in favor of the Collateral Agent or any nominee
or nominees of the Collateral Agent or a sub-agent appointed by the Collateral
Agent.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there
shall have occurred and be continuing an Event of Default, each Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to the Pledged Securities owned by it, and to give consents, waivers or
ratifications in respect thereof, provided, that no vote shall be cast or any
consent, waiver or ratification given or any action taken which would violate or
be inconsistent with any of the terms of this Agreement, the Indenture, or the
Notes. All such rights of each Pledgor to vote and to give consents, waivers and
ratifications shall cease in case an Event of Default has occurred and is
continuing, and Section 7 hereof shall become applicable.
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<PAGE>
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there shall
have occurred and be continuing an Event of Default, all cash dividends and
distributions payable in respect of the Pledged Stock and all payments in
respect of the Pledged Notes shall be paid to the respective Pledgor. The
Collateral Agent shall be entitled to receive directly, and to retain as part of
the Collateral:
(i) all other or additional stock or other securities (other than
cash) paid or distributed by way of dividend or otherwise, as the case may
be, in respect of the Pledged Stock;
(ii) all other or additional stock or other securities paid or
distributed in respect of the Pledged Stock by way of stock-split,
spin-off, split-up, reclassification, combination of shares or similar
rearrangement; and
(iii) all other or additional stock or other securities or property
which may be paid in respect of the Collateral by reason of any
consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Collateral Agent's right to receive proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by any Pledgor contrary to the provisions of
this Section 6 and Section 7 hereof shall be received in trust for the benefit
of the Collateral Agent, shall be segregated from other property or funds of
such Pledgor and shall be promptly paid over to the Collateral Agent as
Collateral in the same form as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF EVENTS OF DEFAULT. If there shall have
occurred and be continuing an Event of Default, then and in every such case, the
Collateral Agent shall be entitled to (i) exercise all of the rights, powers and
remedies (whether vested in it by this Agreement, the Indenture or by law) for
the protection and enforcement of its rights in respect of the Collateral, (ii)
exercise all the rights and remedies of a secured party under the Uniform
Commercial Code as in effect on the date hereof in the State of New York (the
"Uniform Commercial Code") and (iii) without limitation, exercise the following
rights, which each Pledgor hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the Collateral
otherwise payable under Section 6 hereof to the Pledgor;
(b) to transfer all or any part of the Collateral into the
Collateral Agent's name or the name of its nominee or nominees;
(c) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other action to collect upon any
Pledged Note (including, without limitation, to make any demand for
payment thereon);
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<PAGE>
(d) to vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Collateral Agent) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise act
with respect thereto as though it were the outright owner thereof (each
Pledgor hereby irrevocably constituting and appointing the Collateral
Agent the proxy and attorney-in-fact of such Pledgor, with full power of
substitution to do so); and
(e) at any time and from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the time
or place of sale or adjournment thereof or to redeem or otherwise (all of
which are hereby waived by each Pledgor), for cash, on credit or for other
property, for immediate or future delivery without any assumption of
credit risk, and for such price or prices and on such terms as the
Collateral Agent in its absolute discretion may determine, provided that
at least 10 days' prior notice of the time and place of any such sale
shall be given to such Pledgor. The Collateral Agent shall not be
obligated to make any such sale of Collateral regardless of whether any
such notice of sale has theretofore been given. Each Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and any
other security for the Obligations or otherwise. At any such sale, unless
prohibited by applicable law, the Collateral Agent on behalf of the
Noteholders may bid for and purchase all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the
Collateral Agent nor any other Noteholder shall be liable for failure to
collect or realize upon any or all of the Collateral or for any delay in
so doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
8. NO WAIVER; CUMULATIVE REMEDIES. The Collateral Agent shall not by
any act (except by a written instrument pursuant to paragraph 19 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Collateral Agent would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Collateral Agent upon any sale or other disposition of the Collateral, together
with all other
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<PAGE>
moneys received by the Collateral Agent hereunder, shall be applied to the
payment of the Obligations in the manner provided in Section 9 of the Security
Agreement dated as of February 18, 1998 between the Collateral Agent and the
Company (the "Security Agreement").
(b) It is understood and agreed that the Pledgors shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Collateral Agent hereunder (whether by virtue of the power of sale herein
granted, pursuant to judicial process or otherwise), the receipt of the
Collateral Agent or the officer making the sale shall be a sufficient discharge
to the purchaser or purchasers of the Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Collateral Agent or such officer or be
answerable in any way for the misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to
indemnify and hold harmless the Collateral Agent in such capacity and each
Noteholder and their respective successors, assigns, employees, agents and
servants (individually an "Indemnitee," and collectively the "Indemnitees") from
and against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse each Indemnitee for all costs and expenses, including reasonable
attorneys' fees, in each case growing out of or resulting from this Agreement or
the exercise by any Indemnitee of any right or remedy granted to it hereunder or
under the Indenture (but excluding any claims, demands, losses, judgments and
liabilities or expenses to the extent incurred by reason of gross negligence or
willful misconduct of such Indemnitee). In no event shall the Collateral Agent
be liable, in the absence of gross negligence or willful misconduct on its part,
for any matter or thing in connection with this Agreement other than to account
for moneys actually received by it in accordance with the terms hereof. If and
to the extent that the obligations of any Pledgor under this Section 11 are
unenforceable for any reason, such Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor agrees
that it will join with the Collateral Agent in executing and, at such Pledgor's
own expense, file and refile under the Uniform Commercial Code or other
applicable law such financing statements, continuation statements and other
documents in such offices as the Collateral Agent may deem necessary and
wherever required by law in order to perfect and preserve the Collateral Agent's
security interest in the Collateral and hereby authorizes the Collateral Agent
to file financing statements and amendments thereto relative to all or any part
of the Collateral without the signature of such Pledgor where permitted by law,
and agrees to do such further acts and things and to execute and deliver to the
Collateral Agent such additional conveyances, assignments, agreements and
instruments as the Collateral
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<PAGE>
Agent may reasonably require or deem necessary or as may be required by law to
carry into effect the purposes of this Agreement or to further assure and
confirm unto the Collateral Agent its rights, powers and remedies hereunder.
(b) Each Pledgor hereby appoints the Collateral Agent such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Collateral Agent's
discretion to take any action and to execute any instrument which the Collateral
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement.
13. THE COLLATERAL AGENT AS AGENT. The Collateral Agent will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. The Collateral Agent's sole duty with respect to the
custody, safe- keeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal with
it in the same manner as the Collateral Agent deals with similar securities and
property for its own account. Neither the Collateral Agent nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of any Pledgor or otherwise.
14. TRANSFER BY THE PLEDGORS. No Pledgor will sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber any of the Collateral or any interest therein (except as may be
permitted in accordance with the terms of the Indenture).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS. Each
Pledgor represents, warrants and covenants that (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Pledged
Securities pledged by it hereunder, subject to no Lien (except the Lien created
by this Agreement and other Permitted Liens); (ii) it has full corporate power,
authority and legal right to pledge all the Pledged Securities pledged by it
pursuant to this Agreement; (iii) this Agreement has been duly authorized,
executed and delivered by such Pledgor and constitutes a legal, valid and
binding obligation of such Pledgor enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law); (iv) no
consent of any other party (including, without limitation, any stockholder or
creditor of such Pledgor or any of its Subsidiaries) and no consent, license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with (except as have been obtained or made),
any governmental authority is required to be obtained by such Pledgor in
connection with the execution, delivery or performance of this Agreement, the
validity or enforceability of this Agreement, the perfection or enforceability
of the Collateral Agent's security interest in the Collateral or except for
compliance with or
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<PAGE>
as may be required by applicable securities laws, the exercise by the Collateral
Agent of any of its rights or remedies provided herein; (v) the execution,
delivery and performance of this Agreement by such Pledgor will not violate any
provision of any applicable law or regulation or of any order, judgment, writ,
award or decree of any court, arbitrator or governmental authority, domestic or
foreign, applicable to such Pledgor, or of the certificate of incorporation or
by-laws (or equivalent organizational documents) of such Pledgor or of any
securities issued by such Pledgor or any of its Subsidiaries, or of any
mortgage, indenture, lease, deed of trust, loan agreement, credit agreement or
other material agreement, contract, or instrument to which such Pledgor or any
of its Subsidiaries is a party or which purports to be binding upon such Pledgor
or any of its Subsidiaries or upon any of their respective assets and will not
result in the creation or imposition of (or the obligation to create or impose)
any Lien or encumbrance on any of the assets of such Pledgor or any of its
Subsidiaries except as contemplated by this Agreement; (vi) all the shares of
Stock have been duly and validly issued, are fully paid and non-assessable and
are subject to no options to purchase or similar rights; (vii) each of the
Pledged Notes constitutes, or when executed by the obligor thereof will
constitute, the legal, valid and binding obligation of such obligor, enforceable
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law); and (viii) the pledge, assignment and delivery to the Collateral Agent
of the Securities (other than uncertificated securities) pursuant to this
Agreement creates a valid and perfected first priority Lien in the Securities,
and the proceeds thereof, subject to no other Lien or to any agreement
purporting to grant to any third party a Lien on the property or assets of the
Pledgor which would include the Securities. Each Pledgor covenants and agrees
that it will defend the Collateral Agent's right, title and security interest in
and to the Securities and the proceeds thereof against the claims and demands of
all Persons whomsoever; and such Pledgor covenants and agrees that it will have
like title to and right to pledge any other property at any time hereafter
pledged to the Collateral Agent as Collateral hereunder and will likewise defend
the right thereto and security interest therein of the Collateral Agent.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from this Agreement, the Security Agreement or the Indenture or any other
instrument or agreement referred to therein, or any assignment or transfer of
any thereof; (ii) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument including,
without limitation, this Agreement; (iii) any furnishing of any additional
security to the Collateral Agent or its assignee or any acceptance thereof or
any release of any security by the Collateral Agent or its assignee; (iv) any
limitation on any party's liability or obligations under any such instrument or
agreement or any invalidity or unenforceability, in whole or in part, of any
such instrument or agreement or any term thereof; or (v) any bankruptcy,
insolvency,
-8-
<PAGE>
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to any Pledgor or any Subsidiary of any Pledgor, or any
action taken with respect to this Agreement by any trustee or receiver, or by
any court, in any such proceeding, whether or not such Pledgor shall have notice
or knowledge of any of the foregoing.
17. REGISTRATION, ETC. (a) If there shall have occurred and be
continuing an Event of Default then, and in every such case, upon receipt by any
Pledgor from the Collateral Agent of a written request or requests that such
Pledgor cause any registration, qualification or compliance under any Federal or
state securities law or laws to be effected with respect to all or any part of
the Pledged Stock, such Pledgor as soon as practicable and at its expense will
cause such registration to be effected (and be kept effective) and will cause
such qualification and compliance to be declared effected (and be kept
effective) as may be so requested and as would permit or facilitate the sale and
distribution of such Pledged Stock, including, without limitation, registration
under the Securities Act of 1933, as then in effect (or any similar statute then
in effect), appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other government
requirements, provided, that the Collateral Agent shall furnish to such Pledgor
such information regarding the Collateral Agent as such Pledgor may reasonably
request in writing and as shall be required in connection with any such
registration, qualification or compliance. Such Pledgor will cause the
Collateral Agent to be kept advised in writing as to the progress of each such
registration, qualification or compliance and as to the completion thereof, will
furnish to the Collateral Agent such number of prospectuses, offering circulars
or other documents incident thereto as the Collateral Agent from time to time
may reasonably request, and will indemnify the Collateral Agent, each Noteholder
and all others participating in the distribution of such Pledged Stock against
all claims, losses, damages and liabilities caused by any untrue statement (or
alleged untrue statement) of a material fact contained therein (or in any
related registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same may have been caused by an untrue statement or omission based upon
information furnished in writing to such Pledgor by the Collateral Agent or such
Noteholder expressly for use therein.
(b) If at any time when the Collateral Agent shall determine to
exercise its right to sell all or any part of the Pledged Securities pursuant to
Section 7 hereof, and such Pledged Securities or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act of 1933, as then in effect, the Collateral Agent may, in its sole
and absolute discretion, sell such Pledged Securities or part thereof by private
sale in such manner and under such circumstances as the Collateral Agent may
deem necessary or advisable in order that such sale may legally be effected
without such registration. Without limiting the generality of the foregoing, in
any such event the Collateral Agent, in its sole and absolute discretion (i) may
proceed to make such private sale notwithstanding that a registration statement
for the purpose of registering such Pledged Securities or part thereof shall
have been filed under such Securities Act, (ii) may approach
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<PAGE>
and negotiate with a single possible purchaser to effect such sale, and (iii)
may restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Pledged Securities or part thereof. In the
event of any such sale, the Collateral Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Securities at a price which
the Collateral Agent, in its sole and absolute discretion, in good faith deems
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.
18. TERMINATION; RELEASE. After the Termination Date (as defined
below), this Agreement and the security interest created hereby shall terminate
(provided that all indemnities set forth herein including, without limitation,
in Section 11 hereof shall survive any such termination), and the Collateral
Agent, at the request and expense of any Pledgor, will execute and deliver to
such Pledgor a proper instrument or instruments acknowledging the satisfaction
and termination of this Agreement, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral as has not theretofore been sold or otherwise applied or
released pursuant to this Agreement, together with any moneys at the time held
by the Collateral Agent or any of its sub-agents hereunder. As used in this
Agreement, "Termination Date" shall mean the date upon which all Obligations
then owing have been paid in full and the Trustee has been furnished all
certificates or opinions as may be required by the Trust Indenture Act for the
release of Collateral.
19. NOTICES, ETC. All notices and communications hereunder shall be
sent or delivered by mail, telex, telecopy or overnight courier service and all
such notices and communications shall, when mailed, telexed, telecopied or sent
by overnight courier, be effective when deposited in the mails or delivered to
the overnight courier, prepaid and properly addressed for delivery on such or
the next Business Day, or sent by telex or telecopier, except that notices and
communications to the Collateral Agent shall not be effective until received by
the Collateral Agent. All notices and other communications shall be in writing
and addressed as follows:
(a) if to any Pledgor, at the address set forth opposite its
signature below;
(b) if to the Collateral Agent, at:
United States Trust Company
of New York
114 West 47th Street
25th Floor
New York, NY 10036
Attention: Corporate Trust Department
or at such other address as shall have been furnished in writing by any Person
described
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<PAGE>
above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms or provisions of this
Agreement may be amended, supplemented or otherwise modified except by a written
instrument executed by the Pledgors and the Collateral Agent, provided that any
provision of this Agreement may be waived by the Collateral Agent in a letter or
agreement executed by the Collateral Agent or by telecopy from the Collateral
Agent.
21. MISCELLANEOUS. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns and shall inure to the
benefit of and be enforceable by each of the parties hereto and its successors
and assigns. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Agreement
are for purposes of reference only and shall not limit or define the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which shall constitute one instrument. In
the event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
22. RECOURSE. This Agreement is made with full recourse to the
Pledgors and pursuant to and upon all the representations, warranties, covenants
and agreements on the part of the Pledgors contained herein and in the Security
Agreement and otherwise in writing in connection herewith or therewith.
23. ADDITIONAL PLEDGORS. It is understood and agreed that no
Subsidiaries of the Company exist on the date hereof. Any such Subsidiary
established or created after the date hereof and that is required to execute a
counterpart of this Agreement pursuant to the Indenture shall automatically
become a Pledgor hereunder by executing a counterpart hereof and delivering the
same to the Collateral Agent.
24. THE INDENTURE. In the performance of its duties and obligations
hereunder the Collateral Agent shall be entitled to the benefits of Articles 7
and 10 of the Indenture.
* * *
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<PAGE>
IN WITNESS WHEREOF, each Pledgor and the Collateral Agent have
caused this Agreement to be executed by their duly elected officers duly
authorized as of the date first above written.
Addresses:
19531 West 78th Street MENTUS MEDIA CORP.,
Eden Prairie, MN 55344 as a Pledgor
Telephone No.: (612) 944-7944
Telecopier No.: (612) 943-4299
Attention: Thomas J. Pugliese By _____________________________
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Collateral Agent
By _____________________________
Title:
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<PAGE>
ANNEX A
to
Pledge Agreement
<PAGE>
ANNEX B
to
Pledge Agreement
<PAGE>
Exhibit 4.1(d)
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of February 18, 1998, made by each
grantor listed on the signature pages hereof (each individually a "Grantor" and
collectively the "Grantors"), in favor of United States Trust Company of New
York as trustee (in such capacity, the "Trustee") under the Indenture referred
below, in its capacity as collateral agent (in such capacity, the "Collateral
Agent") for the ratable benefit of the registered holders (the "Noteholders") of
the 12% Senior Secured PIK Notes due 2003 (the "Notes") issued by Mentus Media
Corp., a Delaware corporation (the "Company"), under the Indenture dated as of
February 18, 1998 (the "Indenture"), between the Company and the Trustee.
W I T N E S S E T H :
WHEREAS, the Company and NatWest Capital Markets Limited (the
"Initial Purchaser") have entered into a Purchase Agreement dated February 12,
1998 (the "Purchase Agreement"), pursuant to which, among other things, the
Initial Purchaser has agreed to purchase the Notes from the Company; and
WHEREAS, it is a condition precedent to the obligations of the
Initial Purchaser to purchase the Notes under the Purchase Agreement, that the
Grantors shall have executed and delivered this Security Agreement to the
Collateral Agent;
NOW, THEREFORE, in consideration of the premises and to induce the
Initial Purchaser to enter into the Purchase Agreement and to purchase the
Notes, the Grantors hereby agree with the Collateral Agent, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Indenture and used herein are so used as so defined, and the
meanings assigned to terms defined herein or in the Indenture shall be equally
applicable to both the singular and plural forms of such terms; the following
terms which are defined in the Uniform Commercial Code in effect in the State of
New York on the date hereof are used herein as so defined: Chattel Paper,
Documents, Equipment, Farm Products, General Intangibles, Goods, Instruments,
Inventory and Proceeds; and the following terms shall have the following
meanings:
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<PAGE>
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"Books and Records" means all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data processing
software that at any time evidence or contain information relating to any of the
Collateral (as defined) or are otherwise necessary or helpful in the collection
thereof or realization thereupon.
"Closing Date" means February 18, 1998.
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.
"Computer Hardware and Software Collateral" means (a) all computer
and other electronic data processing hardware, integrated computer systems,
central processing units, memory units, display terminals, printers, features,
computer elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories and all
peripheral devices and other related computer hardware; (b) all software
programs (including both source code, object code and related applications and
data files), whether now owned, licensed or leased or hereafter acquired by each
Grantor, designed for use on the computers and electronic data processing
hardware described in clause (a) above; (c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams, manuals, guides
and specifications) with respect to such hardware, software and firmware
described in the preceding clauses (a) through (c); and (e) all rights with
respect to all of the foregoing, including, without limitation, any and all
copyrights, licenses, options, warranties, service contracts, program services,
test rights, maintenance rights, support rights, improvement rights, renewal
rights and indemnifications and any substitutions, replacements, additions or
model conversions of any of the foregoing, but excluding any license or lease to
the extent that the terms thereof prohibit (after giving effect to any approvals
or waivers) the assignment of, or granting a security interest in, such license
or lease (it being understood and agreed, however, that notwithstanding the
foregoing, all rights to payment for money due or to become due pursuant to any
such excluded license or lease shall be subject to the security interests
created by this Agreement).
"Contracts" means the contracts entered into by each Grantor,
including, without limitation, (a) all rights of each Grantor to receive moneys
due and to become due to it thereunder or in connection therewith, (b) all
rights of each Grantor to damages arising out of, or for, breach or default in
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<PAGE>
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respect thereof and (c) all rights of each Grantor to perform and exercise all
remedies thereunder, but excluding any contract to the extent that the terms
thereof prohibit (after giving effect to any approvals or waivers) the
assignment of, or granting a security interest in, such contract (it being
understood and agreed, however, that notwithstanding the foregoing, all rights
to payment for money due or to become due pursuant to any such excluded contract
shall be subject to the security interests created by this Agreement).
"Copyright License" means any written agreement naming any Grantor
as licensor or licensee or granting any right under any Copyright, including the
agreements described in Schedule I hereto.
"Copyrights" means (a) all copyrights of any Grantor, whether
published or unpublished and whether now or hereafter in force throughout the
world, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Copyright office referred to in Schedule I
hereto and (b) all renewals thereof.
"Deposits" means, with respect to any Grantor, all cash, money,
currency and deposit accounts, including, without limitation, demand, time,
savings, passbooks or similar accounts maintained with banks, savings and loan
associations or other financial institutions (but excluding deposit accounts
maintained in trust by such Grantor or otherwise segregated from other funds of
such Grantor for the benefit of customers of such Grantor and containing only
funds owing to such customers).
"Obligations" shall mean the unpaid principal amount of, or any
premium applicable to, and interest on the Notes (including, without limitation,
interest accruing after the maturity of the Notes and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Grantor, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
and all other obligations and liabilities of any Grantor to the Noteholders or
the Collateral Agent (including as Trustee under the Indenture), whether direct
or indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Notes, the Indenture or this Security Agreement (in each such case as the same
may be amended, supplemented or modified from time to time) and any other
document made, delivered or given in connection therewith or herewith, whether
on account of principal, premium, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel) or otherwise.
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<PAGE>
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"Patent License" means any agreement providing for the grant by or
to any Grantor of any right under any patent or patent application, or any
Patent, and all license rights, immunities from suit and all other rights and
interests conferred by or to any Grantor with respect to patents, patent
applications, utility models and utility model applications under all licenses
and agreements.
"Patents" means any and all now or in the future issued or
registered, anywhere in the world, patents and utility models, and any and all
now or in the future filed, anywhere in the world, patent applications and
utility model applications, whose subject matter is now or hereafter conceived,
or reduced to practice, or which is now or hereafter owned, acquired or
controlled, by any Grantor under which such Grantor has the right to grant
licenses; and all divisions, continuations, and continuations-in-part of,
substitutions for and additions to any of the foregoing patent and utility model
applications directly or through one or more intervening applications, and all
reissues, reexaminations, renewals, and extensions of any such patents and
utility models, including, without limitation, any thereof referred to in
Schedule II hereto.
"Pledged Equipment" means that certain equipment pledged pursuant to
(i) the Security Agreement dated as of January 1, 1997 between the Company and
Outdoor Advertising, LLC, and (ii) the Security Agreement dated as of August 18,
1997 between Morris Communications, Inc. and the Company.
"Pledged Equipment Seller" means Adams Outdoor Advertising, LLC or
Morris Communications, Inc.
"Receivables" means any "account" as such term is defined in the
Code as in effect on the date hereof in the State of New York, now or hereafter
owned by any Grantor and, in any event, shall include, but not be limited to,
all the Company's or any Restricted Subsidiary's rights to payment for goods
sold or leased or services performed by the any Grantor, whether now in
existence or arising from time to time hereafter, including, without limitation,
rights evidenced by an account, note, contract, security agreement, chattel
paper, or other evidence or indebtedness or security, together with (a) all
security pledged, assigned, hypothecated or granted to or held by any Grantor to
secure the foregoing, (b) all of such Grantor's right, title and interest in and
to any goods, the sale of which gave rise thereto, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, (d) all
powers or attorney for the execution of any evidence of indebtedness or security
or other writing in connections therewith, (e) all books, records, ledger cards,
and invoices related thereto, (f) all evidence of the filing of financing
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<PAGE>
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statements and other statements and the registration of other instruments in
connection therewith and amendments thereto, notices to other creditors or
secured parties, and certificates from filing or other registration officers,
(g) all credit information, reports and memoranda relating thereto and (h) all
other writings related in any way to the foregoing.
"Security" means any "security," as such term is defined in Article
8 of the Code and, in any event, shall include, but not be limited to, any
obligation of an "issuer" (as such term is defined in Article 8 of the Code), or
a share, participation, or other interest in an issuer or in property or an
enterprise of an issuer: (a) which is represented by a Security certificate in
bearer or registered form, or the transfer of which may be registered upon books
maintained for that purpose by or on behalf of the issuer; (b) which is one of a
class or series or by its terms is divisible into a class or series of shares,
participations, interests, or obligations; and (c) which (i) is, or is of a
type, dealt in or traded on securities exchanges or securities markets; or (ii)
is a medium for investment and by its terms expressly provides that it is a
security governed by Article 8 of the Code.
"Security Agreement" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"Termination Date" means the date upon which the Grantors under this
Security Agreement, the Pledgors under the Pledge Agreement dated as of the date
hereof among the pledgors named therein and the Collateral Agent and the Company
under the Indenture have fulfilled all obligations under the Notes and the
aforementioned agreements.
"Trademark License" means any agreement providing for the grant by
or to any Grantor of any right to use any Trademark, including, without
limitation, any thereof referred to in Schedule III hereto.
"Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers of any Grantor, now
existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, and the goodwill associated therewith, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, any thereof referred to in Schedule
III hereto, and (b) all renewals thereof.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, each Grantor
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<PAGE>
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hereby grants to the Collateral Agent a security interest for the benefit of the
Holders in all of the following property now owned or at any time hereafter
acquired by such Grantor or in which such Grantor now has or at any time in the
future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all Receivables;
(ii) all Chattel Paper;
(iii) all Computer Hardware and Software Collateral;
(iv) all Contracts;
(v) all Copyrights;
(vi) all Copyright Licenses;
(vii) all Deposits;
(viii) all Documents;
(ix) all Equipment;
(x) all Goods;
(xi) all General Intangibles;
(xii) all Patents;
(xiii) all Patent Licenses;
(xiv) all Instruments;
(xv) all Inventory;
(xvi) all Trademarks;
(xvii) all Trademark Licenses;
(xviii) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing; and
(xix) all Books and Records related to the foregoing; provided
however, in the case of Collateral described in clauses (ii), (iv), (v),
(vi),
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<PAGE>
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(viii), (xi), (xii), (xiii), (xiv), and (xvi) the assignment of, or
granting of a security interest in, such property are permitted (it being
understood and agreed, however, that notwithstanding the foregoing, all
rights to payment for money due or to become due pursuant to any such
excluded property shall be subject to the security interest created by
this Agreement.
3. Rights of the Collateral Agent; Limitations on the Collateral
Agent's Obligations.
(a) Grantors Remain Liable under Receivables and Contracts. Anything
herein to the contrary notwithstanding, each Grantor shall remain liable under
each of its Receivables and Contracts to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Receivable and in
accordance with and pursuant to the terms and provisions of each such Contract.
The Collateral Agent shall not have any obligation or liability under any
Receivable (or any agreement giving rise thereto) or under any Contract by
reason of or arising out of this Security Agreement or the receipt by the
Collateral Agent of any payment relating to such Receivable or Contract pursuant
hereto, nor shall the Collateral Agent be obligated in any manner to perform any
of the obligations of any Grantor under or pursuant to any Receivable (or any
agreement giving rise thereto) or under or pursuant to any contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Receivable (or any agreement giving rise thereto) or under any Contract, to
present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) Notice to Receivable Debtors and Contracting Parties. Upon the
request of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, each Grantor shall notify account debtors on
its Receivables and parties to the Contracts that the Receivables and each
Contract have been assigned to the Collateral Agent for the benefit of the
Noteholders and the Collateral Agent and that payments in respect thereof shall
be made directly to the Collateral Agent. The Collateral Agent may in its own
name or in the name of others communicate with account debtors on the
Receivables and parties to the Contracts to verify with them to its satisfaction
the existence, amount and terms of any Receivables or Contracts.
(c) Analysis of Receivables. The Collateral Agent shall have
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the right to make test verifications of the Receivables in any manner and
through any medium that it reasonably considers advisable, and each Grantor
shall furnish all such assistance and information as the Collateral Agent may
require in connection therewith. At any time and from time to time, upon the
Collateral Agent's request and at the expense of each Grantor, each Grantor
shall cause independent public accountants or others satisfactory to the
Collateral Agent to furnish to the Collateral Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Receivables.
(d) Collections on Receivables. If required by the Collateral Agent
after the occurrence and during the continuance of an Event of Default, any
payments of Receivables, when collected by any Grantor, shall be forthwith (and,
in any event, within two Business Days) deposited by such Grantor in the exact
form received, duly indorsed by such Grantor to the Collateral Agent if
required, in a special collateral account maintained by the Collateral Agent,
and, until so turned over, shall be held by such Grantor in trust for the
Collateral Agent, segregated from other funds of such Grantor. Each deposit of
any such Proceeds shall be accompanied by a report identifying in reasonable
detail the nature and source of the payments included in the deposit. All
Proceeds constituting collections of Receivables while held by the Collateral
Agent (or by the Grantor in trust for the Collateral Agent) shall continue to be
collateral security for all of the Obligations and shall not constitute payment
thereof until applied as hereinafter provided. At any time after the occurrence
and during the continuance of an Event of Default, at the Collateral Agent's
election, the Collateral Agent shall apply all or any part of the funds on
deposit in said special collateral account on account of the Obligations in such
order as the Collateral Agent may elect, and any part of such funds which the
Collateral Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Collateral Agent to the applicable Grantor or to whomsoever may be lawfully
entitled to receive the same. After the occurrence and during the continuance of
an Event of Default, at the Collateral Agent's request, the Grantors shall
deliver to the Collateral Agent all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.
4. Representations and Warranties. Each Grantor hereby represents
and warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Collateral Agent pursuant to this Security Agreement, such Grantor owns each
item of the Collateral free and clear of any and all Liens or claims of others
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except as permitted by the Indenture. No security agreement, financing statement
or other public notice with respect to all or any part of the Collateral is on
file or of record in any public office, except as permitted by the Indenture and
such as may have been filed in favor of the Collateral Agent, pursuant to this
Security Agreement.
(b) Perfected First Priority Liens. The Liens granted pursuant to
this Security Agreement will constitute upon the completion of all necessary
filings or notices in proper public offices or the taking of any necessary
possessions or similar acts, perfected Liens on all Collateral, which are,
except as permitted by the Indenture, prior to all other Liens on such
Collateral created by such Grantor and in existence on the date hereof and which
are enforceable as such against all creditors of such Grantor.
(c) Receivables. The amount represented by such Grantor to the
Collateral Agent from time to time as owing by each account debtor or by all
account debtors in respect of the Receivables will at such time be the correct
amount actually owing by such account debtor or debtors thereunder. No amount
payable to such Grantor under or in connection with any Receivable is evidenced
by any Instrument or Chattel Paper which has not been delivered to the
Collateral Agent. The place where each Grantor keeps its records concerning the
Receivables is set forth on Schedule IV hereto.
(d) Consents. No consent of any party to any Contract is required,
or purports to be required, in connection with the execution, delivery and
performance of this Security Agreement.
(e) Bank Accounts. The bank accounts with the banks listed on
Schedule V hereto are the only bank or deposit accounts that such Grantor
currently maintains.
(f) Inventory and Equipment. The Inventory and the Equipment with an
aggregate value in excess of $25,000 are kept at the locations listed on
Schedule VI hereto and have not been kept at any other location within the
five-month period ending on the Closing Date.
(g) Chief Executive Office. Each Grantor's chief executive office
and chief place of business is located at the offices listed in Schedule VII.
(h) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(i) Governmental Obligors. None of the obligors on any
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Receivable with a value greater than $150,000 is a Governmental Authority.
5. Covenants. Each Grantor covenants and agrees with the Collateral
Agent, from and after the date of this Security Agreement until the Obligations
are paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
At any time and from time to time, upon the written request of the Collateral
Agent, and at the sole expense of each Grantor, each Grantor will promptly and
duly execute and deliver such further instruments and documents and take such
further action as the Collateral Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Security Agreement and of the
rights and powers herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any such jurisdiction with respect to the Liens created hereby. Each
Grantor also hereby authorizes the Collateral Agent to file any such financing
or continuation statement without the signature of such Grantor to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Security Agreement shall be sufficient as a financing statement for filing
in any jurisdiction. If any amount payable under or in connection with any of
the Collateral shall be or become evidenced by any Instrument or Chattel Paper,
such Instrument or Chattel Paper shall be immediately delivered to the
Collateral Agent, duly endorsed in a manner satisfactory to the Collateral
Agent, to be held as Collateral pursuant to this Security Agreement.
(b) Indemnification. Each Grantor agrees to pay, and to save the
Collateral Agent harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (i) with respect to, or
resulting from, any delay in paying, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (ii) with respect to, or resulting from, any delay in complying with
any requirement of law applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Security Agreement.
In any suit, proceeding or action brought by the Collateral Agent under any
Receivable or Contract for any sum owing thereunder, or to enforce any
provisions of any Receivable or Contract, each Grantor will save, indemnify and
keep the Collateral Agent harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or reduction
or liability whatsoever of the account debtor or obligor thereunder, arising out
of a breach by such Grantor of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to or in favor of
such account debtor or obligor or its successors from such Grantor.
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(c) Maintenance of Records. Each Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Receivables. For the Collateral Agent's further
security, the Collateral Agent shall have a security interest in all of each
Grantor's books and records pertaining to the Collateral, and each Grantor shall
turn over any such books and records for inspection at the office of such
Grantor to the Collateral Agent or to its representatives during normal business
hours at the request of the Collateral Agent.
(d) Limitation on Liens on Collateral. Each Grantor (x) will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than the Liens created hereby and other than as permitted by
the Indenture, and (y) will defend the right, title and interest of the
Collateral Agent in and to any of the Collateral against the claims and demands
of all Persons whomsoever.
(e) Limitations on Dispositions of Collateral. Each Grantor will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except as permitted by the Indenture.
(f) Limitations on Modifications, Waivers, Extensions of Contracts
and Agreements Giving Rise to Receivables. Each Grantor will not (i) except in
the ordinary course of its business, amend, modify, terminate or waive any
provision of any Contract or any agreement giving rise to a Receivable in any
manner which could reasonably be expected to materially adversely affect the
value of such Contract or Receivable as Collateral, or (ii) fail to deliver to
the Collateral Agent a copy of each material demand, notice or document received
by it relating in any way to any Contract or any agreement giving rise to a
Receivable in excess of $250,000.
(g) Limitations on Discounts, Compromises, Extensions of
Receivables. Other than in the ordinary course of business as generally
conducted by each Grantor over a period of time, each Grantor will not grant any
extension of the time of payment of any of the Receivables, compromise, compound
or settle the same for less than the full amount thereof, release, wholly or
partially, any Person liable for the payment thereof, or allow any credit or
discount whatsoever thereon, to the extent that the same, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, properties, assets, liabilities, results of operations, condition
(financial or other) or prospects of such Grantor.
(h) Further Identification of Collateral. Each Grantor will
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furnish to the Collateral Agent from time to time, statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably request,
all in reasonable detail.
(i) Notices. Each Grantor will advise the Collateral Agent promptly,
in reasonable detail of, (i) any Lien (other than Liens created hereby or
permitted under the Indenture) on, or claim asserted against, any of the
Collateral, (ii) the opening by such Grantor of any bank or deposit account
after the Closing Date, (iii) any Receivable arising after the Closing Date with
respect to which the obligor thereon is a Governmental Authority if the
aggregate outstanding amount of such Receivable exceeds $150,000 and (iv) the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the Liens
created hereunder.
(j) Changes in Locations, Name, etc. Each Grantor will not (i)
change the location of its chief executive office/chief place of business from
that specified in Section 4(g) or remove its books and records from the location
specified in Section 4(c), (ii) to the extent that a financing statement or
statements necessary to perfect the security interest created hereby in such
inventory has not been filed in the appropriate places, permit any of the
Inventory or Equipment to be kept at a location other than that specified in
Section 4(f) or (iii) change its name, identity or corporate structure to such
an extent that any financing statement filed by the Collateral Agent in
connection with this Agreement would become misleading, unless it shall have
given the Collateral Agent at least 30 days' prior written notice thereof.
(k) Copyrights. (i) Each Grantor (either itself or through
licensees) will (a) employ each Copyright with appropriate copyright notice
consistent with its past practice and (b) not knowingly (and not permit any
licensee or sublicensee thereof knowingly to) do any act or knowingly omit to do
any act whereby any Copyright or any portion of the Copyright may become
invalidated.
(ii) Each Grantor will not (either itself or through licensees)
knowingly do any act, or omit to do any act, whereby any Copyright or any
portion of the Copyrights may become injected into the public domain.
(iii) Each Grantor shall notify the Collateral Agent immediately if
it knows, or has reason to know, that any Copyright or any portion of the
Copyrights may become injected into the public domain or of any adverse
determination (including, without limitation, the institution of, or any such
determination or development in, any court or tribunal in the United States or
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any other country) regarding such Grantor's ownership of any Copyright or any
portion of the Copyrights.
(iv) Each Grantor will, with respect to any Copyright that such
Grantor registers after the Closing Date or any Copyright License that such
Grantor knowingly acquires after the Closing Date, promptly (i) take all actions
necessary so that the Collateral Agent shall obtain a perfected security
interest in such Copyright or Copyright License and (ii) provide to the
Collateral Agent a revised Schedule I hereto listing all registered Copyright
and all Copyright Licenses owned by such Grantor.
(v) On each December 31 of each year following the Closing Date (or,
if the Collateral Agent so requests in writing, more often), each Grantor either
itself or through any agent, employee, licensee or designee, shall provide to
the Collateral Agent a document confirming the Collateral Agent's security
interest in all Copyrights and Copyright Licenses acquired by such Grantor
during the preceding calendar year. Each Grantor shall execute and deliver any
and all additional agreements, instruments, documents, and papers as the
Collateral Agent may reasonably request or as may otherwise be required by law
to confirm the Collateral Agent's security interest in such Copyrights and
Copyright Licenses, and each Grantor hereby constitutes the Collateral Agent its
attorney-in-fact to file all such writings for the foregoing purposes, all
lawful acts of such attorney being hereby ratified and confirmed; such power
being coupled with an interest is irrevocable until the Obligations are paid in
full.
(vi) Each Grantor will take all reasonable and necessary steps as it
shall deem appropriate under the circumstances, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of each Copyright owned by such Grantor including, without
limitation, filing of applications for renewal, where necessary. Nothing set
forth in this Agreement shall create an obligation of the Company to register
any Copyright.
(vii) Each Grantor will promptly notify the Collateral Agent of any
infringement of any Copyright or any portion of the Copyrights of which it
becomes aware and will take all appropriate steps to stop the infringement as
are reasonably mutually agreed upon by such Grantor and the Collateral Agent.
(viii) Each Grantor will deliver to the Collateral Agent on the
Closing Date an assignment of security interest in United States Copyrights
substantially in the form of Annex C hereto.
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(l) Trademarks. (i) Each Grantor (either itself or through
licensees) will, with respect to each Trademark, (i) continue to use such
Trademark to the extent necessary to maintain such Trademark in full force free
from any claim of abandonment for non-use, if consistent with its overall
business plan or if to do otherwise would be an unsound commercial and business
judgment, (ii) maintain as in the past the quality of products and services
offered under such Trademark, (iii) employ such Trademark with the appropriate
notice of registration, (iv) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark may
become invalidated other than solely (x) through the discontinuance of the sale
of goods or the provision of services or (y) the abandonment of a Trademark
where, in each such case covered by (x) and (y) above, the Collateral Agent
shall have received not less than fifteen (15) days' prior written notice of any
such discontinuance or abandonment and such Grantor shall have acted in a manner
consistent with its overall business plan and the exercise of sound commercial
and business judgment. Nothing in this Security Agreement shall restrict such
Grantor from adding new goods and services to its business or, upon not less
than fifteen (15) days' prior written notice to the Collateral Agent and in a
manner consistent with such Grantor's overall business plan and the exercise of
sound commercial and business judgment, discontinuing the provision of goods or
services and thereby abandoning any Trademark relating thereto.
(ii) Each Grantor will notify the Collateral Agent immediately if it
knows, or has reason to know, that any application or registration relating to
any Trademark may become abandoned, or of any adverse determination or
development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office or any court or tribunal in any country) regarding such
Grantor's ownership of any Trademark or its right to register the same or to
keep and maintain the same.
(iii) Each Grantor will, with respect to any Trademark that such
Grantor registers after the Closing Date or any Trademark License that such
Grantor acquires after the Closing Date, promptly (i) take all actions necessary
so that the Collateral Agent shall obtain a perfected security interest in such
Trademark or Trademark License and (ii) provide to the Collateral Agent a
revised Schedule III hereto listing all registered Trademarks and all Trademark
Licenses owned by such Grantor.
(iv) On each December 31 of each year following the Closing Date
(or, if the Collateral Agent so requests in writing, more often), each Grantor
either itself or through any agent, employee, licensee or designee,
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shall provide to the Collateral Agent, a document confirming the Collateral
Agent's security interest in any Trademark with respect to which such Grantor
has filed an application for registration during the preceding calendar year.
Each Grantor shall execute and deliver any and all agreements, instruments,
documents, and papers as the Collateral Agent may request or as may otherwise be
required by law to evidence the Collateral Agent's security interest in any
Trademark and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby, and each Grantor hereby constitutes the
Collateral Agent its attorney-in-fact to execute and file all such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power being coupled with an interest is irrevocable until the
Obligations are paid in full.
(v) Each Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability. Notwithstanding the
foregoing, each Grantor may decline to maintain and pursue each of its
applications and decline to maintain each of its registrations as aforesaid upon
not less than fifteen (15) days' prior written notice to the Collateral Agent
and if to so decline is consistent with such Grantor's overall business plan and
is an exercise of sound commercial and business judgment.
(vi) In the event that any Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party, each Grantor shall
promptly notify the Collateral Agent after it learns thereof and shall promptly
take all appropriate steps to stop the infringement as are reasonably mutually
agreed upon by such Grantor and the Collateral Agent.
(vii) Each Grantor will deliver to the Collateral Agent on the
Closing Date an assignment of security interest in United States Trademarks
substantially in the form of Annex A hereto.
(m) Patents. (i) Each Grantor will notify the Collateral Agent
immediately if it knows, or has reason to know, that any application relating to
any Patent may become abandoned or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office
or any court or tribunal in any country) regarding such Grantor's ownership of
any Patent.
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(ii) Each Grantor will, with respect to any Patent that such Grantor
obtains after the Closing Date or any Patent License that such Grantor acquires
after the Closing Date, promptly (i) take all actions necessary so that the
Collateral Agent shall obtain a perfected security interest in such Patent or
Patent License and (ii) provide to the Collateral Agent a revised Schedule II
hereto listing all Patents and all Patent Licenses owned by such Grantor.
(iii) On each December 31 of each year following the Closing Date
(or, if the Collateral Agent so requests in writing, more often), each Grantor
either itself or through any agent, employee, licensee or designee, shall
provide to the Collateral Agent, a document confirming the Collateral Agent's
security interest in any Patent or Patent License which such Grantor has
obtained during the preceding calendar year. Each Grantor shall execute and
deliver any and all agreements, instruments, documents, and papers as the
Collateral Agent may request or as otherwise may be required by law to evidence
the Collateral Agent's security interest in such Patents or Patent Licenses, and
each Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
execute and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Obligations are paid in full.
(iv) Each Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each patent or
application for patent and to maintain each Patent, including, without
limitation, payment of maintenance fees. Notwithstanding the foregoing, each
Grantor may decline to maintain and pursue each of its patents and applications
for patents and decline to maintain each Patent as aforesaid upon not less than
fifteen (15) days' prior written notice to the Collateral Agent and if to so
decline is consistent with such Grantor's overall business plan and is an
exercise of sound commercial and business judgment.
(v) In the event that any Patent included in the Collateral is
infringed by a third party, each Grantor shall promptly notify the Collateral
Agent after it learns thereof and shall promptly take all appropriate steps to
stop the infringement as are reasonably mutually agreed upon by such Grantor and
the Collateral Agent.
(vi) Each Grantor will deliver to the Collateral Agent on the
Closing Date an assignment of security interest in United States Patents
substantially in the form of Annex B hereto.
(n) Patent Licenses. Each Grantor shall comply with its
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obligations under each of its license agreements relating to each Patent.
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. Each Grantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time (in the Collateral Agent's
discretion) for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Collateral Agent the power and right,
on behalf of such Grantor, without notice to or assent by such Grantor, except
any notice required by law referred to in Section 9 hereof, to do the following:
(i) at any time when any Event of Default shall have occurred and is
continuing, in the name of such Grantor or its own name, or otherwise,
upon five days notice to the Grantor, to take possession of and indorse
and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under any Receivable, Instrument, General
Intangible or Contract or with respect to any other Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Collateral Agent for the
purpose of collecting any and all such moneys due under any Receivable,
Instrument, General Intangible or Contract or with respect to any other
Collateral whenever payable;
(ii) if the Company has failed to do so within a reasonable time, to
pay or discharge taxes and Liens levied or placed on or threatened against
the Collateral, to effect any repairs or any insurance called for by the
terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (B) to ask for or demand, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (C) to
sign and indorse any invoices, freight or
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express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other documents
in connection with any of the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against such Grantor with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith, to
give such discharges or releases as the Collateral Agent may deem
appropriate; (G) to assign any Copyright or Trademark (along with the
goodwill of the business to which any such Copyright or Trademark
pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Collateral Agent shall in its sole
discretion determine; and (H) generally, to sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Collateral Agent were the
absolute owner thereof for all purposes, and to do, at the Collateral
Agent's option and such Grantor's expense, at any time, or from time to
time, all acts and things which the Collateral Agent deems necessary to
protect, preserve or realize upon the Collateral and the Collateral
Agent's Liens thereon and to effect the intent of this Security Agreement,
all as fully and effectively as the Grantor might do.
Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Obligations are paid in full.
(b) Other Powers. Each Grantor also authorizes the Collateral Agent,
at any time and from time to time, to execute, in connection with the sale
provided for in Section 9 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Collateral Agent's Part. The powers conferred on the
Collateral Agent hereunder are solely to protect the Collateral Agent's
interests in the Collateral and shall not impose any duty upon the Collateral
Agent to exercise any such powers. The Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to such Grantor for any act or failure to act hereunder,
except for their own gross negligence or willful misconduct.
7. Performance by Collateral Agent of Each Grantor's Obligations. If
any Grantor fails to perform or comply with any of its
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agreements contained herein and the Collateral Agent, as provided for by the
terms of this Security Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the expenses of the
Collateral Agent incurred in connection with such performance or compliance,
together with interest thereon, shall be payable by such Grantor to the
Collateral Agent on demand and shall constitute Obligations secured hereby.
8. Proceeds. In addition to the rights of the Collateral Agent
specified in Section 3(d) with respect to payments of Receivables, it is agreed
that if an Event of Default shall occur and be continuing (a) all Proceeds
received by each Grantor consisting of cash, checks and other instruments shall
be held by such Grantor in trust for the Collateral Agent, segregated from other
funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be
turned over to the Collateral Agent in the exact form received by such Grantor
(duly indorsed by such Grantor to the Collateral Agent, if required), and (b)
any and all such Proceeds received by the Collateral Agent (whether from such
Grantor or otherwise) may, in the sole discretion of the Collateral Agent, be
held by the Collateral Agent as collateral security for, and/or then or at any
time thereafter may be applied by the Collateral Agent against, the Obligations
(whether matured or unmatured), such application to be in such order as the
Collateral Agent shall elect. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full shall be paid over to such Grantor or
to whomsoever may be lawfully entitled to receive the same.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Collateral Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses, advertisements and notices are,
to the extent permitted by applicable law, hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Collateral Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent shall have the right upon any such public sale or sales,
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and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in such Grantor, which right or equity is hereby waived, to
the extent permitted by applicable law, or released. Each Grantor further
agrees, at the Collateral Agent's request, to assemble the Collateral and make
it available to the Collateral Agent at places which the Collateral Agent shall
reasonably select, whether at such Grantor's premises or elsewhere. The
Collateral Agent shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Collateral Agent hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Collateral Agent may elect, and only after
such application and after the payment by the Collateral Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Collateral Agent account for the surplus, if
any, to such Grantor. To the extent permitted by applicable law, such Grantor
waives all claims, damages and demands it may acquire against the Collateral
Agent arising out of the exercise by them of any rights hereunder. If any notice
of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition. Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Collateral Agent to collect such deficiency.
In furtherance, but not in limitation of, the foregoing, if an Event
of Default shall occur and be continuing, each Grantor shall assign, license, or
sublicense, as requested by Collateral Agent, any or all of the Patent Licenses
to the Collateral Agent.
10. Limitation on Duties Regarding Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. Neither the
Collateral Agent, nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or
otherwise.
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11. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest until the Obligations are indefeasibly paid in full.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver; Cumulative Remedies. The Collateral Agent shall not
by any act (except by a written instrument pursuant to Section 15 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Collateral Agent, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Agent of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Collateral Agent would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law.
15. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Grantor and the Collateral Agent, provided that any provision of this
Security Agreement may be waived by the Collateral Agent in a written letter or
agreement executed by the Collateral Agent or by facsimile transmission from the
Collateral Agent. This Security Agreement shall be binding upon the successors
and assigns of each Grantor and shall inure to the benefit of the Collateral
Agent, the Holders and their respective successors and assigns.
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16. Termination of Security Interest; Release of Collateral. (a)
Upon the repayment in full of all Obligations, the security interest granted in
the Collateral pursuant to this Security Agreement shall terminate and all
rights to the Collateral shall revert to the Grantors.
(b) Upon (i) any such termination of the security interest granted
in the Collateral pursuant to this Security Agreement or release of Collateral
pursuant to this Section and (ii) the Collateral Agent having been furnished all
certificates and opinions as may be required by the Trust Indenture Act, the
Collateral Agent will, at the expense of each Grantor, execute and deliver to
each Grantor such documents as such Grantor shall reasonably request to evidence
the termination of such security interest and deliver to such Grantor all
Collateral so released then in its possession.
17. Notices. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service, (i) if to a Grantor, addressed to it at its chief
executive office listed in Schedule VII, or at such other address as such
Grantor shall have specified to the Collateral Agent, and (ii) if to the
Collateral Agent, addressed to it at United States Trust Company of New York,
114 West 47th Street, 25th Floor, New York, New York 10036-1532, Attention:
Corporate Trust Department.
18. Grant of Access to Trademark, Trademark License, Copyright,
Copyright License, Patent or Patent License or Collateral. For the purposes of
enabling the Collateral Agent to exercise rights and remedies under Sections 6
and 9 hereof at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent during the continuance of an Event of Default access to all media in which
any Trademark, Copyright, Patent, Trademark License, Copyright License or Patent
License may be recorded or stored and to all computer and automatic machinery
software and programs used for the compilation or printout thereof to the extent
that such Grantor may lawfully do so.
19. Integration. This Security Agreement represents the agreement of
each Grantor and the Collateral Agent with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by the
Collateral Agent relative to subject matter hereof not expressly set forth or
referred to herein or in the Securities and the Indenture.
20. GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF EACH GRANTOR UNDER THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED
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AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST CREATED HEREBY, IN RESPECT OF ANY PARTICULAR COLLATERAL,
ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
21. Additional Grantors. It is understood and agreed that no
Subsidiaries of the Company exist on the date hereof. Any such Subsidiary
established or created after the date hereof and that is required to become a
Subsidiary Guarantor pursuant to Section 4.19 of to the Indenture shall
automatically become a Grantor hereunder by executing a counterpart hereof and
delivering the same to the Collateral Trustee.
22. The Indenture. In the performance of its duties and obligations
hereunder, the Collateral Agent shall be entitled to the benefits of Articles 7
and 10 of the Indenture.
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IN WITNESS WHEREOF, each Grantor has caused this Security
Agreement to be duly executed and delivered as of the date first above written.
GRANTOR: MENTUS MEDIA CORP.
By____________________________
Name:
Title:
Accepted and Agreed:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Collateral Agent
By_____________________________
Name:
Title:
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<PAGE>
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SCHEDULE I
Copyrights and Copyright Licenses
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<PAGE>
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SCHEDULE II
Patents and Patent Licenses
U.S. Patent No. Description Expiration
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<PAGE>
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SCHEDULE III
Trademarks and Trademark Licenses
Trademark Name Serial/Registration Application or
Number Registration
Date
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<PAGE>
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SCHEDULE IV
Location of Records Regarding Receivables
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<PAGE>
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SCHEDULE V
Bank Accounts
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<PAGE>
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SCHEDULE VI
Location of Inventory and Equipment
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<PAGE>
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SCHEDULE VII
Chief Executive Offices
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Annex A
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of
which are hereby acknowledged, the undersigned with principal offices at the
address set forth next to their name appearing in the signature pages hereof,
(each individually an "Assignor" and collectively the "Assignors") hereby
assigns and grants to United States Trust Company of New York, as Collateral
Agent, with principal offices at 114 West 47th Street, 25th Floor, New York, New
York 10036 (the "Assignee"), a security interest in (i) all of the Assignors'
right, title and interest in and to the United States trademarks, trademark
registrations and trademark applications (the "Marks") set forth on Schedule A
attached hereto, together with (ii) all Proceeds (as such term is defined in the
Security Agreement referred to below) and products of the Marks, (iii) the
goodwill of the businesses symbolized by the Marks and (iv) all causes of action
arising prior to or after the date hereof for infringement of any of the Marks
or unfair competition regarding the same.
THIS ASSIGNMENT is made to secure the full and prompt performance
and payment of all the Obligations of the Assignors, as such term is defined in
the Security Agreement among the Assignors, the other assignors party thereto
and the Assignee, dated as of February 18, 1998 (as amended from time to time,
the "Security Agreement"). Upon the occurrence of the Termination Date (as
defined in the Security Agreement), the Assignee shall, upon such satisfaction,
execute, acknowledge, and deliver to the Assignors an
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<PAGE>
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ANNEX A
Page 2
instrument in writing releasing the security interest in the Marks acquired
under this Assignment.
This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
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<PAGE>
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ANNEX A
Page 3
IN WITNESS WHEREOF, the undersigned have executed this Assignment of
Security Interest as of the 18th day of February, 1998.
MENTUS MEDIA CORP.
as Assignor
By______________________________
Name:
Title:
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<PAGE>
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[To be notarized for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 18th day of February, 1998 before me personally came Michael
J. Kolthoff who, being by me duly sworn, did state as follows: that [s]he is
Treasurer of Mentus Media Corp., that [s]he is authorized to execute the
foregoing Assignment of Security Interest on behalf of said corporation and that
[s]he did so by authority of the Board of Directors of said corporation.
----------------------------
Notary Public
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<PAGE>
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Annex B
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of
which are hereby acknowledged, the undersigned with principal offices at the
address set forth next to their name appearing in the signature pages hereof
(each individually an "Assignor" and collectively the "Assignors") hereby
assigns and grants to United States Trust Company of New York as Collateral
Agent, with principal offices at 114 West 47th Street, 25th Floor, New York, New
York 10036 (the "Assignee"), a security interest in (i) all of the Assignors'
right, title and interest in and to the United States patents (the "Patents")
set forth on Schedule A attached hereto, together with (ii) all Proceeds (as
such term is defined in the Security Agreement referred to below) and products
of the Patents and (iii) all causes of action arising prior to or after the date
hereof for infringement of any of the Patents or unfair competition regarding
the same.
THIS ASSIGNMENT is made to secure the full and prompt performance
and payment of all the Obligations of the Assignors, as such term is defined in
the Security Agreement among the Assignors, the other assignors party thereto
and the Assignee, dated as of February 18, 1998 (as amended from time to time,
the "Security Agreement"). Upon the occurrence of the Termination Date (as
defined in the Security Agreement), the Assignee shall, upon such satisfaction,
execute, acknowledge, and deliver to the Assignors an instrument in writing
releasing the security interest in the Patents acquired
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<PAGE>
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ANNEX B
Page 2
under this Assignment.
This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
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<PAGE>
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ANNEX B
Page 3
IN WITNESS WHEREOF, the undersigned have executed this Assignment of
Security Interest as of the 18th day of February, 1998.
Address:
MENTUS MEDIA CORP.
as Assignor
By______________________________
Name:
Title:
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<PAGE>
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[Notarized for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 18th day of February, 1998 before me personally came
_______________, who being duly sworn, did depose and say that [s]he is
Treasurer of Mentus Media Corp., that [s]he is authorized to execute the
foregoing Assignment of Security Interest on behalf of said corporation and that
[s]he did so by authority of the Board of Directors of said Corporation.
-------------------------
Notary Public
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<PAGE>
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ANNEX C
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of
which are hereby acknowledged, the undersigned with principal offices at the
address set forth next to their name appearing in the signature pages hereof
(each individually an "Assignor" and collectively the "Assignors") is the owner
of all right, title and interest in and to the United States copyrights and
associated United States copyright registrations and applications for
registration set forth in Schedule A attached hereto;
WHEREAS, United States Trust Company of New York, as Collateral
Agent, having its principal offices at 114 West 47th Street, 25th Floor, New
York, New York 10036 (the "Assignee"), desires to acquire a security interest
in, and lien on, all of Assignors' right, title and interest in and to
Assignors' copyrights and copyright registrations and applications therefor; and
WHEREAS, the Assignors are willing to assign to the Assignee, and to
grant to the Assignee a security interest in and lien upon the copyrights and
copyright registrations and applications therefor described above;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the terms and conditions of the
Security Agreement, dated as of February 18, 1998, among the Assignors, the
other assignors from time to time party thereto and the Assignee (as amended
from time to time, the "Security Agreement"), each of
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ANNEX C
Page 2
the Assignors hereby assigns to the Assignee, and grants to the Assignee a
security interest in and a lien upon, all of Assignors' right, title and
interest in and to Assignors' copyrights and copyright registrations and
applications more particularly set forth on Schedule A attached hereto, (the
"Copyrights") together with (i) all Proceeds (as such term is defined in the
Security Agreement referred to below) of the Copyrights, and (ii) all causes of
action arising prior to or after the date hereof for infringement of any
Copyright.
This ASSIGNMENT OF SECURITY INTEREST is made to secure the
satisfactory performance and payment of all the Obligations (as such term is
defined in the Security Agreement) of the Assignors and shall be effective as of
the date of the Security Agreement. Upon the occurrence of the Termination Date
(as defined in the Security Agreement), the Assignee shall, upon such
satisfaction, execute, acknowledge, and deliver to the Assignors an instrument
in writing releasing the security interest in the Copyrights acquired under this
Assignment of Security Interest.
This Assignment of Security Interest has been granted in conjunction
with the security interest granted to Assignee under the Security Agreement. The
rights and remedies of the Assignee with respect to the security interest
granted herein are without prejudice to, and are in addition to those set forth
in the Security Agreement, all terms and provisions of which are incorporated
herein by reference. In the event that any provisions of this Assignment of
Security Interest are deemed to conflict with the Security Agreement, the
provisions of the Security Agreement shall govern.
IN WITNESS WHEREOF, the undersigned have executed this
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ANNEX C
Page 3
Assignment as of the 18th day of February, 1998.
MENTUS MEDIA CORP.
as Assignor
By______________________________
Name:
Title:
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<PAGE>
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ANNEX C
Page 4
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<PAGE>
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[Notarized for each signatory]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 18th day of February, 1998, before me personally came
______________ who, being by me duly sworn, did state as follows: that [s]he is
Treasurer of Mentus Media Corp., that [s]he is authorized to execute the
foregoing Assignment of Security Interest on behalf of said corporation and that
[s]he did so by authority of the Board of Directors of said corporation.
-------------------------
Notary Public
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<PAGE>
Exhibit 4.1(e)
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MENTUS MEDIA CORP.
$--------------
__ Units Consisting of __% Senior Secured Notes due 2003
with
Warrants to Purchase _______ Shares of Common Stock
PURCHASE AGREEMENT
February __, 1998
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Ladies and Gentlemen:
The undersigned hereby confirms its agreement with you (the "Initial
Purchaser") as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, Mentus Media Corp., a Delaware corporation (the "Company"), proposes
to issue and sell to the Initial Purchaser ___ Units (the "Units"), each Unit
consisting of $1,000 principal amount of ___% Senior Secured Notes due 2003 (the
"Notes") and ___ Warrants (the "Warrants"), each to purchase ___ Shares of
Common Stock, par value $0.01 per share (the "Common Stock"), to be issued upon
exercise of the Warrants (the "Warrant Shares") representing in the aggregate
___% of the outstanding Common Stock of the Company on a fully diluted basis.
The Units, the Notes and the Warrants are referred to herein collectively as the
"Securities".
The Units will be offered and sold to the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "Act"), in
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reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum dated January 21, 1998 (the
"Preliminary Memorandum") and will prepare a final offering memorandum dated
February __, 1998 (the "Final Memorandum"; the Preliminary Memorandum and the
Final Memorandum each herein being referred to as the "Memorandum") setting
forth or including a description of the terms of the Units, the Notes and the
Warrants, the terms of the offering of the Units, a description of the Company
and any material developments relating to the Company occurring after the date
of the most recent historical financial statements included therein.
The Company and the Initial Purchaser will enter into a Registration
Rights Agreement (the "Registration Rights Agreement") prior to or concurrently
with the issuance of the Units. Pursuant to the Registration Rights Agreement,
under the circumstances and the terms set forth therein, the Company will agree
to file with the Securities and Exchange Commission (the "Commission"): (i) a
registration statement on Form S-4 (the "Exchange Offer Registration Statement")
relating to a registered Exchange Offer (as defined in the Registration Rights
Agreement) for the Notes under the Act to offer to the holders of the Notes the
opportunity to exchange their Notes for an issue of notes substantially
identical to the Notes (except that (a) interest thereon will accrue from the
last date on which interest was paid on the Notes, or if no such interest has
been paid, from August 1, 2000, (b) such Notes will not contain restrictions on
transfer, and (c) such Notes will not contain provisions relating to an increase
in their interest rate under certain circumstances) that would be registered
under the Act (the "Exchange Notes"); or (ii) alternatively, in the event that
applicable interpretations of the Commission do not permit the Company to effect
the Exchange Offer or do not permit any holder of the Notes to participate in
the Exchange Offer, a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Notes by such holders who satisfy certain
conditions, including the provision of information in connection with the Shelf
Registration Statement.
The Company also will enter into (i) a Registration Rights Agreement
with respect to the Warrant Shares, whereby the Company will agree to include
the Warrant Shares in any registration statement relating to the Common Stock
(the "Warrant Registration Rights Agreement"), (ii) a Unit Agreement (the "Unit
Agreement") and (iii) a Warrant Agreement (the "Warrant Agreement"), in each
case with United States Trust Company of New York as unit agent (the "Unit
Agent") and as warrant agent (the "Warrant Agent"), as the case may be, prior
to, or concurrently with, the issuance of the Units.
2. Representations and Warranties. The Company represents and
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warrants to, and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor
the Final Memorandum nor any amendment or supplement thereto as of the
date thereof and, in the case of the Final Memorandum and any amendment or
supplement thereto, at all times subsequent thereto up to the Closing Date
(as defined in Section 3 below) contained or shall contain any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 2(a) do not apply
to statements or omissions made in reliance upon and in conformity with
information furnished to the Company in writing by the Initial Purchaser
expressly for use in the Preliminary Memorandum, the Final Memorandum or
any amendment or supplement thereto. The Final Memorandum conforms in all
material respects to the requirements of the Act and the rules and
regulations promulgated thereunder as if it was a prospectus filed as part
of a registration statement on Form S-3 relating to the Securities (except
that such a prospectus would include the following specified under the
rules and regulations of the Securities Act: (i) a Pricing Table; (ii) an
"Additional Information" section; (iii) an "Incorporation by Reference"
section; and (iv) certain indemnification provisions.)
(b) As of the Closing Date, the Company will have the authorized and
issued capital stock set forth in the Final Memorandum under the "Pro
Forma" column under the caption "Capitalization"; all of the outstanding
shares of capital stock of the Company as of the Closing Date will be duly
authorized and validly issued, are fully paid and nonassessable and were
not issued in violation of any preemptive rights; except as set forth in
the Final Memorandum, there are no outstanding (i) options, warrants or
other rights to purchase from the Company, (ii) agreements or other
obligations of the Company to issue or (iii) other rights to convert any
obligation into, or exchange any securities of, shares of capital stock
of, or other equity securities for, the Company. The Company does not own,
directly or indirectly, any capital stock or any other equity or debt
securities or have any equity interests in any firm, partnership, joint
venture, limited liability company or other entity.
(c) The Company has been duly incorporated, is validly existing and
is in good standing as a corporation under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own its
properties and conduct its business as now conducted, and as described in
the Final Memorandum; the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse
effect on the general affairs, management, business, condition (financial
or
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<PAGE>
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otherwise), prospects or results of operations of the Company (any such
event, a "Material Adverse Effect").
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes. The Notes,
when issued, will be in the form contemplated by the Indenture. The Notes
have been duly and validly authorized by the Company, and when executed
and delivered by the Company and authenticated by the Trustee in
accordance with the provisions of the Indenture and when delivered to and
paid for by the Initial Purchaser in accordance with the terms of this
Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company (assuming
due authorization, execution and delivery of the Indenture by the
Trustee), will entitle the Initial Purchaser to the benefits of the
Indenture and will be enforceable against the Company in accordance with
their terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium,
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at
law).
(e) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Indenture. The
Indenture meets the requirements for qualification under the Trust
Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly
and validly authorized, executed and delivered by the Company and will
constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law).
(f) The Exchange Notes and the Private Exchange Notes (as defined in
the Registration Rights Agreement) have been duly and validly authorized
by the Company and, when the Exchange Notes have been duly executed and
delivered by the Company and authenticated by the Trustee in accordance
with the terms of the Registration Rights Agreement and the Indenture,
will constitute valid and legally binding obligations of the Company, will
entitle the holder to the benefits of the Indenture, and will be
enforceable against the Company in accordance with their terms (assuming
due authorization, execution and delivery of the Indenture by the
Trustee), except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at
law).
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(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of the
Registration Rights Agreement, the Warrant Registration Rights Agreement,
the Unit Agreement and the Warrant Agreement. Each of such agreements has
been duly and validly authorized by the Company, and when executed and
delivered by the Company, will constitute a valid and legally binding
agreement of the Company enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization fraudulent conveyance, moratorium,
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at
law), and subject to the limitations of federal and state securities laws
and public policy considerations as to any rights to indemnity or
contribution thereunder.
(h) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of (i) the Pledge
Agreement, to be dated the Closing Date, whereby the Company would pledge
all of its Pledged Securities (as defined in such agreement) to United
States Trust Company of New York, in its capacity as collateral agent (the
"Collateral Agent") for the benefit of the holders of the Notes (the
"Pledge Agreement") and (ii) the Security Agreement (including any
agreements granting a security interest in intellectual property), to be
dated the Closing Date, whereby the Company, grants a security interest in
all of the Collateral (as defined in such agreement) owned by it to the
Collateral Agent for the benefit of the holders of the Notes (the
"Security Agreement" and, together with the Pledge Agreement the "Security
Documents"). Each of the Security Documents has been duly and validly
authorized by the Company, and when executed and delivered by the Company,
constitutes a valid and legally binding agreement of the Company
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law).
(i) The Units have been duly authorized by the Company and, when
issued and delivered by the Company against payment therefor by the
Initial Purchaser in accordance with the terms of this Agreement and
countersigned by the Unit Agent, will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at
law).
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(j) The Warrants have been duly authorized by the Company and, when
issued and delivered by the Company and countersigned by the Warrant Agent
in accordance with the terms of this Agreement and the Warrant Agreement,
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law).
(k) The Warrant Shares have been duly and validly authorized and
validly reserved for issuance and when issued and paid for upon exercise
of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid, nonassessable and free of preemptive rights.
(l) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law), and subject to the
limitations of federal and state securities laws and public policy
considerations as to any rights to indemnity or contribution thereunder.
(m) No consent, approval, authorization or order of any court or
governmental agency or body or third party is required for the execution,
delivery or performance by the Company of this Agreement, the Registration
Rights Agreement, the Warrant Registration Rights Agreement, the Unit
Agreement, the Warrant Agreement, the Indenture, the Securities and the
Security Documents or the consummation by the Company of the transactions
contemplated hereby or thereby that are to be completed on or before the
Closing Date, except such as have been obtained or disclosed in the Final
Memorandum and such as may be required under state securities or "Blue
Sky" laws. The Company is not (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document), (ii) in
breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to it or any of its respective properties or assets,
or (iii) in breach of or in default under (nor has any event occurred
which, with notice or passage of time or both, would constitute a default
under) or in violation of any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate, contract or other
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agreement or instrument to which it is a party or to which it or its
properties or assets is subject (collectively, "Contracts") except in the
case of clauses (ii) and (iii) above such violations, breaches or defaults
that would not, individually or in the aggregate, have a Material Adverse
Effect.
(n) The execution, delivery and performance by the Company of this
Agreement, the Indenture, the Securities, the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Unit Agreement,
the Warrant Agreement and the Security Documents and the consummation by
the Company of the transactions contemplated hereby and thereby, and the
fulfillment of the terms hereof and thereof, and the retention by the
Company of NatWest Capital Markets Limited ("NatWest") pursuant to those
certain letter agreements (including the engagement and indemnity letter
agreements) dated January 9, 1998 (collectively, the "NatWest Engagement
Letter") and NatWest's acting as contemplated hereby and thereby, will not
conflict with or constitute or result in a breach of or a default under
(or an event which with notice or passage of time or both would constitute
a default under) or violation of any of (i) the terms or provisions of any
Contract except such conflicts, breaches, defaults or violations, that
would not, individually or in the aggregate, have a Material Adverse
Effect, (ii) the certificate of incorporation or by-laws (or similar
organizational document) of the Company, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company or any of its
respective properties or assets except such conflicts, breaches, defaults
or violations that would not, individually or in the aggregate, have a
Material Adverse Effect.
(o) The financial statements of the Company included in the
Preliminary Memorandum and the Final Memorandum present fairly in all
material respects the financial position, results of operations and cash
flows of the Company at the dates and for the periods to which they relate
and have been prepared in accordance with generally accepted accounting
principles in the United States applied on a consistent basis except as
otherwise stated therein. The summary and selected financial and
statistical data in the Preliminary Memorandum and the Final Memorandum
present fairly in all material respects the information shown therein and
have been prepared and compiled on a basis consistent with the financial
statements included therein, except as otherwise stated therein. McGladrey
& Pullen, LLP is an independent public accounting firm within the meaning
of the Act and the rules and regulations promulgated thereunder.
(p) Except as noted in the Memorandum, the pro forma financial
information included in the Preliminary Memorandum and the Final
Memorandum (i) comply as to form in all material respects with the
applicable requirements of Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (ii) have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, and (iii) have been properly
computed on the bases described therein; the
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assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in the Preliminary
Memorandum and the Final Memorandum are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein. The financial projection information
included in the Preliminary Memorandum and the Final Memorandum are based
on good faith estimates and assumptions believed by the Company to be
reasonable as of the date hereof and as of the Closing Date.
(q) Except as noted in the Memorandum, there is not, to the
knowledge of the Company, pending or threatened, any action, suit,
proceeding, inquiry, investigation or legislative mandate to which the
Company is a party, or to which the property or assets of the Company is
subject, before or brought by any court, arbitrator or governmental agency
or body which is reasonably likely to, individually or in the aggregate,
have a Material Adverse Effect or which seeks to restrain, enjoin, prevent
the consummation of or otherwise challenge the issuance or sale of the
Securities to be sold hereunder or the consummation of the other
transactions described in the Preliminary Memorandum and the Final
Memorandum.
(r) The Company owns or possesses adequate licenses or other rights
to use all material patents, trademarks, service marks, trade names,
copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Preliminary Memorandum
and the Final Memorandum, except where the failure to own or possess the
same would not, individually or in the aggregate, have a Material Adverse
Effect, and the Company has not received any notice of infringement of (or
knows of any such infringement of) asserted rights of others with respect
to any patents, trademarks, service marks, trade names, copyrights or
know-how which, if such assertion of infringement were sustained, would,
individually or in the aggregate, have a Material Adverse Effect.
(s) The Company possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made
all declarations and filings with, all federal, state, provincial, local
and other governmental authorities, all self-regulatory organizations and
all courts and other tribunals, presently required or necessary to own or
lease, as the case may be, and to operate its respective properties and to
carry on its businesses as now or proposed to be conducted as described in
the Preliminary Memorandum and the Final Memorandum (collectively, the
"Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, have a Material Adverse Effect or where
any Permits would be required only in connection with the Company's
expansion into new geographical areas; provided, however, that any such
Permits will be acquired when required by applicable law; the Company has
fulfilled and performed all of its obligations with respect to such
Permits and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any
other material impairment of the
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rights of the holder of any such Permit except where such revocation,
termination or impairment would not, individually or in the aggregate,
have a Material Adverse Effect; and the Company has not received any
notice of any proceeding relating to revocation or modification of any
such Permit, except as described in the Final Memorandum and except where
such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(t) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein, (i) the Company has
not incurred any liabilities or obligations, direct or contingent, or
entered into or agreed to enter into any transactions or contracts
(written or oral) which are not in the ordinary course of business and
which liabilities, obligations, transactions or contracts would,
individually or in the aggregate, be material to the general affairs,
management, business, condition (financial or otherwise), prospects or
results of operations of the Company (a "Material Change"), (ii) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock, (iii) other than as described in the Final
Memorandum, there have been no changes in the capital stock or long-term
indebtedness of the Company which would, individually or in the aggregate,
constitute a Material Change.
(u) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
general affairs, management, business, condition, (financial or
otherwise), prospects or results of operations of the Company from that
set forth in the Preliminary Memorandum and the Final Memorandum.
(v) The Company has filed all federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by
it and has paid all material taxes and assessments payable by it which
have become due, except for those contested in good faith and adequately
disclosed and fully provided for on the financial statements of the
Company in accordance with generally accepted accounting principles
("GAAP"). The Company has at all times paid, or have provided adequate
reserves (in the good faith judgment of the management of the Company) for
the payment of, all federal, state and foreign income taxes applicable for
all prior fiscal years and for the current fiscal year to date. There is
no material action, suit, proceeding, investigation, audit, or claim now
pending or, to the knowledge of the Company, threatened by any authority
regarding any taxes relating to the Company. The Company has not entered
into an agreement or waiver or been requested to enter into an agreement
or waiver extending any statute of limitations relating to the payment or
collection of taxes of the Company or is aware of any circumstances that
would cause the taxable years or other taxable periods of the Company not
to be subject to the normally applicable statute of limitations.
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(w) The statistical and market-related data included in the
Preliminary and the Final Memorandum are based on or derived from sources
which the Company believes to be reliable and accurate.
(x) Neither the Company nor any agent acting on any of its behalf
has taken or will take any action that might cause this Agreement or the
sale of the Securities to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or as
the same may hereafter be in effect, on the Closing Date.
(y) The Company has good, sufficient and legal title to all real
property and good title to all personal property described in the
Preliminary Memorandum and the Final Memorandum as being owned by it and
good, sufficient and legal title to any leasehold estate in the real and
personal property described in the Preliminary Memorandum and the Final
Memorandum as being leased by it free and clear of all liens, charges,
encumbrances or restrictions, except as described in the Preliminary
Memorandum and the Final Memorandum or to the extent the failure to have
such title or the existence of such liens, charges, encumbrances or
restrictions would not, individually or in the aggregate, have a Material
Adverse Effect.
(z) There are no legal or governmental proceedings involving or
affecting the Company or any of its properties or assets which would be
required to be described in a prospectus forming part of a registration
statement filed with the Commission pursuant to the Act that are not
described in the Preliminary Memorandum and the Final Memorandum.
(aa) Except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect (A) the Company is
in compliance with and not subject to liability under applicable
Environmental Laws (as defined below), (B) the Company has made all
filings and provided all notices required under any applicable
Environmental Laws, and has and is in compliance with all Permits required
under any applicable Environmental Laws and each of them is in full force
and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or,
to the knowledge of the Company, threatened against the Company under any
Environmental Law, (D) no lien, charge, encumbrance or restriction has
been recorded under any Environmental Law with respect to any assets,
facility or property owned, operated, leased or controlled by the Company,
(E) the Company has not received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or
any comparable state law, (F) no property or facility of the Company is
(i) listed or proposed for listing on the National Priorities List under
CERCLA or is (ii) listed in the Comprehensive Environmental Response,
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Compensation, Liability Information System List promulgated pursuant to
CERCLA, or on any comparable list maintained by any state or local
governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state, provincial and local laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder, relating to pollution or
protection of public or employee health and safety or the environment,
including, without limitation, laws relating to (i) emissions, discharges,
releases or threatened releases of hazardous materials, into the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of hazardous materials, and (iii) underground and
above ground storage tanks, and related piping, and emissions, discharges,
releases or threatened releases therefrom.
(bb) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company which is pending or, to the knowledge of
the Company, threatened.
(cc) The Company carries insurance in such amounts and covering such
risks as is commercially reasonable in light of its business and the value
of its properties. The Company has not received notice from any insurer or
agent of such insurer that capital improvements or other expenditures are
required or necessary to be made in order to continue such insurance.
(dd) The Company has no material liability for any prohibited
transaction (within the meaning of Section 4975(c) of the Internal Revenue
Code of 1986, as amended (the "Code") or Part 4 of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (or an
accumulated funding deficiency within the meaning of Section 412 of the
Code or Section 302 of ERISA) or any complete or partial withdrawal
liability (within the meaning of Section 4201 of ERISA) with respect to
any pension, profit sharing or other plan which is subject to ERISA, to
which the Company makes or ever has made a contribution and in which any
employee of the Company is or has ever been a participant. With respect to
such plans, the Company is in compliance in all material respects with all
applicable provisions of ERISA.
(ee) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the
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reported accountability for its assets is compared with existing assets at
reasonable intervals.
(ff) The Company will not be an "investment company" or "promoter"
or "principal underwriter" for an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(gg) The Notes, the Exchange Notes, the Registration Rights
Agreement, Warrant Registration Rights Agreement, the Indenture, the
Units, the Unit Agreement, the Warrants, the Warrant Shares and the
Warrant Agreement will conform in all material respects to the
descriptions thereof in the Final Memorandum.
(hh) Except as may be provided by the agreements set forth on
Schedule I attached hereto, no holder of securities of the Company will be
entitled to have such securities registered under the registration
statements required to be filed by the Company pursuant to the
Registration Rights Agreement or Warrant Registration Rights Agreement
other than as expressly permitted thereby.
(ii) Neither the Company nor any of its respective Affiliates (as
defined in Rule 501(b) of Regulation D under the Act) has directly, or
through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any "security" (as defined in the Act)
which is or could be integrated with the sale of the Securities in a
manner that would require the registration under the Act of the Securities
or (ii) engaged in any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Act) in connection with
the offering of the Securities or in any manner involving a public
offering within the meaning of Section 4(2) of the Act. The Company has
not distributed and will not distribute any offering material in
connection with the offering of the Units other than the Final Memorandum
and any Preliminary Memorandum. No securities of the same class as any of
the Securities have been issued and sold by the Company within the
six-month period immediately prior to the date hereof.
(jj) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities to the
Initial Purchaser in the manner contemplated by this Agreement to register
any of the Securities under the Act or, in the case of the Notes, to
qualify the Indenture under the TIA.
(kk) No Securities are of the same class (within the meaning of Rule
144A as promulgated under the Act ("Rule 144A")) as the securities of the
Company listed on a national securities exchange registered under Section
6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or quoted in a U.S. automated inter-dealer quotation system.
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(ll) The Company has not taken, nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of any
of the Securities.
(mm) Neither the Company nor any person acting on any of its behalf
(other than the Initial Purchaser) has engaged in any directed selling
efforts (as that term is defined in Regulation S under the Act
("Regulation S")) with respect to any of the Securities; the Company and
its respective Affiliates and any person acting on any of their behalf
(other than the Initial Purchaser or any Affiliate of the Initial
Purchaser) have complied with the offering restrictions requirement of
Regulation S.
(nn) Each of the Preliminary Memorandum and the Final Memorandum, as
of its respective date, contains all of the information that, if requested
by a prospective purchaser of any of the Securities, would be required to
be provided to such prospective purchaser pursuant to Rule 144A(d)(4)
under the Act.
(oo) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Act.
(pp) Neither the Company nor, to the Company's knowledge, any
officer or director purporting to act on behalf of the Company has at any
time: (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contributions, in violation of law, (ii)
made any payment of funds to, or received or retained any funds from, any
state, federal or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or allowed by applicable law, (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977,
(iv) made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment or (v) engaged in any transaction, maintained any bank
account or used any corporate funds except for transaction, bank accounts
and funds which have been and are reflected in the normally maintained
books and records of the Company.
(qq) Except as disclosed in any Memorandum, there are no material
outstanding loans or advances or material guarantees of indebtedness by
the Company to or for the benefit of any of the officers or directors of
the Company or any of the members of the families of any of them.
(rr) Neither the Company nor any affiliate of the Company does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Florida Statutes Section 517.075.
(ss) The Company has not engaged or retained any person, other than
NatWest, to act as a financial advisor, underwriter or placement agent in
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connection with the issuance of any of the Securities and, except for the
fees and expenses payable in connection with the issuance of the
Securities as described in the Final Memorandum, no person has the right
to receive a material amount of financial advisory, underwriting,
placement, finder's or similar fees in connection with, or as a result of,
the issuance of the Securities and the purchase of the Securities by
NatWest or the consummation of the other transactions contemplated hereby.
(tt) On and after the Closing Date, each of the Security Documents
will create, as security for the Notes purported to be secured thereby, a
valid and enforceable perfected security interest in and Lien on all of
the Collateral subject thereto, superior to and prior to the rights of all
third Persons other than Persons with Permitted Liens and subject to no
other Liens (except Permitted Liens (as defined in Final Memorandum)), in
favor of the Collateral Agent for the benefit of the holders of the Notes.
No filings or recordings are required in order to perfect the security
interests created under any Security Document except for filings or
recordings (i) required in connection with any such Security Document
(other than the Pledge Agreement) which shall have been made upon or prior
to (or are the subject of arrangements, reasonably satisfactory to the
Collateral Agent, for filing on or promptly after the date of) the
execution and delivery thereof and (ii) that are required by this
Agreement or the relevant Security Document to be made thereafter.
(uu) The Company is not a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended.
(vv) On the Closing Date, the outstanding Common Stock of the
Company on a fully diluted basis (assuming the conversion of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred
Stock and the exercise of all outstanding warrants and options) prior to
the issuance of the Warrants is _______ shares and the Warrant Shares
constitute 20% of the Common Stock on a fully diluted basis.
3. Purchase, Sale and Delivery of the Securities. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, Units at a price of $______ per Unit. Based on its
determination of the relative fair market values of the Notes and the Warrants,
the Company intends to treat $ __________ of the issue price of a Unit as
allocable to the Note included in such Unit and $ _________ as allocable to the
Warrant included in such Unit. One or more certificates in definitive form for
the Units that the Initial Purchaser has agreed to purchase hereunder, and in
such denomination or denominations and registered in such name or names as the
Initial Purchaser requests upon notice to the Company at least 48 hours prior to
the Closing
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Date, shall be delivered by or on behalf of the Company to the Initial
Purchaser, against payment by or on behalf of the Initial Purchaser of the
purchase price therefor by wire transfer of same day funds to such account or
accounts as the Company shall specify prior to the Closing Date, or by such
means as the parties hereto shall agree prior to the Closing Date. Such delivery
of and payment for the Securities shall be made at the offices of White & Case,
1155 Avenue of the Americas, New York, NY at 10:00 A.M., New York time, on
February __, 1998, or at such other place, time or date as the Initial
Purchaser, on the one hand, and the Company, on the other hand, may agree upon,
such time and date of delivery against payment being herein referred to as the
"Closing Date." The Company will make such certificate or certificates for the
Units available for inspection and packaging by the Initial Purchaser at such
place as designated by the Initial Purchaser at least 24 hours prior to the
Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes
to make an offering of the Units at the price and upon the terms set forth in
the Final Memorandum, as soon as practicable after this Agreement is entered
into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees with
the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchaser shall
not previously have been advised and furnished a copy for a reasonable
period of time prior to the proposed amendment or supplement and as to
which the Initial Purchaser shall not have consented, which consent shall
not be unreasonably withheld. The Company will promptly, upon the
reasonable request of the Initial Purchaser or counsel for the Initial
Purchaser, make any amendments or supplements to the Final Memorandum that
may be necessary or advisable in connection with the resale of the
Securities by the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may designate and will continue such qualifications in
effect for as long as may be necessary to complete the resale of the
Securities; provided, however, that in connection therewith, the Company
shall not be required to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject
itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not now so subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchaser of the Units, any event occurs or information
becomes known as a result of which the Final Memorandum as then amended or
supplemented would, in the judgment of the Company or in the reasonable
opinion of counsel for the
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Initial Purchaser include any untrue statement of a material fact, or omit
to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if for any other reason it is necessary at any time to amend or supplement
the Final Memorandum to comply with applicable law, the Company will
promptly notify the Initial Purchaser thereof and will prepare, at the
expense of the Company, an amendment or supplement to the Final Memorandum
that corrects such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities substantially as set forth under "Use of Proceeds" in the Final
Memorandum.
(f) The Company will furnish to the Initial Purchaser copies of all
reports and other communications (financial or otherwise) furnished by the
Company to the Trustee, the holders of the Notes, the Unit Agent, the
Warrant Agent, the holders of the Warrants or holders of the Warrant
Shares and, as soon as available, copies of any reports or financial
statements furnished to or filed by the Company with the Commission or any
national securities exchange on which any class of securities of the
Company may be listed.
(g) The Company will furnish to the Initial Purchaser, as soon as
they have been prepared, and so long as the Securities are outstanding, a
copy of (i) the audited financial statements for each fiscal year of the
Company commencing with the Company's fiscal year ended December 31, 1997
and (ii) any unaudited interim financial statements of the Company for any
period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum.
(h) Neither the Company nor any of its Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Act) which could be integrated with the sale
of any of the Securities in a manner which would require the registration
under the Act of any of the Securities.
(i) The Company will not engage in any form of "general
solicitation" or "general advertising" (as those terms are used in
Regulation D under the Act) in connection with the offering of the
Securities or in any manner involving a public offering of the Securities
within the meaning of Section 4(2) of the Act.
(j) Neither the Company nor its Affiliates nor any person acting on
any of their behalf will engage, in any directed selling efforts (as that
term is defined in
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Regulation S) with respect to the Securities to comply, and to have its
Affiliates and each person acting on its or their behalf comply, with the
offering restrictions requirements of Regulation S.
(k) For so long as any of the Securities remain outstanding, the
Company will make available, upon request, to any seller of Securities the
information specified in Rule 144A(d)(4) under the Act, unless the Company
is then subject to Section 13 or 15(d) of the Exchange Act.
(l) For a period of 180 days from the date of the Final Memorandum,
the Company or any subsidiary of the Company will not offer for sale,
sell, contract to sell or otherwise dispose of, directly or indirectly, or
file a registration statement for, or announce any offer, sale, contract
for sale of or other disposition of any debt securities issued or
guaranteed by the Company or any subsidiary of the Company (other than the
Exchange Notes) without the prior written consent of the Initial
Purchaser.
(m) During the period from the Closing Date until two years after
the Closing Date, without the prior written consent of the Initial
Purchaser, the Company will not, and will not permit any of its affiliates
(as defined in Rule 144 under the Act) to, resell any of the Securities
that have been reacquired by them, except for Securities purchased by the
Company or any of its affiliates and resold in a transaction registered
under the Act.
(n) In connection with the offering of the Securities, until the
Initial Purchaser shall have notified the Company of the completion of the
resale of the Securities, the Company will not, and will cause its
affiliated purchasers (as defined in the Exchange Act) not to, either
alone or with one or more other persons, bid for or purchase, for any
account in which it or any of its affiliated purchasers has a beneficial
interest, any Securities, or attempt to induce any person to purchase any
Securities; and not to, and to cause its affiliated purchasers not to,
make bids or purchase for the purpose of creating actual, or apparent,
active trading in or of raising the price of the Securities.
(o) Except as contemplated by the Final Memorandum, the Company will
not take any action prior to the execution and delivery of the Indenture,
the Unit Agreement or the Warrant Agreement which, if taken after such
execution and delivery, would have violated any of the covenants contained
in the Indenture, the Unit Agreement or the Warrant Agreement.
(p) The Company will not take any action prior to the Closing Date
which would require the Final Memorandum to be amended or supplemented
pursuant to Section 5(c).
(q) Prior to the Closing Date, the Company will not issue any press
release
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or other communication directly or indirectly or hold any press conference
with respect to the Company, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of the Company and of which the Initial Purchaser
is notified), without the prior written consent of the Initial Purchaser,
unless in the judgment of the Company and its counsel, after notification
to the Initial Purchaser, such press release or communication is required
by law.
(r) The Company will use its best efforts to (i) permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the Private
Offerings, Resales and Trading through Automated Linkages market (the
"Portal Market") and (ii) permit the Units, the Notes and the Warrants to
be eligible for clearance and settlement through the Depository Trust
Company ("DTC").
(s) The Company will pay and discharge, and will cause each of its
subsidiaries to pay and discharge when due and payable all taxes imposed
on it or on its income or profits or on any of its properties except such
taxes as are being contested in good faith in appropriate proceedings;
provided, it has maintained adequate reserves with respect thereto in
accordance with GAAP.
(t) On or prior to the Closing Date, the Company shall provide the
Initial Purchaser with a copy of a statement, issued by the Company
pursuant to U.S. Treasury Regulations Section 1.897-2(h), certifying that
the common stock of the Company is not a United States real property
interest.
6. Expenses. The Company agrees to pay all costs and expenses
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing, word processing or other production of documents
with respect to the transactions contemplated hereby, including any costs of
printing the Preliminary Memorandum and the Final Memorandum and any amendment
or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchaser of copies of the foregoing
documents, (iii) the fees and disbursements of counsel, accountants and any
other experts or advisors retained by the Company, (iv) preparation (including
printing), issuance and delivery to the Initial Purchaser of the Securities, (v)
the qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and reasonable fees and disbursements of counsel for the
Initial Purchaser relating thereto, (vi) fees and expenses of the Trustee, the
Unit Agent, the Collateral Agent and the Warrant Agent (including fees and
expenses of counsel), (vii) all expenses and listing fees incurred in connection
with the application for quotation of the Notes on the PORTAL Market, (viii) all
expenses incurred in connection with the approval of the Securities for
book-entry transfer by DTC and (ix) all expenses in connection with any meeting
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with prospective investors and all other reasonable out-of-pocket expenses of
the Initial Purchaser (including, without limitation, all road show expenses)
incurred by the Initial Purchaser or any of its affiliates in connection with,
or arising out of, the offering and sale of the Securities. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated pursuant to Section 11 or
because of any failure, refusal or inability on the part of the Company to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder (other than solely by reason of a default by the Initial
Purchaser of its obligations hereunder after all conditions hereunder have been
satisfied in accordance herewith), the Company agrees to promptly reimburse the
Initial Purchaser upon demand for all out-of-pocket expenses (including all
fees, disbursements and charges of White & Case) that shall have been incurred
by the Initial Purchaser in connection with the proposed purchase and sale of
the Securities. It is agreed, however, that in the event the Initial Purchaser
shall receive a Placement Fee as contemplated by the NatWest Engagement Letter,
then the Company shall have no obligation to reimburse the Initial Purchaser for
the fees, disbursement and charges of White & Case.
7. Conditions of the Initial Purchaser's Obligations. The obligation
of the Initial Purchaser to purchase and pay for the Securities shall, in its
sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel for
the Company, in form and substance satisfactory for counsel to the Initial
Purchaser, dated the Closing Date, substantially to the effect that:
(i) The Company has been duly incorporated, is validly
existing and is in good standing as a corporation under the laws of
the State of Delaware, with all requisite corporate power and
authority to own its properties and conduct its business as
described in the Final Memorandum.
(ii) Except as set forth in the Final Memorandum, to the
knowledge of such counsel, there are no outstanding (i) options,
warrants or other rights to purchase from the Company, (ii)
agreements or other obligations of the Company to issue or (iii)
other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of, or other equity
securities of, the Company.
(iii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Notes. The Notes are in the form contemplated by the Indenture. The
Notes have been duly and validly authorized by the Company and when
executed and delivered
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by the Company and authenticated by the Trustee in accordance with
the provisions of the Indenture (assuming due authorization,
execution and delivery of the Indenture by the Trustee) and paid for
by the Initial Purchaser in accordance with the terms of this
Agreement, will constitute valid and legally binding obligations of
the Company, will entitle the holders to the benefits of the
Indenture and will be enforceable against the Company in accordance
with their terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, indemnity and contribution or other similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law),
and except that such counsel need not express any opinion as to the
enforceability of the waiver as to usery, extension or stay laws.
(iv) The Global Note (as such term is defined in the
Indenture) is in the form contemplated by the Indenture.
(v) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Indenture. The Indenture meets the requirements for qualification
under the TIA. The Indenture has been duly and validly authorized,
executed and delivered by the Company and constitutes a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms (assuming due authorization,
execution and delivery thereof by the Trustee), except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, indemnity and
contribution or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(regardless of whether the issue of enforceability is considered in
a proceeding in equity or at law), and except that such counsel need
not express any opinion as to the enforceability of the waiver as to
usery, extension or stay laws.
(vi) The Exchange Notes and the Private Exchange Notes have
been duly and validly authorized by the Company, and when the
Exchange Notes have been duly executed and delivered by the Company
and authenticated by the Trustee in accordance with the terms of the
Registration Rights Agreement and the Indenture (assuming due
authorization, execution and delivery of the Indenture by the
Trustee), will constitute the valid and legally binding obligations
of the Company, will entitle the holder to the benefits of the
Indenture, and will be enforceable against the Company in accordance
with their terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general
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equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law),
and except that such counsel need not express any opinion as to the
enforceability of the waiver as to usury extension or stay laws.
(vii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of the Registration Rights Agreement, Warrant Registration Rights
Agreement, the Unit Agreement and the Warrant Agreement. Each of
such agreements has been duly and validly authorized, executed and
delivered by the Company and (assuming the due authorization,
execution and delivery thereof by each of the other parties thereto)
constitutes a valid and legally binding agreement of the Company
enforceable against the Company in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether
the issue of enforceability is considered in a proceeding in equity
or at law), and subject to the limitations of federal and state
securities laws and public policy considerations as to any rights to
indemnity or contribution thereunder, and subject further to the
fact that provisions for liquidated damages may be unenforceable if
they were deemed to constitute a penalty.
(viii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of the Security Documents. Each of the Security Documents has been
duly and validly authorized, executed and delivered by the Company
and (assuming the due authorization, execution and delivery thereof
by each of the other parties thereto) constitutes a valid and
legally binding agreement of the Company enforceable against it in
accordance with its terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law), including without
limitation, concepts of materiality, reasonableness, good faith and
fair dealing.
(ix) The Units have been duly authorized, executed, issued and
delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (regardless of whether the issue of
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enforceability is considered in a proceeding in equity or at law).
(x) The Warrants have been duly authorized, executed, issued
and delivered by the Company and constitute valid and legally
binding obligations of the Company, enforceable in accordance with
their terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(regardless of whether the issue of enforceability is considered in
a proceeding in equity or at law).
(xi) The Warrant Shares have been duly and validly authorized
and validly reserved for issuance, and when issued and paid for upon
exercise of the Warrants in accordance with the terms thereof, will
be validly issued, fully paid, nonassessable, free of preemptive
rights as a matter of the United States federal laws, the Delaware
General Corporation Law or the New York Business Corporation Law,
and to such counsel's knowledge, free of all other preemptive
rights.
(xii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly authorized by all necessary
corporate action, and has been duly executed and delivered by the
Company.
(xiii) No consent, approval, authorization or order of any
United States federal, New York state or Delaware state court or
govern- mental agency or body is required under applicable law or,
to the knowledge of such counsel under any United States federal,
New York state or Delaware state court decree, order or regulatory
decision for the execution, delivery or performance by the Company
of this Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement, the Unit Agreement, the Warrant
Agreement, the Indenture, the Securities and the Security Documents
or the consummation by the Company of the transactions contemplated
hereby or thereby that are to be completed prior or on the date
hereof, except such as have been obtained or disclosed in the Final
Memorandum and such as may be required under state securities or
"Blue Sky" laws as to which such counsel need not express any
opinion. The Company is not (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document) or (ii)
in breach or violation of any statute, judgment, decree, order, rule
or regulation (of which such counsel is aware) applicable to any of
them or any of their respective properties or assets, except such
violations or breaches that would not, individually or in the
aggregate, have a Material Adverse Effect.
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(xiv) The execution, delivery and performance by the Company
of this Agreement, the Indenture, the Registration Rights Agreement,
Warrant Registration Rights Agreement, the Unit Agreement, the
Warrant Agreement, the Security Documents, and the consummation by
the Company of the transactions contemplated hereby and thereby, and
the fulfillment of the terms hereof and thereof, will not conflict
with or constitute or result in a breach of or a default under (or
an event which with notice or passage of time or both would
constitute a default under) any material contract known to us to
which the Company is a party or to which any of its assets is
subject or a violation of any of the certificate of incorporation or
by-laws (or similar organizational document) of the Company, or
(assuming compliance with all applicable state securities or "Blue
Sky" laws and assuming the accuracy of representations and
warranties of the Initial Purchaser in Section 8 of the Purchase
Agreement) violate any statute, judgment, decree, order, rule or
regulation (of which such counsel is aware) applicable to the
Company or any of its properties or assets except for any such
conflicts, breaches, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
(xv) To the knowledge of such counsel, there is not pending or
threatened, any action, suit, proceeding, inquiry, investigation or
legislative mandate to which the Company is a party or to which the
property or assets of the Company is subject, before or brought by
any court, arbitrator or governmental agency or body which are
reasonably likely to, individually or in the aggregate, have a
Material Adverse Effect and would otherwise be required to be
described in a prospectus that is subject to Item 103 of Regulation
S-K under the Securities Act or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or
sale of the Securities to be sold hereunder.
(xvi) Neither the consummation of the transactions
contemplated by this Purchase Agreement nor the sale, issuance,
execution or delivery of the Securities will violate Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System.
(xvii) The Company is not nor immediately after the sale of
the Securities to be sold hereunder and the application of the
proceeds from such sale (as described in the Final Memorandum under
the caption "Use of Proceeds") will it be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder.
(xviii) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Act.
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(xix) The statements in the Final Memorandum under the caption
"Description of Capital Stock", "Description of Units," "Description
of Notes", "Description of Warrants" and "Exchange Offer and
Registration Rights," and the description in the Final Memorandum of
the Company's agreement with Southland Corporation, insofar as they
describe the provisions of the documents and instruments therein
described, constitute fair summaries thereof in all material
respects;
(xx) No registration under the Act of the Securities is
required in connection with the sale of the Securities to the
Initial Purchaser as contemplated by this Agreement and the Final
Memorandum or in connection with the initial resale of the
Securities by the Initial Purchaser in accordance with Section 8 of
this Agreement and otherwise in the manner contemplated by this
Agreement and the Final Memorandum; and prior to the commencement of
the Exchange Offer or the effectiveness of the Shelf Registration
Statement (as defined in the Registration Rights Agreement), the
Indenture is not required to be qualified under the TIA, in each
case assuming (i) that the purchasers who buy such Securities in the
initial resale thereof are qualified institutional buyers as defined
in Rule 144A promulgated under the Act ("QIBs") or accredited
investors as defined in Rule 501(a) (1), (2), (3) or (7) promulgated
under the Act ("Accredited Investors"), (ii) the accuracy of the
Initial Purchaser's representations in Section 8 hereof and those of
the Company contained in this Agreement regarding the absence of a
general solicitation or general advertising in connection with the
sale of such Securities to the Initial Purchaser and the initial
resale thereof and (iii) the due performance by the Initial
Purchaser of the agreements set forth in Section 8 hereof.
(xxi) The provisions of the Security Agreement create in favor
of the Collateral Agent a valid security interest in and to the
Collateral to which Article 9 of the Uniform Commercial Code as in
effect in the State of New York ("UCC") on the date hereof is
applicable (the "Article 9 Collateral"). When financing statements
on Form UCC-1 have been duly filed in the jurisdictions set forth on
schedule 2 attached to such opinion, such filings will result in the
perfection of the security interests in that portion of the Article
9 Collateral in which security interests are perfected under the UCC
in the jurisdictions set forth on schedule 2 attached hereto by the
filing of financing statements.
(xxii) The provisions of the Pledge Agreement, together with
delivery in the State of New York of the certificates representing
the Pledged Securities, would create in favor of the Collateral
Agent valid security interests in and to the Pledged Securities and
the Proceeds (as such terms are defined in the Pledge Agreement).
The actions specified in Section 3 of the Pledge Agreement are all
the actions necessary under the
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UCC to perfect the security interest of the Collateral Agent in the
Pledged Securities. Assuming the Collateral Agent acquires its
interest in the Pledged Securities in good faith and without notice
of any adverse claims and that each certificate evidencing shares of
Pledged Securities is either in bearer form or registered form,
issued or indorsed in the name of the Collateral Agent or in blank,
the Collateral Agent would acquire its security interest in the
Pledged Securities free of adverse claims.
(xxiii) The statements contained in the Memorandum under the
caption "Certain United States Federal Tax Consequences," to the
extent that they constitute matters of U.S. federal tax law and
legal conclusions with respect thereto, are correct in all material
respects.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York or the United States, the General Corporation Law of the State
of Delaware or the New York Uniform Commercial Code, to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Initial Purchaser and (B) as to matters of
fact, to the extent they deem proper, on certificates of responsible
officers of the Company and public officials, and may assume that the laws
of the State of New York are substantially similar to the laws of those
states listed on Schedule 2 attached to such opinion.
In addition to the foregoing, such counsel shall state that is has
participated in conferences with directors, executive officers and other
representatives of the Company, representatives of the Company's
independent public accountants, representatives of the Initial Purchaser
and counsel for the Initial Purchaser at which conferences the contents of
the Final Memorandum and related matters were discussed, and although such
counsel has not independently verified and has not passed upon or assumed
any responsibility for the accuracy, completeness or fairness of the
statements contained in such documents, no facts have come to such
counsel's attention to lead it to believe that the Final Memorandum and
any further amendments or supplements thereto as of their respective dates
and on the date of such opinion letter contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not express any
view with respect to the financial statements and related notes, the
financial statement schedules and the other financial, statistical and
accounting data (including projections contained therein) included in the
Final Memorandum). The opinion of Cooperman Levitt Winikoff Lester &
Newman, P.C. described in this Section shall be rendered to the Initial
Purchaser at the request of the Company and shall so state therein.
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(b) On the Closing Date, the Initial Purchaser shall have received
the opinion, in form and substance satisfactory to the Initial Purchaser,
dated as of the Closing Date and addressed to the Initial Purchaser, of
White & Case LLP, counsel for the Initial Purchaser, with respect to
certain legal matters relating to this Agreement and such other related
matters as the Initial Purchaser may reasonably require. In rendering such
opinion, White & Case shall have received and may rely upon such
certificates and other documents and information as it may reasonably
request to pass upon such matters.
(c) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Colombo & Bonacci, P.C., in form and substance satisfactory
to counsel to the Initial Purchaser, dated the Closing Date, substantially
to the effect that:
(i) The Company has the authorized and issued shares of
capital stock set forth in the Final Memorandum; all of the
outstanding shares of capital stock of the Company as of the Closing
Date will be duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any statutory
preemptive rights under the laws of the state of Delaware; or;
except as set forth in the Final Memorandum, to such counsel's
knowledge, there are no outstanding (i) options, warrants or other
rights to purchase from the Company, (ii) agreements or other
obligations of the Company to issue or (iii) other rights to convert
any obligation into, or exchange any securities for, shares of
capital stock of, or other equity securities in, the Company.
(ii) The Company has been duly incorporated, is validly
existing and is in good standing as a corporation under the laws of
the State of Delaware with all requisite corporate power and
authority to own its properties and conduct its business as now
conducted, and as described in the Final Memorandum; the Company is
duly qualified to do business as a foreign corporation in good
standing Minnesota, Texas, Florida, Virginia, Washington, D.C. and
Maryland.
(iii) To the knowledge of such counsel, there is not pending
or, threatened, any action, suit, proceeding, inquiry or
investigation to which the Company is a party, or to which the
property or assets of the Company is subject, before or brought by
any court, arbitrator or governmental agency or body which is
reasonably likely to, individually or in the aggregate, have a
Material Adverse Effect or which seeks to restrain, enjoin, prevent
the consummation of or otherwise challenge the issuance or sale of
the Securities to be sold hereunder or the consummation of the other
transactions described in the Preliminary Memorandum and the Final
Memorandum.
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(iv) To such counsel's knowledge, except as may be provided by
the agreements set forth on Schedule I attached hereto, no holder of
securities of the Company will be entitled to have such securities
registered under the registration statements required to be filed by
the Company pursuant to the Registration Rights Agreement or Warrant
Registration Rights Agreement other than as expressly permitted
thereby.
(d) On the Closing Date, the Initial Purchaser shall have received
good standing certificates for the Company in those jurisdictions where
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
would, individually or in the aggregate, not have a Material Adverse
Effect.
(e) On the Closing Date, the Initial Purchaser shall have received
the following documents duly authorized, executed and delivered by each of
the parties thereto, in form and substance satisfactory for counsel to the
Initial Purchaser, and containing such terms and conditions that are usual
and customary in transactions similar to those contemplated hereby and
thereby, dated the Closing Date:
(i) each of the Security Documents;
(ii) the Indenture;
(iii) the Warrant Agreement;
(iv) the Unit Agreement;
(v) the Registration Rights Agreement; and
(vi) the Warrants Registration Rights Agreement.
(f) On or prior to the Closing Date, the Company shall have filed
amendments with the Secretary of State of Delaware to the Certificates of
Designations for each of the Series B Preferred Stock and the Series C
Preferred Stock, such amendments to be in forms reasonably satisfactory to
the Initial Purchaser.
(g) On or prior to the Closing Date, the Company shall have received
consents to the transaction contemplated by this Agreement, the
Registration Rights Agreement, the Warrant Registration Rights Agreement,
the Unit Agreement, the Warrant Agreement, the Indenture and the Security
Documents from the requisite number of holders of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, such
consents to be in a form reasonably satisfactory to the Initial Purchaser.
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(h) On the Closing Date, the Initial Purchaser shall have received
(i) proper financing statements (Form UCC-1) or such other financing
statements or similar notices as shall be required by local law fully
executed for filing under the appropriate filing offices of each
jurisdiction as may be necessary or, in the opinion of the Collateral
Agent, desirable to perfect the security interests purported to be granted
by the Security Documents and evidence of the completion of all other
recordings; (ii) filings of, or with respect to, such Security Documents
as may be necessary or, in the opinion of the Collateral Agent, desirable
to perfect the security interests intended to be created by such Security
Documents and (iii) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect the
security interests purported to be created by the Security Documents have
been taken or acceptable arrangements to effect such actions have been
taken.
(i) The Initial Purchaser shall have received from McGladrey &
Pullen, LLP comfort letters dated the date hereof and the Closing Date, in
form and substance satisfactory to counsel for the Initial Purchaser,
which describe the procedures as the Initial Purchaser may request and
McGladrey & Pullen, LLP is willing to perform and report upon.
(j) The representations and warranties of the Company contained in
this Agreement shall be true and correct on and as of the date hereof and
on and as of the Closing Date as if made on and as of the Closing Date;
the statements of the Company's officers made pursuant to any certificate
delivered in accordance with the provisions hereof shall be true and
correct on and as of the date made and on and as of the Closing Date; the
Company shall have performed all covenants and agreements and satisfied
all conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date; and, except as described in the Final
Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), subsequent to the date of the most recent financial
statements in such Final Memorandum, there shall have been no event or
development that, individually or in the aggregate, has had, or would be
reasonably likely to have, a Material Adverse Effect.
(k) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(l) The Notes shall have been approved by the NASD for trading in
the PORTAL Market.
(m) There shall not have occurred any invalidation of Rule 144A
under the Act by any court or any withdrawal or proposed withdrawal of any
rule or regulation under the Act or the Exchange Act by the Commission or
any amendment or proposed amendment thereof by the Commission which in the
judgment of the
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Initial Purchaser would materially impair the ability of the Initial
Purchaser to purchase, hold or effect resales of the Units as contemplated
hereby.
(n) There shall not have occurred any change, or any development
involving a prospective change, in the general business affairs, condition
(financial or otherwise), prospects or results of operations, of the
Company from that set forth in the Final Memorandum that constitutes a
Material Adverse Effect and that makes it, in the Initial Purchaser's
judgment, impracticable to market the Securities on the terms and in the
manner contemplated in the Final Memorandum.
(o) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), the conduct of the business and operations of the
Company shall not have been interfered with by strike, fire, flood,
hurricane, accident or other calamity (whether or not insured) or by any
court or governmental action, order or decree, and, except as otherwise
stated therein, the properties of the Company shall not have sustained any
loss or damage (whether or not insured) as a result of any such
occurrence, except any such interference, loss or damage which would not,
individually or in the aggregate, have a Material Adverse Effect.
(p) No securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(q) The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed by its Chairman of the Board and
Chief Executive Officer, to the effect that:
(i) The representations and warranties of the Company
contained in this Agreement, the Registration Rights Agreement, the
Warrant Registration Rights Agreement, the Unit Agreement, the
Warrant Agreement and the Security Documents are true and correct as
of the date hereof and as of the Closing Date, and the Company has
performed all covenants and agreements and satisfied all conditions
on their part to be performed or satisfied hereunder at or prior to
the Closing Date;
(ii) At the Closing Date, since the date hereof or since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), no event or events have occurred, no information has become
known nor does any condition exist that, individually or in the
aggregate, has had, or could reasonably be expected to have, a
Material Adverse Effect;
(iii) The sale of the Units hereunder has not been enjoined
(temporarily or permanently);
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(iv) Such other information as the Initial Purchaser may
reasonably request.
(r) The Initial Purchaser shall have received a certificate from the
corporate secretary of the Company, dated the Closing Date, attaching
certified copies of (i) all resolutions of the Board of Directors of the
Company authorizing the transactions contemplated by this Agreement
including, without limitation, approving the offering of the Securities,
the entering into this Agreement, the Indenture, the Registration Rights
Agreements, Warrant Registration Rights Agreement, the Warrant Agreement
and the Unit Agreement and (ii) the certificate of incorporation and
by-laws of the Company and certifying the names and true signatures of
those officers of the Company executing any documents contemplated by this
Agreement.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company as they shall have
heretofore reasonably requested from the Company.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates, letters, schedules and instruments in such quantities as
the Initial Purchaser shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. The Initial
Purchaser agrees with the Company that (i) it has not and will not solicit
offers for, or offer or sell, the Securities by any form of general solicitation
or general advertising (as those terms are used in Regulation D under the Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act and (ii) it has and will solicit offers for the Securities only from,
and will offer the Units only to (A) in the case of offers inside the United
States, (x) persons whom the Initial Purchaser reasonably believes to be QIBs
or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchaser that each such account is a QIB, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A or (y) a limited
number of other institutional accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Act) ("Accredited Investors") reasonably
believed by the Initial Purchaser to be Accredited Investors that, prior to
their purchase of the Securities, deliver to the Initial Purchaser a letter
containing the representations and agreements set forth in Exhibit A to the
Final Memorandum and (B) in the case of offers outside the United States, to
persons other than U.S. persons
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("foreign purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust) in reliance on Regulation S of
the Securities Act.
The Initial Purchaser represents and warrants that it is an
Accredited Investor, with such knowledge and experience in financial and
business matters as are necessary in order to evaluate the merits and risks of
an investment in the Securities. The Initial Purchaser agrees to comply with the
applicable provisions of Rule 144A, Rule 144 and Regulation S under the Act and
will offer and sell the Securities only in compliance such provisions. The
Initial Purchaser hereby acknowledges that the Company and, for purposes of the
opinions to be delivered to the Initial Purchaser pursuant to Section 7(a)
hereof, counsel to the Company will rely upon the accuracy and truth of the
representations contained in this Section 8 and the Initial Purchaser hereby
consents to such reliance.
9. Indemnification and Contribution. (a) The Company, to the extent
permitted by applicable law, agrees to indemnify and hold harmless the Initial
Purchaser and its respective affiliates, directors, officers, agents,
representatives, general partners and employees of the Initial Purchaser or its
affiliates, and each other person, if any, who controls the Initial Purchaser or
its affiliates within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the full extent lawful against any losses, claims, damages,
expenses or liabilities (or actions in respect thereof, including, without,
limitation, shareholder derivative actions and arbitration proceedings) to which
the Initial Purchaser or such other person may become subject under the Act, the
Exchange Act or otherwise, insofar as any such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto or
any application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or "Blue Sky" laws thereof or filed with
any securities association or securities exchange (each an "Application");
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto or any Application, a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(iii) any breach of any of the representations and warranties of the
Company set forth in this Agreement; or
(iv) any breach of any of the representations and warranties of the
Company set forth in the Registration Rights Agreement, Warrant
Registration Rights Agreement, the Unit Agreement or the Warrant
Agreement;
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and will reimburse, as incurred, the Initial Purchaser and each such other
person for any reasonable legal or other expenses incurred by the Initial
Purchaser or such other person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission (A) made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchaser specifically for use therein or (B) which results from the fact that a
copy of the Final Memorandum was not sent or given to a person, and if the
untrue statement or omission or alleged untrue statement or omission that was
contained in the Preliminary Memorandum has been corrected in the Final
Memorandum and delivered to the Initial Purchaser on a timely basis to permit
such delivery or sending. This indemnity agreement will be in addition to any
liabilities or obligations that the Company may otherwise have to the
indemnified parties. Subject to Section 9(c), the Company shall not be liable
under this Section 9 for any settlement of any claim or action effected without
its prior consent, which shall not be unreasonably withheld. The Company shall
not, without the prior written consent of the Initial Purchaser, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which the Initial Purchaser is or could have been a party, or indemnity could
have been sought hereunder by the Initial Purchaser, unless such settlement (A)
includes an unconditional written release of the Initial Purchaser, in form and
substance reasonably satisfactory to the Initial Purchaser, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of the Initial Purchaser.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors, its officers, its agents, its representatives and its
employees and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which the Company, or any such director,
officer, agent, representative, employee or controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or supplement thereto
or any Application, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in any Memorandum or any amendment
or supplement thereto or any Application, or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchaser specifically for use therein;
and subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any reasonable legal or other expenses incurred by the
Company or any such director, officer or controlling person in connection with
investigating or
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defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Initial Purchaser may
otherwise have to the indemnified parties. Subject to Section 9(c), the Initial
Purchaser shall not be liable under this Section 9 for any settlement of any
claim or action effected without its written consent, which shall not be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraphs (a) and (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances designated by the Initial Purchaser in the case of
paragraph
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(a) of this Section 9 or the Company in the case of paragraph (b) of this
Section 9, representing the indemnified parties under such paragraph (a) or
paragraph (b), as the case may be, who are parties to such action or actions) or
(ii) the indemnifying party has authorized in writing the employment of counsel
for the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the indemnifying
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the prior written consent of
the indemnifying party, unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to an indemnified
party in respect of any losses, claims, damages or liabilities (or actions in
respect thereof), each indemnifying party, in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect (i)
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the offering of the Units or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions or breaches that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received by
the Company on the one hand and the Initial Purchaser on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of commissions and before deducting expenses) received by the Company bears to
the total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand, or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
paragraph (d). Notwithstanding any other provision of this paragraph (d), the
Initial Purchaser shall not be obligated to make contributions hereunder that in
the aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchaser under this Agreement, less the aggregate
amount of any damages that the Initial Purchaser has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
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entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
(e) It is agreed that the indemnification provided for in this
Section 9 shall supersede the indemnification provisions contained in the
NatWest Engagement Letter; provided, however, that no party shall be relieved of
any liability under the Natwest Engagement Letter based upon an act or omission
committed prior to the date hereof.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company its
respective officers and the Initial Purchaser set forth in this Agreement or
made by or on behalf of them pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Initial Purchaser or any
other person referred to in Section 9 hereof and (ii) delivery of and payment
for the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6, 9 and 17 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Closing Date any of the following shall have occurred:
(i) the Company shall have sustained any loss or interference with
respect to its businesses or properties from fire, flood, earthquakes,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any strike, labor dispute, slow down or work stoppage
or any legal or governmental proceeding, which loss or interference has
had or could be reasonably likely to have a Material Adverse Effect, or
there shall have been, in the sole judgment of the Initial Purchaser, any
other event or development that, individually or in the aggregate, has or
could be reasonably likely to have a Material Adverse Effect (including
without limitation a change in control of the Company), except in each
case as described in the Final Memorandum (exclusive of any amendment or
supplement thereto);
(ii) there shall have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company from that set
forth in the Final
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Memorandum that is material and adverse and that makes it, in the Initial
Purchaser's sole judgment, impracticable to market the Units, the Notes or
the Warrants on the terms and in the manner contemplated in the Final
Memorandum;
(iii) trading generally shall have been suspended or materially
limited on or by, as the case may be, either of the New York Stock
Exchange or the National Association of Securities Dealers, Inc. or the
setting of minimum prices for trading on such exchange or market shall
have occurred or trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market;
(iv) a banking moratorium shall have been declared by New York,
Minneapolis or United States authorities;
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States, (C) any material change in the financial
markets of the United States or (D) any other national or international
calamity or emergency which, in the case of (A), (B), (C) or (D) above and
in the sole judgment of the Initial Purchaser, makes it impracticable or
inadvisable to proceed with the offering or the delivery of the Securities
as contemplated by the Final Memorandum;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that has
a material adverse effect on the financial markets in the United States,
and would, in the sole judgment of the Initial Purchaser, make it
impracticable or inadvisable to market the Securities;
(vii) the proposal, enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule order of
any court or other governmental authority which, in the sole judgment of
the Initial Purchaser, would have a Material Adverse Effect; or
(viii) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in this
Section 11 and Sections 6 and 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements
set forth in the last paragraph on the cover page of the Final Memorandum and
paragraphs 5, 6 and 7 under the heading "Plan of Distribution" in the Final
Memorandum (to the extent such statements relate to the Initial Purchaser)
constitute the only information furnished
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by the Initial Purchaser to the Company for the purposes of Sections 2(a) and 9
hereof.
13. Original Issue Discount Legend. The Company will cause each
physical Note to contain on its face a legend that satisfies the requirements of
U.S. Treasury Regulations Section 1.1275-3(b) stating that such debt instrument
was issued with original issue discount ("OID") and detailing (i) the issue
price, (ii) the amount of OID per $1,000 of principal amount, (iii) the issue
date and (iv) the yield to maturity, or, alternatively, detailing the name and
either the address or telephone number of a representative of the Company who
will, beginning no later than ten days after the issue date, be able to promptly
supply the appropriate information in response to a holder's request.
14. Notices. All communications hereunder shall be in writing and,
if sent to the Initial Purchaser, shall be mailed or delivered to (i) NatWest
Capital Markets Limited, 135 Bishopsgate, London, England, with a copy to White
& Case LLP, 1155 Avenue of the Americas, New York, New York 10036, Attention:
Timothy B. Goodell, Esq.; if sent to the Company, shall be mailed or delivered
to the Company at Mentus Media Corp., 9531 West 78th Street, Eden Praire, MN
55344, Attention: Thomas Pugliese, with a copy to, Cooperman Levitt Winikoff
Lester & Newman, P.C., 800 Third Avenue, 30th Floor, New York, NY 10022,
Attention: Robert L. Winikoff, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
15. Net Payments. All payments made by the Company hereunder or
under any Note will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding any tax imposed on or
measured by the net income or net profits of the Initial Purchaser) and all
interest, penalties or similar liabilities with respect to such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the Company agrees to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
such Note. The Company agrees to indemnify and hold harmless the Initial
Purchaser, and reimburse the Initial Purchaser upon its written request, for the
amount of any Taxes so levied or imposed and paid by the Initial Purchaser.
16. Successors. This Agreement shall inure to the benefit of and be
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binding upon the Initial Purchaser, the Company and its respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company and officers and
any person or persons who control the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act. No purchaser of Securities from
the Initial Purchaser will be deemed a successor because of such purchase.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
MENTUS MEDIA CORP.
By:____________________________
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the
date first above written.
NATWEST CAPITAL MARKETS LIMITED
By:____________________________
Name:
Title:
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<PAGE>
Exhibit 4.1(f)
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UNIT AGREEMENT
UNIT AGREEMENT dated as of February 18, 1998 between Mentus Media
Corp., a Delaware corporation (the "Company"), and United States Trust Company
of New York, as Unit Agent (the "Unit Agent").
WHEREAS, the Company proposes to issue 12% Senior Secured PIK Notes
due 2003 (the "Notes") and warrants (the "Warrants") to purchase 125,240 shares
of its common stock, par value $0.01 per share (the "Common Stock"), in the form
of 45,000 units (the "Units"), with each Unit consisting of $1,000 principal
amount of Notes and 2.78311 Warrants, each to purchase one share of Common
Stock;
WHEREAS, the Company desires to appoint United States Trust Company
of New York to act as its agent for the purpose of issuing certificates ("Unit
Certificates") representing the Units and registration of transfers and
exchanges thereof;
WHEREAS, the Units will be exchangeable for Notes and Warrants
represented thereby on the Separability Date (as defined);
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Unit Agent. (a) The Company hereby
appoints the Unit Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Unit Agent hereby
accepts such appointment.
(b) The Company hereby appoints the Unit Agent as a co-registrar for
the Notes for so long as the Notes are represented by the Units. In its capacity
as a co-registrar, the Unit Agent shall have the rights and obligations provided
for a registrar in the Indenture governing the Notes.
(c) The Company hereby appoints the Unit Agent as an agent of the
Warrant Agent for the purposes of maintaining a register of the registered
owners of and the registration of transfers and exchanges of the Warrants
represented by the Units.
SECTION 2. Unit Certificates. (a) The Units will initially be
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issued either in global form (the "Global Units"), or in registered form as
definitive Unit certificates ("Physical Units") substantially in the form of
Exhibit A attached hereto. Any certificates evidencing the Global Units to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto, and shall bear the legend set forth in
Exhibit B attached hereto. Such Global Units shall represent such of the
outstanding Units as shall be specified therein and each shall provide that it
shall represent the aggregate Units from time to time endorsed thereon and that
the aggregate amounts of outstanding Units represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global Unit
to reflect the amount of any increase or decrease in the amount of outstanding
Units represented thereby shall be made by the Unit Agent and Depository (as
defined below) in accordance with instructions given by the holder thereof. The
Depository Trust Company shall act as the Depository with respect to the Global
Units until a successor shall be appointed by the Company. Upon written request,
a Unit holder may receive from the Depository and the Unit Agent Physical Units
as set forth in Section 5 below.
(b) Legends. Each Unit Certificate evidencing the Units (and all
Units issued in exchange therefor or substitution thereof) shall bear a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT
A UNITED STATES PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED
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STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE UNIT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE UNIT
AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND; PROVIDED THAT AN INITIAL INVESTOR THAT IS AN
INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS DESCRIBED IN CLAUSE (1)(B)
ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL
ACCREDITED INVESTOR. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE UNIT AGENT, TRUSTEE OR
THE WARRANT AGENT, AS THE CASE MAY BE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE UNIT AGENT
AND THE ISSUER, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Each Unit Certificate that is a Global Unit shall bear the following
legend in addition to any other legend required by law or this Agreement:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR UNITS IN
DEFINITIVE FORM, THIS UNIT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY
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ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF
SUCH SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE, TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL UNIT
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SECTION 3. Execution of Unit Certificates. Each Unit Certificate
shall be signed on behalf of the Company by its Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, Treasurer, Chief
Financial Officer or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Unit Certificates may be in the form of
a facsimile signature of the present or any future Chairman of the Board,
President, Vice President, Chief Financial Officer, Treasurer, Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Unit
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer, Treasurer, Chief Financial
Officer or a Vice President, Secretary or Assistant Secretary, notwithstanding
the fact that at the time the Unit Certificates shall be countersigned and
delivered or disposed of he shall have ceased to hold such office.
In case any officer of the Company who shall have signed any of the
Unit Certificates shall cease to be such officer before the Unit Certificates so
signed shall have been countersigned by the Unit Agent, or disposed of by the
Company, such Unit Certificates nevertheless may be countersigned and delivered
or disposed of as though such person had not ceased to be such officer of the
Company; and any Unit Certificate may be signed on behalf of the Company by any
person who, at the actual date of the execution of such Unit Certificate, shall
be a proper officer of the Company to sign such
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Unit Certificate, although at the date of the execution of this Unit Agreement
any such person was not such officer.
Unit Certificates shall be dated the date of counter-signature by
the Unit Agent.
SECTION 4. Registration and Countersignature. The Unit Agent, on
behalf of the Company, shall number and register the Unit Certificates in a
register as they are issued by the Company.
Unit Certificates shall be manually countersigned by the Unit Agent
and shall not be valid for any purpose unless so countersigned. The Unit Agent
shall, upon written instructions of the Chairman of the Board, the President,
Chief Executive Officer, Chief Operating Officer, a Vice President, Chief
Financial Officer, Treasurer, the Secretary or an Assistant Secretary of the
Company, initially countersign and deliver not more than ___ Units and shall
thereafter countersign and deliver Units as otherwise provided in this
Agreement.
The Company and the Unit Agent may deem and treat the registered
holder(s) of the Unit Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Unit Agent shall be
affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Units. Prior to the
Separability Date, when Physical Units are presented to the Unit Agent with a
request:
(i) to register the transfer of the Physical Units; or
(ii) to exchange such Physical Units for an equal number of Physical
Units of other authorized denominations,
The Unit Agent shall register the transfer or make the exchange as
requested if the requirements under this Agreement as set forth in this Section
5 for such transactions are met; provided, however, that the Physical Units
presented or surrendered for registration of transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Unit Agent, duly executed by the
holder thereof or by his attorney, duly authorized in writing; and
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(y) in the case of Units the offer and sale of which have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act") and are presented for transfer or exchange prior to (x) the date
which is two years after the date of original issue and (y) such later
date, if any, as may be certified by the Company to the Unit Agent as
required by any subsequent change in applicable law (the "Resale
Restriction Separation Date"), such Units shall be accompanied by the
following additional information and documents, as applicable, however, it
being understood that the Unit Agent need not determine which clause (A)
through (D) below is applicable:
(A) if such Unit is being delivered to the Unit Agent by a
holder for registration in the name of such holder,
without transfer, a certification from such holder to
that effect (in substantially the form of Exhibit C
hereto); or
(B) if such Unit is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption for
registration in accordance with Rule 144 or Regulation S
under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect (in substantially the form
of Exhibit C hereto); or
(C) if such Unit is being transferred to an institutional
"accredited investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities Act, delivery of a Certificate of Transfer in
the form of Exhibit D hereto and an opinion of counsel
and/or other information satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(D) if such Unit is being transferred in reliance on another
exemption from the registration requirements of the
Securities Act, a certification to that effect (in
substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably acceptable to Company to
the effect that such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of Physical Unit for a Beneficial
Interest in a Global Unit. A Physical Unit may not be exchanged for a beneficial
interest in a Global Unit except upon satisfaction of the requirements set forth
below. Upon receipt by the Unit Agent of a Physical Unit, duly endorsed or
accompanied by appropriate instruments
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of transfer, in form satisfactory to the Unit Agent, together with:
(i) certification, substantially in the form of Exhibit C hereto,
that such Physical Unit is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act; and
(ii) written instructions directing the Unit Agent to make, or to
direct the Depositary to make, and endorsement on the Global Unit to
reflect an increase in the aggregate amount of the Units represented by
the Global Unit,
then the Unit Agent shall cancel such Physical Unit and cause, or direct the
Depositary to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Unit Agent, the number of Units
represented by the Global Unit to be increased accordingly. If no Global Unit is
then outstanding, the Company shall issue and the Unit Agent shall authenticate
a new Global Unit in the appropriate amount.
(c) Transfer and Exchange of Global Units. The transfer and exchange
of beneficial interests in Global Units shall be effected through the
Depositary, in accordance with this Agreement (including the restrictions on
transfer set forth herein) and the procedures of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Unit for a
Physical Unit.
(i) Prior to the Separability Date, any person having a beneficial
interest in a Global Unit may upon request exchange such beneficial
interest for a Physical Unit. Upon receipt by the Unit Agent of written
instructions or such other form of instructions as is customary for the
Depositary from the Depositary or its nominee on behalf of any person
having a beneficial interest in a Global Unit and upon receipt by the Unit
Agent of a written order or such other form of instructions as is
customary for the Depositary or the person designated by the Depositary as
having such a beneficial interest containing registration instructions
and, in the case of any such transfer or exchange prior to the Resale
Restriction Separation Date, the following additional information and
documents, however, it being understood that the Unit Agent need not
determine which clause (A) through (D) below is applicable:
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the
beneficial owner, a certification from such Person to
that effect (in substantially the form of Exhibit C
hereto); or
(B) if such beneficial interest is being transferred to a
qualified institutional buyer (as defined in Rule 144A
under the
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Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Regulation S
under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from the transferee or
transferor (in substantially the form of Exhibit C
hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor" within the meaning
of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule
501 under the Securities Act, delivery of a Certificate
of Transfer in the form of Exhibit D hereto and an
opinion of counsel and/or other information satisfactory
to the Company to the effect that such transfer is in
compliance with the Securities Act, or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification to
that effect from the transferee or transferor (in
substantially the form of Exhibit C hereto) and an
opinion of counsel from the transferee or transferor
reasonably acceptable to the Company to the effect that
such transfer is in compliance with the Securities Act,
then the Unit Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Unit
Agent the aggregate amount of the Global Unit to be reduced and, following
such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate (as defined
in Section 5(f) below), the Unit Agent will authenticate and deliver to
the transferee a Physical Unit.
(ii) Physical Units issued in exchange for a beneficial interest in
a Global Unit pursuant to this Section 5(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Unit Agent in writing. The Unit Agent shall deliver such
Physical Units to the Persons in whose names such Units are so registered.
(e) Restrictions on Transfer and Exchange of Global Units.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 5), a Global Unit may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or any such
nominee of such Depositary.
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(f) Authentication of Physical Units in Absence of Depositary. If at
any time:
(i) the Depositary for the Units notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Unit and a successor Depositary for the Global Unit is not appointed by
Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Unit Agent in
writing that it elects to cause the issuance of Physical Units in place of
the Global Unit under this Unit Agreement,
then the Company will execute, and the Unit Agent, upon receipt of an officers'
certificate signed by two officers of the Company (one of whom must be the
principal executive officer, principal financial officer or principal accounting
officer) (an "Officer's Certificate") requesting the authentication and delivery
of Physical Units, will authenticate and deliver Physical Units, in an aggregate
number equal to the aggregate number of Units represented by the Global Unit, in
exchange for such Global Unit.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), and unless
specified in an Officer's Certificate delivered to the Unit Agent, each
Unit Certificate evidencing the Global Units (and all Units issued in
exchange therefor or substitution thereof) shall bear the legends required
by Section 2(b).
(ii) Upon any sale or transfer of a Unit pursuant to Rule 144 under
the Securities Act or an effective registration statement under the
Securities Act:
(A) in the case of any Unit that is a Physical Unit, the
Unit Agent shall permit the holder thereof to exchange
such Unit for a Physical Unit that does not bear the
legend required by Section 2(b) in respect of Global
Units and rescind any related restriction on the
transfer of such Unit; and
(B) any such Unit represented by a Global Unit shall not be
subject to the provisions set forth in (i) above (such
sales or transfers being subject only to the provisions
of Section 5(c) hereof); provided, however, that with
respect to any request for an exchange of a Unit that is
represented by a Global Unit for a Physical Unit that
does not bear the legend required by Section 2(b) in
respect of Global Units, which request is made in
reliance upon Rule 144 under the Securities Act, the
holder thereof shall certify in writing to the Unit
Agent that such
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request is being made pursuant to Rule 144 under the
Securities Act (such certification to be substantially
in the form of Exhibit C hereto).
(h) Cancellation and/or Adjustment of a Global Unit. At such time as
all beneficial interest in a Global Unit have either been exchanged for Physical
Units, exchanged, redeemed, repurchased or cancelled, such Global Unit shall be
returned to or retained and cancelled by the Unit Agent. At any time prior to
such cancellation, if any beneficial interest in a Global Unit is exchanged for
Physical Units, redeemed, repurchased or cancelled, the number of units
represented by such Global Unit shall be reduced and an endorsement shall be
made on such Global Unit, by the Unit Agent to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of Units.
(i) Prior to the Separation Date, to permit registrations of
transfers and exchanges, Company shall deliver to the Unit Agent, upon
execution of this Agreement, and from time to time thereafter, sufficient
inventory of executed Physical Units and Global Units.
(ii) All Physical Units and Global Units issued upon any
registration, transfer or exchange of Physical Units or Global Units shall
be the valid obligations of Company, entitled to the same benefits under
this Unit Agreement as the Physical Units or Global Units surrendered upon
the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Unit, the Unit Agent and the Company may deem and treat the Person in
whose name any Unit is registered as the absolute owner of such Unit, and
neither the Unit Agent nor the Company shall be affected by notice to the
contrary.
(j) No Duty to Monitor Compliance. The Unit Agent shall be under no
duty to monitor compliance with any federal, state or other securities laws.
SECTION 6. Separation of the Notes and Warrants. The Notes and the
Warrants will be separately transferable, subject to compliance with applicable
securities laws, on the earliest to occur of (i) March 20, 1998 and (ii) the
date the Initial Purchaser shall consent in writing to the separation of the
Notes and the Warrants (the "Separability Date"). After the Separability Date,
the Notes and the Warrants represented by the Units shall be separately
transferable. Upon presentation after the Separability Date of any Unit
Certificate for exchange for Notes and Warrants or for registration of transfer
or otherwise, (i) the Unit Agent shall notify the Trustee and the Warrant Agent
of the number of Units so presented, the registered owner thereof, such owner's
registered address, the
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nature of any legends or restrictive endorsements set forth on such Unit
Certificate and any other information provided by the holder thereof in
connection therewith, (ii) the Trustee, if the requirements of the Indenture
with respect to the Notes for such transaction and any applicable legends are
met shall promptly register, authenticate and deliver a new Note in aggregate
principal amount equal to that represented by such Unit Certificate in
accordance with the directions of such holder and (iii) the Warrant Agent, if
its requirements for such transactions are met, shall promptly countersign,
register and deliver a new Warrant Certificate for the number of Warrants
previously represented by such Unit Certificate in accordance with the
directions of such holder.
Following the Separability Date, no Unit Certificates shall be
issued upon registration of transfer or exchange of Unit Certificates, or
otherwise.
SECTION 7. Rights of Unit Holders. The registered owner of a Unit
Certificate shall have all the rights and privileges of a registered holder of
the Notes represented thereby and the number of Warrants represented thereby and
shall be treated as the registered owner thereof for all purposes. The Company
agrees that it shall be bound by all provisions of the Indenture governing the
Notes, the Notes, the Warrant Agreement and the Warrants. The Company also
agrees that the Notes and Warrants represented by each Unit Certificate shall be
deemed valid and obligatory obligations of the Company.
SECTION 8. Unit Agent. The Unit Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Units, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Unit Certificates
shall be taken as statements of the Company, and the Unit Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Unit Agent or action taken or to be taken by it. The Unit Agent assumes no
responsibility with respect to the distribution of the Unit Certificates except
as herein otherwise provided.
(b) The Unit Agent shall not be responsible for and shall incur no
liability to the Company or any holder of the Units for any failure of the
Company to comply with any of the covenants in this Agreement or in the Unit
Certificates to be complied with by the Company.
(c) The Unit Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Unit Agent shall incur no
liability or responsibility to the Company or to any holder of any Unit
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel;
provided, that the foregoing clause shall not apply
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if the Unit Agent is found to have acted with willful misconduct or gross
negligence.
(d) The Unit Agent shall incur no liability or responsibility to the
Company or to any holder of any Unit Certificate for any action taken in
reliance on any Unit Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties provided, that the foregoing clause shall not apply if
the Unit Agent is found to have acted with willful misconduct or gross
negligence.
(e) The Company agrees to pay to the Unit Agent reasonable
compensation for all services rendered by the Unit Agent in connection with this
Agreement, to reimburse the Unit Agent for all expenses, taxes and governmental
charges and other charges of any kind and nature incurred by the Unit Agent in
the connection with this Agreement and to indemnify the Unit Agent and its
agents, employees, directors, officers and affiliates and save it and them
harmless against any and all liabilities, losses and expenses including, without
limitation, judgments, costs and counsel fees and actual expenses, for anything
done or omitted by the Unit Agent in connection with this Agreement except as a
result of the Unit Agent's gross negligence or willful misconduct.
(f) The Unit Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action unless the Company
or one or more registered holders of Unit Certificates shall furnish the Unit
Agent with security and indemnity for any costs and expenses which may be
incurred acceptable to the Unit Agent. This provision shall not affect the power
of the Unit Agent to take such action as it may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Units may be enforced by the Unit Agent without
the possession of any of the Unit Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Unit Agent shall be brought in its name as Unit
Agent and any recovery of judgment shall be for the ratable benefit of the
registered holders of the Units, as their respective rights or interests may
appear.
(g) The Unit Agent, and any stockholder, director, officer or
employee of it (the "Related Parties"), may buy, sell or deal in any of the
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Unit Agent
under this Agreement. Nothing herein shall preclude the Unit Agent or such
Related Parties from acting in any other capacity for the Company or for any
other legal entity.
(h) The Unit Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof. The
Unit Agent shall
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not be liable for anything which it may do or refrain from doing in connection
with this Agreement except for its own gross negligence or bad faith or willful
misconduct.
(i) Before the Unit Agent acts or refrains from acting with respect
to any matter contemplated by this Unit Agreement, it may require:
(1) an officers' certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this Unit
Agreement relating to the proposed action have been complied with; and
(2) an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been complied
with.
Each officers' certificate or opinion of counsel with respect to
compliance with a condition or covenant provided for in this Unit Agreement
shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
The Unit Agent shall not be liable for any action it takes or omits
to take in good faith in reliance on any such certificate or opinion.
(j) In the absence of bad faith on its part, the Unit Agent may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the Unit
Agent and conforming to the requirements of this Unit Agreement. However, the
Unit Agent shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Unit Agreement.
(k) The Unit Agent may rely and shall be fully protected in relying
upon any document believed by it to be genuine and to have been signed or
presented by the proper person. The Unit Agent need not investigate any fact or
matter stated in the
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document.
(l) The Unit Agent may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
SECTION 9. Notices to Company and Unit Agent, Trustee and Warrant
Agent. Any notice or demand authorized by this Agreement to be given or made to
or on the Company shall be sufficiently given or made when and if deposited in
the mail, first class or registered, postage paid, addressed
If to the Company:
Mentus Media Corp.
9531 West 78th Street
Suite 400
Minneapolis, Minnesota 55344
Attention: Chief Financial Officer
Facsimile: (612) 943-4299
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue, 30th Floor
New York, New York 10022
Attention: Robert Winikoff, Esq.
Facsimile: (212) 755-2839
If to the Unit Agent:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Department
Facsimile: (212) 326-0806
The parties hereto by notice to the other parties may designate
additional or different addresses for subsequent communications or notice.
Any notice to be mailed to a holder of Units shall be mailed to him
or her at the address that appears on the register of Units maintained by the
Unit Agent. Copies of any such communication shall also be mailed to the Unit
Agent, Trustee and Warrant Agent. The Unit Agent shall furnish the Company, the
Trustee or the Warrant Agent promptly when requested with a list of registered
holders of Units for the purpose of
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mailing any notice or communication to the holders of the Notes or Warrants and
at such other times as may be reasonably requested.
SECTION 10. Change of Unit Agent. The Unit Agent may resign and be
discharged from its duties under this Agreement by giving to the Company 30
days' notice in writing. The Unit Agent may be removed by like notice to the
Unit Agent from the Company. If the Unit Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Unit Agent. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated Unit
Agent or by any holder of the Units (who shall with such notice submit his Unit
for inspection by the Company), then any such holder may apply to any court of
competent jurisdiction for the appointment of a successor to the Unit Agent.
Pending appointment of a successor to the Unit Agent, either by the Company or
by such court, the duties of the Unit Agent shall be carried out by the Company.
Any successor Unit Agent, whether appointed by the Company or such a court,
shall be a suitable alternate, experienced in these duties and in good standing,
incorporated under the laws of the United States of America or any State thereof
or the District of Columbia and having at the time of its appointment as Unit
Agent a combined capital and surplus of at least $50,000,000. After appointment,
the successor Unit Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Unit Agent without
further act or deed; but the former Unit Agent shall deliver and transfer to the
successor Unit Agent any property at the time held by it hereunder, and execute
and deliver any further assurance, conveyance, act or deed necessary for such
purpose. Failure to file any notice provided for in this Section 10, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Unit Agent or the appointment of the successor Unit Agent, as
the case may be. In the event of such resignation or removal, the Company or the
successor Unit Agent shall mail by first class mail, postage prepaid, to each
holder of the Units, written notice of such removal or resignation and the name
and address of such successor Unit Agent.
SECTION 11. Allocation of Purchase Price. Based on the Company's
estimate of the relative fair market values of the Notes and the Warrants, the
Company and the Unit Agent agree to treat for U.S. federal income tax purposes
$941.30 of each $1,000 of principal amount of Notes as allocable to the Notes
(which amount the Company will treat as the issue price of such Notes for U.S.
federal income tax purposes) and $58.70 as allocable to the Warrants.
SECTION 12. Supplements and Amendments. The Company and the Unit
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Unit Certificates in order to cure any ambiguity or
to correct or
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supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company, as evidenced by an
opinion of counsel delivered to the Unit Agent, and the Unit Agent may deem
necessary or desirable and which shall not in any way adversely affect the
interests of the holders of Unit Certificates. Any amendment or supplement to
this Agreement that has a material adverse effect on the interests of the Unit
holders shall require the written consent of registered holders of a majority of
the then outstanding Units.
SECTION 13. Successors. All covenants and provisions of this
Agreement by or for the benefit of the Company, the Trustee, the Warrant Agent
or the Unit Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 14. Governing Law. THIS AGREEMENT AND EACH UNIT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
SECTION 15. Benefits of This Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Unit Agent
and the registered holders of the Unit Certificates any legal or equitable
right, remedy or claim under this Agreement, but this Agreement shall be for the
sole and exclusive benefit of the Company, and the Unit Agent and the registered
holders of the Unit Certificates.
SECTION 16. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
MENTUS MEDIA CORP.
By:____________________________
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Unit Agent
By:____________________________
Name:
Title:
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EXHIBIT A
[FORM OF SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR)" OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER
OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
UNIT AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE UNIT AGENT), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR
PURCHASING AS DESCRIBED IN CLAUSE (1)(B) ABOVE SHALL NOT BE
PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL ACCREDITED
INVESTOR, IN CONNECTION WITH ANY TRANSFER
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EXHIBIT A
Page 2
OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE UNIT AGENT, IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE
(2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE UNIT AGENT AND THE ISSUER, SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE UNIT AGENT TO
REFUSE TO REGISTER ANY TRANSFER OF THIS UNIT IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR UNITS IN
DEFINITIVE FORM, THIS UNIT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE, TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OR THIS GLOBAL
UNIT SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
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<PAGE>
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EXHIBIT A
Page 3
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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EXHIBIT A
Page 4
MENTUS MEDIA CORP.
Units Consisting of $1,000 Principal Amount of
12% Senior Secured PIK Notes Due 2003
and 2.78311 Warrants, each to Purchase
One Share of Common Stock
No. CUSIP No. [ ]
MENTUS MEDIA CORP., a Delaware corporation, which term includes any
successor corporation (the "Company"), hereby certifies that [ ] is the owner of
[ ] Units as described above, transferable only on the books of the Company by
the holder thereof in person or by his or her duly authorized attorney on
surrender of this Certificate properly endorsed. Each Unit consists of $1,000
principal Amount of the Company's 12% Senior Secured PIK Notes Due 2003 (the
"Notes") and ____ Warrants, each to purchase one share of Common Stock, par
value $0.01 per share, of the Company (the "Warrants"). This Unit is issued
pursuant to the Unit Agreement (the "Unit Agreement") dated as of February 18,
1998 between the Company and __________, as Unit Agent (the "Unit Agent") and is
subject to the terms and provisions contained therein, to all of which terms and
provisions the holder of this Unit Certificate consents by acceptance hereof.
Reference is made to the further provisions of this Unit Certificate
contained herein, which will for all purposes have the same effect as if set
forth at this place. Reference is also made to (i) the Indenture dated as of
February 1, 1998 (the "Indenture") between the Company and the United States
Trust Company of New York, as Trustee which governs the terms of the Notes and
(ii) the Warrant Agreement dated as of February 18, 1998 (the "Warrant
Agreement") between the Company and United States Trust Company of New York as
Warrant Agent, which governs the terms of the Warrants, terms and provisions of
which, in each case, the holder of this Unit Certificate consent to by
acceptance hereof. Copies of the Unit Agreement, the Indenture and Warrant
Agreement are on file at the office of the Company, 9531 West 78th Street, Suite
400, Minneapolis, Minnesota 55344, Facsimile: (612) 943-4299, Attention: Chief
Executive Officer and are available to any holder on written request and without
cost.
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<PAGE>
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EXHIBIT A
Page 5
The Notes and the Warrants will be separately transferable, subject
to compliance with applicable securities laws, on the earliest to occur of (i)
March 20, 1998 and (ii) the date the Initial Purchaser shall consent in writing
to the separation of the Notes and Warrants.
Dated:
MENTUS MEDIA CORP.
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
Countersigned:
United States Trust Company of New
York
as Unit Agent
By:____________________________
Authorized Signatory
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<PAGE>
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EXHIBIT A
Page 6
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
(Insert assignee's soc. sec. or tax I.D. no.)
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(Print or type assignee's name, address and zip code)
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and irrevocably appoint agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
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Date:______________
Your Signature:
(Sign exactly as your name appears on
the face of this Security)
-------------------------------------
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<PAGE>
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EXHIBIT A
Page 7
Signature Guarantee:
- --------------------------
(Signatures must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements of
the Unit Agent, which
requirements will include
membership or participation
in the Securities Transfer
Agents Medallion Program
("STAMP") or such other
"signature guarantee program"
as may be determined by the
Unit Agent in addition to, or
in substitution for, STAMP,
all in accordance with the
Securities Exchange Act of
1934, as amended.)
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<PAGE>
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EXHIBIT B
[LEGEND FORM FOR GLOBAL UNITS]
Any Global Unit authenticated and delivered hereunder shall bear a
legend which would be in addition to any other legends required in the case of a
Restricted Security) in substantially the following form:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR UNITS IN DEFINITIVE
FORM, THIS UNIT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE
DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE, TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF
THIS GLOBAL UNIT SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE,
AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OR TRANSFER OF UNITS
Re: Units (the "Units") of Mentus Media Corp. each consisting of $1,000
principal amounts of 12% Senior Secured PIK Notes due 2003 and 2.78311
Warrants, each to purchase one share of Common Stock.
This Certificate relates to ____ Units held in* ____ book-entry or*
____ certificated form by ____ (the "Transferor").
The Transferor.*
____ has requested the Unit Agent by written order to deliver in
exchange for its beneficial interest in the Global Unit held by the depositary a
Unit or Units in definitive, registered form of authorized denominations and an
aggregate number equal to its beneficial interest in such Global Unit (or the
portion thereof indicated above); or
____ has requested the Unit Agent by written order to exchange or
register the transfer of a Unit or Units.
In connection with such request and in respect of each such Unit,
the Transferor does hereby certify that the Transferor is familiar with the Unit
Agreement relating to the above captioned Units and the restrictions on
transfers thereof as provided in Section 5 of such Unit Agreement, and that the
transfer of this Unit does not require registration under the Securities Act of
1933, as amended (the "Securities Act"), because[*]:
____ Such Unit is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 5(a)(y)(A) or Section 5(d)(i)(A) of
the Unit Agreement).
____ Such Unit is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in reliance on Rule
144A or in accordance with Regulation S under the Securities Act.
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EXHIBIT C
Page 2
____ Such Unit is being transferred in accordance with Rule 144
under the Securities Act.
____ Such Unit is being transferred in accordance with Regulation S
under the Securities Act.
____ Such Unit is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act,
other than Rule 144A or Rule 144 or Regulation S under the Securities Act. An
opinion of counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate.
----------------------------------
[INSERT NAME OF TRANSFEROR]
By:_______________________________
Date:_________________________
*Check applicable blank.
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EXHIBIT D
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Department
Re: Units (the "Units") of ____________________ each consisting of $1,000
principal amount of 12% Senior Secured PIK Notes due 2003 and 2.78311
Warrants, each to purchase one share of Common Stock
Ladies and Gentlemen:
In connection with our proposed purchase of Units, of the Company,
we confirm that:
1. We have received such information as we deem necessary in order
to make our investment decision.
2. We understand that any subsequent transfer of the Units is
subject to certain restrictions and conditions set forth in the Unit Agreement
and the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Units except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Units have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Units, we will do so only (A) to the Company
or any subsidiary thereof, (B) inside the United States in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes to the Unit
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<PAGE>
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EXHIBIT D
Page 2
Agent a signed letter substantially in the form hereof, (D) outside the United
States in accordance with Regulation S under the Securities Act, (E) pursuant to
the exemption from registration provided by Rule 144 under the Securities Act
(if available), or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing Units
from us a notice advising such purchaser that resales of the Units are
restricted as stated herein.
4. We understand that, on any proposed resale of Units, we will be
required to furnish to the Unit Agent and the Company, such certification, legal
opinions and other information as the Unit Agent and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Units purchased by us will bear a
legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Units, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or their investment, as the case may be.
6. We are acquiring the Units purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:_____________________________
(Authorized Signatory)
<PAGE>
Exhibit 10.1(a)
CO-INVESTMENT AGREEMENT, dated as of __________________, 1997, among
Mentus Media Corp., a Delaware corporation (the "Company"), and the individuals
executing a counterpart of this Agreement and listed on Schedule A attached
hereto (the "New Purchasers").
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as of
August 29, 1997 (the "Stock Purchase Agreement"), 21st Century Communications
Partners, L.P, a Delaware limited partnership, 21st Century Communications T-E
Partners, L.P., a Delaware limited partnership, 21st Century Communications
Foreign Partners, L.P., a Delaware limited partnership, and Pulitzer Publishing
Company (collectively, the "Initial Purchasers" and together with the New
Purchasers, the "Purchasers") acquired from the Company shares (the "Original
Preferred Shares") of the Company's Series C Senior Cumulative Compounding
Convertible Redeemable Preferred Stock, par value $1.00 per share (the "Series C
Preferred Stock").
WHEREAS, the Company and the Purchasers have agreed that the New
Purchasers will acquire shares of the Series C Preferred Stock upon the terms
and conditions set forth herein, which terms and conditions are intended to be
substantially similar to the terms and conditions of the purchase of the
Original Preferred Shares by the Initial Purchasers under the Stock Purchase
Agreement and the other documents and agreements contemplated thereby and
executed and delivered in connection therewith (the "Original Transaction
Documents").
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Sale and Purchase of Securities. On the terms and conditions hereof, the
Company agrees to issue and sell to each New Purchaser, and each New Purchaser
agrees to purchase from the Company, the number of shares of Series C Preferred
Stock at the total purchase price set forth opposite such New Purchaser's name
on Schedule A. This Agreement shall be binding on a New Purchaser when an
executed copy of this Agreement, with Schedule A completed as to such New
Purchaser, is delivered to the Company.
2. Delivery of Securities; Payment of Purchase Price. Delivery of the Series C
Preferred Stock purchased by the New Purchasers pursuant to this Agreement is
being made at a Closing to be held simultaneously upon execution and delivery of
this Agreement (the "Closing") at the offices of Baker & Botts, L.L.P., 599
Lexington Avenue, New York, New York 10022, by the Company delivering to each
New Purchaser, against payment of the purchase price therefor, a stock
certificate or certificates representing the number of shares of Series C
Preferred Stock purchased by such New Purchaser, as set forth on Schedule A.
Each such certificate shall be dated the date hereof and registered in the name
of the appropriate New Purchaser. Payment by the New Purchasers hereunder has
been made by wire transfer (to the account of the Company previously designated
by it in writing) and the Company hereby acknowledges receipt from the New
Purchasers of payment in full. Any tax on the issuance of the Series C Preferred
Stock (or any portion thereof) has been or will be paid by the Company.
<PAGE>
2
3. Applicability of the Stock Purchase Agreement to the Transaction Provided for
Herein.
(a) The Incorporated Representations (as defined below) are hereby
incorporated by reference into this Agreement with the same force and effect as
if each thereof (together, subject to Section 3(d) below, with the definitions
of all terms used therein which are defined in the Stock Purchase Agreement)
were set forth at length herein and made directly by the Company to the New
Purchasers on and as of the date hereof. The Company hereby represents and
warrants to the New Purchasers that each of the Incorporated Representations is
true and correct on and as of the date hereof, except for such changes as have
occurred between the date of the Stock Purchase Agreement and the date hereof,
which changes have been disclosed to the New Investors in writing and which the
Company represents and warrants do not have a material adverse affect on the
business, condition or affairs of the Company. For purposes of this Agreement,
the term "Incorporated Representations" means each and every representation or
warranty made by the Company to the Initial Investors in Section 3 of the Stock
Purchase Agreement, except that, for purposes of this Agreement, (i) references
in the Stock Purchase Agreement to Schedule 2.1, 3.4.3, 3.12.1, 3.19 or 3.22.1
shall be deemed to be references to Schedule A, 3.4.3, 3.12.1, 3.19 or 3.22.1
attached to this Agreement, respectively, (ii) Sections 3.3, 3.4.1 and 3.31 are
revised to read as set forth on Exhibit B hereto; and (iii) Section 3.4.2 shall
be deleted.
(b) The New Purchasers hereby represent and warrant, severally and not
jointly, to the Company that the warranties and representations made to the
Company by each of the Initial Purchasers in Section 4 of the Stock Purchase
Agreement and in the Purchaser Questionnaire delivered with this Agreement, are
true and correct with respect to each New Purchaser, individually, on the date
hereof.
(c) The provisions of Sections 5, 6, 7 and 8 of the Stock Purchase
Agreement shall be deemed incorporated herein by reference, provided, however,
that for purposes of this Agreement, (i) references to the "Investors" under
Sections 5, 6, 7 and 8 in the Stock Purchase Agreement shall be deemed for
purposes of this Section 3(c) of this Agreement to refer to the New Purchasers
hereunder, (ii) Section 8.4.1 of the Stock Purchase Agreement is not
incorporated herein, and (iii) references to Schedule 2.1 contained in the Stock
Purchase Agreement shall be deemed to be references to Schedule A attached
hereto. The Company covenants to and agrees with the New Purchasers that the
Company shall comply with each of such incorporated provisions, with the same
force and effect as if each of such covenants (together, subject to Section 3(d)
below, with the definitions of all terms used therein which are defined in the
Stock Purchase Agreement) were set forth at length herein and made directly by
the Company to the New Purchasers on and as of the date hereof.
(d) The parties agree that except as may be otherwise specifically
provided herein, words and phrases contained or incorporated herein shall be
given the same meaning as are
<PAGE>
3
provided for in the Stock Purchase Agreement; provided, however, that for
purposes of thisAgreement (i) references to the "Investors" in the Stock
Purchase Agreement shall be deemed for purposes of this Agreement to refer to
the New Purchasers hereunder, (ii) references to "Initial Investors" in Section
3.4.3 of the Stock Purchase Agreement shall be deemed for purposes of this
Agreement to refer to the New Purchasers hereunder, (iii) references to
"Investor's Shares" in the Stock Purchase Agreement shall be deemed for purposes
of this Agreement to refer to shares of Series C Preferred Stock sold and
purchased hereunder, and (iv) references to the "Transaction Documents" in the
Stock Purchase Agreement shall be deemed for purposes of this Agreement to refer
to not only the Transaction Documents listed in Section 1.1 of the Stock
Purchase Agreement but also to this Agreement and the other agreements and
documents executed in connection herewith.
(e) The New Purchasers hereby acknowledge that the transactions identified
in the Stock Purchase Agreement as "Concurrent Transactions" have been
consummated in a manner satisfactory to the New Purchasers, and that Section 2.5
of the Stock Purchase Agreement is not applicable to, and is not incorporated as
part of, this Agreement.
4. Admission of New Purchasers as Parties to the Stockholders' Agreement. Each
of the New Purchasers hereby agrees to become, effective as of the date hereof,
a party to and an "Initial Investor" and "Investor" under the Stockholders'
Agreement, dated September 25, 1996, by and among the Company, the Initial
Purchasers and certain other stockholders of the Company, as amended, and to be
bound by the terms and provisions thereof.
5. Admission of New Purchasers as Parties to the Preemptive Rights Agreement.
Each of the New Purchasers hereby agrees to become, effective as of the date
hereof, a party to and an "Initial Investor" and "Investor" under the Preemptive
Rights Agreement, dated as of September 25, 1996, among the Company and the
Initial Purchasers, as amended, and to be bound by the terms and provisions
thereof.
6. Admission of New Purchasers as Parties to the Registration Rights Agreement.
Each of the New Purchasers hereby agrees to become, effective as of the date
hereof, a party to and an "Initial Investor" and "Investor" under the
Registration Rights Agreement, dated September 25, 1996, by and among the
Company, the Initial Purchasers and certain other stockholders of the Company,
as amended, and to be bound by the terms and provisions thereof. All shares of
Common Stock which are issued or are or shall become issuable upon conversion of
any shares of Series C Preferred Stock purchased pursuant to this agreement
shall be "Registrable Shares" under such Registration Rights Agreement. Each of
the New Purchasers agrees with the Company that, notwithstanding any provision
of such Registration Rights Agreement, no New Purchaser may give a "Demand
Notice" as an "Initiating Investor" under Section 2.1 of such Registration
Rights Agreement (as such quoted terms are defined therein) unless all New
Purchasers
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4
collectively give such Demand Notice with respect to all Registrable Shares (as
defined therein) then held by all of the New Purchasers, and that this sentence
shall be binding upon any Person succeeding to ownership of any such Registrable
Shares and New Purchaser's rights under the Registration Rights Agreement
according to the terms thereof, other than any Person who, prior to the date of
such succession, was an "Initial Investor" under such Registration Rights
Agreement, but was not a New Purchaser.
7. Counterparts and Facsimile Signatures. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to constitute one and the same agreement. This
Agreement may be executed by facsimile signatures.
[Signatures appear on next page]
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5
IN WITNESS WHEREOF, the parties have executed this Co-Investment Agreement
as of the date first above written.
MENTUS MEDIA CORP.
By: ______________________________
_____________________________ Name:________________________
_____________________________ Title:________________________
_____________________________
NEW PURCHASER
______________________________________
______________________________________
(print name)
<PAGE>
Exhibit 10.1(b)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") made on September
25, 1996 (the "Agreement") by and between The Mentus Group, Inc., a Delaware
corporation (the "Company") and 21st Century Communications Partners, L.P, a
Delaware limited partnership, 21st Century Communications T-E Partners, L.P., a
Delaware limited partnership, 21st Century Communications Foreign Partners,
L.P., a Delaware limited partnership (collectively, the "Investors").
WHEREAS, the Company desires to sell and deliver to the Investors
and the Investors desire to purchase and receive from the Company, upon the
terms and conditions herein set forth, 64,935 shares (the "Investors' Shares")
of the Series B Senior Cumulative Compounding Convertible Redeemable Preferred
Stock, $1.00 par value per share of the Company (the "Series B Preferred
Stock");
NOW, THEREFORE, the parties hereto in consideration of the mutual
covenants herein contained and intending to be legally bound hereby, agree as
follows:
SECTION 1. DEFINITIONS.
1.1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated
and include the plural as well as the singular:
"Affiliate" means with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with, such Person. For the purposes of this definition, "control" (including the
terms "controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Company within the United
States are located are not open for business.
"Certificate of Amendment" means the Certificate of Amendment to the
Company's Certificate of Incorporation substantially in the form attached hereto
as Exhibit A.
"Closing" shall have the meaning set forth in Section 2.3.
<PAGE>
"Closing Date" shall have meaning set forth in Section 2.3.
"Code" means the Internal Revenue Code of 1986.
"Company" means The Mentus Group, Inc., a Delaware corporation and
its successors.
"Company Parties" shall have the meaning set forth in Section 6.1.
"Company Plans" shall have the meaning set forth in Section 2.20.
"Common Stock" shall have the meaning set forth in Section 3.4.
"Concurrent Transactions" shall have the meaning set forth in
Section 2.5.
"Contract" means any agreement, contract, commitment, indenture,
lease, license, instrument, note, bond, security, agreement in principle, letter
of intent, undertaking, promise, covenant, arrangement or understanding, whether
written or oral.
"Debt" means, with respect to any Person, at any time, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable that arise
in the ordinary course of business, or professional fees and similar accounts
payable that arise in connection with any transaction not prohibited by this
Agreement, but only if and so long as the same are payable on customary terms,
(iv) all obligations of such Person as lessee under capital leases, (v) all Debt
secured by a lien on any asset of such Person, whether or not such Debt is
assumed by such Person and (vi) all Debt of others guaranteed by such Person.
"ERISA" shall have the meaning set forth in Section 2.20.
"Fair Market Value" means, as to any property, the price at which a
willing seller would sell and willing buyer would buy such property having full
knowledge of the facts, in an arms-length auction transaction without time
constraints, and without being under any compulsion to buy or sell. In
determining the Fair Market Value of any shares of capital stock, there shall be
no discount due to lack of liquidity of such shares because of the absence of a
significant public market or due to the minority ownership position in the
issuer represented by such shares, nor any premium due to the majority or
control ownership position in the issuer represented by such shares.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other Person exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
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"Intangible Property" has the meaning set forth in Section 3.13.
"Investors" means the Initial Investors and each other Person, other
than the Company or an Affiliate of the Company who at any time acquires any
shares of capital stock of the Company directly or indirectly from any Initial
Investor in a transaction or chain of transactions not involving a public
offering within the meaning of and registered under the Securities Act, for so
long as such Person continues to hold such securities.
"Investors' Shares" has the meaning set forth in the introductory
paragraphs.
"Issue Date" means September 25, 1996.
"IRS" has the meaning set forth in Section 3.18.
"Judgment" means any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or magistrate,
any other governmental authority or any arbitrator.
"Licenses" has the meaning set forth in Section 3.16.
"Majority Investors"shall be as defined in the Registration Rights
Agreement.
"Material Adverse Effect" means any event, fact, circumstance or
occurrence which results or would result in a material adverse change in or a
material adverse effect on any of (i) the condition (financial or otherwise),
business, performance, operations or properties of the Company and its
Subsidiaries taken as one enterprise, (ii) the legality, validity or
enforceability of any Transaction Document or (iii) the ability of the Company
or any of its Subsidiaries to perform its material obligations hereunder or
under any other Transaction Document.
"Option" shall be as defined in the Option Agreement.
"Option Agreement" means the Option Agreement, dated the date
hereof, among the Company and the Investors, as the same may be amended from
time to time in accordance with its terms.
"Option Purchase Price" has the meaning set forth in Section 2.2.
"Other Stock Purchase Agreements" means the Stock Purchase
Agreements, dated the date hereof, among the Company and certain other
purchasers of Series B Preferred Stock as the same may be amended from time to
time in accordance with their respective terms.
"PBGC" shall have the meaning set forth in Section 3.20.
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<PAGE>
"Pension Plans" shall have the meaning set forth in Section 2.20.
"Permitted Liens" shall have the meaning set forth in Section 3.12.
"Permitted Transferees" shall have the meaning as set forth in the
Stockholders' Agreement.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
or other entity of any kind or any Governmental Authority.
"Preemptive Rights Agreement" means the Preemptive Rights Agreement,
dated the date hereof and substantially in the form of Exhibit B hereto, among
the Company and certain stockholders of the Company.
"Purchase Price" has the meaning set forth in Section 2.1.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof and substantially in the form of Exhibit C
hereto, among the Company and certain stockholders of the Company.
"Requirement of Law" means, as to any Person, the charter and bylaws
or other organizational or governing documents of such Person, and all federal,
state and local laws, rules, regulations, orders, judgments, decrees or other
determinations of an arbitrator, court or other Governmental Authority,
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Rights" means, with respect to any Person, any subscription,
option, warrant, right, convertible security or other agreement, instrument or
commitment of any character obligating (contingently or absolutely) such Person
to issue or sell any capital stock or other securities.
"Senior Loan Amendment and Agreement" means the Agreement dated the
date hereof, among Gerald Joyce and the Investors, the Promissory Note dated the
date hereof among the Company and Gerald Joyce and substantially in the forms
attached to Exhibit D hereto and the other agreements, documents and instruments
executed in connection therewith, as the same may be amended from time to time
in accordance with their respective terms.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute, and (unless the context otherwise
requires) the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Series of Preferred Stock of
the Company designated prior to Closing as 8.25% Convertible Exchangeable
Preferred Stock.
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<PAGE>
"Series A Certificate of Amendment" has the meaning set forth in
Section 2.5.
"Series B Preferred Stock" has the meaning set forth in the
introductory paragraphs.
"Series B Certificate of Designation" means the Certificate setting
forth a copy of the resolution adopted by the Board of Directors of the Company,
pursuant to authority expressly vested in it by the provisions of the
Certificate of Incorporation of the Company, as amended, which resolution
provides for the designation, powers and rights of the series designated thereby
as the Series B Senior Cumulative Compounding Convertible Redeemable Preferred
Stock of the Company, as filed with the Secretary of State of the State of
Delaware on or prior to the date hereof, in the form attached hereto as Exhibit
E.
"Stockholders' Agreement" means the Stockholders' Agreement, in the
form of Exhibit F hereto, by and among the Company, the Investors and certain
other stockholders of the Company dated the date hereof.
"Subsidiary" means with respect to any Person as of any time, each
Entity as to which any of the following statements is true as of such time:
(a) such Entity is an Affiliate of such Person which is
controlled by such Person, or
(b) such Person owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding
equity interests in such Entity having ordinary voting power to
elect a majority of the members of the board of directors or joint
venture, partnership or other management committee, trustees,
managers or other Persons ordinarily having the power, authority or
responsibility for managing or directing the management of such
Entity, or
(c) such Person, directly or indirectly through one or more
intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of such Entity or to receive upon
dissolution and liquidation of such Entity 50% or more of the assets
available for distribution to the holders of equity interests in
such Entity,
and in the case of any of clauses (i), (ii) and (iii), disregarding any voting
power, equity interests or other rights or interests which any Person other than
such Person or another Subsidiary of such Person would or might have upon the
happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
"Tax" means any federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other tax, duty or
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<PAGE>
assessment of any nature whatsoever, together with all interest, penalties and
additions imposed with respect thereto.
"Transactions" means the transactions contemplated by the
Transaction Documents and all other transactions consummated in connection
therewith.
"Transaction Documents" means this Agreement, the Stockholders'
Agreement, the Series B Certificate of Designation, the Senior Loan Amendment
and Agreement, the Registration Rights Agreement, the Preemptive Rights
Agreement, the Series A Certificate of Amendment, the Certificate of Amendment,
the Option Agreement and the Other Stock Purchase Agreement.
Section 2. Purchase and Sale; Closing.
2.1. Sale and Purchase of Investor's Shares; Purchase Price.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, the Company shall sell, assign, transfer, convey and
deliver to the Investors the Investors' Shares, and the Investors
shall purchase the Investors' Shares from Company on the date hereof
for a purchase price as set forth below.
(b) Purchase Price. Upon the terms and subject to the
conditions set forth in this Agreement, and simultaneously with
receipt of the Investors' Shares on the date hereof, the Investors
shall deliver to the Company the sum of $4,999,995 (which is a
purchase price of $77.00 per share of Series B Preferred Stock) (the
"Purchase Price") in cash by wire transfer to an account as
designated by the Company prior to the Closing (as defined below).
2.2. Sale and Purchase of Option; Purchase Price.
(a) Upon the terms and subject to the conditions set forth in
this Agreement and the Option Agreement, the Company shall sell,
assign, transfer, convey and deliver to the Investors the Option,
and the Investors shall purchase the Option on the date hereof for a
purchase price as set forth below;
(b) Upon the terms and subject to the conditions set forth in
this Agreement and in the Option Agreement, and simultaneously with
the execution and delivery by the Company of the Option Agreement,
the Investors shall deliver to the Company the sum of $100 (the
"Option Purchase Price") in cash by wire transfer to an account as
designated by the Company prior to the Closing.
2.3. Closing. The closing ("Closing") of the Transactions shall be
held at the office of Baker & Botts, L.L.P., 599 Lexington Avenue, Suite 2900,
New York, NY 10022 or at such
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other place and time as may be agreed upon by the Company and the Investors. The
date of the Closing is referred to herein as the "Closing Date."
2.4. Deliveries. At the Closing, the parties shall make the
following deliveries:
2.4.1. The Company shall deliver to the Investors free and
clear of all liens, claims or other encumbrances, certificates representing the
Investors' Shares in the names and for the amount of shares of Series B
Preferred Stock as set forth on Schedule 1 hereto; and
2.4.2. The Investors shall deliver to the Company the Purchase
Price, in cash.
2.5. Concurrent Transactions. Contemporaneously with Closing, the
following further transactions the ("Concurrent Transactions") have occurred or
are occurring:
(a) Simultaneously with the Closing, the Stockholders'
Agreement, the Registration Rights Agreement and the Preemptive
Rights Agreement have been executed and delivered by each of the
parties thereto;
(b) Simultaneously with the Closing, the individuals named in
Schedule 2.5(b) have been duly elected to the Company's Board of
Directors;
(c) Simultaneously with the Closing, the Senior Loan Amendment
and Agreement been executed and delivered by each of the parties
thereto.
(d) Prior to or simultaneously with the Closing, the
contribution by Thomas Pugliese and Gerard Joyce of their right to
receive all amounts of deferred compensation since January 1, 1992,
to the Company.
(e) Simultaneously with the Closing, the closing of the
purchase by certain other investors of approximately 26,121 shares
of Series B Preferred Stock for a purchase price of $77.00 per share
in accordance with the terms and conditions of the Other Stock
Purchase Agreement;
(f) Prior to or simultaneously with the Closing, the Series B
Certificate of Designation, the Series A Certificate of Amendment
and the Certificate of Amendment shall have been filed and become
effective with the Secretary of State of the State of Delaware;
(g) Simultaneously with the Closing, the Certificate of
Amendment relating to the Certificate of Designation with respect to
the Series A Preferred Stock (the "Series A Certificate of
Amendment") shall have been filed and have become effective with the
Secretary of State of the State of Delaware;
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(h) Simultaneously with the Closing, the Amendments to the
Employment Agreements with the Company of each of Thomas Pugliese
and Gerard Joyce substantially in the forms attached hereto as
Exhibit G and Exhibit H respectively have been executed and
delivered by each of the respective parties thereto.
2.6. Failure to Consummate Any Transaction. If any of the
transactions contemplated by the Transaction Documents to which any Investor is
intended to be a party is consummated, but any of the Concurrent Transactions
contemplated by Section 2.5. to be consummated concurrently with or after such
transaction or any of the transactions contemplated by the other Transaction
Documents is not so consummated for any reason on the same date in a manner
reasonably satisfactory to the Investors and their counsel, then,
notwithstanding any provision of any Transaction Document apparently to the
contrary (i) the Investors shall have no further obligations under this
Agreement or any other Transaction Document and (ii) in addition to any other
rights or remedies which the Investors may have pursuant hereto or at law or in
equity, the Investors shall have the absolute and unconditional right to rescind
each consummated Concurrent Transaction or any transaction contemplated by the
Transaction Documents to which any Investor was a party, in which event the
Company shall take all such actions as may be necessary to make such rescission
fully effective, including but not limited to repaying to the Investors the
amount of all cash payments made by them pursuant to Section 2.1., Section 2.2.
and Section 2.3. hereof.
Section 3. Representations, Warranties and Covenants of the Company.
The Company hereby represents, warrants and covenants with and to the Investors
as follows as of the Closing Date:
3.1. Organization. The Company is a corporation duly and validly
organized, existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business in and is in good
standing under the laws of each jurisdiction in which the character of its
business or the ownership of its assets so requires. The Company has all
requisite power and authority to own or hold under lease its assets and operate
its business at the places where such assets are presently located and at the
places and in the manner in which such business is presently conducted. The
Company does not have any subsidiaries, nor is the Company a party to any joint
venture.
3.2. Authority. The execution and carrying out of this Agreement and
the compliance with the provisions hereof by the Company has been duly and
validly authorized by all necessary corporate action of the Company and its
stockholders, and this Agreement is the valid and binding agreement of the
Company enforceable in accordance with its terms, except insofar as enforcement
may be affected by bankruptcy, reorganization or similar laws relating to
creditors' rights in general, and general principles of equity, and no consent,
authorization or approval of any person to the Company's consummation of the
transaction contemplated hereby is required.
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3.3. Corporate Records. The copies of the Certificate of
Incorporation, as amended, and the By-laws of the Company attached hereto as
Schedule 3.3. are true and complete copies of such instruments and include all
amendments and modifications up to but not including the Closing Date. The
minute books of the Company, as made available to the Investors and their
representatives, contains the complete records of all meetings of and corporate
actions or written consents by the respective stockholders and the Board of
Directors of the Company and the same are accurate in all material respects.
3.4. Capitalization.
3.4.1.Immediately prior to the sale of the Investors' Shares
to the Investors, (i) the total authorized capital stock of the Company shall
consist of 1,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), 20,000 shares of Series A Preferred Stock and 95,000 shares of
Series B Preferred Stock, (ii) the total issued and outstanding capital stock of
the Company shall consist of 252,454 shares of Common Stock 6,000 shares of
Series A Preferred Stock and 0 shares of Series B Preferred Stock which shares
of Common Stock, Series A Preferred Stock and Series B Preferred Stock are owned
by the persons and in the amounts set forth on Schedule 3.4.1. hereof and (iii)
there are no treasury shares of capital stock.
3.4.2. Upon the sale of the Investors' Shares to the
Investors, the total issued and outstanding Common Stock, Series A Preferred
Stock and Series B Preferred Stock of the Company shall be as set forth on
Schedule 3.4.2.
3.4.3. When issued to the Investors in accordance with the
terms and conditions hereof, the Investors' Shares will be duly and validly
issued, will be fully paid and non-assessable and will be free and clear of all
liens, claims, pledges, encumbrances and restrictions of any kind, nature and
description (other than restrictions on the subsequent transfer of securities
imposed generally on sales of securities in non-registered transactions under
federal and state securities laws and the restrictions imposed by the
Transaction Documents as amended), and the Investors will have good, valid and
marketable title to the Investors' Shares. Except as set forth on Schedule
3.4.3. and except as set forth in the Transaction Documents, immediately prior
to the sale of the Investors' Shares to the Investors, there shall be (i) no
outstanding subscriptions, script, warrants, commitments, conversion rights,
calls, options or agreements to issue or sell additional securities of the
Company (ii) no obligations whatsoever requiring, or which might require, the
Company to issue any securities, and (iii) no agreements, commitments, or
understandings with respect to the internal management, control or affairs of
the Company including, without limitation, voting trusts and proxies, other than
as set forth in its Certificate of Incorporation, as amended, and By-Laws and in
the Transaction Documents.
3.5. Financial Condition. Except as otherwise set forth on Schedule
3.5. hereto, the financial statements of the Company for the year ended December
31, 1995, and the notes and any schedules to any such financial statements, all
as previously delivered to the Investors have been prepared in accordance with
generally accepted accounting principles, consistently applied, and
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fairly present the financial position, results of operations, assets and
liabilities of the Company as of the dates and for the fiscal periods covered
thereby. There are no material liabilities or obligations of any nature, whether
known or unknown, accrued or not accrued, absolute, contingent or otherwise,
which are not disclosed as such on the aforementioned financial statements or in
the notes thereto. Since December 31, 1995, the Company has not incurred any
material liability or obligation, accrued, absolute, contingent or otherwise,
except in the normal course of the Company's business. Since December 31, 1995,
there has been no material adverse change in the assets or liabilities, or in
the business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company, whether as a result of any legislative
or regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation or act of God, or other public force or otherwise; and to the best
knowledge, information and belief of the Company, no fact or condition exists or
is contemplated or threatened which might cause such a change in the future.
3.6. No Consents Required No consent, authorization , approval,
permit or order of, waiver by, or notice or declaration to or registration,
qualification or filing with, any Governmental Authority or other Person
pursuant to any applicable Requirement of Law or any Contract is required in
connection with the Company's execution, delivery or performance of any
Transaction Document or the consummation of any of the Transactions which has
not been obtained.
3.7. Title to and Useability of Assets. Other than cash raised
through equity investments in the Company and the exercise of stock options to
purchase the Company's Common Stock , all of the material assets and properties
of the Company are reflected in the balance sheet for December 31, 1995 and all
such assets so reflected or existing (i) are owned beneficially and of record by
the Company, free and clear of any liens, claims, encumbrances and restrictions,
(ii) are all of the assets and properties which are necessary to conduct the
business of the Company as it is currently conducted and (iii) are used or held
in compliance with all applicable laws, rules and regulations and are suitable
for the purposes intended. Except as set forth on Schedule 3.7, since December
31, 1995 the Company has not disposed of or acquired any assets or properties
otherwise than in the ordinary course of its business and for individual amounts
not in excess of $5,000.
3.8. Litigation. Except as set forth on Schedule 3.8, there is no
action, suit, claim, complaint, notice of violation, proceeding at law or in
equity, arbitration, administrative or other proceeding or investigation by or
before any governmental or other instrumentality or agency, or, to the Company's
knowledge, threatened, against the Company or any of its properties or rights,
and the Company does not know of any valid basis for any of the same. The
Company is not subject to any judgment, order or decree entered in any lawsuit
or proceeding which affects (i) the Company or any part of the business,
properties or assets of the Company or (ii) any part of the transaction
contemplated hereby, or which seeks to impose conditions upon the degree of the
Investors' control over, or the manner in which Investors shall be permitted to
manage its investment in the Company subsequent to the consummation of the
Transactions.
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3.9. Compliance with Laws. To the best of knowledge of the Company,
the Company is in compliance with all federal, state and local laws, ordinances,
regulations and orders applicable to it and its business which could have a
material adverse effect on the Company, its assets or its business. To the best
of knowledge of the Company, the Company has all required federal, state and
local governmental licenses and permits necessary in the conduct of its
business; such licenses and permits are in full force and effect; the Company
has not violated any thereof; and no proceeding is pending or, to the Company's
knowledge, threatened to revoke or limit any thereof.
3.10. Disclosure of Information. No representation, warranty or
covenant made by the Company to the Investors in this Agreement, any schedule or
exhibit to this Agreement or any document, certificate, schedule or exhibit
given to the Investors in connection with this Agreement and the transaction
contemplated hereby, contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements set forth in
this Agreement or the matters disclosed in such exhibit, document, schedule or
certificate, in light of the circumstances under which such statements or
disclosures were made, not misleading. There is no fact known to Company which
may materially and adversely affect the business, prospects or financial
condition of the Company or its properties or assets, which has not been set
forth in the Agreement or in the exhibits, certificates, schedules or statements
in writing furnished in connection with the Transactions.
3.11. Real Property.
3.11.1. Except as set forth on Schedule 3.11.1. hereto, the
Company owns no other real property.
3.11.2. Attached hereto as Schedule 3.11.2. is a complete copy
of each lease of real property (including amendments thereto) to which the
Company is a party. Except as set forth on Schedule 3.11.2. hereto, there are no
contractual obligations or commitments for the Company to enter into new leases
of real property or to renew or amend existing leases of real property prior to
the Closing Date.
3.12. Personal Property.
3.12.1. Except as set forth in Schedule 3.12.1. hereto, the
Company has the right to use all tangible personal properties and assets that
are material to the conduct of its business, subject to (i) limitations imposed
by the terms of the applicable lease, in the case of leased property, (ii)
defects in title, mortgages, liens, security interests, charges and encumbrances
disclosed in Schedule 3.12.1. and (iii) such restrictions on use as do not
materially impair the use of such properties and assets or the business of the
Company (clauses (i), (ii) and (iii) collectively referred to herein as the
"Permitted Liens"). The Company has good and marketable title to all of the
tangible personal properties, assets and rights owned by it, free and clear of
all mortgages, liens, security interests, charges and encumbrances, except for
Permitted Liens.
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3.12.2. All leases, subleases and other agreements under which
the Company is lessee or lessor of any property, real or personal, are in full
force and effect and constitute legal, valid and binding obligations of the
respective parties thereto enforceable in accordance with their respective terms
(except as such enforcement may be limited by bankruptcy, reorganization,
insolvency or other laws and court decisions relating to or affecting the
enforcement of creditors' rights generally, including but not limited to
statutory or other law regarding fraudulent transfers, and except as to the
availability of specific performance or other equitable remedies). To the best
knowledge of the Company, there is not under any of such instruments, any
claimed default or any event which with notice or lapse of time or both would
constitute such an event of default on the part of the Company which would have
a Material Adverse Effect on the Company.
3.12.3. Except as disclosed on Schedule 3.12.3., all
machinery, equipment and other tangible personal property that is material to
the conduct of the business of the Company, as the case may be, and that is
owned or used by the Company is free from any material defect and is capable of
being used in the ordinary and usual course of business as presently conducted
by the Company.
3.13. Intangible Property. Except as set forth on Schedule 3.13.
attached hereto, the Company owns, or has valid, binding and enforceable rights
to use, any and all material patents, trademarks, trade names, service marks,
service names, copyrights, applications therefor and other intellectual property
rights ("Intangible Property") used or held for use in connection with its
business, in each case free and clear of any lien, security interest, charge or
encumbrance. Schedule 3.13. sets forth a complete list of all material
Intangible Property used or held for use in connection with the Company's
business owned or licensed to the Company and any licenses or other agreements
relating thereto, and Schedule 3.13. indicates whether and where any such
Intangible Property has been registered or filed with the United States Patent
and Trademark Office, the Library of Congress Copyright Office or the
corresponding office of any other jurisdiction. Except as set forth on Schedule
3.13., to the best of the knowledge of the Company, the Company has not
infringed, misappropriated, misused or been charged with (or, to the best of the
Company's knowledge, been threatened to be charged with), respect to
infringement, misappropriation or misuse of any Intangible Property owned or
claimed by another. The Company has not received any notice with respect to
infringement, misappropriation or misuse of any Intangible Property owned or
claimed by another. Except as disclosed on Schedule 3.13. the Company has not
granted any outstanding licenses or other rights, or obligated itself to grant
licenses or other rights in or to any of the Intangible Property owned, used by
or licensed to them.
3.14. Offerees; Regulation D. None of the Company, its directors and
officers, its Affiliates nor any Person acting as agent for or on behalf of any
of the Company has, directly or indirectly, sold, offered for sale, or solicited
offers to buy any of the Investors' Shares or other securities of the Company so
as to bring the offer, issuance or sale of the Investors' Shares as contemplated
by this Agreement within the registration requirements of Section 5 of the
Securities Act, or within the registration or qualification requirements of any
"blue sky" or securities laws of any state or other jurisdiction. Assuming the
Investors are "accredited investors" within the meaning
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of Regulation D of the Securities Act, the offering, issuance and sale of the
Investors' Shares pursuant to this Agreement is exempt from the registration
provisions of the Securities Act.
3.15. Capital Commitments. Other than in the ordinary course of
business, there are no unfulfilled promises or commitments for capital
expenditures of the Company which are not reflected in the December 31, 1995
financial statements.
3.16. Licenses; Requirements of Law. To the best of the knowledge of
the Company, Company possesses all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct its respective business and to own, lease and operate
properties as currently or anticipated to be conducted, owned, leased or
operated, including all of the foregoing necessary for the use by the Company of
all Intangible Property used or anticipated to be used in the conduct of its
business as currently or anticipated to be conducted without a conflict with the
rights of others (collectively, the "Licenses") for which the failure to possess
would have a Material Adverse Effect. To the knowledge of the Company, all of
the Licenses are in full force and effect. The Company has no reason to believe
that any of the Licenses will be revoked, canceled, rescinded, or not renewed in
the ordinary course and on the same or more favorable material terms, other than
any such revocation, cancellation, rescission, or non-renewal of any License
which is not individually or in the aggregate with one or more other License(s),
material to the business or operations of the Company. To the knowledge of the
Company, there is not now pending any material complaint nor any basis for any
such complaint, which might have any of the results referred to in the
immediately preceding sentence. The Company is operating in all material
respects in accordance with the terms of the Licenses. To the best of the
knowledge of the Company, the Company is, and has conducted its business and
affairs, in compliance with all applicable Requirements of Law, except where the
failure to comply has not had and, insofar as reasonably can be foreseen, will
not have a Material Adverse Effect.
3.17. Certain Fees. Except as set forth on Schedule 3.17., neither
the Company nor any of its Affiliates, officers, directors or employees has
employed any financial advisor, broker or finder or incurred any liability for
any financial advisory, brokerage or finder's fee or commission in connection
with any of the Transactions.
3.18. Tax Matters. There has been duly filed by or on behalf of the
Company, or a filing extension from the appropriate federal, state, foreign and
local governments or governmental agencies has been obtained with respect to,
all Tax returns and reports required to be filed on or prior to the date hereof,
and all of such Tax returns and reports are correct and complete in all material
respects. Except as provided in Schedule 3.18., payment in full or adequate
provision for the payment of all Taxes required to be paid in respect of the
periods covered by such Tax returns and reports has been made and a reserve
which the Company reasonably believes to be adequate has been set up for the
payment of all such Taxes anticipated to be payable in respect of periods
through the date hereof. The federal income tax returns required to be filed by
or on behalf of the Company under the Code or any predecessor statute have
either been examined by the Internal Revenue Service ("IRS") or the period
during which any assessments may be made by the IRS has expired
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for all years up to and including the taxable year ended December 31, 1992 and
any deficiencies or assessments asserted in writing by the IRS have either been
paid or are being contested in good faith by appropriate proceedings and are
adequately reserved against, it being understood that net operating loss
carryforwards attributable to such years remain subject to disallowance by the
IRS. All other Taxes due and payable by or on behalf of the Company have either
been paid or adequately reserved for or are being contested in good faith by
appropriate proceedings as set forth on Schedule 3.18. (except for such Taxes
which are in the aggregate immaterial in amount). Except as provided in Schedule
3.18., the Company has not given any waiver which has not yet expired of any
statute of limitations relating to the assessment or payment of Taxes. The
Company has not, with regard to any property held, acquired or to be acquired by
it, filed a consent pursuant to Section 341(f) of the Code or any predecessor
statute. The Company is not a party to any tax-sharing or similar agreement with
any Person.
3.19. Absence of Certain Interests of Affiliated Parties. Except as
set forth on Schedule 3.19, no present or former stockholder, partner, director,
officer or employee of the Company individually owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, in any
Intangible Property, or in any application for a grant or registration of any
patent, trademark, trade name, service mark, copyright or other Intangible
Property, which the Company owns, possesses or uses in its operations as
heretofore, now or proposed to be conducted. None of the present or former
stockholders, partners, joint venturers, directors or officers of the Company,
nor any related party of any of the foregoing, is indebted to the Company, and
the Company is not indebted or has any other liability to any such Person,
except (i) pursuant to the express terms of the Contracts listed on Schedule
3.22 or Schedule 3.18 and (ii) except as set forth on Schedule 3.19, liabilities
to directors or officers for compensation for services in such capacity rendered
since the end of the last calendar month.
3.20. Employee Matters.
3.20.1. The names of and the IRS identification numbers of (i)
all "employee pension benefit plans", as defined in Section 3(2) and
subject to Title IV of the Employee Retirement Income Security Act
of 1984, as amended ("ERISA"), which have been maintained or
contributed to by the Company during any of the last five years (the
"Pension Plans"), (ii) all other "employee pension benefit plans" as
defined in Section 3(2) of ERISA which have been maintained or
contributed to by the Company during any of the last five years, and
(iii) all other employee benefit plans (including all "employee
welfare benefit plans" as defined in Section 3(1) of ERISA and all
other "employee benefit plans" as defined in Section 3(3) of ERISA)
which have been maintained or contributed to by the Company and (a)
which currently exist or (b) for which any continuing liabilities
exist (all of which plans described in clauses (i), (ii) and (iii)
are referred to collectively as the "Company Plans"), are listed on
Schedule 3.20 hereto. Except as otherwise indicated on Schedule
3.20, none of the Pension Plans is a "multi-employer plan" as
defined in Section 4001(a)(3) of ERISA or single-employer plan
subject to Section 4063 of ERISA, and
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the Company has not incurred or is expected to incur any withdrawal
liability under ERISA with respect to any "multi-employer plan" or
any single-employer plan subject to Section 4063 of ERISA.
3.20.2. Favorable determination letters from the IRS with
respect to the status of each Pension Plan which is intended to
qualify under Section 401 of the Code have been received. The
Company is not aware of any facts which would adversely affect the
qualified status of any Pension Plan that is intended to so qualify.
3.20.3. The Company has not incurred in connection with the
termination of a Pension Plan, and the Company has no knowledge of
any event or condition which would be reasonably likely to cause,
any liability to the Pension Benefit Guaranty Corporation (the
"PBGC") or otherwise under ERISA. Except as set forth in Schedule
3.20., were any Pension Plan to terminate on the date hereof, the
Company would not incur any material liability to the PBGC or
otherwise under ERISA, nor be required to contribute any material
additional amounts to any Pension Plan in order to terminate such
Pension Plan.
3.20.4. There are no pending claims, lawsuits or
investigations that have been asserted or instituted against the
assets of any of the trusts under the Company Plans or against the
Company or any fiduciary of any of the Company Plans with respect to
the operation of the Company Plans.
3.20.5. The Company Plans have been maintained and
administered in all material respects in accordance with their terms
and with all provisions of ERISA and the Code or any predecessor
statute (including rules and regulations under ERISA, the Code and
any predecessor statute) applicable thereto and, to the knowledge of
the Company, neither the Company nor any "party in interest" or
"disqualified person" (within the meaning of Section 4975 of the
Code or Title I, Part 4 of ERISA) within the control of the Company
with respect to the Company Plans has engaged in a "prohibited
transaction" within the meaning of Section 4975 of the Code or Title
I, Part 4 of ERISA. Without limiting the generality of the
foregoing, none of the Pension Plans has incurred a material
"accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code whether or not waived; no
Pension Plan has been the subject of a "reportable event" as defined
in Section 4043 of ERISA, as to which notices would be required to
be filed with the PBGC and all required contributions under each
Pension Plan for all periods through and including the Issue Date
have been made.
3.21. Insurance. The properties and operations of the Company are
insured under various policies of general liability and other forms of insurance
covering such risks as are usually insured against by prudent companies engaged
in the businesses and activities in which the Company is engaged, and as of the
Closing Date, premiums are past due. The Company has not
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been refused any insurance, no request for coverage has been limited, by an
insurance carrier to which it has applied for insurance or with which it has
carried insurance during the past five years.
3.22. Contracts and Commitments.
3.22.1. Except as set forth on Schedule 3.22.1. (without
duplication) and as contemplated by the Transaction Documents, the
Company is not a party to, otherwise subject to, bound by, obligated
or liable under or entitled to any rights or benefits under, and
none of the properties or businesses of the Company are subject to,
any of the following:
(i) written Contract with any present or former officer,
employee or consultant or for the employment of any Person,
including any consultant or any oral contract with any such
Person which is not terminable at will by the Company which is
a party thereto without any payment of any kind;
(ii) Contract for the future purchase of, or payment
for, supplies, products or services having a total value or
involving total payments or costs of $100,000 or more in any
one case or in the aggregate for all Contracts which are
related or which are with the same Person or group of
affiliated Persons;
(iii) Contract continuing over a period of more than six
months from the date hereof having a total value or involving
total payments or costs of $100,000 or more in any one case or
in the aggregate for all Contracts which are related or which
are with the same Person or a group of affiliated Persons;
(iv) distribution, dealer, representative or agency
Contract which, individually or together with one or more such
Contracts which are related or are with the same Person or
group of affiliated Persons, is material (except for the
Licenses);
(v) lease under which the Company is either lessor or
lessee of any real property or any material personal property
having annual lease payments in excess of $100,000;
(vi) note, debenture, bond or other security or evidence
of indebtedness, equipment trust agreement, letter of credit
agreement, loan agreement, pledge or security agreement,
mortgage or other Contract pursuant to which any material
contingent obligation or any other Debt of the Company to any
other Person or of any other Person to the Company was
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incurred or may be incurred in the future or otherwise
relating to any such contingent obligation or other Debt;
(vii) Contract for any capital expenditure or leasehold
improvement in excess of $100,000 per year in any single case
or $100,000 per year in the aggregate for all cases;
(viii) Contract limiting or restraining the Company from
engaging in any business or competing in any manner generally
or in any specific geographic area or obligating the Company
to present any business or other opportunity to any other
Person or grant or offer to grant any other Person any
participation or other interest in any business or other
opportunity;
(ix) Contract pursuant to which any Person has a right
of first refusal, a "tag-along" right or any similar right
with respect to any proposed disposition by the Company of any
equity interest in the Company or of any other property of the
Company;
(x) Contract which relates in whole or in part to any
License or Intangible Property;
(xi) Contract with any labor union;
(xii) bonus, pension, profit-sharing, retirement, stock
purchase, stock option, deferred compensation, stock bonus,
stock or equity appreciation plan, phantom stock or equity
interest plan, death benefit, disability, insurance, medical
reimbursement, fringe benefit plan, or similar plan, program
or Contract in effect with respect to its employees or the
employees of others, except for the Company Plans;
(xiii) Contract which provides for "golden parachute" or
similar benefits;
(xiv) Contract relating to the mortgaging, pledging or
other placing of a lien on any properties of the Company;
(xv) Contract with or for the benefit of any present or
former stockholder (other than the Investors or their
respective Affiliates), partner, director or officer of the
Company or any Affiliate of any such Person, except for the
Company Plans, and except for Contracts exclusively between
and for the benefit Company and disclosed on any Schedule;
(xvi) Material Contract not made in the ordinary course
of business.
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3.22.2. Schedule 3.22.2. hereto lists all material Licenses
material to the operation to the Company's business and identifies
the grantor of each thereof.
3.22.3. Except as set forth on Schedule 3.22.3., each of the
Licenses, Contracts, plans and other items identified on Schedule
3.22.1. or Schedule 3.22.2 is in full force and effect, valid and
enforceable in accordance with its terms; the Company is, and to the
Company's knowledge all other parties thereto are, in compliance
with the material provisions thereof; the Company is not, and to the
Company's knowledge no other party thereto is, in default in the
performance, observance or fulfillment of any agreement, covenant,
obligation, commitment or condition contained therein; and to the
knowledge of the Company no event has occurred which, with or
without the giving of notice or lapse of time or both, would
constitute a default or event of default thereunder, except for
defaults or events of default which are not, individually or in the
aggregate, material. Furthermore, no such License, Contract, plan or
other item contains, in the reasonable opinion of the Company, any
material requirement, commitment, condition or other provision with
which there is a reasonable likelihood the Company or, to the
knowledge of the Company, any other party thereto will be unable to
comply or with which there is a reasonable likelihood the Company or
to the knowledge of the Company, any other party thereto will be
able to comply only at an economic loss.
3.23. Labor Matters. The Company has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of employees
affecting the business of the Company, and to the Company's knowledge no such
event or action is threatened. There are no unfair labor practice charges or
grievances pending or in process or threatened by or on behalf of any employee
or group of employees of the Company, and no written complaints received by the
Company, or threatened, or, with respect to unresolved complaints, on file with
any federal, state or local governmental agency, alleging employment
discrimination or sexual harassment by the Company. The Company is not a party
to any collective bargaining agreement.
3.24. Restricted Payments and Agreements.
3.24.1. Except (i) as set forth on Schedule 3.11.2 and
Schedule 3.4, (ii) for transactions contemplated by the Transaction
Documents and (iii) for the Concurrent Transactions, since December
31, 1995 there has not been (i) any declarations or dividend payment
or other distribution of assets, properties, cash, rights,
obligations or securities on account of any capital stock of the
Company, (ii) except as set forth on the balance sheet of the
Company dated as of December 31, 1995, any payment or distribution
on account of any Debt for or in respect of borrowed money, (iii)
any purchase, redemption or acquisition for value or any payment in
respect of any shares of any class of its capital stock or any
warrants, rights or options to acquire any such shares, (iv) except
as set forth on Schedule 3.24, any purchase, redemption, prepayment,
defeasance or acquisition for value of any Debt for or in respect of
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borrowed money, (v) any material adverse change in the business of
the Company, (vi) any amendment, termination or waiver of any rights
of material value to the Company, (vii) any termination of
employment of any key employee, (viii) any capital expenditures or
commitments by the Company other than in the ordinary course of
business (including in connection with installation of monitors) and
(ix) any agreement or understanding, whether in writing or
otherwise, for the Company to take any of the actions specified in
items (i) through (viii).
3.24.2. Except for the Transactions the Company has not (i)
entered into any agreement with any Person which, in the absence of
a default thereunder, would legally restrict the Company from paying
dividends or making redemption payments on the Series B Preferred
Stock on each date contemplated by the Series B Certificate of
Designation or from fully performing on a timely basis any of its
obligations with respect to the Series B Preferred Stock, the Series
A Preferred Stock the common stock of the Company or would condition
or otherwise limit or restrict the ability of the Company to (a) pay
dividends or make any other distributions permitted by applicable
law to the Company; (b) pay any Debt owed to the Company; (c) make
loans or advances to the Company; or (d) transfer any of its
property or assets to the Company; or (ii) otherwise create or
suffer to become effective any consensual arrangement which would
have any effect referred to in subclause (i) of this Section 3.24.2.
3.25. Conduct of Business. The Company Parties are principally
engaged in only the business of electronic out-of-home media comprised of video
displays on remote public locations linked by a communications network. The
Company also has ownership interests in the businesses listed on Schedule 3.25.
3.26. Environmental Matters. The Company (i) has not received
written notice or otherwise learned of any claim, demand, action, event,
condition, report or investigation indicating or concerning any potential or
actual liability of any Company Party which individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect arising in
connection with (a) any non-compliance with or violation of the requirements of
any applicable federal, state and local environmental health and safety laws and
regulations or (b) the release or threatened release of any toxic or hazardous
waste, substance or constituent into the environment, (ii) to the knowledge of
the Company, does not have any threatened or actual liability in connection with
the release or threatened release of any toxic or hazardous waste, substance or
constituent into the environment which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect, (iii) has not received
notice of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or
hazardous waste, substance or constituent or other substance into the
environment for which the Company is or may be liable, or (iv) has received
notice that the Company is or may be liable to any Person under the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
42 U.S.C. Section 9601 et seq. or any analogous state law.
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3.27. [Intentionally Omitted].
3.28. Key Employees; Deferred Compensation. None of the officers or
key employees of the Company set forth on Schedule 3.28. hereto, to the
Company's knowledge, presently intends to terminate his or her employment by the
Company. The Company does not have any cash deferred compensation obligations to
any director, officer or employee of the Company.
3.29. Other Agreements. All representations and warranties of the
Company contained in any of the Transaction Documents (other than this
Agreement) are true and accurate in all material respects. Each of the
Transaction Documents (other than this Agreement) is in full force and effect.
The Company has complied in all material respects with all of its covenants and
agreements contained in each of the Transaction Documents (other than this
Agreement). As of or immediately prior to the Closing, (i) all documents
relating to the Concurrent Transactions are in full force and effect and have
been executed and delivered in the respective forms furnished to the Investors,
(ii) no term, condition or provision of any of the documents relating to the
Concurrent Transactions has been amended, modified or waived, expressly or by
implication, (iii) all conditions to the consummation of the Concurrent
Transactions have been satisfied (or waived with the concurrence of the
Investors), (iv) each Investor has received a copy of each document required to
be delivered to the Investors pursuant to the Concurrent Transactions and (v)
there exists no default, event of default, breach or violation (or any event
which, with notice, lapse of time or otherwise, could result in a default, event
of default, breach or violation) under any of the documents relating to the
Concurrent Transactions.
3.30. Use of Proceeds. The Company shall use the proceeds of the
sale of the Investors' Shares to the Investors for the purposes specified in
Schedule 3.30.
3.31. Filing of Series B Certificate of Designation, Series A
Certificate of Amendment and Certificate of Amendment All actions necessary in
order to duly and validly authorize and designate the Preferred Stock,
including, without limitation, all necessary corporate action on the part of the
Company and the filing with the Delaware Secretary of State of the Series B
Certificate of Designation, the Series A Certificate of Amendment and the
Certificate of Amendment, has been taken and each of the Series B Certificate of
Designation and the Series A Certificate of Amendment and the Certificate of
Amendment is in full force and effect in the forms attached hereto as Exhibit E,
Exhibit I and Exhibit A, respectively and not been amended, modified or
supplemented.
3.32. Availability of Documents. The Company has made available to
the Investors copies of all documents, including all Contracts, insurance
policies, leases, plans, instruments, and Licenses listed in any Schedule or
otherwise referred to herein. Such copies are true and complete and include all
amendments, supplements and modifications thereto or waivers currently in effect
thereunder. The Company has delivered to the Investors, simultaneously with the
Closing, (i) a certificate, dated the Issue Date, of the Chief Executive
Officer/President and the Secretary of the Company (a) attaching copies,
certified by such officers as true and complete, of the resolutions of
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the Board of Directors and stockholders of the Company in connection with the
authorization and approval of the execution, delivery and performance of the
Transaction Documents and consummation of the Transactions and of all other
documents evidencing all necessary corporate action taken in connection
therewith, (b) attaching copies, certified by such officers as true and
complete, of the Certificate of Incorporation, as amended and By-Laws of the
Company, (c) which includes a representation by such officers that the copies of
the Certificate of Incorporation and ByLaws of the Company, as previously
provided to the Investors, are true and complete in all respects and, that the
copies of the Certificate of Incorporation, as amended conform to the original
documents filed with the Secretary of State (which representation shall
reference each document by name and date of execution and (d) setting forth the
incumbency of the officer or officers of the Company who have executed and
delivered this Agreement and each other Transaction Document, including therein
a signature specimen of each such officer or officers, (ii) copies, certified by
the Secretary of State of the State of Delaware, or other appropriate official
of the jurisdiction of incorporation of the Company of the Certificate of
Incorporation as of a date not more than two Business Days prior to the Closing
Date, (iii) a long form certificate of existence and good standing (including
tax good standing), dated the Closing Date of the Secretary of State or other
appropriate official of the jurisdiction of incorporation of such Company Party
and (iv) an opinion of counsel to the Company on the form substantially as set
forth in Exhibit J hereto.
Section 4. Representations and Warranties of the Investor. Each Investor,
severally and not jointly, represents and warrants to the Company as follows:
4.1. Authority. This Agreement is the valid and binding agreement of
such Investor, enforceable in accordance with its terms, except insofar as
enforcement may be affected by bankruptcy, reorganization or similar laws
relating to creditors' rights in general, and general principles of equity, and
no consent, authorization or approval of any other person to such consummation
of the transactions contemplated hereby is required. Such Investor has taken all
actions necessary to authorize the execution, delivery and performance of this
Agreement by such Investor and no other proceedings on the part of such Investor
are necessary to authorize the execution and delivery of this Agreement and the
transactions contemplated hereby.
4.2. Investment Intent. (i) Such Investor is an "accredited"
investor as defined in Regulation D promulgated under the Securities Act of
1933, as amended; (ii) such Investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
uses of its investment in the Company; (iii) such Investor understands and is
able to bear the economic risks associated with such investment; (iv) such
Investor has, on the date hereof, sufficient financial resources to carry out
the purchase of the shares purchased by it as contemplated in this Agreement;
(v) such Investor is purchasing the Investors' Shares it is purchasing for
investment, for its own account, and not with a view to the public distribution
or resale thereof in violation of the Securities Act or any applicable state
securities law.
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4.3. Access to Information. Such Investor has been furnished with or
given access to all information that it has requested regarding the Company's
current operations, business plans and prospects, in addition to the information
contained herein.
Section 5. No Joint Obligations.
5.1. Obligations Several, Not Joint. Each Investor shall be (i)
obligated hereunder only with respect to the purchase of the number and kind of
Investors' Shares set forth in Schedule 1 and no Investor shall have any
liability with respect to any other Investors' obligations hereunder and (ii)
separately and independently entitled to rely on the representations and
warranties of each other party made to such Investor in this Agreement and to
the benefit of all covenants and agreements of each other party made with such
Investor herein.
Section 6. Indemnification.
6.1. Agreement of Company to Indemnify.
6.1.1.The Company agrees to defend, protect, indemnify and
hold harmless each Indemnified Party (as defined below) from and
against any and all liabilities, obligations, losses, deficiencies,
claims, investigations, suits, actions, proceedings, damages,
assessments, penalties, judgments, costs, disbursements and expenses
of any kind or nature (including reasonable fees and disbursements
of counsel in connection with preparing for, defending against or
prosecuting), and amounts paid or agreed to be paid in settlement
of, any claim, action, suit, hearing, proceeding or investigation
against such Indemnified Party or any action, suit or proceeding
initiated by such Indemnified Party in connection with securing,
exercising, enjoying and enforcing such Indemnified Party's rights,
benefits and privileges or enforcing any Company Party's obligations
and liabilities under any Transaction Document, in each case
including appeals, whether direct, indirect or consequential, in any
manner resulting from, arising out of, based upon or related or
attributable to: (i) any breach or inaccuracy of any representation
or warranty of, or any breach or failure to perform any covenant,
agreement or obligation, of the Company contained in this Agreement
or any other Transaction Document; (ii) the invalidity or
unenforceability, or alleged invalidity or unenforceability, of any
provision of any Transaction Document; (iii) any liability or
obligation, or alleged liability or obligation, of any Company Party
to, or claim by, any holder or former holder of capital stock,
equity interests or other securities of any Company Party or any
Affiliate of any Company Party, relating to any event, fact or
circumstances occurring or existing at any time at or prior to the
time of the Closing under this Agreement or by reason of
consummation of any of the transactions contemplated by the
Transaction Documents; or (iv) any liability or obligation, or
alleged liability or obligation, of any Investor to, or claim by,
any holder or former holder of capital stock, equity interests or
other securities, or any creditor of or claimant against the
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Company or any predecessor corporation of any thereof, relating to
any event, fact or circumstances occurring or existing at any time
at or prior to the time of the Closing under this Agreement or by
reason of consummation of any of the transactions contemplated by
the Transaction Documents.
6.1.2. As used in this Agreement, the term "Indemnified
Parties" includes (i) each Investor, (ii) each partner of any
Investor who at any time may acquire any of the Investors' Shares by
reason of the dissolution of or any distribution by such Investor,
(iii) the respective Affiliates, partners (general and limited),
directors and officers of the foregoing Persons and their respective
shareholders, directors and officers and (iv) the respective
successors, heirs, executors and legal representatives of the
foregoing. For purposes of this Section 6.1., each reference to any
"Company Party" includes the Company and each and every Person
which, at any time prior to the date hereof, (i) was consolidated
with or merged with or into the Company, (ii) was consolidated with
one or more other entities in a transaction resulting in the
formation of the Company, (iii) was a party to a binding share
exchange with the Company, (iv) sold or otherwise transferred all or
substantially all of its properties to the Company or (v) was a
party to any transaction by virtue of which the Company succeeded
to, assumed or otherwise incurred whether by contract or agreement,
operation of law or otherwise, liability for any Debt, liabilities
and obligations of such Person, including liability for any taxes
payable by such Person, obligations or liabilities of such Person
with respect to any employee benefit plan or obligations or
liabilities of such Person under any Requirements of Law.
6.2. Defense of Third-Party Claims. Each Indemnified Party will give
the Company prompt notice of any third-party claim, investigation, action, suit,
hearing or proceeding with respect to which such Indemnified Party seeks
indemnification pursuant to Section 6.1., but the failure to give such notice
shall not impair any of the rights or benefits of such Indemnified Party under
Section 6.1. except to the extent such failure adversely affects the Company's
ability to defend such claim or increases the amount of such liability. In the
case of any third-party claims as to which indemnification is sought by any
Indemnified Party, such Indemnified Party shall be entitled, at the sole expense
and liability of the Company, to exercise full control of the defense,
compromise or settlement of any third-party claim, investigation, action, suit,
hearing or proceeding unless the Company within a reasonable time after the
giving of such notice by the Indemnified Party shall: (i) deliver a written
confirmation to such Indemnified Party that the indemnification provisions of
Section 6.1. are applicable to such claim, investigation, action, suit, hearing
or proceeding and that the Company will indemnify such Indemnified Party in
respect of such claim, investigation, action or proceeding pursuant to the terms
of such Section without asserting any challenge, defense, counterclaim or offset
against the Indemnified Party, (ii) notify such Indemnified Party in writing of
the intention of the Company to assume the defense thereof and (iii) retain
legal counsel reasonably satisfactory to such Indemnified Party to conduct the
defense of such claim, investigation, action, suit, hearing or proceeding. If
the Company so assumes the defense of any such claim, investigation, action,
suit, hearing or proceeding in accordance herewith, then such Indemnified
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Party shall cooperate with the Company in any manner reasonably requested in
connection with the defense, compromise or settlement thereof. If the Company so
assumes the defense of any such claim, investigation, action, suit, hearing or
proceeding, the Indemnified Party shall have the right to employ separate
counsel and to participate in (but not control) the defense, compromise, or
settlement thereof, but the fees and expenses of such counsel shall be the
expense of such Indemnified Party unless (i) the Company has agreed to pay such
fees and expenses, (ii) any relief other than the payment of money damages is
sought against such Indemnified Party or (iii) the named parties to any such
claim, investigation, action, suit, hearing or proceeding (including any
impleaded parties) include an Indemnified Party and the Company or one or more
other Indemnified Parties, and such Indemnified Party shall have been advised by
its counsel that there is a conflict of interest between such Indemnified Party
and the Company or any such other Indemnified Party in the conduct of the
defense thereof, and in any such case the reasonable fees and expenses of such
separate counsel shall be borne by the Company. Subject to the penultimate
sentence of this Section 6.2., if the Company elects to direct the defense of
any such claim, investigation, action, suit, hearing or proceeding, the
Indemnified Party shall not pay, or permit to be paid, any part of any claim or
demand arising from such asserted liability unless the Company withdraws from
the defense of such asserted liability, or unless a final judgment from which no
appeal may be taken by or on behalf of the Indemnified Party is entered against
the Indemnified Party for such liability. If the Company does not elect to
defend, or if, after commencing or undertaking any such defense, the Company
fails to prosecute or withdraws from such defense, the Indemnified Party shall
have the right to undertake the defense or settlement thereof, at the Company's
expense. If the Indemnified Party assumes the defense of any such claim,
investigation, action, suit, hearing or proceeding pursuant to this Section 6.2.
and proposes to settle the same prior to a final judgment thereon or to forgo
appeal with respect thereto, then the Indemnified Party shall give the Company
prompt written notice thereof and the Company shall have the right to
participate in the settlement, assume or reassume the defense thereof or
prosecute such appeal, in each case at the Company's expense. The Company shall
not, without written consent of such Indemnified Party, settle or compromise or
consent to entry of any judgment with respect to any such claim, investigation,
action, suit, hearing or proceeding (i) in which any relief other than the
payment of money damages is or may be sought against such Indemnified Party or
(ii) which does not include as an unconditional term thereof the giving by the
claimant, Person conducting such investigation or initiating such hearing,
plaintiff or petitioner to such Indemnified Party of a release from all
liability with respect to such claim, investigation, action, suit or proceeding
and all other claims or causes of action (known or unknown) arising or which
might arise out of the same facts.
6.3. Periodic Payments. Any indemnification required by Section 6.1.
for costs, disbursements or expenses of any Indemnified Party in connection with
investigating, preparing to defend or defending any claim, action, suit,
hearing, proceeding or investigation shall be made by periodic payments during
the course of the investigation or defense as and when bills are received or
costs, disbursements or expenses are incurred; provided, however, that such
Indemnified Party shall repay any such periodic payments made to it pursuant to
this Section 6.3. to the extent that it ultimately is determined that the amount
thereof exceeds that to which such Indemnified Party is entitled pursuant to
Section 6.1.
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6.4. Termination of Indemnification. The representations and
warranties of the Company made in or pursuant to this Agreement or any other
Transaction Document shall survive the Closing, for the following respective
periods (subject to the last sentence of this Section 6.4), in each case
regardless of any investigation that may have been or may be made by or on
behalf of any Investor: (i) in the case of the representations and warranties
made in Section 3.1, Section 3.2, Section 3.3, Section 3.4 or Section 3.10,
indefinitely; (ii) in the case of the representations and warranties made in
Section 3.18, Section 3.20 or Section 3.26, until the expiration of the
last-to-expire of all statute of limitations periods applicable to claims that
may be asserted against the Company or any Investor in respect of any matter
covered thereby and (iii) in all other cases, until the first anniversary of the
date of the Closing. The representations and warranties of the Investors made in
or pursuant to this Agreement shall survive until the first anniversary of the
date of the Closing. All covenants, agreements, obligations and commitments of
the Company made in or pursuant to this Agreement, in any other Transaction
Document shall survive indefinitely and without limitation (except as may
otherwise be expressly provided for by their terms). Any representation,
warranty, covenant, agreement, obligation or commitment which is the subject of
a claim or dispute asserted in writing prior to the expiration of the applicable
of the above-stated periods shall survive with respect to such claim or dispute
until the final resolution thereof.
Section 7. Legends.
7.1. Securities Act Legend. Except as otherwise provided in this
Section 7.1. or in the Stockholders' Agreement, each certificate or other
instrument evidencing the Investors' Shares shall bear a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS STATED IN (AND ARE TRANSFERABLE ONLY UPON COMPLIANCE
WITH) THE STOCK PURCHASE AGREEMENT, DATED SEPTEMBER 25, 1996. THE
SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR OTHER SECURITIES LAWS. THEY ARE 'RESTRICTED
SECURITIES' WITHIN THE MEANING OF SEC RULE 144. THE SHARES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF
THE COMPANY."
Any holder of any such certificate or instrument bearing the foregoing legend
shall be entitled to promptly receive from the Company, without expense, a new
certificate or instrument of identical tenor representing the same kind of
securities and the same number or other amount thereof not bearing such legend
if such securities shall have been effectively registered under the Securities
Act
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and are sold or otherwise disposed of in accordance with the intended method of
disposition by the seller thereof set forth in the registration statement, or
such securities may be freely transferred by such holder by reason of an
exemption from registration under the Securities Act, or such legend otherwise
is not required in order to ensure compliance with the Securities Act. The
opinion of Baker & Botts, L.L.P., or other legal counsel selected by such holder
and reasonably satisfactory to the Company with respect to any of the foregoing
or with respect to any question concerning whether any proposed transfer of any
such securities would violate the Securities Act shall be sufficient to
determine the issue.
Section 8. Miscellaneous.
8.1. Survival of Provisions. The respective representations,
warranties, covenants and agreements of the parties made herein or pursuant
hereto shall remain operative and in full force and effect regardless of (i) any
investigation made at any time by or on behalf of any Investor or any other
Person and (ii) the Closing under this Agreement and acceptance of any of the
Investors' Shares and payment therefor.
8.2. Determinations Generally. Unless otherwise expressly provided
herein, all decisions and determinations required or permitted to be made by any
Investor hereunder (including any decision as to whether to give any consent or
approval) shall be made by such Investor in its sole discretion.
8.3. Communications. All notices and other communications required
or permitted by this Agreement shall be in writing, and (i) if to the Company,
to The Mentus Group, Inc., 9531 West 78th Street, Minneapolis, MN 55344,
Attention: Chairman, or to such other address as the Company may designate in a
written notice to each Stockholder, or (ii) if to any Investor, to such Investor
at such Investor's address appearing on Schedule 1 hereto or supplied by such
Investor in writing to the Company for the purpose of such notice. All notices
and other communications required or permitted by this Agreement shall be deemed
to have been duly given if personally delivered to the intended recipient at the
proper address determined pursuant to this Section 8.3. or sent to such
recipient at such address by registered or certified mail, return receipt
requested, Express Mail, Federal Express or similar overnight delivery service
for next Business Day delivery or by telegram, telex or facsimile transmission
and will be deemed given, unless earlier received: (1) if sent by certified or
registered mail, return receipt requested, five calendar days after being
deposited in the United States mail, postage prepaid; (2) if sent by Express
Mail, Federal Express or similar overnight delivery service for next Business
Day delivery, the next Business Day after being entrusted to such service, with
delivery charges prepaid or charged to the sender's account; (3) if sent by
telegram or telex or facsimile transmission, on the date sent and (4) if
delivered by hand, on the date of delivery.
8.4. Fees, Costs, Expenses and Taxes.
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8.4.1.At the Closing Date, the Company covenants and agrees to
pay all of the costs and expenses and the reasonable out-of-pocket
expenses incurred by the Investors in connection with the
negotiation, preparation, review, printing, typing, reproduction,
execution, delivery, collection and enforcement of this Agreement
and the other Transaction Documents and any amendment or supplement
to or modification of any of the foregoing and any and all other
agreements, instruments, certificates and other documents furnished
pursuant hereto or thereto or in connection herewith or therewith
and provided, however, that the Company's maximum aggregate
obligation under this Section 8.4.1. shall be limited to $75,000.
8.4.2.The Company agrees to pay any and all stamp, transfer
and other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement, or the
issuance and sale of the Securities, and shall save and hold each
Investor harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to
pay, such taxes.
8.5. Brokerage. The Company represents and warrants that no broker,
finder or investment banker is or will be entitled to any brokerage, finder's or
similar fee or commission in connection with any of the transactions
contemplated by the Transaction Documents based upon arrangements made by and on
behalf of such party.
8.6. Incorporation by Reference. All schedules and exhibits to this
Agreement and all documents delivered pursuant to or referred to in this
Agreement are incorporated herein by reference and made a part hereof.
8.7. Binding Effect; Successors and Assigns; Entire Agreement.
Except as expressly provided in this Agreement, nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon or give any
person (including creditors, stockholders and Affiliates of the Company), other
than the parties to this Agreement, any remedy or claim under or by reason of
this Agreement or any term, covenant or condition hereof, all of which shall be
for the sole and exclusive benefit of the parties to this Agreement. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns and executors, administrators and heirs; provided that, except as
otherwise specifically permitted or contemplated pursuant to this Agreement, (i)
neither this Agreement nor any of the rights, interests or obligations of the
Company hereunder shall be assigned by the Company without the prior written
consent of each Investor and (ii) neither this Agreement (other than Section
2.2) nor any of the rights, interests or obligations of the Investors (other
than such rights, interests and obligations in connection with Section 2.2), of
the Investors hereunder may be assigned by the Investors without the prior
written consent of the Company other than to an Affiliate of any Investor. This
Agreement and the other Transaction Documents collectively set forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merge and supersede all prior discussions, agreements (including the letter
agreement between the Company and the Investors dated August 6, 1996 and any
confidentiality agreement previously
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<PAGE>
executed by the Investors or any of them) and understandings of any and every
nature among them with respect to such subject matter.
8.8. Amendments and Waivers. The provisions of this Agreement
(including the provisions of this sentence), may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof or thereof may not be given unless approved in writing by the Majority
Investors.
8.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
regardless of the laws that might be applicable under principles of conflicts of
law except to the extent that Delaware General Corporation Law mandatorily
applies.
8.10. Interpretation. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
8.11. No Implied Waivers. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein or made pursuant hereto. The waiver by any party
thereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party to exercise any right or privilege hereunder shall be deemed a waiver
of such party's rights or privileges hereunder or shall be deemed a waiver of
such party's rights to exercise the same at any subsequent time or times
hereunder.
8.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
8.13. Attorney's Fees. In any action or proceeding brought to
enforce any provision of this Agreement, and in any action or proceeding arising
under or with respect to this Agreement where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
8.14. Further Assurances. Each party shall cooperate and take such
actions as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
8.15. Pronouns. Whenever the context may require, any pronouns used
herein shall be deemed also to include the corresponding neuter, masculine or
feminine forms.
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<PAGE>
8.16. Use of Certain Words. The use of the words "hereof," "herein,"
"hereunder," and words of similar import shall refer to this entire Agreement,
and not to any particular article, section, subsection, clause, or paragraph of
this Agreement, unless the context clearly indicates otherwise.
8.17. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or enforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a court of competent jurisdiction, then such court may
substitute therefor a suitable and equitable provision in order to carry out, so
far as may be valid and enforceable, the intent and purpose of the invalid, void
or unenforceable provision. To the extent that any provision shall be judicially
unenforceable in any one or more states, such provision shall not be affected
with respect to any other state, each provision with respect to each state being
construed as several and independent.
8.18. Specific Performance. The parties agree that the provisions of
this Agreement shall be specifically enforceable, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of such
provisions will be inadequate compensation for any loss and that any defense in
any action for specific performance that a remedy at law would be adequate is
waived.
8.19. Facsimile Signatures. This Agreement may be executed by
facsimile signatures.
[Signatures appear on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the day and year first written above.
THE MENTUS GROUP, INC.
By: __________________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a
General Partner
By: __________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
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<PAGE>
By: MJM MEDIA CORP., a
General Partner
By: __________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By: __________________________________
Michael J. Marocco
President
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<PAGE>
Exhibit 10.1(c)
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is made between The Mentus Group, Inc., a
Delaware corporation (the "Company"), and Stephen Adams or his designated
assignee ("Shareholder"), as of December 26, 1995, and amends and restates in
full the Registration Rights Agreement entered into between the parties and
dated as of Devcember 26, 1995.
RECITALS:
In accordance with that certain Stock Purchase Agreement between the Company and
Shareholder, Shareholder has purchased 11,042 shares of the Company's common
stock (the "Common Stock"). The parties desire to set forth herein certain
rights, terms and conditions with respect to the registration of the shares of
Common Stock purchased by Shareholder.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Shareholder agree
as follows:
A. Registrations. If the Company has elected to effectuate a public
registration of shares of the Company's common stock for the Company's account,
the Company will give prompt notice to Shareholder (the "Company's Notice"). The
Company's Notice shall describe the date of proposed filing and the date by
which the registration rights granted pursuant to this Section 1 must be
exercised, the nature and method of any such registration, and shall include a
listing of the jurisdictions, if any, in which the Company proposes to register
or qualify the securities under the applicable securities or "Blue Sky" laws of
such jurisdictions. Upon receipt of the Company's Notice, Shareholder may
request, in writing, that the Company effect the public registration of the
Common Stock then held by Shareholder (which request shall specify the aggregate
number of shares intended to be registered by Shareholder and shall contain an
undertaking by Shareholder to cooperate fully with the Company in order to
permit the Company to comply with all applicable requirements of the relevant
securities laws and the rules and regulations thereunder and to obtain
acceleration of the effective date of the registration statement contemplated
thereby), and the Company will use its best efforts to cause all shares as to
which registration has been requested by Shareholder to be included in the
Company's registration statement on terms and conditions at least as favorable
to the Shareholder as those offered with respect to the other securities of the
Company included therein. If a registration pursuant to this Agreement involves
an underwritten offering and the managing underwriter advises the Company in
writing that, in its opinion, the number of securities requested to be included
in such registration pursuant hereto and pursuant to any other rights granted by
the Company to holders of its securities who request inclusion of any such
securities in such registration exceeds the number which can be sold in an
orderly manner in such offering, the Company shall nonetheless include in such
registration, pro rata among the respective security holders making request to
be included, the number of securities so requested to be included which in the
reasonable opinion of such underwriter can be sold.
<PAGE>
2
B. Registration Procedures. If the Company effects a public registration
of any shares held by the Shareholder, the Company shall:
1. prepare and file with the Securities and Exchange Commission (the
"SEC") or a comparable entity in a foreign jurisdiction ("Foreign Securities
Commission" or "FSC") a registration statement on the appropriate form with
respect to such shares and use its best efforts to cause such registration
statement to become effective;
2. prepare and file with the SEC or FSC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith and take such other action as may be necessary to comply with the
provisions of the applicable securities laws;
3. upon receipt of Shareholder's written request therefore, advise
Shareholder promptly (i) when any post-effective amendment to any registration
statement becomes effective and when any further amendment of or supplement to
the prospectus shall be filed with the SEC or FSC, (ii) of any request or
proposed request by the SEC or FSC for an amendment or supplement to any
registration statement, to the related prospectus, to any document incorporated
by reference in any of the foregoing or for any additional information, (iii) of
the issuance by the SEC or FSC of any stop order suspending the effectiveness of
any registration statement or any order directed to the related prospectus or
any document incorporated therein by reference or the initiation or threat of
any stop order proceeding or of any challenge to the accuracy or adequacy of any
document incorporated by reference in such prospectus, (iv) of receipt by the
Company of any notification with respect to the suspension of the qualification
of the shares for sale in any jurisdiction or the initiation or threat of any
proceeding for the purpose and (v) of the happening of any event which makes
untrue any statement of a material fact made in any registration statement or
the related prospectus as amended or supplemented or which requires the making
of a change in such registration statement or such prospectus as amended or
supplemented in order to make any material statement therein not misleading;
4. if the SEC or FSC shall issue a stop order suspending the
effectiveness of any registration statement, make a good faith effort to obtain
the lifting of that order at the earliest possible time;
5. upon receipt of Shareholder's written request therefore, deliver
to Shareholder copies of all public reports or releases and all reports and
financial statements, if any, furnished by the Company to any securities
exchange on which the shares may be listed pursuant to requirements of or
agreements with such exchange or to the SEC or FSC pursuant to applicable
securities laws or any rule or regulation of the SEC or FSC thereunder; and
<PAGE>
3
6. use reasonable efforts to register or qualify the shares covered
by such registration statement under the securities or blue sky laws of such
jurisdictions as the Shareholder shall reasonably request considering the nature
and size of the offering, and do such other acts and things as may reasonably be
necessary to enable the Shareholder to consummate the public sale or other
disposition in each such jurisdiction of such Common Stock; provided, however,
that the Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it has not been
qualified or to file any general consent to service of process.
C. Registration Expenses. The Company shall pay the following fees,
disbursements and expenses: all registration and filing fees, printing expenses,
auditors' fees, listing fees, registrar and transfer agent's fees, fees and
disbursements of counsel to the Company, expenses (including reasonable fees and
disbursements of counsel for the Company) of complying with applicable
securities or "Blue Sky" laws and the fees of the National Association of
Securities Dealers, Inc., if applicable, in connection with the review of such
offering. The underwriting discounts and commissions allocable to the shares
included in any offering shall be borne by the holders thereof.
D. Indemnification.
1. Upon registration of shares of Common Stock under the applicable
securities laws pursuant to this Agreement, the Company will indemnify and hold
harmless the Shareholder, its officers and directors, each underwriter (as
defined in the applicable securities laws) and each other person, if any, who
controls any of the Shareholder or any such underwriter within the meaning of
the applicable securities laws from and against any and all losses, claims,
damages and liabilities (including the fees and expenses of counsel in
connection with any governmental or regulatory investigation or proceeding),
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any registration statement under which such shares were
registered, any prospectus or preliminary prospectus contained therein or any
amendment or supplement thereto (including, in each case, documents incorporated
by reference therein), or arising out of any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities arise out of any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any of
the Shareholder, Shareholder's counsel or any underwriter and furnished to the
Company in writing by any of the Shareholder or such counsel or underwriter;
provided that the foregoing indemnification with respect to a preliminary
prospectus shall not inure to the benefit of any underwriter (or the benefit of
any person controlling such underwriter) from whom the person asserting any such
losses, claims, damages or liabilities purchased shares to the extent such
losses, claims, damages or liabilities result from the fact that a copy of the
final prospectus had not been sent or given to such person at or prior to
written confirmation of the sale of such shares to such person.
<PAGE>
4
2. Upon registration of shares of Common Stock under the applicable
securities laws pursuant to this Agreement, Shareholder will indemnify and hold
harmless the Company, its directors, its officers who sign the registration
statement, each underwriter and each person, if any, who controls the Company or
such underwriter within the meaning of the applicable securities laws, to the
same extent as the foregoing indemnity from the Company to the Shareholder, but
only with reference to information relating to the Shareholder and furnished to
the Company by the Shareholder for use in the registration statement, or
furnished to the Shareholder by the Company for confirmation or acceptance and
not timely refuted or corrected by Shareholder; any publicly discloseable
documents of the Shareholder published within the time frame of the registration
statement; any prospectus or preliminary prospectus contained therein or any
amendment or supplement thereto.
3. In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this section, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party has agreed to the
retention of such counsel at its expense or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party, the indemnifying party proposes that the same counsel
represent both the indemnified party and the indemnifying party and
representation of both parties by the counsel would be inappropriate due to
actual or potential differing interests between them. It is understood, where
the expense of separate counsel shall be borne by the indemnifying party
pursuant to the foregoing sentence, that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm qualified in
such jurisdiction to act as counsel for such indemnified party. Any firm
designated by the indemnifying party shall be approved as satisfactory in
writing by the Shareholder in the case of parties indemnified pursuant to
Section 4(a) and by the Company in the case of parties indemnified pursuant to
Section 4(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
4. Indemnification pursuant to Section 4(a) and (b) shall be on such
other terms and conditions as are at the time customary and reasonably required
by underwriters in public offerings, including providing for contribution in the
event indemnification provided in this Section is unavailable or insufficient.
<PAGE>
5
E. Obligations of Shareholder. If the Company elects to effectuate a
public registration of any shares of Common Stock held by Shareholder,
Shareholder shall provide to the Company, in a timely fashion, any and all
information required by state and federal securities laws to be included int he
registration statement or any related documents, including any information
requested by the Company. Furthermore, Shareholder shall review any and all
materials transmitted to Shareholder by the Company concerning the registration
of Shareholder's Common Stock and Shareholder immediately shall advise the
Company in writing of any misstatement or omission, in such materials.
F. Selection of Underwriters. The Company will have the right to select
the investment banking firm(s) acting as manager(s) in connection with any
underwritten public offering.
G. Miscellaneous.
1. Company's Right to Enter into Other Registration Rights
Agreements. Shareholder understands and acknowledges the Company's right to
enter into registration rights agreements with other existing or future
shareholders or employees of the Company pursuant to such terms and conditions
as the Company, in its sole and absolute discretion, deems appropriate.
2. Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
3. Assignment. Neither party shall have the right to assign this
Agreement without the express written consent of the non-assigning party. Any
assignment in violation of this Section 6(c) shall be null and void.
4. Governing Law. The laws of the State of Delaware (without giving
effect to the choice of law provisions thereof) shall govern the interpretation
and enforcement of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
THE MENTUS GROUP, INC., a
Delaware corporation
__________________________________ By_____________________________
STEPHEN ADAMS Its____________________________
<PAGE>
Exhibit 10.1(d)
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, dated as of August 29, 1997 (the
"Agreement") by and between Mentus Media Corp., a Delaware corporation (the
"Company") and 21st Century Communications Partners, L.P, a Delaware limited
partnership, 21st Century Communications T-E Partners, L.P., a Delaware limited
partnership, 21st Century Communications Foreign Partners, L.P., a Delaware
limited partnership, and Pulitzer Publishing Company (collectively, the "Initial
Investors").
WHEREAS, the Company desires to sell and deliver to the Initial
Investors and the Initial Investors desire to purchase and receive from the
Company, upon the terms and conditions herein set forth, shares of the Series C
Senior Cumulative Compounding Convertible Preferred Stock, $1.00 par value per
share, of the Company (the "Series C Preferred Stock");
NOW, THEREFORE, the parties hereto in consideration of the mutual
covenants herein contained and intending to be legally bound hereby, agree as
follows:
SECTION 1. DEFINITIONS.
1.1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated
and include the plural as well as the singular:
"Affiliate" means with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with, such Person. For the purposes of this definition, "control" (including the
terms "controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Company within the United
States are located are not open for business.
"Certificate of Amendment" means the Certificate of Amendment to the
Company's Certificate of Incorporation substantially in the form attached hereto
as Exhibit A.
"Closing" has the meaning set forth in Section 2.3.
<PAGE>
"Closing Date" has meaning set forth in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Co-Investment Agreement" means a stock purchase agreement pursuant
to which Lazard, Freres & Co. or any of its Affiliates or any Person identified
by Lazard, Freres & Co. and acceptable to the Company acquires shares of the
Series C Preferred Stock after the Closing Date and that either is (i)
substantially in the form of this Agreement and provides for the purchase of not
more than 12,988 shares of Series C Preferred Stock for a total purchase price
of not less than $1,000,000 and provides for the closing thereunder to occur not
later than 15 Business Days after the Closing Date or (ii) is in such form and
provides for the purchase and sale of such number of shares of Series C
Preferred Stock for such price, at such time and on such terms and conditions as
may be approved by a majority of the Board of Directors of the Company, which
majority includes the Series B Director and the Series C Director, in each case
as the same may be amended from time to time in accordance with its terms and
with the prior written consent of the Investors.
"Company" means Mentus Media Corp., a Delaware corporation and its
successors.
"Company Parties" has the meaning set forth in Section 6.1.
"Company Plans" has the meaning set forth in Section 2.20.
"Common Stock" has the meaning set forth in Section 3.4.
"Concurrent Transactions" has the meaning set forth in Section 2.4.
"Contract" means any agreement, contract, commitment, indenture,
lease, license, instrument, note, bond, security, agreement in principle, letter
of intent, undertaking, promise, covenant, arrangement or understanding, whether
written or oral.
"Debt" means, with respect to any Person, at any time, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable that arise
in the ordinary course of business, or professional fees and similar accounts
payable that arise in connection with any transaction not prohibited by this
Agreement, but only if and so long as the same are payable on customary terms,
(iv) all obligations of such Person as lessee under capital leases, (v) all Debt
secured by a lien on any asset of such Person, whether or not such Debt is
assumed by such Person and (vi) all Debt of others guaranteed by such Person.
"Disclosure Schedule" means Schedule 3 hereto.
"ERISA" has the meaning set forth in Section 2.20.
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"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other Person exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Intangible Property" has the meaning set forth in Section 3.13.
"Investors" means the Initial Investors and each other Person, other
than the Company or an Affiliate of the Company who at any time acquires any
shares of capital stock of the Company directly or indirectly from any Initial
Investor in a transaction or chain of transactions not involving a public
offering within the meaning of and registered under the Securities Act, for so
long as such Person continues to hold such securities.
"Investors' Shares" means any and all of the shares of Series C
Preferred Stock purchased by any Investor pursuant to this Agreement.
"Issue Date" means the date of this Agreement.
"IRS" has the meaning set forth in Section 3.18.
"Joyce Agreement" means the Agreement, dated September 25, 1996,
among Gerard P. Joyce, the Company and the TFC Partnerships relating, among
other things, to indebtedness of the Company to Joyce evidenced by the Joyce
Note.
"Joyce Agreement Amendment" means the First Amendment to Agreement,
dated the date hereof and substantially in the form of Exhibit B hereto, among
the Company, Gerard P. Joyce and the Initial Investors.
"Joyce Note" means the Promissory Note, dated September 25, 1996 and
in the original principal amount of Two Million Three Hundred Seventy-Five
Thousand Five Hundred Dollars ($2,375,500.00), issued by the Company and payable
to Gerard P. Joyce.
"Joyce Note Amendment" means the Allonge to the Joyce Note dated as
of the date hereof and substantially in the form of Exhibit C hereto.
"Judgment" means any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or magistrate,
any other Governmental Authority or any arbitrator.
"Licenses" has the meaning set forth in Section 3.16.
"Material Adverse Effect" means any event, fact, circumstance or
occurrence which results or would result in a material adverse change in or a
material adverse effect on any of (i) the
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condition (financial or otherwise), business, performance, operations or
properties of the Company and its Subsidiaries taken as one enterprise, (ii) the
legality, validity or enforceability of any Transaction Document or (iii) the
ability of the Company or any of its Subsidiaries to perform its material
obligations hereunder or under any other Transaction Document.
"Other Stock Purchase Agreements" means the Stock Purchase
Agreements, dated as of the date hereof, among the Company and certain other
purchasers of Series C Preferred Stock as the same may be amended from time to
time in accordance with their respective terms.
"PBGC" has the meaning set forth in Section 3.20.
"Pension Plans" has the meaning set forth in Section 2.20.
"Permitted Liens" has the meaning set forth in Section 3.12.
"Permitted Transferees" has the meaning as set forth in the
Stockholders' Agreement.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
or other entity of any kind or any Governmental Authority.
"Preemptive Rights Agreement" means the Preemptive Rights Agreement,
dated as of September 25, 1996, among the Company and the TFC Partnerships.
"Preemptive Rights Agreement Amendment" means the First Amendment to
Preemptive Rights Agreement, dated the date hereof and substantially in the form
of Exhibit D hereto, among the Company and the Initial Investors.
"Prior Purchase Agreement" means the Stock Purchase Agreement, dated
September 25, 1996, among the Company and the TFC Partnerships pursuant to which
the TFC Partnerships purchased shares of the Series B Preferred Stock.
"Pugliese Employment Agreement" means the Employment Agreement
between the Company and Thomas Pugliese, dated August 1, 1990, as amended
pursuant to an amendment dated September 25, 1996.
"Pugliese Employment Agreement Amendment" means the Second Amendment
to Employment Agreement between the Company and Thomas Pugliese, dated as of the
date hereof and substantially in the form of Exhibit E hereto.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of September 25, 1996, among the Company, the TFC
Partnerships and certain other stockholders of the Company.
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"Registration Rights Agreement Amendment" means the First Amendment
to Registration Rights Agreement, dated the date hereof and substantially in the
form of Exhibit F hereto, among the Company, the Initial Investors and certain
stockholders of the Company.
"Requirement of Law" means, as to any Person, the charter and bylaws
or other organizational or governing documents of such Person, and all federal,
state and local laws, rules, regulations, orders, judgments, decrees or other
determinations of an arbitrator, court or other Governmental Authority,
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Rights" means, with respect to any Person, any subscription,
option, warrant, right, convertible security or other agreement, instrument or
commitment of any character obligating (contingently or absolutely) such Person
to issue or sell any capital stock or other securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute, and (unless the context otherwise
requires) the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Series A 8.25% Convertible
Preferred Stock of the Company.
"Series A Amendment" means the Certificate of Amendment of the
Amended Certificate of Designation for the Series A Preferred Stock
substantially in the form of Exhibit G hereto.
"Series B Preferred Stock" means the Series B Senior Cumulative
Compounding Convertible Redeemable Preferred Stock of the Company.
"Series B Amendment" means the Certificate of Amendment of the
Certificate of Designation for the Series B Preferred Stock substantially in the
form of Exhibit H hereto.
"Series C Preferred Stock" has the meaning set forth in the
introductory paragraphs.
"Series C Certificate of Designation" means the Certificate setting
forth a copy of the resolution adopted by the Board of Directors of the Company,
pursuant to authority expressly vested in it by the provisions of the
Certificate of Incorporation of the Company, as amended, which resolution
provides for the designation, powers and rights of the series designated thereby
as the Series C Preferred Stock of the Company, as filed with the Secretary of
State of the State of Delaware on or prior to the date hereof, in the form
attached hereto as Exhibit I.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of September 25, 1996, among the Company, the TFC Partnerships and certain other
stockholders of the Company.
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"Stockholders' Agreement Amendment" means the First Amendment to
Stockholders' Agreement, dated the date hereof and in the form of Exhibit J
hereto, by and among the Company, the Initial Investors and certain other
stockholders of the Company.
"Subsidiary" means with respect to any Person as of any time, each
entity as to which any of the following statements is true as of such time:
(a) such entity is an Affiliate of such Person which is
controlled by such Person, or
(b) such Person owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding
equity interests in such entity having ordinary voting power to
elect a majority of the members of the board of directors or joint
venture, partnership or other management committee, trustees,
managers or other Persons ordinarily having the power, authority or
responsibility for managing or directing the management of such
entity, or
(c) such Person, directly or indirectly through one or more
intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of such entity or to receive upon
dissolution and liquidation of such entity 50% or more of the assets
available for distribution to the holders of equity interests in
such entity,
and in the case of any of clauses (a), (b) and (c), disregarding any voting
power, equity interests or other rights or interests which any Person other than
such Person or another Subsidiary of such Person would or might have upon the
happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
"Tax" means any federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other tax, duty or assessment of any nature whatsoever,
together with all interest, penalties and additions imposed with respect
thereto.
"TFC Partnerships" means 21st Century Communications Partners, L.P,
a Delaware limited partnership, 21st Century Communications T-E Partners, L.P.,
a Delaware limited partnership, 21st Century Communications Foreign Partners,
L.P., a Delaware limited partnership.
"Transactions" means the transactions contemplated by the
Transaction Documents and all other transactions consummated in connection
therewith.
"Transaction Documents" means this Agreement, the Stockholders'
Agreement, the Series C Certificate of Designation, the Joyce Agreement, the
Registration Rights Agreement, the
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Preemptive Rights Agreement, the Certificate of Amendment, the Other Stock
Purchase Agreement, the Joyce Agreement Amendment, the Preemptive Rights
Agreement Amendment, the Registration Rights Amendment, the Stockholders
Agreement Amendment, the Series A Amendment and the Series B Amendment.
1.2 Terms Generally; Certain Rules of Construction. The definitions
in Section 1.1 and elsewhere in this Agreement shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The words "herein", "hereof" and
"hereunder" and words of similar import refer to this Agreement in its entirety
and not to any part hereof unless the context shall otherwise require. All
references herein to Sections, Exhibits and Schedules shall be deemed references
to and Sections of, and Exhibits and Schedules to, this Agreement unless the
context shall otherwise require. Unless otherwise expressly provided herein or
unless the context shall otherwise require, any references as of any time to the
"Certificate of Incorporation", "Articles of Incorporation", "charter",
"organizational or constituent documents" or "By-laws" of any entity, to any
agreement (including this Agreement) or other Contract, instrument or document
or to any statute or regulation or any specific section or other provision
thereof are to it as amended and supplemented through such time (and, in the
case of a statute or regulation or specific section or other provision thereof,
to any successor of such statute, regulation, section or other provision). Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "Business") shall be interpreted as a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and such calendar day is not a Business Day,
then such action or notice shall be deferred until, or may be taken or given on,
the next Business Day. The word "property" includes property and assets of any
kind, whether real or personal, tangible or intangible.
Section 2. Purchase and Sale; Closing.
2.1. Sale and Purchase of Investor's Shares; Purchase Price.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company is selling, assigning, transferring, conveying and
delivering to each of the Initial Investors the number of Investors'
Shares set forth opposite such Initial Investor's name on Schedule 2.1
hereto, and such Initial Investor is purchasing such Investors' Shares
from Company on the date hereof for a purchase price as set forth below.
(b) Purchase Price. Upon the terms and subject to the conditions set
forth in this Agreement, and simultaneously with receipt of the Investors'
Shares on the date hereof, each of the Initial Investors is paying to the
Company the amount set forth opposite such Initial Investor's name on
Schedule 2.1 hereto (which is a purchase price of $77.00 per share of
Series C Preferred Stock) in cash by wire transfer to an account as
designated by the Company prior to the Closing.
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2.2. Closing. The closing ("Closing") of the Transactions shall be
held at the office of Baker & Botts, L.L.P., 599 Lexington Avenue, New York, NY
10022 or at such other place and time as may be agreed upon by the Company and
the Investors. The date of the Closing is referred to herein as the "Closing
Date."
2.3. Deliveries.
2.3.1. Within five business days of the Closing, the Company will
deliver to each of the Initial Investors free and clear of all liens,
claims or other encumbrances, certificates representing the Investors'
Shares registered in the name of such Investor and for the number of
shares of Series C Preferred Stock set forth opposite such Investor's name
on Schedule 2.1 hereto; and
2.3.2. At the Closing, each Initial Investor will pay to the Company
the purchase price for the shares of Series C Preferred Stock being
purchased by such Initial Investor, as described above in Section 2.1(b).
2.4. Concurrent and Subsequent Transactions.
(a) Contemporaneously with Closing, the following further
transactions the ("Concurrent Transactions") will have occurred or will occur:
(i) Contemporaneously with the Closing, the Stockholders' Agreement
Amendment, the Registration Rights Agreement Amendment, the Preemptive
Rights Agreement Amendment, the Joyce Agreement Amendment, the Joyce Note
Amendment, and the Pugliese Employment Agreement Amendment (collectively,
with the documents identified in subsection (iv) below, the "Concurrent
Transaction Documents") will have been executed and delivered by each of
the parties thereto;
(ii) Contemporaneously with the Closing, the Company will issue to
Gerard P. Joyce 6,494 shares of the Series C Preferred Stock as prepayment
in full of Five Hundred Thousand and Thirty-Eight Dollars ($500,038.00) of
the principal amount of the Joyce Note.
(iii) Contemporaneously with the Closing, the closing of the
purchase by certain other investors of approximately 7,072 shares of
Series C Preferred Stock for a purchase price of $77.00 per share in
accordance with the terms and conditions of the Other Stock Purchase
Agreements will occur; and
(iv) Prior to or contemporaneously with the Closing, each of the
Series C Certificate of Designation, the Series A Amendment, the Series B
Amendment, and the Certificate of Amendment will have been filed with the
Secretary of State of the State of Delaware and will be effective.
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(b) The parties anticipate that, after the Closing Date, the Company
will enter into a Co-Investor Agreement pursuant to which Lazard, Freres & Co.
or one or more of its Affiliates, or one or more Persons identified by Lazard,
Freres & Co. and acceptable to the Series B Director and the Company will
acquire shares of the Series C Preferred Stock after the Closing Date.
2.5. Failure to Consummate Any Transaction. If any of the
transactions contemplated by the Concurrent Transaction Documents to which any
Initial Investor is intended to be a party is consummated, but any of the
Concurrent Transactions contemplated by Section 2.4(a) to be consummated
concurrently with or after such transaction or any of the transactions
contemplated by the other Concurrent Transaction Documents is not so consummated
for any reason on the same date in a manner reasonably satisfactory to the
Initial Investors and their counsel, then, notwithstanding any provision of any
Concurrent Transaction Document apparently to the contrary (i) the Initial
Investors shall have no further obligations under this Agreement or any other
Current Transaction Document and (ii) in addition to any other rights or
remedies which the Initial Investors may have pursuant hereto or at law or in
equity, the Initial Investors shall have the absolute and unconditional right
within 14 days to rescind each consummated Concurrent Transaction or any
transaction contemplated by the Concurrent Transaction Documents to which any
Investor was a party, in which event the Company shall take all such actions as
may be necessary to make such rescission fully effective, including but not
limited to repaying to the Initial Investors the amount of all cash payments
made by them pursuant to Section 2.1. hereof.
Section 3. Representations, Warranties and Covenants of the Company.
The Company hereby represents, warrants and covenants with and to the Investors
that, except as set forth on the Disclosure Schedule, as of the Closing Date:
3.1. Organization. The Company is a corporation duly and validly
organized, existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business in and is in good
standing under the laws of each jurisdiction in which the character of its
business or the ownership of its assets so requires. The Company has all
requisite power and authority to own or hold under lease its assets and operate
its business at the places where such assets are presently located and at the
places and in the manner in which such business is presently conducted. The
Company does not have any subsidiaries, nor is the Company a party to any joint
venture.
3.2. Authority. The execution, delivery and performance of this
Agreement and the other Concurrent Transaction Documents and the compliance with
the respective provisions hereof and thereof by the Company have been duly and
validly authorized by all necessary corporate action of the Company and each of
this Agreement and the other Concurrent Transaction Documents is the legal,
valid and binding agreement of the Company enforceable in accordance with its
terms, except insofar as enforcement may be affected by bankruptcy,
reorganization or similar laws relating to creditors' rights in general, and
general principles of equity.
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3.3. Corporate Records. The copies of (i) the Certificate of
Incorporation, as amended and as provided pursuant to Section 3.31(ii), and (ii)
the By-laws of the Company attached to the Prior Purchase Agreement as Schedule
3.3. are true and complete copies of such instruments and include all amendments
and modifications up to but not including the Closing Date. The minute books of
the Company, as made available to the Initial Investors and their
representatives, contain the complete records of all meetings of and corporate
actions or written consents by the respective stockholders and the Board of
Directors of the Company and the same are accurate in all material respects.
3.4. Capitalization.
3.4.1. Immediately prior to the sale of the Investors' Share to the
Investors, (i) the total authorized capital stock of the Company shall
consist of shares of common stock, par value $.01 per share (the "Common
Stock"), 20,000 shares of Series A Preferred Stock, 91,100 shares of
Series B Preferred Stock, 90,000 shares of Series C Preferred Stock and
298,900 shares of so-called "blank-check" Preferred Stock which had not
been designated pursuant to Section 151 of the Delaware General
Corporation Law or the Company's Certificate of Incorporation, (ii) the
total issued and outstanding capital stock of the Company shall consist of
266,268 shares of Common Stock, 6,000 shares of Series A Preferred Stock,
91,059 shares of Series B Preferred Stock and no shares of Series C
Preferred Stock, which shares of Common Stock and Series A Preferred Stock
were owned by the Persons and in the amounts set forth on Schedule 3.4.1
to the Prior Purchase Agreement and which shares of Series B Preferred
Stock were owned by the Persons and in the amounts set forth on Schedule
3.4.1 hereto and (iii) there are no treasury shares of capital stock.
3.4.2. Upon the sale of the Investors' Shares to the Initial
Investors and the other issuances of shares of Series C Preferred Stock
contemplated by subsections (a)(ii) and (a)(iii) of Section 2.4, the total
issued and outstanding Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock of the Company shall be as
set forth on Schedule 3.4.2 hereto.
3.4.3. When issued to the Initial Investors in accordance with the
terms and conditions hereof, the Investors' Shares will be duly and
validly issued, will be fully paid and non-assessable and will be free and
clear of all liens, claims, pledges, encumbrances and restrictions of any
kind, nature and description (other than restrictions on the subsequent
transfer of securities imposed generally on sales of securities in
non-registered transactions under federal securities laws and the
restrictions imposed by the Transaction Documents) and the Initial
Investors will have good, valid and marketable title to the Investors'
Shares. Except as set forth on Schedule 3.4.3 hereto and except as set
forth in the Company's Certificate of Incorporation or Transaction
Documents, immediately prior to the sale of the Investors' Shares to the
Initial Investors, there shall be (i) no outstanding subscriptions,
script, warrants, commitments, conversion rights, calls, options or
agreements to issue or sell
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additional securities of the Company (ii) no obligations whatsoever
requiring, or which might require, the Company to issue any securities,
(iii) no agreements, commitments, or understandings with respect to the
internal management, control or affairs of the Company including voting
trusts and proxies, (iv) no shares of capital stock of the Company of any
class or series were reserved for issuance, and (v) except for the
Transaction Documents there were no trusts, agreements, arrangements or
understandings to which the Company was a party or by which it was bound
or of which the Company had knowledge that, directly, indirectly,
absolutely or contingently, relate to the issuance, ownership, pledge,
transfer, purchase, redemption or repurchase, voting or registration under
the Securities Act of, or any restriction with respect to, any shares of
authorized, issued or outstanding capital stock of the Company of any
class or series.
3.5. Financial Condition. The Company has furnished to the Initial
Investors true and complete copies of (i) the audited balance sheet of the
Company as of December 31, 1996 (the "1996 Audited Balance Sheet") and the
related statement of income, changes in stockholders' equity and cash flows for
the fiscal year then ended and of the audit report thereon of the Company's
independent certified public accountants and (ii) the unaudited interim balance
sheet of the Company as of June 30, 1997 (the "Unaudited Balance Sheet") and the
related income statement for the six month period then ended. Such 1996 Audited
Balance Sheet and related financial statements, all as previously delivered to
the Initial Investors have been prepared in accordance with generally accepted
accounting principles ("GAAP"), consistently applied, and fairly present the
financial position, results of operations, assets and liabilities of the Company
as of the respective dates and for the respective fiscal periods covered
thereby. The Unaudited Balance Sheet and related income statement were prepared
consistent with GAAP, subject to audit adjustments, notes and footnote
disclosures that would customarily be required to comply with financial
statements presented according to GAAP, and fairly present the financial
position, results of operations, assets and liabilities of the Company as of the
dates and for the fiscal period covered thereby. Except as set forth on Schedule
3.5, there are no material liabilities or obligations of any nature, whether
known or unknown, accrued or not accrued, absolute, contingent or otherwise,
which are not disclosed as such on the aforementioned financial statements or in
the notes thereto. Except as set forth in Schedule 3.5, since December 31, 1996,
the Company has not incurred any material liability or obligation, accrued,
absolute, contingent or otherwise, except in the normal course of the Company's
business. Since June 30, 1997, there has been no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company, whether as a
result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation or act of God, or other public force
or otherwise; and to the best knowledge, information and belief of the Company,
no fact or condition exists or is contemplated or threatened which might cause
such a change in the future.
3.6. No Consents Required. Except for consents of the TFC
Partnerships, which have been given, no consent, authorization, approval,
permit or order of, waiver by, or notice or declaration to or registration,
qualification or filing with, any Governmental Authority or other
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Person pursuant to any applicable Requirement of Law or any Contract is required
in connection with the Company's execution, delivery or performance of any
Concurrent Transaction Documents or the consummation of any of the Concurrent
Transactions which has not been obtained.
3.7. Title to and Useability of Assets. All of the material assets
and properties of the Company are reflected in the 1996 Audited Balance Sheet
and all such assets so reflected or existing (i) are owned beneficially and of
record by the Company, free and clear of any liens, claims, encumbrances and
restrictions, except as set forth in Schedule 3.12.1, (ii) are all of the assets
and properties which are necessary to conduct the business of the Company as it
is currently conducted and (iii) are used or held in compliance with all
applicable laws, rules and regulations and are suitable for the purposes
intended. Except as set forth on Schedule 3.7 hereto, since the date of the 1996
Audited Balance Sheet the Company has not disposed of or acquired any assets or
properties otherwise than in the ordinary course of its business and for
individual amounts not in excess of $5,000.
3.8. Litigation. Except as set forth on Schedule 3.8 hereto, there
is no action, suit, claim, complaint, notice of violation, proceeding at law or
in equity, arbitration, administrative or other proceeding or investigation by
or before any Governmental Authority or other instrumentality or agency, or, to
the Company's knowledge, threatened, against the Company or any of its
properties or rights, and the Company does not know of any valid basis for any
of the same. The Company is not subject to any judgment, order or decree entered
in any lawsuit or proceeding which affects (i) the Company or any part of the
business, properties or assets of the Company or (ii) any part of the
transaction contemplated hereby, or which seeks to impose conditions upon the
degree of the Investors' control over, or the manner in which Investors shall be
permitted to manage their respective investments in the Company subsequent to
the consummation of the Transactions.
3.9. Compliance with Laws. To the best knowledge of the Company, the
Company is in compliance with all federal, state and local laws, ordinances,
regulations and orders applicable to it and its business which could have a
material adverse effect on the Company, its assets or its business. To the best
knowledge of the Company, the Company has all required federal, state and local
governmental licenses and permits necessary in the conduct of its business; such
licenses and permits are in full force and effect; the Company has not violated
any thereof; and no proceeding is pending or, to the Company's knowledge,
threatened, to revoke or limit any thereof.
3.10. Disclosure of Information. No representation, warranty or
covenant made by the Company to the Initial Investors in this Agreement, any
schedule or exhibit to this Agreement or any document, certificate, schedule or
exhibit given to the Initial Investors in connection with this Agreement and the
transaction contemplated hereby, contains any untrue statement of material fact
or omits to state a material fact necessary in order to make the statements set
forth in this Agreement or the matters disclosed in such exhibit, document,
schedule or certificate, in light of the circumstances under which such
statements or disclosures were made, not misleading. There is no fact known to
Company which may materially and adversely affect the business, prospects or
financial condition of the Company or its properties or assets, which has not
been set forth in the
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Agreement or in the exhibits, certificates, schedules or statements in writing
furnished in connection with the Concurrent Transactions or the Prior Purchase
Agreement.
3.11. Real Property.
3.11.1. Except as set forth on Schedule 3.11.1 to the Prior Purchase
Agreement, the Company owns no real property.
3.11.2. Schedule 3.11.2 hereto is a complete copy of each lease of
real property (including amendments thereto) to which the Company is a
party. Except as set forth on Schedule 3.11.2 hereto, there are no
contractual obligations or commitments for the Company to enter into new
leases of real property or to renew or amend existing leases of real
property prior to the Closing Date.
3.12. Personal Property.
3.12.1. Except as set forth in Schedule 3.12.1. hereto, the
Company has the right to use all tangible personal properties and assets that
are material to the conduct of its business, subject to (i) limitations imposed
by the terms of the applicable lease, in the case of leased property, (ii)
defects in title, mortgages, liens, security interests, charges and encumbrances
disclosed in Schedule 3.12.1 hereto and (iii) such restrictions on use as do not
materially impair the use of such properties and assets or the business of the
Company (clauses (i), (ii) and (iii) collectively referred to herein as the
"Permitted Liens"). The Company has good and marketable title to all of the
tangible personal properties, assets and rights owned by it, free and clear of
all mortgages, liens, security interests, charges and encumbrances, except for
Permitted Liens.
3.12.2. All leases, subleases and other agreements under which
the Company is lessee or lessor of any property, real or personal, are in full
force and effect and constitute legal, valid and binding obligations of the
respective parties thereto enforceable in accordance with their respective terms
(except as such enforcement may be limited by bankruptcy, reorganization,
insolvency or other laws and court decisions relating to or affecting the
enforcement of creditors' rights generally, including but not limited to
statutory or other law regarding fraudulent transfers, and except as to the
availability of specific performance or other equitable remedies). To the best
knowledge of the Company, there is not under any of such instruments, any
claimed default or any event which with notice or lapse of time or both would
constitute such an event of default on the part of the Company which would have
a Material Adverse Effect on the Company.
3.12.3. Except as disclosed on Schedule 3.12.3 to the Prior
Purchase Agreement, all machinery, equipment and other tangible personal
property that is material to the conduct of the business of the Company, as the
case may be, and that is owned or used by the Company is free from any material
defect and is capable of being used in the ordinary and usual course of business
as presently conducted by the Company.
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3.13. Intangible Property. Except as set forth on Schedule 3.13
hereto, the Company owns, or has valid, binding and enforceable rights to use,
any and all material patents, trademarks, trade names, service marks, service
names, copyrights, applications therefor and other intellectual property rights
("Intangible Property") used or held for use in connection with its business, in
each case free and clear of any lien, security interest, charge or encumbrance.
Schedule 3.13 hereto sets forth a complete list of all material Intangible
Property used or held for use in connection with the Company's business owned or
licensed to the Company and any licenses or other agreements relating thereto,
and such Schedule 3.13 indicates whether and where any such Intangible Property
has been registered or filed with the United States Patent and Trademark Office,
the Library of Congress Copyright Office or the corresponding office of any
other jurisdiction. Except as set forth on Schedule 3.13 hereto, to the best of
the knowledge of the Company, the Company has not infringed, misappropriated,
misused or been charged with (or, to the best of the Company's knowledge, been
threatened to be charged with), respect to infringement, misappropriation or
misuse of any Intangible Property owned or claimed by another. The Company has
not received any notice with respect to infringement, misappropriation or misuse
of any Intangible Property owned or claimed by another. Except as disclosed on
Schedule 3.13 to the Prior Purchase Agreement, the Company has not granted any
outstanding licenses or other rights, or obligated itself to grant licenses or
other rights in or to any of the Intangible Property owned, used by or licensed
to them.
3.14. Offerees; Regulation D. None of the Company, its directors and
officers, its Affiliates nor any Person acting as agent for or on behalf of any
of the Company has, directly or indirectly, sold, offered for sale, or solicited
offers to buy any of the Investors' Shares, any other shares of Series C
Preferred Stock, any other capital stock or any other securities of the Company
so as to bring the offer, issuance or sale of the Investors' Shares as
contemplated by this Agreement within the registration requirements of Section 5
of the Securities Act, or within the registration or qualification requirements
of any "blue sky" or securities laws of any state or other jurisdiction.
Assuming the Investors are "accredited investors" within the meaning of
Regulation D of the Securities Act, the offering, issuance and sale of the
Investors' Shares pursuant to this Agreement and of the shares of Series C
Preferred Stock referred to in subsection (c) and (d) of Section 2.4 are exempt
from the registration provisions of the Securities Act.
3.15. Capital Commitments. Other than in the ordinary course of
business, there are no unfulfilled promises or commitments for capital
expenditures of the Company which are not reflected in the December 31, 1996
financial statements.
3.16. Licenses; Requirements of Law. To the best of the knowledge of
the Company, Company possesses all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct its respective business and to own, lease and operate
properties as currently or anticipated to be conducted, owned, leased or
operated, including all of the foregoing necessary for the use by the Company of
all Intangible Property used or anticipated to be used in the conduct of its
business as currently or anticipated to be conducted without a conflict with the
rights of others (collectively, the "Licenses") for which the failure to
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possess would have a Material Adverse Effect. To the knowledge of the Company,
all of the Licenses are in full force and effect. The Company has no reason to
believe that any of the Licenses will be revoked, canceled, rescinded, or not
renewed in the ordinary course and on the same or more favorable material terms,
other than any such revocation, cancellation, rescission, or non-renewal of any
License which is not individually or in the aggregate with one or more other
License(s), material to the business or operations of the Company. To the
knowledge of the Company, there is not now pending any material complaint nor
any basis for any such complaint, which might have any of the results referred
to in the immediately preceding sentence. The Company is operating in all
material respects in accordance with the terms of the Licenses. To the best of
the knowledge of the Company, the Company is, and has conducted its business and
affairs, in compliance with all applicable Requirements of Law, except where the
failure to comply has not had and, insofar as reasonably can be foreseen, will
not have a Material Adverse Effect.
3.17. Certain Fees. Neither the Company nor any of its Affiliates,
officers, directors or employees has employed any financial advisor, broker or
finder or incurred any liability for any financial advisory, brokerage or
finder's fee or commission in connection with any of the Concurrent
Transactions.
3.18. Tax Matters. There has been duly filed by or on behalf of the
Company, or a filing extension from the appropriate federal, state, foreign and
local governments or Governmental Authorities has been obtained with respect to,
all Tax returns and reports required to be filed on or prior to the date hereof,
and all of such Tax returns and reports are correct and complete in all material
respects. Except as provided in Schedule 3.18 to the Prior Purchase Agreement,
payment in full or adequate provision for the payment of all Taxes required to
be paid in respect of the periods covered by such Tax returns and reports has
been made and a reserve which the Company reasonably believes to be adequate has
been set up for the payment of all such Taxes anticipated to be payable in
respect of periods through the date hereof. The federal income tax returns
required to be filed by or on behalf of the Company under the Code or any
predecessor statute have either been examined by the Internal Revenue Service
("IRS") or the period during which any assessments may be made by the IRS has
expired for all years up to and including the taxable year ended December 31,
1993 and any deficiencies or assessments asserted in writing by the IRS have
either been paid or are being contested in good faith by appropriate proceedings
and are adequately reserved against, it being understood that net operating loss
carryforwards attributable to such years remain subject to disallowance by the
IRS. All other Taxes due and payable by or on behalf of the Company have either
been paid or adequately reserved for or are being contested in good faith by
appropriate proceedings as set forth on Schedule 3.18 to the Prior Purchase
Agreement (except for such Taxes which are in the aggregate immaterial in
amount). Except as provided in Schedule 3.18 to the Prior Purchase Agreement,
the Company has not given any waiver which has not yet expired of any statute of
limitations relating to the assessment or payment of Taxes. The Company has not,
with regard to any property held, acquired or to be acquired by it, filed a
consent pursuant to Section 341(f) of the Code or any predecessor statute. The
Company is not a party to any tax-sharing or similar agreement with any Person.
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3.19. Absence of Certain Interests of Affiliated Parties. Except as
set forth on Schedule 3.19 hereto, no present or former stockholder, partner,
director, officer or employee of the Company individually owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, in any Intangible Property, or in any application for a grant or
registration of any patent, trademark, trade name, service mark, copyright or
other Intangible Property, which the Company owns, possesses or uses in its
operations as heretofore, now or proposed to be conducted. None of the present
or former stockholders, partners, joint venturers, directors or officers of the
Company, nor any related party of any of the foregoing, is indebted to the
Company, and the Company is not indebted or has any other liability to any such
Person, except (i) pursuant to the express terms of the Contracts listed on
Schedule 3.22.1 hereto and (ii) except as set forth on Schedule 3.19 hereto,
liabilities to directors or officers for compensation for services in such
capacity rendered since the end of the last calendar month.
3.20. Employee Matters.
3.20.1. The names of and the IRS identification numbers of (i) all
"employee pension benefit plans", as defined in Section 3(2) and subject
to Title IV of the Employee Retirement Income Security Act of 1984, as
amended ("ERISA"), which have been maintained or contributed to by the
Company during any of the last five years (the "Pension Plans"), (ii) all
other "employee pension benefit plans" as defined in Section 3(2) of ERISA
which have been maintained or contributed to by the Company during any of
the last five years, and (iii) all other employee benefit plans (including
all "employee welfare benefit plans" as defined in Section 3(1) of ERISA
and all other "employee benefit plans" as defined in Section 3(3) of
ERISA) which have been maintained or contributed to by the Company and (a)
which currently exist or (b) for which any continuing liabilities exist
(all of which plans described in clauses (i), (ii) and (iii) are referred
to collectively as the "Company Plans"), are listed on Schedule 3.20 to
the Prior Purchase Agreement. Except as otherwise indicated on Schedule
3.20 to the Prior Purchase Agreement, none of the Pension Plans is a
"multi-employer plan" as defined in Section 4001(a)(3) of ERISA or
single-employer plan subject to Section 4063 of ERISA, and the Company has
not incurred or is expected to incur any withdrawal liability under ERISA
with respect to any "multi-employer plan" or any single-employer plan
subject to Section 4063 of ERISA.
3.20.2. Favorable determination letters from the IRS with respect to
the status of each Pension Plan which is intended to qualify under Section
401 of the Code have been received. The Company is not aware of any facts
which would adversely affect the qualified status of any Pension Plan that
is intended to so qualify.
3.20.3. The Company has not incurred in connection with the
termination of a Pension Plan, and the Company has no knowledge of any
event or condition which would be reasonably likely to cause, any
liability to the Pension Benefit Guaranty Corporation (the "PBGC") or
otherwise under ERISA. Except as set forth in Schedule 3.20 to the Prior
Purchase Agreement, were any Pension Plan to terminate on the date hereof,
the Company
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would not incur any material liability to the PBGC or otherwise under
ERISA, nor be required to contribute any material additional amounts to
any Pension Plan in order to terminate such Pension Plan.
3.20.4. There are no pending claims, lawsuits or investigations that
have been asserted or instituted against the assets of any of the trusts
under the Company Plans or against the Company or any fiduciary of any of
the Company Plans with respect to the operation of the Company Plans.
3.20.5. The Company Plans have been maintained and administered in
all material respects in accordance with their terms and with all
provisions of ERISA and the Code or any predecessor statute (including
rules and regulations under ERISA, the Code and any predecessor statute)
applicable thereto and, to the knowledge of the Company, neither the
Company nor any "party in interest" or "disqualified person" (within the
meaning of Section 4975 of the Code or Title I, Part 4 of ERISA) within
the control of the Company with respect to the Company Plans has engaged
in a "prohibited transaction" within the meaning of Section 4975 of the
Code or Title I, Part 4 of ERISA. Without limiting the generality of the
foregoing, none of the Pension Plans has incurred a material "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or Section
412 of the Code whether or not waived; no Pension Plan has been the
subject of a "reportable event" as defined in Section 4043 of ERISA, as to
which notices would be required to be filed with the PBGC and all required
contributions under each Pension Plan for all periods through and
including the Issue Date have been made.
3.21. Insurance. The properties and operations of the Company are
insured under various policies of general liability and other forms of insurance
covering such risks as are usually insured against by prudent companies engaged
in the businesses and activities in which the Company is engaged, and, as of the
Closing Date, no premiums are past due. The Company has not been refused any
insurance, no request for coverage has been limited, by an insurance carrier to
which it has applied for insurance or with which it has carried insurance during
the past five years. The Company has not obtained director and officer liability
insurance.
3.22. Contracts and Commitments.
3.22.1. Except as set forth on Schedule 3.22.1 hereto and as
contemplated by the Transaction Documents, the Company is not a party to,
otherwise subject to, bound by, obligated or liable under or entitled to
any rights or benefits under, and none of the properties or businesses of
the Company are subject to, any of the following:
(i) written Contract with any present or former officer,
employee or consultant or for the employment of any Person,
including any consultant or any oral contract with any such Person
which is not terminable at will by the Company without any payment
of any kind;
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(ii) Contract for the future purchase of, or payment for,
supplies, products or services having a total value or involving
total payments or costs of $100,000 or more in any one case or in
the aggregate for all Contracts which are related or which are with
the same Person or group of affiliated Persons;
(iii) Contract continuing over a period of more than six
months from the date hereof having a total value or involving total
payments or costs of $100,000 or more in any one case or in the
aggregate for all Contracts which are related or which are with the
same Person or a group of affiliated Persons;
(iv) distribution, dealer, representative or agency Contract
which, individually or together with one or more such Contracts
which are related or are with the same Person or group of affiliated
Persons, is material (except for the Licenses);
(v) lease under which the Company is either lessor or lessee
of any real property or any material personal property having annual
lease payments in excess of $100,000;
(vi) note, debenture, bond or other security or evidence of
indebtedness, equipment trust agreement, letter of credit agreement,
loan agreement, pledge or security agreement, mortgage or other
Contract pursuant to which any material contingent obligation or any
other Debt of the Company to any other Person or of any other Person
to the Company was incurred or may be incurred in the future or
otherwise relating to any such contingent obligation or other Debt;
(vii) Contract for any capital expenditure or leasehold
improvement in excess of $100,000 per year in any single case or
$100,000 per year in the aggregate for all cases;
(viii) Contract limiting or restraining the Company from
engaging in any business or competing in any manner generally or in
any specific geographic area or obligating the Company to present
any business or other opportunity to any other Person or grant or
offer to grant any other Person any participation or other interest
in any business or other opportunity;
(ix) Contract pursuant to which any Person has a right of
first refusal, a "tag-along" right or any similar right with respect
to any proposed disposition by the Company of any equity interest in
the Company or of any other property of the Company;
(x) Contract which relates in whole or in part to any License
or Intangible Property;
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(xi) Contract with any labor union;
(xii) bonus, pension, profit-sharing, retirement, stock
purchase, stock option, deferred compensation, stock bonus, stock or
equity appreciation plan, phantom stock or equity interest plan,
death benefit, disability, insurance, medical reimbursement, fringe
benefit plan, or similar plan, program or Contract in effect with
respect to its employees or the employees of others, except for the
Company Plans;
(xiii) Contract which provides for "golden parachute" or
similar benefits;
(xiv) Contract relating to the mortgaging, pledging or other
placing of a lien on any properties of the Company;
(xv) Contract with or for the benefit of any present or former
stockholder (other than the Investors or their respective
Affiliates), partner, director or officer of the Company or any
Affiliate of any such Person, except for the Company Plans, and
except for Contracts exclusively between and for the benefit Company
and disclosed on any Schedule;
(xvi) Material Contract not made in the ordinary course of
business.
3.22.2. Schedule 3.22.2. to the Prior Purchase Agreement lists all
material Licenses material to the operation to the Company's business and
identifies the grantor of each thereof.
3.22.3. Except as set forth on Schedule 3.22.3 to the Prior Purchase
Agreement, each of the Licenses, Contracts, plans and other items
identified on Schedule 3.22.1 hereto or Schedule 3.22.2 to the Prior
Purchase Agreement is in full force and effect, valid and enforceable in
accordance with its terms; the Company is, and to the Company's knowledge
all other parties thereto are, in compliance with the material provisions
thereof; the Company is not, and to the Company's knowledge no other party
thereto is, in default in the performance, observance or fulfillment of
any agreement, covenant, obligation, commitment or condition contained
therein; and to the knowledge of the Company no event has occurred which,
with or without the giving of notice or lapse of time or both, would
constitute a default or event of default thereunder, except for defaults
or events of default which are not, individually or in the aggregate,
material. Furthermore, no such License, Contract, plan or other item
contains, in the reasonable opinion of the Company, any material
requirement, commitment, condition or other provision with which there is
a reasonable likelihood the Company or, to the knowledge of the Company,
any other party thereto will be unable to comply or with which there is a
reasonable likelihood the Company or to the knowledge of the Company, any
other party thereto will be able to comply only at an economic loss.
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3.23. Labor Matters. The Company has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of employees
affecting the business of the Company, and to the Company's knowledge no such
event or action is threatened. There are no unfair labor practice charges or
grievances pending or in process or threatened by or on behalf of any employee
or group of employees of the Company, and no written complaints received by the
Company, or threatened, or, with respect to unresolved complaints, on file with
any federal, state or local Governmental Authority, alleging employment
discrimination or sexual harassment by the Company. The Company is not a party
to any collective bargaining agreement.
3.24. Restricted Payments and Agreements.
3.24.1. Except (i) as set forth on Schedule 3.11.2 or Schedule
3.22.1 hereto (ii) for transactions contemplated by the Transaction
Documents and (iii) for the Concurrent Transactions, since December 31,
1996 there has not been (i) any declarations or dividend payment or other
distribution of assets, properties, cash, rights, obligations or
securities on account of any capital stock of the Company, (ii) except as
set forth on the balance sheet of the Company dated as of December 31,
1996, or, since that time, in the ordinary course of business, any payment
or distribution on account of any Debt, (iii) any purchase, redemption or
acquisition for value or any payment in respect of any shares of any class
of its capital stock or any warrants, rights or options to acquire any
such shares, (iv) except as set forth on Schedule 3.24 hereto, any
purchase, redemption, prepayment, defeasance or acquisition for value of
any Debt, (v) any material adverse change in the business of the Company,
(vi) any amendment, termination or waiver of any rights of material value
to the Company, (vii) any termination of employment of any key employee,
(viii) any capital expenditures or commitments by the Company other than
in the ordinary course of business (including in connection with
installation of monitors) and (ix) any agreement or understanding, whether
in writing or otherwise, for the Company to take any of the actions
specified in items (i) through (viii).
3.24.2. Except for the Transactions the Company has not (i) entered
into any agreement with any Person which, in the absence of a default
thereunder, would legally restrict the Company from paying dividends or
making redemption payments on the Series C Preferred Stock on each date
contemplated by the Series C Certificate of Designation or from fully
performing on a timely basis any of its obligations with respect to the
Series C Preferred Stock, the Series B Preferred Stock, the Series A
Preferred Stock or the Common Stock of the Company or would condition or
otherwise limit or restrict the ability of the Company to (a) pay
dividends or make any other distributions permitted by applicable law to
the Company; (b) pay any Debt owed to the Company; (c) make loans or
advances to the Company; or (d) transfer any of its property or assets to
the Company; or (ii) otherwise create or suffer to become effective any
consensual arrangement which would have any effect referred to in
subclause (i) of this Section 3.24.2.
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3.25. Conduct of Business. The Company Parties are principally
engaged in only the business of electronic out-of-home media comprised of video
displays on remote public locations linked by a communications network. The
Company also has ownership interests in the businesses listed on Schedule 3.25
of the Prior Purchase Agreement.
3.26. Environmental Matters. The Company (i) has not received
written notice or otherwise learned of any claim, demand, action, event,
condition, report or investigation indicating or concerning any potential or
actual liability of any Company Party which individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect arising in
connection with (a) any non-compliance with or violation of the requirements of
any applicable federal, state and local environmental health and safety laws and
regulations or (b) the release or threatened release of any toxic or hazardous
waste, substance or constituent into the environment, (ii) to the knowledge of
the Company, does not have any threatened or actual liability in connection with
the release or threatened release of any toxic or hazardous waste, substance or
constituent into the environment which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect, (iii) has not received
notice of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or
hazardous waste, substance or constituent or other substance into the
environment for which the Company is or may be liable, or (iv) has received
notice that the Company is or may be liable to any Person under the
Comprehensive Environmental Response Compensation and Liability Act, as amended,
42 U.S.C. Section 9601 et seq. or any analogous state law.
3.27. Key Employees; Deferred Compensation. None of the officers or
key employees of the Company set forth on Schedule 3.27 hereto, to the Company's
knowledge, presently intends to terminate his or her employment by the Company.
The Company does not have any cash deferred compensation obligations to any
director, officer or employee of the Company.
3.28. Other Agreements. All representations and warranties of the
Company contained in any of the Concurrent Transaction Documents (other than
this Agreement) are true and accurate in all material respects. Each of the
Concurrent Transaction Documents (other than this Agreement) is in full force
and effect. The Company has complied in all material respects with all of its
covenants and agreements contained in each of the Concurrent Transaction
Documents (other than this Agreement). As of or immediately prior to the
Closing, (i) all documents relating to the Concurrent Transactions are in full
force and effect and have been executed and delivered in the respective forms
furnished to the Investors, (ii) no term, condition or provision of any of the
documents relating to the Concurrent Transactions has been amended, modified or
waived, expressly or by implication, (iii) all conditions to the consummation of
the Concurrent Transactions have been satisfied (or waived with the concurrence
of the Initial Investors), (iv) the Initial Investors, or their duly appointed
agents, have received a copy of each document required to be delivered to the
Initial Investors pursuant to the Concurrent Transactions and (v) there exists
no default, event of default, breach or violation (or any event which, with
notice, lapse of time or otherwise, could result in a default, event of default,
breach or violation) under any of the documents relating to the Concurrent
Transactions.
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3.29. Use of Proceeds. The Company shall use the proceeds of the
sale of the Investors' Shares to the Investors and the proceeds of any
contemporaneous or subsequent sale of shares of Series C Preferred Stock
contemplated by Section 2.4 hereof for working capital purposes and for capital
expenditures in the ordinary course of business, in either such case
substantially in accordance with budgets approved from time to time at meetings
of the Board of Directors of the Company by a majority of the Board. None of
such proceeds shall be used to build out additional markets without the prior
written approval of Majority Senior Holders (as defined in the Series C
Certificate of Designation).
3.30. Filing of Series C Certificate of Designation, Certificate of
Amendment, Etc. All actions necessary in order to duly and validly authorize and
designate the Preferred Stock, including all necessary corporate action on the
part of the Company and its stockholders and the filing with the Delaware
Secretary of State of the Series C Certificate of Designation and the
Certificate of Amendment, have been taken and each of the Series C Certificate
of Designation and the Certificate of Amendment is in full force and effect in
the forms attached hereto as Exhibit I and Exhibit A, respectively, and has not
been amended, modified or supplemented. All actions necessary in order to duly
and validly authorize and effect the amendments to the Certificate of
Incorporation of the Company set forth in the Series A Amendment and the Series
B Amendment, including all necessary corporate action on the part of the Company
and its stockholders and the filing with the Delaware Secretary of State of the
Series A Amendment and the Series B Amendment, have been taken and each of the
Series A Amendment and the Series B Amendment is in full force and effect in the
forms attached hereto as Exhibit G and Exhibit H, respectively, and has not been
amended, modified or supplemented
3.31. Availability of Documents. The Company has made available to
the Investors copies of all documents, including all Contracts, insurance
policies, leases, plans, instruments, and Licenses listed in any Schedule or
otherwise referred to herein. Such copies are true and complete and include all
amendments, supplements and modifications thereto or waivers currently in effect
thereunder. The Company has delivered to the Initial Investors concurrently with
the Closing, (i) a certificate, dated the Issue Date, of the Chief Executive
Officer/President and the Secretary of the Company (a) attaching copies,
certified by such officers as true and complete, of the resolutions of the Board
of Directors and stockholders of the Company in connection with the
authorization and approval of the execution, delivery and performance of the
Concurrent Transaction Documents and consummation of the Concurrent Transactions
and of all other documents evidencing all necessary corporate action taken in
connection therewith, (b) attaching copies, certified by such officers as true
and complete, of the Certificate of Incorporation, as amended and By-Laws of the
Company, (c) which includes a representation by such officers that the copies of
the Certificate of Incorporation and By-Laws of the Company, as previously
provided to the Initial Investors, are true and complete in all respects and,
that the copies of the Certificate of Incorporation, as amended conform to the
original documents filed with the Secretary of State (which representation shall
reference each document by name and date of execution and (d) setting forth the
incumbency of the officer or officers of the Company who have executed and
delivered this Agreement and each other Transaction Document, including therein
a signature specimen of each such officer or officers, (ii)
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copies, certified by the Secretary of State of the State of Delaware, or other
appropriate official of the jurisdiction of incorporation of the Company of the
Certificate of Incorporation as of August 18, 1997, (iii) a long form
certificate of existence and good standing (including tax good standing), dated
the Closing Date of the Secretary of State or other appropriate official of the
jurisdiction of incorporation of such Company Party and (iv) an opinion of
counsel to the Company on the form substantially as set forth in Exhibit K
hereto.
Section 4. Representations and Warranties of the Investors. Each Investor,
severally and not jointly, represents and warrants to the Company as follows:
4.1. Authority. This Agreement is the valid and binding agreement of
such Investor, enforceable in accordance with its terms, except insofar as
enforcement may be affected by bankruptcy, reorganization or similar laws
relating to creditors' rights in general, and general principles of equity, and
no consent, authorization or approval of any other person to such consummation
of the transactions contemplated hereby is required. Such Investor has taken all
actions necessary to authorize the execution, delivery and performance of this
Agreement by such Investor and no other proceedings on the part of such Investor
are necessary to authorize the execution and delivery of this Agreement and the
transactions contemplated hereby.
4.2. Investment Intent. (i) Such Investor is an "accredited"
investor as defined in Regulation D promulgated under the Securities Act of
1933, as amended; (ii) such Investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
uses of its investment in the Company; (iii) such Investor understands and is
able to bear the economic risks associated with such investment; (iv) such
Investor has, on the date hereof, sufficient financial resources to carry out
the purchase of the shares purchased by it as contemplated in this Agreement;
(v) such Investor is purchasing the Investors' Shares it is purchasing for
investment, for its own account, and not with a view to the public distribution
or resale thereof in violation of the Securities Act or any applicable state
securities law.
4.3. Access to Information. Such Investor has been furnished with or
given access to all information that it has requested regarding the Company's
current operations, business plans and prospects, in addition to the information
contained herein.
Section 5. No Joint Obligations.
5.1. Obligations Several, Not Joint. Each Investor shall be (i)
obligated hereunder only with respect to the purchase of the number and kind of
Investors' Shares set forth on Schedule 2.1 hereto and no Investor shall have
any liability with respect to any other Investors' obligations hereunder and
(ii) separately and independently entitled to rely on the representations and
warranties of each other party made to such Investor in this Agreement and to
the benefit of all covenants and agreements of each other party made with such
Investor herein.
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Section 6. Indemnification.
6.1. Agreement of Company to Indemnify.
6.1.1. The Company agrees to defend, protect, indemnify and hold
harmless each Indemnified Party (as defined below) from and against any
and all liabilities, obligations, losses, deficiencies, claims,
investigations, suits, actions, proceedings, damages, assessments,
penalties, judgments, costs, disbursements and expenses of any kind or
nature (including reasonable fees and disbursements of counsel in
connection with preparing for, defending against or prosecuting), and
amounts paid or agreed to be paid in settlement of, any claim, action,
suit, hearing, proceeding or investigation against such Indemnified Party
or any action, suit or proceeding initiated by such Indemnified Party in
connection with securing, exercising, enjoying and enforcing such
Indemnified Party's rights, benefits and privileges or enforcing any
Company Party's obligations and liabilities under any Concurrent
Transaction Document, in each case including appeals, whether direct,
indirect or consequential, in any manner resulting from, arising out of,
based upon or related or attributable to: (i) any breach or inaccuracy of
any representation or warranty of, or any breach or failure to perform any
covenant, agreement or obligation, of the Company contained in this
Agreement or any other Concurrent Transaction Document; (ii) the
invalidity or unenforceability, or alleged invalidity or unenforceability,
of any provision of any Concurrent Transaction Document; (iii) any
liability or obligation, or alleged liability or obligation, of any
Company Party to, or claim by, any holder or former holder of capital
stock, equity interests or other securities of any Company Party or any
Affiliate of any Company Party, relating to any event, fact or
circumstances occurring or existing at any time at or prior to the time of
the Closing under this Agreement or by reason of consummation of any of
the transactions contemplated by the Concurrent Transaction Documents; or
(iv) any liability or obligation, or alleged liability or obligation, of
any Initial Investor to, or claim by, any holder or former holder of
capital stock, equity interests or other securities, or any creditor of or
claimant against the Company or any predecessor corporation of any
thereof, relating to any event, fact or circumstances occurring or
existing at any time at or prior to the time of the Closing under this
Agreement or by reason of consummation of any of the transactions
contemplated by the Concurrent Transaction Documents.
6.1.2. As used in this Agreement, the term "Indemnified Parties"
includes (i) each Initial Investor, (ii) each partner of any Initial
Investor who at any time may acquire any of the Investors' Shares by
reason of the dissolution of or any distribution by such Initial Investor,
(iii) the respective Affiliates, partners (general and limited), directors
and officers of the foregoing Persons and their respective shareholders,
directors and officers and (iv) the respective successors, heirs,
executors and legal representatives of the foregoing. For purposes of this
Section 6.1., each reference to any "Company Party" includes the Company
and each and every Person which, at any time prior to the date hereof, (i)
was consolidated with or merged with or into the Company, (ii) was
consolidated with one or more other entities in a transaction resulting in
the formation of the Company, (iii) was a party to a
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binding share exchange with the Company, (iv) sold or otherwise
transferred all or substantially all of its properties to the Company or
(v) was a party to any transaction by virtue of which the Company
succeeded to, assumed or otherwise incurred whether by contract or
agreement, operation of law or otherwise, liability for any Debt,
liabilities and obligations of such Person, including liability for any
taxes payable by such Person, obligations or liabilities of such Person
with respect to any employee benefit plan or obligations or liabilities of
such Person under any Requirements of Law.
6.2. Defense of Third-Party Claims. Each Indemnified Party will give
the Company prompt notice of any third-party claim, investigation, action, suit,
hearing or proceeding with respect to which such Indemnified Party seeks
indemnification pursuant to Section 6.1., but the failure to give such notice
shall not impair any of the rights or benefits of such Indemnified Party under
Section 6.1. except to the extent such failure adversely affects the Company's
ability to defend such claim or increases the amount of such liability. In the
case of any third-party claims as to which indemnification is sought by any
Indemnified Party, such Indemnified Party shall be entitled, at the sole expense
and liability of the Company, to exercise full control of the defense,
compromise or settlement of any third-party claim, investigation, action, suit,
hearing or proceeding unless the Company within a reasonable time after the
giving of such notice by the Indemnified Party shall: (i) deliver a written
confirmation to such Indemnified Party that the indemnification provisions of
Section 6.1. are applicable to such claim, investigation, action, suit, hearing
or proceeding and that the Company will indemnify such Indemnified Party in
respect of such claim, investigation, action or proceeding pursuant to the terms
of such Section without asserting any challenge, defense, counterclaim or offset
against the Indemnified Party, (ii) notify such Indemnified Party in writing of
the intention of the Company to assume the defense thereof and (iii) retain
legal counsel reasonably satisfactory to such Indemnified Party to conduct the
defense of such claim, investigation, action, suit, hearing or proceeding. If
the Company so assumes the defense of any such claim, investigation, action,
suit, hearing or proceeding in accordance herewith, then such Indemnified Party
shall cooperate with the Company in any manner reasonably requested in
connection with the defense, compromise or settlement thereof. If the Company so
assumes the defense of any such claim, investigation, action, suit, hearing or
proceeding, the Indemnified Party shall have the right to employ separate
counsel and to participate in (but not control) the defense, compromise, or
settlement thereof, but the fees and expenses of such counsel shall be the
expense of such Indemnified Party unless (i) the Company has agreed to pay such
fees and expenses, (ii) any relief other than the payment of money damages is
sought against such Indemnified Party or (iii) the named parties to any such
claim, investigation, action, suit, hearing or proceeding (including any
impleaded parties) include an Indemnified Party and the Company or one or more
other Indemnified Parties, and such Indemnified Party shall have been advised by
its counsel that there is a conflict of interest between such Indemnified Party
and the Company or any such other Indemnified Party in the conduct of the
defense thereof, and in any such case the reasonable fees and expenses of such
separate counsel shall be borne by the Company. Subject to the penultimate
sentence of this Section 6.2., if the Company elects to direct the defense of
any such claim, investigation, action, suit, hearing or proceeding, the
Indemnified Party shall not pay, or permit to be paid, any part of any claim or
demand arising from such asserted liability unless the Company withdraws from
the defense of such
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asserted liability, or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnified Party is entered against the Indemnified
Party for such liability. If the Company does not elect to defend, or if, after
commencing or undertaking any such defense, the Company fails to prosecute or
withdraws from such defense, the Indemnified Party shall have the right to
undertake the defense or settlement thereof, at the Company's expense. If the
Indemnified Party assumes the defense of any such claim, investigation, action,
suit, hearing or proceeding pursuant to this Section 6.2. and proposes to settle
the same prior to a final judgment thereon or to forgo appeal with respect
thereto, then the Indemnified Party shall give the Company prompt written notice
thereof and the Company shall have the right to participate in the settlement,
assume or reassume the defense thereof or prosecute such appeal, in each case at
the Company's expense. The Company shall not, without written consent of such
Indemnified Party, settle or compromise or consent to entry of any judgment with
respect to any such claim, investigation, action, suit, hearing or proceeding
(i) in which any relief other than the payment of money damages is or may be
sought against such Indemnified Party or (ii) which does not include as an
unconditional term thereof the giving by the claimant, Person conducting such
investigation or initiating such hearing, plaintiff or petitioner to such
Indemnified Party of a release from all liability with respect to such claim,
investigation, action, suit or proceeding and all other claims or causes of
action (known or unknown) arising or which might arise out of the same facts.
6.3. Periodic Payments. Any indemnification required by Section 6.1.
for costs, disbursements or expenses of any Indemnified Party in connection with
investigating, preparing to defend or defending any claim, action, suit,
hearing, proceeding or investigation shall be made by periodic payments during
the course of the investigation or defense as and when bills are received or
costs, disbursements or expenses are incurred; provided, however, that such
Indemnified Party shall repay any such periodic payments made to it pursuant to
this Section 6.3. to the extent that it ultimately is determined that the amount
thereof exceeds that to which such Indemnified Party is entitled pursuant to
Section 6.1.
6.4. Termination of Indemnification. The representations and
warranties of the Company made in or pursuant to this Agreement or any other
Concurrent Transaction Document shall survive the Closing, for the following
respective periods (subject to the last sentence of this Section 6.4), in each
case regardless of any investigation that may have been or may be made by or on
behalf of any Investor: (i) in the case of the representations and warranties
made in Section 3.1, Section 3.2, Section 3.3, Section 3.4 or Section 3.10,
indefinitely; (ii) in the case of the representations and warranties made in
Section 3.18, Section 3.20 or Section 3.26, until the expiration of the
last-to-expire of all statute of limitations periods applicable to claims that
may be asserted against the Company or any Investor in respect of any matter
covered thereby and (iii) in all other cases, until the first anniversary of the
date of the Closing. The representations and warranties of the Investors made in
or pursuant to this Agreement shall survive until the first anniversary of the
date of the Closing. All covenants, agreements, obligations and commitments of
the Company made in or pursuant to this Agreement, in any other Concurrent
Transaction Document shall survive indefinitely and without limitation (except
as may otherwise be expressly provided for by their terms). Any representation,
warranty, covenant, agreement, obligation or commitment
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which is the subject of a claim or dispute asserted in writing prior to the
expiration of the applicable of the above-stated periods shall survive with
respect to such claim or dispute until the final resolution thereof.
Section 7. Legends.
7.1. Securities Act Legend. Except as otherwise provided in this
Section 7.1. or in the Stockholders' Agreement, each certificate or other
instrument evidencing the Investors' Shares shall bear a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS STATED IN (AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH)
THE STOCK PURCHASE AGREEMENT, DATED AUGUST ____, 1997. THE SHARES HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR OTHER SECURITIES LAWS. THEY ARE 'RESTRICTED SECURITIES' WITHIN THE
MEANING OF SEC RULE 144. THE SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY."
Any holder of any such certificate or instrument bearing the foregoing legend
shall be entitled to promptly receive from the Company, without expense, a new
certificate or instrument of identical tenor representing the same kind of
securities and the same number or other amount thereof not bearing such legend
if such securities shall have been effectively registered under the Securities
Act and are sold or otherwise disposed of in accordance with the intended method
of disposition by the seller thereof set forth in the registration statement, or
such securities may be freely transferred by such holder by reason of an
exemption from registration under the Securities Act, or such legend otherwise
is not required in order to ensure compliance with the Securities Act. The
opinion of Baker & Botts, L.L.P., or other legal counsel selected by such holder
and reasonably satisfactory to the Company with respect to any of the foregoing
or with respect to any question concerning whether any proposed transfer of any
such securities would violate the Securities Act shall be sufficient to
determine the issue.
Section 8. Miscellaneous.
8.1. Survival of Provisions. The respective representations,
warranties, covenants and agreements of the parties made herein or pursuant
hereto shall remain operative and in full force and effect regardless of (i) any
investigation made at any time by or on behalf of any Investor or any
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other Person and (ii) the Closing under this Agreement and acceptance of any of
the Investors' Shares and payment therefor.
8.2. Determinations Generally. Unless otherwise expressly provided
herein, all decisions and determinations required or permitted to be made by any
Investor hereunder (including any decision as to whether to give any consent or
approval) shall be made by such Investor in its sole discretion.
8.3. Communications. All notices and other communications required
or permitted by this Agreement shall be in writing, and (i) if to the Company,
to Mentus Media Corp., 9531 West 78th Street, Minneapolis, MN 55344, Attention:
Chairman, or to such other address as the Company may designate in a written
notice to each Stockholder, or (ii) if to any Investor, to such Investor at such
Investor's address appearing on Schedule 2.1 hereto or supplied by such Investor
in writing to the Company for the purpose of such notice. All notices and other
communications required or permitted by this Agreement shall be deemed to have
been duly given if personally delivered to the intended recipient at the proper
address determined pursuant to this Section 8.3. or sent to such recipient at
such address by registered or certified mail, return receipt requested, Express
Mail, Federal Express or similar overnight delivery service for next Business
Day delivery or by telegram, telex or facsimile transmission and will be deemed
given, unless earlier received: (1) if sent by certified or registered mail,
return receipt requested, five calendar days after being deposited in the United
States mail, postage prepaid; (2) if sent by Express Mail, Federal Express or
similar overnight delivery service for next Business Day delivery, the next
Business Day after being entrusted to such service, with delivery charges
prepaid or charged to the sender's account; (3) if sent by telegram or telex or
facsimile transmission, on the date sent and (4) if delivered by hand, on the
date of delivery.
8.4. Fees, Costs, Expenses and Taxes.
8.4.1. At the Closing Date, the Company covenants and agrees to pay
all of the costs and expenses and the reasonable out-of-pocket expenses
incurred by the Initial Investors in connection with the negotiation,
preparation, review, printing, typing, reproduction, execution, delivery,
collection and enforcement of this Agreement and the other Concurrent
Transaction Documents and any amendment or supplement to or modification
of any of the foregoing and any and all other agreements, instruments,
certificates and other documents furnished pursuant hereto or thereto or
in connection herewith or therewith and provided, however, that the
Company's maximum aggregate obligation under this Section 8.4.1. shall be
limited to $50,000.
8.4.2. The Company agrees to pay any and all stamp, transfer and
other similar taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement, or the issuance and sale of
the Securities, and shall save and hold each Investor harmless from and
against any and all liabilities with respect to or resulting from any
delay in paying, or omission to pay, such taxes.
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8.5. Brokerage. The Company represents and warrants that no broker,
finder or investment banker is or will be entitled to any brokerage, finder's or
similar fee or commission in connection with any of the transactions
contemplated by the Transaction Documents based upon arrangements made by and on
behalf of such party.
8.6. Incorporation by Reference. All schedules and exhibits to this
Agreement and all documents delivered pursuant to or referred to in this
Agreement are incorporated herein by reference and made a part hereof.
8.7. Binding Effect; Successors and Assigns; Entire Agreement.
Except as expressly provided in this Agreement, nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon or give any
person (including creditors, stockholders and Affiliates of the Company), other
than the parties to this Agreement, any remedy or claim under or by reason of
this Agreement or any term, covenant or condition hereof, all of which shall be
for the sole and exclusive benefit of the parties to this Agreement. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns and executors, administrators and heirs; provided that, except as
otherwise specifically permitted or contemplated pursuant to this Agreement, (i)
neither this Agreement nor any of the rights, interests or obligations of the
Company hereunder shall be assigned by the Company without the prior written
consent of each Investor and (ii) neither this Agreement (other than Section
2.2) nor any of the rights, interests or obligations of the Investors (other
than such rights, interests and obligations in connection with Section 2.2), of
the Investors hereunder may be assigned by the Investors without the prior
written consent of the Company other than to an Affiliate of any Investor. This
Agreement and the other Transaction Documents collectively set forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merge and supersede all prior discussions, agreements and understandings of
any and every nature among them with respect to such subject matter.
8.8. Amendments and Waivers. The provisions of this Agreement
(including the provisions of this sentence), may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof or thereof may not be given unless approved in writing by the Investors.
8.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
regardless of the laws that might be applicable under principles of conflicts of
law except to the extent that Delaware General Corporation Law mandatorily
applies.
8.10. Interpretation. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
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8.11. No Implied Waivers. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein or made pursuant hereto. The waiver by any party
thereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party to exercise any right or privilege hereunder shall be deemed a waiver
of such party's rights or privileges hereunder or shall be deemed a waiver of
such party's rights to exercise the same at any subsequent time or times
hereunder.
8.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
8.13. Attorney's Fees. In any action or proceeding brought to
enforce any provision of this Agreement, and in any action or proceeding arising
under or with respect to this Agreement where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
8.14. Further Assurances. Each party shall cooperate and take such
actions as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
8.15. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or enforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a court of competent jurisdiction, then such court may
substitute therefor a suitable and equitable provision in order to carry out, so
far as may be valid and enforceable, the intent and purpose of the invalid, void
or unenforceable provision. To the extent that any provision shall be judicially
unenforceable in any one or more states, such provision shall not be affected
with respect to any other state, each provision with respect to each state being
construed as several and independent.
8.16. Specific Performance. The parties agree that the provisions of
this Agreement shall be specifically enforceable, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of such
provisions will be inadequate compensation for any loss and that any defense in
any action for specific performance that a remedy at law would be adequate is
waived.
8.17. Facsimile Signatures. This Agreement may be executed by
facsimile signatures.
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[Signatures appear on next page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the day and year first written above.
THE MENTUS GROUP, INC.
By: _______________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: ARH CORP.,
General Partner
By: _______________________________
Edward Grinacoff
Treasurer
21ST CENTURY COMMUNICATIONS
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<PAGE>
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: ARH CORP.,
General Partner
By: _______________________________
Edward Grinacoff
Treasurer
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: ARH CORP., General Partner
By: _______________________________
Edward Grinacoff
Treasurer
PULITZER PUBLISHING COMPANY
By: _______________________________
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Exhibit 10.1(e)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of September 25,
1996, by and among The Mentus Group, Inc., a Delaware corporation (the
"Company"), 21st Century Communications Partners, L.P., a Delaware limited
partnership, 21st Century Communications T-E Partners, L.P., a Delaware limited
partnership, 21st Century Communications Foreign Partners, L.P., a Delaware
limited partnership (collectively, the "Initial Investors") and certain other
holders of shares of the Company's Series B Senior Cumulative Compounding
Convertible Redeemable Preferred Stock, par value $1.00 per share, (the "Series
B Preferred Stock") and certain other shareholders of the Company who are
parties to this Agreement by virtue of their execution and delivery of the
agreement attached hereto as Exhibit A (collectively, the "Initial
Shareholders").
WHEREAS, the Company and the Initial Investors have entered into a certain
Stock Purchase Agreement (the "Purchase Agreement"), dated as of the date
hereof, pursuant to which each of the Initial Investors is purchasing from the
Company, simultaneously with the execution and delivery of this Agreement on the
date hereof, certain newly issued securities of the Company; and
WHEREAS, the Company's Board of Directors has determined that such
purchase is in the Company's best interests, and each Initial Investor has
concluded that such purchase is in its best interests;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements herein contained, in order to induce the Initial
Investors to enter into the Purchase Agreement and consummate the transactions
contemplated thereby, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Initial Shareholders and
the Company agree with the Initial Investors as follows:
ARTICLE I
DEFINITIONS
Section 1.1 As used in this Agreement, the following terms have the
meanings indicated:
"Agreement" means this Registration Rights Agreement, dated as of
September 25, 1996, as amended from time to time in accordance with the terms
hereof.
"Affiliate" shall mean, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition "control" (including the
terms "controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power to
<PAGE>
direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or otherwise.
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banking institutions in New York, New York are required
or authorized by law to be closed.
"Commencement Date" means the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, $.01 par value per share, of the
Company and any capital stock into which such Common Stock may thereafter be
reclassified or otherwise changed; and such term shall also include all
securities of the Company or any other issuer issued to the holders of shares of
Common Stock as a dividend or other distribution or, in exchange for, in
replacement of or upon the exercise of any conversion, purchase or subscription
right associated with any shares of Common Stock.
"Company" means The Mentus Group, Inc., a Delaware corporation, and its
successors.
"Company Indemnified Parties" has the meaning set forth in Section 5.2.
"Company Notice" has the meaning set forth in Section 2.2(a).
"Contract" means any agreement, contract, commitment, indenture, lease,
license, instrument, note, bond, security, agreement in principle, letter of
intent, undertaking, promise, covenant, arrangement or understanding, whether
written or oral.
"Demand Notice" has the meaning set forth in Section 2.2(a).
"Demand Registration" has the meaning set forth in Section 2.1.
"Disadvantageous Effect" has the meaning set forth in Section 2.4.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended,
or any successor federal statute, and (unless the context otherwise indicates)
the rules and regulations of the Commission promulgated thereunder, as they each
may, from time to time, be in effect.
"Indemnified Party" has the meaning set forth in Section 6.3.
"Indemnifying Party" has the meaning set forth in Section 6.3.
"Initial Investors" has the meaning set forth in the introductory
paragraph.
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"Initiating Investor" has the meaning set forth in Section 2.2(a).
"Initial Shareholders" has the meaning set forth in the introductory
paragraph.
"Investors" means the Initial Investors and each other Person, other than
the Company or an Affiliate of the Company who (i) at any time acquires any
Registrable Shares directly or indirectly from any Initial Investor in a
transaction or chain of transactions not involving a public offering within the
meaning of and registered under the Securities Act and (ii) was assigned by the
Investor from whom such Registrable Shares were acquired, the registration
rights of an Investor hereunder with respect to such Registrable Shares,
together with the successors of each of the foregoing in each case for so long
as any such person continues to hold any Registrable Shares.
"Issue Date" has the meaning set forth in the Purchase Agreement.
"Losses" has the meaning set forth in Section 6.1.
"Majority Investors" means any one or more Investors who hold a total
number of Registrable Shares equal to at least a majority of the aggregate
number of Registrable Shares then held by all Investors.
"Majority Participating Investors" has the meaning set forth in Section
2.2(d).
"Majority Selling Stockholders" means with respect to any Demand
Registration or Piggyback Registration, any one or more Selling Stockholders who
hold a total number of Registrable Shares equal to at least a majority of the
aggregate number of Registrable Shares which are held by all Selling
Stockholders and which are or are to be included in such Demand Registration or
Piggyback Registration.
"Majority Shareholders" means any one or more Shareholders who hold a
total number of Registrable Shares equal to at least a majority of the aggregate
number of Registrable Shares then held by all Shareholders.
"Majority Stockholders" means any one or more Stockholders who hold a
total number of Registrable Shares equal to at least a majority of the aggregate
number of Registrable Shares then held by all Stockholders.
"Other Investor" has the meaning set forth in Section 2.2(a).
"Participating Investor" has the meaning set forth in Section 2.3.
"Person" mean an individual, partnership, corporation, trust,
unincorporated organization or government or political department or agency
thereof or other entity, whether acting in an individual, fiduciary or other
capacity.
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"Piggyback Registration" has the meaning set forth in Section 3.1.
"Preemptive Rights Agreement" shall mean that Preemptive Rights Agreement
dated the date hereof among the Company and the Initial Investors and the
Initial Shareholders, as amended from time to time.
"Purchase Agreement" shall have the meaning assigned to it in the
introductory paragraphs.
"Registrable Shares means as of any time of determination:
(i) in the case of any Investor, all shares of Common Stock
held by such Investor as of such time, including, without
limitation, (A) shares of Common Stock issued or issuable upon
conversion of any share or shares of the Series B Preferred Stock
then or formerly held by such Investor which originally were issued
to an Initial Investor, (B) shares of Common Stock or other
securities of any issuer issued or issuable to such Investor as a
dividend or other distribution, in exchange for or in replacement of
or otherwise in respect of any Registrable Shares then or formerly
held by such Investor and (C) in the case of any Investor which is
within the definition of "Investors" in the Stockholders Agreement,
shares of Common Stock otherwise acquired by such Investor, whether
in private or open market purchases, pursuant to the Preemptive
Rights Agreement upon exercise of any Rights therein or formerly
acquired by such Investor or otherwise.
(ii) in the case of any Initial Shareholder, all shares of
Common Stock held by such Initial Shareholder as of such time and
which (A) were issued or are issuable upon conversion of any share
or shares of Series B Preferred Stock then or formerly held by such
Investor, or upon exercise of any other Rights then or formerly
beneficially owned by such Investor, (B) were acquired by such
Initial Shareholder pursuant to the Preemptive Rights Agreement to
the extent that the right to acquire such shares was directly
attributable to the ownership by such Initial Shareholder of
Registrable Shares then held by such Initial Shareholder and (C)
shares of Common Stock or other securities of any issuer issued or
issuable to such Initial Shareholder as a dividend or other
distribution on, in exchange for or in replacement of or otherwise
in respect of any Registrable Shares then or formerly held by such
Shareholder; and
(iii) in the case of any Shareholder other than an Initial
Shareholder, all shares of Common Stock held by such Shareholder as
of such time and which (A) were acquired by such Shareholder, in a
transaction not involving a public offering within the meaning of
the Securities Act, from a transferor who was, at the time of the
transfer, a Shareholder and were Registrable Shares in the hands of
such transferor immediately prior to the transfer, (B) were acquired
by such Shareholder, after the date such Shareholder first became a
Shareholder, pursuant to the
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Preemptive Rights Agreement to the extent that the right to acquire
such shares was directly attributable to the ownership by such
Shareholder of Registrable Shares then held by such Initial
Shareholder and (C) shares of Common Stock or other securities of
any issuer issued or issuable to such as a dividend or other
distribution on, in exchange for or in replacement of or otherwise
in respect of any Registrable Shares then or formerly held by such
Initial Shareholder.
For purposes of this Agreement, any Person shall be deemed to hold, as of any
time, (i) all issued and outstanding shares of Common Stock, Registrable Shares
or other securities then held or deemed to be held by such Person, (ii) all
additional shares of Common Stock, Registrable Shares or other securities which
would then be held by such Person if it were assumed that all shares of Series B
Preferred Stock, if any, then held or deemed to be held by such Person had been
duly and effectively converted in full at and effective as of such time, (iii)
all additional shares of Common Stock, Registrable Shares or other securities
which would then be held by such Person if it were assumed that all Rights, if
any, then held or deemed to be held by such Person had been duly and effectively
exercised in full at and effective as of such time and (iv) all additional
shares of Common Stock, Registrable Shares or other securities, if any, which
such Person then has a right to purchase pursuant to the Preemptive Rights
Agreement or any other preemptive rights agreement in existence on the Issue
Date by virtue of any prior exercise of preemptive rights under such agreement,
assuming, in the case of each of clauses (ii) and (iii), that all adjustments to
the kind, number and amount of shares of capital stock or other securities
issuable upon exercise, exchange or conversion of any of the shares of Series B
Preferred Stock or other Rights referred to in such clause required by reason of
any event or transaction occurring at or prior to such time had been duly and
effectively made as and when required by the terms thereof.
"Registration Expenses" shall mean, with respect to any Demand
Registration or Piggyback Registration all (i) registration, qualification and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including the reasonable fees and disbursements of counsel for any
underwriters, dealers or placement agents in connection therewith), (iii)
printing expenses (or comparable duplication expenses) and escrow fees, (iv)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees performing legal or accounting duties),
(v) fees and disbursements of counsel for the Company, (vi) fees and expenses
for independent certified public accountants retained by the Company (including
all fees and expenses associated with the delivery by independent certified
public accountants of a "cold comfort" letter or letters), (vii) fees and
expenses of any special experts retained by the Company in connection with such
registration, (viii) fees and expenses of listing the Registrable Shares on a
securities exchange or otherwise in connection with clause (r) of Section 4.1,
(ix) the reasonable fees and expenses of a single firm of legal counsel for the
Investors participating in such Demand Registration or Piggyback Registration,
(x) the reasonable fees and expenses of a single firm of legal counsel for the
Shareholders participating in such Demand Registration or Piggyback Registration
and (xi) all other reasonable fees, costs, expenses and disbursements incurred
in connection with or incident to the Company's compliance with Article IV;
provided, however, that all such fees, costs, expenses and disbursements shall
be customary. The Company shall not be responsible for and the
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Selling Stockholders shall pay any stock transfer taxes, if any, and or
underwriting discounts or commissions relating to the distribution of the
Registrable Shares of any Stockholder.
"Registration Statement" means a registration statement of the Company
under the Securities Act on any form for which the Company then qualifies and
which permits the sale thereunder of the number of Registrable Shares (and any
other securities of the Company) to be included therein in accordance with this
Agreement by the sellers and, in the case of the Registrable Shares, according
to the method(s) of distribution determined in accordance with this Agreement
and in the case of any other securities covered thereby, according to the
plan(s) of distribution described therein, including all exhibits and schedules
to, all financial statements included in or otherwise filed with, and all
documents incorporated by reference in any such registration statement, in each
case as amended or supplemented as of any reference date.
"Restriction Period" has the meaning set forth in Section 4.6.
"Requesting Investor" has the meaning set forth in Section 2.2(a).
"Rights" means any options, warrants, convertible or exchangeable
securities or other rights, however denominated, to subscribe for, purchase or
otherwise acquire any equity interest or other security of any class or series,
with or without payment of additional consideration in cash or property, either
immediately or upon the occurrence of a specified date or a specified event or
the satisfaction or happening of any other condition or contingency.
"Second Company Notice" has the meaning set forth in Section 2.2(b).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and (unless the context otherwise indicates) the
rules and regulations of the Commission promulgated thereunder, as they each
may, from time to time, be in effect.
"Selling Stockholders" means, with respect to any Demand Registration or
Piggyback Registration, any Stockholder, holding any Registrable Shares which
are or are to be included in such Demand Registration or Piggyback Registration
in accordance with this Agreement.
"Shareholders" means the Initial Shareholders, each Person, if any, who
becomes a party to and a "Shareholder" under this Agreement pursuant to Section
7.17, and each other Person, other than the Company, who (i) at any time
acquires any Registrable Shares directly or indirectly from an Initial
Shareholders in transaction or chain of transactions not involving a public
offering within the meaning of the Securities Act and (ii) was assigned by an
Initial Shareholder from whom such Registrable Shares were acquired, the
registration rights of a Shareholder under this Agreement with respect to such
Registrable Shares, together with the successors of each of the foregoing, in
each case for so long as any such Person continues to hold Registrable Shares.
"Shelf Registration" has the meaning set forth in Section 2.8.
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"Stockholder Indemnified Parties" has the meaning set forth in Section
6.1.
"Stockholders" means the Investors and the Shareholders.
"Stockholders' Agreement" means the Stockholders Agreement dated the date
hereof, among the Company and certain stockholders of the Company as the same
may be amended from time to time in accordance with its terms.
All other capitalized terms used herein and not otherwise defined have the
meanings ascribed thereto in the Purchase Agreement.
ARTICLE II
DEMAND REGISTRATION
Section 2.1 Right to Demand Registration. The Investors shall have the
right to require the Company to register Registrable Shares under the Securities
Act (a "Demand Registration"), which right shall be exercisable in the manner
set forth in this Article II at any time or from time to time on or after the
Commencement Date.
Section 2.2 Demand Procedure.
(a) Any one or more Investors (each an "Initiating Investor") may at
any time and from time to time on or after the Commencement Date furnish the
Company with a written request (a "Demand Notice") which sets forth the number
of Registrable Shares requested to be registered in a Demand Registration and
such Initiating Investor's preferred method(s) of distribution of such
Registrable Shares permitted by Section 2.3(a). Upon receipt by the Company of a
Demand Notice, the Company shall promptly notify each of the other Investors
(the "Other Investors") in writing of such request for registration and such
notice shall name each Initiating Investor and set forth the other information
contained in each Demand Notice. Upon receipt of such notice from the Company
(the "Company Notice"), each Other Investor may give the Company a written
request to register any or all of such Other Investor's Registrable Shares in
the Demand Registration described in the Company Notice; provided, that such
written request is given within ten (10) Business Days after the date on which
the Company Notice is given. Any such request made by any Other Investor shall
state (A) the number of Registrable Shares to be so registered in such Demand
Registration by such Other Investor, (B) such Other Investor's preferred
method(s) of distribution of such Registrable Shares permitted by Section 2.3(a)
hereof, and (C) any other information that the Company Notice reasonably
requests be included in such notice from such Other Investor. As used herein,
the term "Requesting Investor(s)" means the Initiating Investor(s) and all Other
Investor(s), if any, requesting the registration of Registrable Shares pursuant
to a Demand Registration in accordance with this Section 2.2(a) following the
giving of the Company Notice.
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(b) If any Initiating Investor commences the procedures set forth in
Section 2.2(a) on any occasion, then the Company shall be obligated, upon
completion of such procedures, to promptly proceed to effect the requested
Demand Registration in accordance with this Agreement if either the Requesting
Investor(s) with respect to such Demand Registration include one or more
Investors who (A) hold in the aggregate at least a majority of the aggregate
number of Registrable Shares then held by all of the Investors and (B) have
requested the registration in such Demand Registration of a number of
Registrable Shares (whether or not such Registrable Shares requested to be
registered are issued shares) equal to at least 25% of the aggregate number of
Registrable Shares then held by all of the Investors.
Unless the Majority Investors otherwise agree, if the condition
stated immediately preceding sentence is not satisfied in the case of any
request for a Demand Registration, then the Company shall not be required to
undertake such required registration and such requested registration shall not
in any event be deemed to be a "Demand Registration," even if the Company elects
to undertake such requested registration although not obligated to do so. If
either such condition is satisfied, the Company shall promptly give each
Investor who is not a Requesting Investor a written notice (the "Second Company
Notice") which shall (A) contain, with respect to each Requesting Investor, all
of the information which was required to be included in the Company Notice with
respect to each Initiating Investor and (B) contain a statement of rights of
each such Investor's rights under the next two sentences of this Section 2.2(b).
Upon receipt of the Second Company Notice, each such Investor may give the
Company a written request to register any or all of such Investor's Registrable
Shares in the Demand Registration described in the Company Notice; provided,
that such written request is given within ten (10) Business Days after the date
on which the Second Company Notice is given. Any such request made by any such
Investor shall state (A) the number of Registrable Shares to be so registered in
such Demand Registration by such Investor, (B) such Investor's preferred
method(s) of distribution of such Registrable Shares permitted by Section
2.3(a), and (C) any other information that the Second Company Notice reasonably
requests be included in such notice from such Investor. As used herein, the term
"Participating Investors" means the Requesting Investor(s) and all Other
Investor(s), if any, requesting the registration of Registrable Shares pursuant
to a Demand Registration following the giving of the Second Company Notice.
(c) Subject to Section 2.3, if the condition stated in Section
2.2(b) is satisfied with respect for a Demand Registration, the Company shall,
as soon as practicable after the date on which the Second Company Notice is
given, file with the Commission and use its best efforts to cause to become
effective a Registration Statement which shall cover the Registrable Shares
requested to be registered by the Participating Investors and shall take all
other actions (including those required by Article IV) as may be necessary or
advisable to permit the Participating Investors to dispose of all such
Registrable Shares requested to be included in such Demand Registration in
accordance with the intended method(s) of distribution and in compliance with
the Securities Act and state "blue sky" and securities laws.
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(d) The Participating Investors may, at any time and from time to
time reasonably in advance of the planned date of consummation of the sale or
other distribution of Registrable Shares pursuant to any Demand Registration,
(i) permit any Participating Investor to withdraw, in whole or in part, from
participation in such Demand Registration, (ii) permit any Investor who was not
originally a Participating Investor to become a Participating Investor and
include in such Demand Registration any or all of such Investor's Registrable
Shares or (iii) otherwise increase or decrease the number of Registrable Shares
to be included in such Demand Registration, in each case at the sole discretion
of the holders of the majority of the Registrable Shares which are held by the
Participating Investors and which are or are to be included in such Demand
Registration (the "Majority Participating Investors"); provided, however, that
if any such decrease would result in the reduction of the number of Registrable
Shares to be registered in such Demand Registration to a number that would not
be sufficient to satisfy the condition stated in the first sentence of Section
2.2(a), then such decrease shall not be effective unless approved by the
Majority Investors and, if so approved, the Participating Investor(s) shall be
deemed to have abandoned and terminated such Demand Registration. The Majority
Participating Investors may terminate or abandon such Demand Registration upon
written notice to the Company to that effect.
Section 2.3 Methods of Distribution; Reduction in Shares to be Registered.
(a) Subject to the last sentence of this Section 2.3(a) and to the
provisions of Section 2.3(b), the Registrable Shares of any Participating
Investor included in a Demand Registration may be registered for sale by such
Participating Investor directly or through sale or placement agents or to or
through one or more underwriters or broker-dealers designated from time to time
by such Participating Investor and for resale by any such underwriter or
broker-dealer, in one or more transactions and at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at prices determined on a negotiated
or competitive bid basis or at a price or prices otherwise determined by such
Participating Investor. Notwithstanding the preference of any Participating
Investor in any Demand Registration, if the Majority Participating Investors, in
their sole discretion, determine that the offering and sale of Registrable
Shares pursuant to such Demand Registration should be pursuant to an
underwriting or through a selling or placement agent or syndicate, then such
Majority Participating Investors shall have the right to select the underwriters
or managing underwriter, selling or placement agent or managing selling or
placement agent or syndicate manager for such offering and sale and to
establish, by agreement with such underwriters, managing underwriter, selling or
placement agents, managing selling or placement agent or syndicate manager or
otherwise the price or prices and other terms of such underwriting, offering and
sale, and in such event no Participating Investor who otherwise would be
entitled to include Registrable Shares in such Demand Registration shall be
entitled to have such Registrable Shares so included unless they are included in
such underwritten offering or through such selling or placement agent or
syndicate at such price or prices and on such terms. The Participating Investors
shall offer the Company the opportunity to participate in negotiations with any
of the foregoing Persons regarding the terms of such underwriting, offering or
sale relating to expenses required to be paid by the Company pursuant to this
Agreement.
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(b) If a Demand Registration is for or includes an underwritten
offering or an offering through a sales or placement agent or syndicate, and the
managing underwriter, such sales or placement agent, or the managing sales agent
or the syndicate manager determines in good faith that inclusion in such
registration of all Registrable Shares and other securities, if any, requested
or proposed to be included in such offering exceeds the number that could be
sold without having an adverse effect on such offering, including the price at
which the Majority Participating Investors propose to sell their Registrable
Shares included in such offering, then the number of Registrable Shares to be
offered for the accounts of the Participating Investors shall be reduced or
limited on such basis in proportion to the respective numbers of Registrable
Shares requested to be included in such offering by such Participating
Investors, to the extent necessary to reduce the total number of shares to be
included in such offering to the amount recommended by such managing
underwriter, agent, managing sales agent or syndicate manager, provided, that
if, without violation of Section 2.7, in connection with such Demand
Registration securities other than Registrable Shares held by Participating
Investors are being offered (whether for the account of the Company or any
Person other than an Investor, such reduction shall be made (i) first, from any
shares proposed to be sold for the account of the Company and/or other Persons
who are not Investors allocated in such manner as may be acceptable to the
Company) and (ii) second, from the Registrable Shares requested to be included
in such registration by the Investors (allocated, if necessary, pro rata among
all such Investors on the basis of the relative numbers of Registrable Shares
each such Investor has requested to be included in such registration), it being
understood and agreed that the securities referred to in clause (i) above shall
not be included in any such offering unless or until all the Registrable Shares
requested to be included in such offering by the Investors are so included. In
the event that any Participating Investor proposes to distribute or sell any of
such Participating Investor's Registrable Shares included in a Demand
Registration by any method permitted by Section 2.3(a) or at any price which is
materially different from the method or price proposed by the Majority
Participating Investors for the distribution of the Registrable Shares to be
distributed or sold for the accounts of the Participating Investors and if the
Majority Participating Investors shall reasonably determine, and shall notify
each Participating Investor in writing of such determination, after consultation
with the managing underwriter, sales or placement agent, managing sales or
placement agent or syndicate manager, if any, selected by the Majority
Participating Investors or an independent investment banking firm of nationally
recognized standing if there is no underwriter, agent or manager, that the
proposed distribution or sale of Registrable Shares by such Participating
Investor by such method or at such price would materially adversely affect the
success of the sale of Registrable Shares to be sold for the accounts of the
Majority Participating Investors, then such Participating Investor shall not be
entitled to include such Registrable Shares in such Demand Registration unless
such Participating Investor selects, by written notice to the Participating
Investors and the Company within ten (10) days after such notice of such
determination is given, another method of distribution permitted by Section
2.3(a) or another price (as the case may be) which in the reasonable judgment of
such underwriter, agent or manager or such investment banking firm (as the case
may be) will not have such an effect.
Section 2.4 Right of the Company to Suspend Registration. The Company
shall be entitled to suspend, for a reasonable period of time not in excess of
ninety (90) days after its receipt
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of a Demand Notice, the filing of any Registration Statement which it otherwise
would be required to file pursuant to this Article II, if (i) at any time prior
to the filing of such Registration Statement the Board of Directors of the
Company determines, in good faith and in the exercise of reasonable business
judgment, that such filing would materially interfere with or otherwise
adversely affect in any material respect any material planned financing,
acquisition, corporate reorganization or other transaction involving the Company
(a "Disadvantageous Effect") and (ii) the Company gives all Selling Stockholders
written notice of such suspension; provided, however, that a suspension pursuant
to this Section 2.4 or pursuant to Section 4.2 by reason of the existence of one
or more Disadvantageous Effects shall be authorized only once during any
twelve-month period. In the event of any suspension pursuant to this Section
2.4, then unless the request for the Demand Registration is withdrawn pursuant
to the last sentence of this Section 2.4, the Company shall file such
Registration Statement as soon as practicable after the first to occur of (i)
the consummation of the transaction which is the asserted basis for such
Disadvantageous Effect, (ii) the abandonment or termination of such transaction
prior to consummation, (iii) the determination by the Board of Directors of the
Company that such filing would not or would no longer result in such
Disadvantageous Effect and (iv) the ninety-first (91st) day after the receipt of
the applicable Demand Notice. If the Company shall suspend the filing of any
Registration Statement pursuant to this Section 2.4, the Majority Participating
Investors shall have the right to withdraw the Demand Notice for such
registration by giving written notice to the Company prior to expiration of such
suspension period.
Section 2.5 Certain Limitations on Requesting or Participating in a Demand
Registration.
(a) Unless the Majority Investors otherwise determine, no Investor
shall be entitled to give a Demand Notice if all of the Registrable Shares
requested in such Demand Notice to be registered in a Demand Registration then
may be publicly offered and sold by such Investor without registration or
qualification under the Securities Act or state securities laws, without
limitation as to volume or manner of sale and without any other material
limitation, restriction or condition. Unless the Majority Investors otherwise
determine, no Investor shall be entitled to participate in any Demand
Registration if all of the Registrable Shares requested to be registered in such
Demand Registration then may be publicly offered and sold by such Investor
without registration or qualification under the Securities Act or state
securities laws, without limitation as to volume or manner of sale and without
any other material limitation, restriction or condition. If any dispute between
the Company and any of the Investors regarding the application of this Section
2.5 in a particular instance shall arise, then such dispute shall promptly
thereafter be submitted for resolution by an independent law firm of recognized
national standing selected by the Company and reasonably acceptable to the other
parties to such dispute, and the written opinion of such law firm with respect
to that particular dispute shall be final and conclusive. The Company shall
endeavor to cause such law firm to render its opinion as promptly as reasonably
practicable. In the event such law firm concurs with the Company in its opinion,
the fees and expenses of such law firm shall be paid by the Investors and in the
event such law firm concurs with the Investors in its opinion, the fees and
expenses of such law firm shall be paid by the Company.
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(b) Any provision herein to the contrary notwithstanding, the
Company will not be obligated to take any action to effect any Demand
Registration pursuant to this Article II if the Demand Notice is delivered to
the Company within one hundred eighty (180) days, of the date that a Letter of
Intent, or any equivalent agreement, is executed and delivered by the Company
and any underwriter or, if no such Letter of Intent is executed in connection
with such registration, within one hundred eighty (180) days of the effective
date of a prior registered offering of the Company's securities with respect to
which the Investors were eligible to exercise their Piggyback Registration
rights described in Article III. The foregoing shall not, however, affect any of
the Company's obligations with respect to any Shelf Registration effected prior
to such effective date.
Section 2.6 Form of Registration Statement. If in connection with a Demand
Registration, the Company proposes to effect such registration through the
filing of a Registration Statement on a particular registration form available
for such registration under the Securities Act and either the Majority
Participating Investors, the underwriters or managing underwriter, selling or
placement agent or managing selling or placement agent or syndicate manager, if
any, in connection with such Demand Registration shall advise the Company in
writing of its or their reasonable and good faith opinion that the use of
another available form is of material importance to the success of the proposed
offering or sale or other distribution contemplated, then such Demand
Registration shall be effected on such other form.
Section 2.7 No Other Participants in Demand Registration.
(a) Unless otherwise agreed by the Majority Investors, and except as
otherwise expressly provided in Section 2.7(b) neither the Company nor any other
Person except an Investor shall be permitted to include any shares of Common
Stock, Rights or other securities for registration, offering, sale or
distribution in any Demand Registration.
(b) If any Demand Registration is for an underwritten offering of
Common Stock, and is not for Shelf Registration then no later than ten (10)
Business Days prior to the anticipated filing date of the applicable
Registration Statement, the Company shall give each Shareholder written notice
to such effect; provided, however, that if none of the Shareholders own
Registrable Shares such Shareholders need not be given such notice nor shall he
be entitled to any rights under this Section 2.7(b). Upon the terms and subject
to the conditions and limitations set forth in this Section 2.7(b), any such
Shareholder may elect to request to participate in such registration by giving
the Company, within ten (10) Business Days after such notice has been given by
the Company, a written request to register any or all of such Shareholder's
Registrable Shares in connection with such registration. Any such request by a
Shareholder shall state (i) the kind and number of Registrable Shares to be
included in such registration by such Shareholder and (ii) any other information
that the Company reasonably requests in such notice given by it to such
Shareholder. Such Shareholder shall not be entitled to include in any Demand
Registration any Registrable Shares unless such Shareholder delivers to the
Majority Participating Investors a written opinion of legal counsel, reasonably
satisfactory to the Majority Participating Investors, to the effect that the
number of Registrable Shares requested by such Shareholder to be included in
such registration
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could not then be sold by such Shareholder under Rule 144 (or any successor
provision then in force) under the Securities Act or any other available
exemption from registration under the Securities Act. If the managing
underwriter shall advise the Majority Participating Investors in writing that,
in its opinion in its sole discretion, the number of Registrable Shares
requested to be included in such registration exceeds the number which would
have an adverse effect on such offering, including the price at which such
securities can be sold or the timing of such offering or sale, such Shareholder
will be permitted to include in such registration only such number of
Registrable Shares, if any, requested to be included therein pursuant to this
Section 2.7 which in the opinion of such managing underwriter may be included
therein without having any such adverse effect (allocated, if necessary, pro
rata among all such Shareholders on the basis of the relative numbers of
Registerable Shares each such shareholder has requested to be included in such
registration). Such Shareholder's right to participate in any Demand
Registration pursuant to this Section 2.7(b) shall be subject to his compliance
in all material respects with all obligations to which such Shareholder would be
subject under this Agreement if such Demand Registration were a Piggyback
Registration in which such Shareholder was participating as a Selling
Stockholder under Article III, including all obligations under Article IV
including Section 4.5 and Article VI. If, in the opinion of the managing
underwriter, the inclusion in such registration of Registrable Shares of such
Shareholder which such Shareholder otherwise would be entitled to include would
have any adverse effect referred to above by reason of the failure of such
Shareholder to comply on a timely basis with Section 4.5, to provide information
necessary or desirable or otherwise to cooperate on a timely basis in connection
with such registration, then such Shareholder may be excluded from participation
in such registration. In no event shall such Shareholder be considered as, or
have any of the rights of, an Investor or Participating Investor for any
purpose; without limiting the generality of the foregoing, such Shareholder
shall be entitled to a vote or any other right with respect to any decision or
action which any provision of this Agreement requires or permits on the part of
the Investors, the Participating Investors, the Majority Investors or the
Majority Participating Investors, or any of them, or on the part of the Majority
Selling Stockholders.
Section 2.8 Shelf Registration.
(a) Any request by any Investor for a Demand Registration pursuant
to this Article II may, at the election of the Initiating Investor by
specification in the applicable Demand Notice, include a request that all or any
of the Registrable Shares requested to be included in such Demand Registration
be registered under the Securities Act for offering and sale on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act (a "Shelf
Registration"). In the event of any such request for a Shelf Registration, the
Company Notice shall state that such request was for or included a Shelf
Registration. To the extent that a Demand Notice is for or includes a Shelf
Registration, neither the Investor requesting such Shelf Registration nor any
other Participating Investor participating in such Shelf Registration shall be
required to include in the applicable Demand Notice or any other request for
inclusion in such Shelf Registration made in accordance with this Article II or
otherwise provide information with respect to the desired price range for the
Registrable Shares requested to be included therein by any Participating
Investor or the intended method(s) of disposition or distribution thereof except
to the extent and at the time or times required
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in order to satisfy the requirements of Items 508 and 512(a)(1)(iii) of
Regulation S-K promulgated by the Commission. The method(s) of distribution of
the Registrable Shares of any Participating Investor included in any Shelf
Registration may be any method or methods permitted by Rule 415 of the
Securities Act and any such Participating Investor may change such method or
methods of distribution at any time and from time to time while the Registration
Statement relating to such Shelf Registration is required to remain effective in
accordance with the terms of Section 2.8(b) hereof, provided that such
Participating Investor provides to the Company the information reasonably
required to permit compliance with Items 508 and 512(a)(1)(iii) of Regulation
S-K promulgated by the Commission.
(b) The Company shall use all reasonable efforts to keep each
Registration Statement filed with respect to any Shelf Registration continuously
effective for a period of two years from the date on which the Commission
declares such Registration Statement effective. Such period shall be
automatically extended by the aggregate number of days, if any, during which any
delay, deferral, postponement or suspension is in effect with respect to such
Registration Statement.
(c) The Company shall effect any Shelf Registration requested
pursuant to this Agreement on a Registration Statement of the Company under the
Securities Act on any form for which the Company then qualifies and which
permits the offering and distribution thereunder of the number of Registrable
Shares to be included therein in accordance with the method(s) of distribution
determined in accordance with this Agreement. If, in connection with any
existing Demand Registration (whether or not for or including a Shelf
Registration), the Company proposes to effect such registration through the
filing of a Registration Statement on a particular registration form available
for such registration under the Securities Act and the Majority Investors with
respect to such registration under the Securities Act and the Majority
Participating Investors with respect to such Demand Registration shall advise
the Company in writing of its or their reasonable and good faith opinion that
the use of another available form is of material importance to the success of
the proposed offering or sale or other distribution contemplated, then such
Demand Registration shall be effected on such other form.
(d) The fact that a Registration Statement with regard to a Shelf
Registration is effective as of a particular time shall not prejudice or
otherwise affect the rights of the Participating Investors or any other Investor
to request a Demand Registration pursuant to this Article II, to participate in
any such Demand Registration requested by any other Investors or to participate
in any Piggyback Registration.
ARTICLE III
PIGGYBACK REGISTRATION
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Section 3.1 Right to Require Piggyback Registration. If, on or at any time
after the Issue Date, the Company proposes to register under the Securities Act
(otherwise than on Form S-8 or Form S-4 and other than a Demand Registration)
any shares of Common Stock, any Common Stock Rights or any other equity
interests of the Company of any class, series, issue or other type included in
the Registrable Shares (whether for sale in an underwritten public offering or
otherwise and whether for the account of the Company or any other Person) and if
the registration form to be used may be used for the registration of Registrable
Shares for distribution by any method permitted by Section 3.2(a), then upon
each and every such occasion the Company shall give prior written notice of such
proposed registration to each Stockholder of its intention to do so promptly and
in any event not later than twenty (20) Business Days before the anticipated
filing date of the applicable Registration Statement. Such notice shall specify
whether the proposed registration is for the account of the Company, for the
account of one or more other Persons or both and also specify the kind and
number or amount of securities proposed to be registered on behalf of each
thereof and the proposed offering price or prices and distribution methods and
arrangements. Upon the terms and subject to the conditions and limitations set
forth in this Article III, each Stockholder may elect to participate in such
registration by giving the Company, within ten (10) Business Days after such
notice has been given by the Company, a written request to register any or all
of such Stockholder's Registrable Shares in connection with such registration
(any such registration as to which any such request is made being sometimes
referred to as an "Piggyback Registration"). Any such request by a Stockholder
shall state (i) the kind and number of Registrable Shares to be included in such
registration by such Stockholder, (ii) such Stockholder's preferred method of
distribution of such Registrable Shares permitted by Section 3.2(a) and (iii)
any other information that the Company reasonably requests in such notice given
by it to the Stockholders. Upon receipt of one or more of such requests, the
Company shall, as soon as practicable, file with the Commission and use its best
efforts to cause to become effective, a Registration Statement which shall cover
the Registrable Shares requested to be registered by the requesting Stockholders
and shall take all such other actions (including those required by Article IV)
as may be necessary or advisable to permit the requesting Stockholders to
dispose of all such Registrable Shares requested to be included in such
Piggyback Registration in accordance with the permitted intended method or
methods of distribution in compliance with the Securities Act and state "blue
sky" and securities laws.
Section 3.2 Methods of Distribution; Reduction in Number of Shares to be
Registered.
(a) Subject to Section 3.2(b) and Section 3.2(c), the Registrable
Shares of any Stockholder included in an Piggyback Registration may be
registered for sale by such Stockholder directly or through sales or placement
agents designated from time to time or to or through one or more underwriters or
broker-dealers designated from time to time by such Stockholder and for resale
by any such underwriter or broker-dealer, in one or more transactions and at a
fixed price, which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at prices determined
on a negotiated or competitive bid basis or at a price otherwise determined by
such Stockholder.
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(b) In the case of any Piggyback Registration that is for (or
includes) an underwritten public offering of securities to be sold for the
account of the Company, if any Stockholder who has elected to participate
therein has selected any other permitted method of distribution for any of its
Registrable Shares elected to be included therein or proposes to offer or sell
such Registrable Shares at a price different from the price determined or to be
determined for such offering for the Company's account and if the managing
underwriter determines reasonably and in good faith (and so notifies such
Stockholder in writing) that the distribution of such Registrable Shares by such
method or at such price will materially adversely affect the success of such
offering of the securities to be sold for the account of the Company, and if no
other Person will be permitted to participate in such Piggyback Registration
using such method of distribution or at such price, then such Stockholder shall
not be entitled to include in such Piggyback Registration such number of such
Registrable Shares which the managing underwriter determines will materially
adversely affect the success of such offering, except to the extent that such
Stockholder elects, by written notice to the Company within ten (10) days after
receipt of such written advice, to include, subject to Section 3.2(c), such
Registrable Shares in such underwritten public offering. In the event that any
Stockholder has selected any permitted method of distribution of any Registrable
Shares included in an Piggyback Registration which is materially different from
the method selected by the Majority Selling Stockholders for the distribution of
the Registrable Shares to be sold for the accounts of the Majority Selling
Stockholders or proposes to offer or sell such Registrable Shares at a price
different from the price determined or to be determined for such offering and
sale for the accounts of the Majority Selling Stockholders, and if the managing
underwriters, if any, or an independent investment banking firm of nationally
recognized standing if there is no managing underwriter shall reasonably and in
good faith determine that the proposed distribution of Registrable Shares by
such Stockholder participating in such Piggyback Registration by such method or
at such price or prices would adversely affect the success of the sale of
Registrable Shares to be sold for the accounts of the Majority Selling
Stockholders, then the Majority Selling Stockholders shall notify each
Stockholder participating in such piggyback registration of such determination
and such Stockholder participating in such Incidental Registration shall not be
entitled to include such Registrable Shares in such Piggyback Registration
unless such Stockholder, by written notice to the Majority Selling Stockholders
and the Company within ten (10) days after such notice of such determination is
given, proposes any other method of distribution at a price (as the case may be)
which in the reasonable judgement of such managing underwriters or such
investment banking firm (as the case may be) will not have such an effect.
(c) Subject to Section 4.5, if any Piggyback Registration is for (or
includes) an underwritten offering, the Company will permit each Stockholder who
elects to include any of his Registrable Shares in such Piggyback Registration
to elect to include any or all of such Registrable Shares in such underwritten
offering on the same terms and conditions as any similar securities included
therein. If, in the case of any Piggyback Registration which is for (or which
includes) an underwritten public offering which consists primarily of securities
to be registered and sold for the account of the Company, the managing
underwriter determines, reasonably and in good faith, that inclusion in such
offering of the Registrable Shares so requested to be included and of the
securities, if any, to be included (without violation of Section 3.4) in such
offering for the accounts of any
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Persons other than the Company and the Stockholders ("Other Securities") would
materially adversely affect the success of such offering of the securities
proposed to be distributed for the account of the Company, then written notice
of such determination shall be given by the managing underwriter to each
Stockholder who requested Registrable Shares to be included in such offering and
the Registrable Shares and Other Securities to be included in such offering
shall be reduced to the extent necessary to reduce the total number or amount of
securities to be included in such offering to the amount recommended by the
managing underwriter, with such reduction to be made in the following order: (i)
first, by excluding from such Piggyback Registration securities proposed to be
included therein by all Persons other than the Company, the Stockholders, and
the other stockholder of the Company having registration rights existing at the
time of this Agreement and (ii) next, if, after excluding from such Piggyback
Registration pursuant to clause (i) of this sentence all securities proposed to
be included therein by all Persons other than the Company, the Stockholders and
the stockholders listed in Schedule 3.4, the managing underwriter continues to
be of such opinion, by reducing the securities intended to be offered by the
Stockholders and the stockholders listed on Schedule 3.4 on such basis as the
Stockholders and such other holders may agree or, absent such agreement, on a
pro rata basis in proportion to the respective numbers of Registrable Shares
which each of the Stockholders and such other holders intended to include in
such offering, it being understood that no reduction pursuant to clause (ii) of
this proviso shall be made unless or until all securities proposed to be offered
for the accounts of any Persons other than the Company and the Stockholders have
been excluded from such offering.
Section 3.3 Withdrawal of Registration. The Company may, without the
consent of any Stockholder, delay, suspend, abandon or withdraw any Piggyback
Registration and any related proposed offering or other distribution in which
any Stockholder has requested inclusion of Registrable Shares pursuant to this
Article III.
Section 3.4 No Other Participants in Piggyback Registration; Certain
Limitations on Participating in a Piggyback Registration.
(a) Except for the stockholders of the Company who have piggy-back
registration rights and who are listed on Schedule 3.4 hereto and unless
otherwise agreed by the Majority Selling Stockholders, no Person except the
Company or the Stockholders shall be permitted to include any shares of Common
Stock or Common Stock Rights for registration, offering, sale or distribution in
any Piggyback Registration.
(b) No Stockholder shall be entitled to participate in any Piggyback
Registration if all of the Registrable Shares requested to be registered in such
Piggyback Registration then may be publicly offered and sold by such Stockholder
without registration or qualification under the Securities Act or state
securities laws, without limitation as to volume or manner of sale and without
any limitation, restriction or condition. If any dispute regarding the
application of this Section 3.4(b) in a particular instance shall arise, then
such dispute shall promptly thereafter be submitted for resolution by an
independent law firm of recognized national standing selected by the Company and
reasonably acceptable to the other parties to such dispute, and the written
opinion of such law firm
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with respect to that particular dispute shall be final and conclusive. The
Company shall endeavor to cause such law firm to render its opinion as promptly
as reasonably practicable. In the event such law firm concurs with the Company
in its opinion, the fees and expenses of such law firm shall be paid by the
Investors and in the event such law firm concurs with the Investors in its
opinion, the fees and expenses of such law firm shall be paid by the Company.
ARTICLE IV
OBLIGATIONS WITH RESPECT TO REGISTRATION
Section 4.1 In General. Whenever the Company is obligated by the
provisions of Article II or Article III to effect the registration of any
Registrable Shares under the Securities Act, the Company shall use its best
efforts to effect the registration of all Registrable Shares which any
Stockholder has requested to be included therein for offering, sale and
distribution in accordance with the permitted intended methods of distribution
thereof as quickly as practicable, and in connection therewith the Company will
do the following as expeditiously as possible:
(a) (A) subject to Section 2.6, if applicable, prepare and file with
the Commission a Registration Statement on any form for which the Company then
qualifies and which is available for the registration of the Registrable Shares
requested to be registered in accordance with the intended methods of
distribution thereof, (B) include (subject to Section 2.3, Section 3.2(b),
Section 3.2(c) and Section 3.4(b), if applicable) in the Registration Statement
all Registrable Shares requested to be included pursuant to Article II or
Article III (as the case may be), and (C) use its best efforts to cause such
Registration Statement to become effective;
(b) prepare and file with the Commission such amendments and
post-effective amendments and supplements to the Registration Statement or any
prospectus as may be necessary to keep the Registration Statement effective,
current and in compliance with the provisions of the Securities Act, until the
last to occur of (A) the sale or other distribution of all of the Registrable
Shares covered by such Registration Statement in accordance with the intended
methods of distribution thereof, (B) the one hundred twentieth (120th) day
following the effective date of such Registration Statement, (C) the expiration
of all periods during which transactions in Registrable Shares by a dealer are
not exempt from the provisions of Section 5 of the Securities Act by virtue of
Section 4(3) of the Securities Act or during which any dealer is obligated under
Rule 174 under the Securities Act to deliver a prospectus in connection with
transactions involving Registrable Shares and (D) the expiration of all other
periods, if any, during which the Registration Statement is required to remain
effective in order to avoid a violation of applicable law by any Stockholder or
the Company related to the sale or other distribution of all of the Registrable
Shares covered by such Registration Statement in accordance with the intended
methods of distribution thereof;
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(c) at least three (3) Business Days prior to filing any
Registration Statement or prospectus or any amendment or supplement thereto,
furnish to each Stockholder and each underwriter, if any, of the Registrable
Shares covered by such Registration Statement copies of such Registration
Statement or prospectus as proposed to be filed (including documents to be
incorporated by reference therein), which documents will be subject to the
reasonable review and comments of such Stockholders (and their respective
counsel) during such three-Business-Day period, and if any Stockholder objects
to any statements in any such documents with respect to such Stockholder or the
distribution of the Registrable Shares to be included by him in such
Registration Statement, the Company shall promptly revise such statements to
such Stockholder's reasonable satisfaction;
(d) promptly notify each Stockholder of the effectiveness of the
Registration Statement;
(e) furnish to each Stockholder without charge and as soon as such
documents become available to the Company, at least one copy of the Registration
Statement and each amendment thereto, and such number of conformed copies
thereof, copies of the prospectus (including each preliminary prospectus and
each amendment or supplement thereto), in each case together with all exhibits
thereto and all documents incorporated by reference in any of such documents as
such Stockholder may reasonably (in light of such Stockholder's intended method
of distribution) request in order to facilitate the disposition of the
Registrable Shares being sold by such Stockholder (it being understood that the
Company consents to the use, in compliance with the Securities Act, of each
preliminary prospectus and prospectus and each amendment or supplement thereto
by each Stockholder, each underwriter, broker, dealer, placement agent and other
securities industry professional and each agent of each Stockholder in
connection with the offering, sale and distribution of the Registrable Shares
covered thereby);
(f) promptly notify each Stockholder, at any time when a prospectus
relating to Registrable Shares of such Stockholder covered by the Registration
Statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the preliminary prospectus or prospectus
included in such Registration Statement or any prospectus supplement contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and the Company will, as promptly as
practicable thereafter, prepare and file with the Commission and furnish to each
Stockholder a supplement or amendment to such preliminary prospectus, prospectus
or prospectus supplement so that, as thereafter delivered to the prospective
purchasers of the Registrable Shares being distributed by such Stockholder, such
preliminary prospectus, prospectus or prospectus supplement will 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 therein, in light of the
circumstances under which they were made, not misleading;
(g) enter into customary agreements (including, in the case of an
underwritten offering, an underwriting agreement in customary form); make such
representations and warranties, to any underwriters, brokers, dealers, placement
agents and other Persons involved in the distribution
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of the Registrable Shares included in such Registration Statement as in form,
substance and scope are customarily made by issuers in similar circumstances or
which may be reasonably requested;
(h) furnish to each underwriter, broker, dealer or placement agent
participating in any offering or sale or other distribution pursuant to such
Registration Statement a signed counterpart of (A) an opinion of counsel to the
Company addressed to such underwriter, broker, dealer or placement agent (as the
case may be) and (B) a "cold comfort" letter or letters from the Company's
independent certified public accountants, each in customary form and covering
such matters of the type customarily covered by legal opinions or "cold comfort"
letters (as the case may be) in similar offerings, sales or distributions of
securities of similarly situated issuers and such other matters as the Majority
Selling Stockholders may reasonably request;
(i) prepare and file with the Commission promptly upon the request
of any such Stockholder, any amendments or supplements to such Registration
Statement or the applicable prospectus which, in the reasonable opinion of
counsel for such Stockholder, is required under the Securities Act in connection
with the distribution of Registrable Securities by such Stockholder;
(j) effective on or prior to the date the Registration Statement
becomes effective, use its best efforts to register or qualify the Registrable
Shares covered by a Registration Statement under the securities or blue sky laws
of such jurisdictions in the United States as the Selling Stockholders or any
underwriter, broker, dealer or placement agent participating in the offering or
sale or other distribution of the Registrable Shares covered thereby shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary to enable each Selling Stockholder to consummate the
offering and disposition of such Registrable Shares in such jurisdictions of
such Registrable Shares in accordance with the permitted methods of distribution
described in such Registration Statement; provided, however, that the Company
shall in no event be required to qualify generally to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not otherwise
required to be so qualified or, to conform its capitalization or the composition
of its assets at the time to the securities or blue sky laws of such
jurisdiction;
(k) make generally available to the Company's security-holders
earnings statements satisfying the provisions of the last sentence of Section
11(a) of the Securities Act no later than forty-five (45) days after the end of
the twelve-month period beginning with the first month of the first fiscal
quarter commencing after the effective date of the Registration Statement, which
earnings statements shall cover said twelve-month period;
(l) promptly notify each Selling Stockholder and each underwriter,
broker, dealer and placement agent participating in any offering or sale or
other distribution of securities covered by such Registration Statement of the
issuance or threatened issuance of any stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of any preliminary prospectus, prospectus or prospectus supplement; use
reasonable efforts to prevent the issuance of any such threatened stop order or
other order, and; if any such order is issued, use its best efforts to obtain
the lifting or withdrawal of such order at the earliest possible moment
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and promptly notify each Selling Stockholder and each such underwriter, broker,
dealer and placement agent of any such lifting or withdrawal;
(m) as promptly as practicable after filing with the Commission of
any document which is incorporated by reference into a Registration Statement,
notify each Selling Stockholder of such filing and deliver a copy of such
document to each Selling Stockholder;
(n) cooperate with each Selling Stockholder and the underwriters,
brokers, dealers and placement agents participating in any offering or sale or
other distribution of securities covered by such Registration Statement to
facilitate the timely preparation and delivery of certificates, not bearing any
restrictive legends, unless otherwise required by such Stockholder, representing
the securities covered by such Registration Statement, and enable all
Registrable Shares of such Selling Stockholder covered thereby to be in such
denominations and registered in such names as such Selling Stockholder may
request;
(o) use its best efforts to cause the Registrable Shares covered by
the Registration Statement to be registered with or approved by such other
governmental authorities within the United States and its territories as may be
necessary to enable the Selling Stockholders to consummate the disposition of
such securities in accordance with the intended methods of disposition;
(p) cooperate with the Selling Stockholders and the underwriters,
brokers, dealers and placement agents participating in any offering or sale or
other distribution of securities covered by such Registration Statement in
making any filings or submissions required to be made, and in furnishing all
appropriate information in connection therewith, with the National Association
of Securities Dealers, Inc., any national securities exchange, any other
"self-regulatory organization" (as defined in the Exchange Act) or with any
governmental authority;
(q) promptly notify each Selling Stockholder and each underwriter,
broker, dealer and placement agent participating in any offering or sale or
other distribution of securities covered by such Registration Statement of the
issuance or threatened issuance of any order suspending the registration or
qualification of any Registrable Shares covered by such Registration Statement
for disposition in any jurisdiction; use its reasonable efforts to prevent the
issuance of any such threatened order and; if any such order is issued, use its
best efforts to obtain the lifting or withdrawal of such order at the earliest
possible moment and promptly notify each Selling Stockholder and each such
underwriter, broker, dealer and placement agent of any such lifting or
withdrawal;
(r) if any shares of Common Stock or any other capital stock or
securities of the same class, series, issue or other type as any Registrable
Shares covered by such Registration Statement are or upon consummation of all
sales and other distributions covered by such Registration Statement will be
listed, qualified or otherwise eligible for trading or quotation on a national
securities exchange or the Nasdaq National Market, the National Association of
Securities
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Dealers, Inc. Automated Quotation System or any similar quotation system, use
its best efforts to cause, by the date of the first sale of any Registrable
Shares pursuant to such Registration Statement, all Registrable Shares covered
by such Registration Statement to be listed, qualified or eligible for trading
or quotation on each such exchange or quotation system;
(s) cause each of the Company, and use its best efforts to cause
each of the respective Affiliates of the Company, to take all action necessary
to effect each registration, offering, sale and distribution of the Registrable
Shares contemplated hereby, including preparing and filing any required
financial or other information;
(t) make available to each registrar, transfer agent, trustee or
similar agent or fiduciary for each class, series, issue or other type of
Registrable Shares a supply of certificates or other instruments evidencing or
constituting such Registrable Shares which shall be in a form complying with the
requirements of such registrar, transfer agent, trustee or similar agent or
fiduciary promptly after the registration of such Registrable Shares; and
(u) take all other actions which are reasonably necessary or which
may be reasonably requested by the Majority Investors or the Majority
Stockholders or any underwriter, broker, dealer or placement agent participating
in any offering or sale or other distribution of securities covered by such
Registration Statement to effect the registration and qualification of the
Registrable Shares covered by such Registration Statement and to facilitate the
disposition thereof in accordance with the respective plans of distribution of
the Selling Stockholders.
Section 4.2 Suspension of Registration Proceedings. Notwithstanding
anything to the contrary contained herein, if at any time after the filing of a
Registration Statement but before it is declared effective by the Commission the
Company determines, in its reasonable business judgment, that such offering,
sale or other distribution covered thereby would result in a Disadvantageous
Effect, then the Company may suspend the offering, sale or distribution of any
of the Registrable Shares pursuant to such Registration Statement by giving
written notice to such effect to each Selling Stockholder; provided, however,
that (i) the Company may not require such suspension unless such suspension is
also required on the part of each and every Person (including the Company) who
proposes to offer, sell or otherwise distribute any securities pursuant to such
Registration Statement and (ii) a suspension pursuant to this Section 4.2 or
pursuant to Section 2.4 by reason of the existence of one or more
Disadvantageous Effects shall be authorized only once during any twelve-month
period. Any such suspension pursuant to this Section 4.2 shall terminate upon
the first to occur of (i) the consummation of the transaction which is the
asserted basis for such Disadvantageous Effect, (ii) the abandonment or
termination of such transaction prior to consummation, (iii) the determination
by the Board of Directors of the Company that such offering, sale or other
distribution would not or would no longer result in such Disadvantageous Effect
and (iv) the ninety-first (91st) day after the written notice of such suspension
is given in accordance with this Section.
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Section 4.3 Procedures if Stop Order Issued. Each Selling Stockholder,
upon receipt of any written notice from the Company of the happening of any
event of the kind described in Section 4.1(f), will forthwith discontinue
disposition of Registrable Shares pursuant to the applicable Registration
Statement until such Selling Stockholder's receipt of the copies of the
supplemented or amended preliminary prospectus, prospectus or prospectus
supplement contemplated by Section 4.1(f), and, if so directed by the Company,
such Selling Stockholder will deliver to the Company all copies in its
possession of the most recent preliminary prospectus, prospectus or prospectus
supplement covering such Registrable Shares at the time of receipt of such
notice. In the event the Company shall give any such notice after a Registration
Statement has become effective, the Company shall extend the period during which
the effectiveness of such Registration Statement shall be maintained pursuant to
Section 4.1(b) hereof by the number of days during the period from and including
the date of the giving of notice pursuant to Section 4.1(f) to the date when the
Company shall make available to each Selling Stockholder the copies of the
supplemented or amended preliminary prospectus, prospectus or prospectus
supplement contemplated by Section 4.1(f).
Section 4.4 Restriction on Other Sales. If any Demand Registration or
Piggyback Registration is for or includes any underwritten offering of or
including any Registrable Shares, neither the Company nor any Stockholder shall
effect any public sale or distribution of any of the Company's equity interests
or other securities of, or exercisable for, any class, series, issue or other
type as any included in such Demand Registration or Piggyback Registration,
other than as part of such Demand Registration or Piggyback Registration, for
such period prior to and for such period after the effective date of the related
Registration Statement covering such Registrable Shares as the managing
underwriter shall reasonably and in good faith specify and the Majority Selling
Stockholders shall approve in writing; provided that such period shall not
exceed one hundred eighty (180) days after the effective date of the
Registration Statement covering such Registrable Shares. In the case of any
Demand Registration which is for or includes any other method of distribution of
Registrable Shares, neither the Company nor any Stockholder shall effect any
public sale or distribution of any of the Company's equity interests or other
securities of, or exercisable for, any class, series, issue or other type as any
included in such Demand Registration, otherwise than as part of such Demand
Registration, during the period commencing on a date (specified at least ten
days in advance by written notice given to the Company and the other
Stockholders by the Majority Participating Stockholders) which is not more than
fourteen (14) days before the effective date of the registration statement
covering such Registrable Shares and ending on the one hundred eightieth (180th)
day after the effective date of the Registration Statement covering such
Registrable Shares, or for such shorter period as the Majority Stockholders may
approve in writing. Any Contract entered into after the Commencement Date
pursuant to which the Company issues any securities or becomes or may become
obligated to register or to permit the participation in the registration of any
securities of the Company shall contain a provision under which the holders of
such securities agree not to effect any public sale or distribution of any such
securities during the periods described in the first two sentences of this
Section 4.4, except as part of the relevant Demand Registration or Piggyback
Registration (if such holders are entitled to participate therein without
violation of this Agreement). The provisions of this Section 4.4 shall not
prevent the conversion, exchange or exercise of any securities pursuant to their
respective terms into or for other securities of the
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Company or any public sale or other distribution by any of the Stockholders with
the prior consent of the Majority Stockholders, and are supplemental to any
similar requirements imposed by the Securities Act.
Section 4.5 Participation in Underwritten Offers. No Person who otherwise
has a right to participate in any underwritten offering in connection with a
Demand Registration or a Piggyback Registration shall be entitled to so
participate unless such Person (i) agrees to sell its securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement.
ARTICLE V
EXPENSES OF REGISTRATION
Section 5.1 Expenses. Except as provided in the last sentence of this
Section 5.1, all Registration Expenses incurred in connection with or otherwise
incident to any Demand Registration or Piggyback Registration and the offering
or sale or other distribution of any Registrable Shares in connection therewith
shall be borne by the Company, whether or not any Registration Statement filed
in connection therewith ever becomes effective or any such sale or other
distribution ever is consummated.
ARTICLE VI
INDEMNIFICATION AND CONTRIBUTION
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Section 6.1 Indemnification by the Company. The Company shall indemnify
and hold harmless each Stockholder, each former Stockholder, each Person (if
any) who controls such Stockholder or former Stockholder within the meaning of
the Securities Act and each of their respective Affiliates, partners, directors,
officers, employees and agents (collectively, the "Stockholder Indemnified
Parties") from and against any liabilities, obligations, losses, damages,
assessments, fines and penalties of any kind or nature, including all amounts
paid or agreed to be paid in settlement of any claim, action, suit, hearing,
proceeding or investigation (collectively, "Losses"), whether direct, indirect,
joint or several, and subject to Section 6.3, also shall indemnify and reimburse
each Stockholder Indemnified Party for all reasonable fees, costs and expenses
(including reasonable fees and disbursements of counsel) in connection with
preparing for, defending against or settling, prosecuting any appeal of any
judgment entered in, or otherwise as a result of, any claim, action, suit,
hearing, proceeding or investigation, in each case which in any manner results
from, arises out of, or is based upon or related or attributable to (i) any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement as originally filed or in any amendment thereof, or
in any preliminary, final or summary prospectus, or in any amendment thereof or
supplement thereto, or any omission or alleged omission to state in any thereof
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any violation by the Company of any
federal or state law, rule or regulation or common law applicable to the Company
and relating to action required of or inaction by the Company in connection with
any Demand Registration or Piggyback Registration; provided, however, that, in
the case of clause (i), the Company shall not be obligated to indemnify any
Stockholder or any of its controlling Persons, Affiliates, partners, directors,
officers, employees or agents for any Loss to the extent (and only to the
extent) that such Loss arises solely from any such untrue statement made in or
omission from the Registration Statement or any amendment thereof, or any
related preliminary, final or summary prospectus or any amendment thereof or
supplement thereto, which statement or omission related to information about
such Stockholder or its proposed plan of distribution of the Registrable Shares
of such Stockholder covered by such Registration Statement and was made or
omitted in reliance upon and in conformity with the latest information about
such Stockholder or its proposed plan of distribution of the Registrable Shares
of such Stockholder covered by such Registration Statement which was provided to
the Company by such Stockholder in writing for use in such Registration
Statement (or amendment thereto) or such prospectus (or amendment thereof or
supplement thereto). The Company will also indemnify each underwriter, selling
broker, dealer manager, placement agent and similar securities industry
professional participating in the distribution of Registrable Shares, its
officers and directors and each Person who controls such Person (within the
meaning of the Securities Act) to the extent required by such underwriter;
provided, however, that if the Company and any such underwriter, selling broker,
dealer manager or similar industry professional enters into an underwriting,
purchase or other agreement relating to such distribution which contains
provisions relating to indemnification and contribution between the Company and
such Person, such provisions shall be deemed to govern indemnification and
contribution as between the Company and such Person.
Section 6.2 Indemnification by Each Stockholder. Each Stockholder,
individually and not jointly, shall indemnify and hold harmless the Company and
each Person, if any, who controls
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the Company within the meaning of the Securities Act (the "Company Indemnified
Parties") and the Stockholder Indemnified Parties (other than such indemnifying
Stockholder and its controlling Persons, Affiliates, partners, directors,
officers, employees and agents) from and against any Loss to which such Company
Indemnified Parties and/or Stockholder Indemnified Parties may become subject,
and subject to Section 6.3, also shall indemnify and reimburse each Company
Indemnified Party for all reasonable fees, costs and expenses (including
reasonable fees and disbursements of counsel) in connection with preparing for,
defending against or settling, prosecuting any appeal of any Judgment entered
in, or otherwise as a result of any claim, action, suit, hearing, proceeding or
investigation, in each case insofar and only insofar as such Loss or such claim,
action, suit, hearing, proceeding or investigation arises solely out of or is
based solely upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement pursuant to which any Registrable
Shares of such Stockholder were offered and sold or in any related preliminary,
final or summary prospectus, or in any amendment thereof or supplement thereto,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if the statement or
omission related to information about such Stockholder or its proposed plan of
distribution of the Registrable Shares of such Stockholder covered by such
Registration Statement and was made or omitted in reliance upon and in
conformity with the latest information about such Stockholder or its proposed
plan of distribution of the Registrable Shares of such Stockholder covered by
such Registration Statement which was provided by such Stockholder in writing
specified for inclusion therein; provided, however, that such Stockholder will
not indemnify or hold harmless any Company Indemnified Party and/or Stockholder
Indemnified Party from or against any such Loss, fee, cost or expense if the
untrue statement, omission or alleged untrue statement or omission upon which
such Losses or expenses are based was contained in or omitted from (as the case
may be) any preliminary prospectus, prospectus or summary prospectus, or any
amendment thereof or supplement thereto, used after such time as the Company was
advised by or on behalf of such Stockholder or the Company otherwise had
knowledge that the information about such Selling Stockholder contained therein
needs to be corrected, revised or supplemented.
Section 6.3 Procedures. Each party claiming a right to indemnification
under this Article VI (the "Indemnified Party") shall give notice to the party
from whom such indemnification is or may be sought (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnification may be sought, and the Indemnifying Party may participate
at its own expense in the defense, or if it so elects, assume the defense of any
such claim and any action or proceeding resulting therefrom, including the
employment of counsel and the payment of all expenses. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party from its obligations to indemnify such Indemnified Party,
except to the extent the Indemnified Party's failure to so notify actually and
materially prejudices the Indemnifying Party's ability to defend against such
claim, action or proceeding. In the event that the Indemnifying Party elects to
assume the defense in any action or proceeding, an Indemnified Party shall have
the right to employ separate counsel in any such action or proceeding and to
participate in the defense thereof, but such Indemnified Party shall pay the
fees and expenses of such separate counsel unless (i) the Indemnifying Party has
agreed to pay such fees and expenses, (ii) any relief
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other than the payment of money is sought against the Indemnified Party or (iii)
the named parties to any such action or proceeding (including any impleaded
parties) include such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that there is a conflict of
interest between such Indemnified Party and the Indemnifying Party in the
conduct of the defense of such action (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not assume the defense of such action or proceeding on such Indemnified Party's
behalf, it being understood, however, that the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified
Parties, which firm shall be designated in writing by the applicable Indemnified
Parties). If the Indemnifying Party elects not to defend, or if, after
commencing or undertaking any such defense, the Indemnifying Party fails to
prosecute or withdraws from such defense or fails to appeal any Judgment adverse
or unfavorable to the Indemnified Party, the Indemnified Party shall have the
right to undertake the defense, settlement or appeal thereof (as the case may
be), at the Indemnifying Party's expense. If the Indemnified Party assumes the
defense of any such claim, investigation, action, suit, hearing or proceeding
pursuant to this Section 6.3 and proposes to settle the same prior to a final
judgment thereon or to forgo or abandon any appeal available after final
judgment thereon, then the Indemnified Party shall give the Indemnifying Party
prompt written notice thereof and the Indemnifying Party shall have the right to
participate in the settlement, assume or reassume the defense thereof or
prosecute such appeal, in each case at the Indemnifying Party's expense. The
Indemnifying Party shall not, without written consent of such Indemnified Party,
settle or compromise or consent to entry of any judgment with respect to any
such claim, investigation, action, suit, hearing or proceeding (i) in which any
relief other than the payment of money damages is or may be sought against such
Indemnified Party or (ii) which does not include as an unconditional term
thereof the giving by the claimant, Person conducting such investigation or
initiating such hearing, plaintiff or petitioner to such Indemnified Party of a
release from all liability with respect to such claim, investigation, action,
suit or proceeding and all other claims or causes of action (known or unknown)
arising or which might arise out of the same facts.
Section 6.4 Contribution. In order to provide for just and equitable
contribution if a claim for indemnification pursuant to the indemnification
provisions of this Article VI is made but it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) that such
indemnification may not been enforced in such case, even though the express
provisions hereof provide for indemnification in such case or the
indemnification provided for under this Article VI, even though so provided for,
otherwise is unavailable to or insufficient to hold any Indemnified Party
harmless to the full extent provided herein with respect to any Loss (or any
fees, costs or expenses) for which such indemnification is provided for, then
the Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses (i) in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other, in connection with the
statements or omissions which resulted in such Losses or (ii) if the allocation
provided by clause (i) above is not permitted
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by applicable law, in such proportion as is appropriate to reflect not only the
relative fault referred to in clause (i) above but also the relative benefits
received by the Indemnifying Party, on the one hand, and such Indemnified Party,
on the other, from the subject offering or distribution, as well as any other
relevant equitable considerations. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by (or omitted to be supplied by) the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The relative benefits received by the Indemnifying Party,
on the one hand, and the Indemnified Party, on the other, shall be deemed to be
in the same proportion as the net proceeds of the offering or other distribution
received by the Indemnifying Party bears to the net proceeds of the offering or
other distribution received by the Indemnified Party. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Company and the Investors agree
that it would not be just and equitable if contributions pursuant to this
Section 6.4 were to be determined by pro rata allocation (even if all
Stockholders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 6.4.
Section 6.5 Limit on Liability of Stockholders. The parties agree, to the
maximum extent permitted by law, that the obligations and liability of each
Selling Stockholder with respect to any Demand Registration or Piggyback
Registration, whether for indemnification pursuant to Section 6.2, contribution
pursuant to Section 6.4 or otherwise, shall not in any event exceed in the
aggregate the amount of net proceeds received by such Selling Stockholder from
the sale of the Registrable Shares sold by such Selling Stockholder in such
Demand Registration or Piggyback Registration.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Rules 144 and 144A. The Company covenants that following the
registration of any Registrable Shares it will file any reports required to be
filed by it under the Securities Act and the Exchange Act so as to enable
Investors who continue to hold any Registrable Shares to sell such Registrable
Shares without registration under the Securities Act within the limitation of
the exemptions provided by (i) Rules 144 and 144A under the Securities Act, as
each such Rule may be amended from time to time, or (ii) any similar rule or
rules hereafter adopted by the Commission. Upon the request of any Stockholder,
the Company will promptly deliver to such Stockholder a written statement as to
whether it has complied with such requirements.
Section 7.2 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given, unless approved in writing by
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the Company and by the Majority Investors and the Majority Shareholders (if
adversely affected thereby). Notwithstanding the foregoing, any waiver or
departure with respect to any matter which relates exclusively to the rights and
obligations of Stockholders in a specific Piggyback Registration or Demand
Registration, which relates only to the Registrable Shares being registered
pursuant to that Piggyback Registration or Demand Registration, which applies
only to such specific Piggyback Registration or Demand Registration, and which
does not directly or indirectly adversely affect the rights of any other
Stockholder with respect to any Registrable Shares not being so registered,
shall be authorized and effective if approved in writing by the Company and the
Majority Investors and any Shareholder adversely affected thereby.
Section 7.3 Termination. The provisions of this Agreement shall terminate
as to each Shareholder, other than the provisions of Article VI, which shall
survive any such termination indefinitely, at the first time as of which all
Registrable Shares held by such Shareholder may be publicly sold by such
Shareholder without registration or qualification under the Securities Act or
state securities laws, without limitations as to volume or manner of sale and
without any limitation, restriction or condition; provided, however, that any
obligations of the Company pursuant to Article V or any other provision of this
Registration Rights Agreement with respect to any pending or completed Demand
Registration or Piggyback Registration which have not been fully performed shall
survive until fully performed. In the case of any dispute concerning whether the
condition stated in the immediately preceding sentence has been satisfied as of
any time, the opinion of an independent law firm of nationally recognized
standing selected by the Majority Stockholders reasonably satisfactory to the
Company shall be final and conclusive. The Company will pay the fees and expense
of such law firm.
Section 7.4 Certain Mergers and Other Events. If the Company proposes to
consummate any consolidation, merger, binding share exchange or reorganization
in which the Company is not the continuing corporation or any sale, conveyance,
transfer or lease to another Person of the properties and assets of the Company
as an entirety or substantially as an entirety and if, as a result of or in
connection with such transaction, the Stockholders would receive or would be
entitled to receive, in exchange for or otherwise with respect to the
Registrable Shares held by them, any common stock, other capital stock or other
securities of the successor or acquiring corporation or any Affiliate thereof or
any Rights for any such common stock, capital stock or other securities, then
the Company shall not consummate such transaction unless the successor or
acquiring Person (as the case may be) shall, in a manner reasonably satisfactory
to the Majority Investors, grant to the Stockholders registration rights which
shall be no less favorable to the Stockholders than the provisions of this
Agreement. In the event of (i) any reclassification, reorganization or change of
the outstanding shares of Common Stock or other capital stock of the Company,
(ii) any consolidation, merger, binding share exchange or reorganization to
which the Company is party (other than a consolidation, merger, share exchange
or reorganization in which the Company is the continuing corporation and which
does not result in any reclassification of or change in the Registrable Shares
of any class, series or type), (iii) any event which results in the securities
deliverable upon exercise or conversion of any Common Stock Rights referred to
in the definitions of Registrable Shares in Section 1.1 consisting of or
including any securities other than shares of
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Common Stock, or (iv) any other event of any kind occurs which results in a
change in the securities constituting or included in the Registrable Shares
immediately before such event, then the Stockholders shall be entitled to
registration rights with respect to all such securities issued or issuable to
them by reason thereof which are comparable in all material respects to those
provided for herein with respect to Registrable Shares. In the event any dispute
relating to this Section 7.4 shall arise, then such dispute shall promptly
thereafter be submitted for resolution by an independent law firm of recognized
national standing selected by the Company and reasonably acceptable to the
Majority Investors (acting as provided above in this Section), whose decision
(with the advice of an independent investment banking firm of recognized
national standing selected by such law firm, if such law firm believes it
advisable to seek such advice) shall be final and conclusive. The reasonable
fees and expenses of such law firm (and of any such investment banking firm)
shall be paid by the Company.
Section 7.5 Terms Generally; Certain Rules of Construction. The
definitions of terms contained in this Agreement shall apply equally to both the
singular and plural forms of the terms defined and words in the singular include
the plural and words in the plural include the singular. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation." The words "herein", "hereof" and
"hereunder" and words of similar import refer to this Agreement in its entirety
and not to any part hereof unless the context shall otherwise require. All
references herein to Sections shall be deemed references to Sections of this
Agreement unless the context shall otherwise require. Unless otherwise expressly
provided herein or unless the context shall otherwise require, any references as
of any time to any agreement or other Contract, instrument or document or to any
statute or regulation or any specific section or other provision thereof are to
it as amended and supplemented through such time (and, in the case of a statute
or regulation or specific section or other provision thereof, to any successor
of such statute, regulation, section or other provision). Any reference herein
to a "day" or number of "days" (without the explicit qualification of
"Business") shall be interpreted as a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then such
action or notice shall be deferred until, or may be taken or given on, the next
Business Day. Unless otherwise expressly provided herein or unless the context
shall otherwise require, any provision of this Agreement using a defined term
(by way of example and without limitation, such as "Shareholders") which is
based on a specified characteristic, qualification, feature or status shall, as
of any time, refer only to such Persons who have the specified characteristic,
qualification, feature or status as of that particular time. For purposes of
this Agreement, (i) any acquisition or transfer of any Rights to subscribe for,
purchase or otherwise acquire any Registrable Shares shall also constitute an
acquisition or transfer or proposed transfer of the Registrable Shares issuable
upon the exercise, exchange or conversion thereof and (ii) any Person who holds
any Right to subscribe for, purchase or otherwise acquire any Common Stock,
Registrable Shares or other securities shall be deemed to hold all such Common
Stock, Registrable Shares or other securities which then would be issuable if it
were assumed that such Right were then duly exercised, exchanged or converted in
full. When used with reference to any Right, the term "exercise" shall mean to
exercise the right to exchange or convert such Right for
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or into, subscribe for, purchase or otherwise acquire shares of Common Stock
represented by such Right, and variants of such word (including "exercised" and
"exercisable") shall have correlative meanings.
Section 7.6 Determinations Generally. Unless otherwise expressly provided
herein, all decisions and determinations required or permitted to be made
hereunder by any Stockholder, (including any decision as to whether to give any
consent or approval) shall be made by such Person in its sole discretion.
Section 7.7 Communications. All notices and other communications required
or permitted by this Agreement shall be in writing, and (i) if to the Company,
to The Mentus Group, Inc., 9531 West 78th Street, Minneapolis, MN 55344,
Attention: Chairman, or to such other address as the Company may designate in a
written notice to each Stockholder, (ii) if to any Investor, to such Investor at
such Investor's address appearing on Schedule 1 hereto or supplied by such
Investor in writing to the Company for the purpose of such notice or (iii) if to
any Shareholder's address appearing on Schedule 2 hereto or supplied by such
Shareholder in writing to the Company for purpose of such notice. All notices
and other communications required or permitted by this Agreement shall be deemed
to have been duly given if personally delivered to the intended recipient at the
proper address determined pursuant to this Section 7.7 or sent to such recipient
at such address by registered or certified mail, return receipt requested,
Express Mail, Federal Express or similar overnight delivery service for next
Business Day delivery or by telegram, telex or facsimile transmission and will
be deemed given, unless earlier received: (1) if sent by certified or registered
mail, return receipt requested, five calendar days after being deposited in the
United States mail, postage prepaid; (2) if sent by Express Mail, Federal
Express or similar overnight delivery service for next Business Day delivery,
the next Business Day after being entrusted to such service, with delivery
charges prepaid or charged to the sender's account; (3) if sent by telegram or
telex or facsimile transmission, on the date sent and (4) if delivered by hand,
on the date of delivery. The Company shall, promptly upon request of any Person
required or permitted to give any notice or other communication hereunder to any
holders of the Subject Shares supply to such Person the most recent addresses of
such holders as they appear in the Company's records.
Section 7.8 Binding Effect; Successors and Assigns; Entire Agreement.
Except as expressly provided in this Agreement, nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon or give any
Person (including creditors, stockholders and Affiliates of the Company) other
than the parties and the Persons who from time to time are Stockholders any
remedy or claim under or by reason of this Agreement or any term, covenant or
condition hereof, all of which shall be for the sole and exclusive benefit of
the parties. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the Company and the Persons who from time to
time are Stockholders and their respective successors. Except as otherwise
specifically permitted or contemplated by this Agreement, neither this Agreement
nor any of the rights, interests or obligations of the Company hereunder shall
be assigned or delegated without the prior written consent of the Majority
Investors. The provisions of Article VI shall inure to the benefit of, and be
enforceable by, each of the Stockholder Indemnified Parties and the Company
Indemnified Parties. This Agreement constitutes the entire agreement of the
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parties with respect to the subject matter herein and supersede all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the specific subject matter hereof. Without limiting the
generality of the foregoing, each Stockholder which is or may be entitled, by
law or Contract or otherwise, to any registration rights (other than those
granted by this Agreement) with respect to any shares of Common Stock, Rights or
other securities at any time or from time to time issued by the Company hereby
agrees that all such rights are hereby terminated and this Agreement supersedes
each and every such Contract of which such Stockholder is presently a party or
beneficiary.
Section 7.9 Governing Law; Consent to Jurisdiction; Service of Process.
(a) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York, regardless of the laws that
might be applicable under principles of conflicts of law except to the extent
that Delaware General Corporate Law mandatorily applies.
(b) To the fullest extent permitted by applicable law, each party
hereto hereby irrevocably and unconditionally (i) submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State or Federal
court sitting in New York City (and of any appellate court to which an appeal of
any judgment, order, decree or decision of any such court may be taken) in any
suit, action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment rendered in any such suit, action or
proceeding, (ii) waives any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding in any such court,
including any claim that any such suit, action or proceeding has been brought in
an inconvenient forum, (iii) waives all rights to a trial by jury in any such
suit, action or proceeding, and (iv) waives personal service of any summons,
complaint or other process by any means, manner or method other than in the
manner provided for the giving of notices to such party in Section 7.7 and
agrees that any process served upon such party in such manner provided for in
Section 7.7 shall have the same validity and legal force and effect as if served
upon such party personally within the State of New York. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
Section 7.10 Interpretation. The headings of the articles and sections
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect the meaning or
interpretation of this Agreement.
Section 7.11 No Implied Waivers. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party or beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any agreements, covenants,
obligations or commitments contained herein or made pursuant hereto. The waiver
by any party of a breach or benefit of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or succeeding breach and no
failure by any party or
32
<PAGE>
beneficiary to exercise any right, privilege or remedy hereunder shall be deemed
a waiver of such party's or beneficiary's rights, privileges or remedies
hereunder or shall be deemed a waiver of such party's or beneficiary's rights to
exercise the same at any subsequent time.
Section 7.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 7.13 Further Assurances. Each party shall cooperate and take such
actions as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby. The obligations of the Company with respect to the Registrable Shares of
any Stockholder included in any Demand Registration or Piggyback Registration
are subject to the compliance by such Stockholder with the immediately preceding
sentence, but the failure of any Stockholder to so comply shall not affect the
Company's obligations with respect to the Registrable Shares of any other
Stockholder included therein.
Section 7.14 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby; provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a final judgment of a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
the invalid, void or unenforceable provision and if such court shall fail or
decline to do so, the parties shall negotiate in good faith a suitable and
equitable substitute provision. To the extent that any provision shall be
judicially unenforceable in any one or more states, such provision shall not be
affected with respect to any other state, each provision with respect to each
state being construed as several and independent.
Section 7.15 Specific Performance. The parties agree that the provisions
of this Agreement shall be specifically enforceable, it being agreed by the
parties that the remedy at law, including monetary damages, for breach of such
provisions will be inadequate compensation for any loss and that any defense in
any action for specific performance that a remedy at law would be adequate is
waived.
Section 7.16 Facsimile Signatures. This Agreement may be executed and
delivered through facsimile signature.
Section 7.17 Additional Shareholders. Subject to the prior written consent
of the Majority Investors, but without the necessity of the consent or approval
of any other party to this Agreement or any other Person, any of the Persons
named on Schedule 3.4 hereto may become a party to this Agreement and a
"Shareholder" hereunder by executing and delivering to the Company and the
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<PAGE>
Investors a written instrument, in form and substance reasonably satisfactory of
the Majority Investors, by which such Person agrees to become a party to this
Agreement bound by all of the provisions hereof applicable to a Shareholder and
terminates all other rights, if any, which such Person may have with respect to
the registration or qualification under federal or state securities laws of
shares of Common Stock or other securities of the Company.
(Signatures continued on the next page)
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
THE MENTUS GROUP, INC.
By: ___________________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a
General Partner
By: ___________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a
General Partner
By: ___________________________________
Michael J. Marocco
President
35
<PAGE>
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By: ___________________________________
Michael J. Marocco
President
[Other parties to be inserted]
36
<PAGE>
Exhibit 10.1(f)
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is dated as of
August 29, 1997 and is made and entered into by and among the undersigned
parties (this "Amendment").
Recitals
All of the undersigned parties, except Pulitzer Publishing Company
(the "New Investor"), are the parties to a certain Registration Rights
Agreement, dated as of September 25, 1996 (the "Registration Rights Agreement"),
relating to Mentus Media Corp., a Delaware corporation formerly named The Mentus
Group, Inc. (the "Company").
Pursuant to one or more Stock Purchase Agreements, dated as of the
date hereof, the Company is selling to certain purchasers, including the New
Investor, shares of the Series C Senior Cumulative Compounding Convertible
Redeemable Preferred Stock, par value $1.00 per share, of the Company.
Such purchasers have advised the Company that the conditions to
their willingness to purchase such shares include the admission of the New
Investors as parties to and certain amendments of the Registration Rights
Agreement.
Therefore, in order to induce each such purchaser to purchase such
shares to be purchased by it, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Certain Defined Terms. Unless otherwise expressly defined
in this Amendment, capitalized terms used in this Amendment have the respective
meanings assigned to them in the Registration Rights Agreement.
Section 2. Amendments to the Registration Rights Agreement. The
undersigned parties who are parties to the Registration Rights Agreement hereby
agree that, effective as of the date hereof, the Registration Rights Agreement
is hereby amended as follows:
(a) The definition of "Initial Investors" in Section 1.1 of the
Registration Rights Agreement is hereby amended to read in its entirety as
follows:
"'Initial Investors' means each of the entities named in the
first paragraph of this Agreement as an 'Initial Investor' and the
New Investor."
<PAGE>
(b) The definition of "Registrable Shares" in Section 1.1 of the
Registration Rights Agreement is amended by substituting "Senior" for the word
and letter "Series B" in each place such word and letter appear in such
definition.
(c) Clause (ii) of the definition of "Registrable Shares" in Section
1.1 of the Registration Rights Agreement is amended by substituting the term
"Initial Shareholder" for the term "Investor" in each of the two places it
appears in such clause.
(d) Section 1.1 of the Registration Rights Agreement is hereby
further amended by adding thereto, in the proper alphabetical order, the
following additional defined terms:
"Co-Investment Agreement" means a stock purchase agreement
pursuant to which Lazard, Freres & Co., any of its Affiliates or one
or more other Persons designated by it and reasonably acceptable to
the Company (collectively, "Lazard") acquires shares of the Series C
Preferred Stock after the date of the closing under the Series C
Purchase Agreement and that is substantially in the form of the
Series C Purchase Agreement and provides for the purchase and sale
of such number of shares of Series C Preferred Stock for such price,
at such time and on such terms and conditions as may be approved by
a majority of the Board of Directors of the Company, which majority
includes the Series B Director, in each case as the same may be
amended from time to time in accordance with its terms and with the
prior written consent of the Majority Investors.
"New Investor" means Pulitzer Publishing Company.
"Senior Stock" means the Series B Preferred Stock or the
Series C Preferred Stock.
"Series C Preferred Stock" means the Series C Senior
Cumulative Compounding Convertible Redeemable Preferred Stock, par
value $1.00 per share, of the Company.
"Series C Purchase Agreement" means that certain Stock
Purchase Agreement among the Company, the original Initial Investors
and the New Investor pursuant to which such original Initial
Investors and the New Investor originally acquired shares of Series
C Preferred Stock, as the same may be amended from time to time in
accordance with its terms.
(e) The last sentence of Section 3.2(b) of the Registration Rights
Agreement is amended by substituting "Piggyback" for the word "Incidental"
appearing in such Section.
2
<PAGE>
(f) Section 5.1 of the Registration Rights Agreement is amended by
(i) deleting therefrom the clause "Except as provided in the last sentence of
this Section 5.1," and (ii) capitalizing the first letter of the word "all"
appearing immediately after such deleted clause.
Section 3. Admission of New Investor as Party to the Registration
Rights Agreement. The New Investor hereby agrees to become, effective as of the
date hereof, a party to and a "New Investor," an "Initial Investor" and an
"Investor" under the Registration Rights Agreement, as amended pursuant to
Section 2 hereof, and to be bound by the terms and provisions thereof. Each of
the other parties hereto consents and agrees that, effective as of the date
hereof, the New Investor shall be a party to and a "New Investor," an "Initial
Investor" and an "Investor" under the Registration Rights Agreement, as amended
pursuant to Section 2 hereof, and all shares of Common Stock which are issued or
are or shall become issuable upon conversion of any shares of Series C Preferred
Stock (as defined under Section 2(d) hereof) now owned or hereafter acquired by
any Investor shall be "Registrable Shares" thereunder.
Section 4. Admission of Other Parties to the Registration Rights
Agreement. Each of the individuals named on Schedule 1 to this First Amendment
has, pursuant to one or more separate instruments, agreed to become, effective
as of the date hereof, a party to and an "Initial Shareholder" under the
Registration Rights Agreement, as amended pursuant to Section 2 hereof, and to
be bound by the terms and provisions thereof. Each of the other parties hereto
consents and agrees that, effective as of the date hereof, each of such
individuals shall be a party to and an "Initial Shareholder" under the
Registration Rights Agreement, as amended pursuant to Section 2 hereof.
Section 5. Subsequent Purchase of Series C Shares. The parties
anticipate that the Company will enter into a stock purchase agreement pursuant
to which Lazard (as defined under Section 2(d) above) acquires shares of the
Series C Preferred Stock after the date hereof. In the event that such
acquisition occurs pursuant to a stock purchase agreement that qualifies as a
Co-Investment Agreement (as such term is defined under Section 2(d) of this
First Amendment), the parties agree as follows:
(i) Lazard may become a party to, and an "Initial Investor"
and an "Investor" under the Registration Rights Agreement, as
amended, by executing and delivering to the Company and each of the
other parties to the Registration Rights Agreement, an instrument
pursuant to which Lazard agrees to be a party thereto and an
"Initial Investor" and an "Investor" under the Registration Rights
Agreement, as amended, without the necessity of any consent or
action by the parties hereto.
(ii) All shares of Common Stock which are issued or are or
shall become issuable upon conversion of any shares of Series C
Preferred Stock purchased pursuant to such agreement or thereafter
acquired by Lazard shall be "Registrable Shares" under the
Registration Rights Agreement.
3
<PAGE>
(iii) If Lazard so agrees to become a party to the
Registration Rights Agreement, then the Registration Rights
Agreement shall be deemed to be amended, without further action by
the parties, to add Lazard as an "Initial Investor" and an
"Investor" under the Registration Rights Agreement.
Section 6. Reaffirmation. The undersigned parties hereby acknowledge
that the Stockholders' Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
[Signature pages follow]
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this First Amendment to Registration Rights Agreement as of the date first above
written.
MENTUS MEDIA CORP.
By:______________________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By:SANDLER INVESTMENT PARTNERS,
L.P., General Partner
By:SANDLER CAPITAL MANAGEMENT,
General Partner
By:MJM MEDIA CORP., General Partner
By:______________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
T-E PARTNERS, L.P.
By:SANDLER INVESTMENT PARTNERS,
L.P., General Partner
By:SANDLER CAPITAL MANAGEMENT,
General Partner
5
<PAGE>
By:MJM MEDIA CORP., General Partner
By:______________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By:SANDLER INVESTMENT PARTNERS,
L.P., General Partner
By:SANDLER CAPITAL MANAGEMENT,
General Partner
By:MJM MEDIA CORP., a General Partner
By:______________________________________
Michael J. Marocco
President
PULITZER PUBLISHING COMPANY
By:______________________________________
Name:
Title:
6
<PAGE>
SCHEDULE 1
Timothy P. Hartman
James P. Sheehan
James Stone
David Voelker
George Voelker
7
<PAGE>
Exhibit 10.1(h)
PREEMPTIVE RIGHTS AGREEMENT
This Preemptive Rights Agreement (this "Agreement") is entered into as of
September 25, 1996, between The Mentus Group, Inc., a Delaware corporation (the
"Company"), and 21st Century Communications Partners, L.P., a Delaware limited
partnership, 21st Century Communications T-E Partners, L.P., a Delaware limited
partnerships and 21st Century Communications Foreign Partners, L.P., a Delaware
limited partnership (collectively, the "Initial Investors").
WHEREAS, the Company and the Investors have entered into certain
Stock Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which, among other things, the Investors are purchasing
from the Company, simultaneously with the execution and delivery of this
Agreement on the date hereof, certain newly issued securities of the Company;
WHEREAS, a condition to the execution and delivery of and the
consummation of the transactions contemplated by the Purchase Agreement is the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Unless the context requires otherwise,
capitalized terms used in this Agreement will have the meanings set forth below:
"Act" means the Securities Act of 1933, as amended or any successor
federal statute, and (unless the context otherwise indicates) the rules and
regulations of the Commission promulgated hereunder, as they each may, from time
to time, be in effect.
"Affiliate" of a Person means any other Person that controls, is
controlled by or is under common control with, such Person. For purposes of this
definition, "control" means the ownership, directly or indirectly, of equity
securities or other ownership interests in a Person by another Person, which
represent the right to elect at least a majority of the directors (or similar
officials) of such Person or the power to direct or cause the direction of the
management and policies of such Person, whether by ownership of voting
securities, contract or otherwise. For purposes of this Agreement, any Investor
or group of Investors (whether or not affiliated with or otherwise related to
each other and whether or not acting in concert with respect to any matter or
matters) shall not be deemed an Affiliate of the Company or any of its
Affiliates by reason of the ownership of any shares of capital stock of the
Company or by reason of the possession or exercise of the right to elect
<PAGE>
directors of the Company or any other rights hereunder under any other
Transaction Document or otherwise.
"Agreement" shall be as defined in the introductory paragraphs.
"Board" means the Company's board of directors.
"Business Day" means any day other than a Saturday or Sunday or a
day on which banking institutions in New York, New York or Minneapolis,
Minnesota are closed for business.
"Common Stock" means the Common Stock, $.01 par value per share, of
the Company and any capital stock into which such Common Stock may thereafter be
changed, the capital stock of the Company of any other class (regardless of how
denominated) which is also not preferred as to dividends or assets on
liquidation over any other class of capital stock of the Company and which is
not subject to redemption and except where the context otherwise indicates,
shares of common stock or equivalent equity interests of any successor or
acquiring entity received by or distributed to the holders of Common Stock of
the Company in the circumstances contemplated by Section 7.4 of the Registration
Rights Agreement.
"Common Stock Rights" shall mean any Rights to subscribe for,
purchase or otherwise acquire any share or shares of Common Stock.
"Company" shall be as defined in the introductory paragraphs.
"Fair Market Value" means, as to any securities or other assets or
property, the price at which a willing seller would sell and a willing buyer
would buy such securities, assets or property having full knowledge of the
facts, in an arm's-length transaction without time constraints, and without
being under any compulsion to buy or sell.
"HSR Act" has the meaning set forth in the Purchase Agreement.
"Initial Investors" shall be as defined in the introductory
paragraphs.
"Investors" means:
(i) Each Initial Investor;
(ii) any Qualified Institutional Investor who (A) at any time
acquires any Series B Preferred Stock, Common Stock or any Rights to
acquire Common Stock directly or indirectly from any Initial
Investor or an Affiliate of an Initial Investor, (B) is designated
by the transferor Investor, with the consent of a the Investor
Representative, as an "Investor" in a written designation delivered
to the Company
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<PAGE>
and (C) by written instrument reasonably satisfactory to the
Investor Representative and the Company, becomes a party to this
Agreement as an "Investor" hereunder;
(iii) any Affiliate of any Investor under clause (i) or (ii)
who (A) at any time acquires any Series B Preferred Stock, Common
Stock or any Rights to acquire Common Stock directly or indirectly
from such Investor, (B) is designated by the transferor Investor,
with the consent of a the Investor Representative, as an "Investor"
in a written designation delivered to the Company and (C) by written
instrument reasonably satisfactory to the Investor Representative
and the Company, becomes a party to this Agreement as an "Investor"
hereunder; and
(iv) in the case of any Investor which is a corporation,
partnership or other Entity, any stockholders, partners or other
owners of such Entity (or any liquidating or similar trust for their
benefit) to whom any Series B Preferred Stock, Common Stock or
Rights to acquire Common Stock held by such Entity are distributed
or transferred in connection with the liquidation, dissolution or
winding up of such Entity or any other required distribution
pursuant to the provisions of the organizational or other governing
document of such Entity.
"Investor Representative" has the meaning set forth in the
Stockholders' Agreement.
"Issue Date" shall mean the date hereof.
"Majority Investors" means, as of any time, any Investor who holds,
or Investors who hold in the aggregate, at least a majority of the aggregate
number of shares of Common Stock then held by all Investors, determined
consistently with Section 2.1.
"New Securities" means any shares of Common Stock or any Common
Stock Rights proposed to be issued or sold by the Company at any time or from
time to time.
"New Securities Purchaser" has the meaning set forth in Section 2.1.
"Number of Common Shares Outstanding" has the meaning set forth in
Section 2.1.
"Person" means a human being or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Preissuance Notice" shall be a written notice given to the
Investors pursuant to Section 2.1 no later than ten (10) Business Days prior to
the date the Company plans to issue New Securities. Each Preissuance Notice
shall (i) specify the kind and amount of New Securities proposed to be issued,
(ii) if such New Securities consist of or include Common Stock Rights, briefly
describe the terms of such Common Stock Rights, (iii) identify each Person to
whom such New Securities are proposed to be issued (each a "New Securities
Purchaser"), if then known by the
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<PAGE>
Company, (iv) state the method or manner of issuance, (v) state the kind(s) and
amount(s) of consideration for which such New Securities are proposed to be
issued and the Board's determination of the Fair Market Value of any such
consideration other than cash, (vi) describe any agreement or transaction
between the Company or any of its direct or indirect Affiliates and the New
Securities Purchaser or any of its direct or indirect Affiliates which was
entered into or consummated at any time within the past year or is proposed to
be entered into or consummated, (vii) state that the Company has informed each
New Securities Purchaser of the existence and requirements of Article II and
that each New Securities Purchaser has agreed that any issuance of New
Securities to such New Securities Purchaser will be subject to the rights of the
Holders pursuant to Article II and (viii) describe the other material terms and
conditions of the proposed issuance of New Securities.
"Purchase Agreement" shall be as defined in the introductory
paragraphs.
"Qualified Institutional Investor" means any Person described in
paragraph (a)(1) of Rule 501 under Regulation D promulgated under the Securities
Act or any affiliate of such Person.
"Qualified IPO" shall be as defined in the Stockholders Agreement.
"Qualifying Rights" means, as of any time, shares of the Series B
Preferred Stock and all other Common Stock Rights which, by their terms, are
exercisable for shares of Common Stock only upon the payment, conversion,
surrender, exchange or delivery by the holder of additional consideration in
cash or property in an amount or having a Fair Market Value per share of Common
Stock which, as of such time, is equal to or less than the Fair Market Value per
share of the Common Stock determined as of such time. Notwithstanding the
foregoing, "Qualifying Rights" shall include any rights to acquire Common Stock
granted to Thomas Pugliese or Gerard Joyce pursuant to their Employment
Agreements with the Company, as amended through and in effect on the date
hereof.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the date hereof between the Company, the Investors and
certain stockholders of the Company as such agreement may be amended from time
to time in accordance with its terms.
"Rights" has the meaning set forth in the Registration Rights
Agreement.
"Series B Preferred Stock" means the Series B Senior Cumulative
Compounding Convertible Redeemable Preferred Stock, par value $1.00 of the
Company.
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<PAGE>
"Transaction Documents" has the meaning set forth in the Purchase
Agreement.
ARTICLE II
PREEMPTIVE RIGHTS
Section 2.1 Issuance of New Securities. If and whenever the Company issues
any New Securities except as provided in Section 2.4 or Section 2.6, each
Investor will have the right, but not the obligation, to purchase such New
Securities up to an amount sufficient to permit it to maintain its percentage
common equity interest in the Company (based on the Number of Common Shares
Outstanding existing immediately prior to the issuance of the New Securities).
The "Number of Common Shares Outstanding" as of any time means the sum of (i)
the number of shares of Common Stock which then are actually issued and
outstanding, plus (ii) the total number of additional shares of Common Stock
which would then be issued and outstanding if it were assumed that all
Qualifying Rights, if any, then held by the Investors and other holders of
Qualifying Rights were then duly exercised in full (whether or not then
exercisable). For purposes of this Agreement, each Investor shall be deemed to
hold, as of any time, (i) all issued and outstanding shares of Common Stock then
held by such Investor, (ii) all additional shares of Common Stock which would
then be held by such Investor if it were assumed that all Qualifying Rights, if
any, then held by such Investor had been duly and effectively exercised in full
at and effective as of such time (whether or not then exercisable by their
terms), (iii) all shares of Common Stock, if any, which such Investor then has a
right to purchase pursuant to this Article II by virtue of any prior exercise of
Investor's preemptive right pursuant to this Article II, in the case of clause
(ii) assuming that all adjustments to the kind, number and amount of shares of
capital stock or other securities issuable upon exercise, exchange or conversion
of any Qualifying Rights referred to in such clause required by reason of any
event or transaction occurring at or prior to such time had been duly and
effectively made as and when required by the terms thereof. If the Company
desires to issue New Securities, it will first give Preissuance Notice thereof
to each Investor stating the number of New Securities proposed to be issued, the
total consideration to be received by the Company upon sale of the New
Securities and any other material terms of the transaction. Within 10 Business
Days after the receipt of such Preissuance Notice, each Investor may exercise
its rights under this Section 2.1 by giving written notice to that effect to the
Company. Failure to give such notice within that 10 Business Days period or
failure to pay at the required time the purchase price for any New Securities as
to which a right to purchase will have been exercised will constitute a waiver
of the rights granted by this Section 2.1 as to the particular issuance of New
Securities specified in the Company's Preissuance Notice.
Section 2.2 Per Share Price; Valuations. The per share purchase price to
be paid upon exercise of the rights granted under this Article II will be equal
to the lowest per share consideration at which the New Securities are offered or
proposed to be offered by the Company to any New Securities Purchaser. The
consideration for which New Securities are offered or proposed to be offered
will be determined as follows: (i) in case of the proposed issuance of New
Securities for cash, the consideration to be received by the Company will be the
amount of cash for which the New
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<PAGE>
Securities are proposed to be issued and (ii) in case of the proposed issuance
of New Securities in whole or in part for consideration other than cash, the
value of the consideration to be received by the Company other than cash will be
the Fair Market Value of that consideration as determined by the Board of
Directors of the Company. If any Investor within five (5) days of receipt of any
Preissuance Notice notifies the Company in writing that it objects to any
statement of the Fair Market Value of any security or other property contained
therein, the Company and the Investors shall attempt in good faith to agree on
the Fair Market Value of such security or other property. If they are unable to
so agree within five (5 ) Business Days after such notice of objection was
given, then within five (5) Business Days thereafter, the Company and the
Majority Investors shall select one appraiser and the Company and the Majority
Investors shall submit to such appraiser (and each other) a brief written
statement of their position regarding the matter in dispute and supporting
arguments, and each shall be given a period of five (5) Business Days thereafter
to submit to the other and to the appraiser a written response to such written
statement of the other. Such appraiser shall within fifteen (15) days of the
date of its selection, resolve such dispute by choosing either the position of
the Company set forth in such written statement so submitted by the Company or
the position of the Investors set forth in such written statement so submitted
by the Majority Investors, whichever in the opinion of the appraiser, in its
sole discretion, is more consistent with the purposes and intent of this
Agreement. Decisions with respect to such determination made pursuant to this
Section 2.2 by the Majority Investors shall be binding on all Investors. Any
determination of Fair Market Value for purposes of this Article II by agreement
of the Company and the Majority Investors or by an appraiser appointed as
provided in this Section 2.2 shall be final and binding on the Company, and each
Investor for all purposes of this Article II. Promptly after any final
determination of Fair Market Value pursuant to this Section 2.2, the Company
shall give each Investor a written notice stating such Fair Market Value. Each
appraiser shall be a nationally recognized appraiser or investment banking firm
which has substantial experience in making appraisals similar to that being
made, which is not directly or indirectly affiliated with the Company or any
other Person who is a party to or otherwise interested in the event resulting in
the need for such appraisal and which has no interest (other than the receipt of
customary fees) in such event. In the event the appraiser agrees with the
written statement submitted by the Investors, the fees and expenses of any
appraiser appointed in connection with an appraisal pursuant to this Article II
shall be paid by the Company. In the event the appraiser agrees with the written
statement submitted by the Company, the fees and expenses of any appraiser
appointed in connection with an appraisal pursuant to this Article II shall be
paid by the Investors.
Section 2.3 Representations, Warranties and Certain Covenants. In
connection with each issuance of New Securities to any Investor pursuant to this
Article II, the Company shall, in the event the Company is making
representations, warranties and/or covenants to the New Securities Purchaser,
make to each Investor such representations, warranties, and covenants as are
customarily made by issuers in similar instances (but which in no event shall be
less favorable to the Investors than those contemplated by the Preissuance
Notice or otherwise made to or for the benefit of any New Securities Purchaser)
and each Investor shall be separately and independently entitled to rely on such
representations and warranties, to the benefit of such covenants and to exercise
all available rights and remedies in the event of any breach or violation of any
such representations, warranties
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<PAGE>
and covenants. Any representations and warranties made by an Investor shall
consist solely of such representations and warranties relating to (i) such
Investor's authority to consummate the purchase of the New Securities from the
Company and (ii) other similar representations and warranties as are customarily
given by similarly situated purchasers of securities similar to those being
purchased by an Investor in a similar transaction but no Investor shall be
required to give any such representation or warranty which the New Securities
Purchaser does not give. The representations, warranties, covenants and
agreements of each Investor shall be several and not joint and the
representations and warranties of the Investor and of the Company (unless, in
the case of the Company, otherwise required by the New Securities Purchasers)
and shall terminate upon the earlier of (i) the termination of any
representation or warranty made by the New Securities Purchaser or by the
Company and (ii) one year after closing. The right of each Investor to purchase
the full number of New Securities which such Investor is entitled to purchase
under this Article II shall not be subject to any conditions whatsoever, other
than the payment of the purchase price therefor determined as provided herein,
and the consummation of the transaction between the Company and the New
Securities Purchaser. If any Investor shall fail for any reason to purchase any
New Securities which it has elected to purchase, the sole right, remedy and
recourse of the Company, the New Securities Purchaser, and the complying
Investors, as the case may be, shall be the right of the Company to issue to the
New Securities Purchaser and the other Investors, pro rata based on their
respective participations in the transaction as determined pursuant to Section
2.1, additional New Securities equal in kind and number or other relevant amount
to the New Securities which such Investor failed to purchase at the closing, in
which event the Majority Investors may elect to postpone the closing for five
(5) Business Days. Unless the Company and any Investor otherwise agree, the
closing of any issuance of New Securities to any Investor pursuant to this
Article II shall take place at the principal executive offices of the Company at
11:00 A.M., local time, on the later of (i) the thirtieth (30th) day following
the expiration of the period of fifteen (15) Business Days after the later of
(A) the date of the relevant Preissuance Notice was given and (B) the date all
disputes as to the valuations have been resolved and (ii) the fifteenth (15th)
Business Day following the expiration of all applicable waiting periods, if any,
under the HSR Act and the receipt of all consents, approvals and authorizations
from governmental authorities or other Persons which the Majority Investors
believe to be necessary or desirable in connection with the acquisition of the
New Securities to be issued to the Investor. The Company shall execute such
documents and instruments as may be necessary or reasonably requested to
effectuate the issuance of New Securities to any Investor.
Section 2.4 Limitations. The provisions of this Article II will not apply
to (i) shares of Common Stock issued as a stock dividend to all holders of
shares of Common Stock or upon any subdivision or combination of shares of
Common Stock, (ii) securities issued for the acquisition by the Company of
another entity or business by merger or such other transaction as would result
in the ownership by the Company of not less than a majority of the voting power
of the other entity or for the purchase of all the assets of an entity or
business, (iii) shares of Common Stock or Rights that are sold by the Company
pursuant to a bona fide public offering pursuant to a registration statement
filed under the Act, (iv) shares of Common Stock or Rights issued pursuant to
the Company's stock option plans in existence at the date of this Agreement or
other such stock option plans as approved by the Majority Investors in
accordance with the provisions of the Stockholders Agreement, (v) the
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shares of Series B Preferred Stock originally issued as of the Issue Date or any
other Common Stock Rights or any shares of Common Stock issued upon conversion
thereof, (vi) shares of Common Stock issued upon exercise of any Common Stock
Rights as to which the Holders shall have been afforded the opportunity to
exercise their rights of first refusal pursuant to this Article II, (vii) shares
of Common Stock or Rights issued pursuant to the deferred compensation
arrangements between the Company and certain officers of the Company as
disclosed on the Schedule to the Purchase Agreement or (viii) shares of Common
Stock issued upon exercise of Common Stock Rights outstanding on the Issue Date
and disclosed on a schedule to the Purchase Agreement.
Section 2.5 Terms of Payment of Purchase Price. Subject to Section 2.3 and
the rest of this Section, each issuance of New Securities to each Investor must
be on terms not less favorable to such Investor than the most favorable terms on
which the Company issues or proposes to issue in the transaction in connection
with which the preemptive right is being exercised New Securities to any New
Securities Purchaser, any other Investor or any other Person (without
discrimination based on differences in the number or amount of New Securities to
be acquired). Without limiting the generality of the immediately preceding
sentence, (i) each Investor must be given the same options and rights of
election, if any, as to the kind(s) or amount(s) of consideration to be paid or
delivered for New Securities as any other purchaser is given or was proposed to
be given in the Preissuance Notice and (ii) the purchase price to be paid by
each Investor upon exercise of its rights under this Article II will be paid
upon terms which are not less favorable than those on which the New Securities
are sold to any other purchaser, unless those terms provide for payment in a
manner which could not reasonably be duplicated by any Investor, such as the
transfer of specific property to the Company, in which event such payment will
be in cash in an amount equal to the Fair Market Value of such specific property
as determined by the Board of Directors in good faith. The giving of a
Preissuance Notice shall constitute the representation and warranty by the
Company to each Investor that (i) the proposed issuance is not subject to
conditions, contingencies or material terms not disclosed in the Preissuance
Notice or in the accompanying documents delivered therewith; and (ii) neither
the amount or kind of consideration offered by the New Securities Purchaser for
the New Securities nor any other terms of the proposed issuance or of any other
transaction or proposed transaction with the New Securities Purchaser or any of
its Affiliates have been established for the purpose of circumventing,
increasing the cost of exercising or otherwise impairing any Investor's right of
first refusal pursuant to this Article II or increasing the probability that any
Investor's right of first refusal will not be exercised in full.
Section 2.6 Issuance to Others Not Permitted Absent Compliance. If the
Company does not issue and deliver, to each Investor, on on or before the 120th
day after the date the applicable Preissuance Notice with respect to any
proposed issuance of New Securities is given, all New Securities which such
Investor is entitled to be issued in accordance with the provisions of this
Article II for any reason other than the failure of such Exercising Holder to
tender the purchase price therefor if and when required by this Article II, then
the Company shall not be entitled to issue any New Securities pursuant to the
related Preissuance Notice. If, after compliance with Section 2.2, there remains
any portion of the New Securities specified in a Preissuance Notice which have
not been elected to be acquired by one or more Investors, the Company shall be
entitled to issue such
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<PAGE>
remaining portion to the Persons, in the manner and on terms and conditions not
materially more favorable to the purchaser than those specified in such
Preissuance Notice, but only if such issuance is consummated not later than the
120th day after the date such Preissuance Notice was given. If such issuance is
not so consummated within such period, then the Company shall not be entitled to
issue any such New Securities without again complying with the provisions of
this Article II. Notwithstanding the foregoing provisions of this Article II,
unless a binding purchase agreement entered into pursuant to this Article II by
the Company and such Investor otherwise provides, the Company may, without
liability to any Investor, abandon the proposed issuance of New Securities.
Section 2.7 Rights Apply to Each Issuance of New Securities. The
provisions of this Article II shall apply successively to each and every
issuance or proposed issuance of any New Securities.
ARTICLE III
MISCELLANEOUS
Section 3.1 Binding Effect; Assignability. This Agreement and all of the
provisions hereof including the exhibits hereto shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
transferees and executors, administrators and heirs; provided that, except as
otherwise specifically permitted or required pursuant to this Agreement, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by the Company without the prior written consent of the Majority
Investors. Notwithstanding anything in the foregoing to the contrary, any
Initial Investor may at any time or from time to time assign a proportionate
part of its rights, interests or obligations hereunder to any transferee of any
shares of Common Stock or Common Stock Rights held by such Investor provided
that such transferee meets the qualifications set forth under the definition of
"Investor" herein.
Section 3.2 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given unless approved in writing by the Company and the
Majority Investors.
Section 3.3 Governing Law. This Agreement and the validity, interpretation
and performance of the terms and provisions hereof shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the provisions thereof relating to choice or conflict of laws, except to the
extent that the laws of the jurisdiction of incorporation of the Company shall
be mandatorily applicable.
Section 3.4 Interpretation. The headings of the articles and sections
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect the meaning or
interpretation of this Agreement.
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<PAGE>
Section 3.5 Notices. All notices and other communications required or
permitted by this Agreement shall be in writing, and (i) if to the Company, to
The Mentus Group, Inc., 9531 West 78th Street, Minneapolis, MN 55344, Attention:
Chairman, or to such other address as the Company may designate in a written
notice to the Investor Representative or (ii) if to any Investor, to the
Investor Representative at such address as the Investor Representative may from
time to time specify by written notice to the Company. All notices and other
communications required or permitted by this Agreement shall be deemed to have
been duly given if personally delivered to the intended recipient at the proper
address determined pursuant to this Section 3.5 or sent to such recipient at
such address by registered or certified mail, return receipt requested, Express
Mail, Federal Express or similar overnight delivery service for next Business
Day delivery or by telegram, telex or facsimile transmission and will be deemed
given, unless earlier received: (1) if sent by certified or registered mail,
return receipt requested, five calendar days after being deposited in the United
States mail, postage prepaid; (2) if sent by Express Mail, Federal Express or
similar overnight delivery service for next Business Day delivery, the next
Business Day after being entrusted to such service, with delivery charges
prepaid or charged to the sender's account; (3) if sent by telegram or telex or
facsimile transmission, on the date sent and (4) if delivered by hand, on the
date of delivery.
Section 3.6 No Implied Waivers. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein or made pursuant hereto. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party to exercise any right or privilege hereunder shall be deemed a waiver
of such party's rights or privileges hereunder or shall be deemed a waiver of
such party's rights to exercise the same at any subsequent time or times
hereunder.
Section 3.7 Entire Agreement. This Agreement (together with the Schedules
hereto) and the other Transaction Documents constitutes the entire agreement of
the parties with respect to the specific subject matter hereof, and supersedes
all prior agreements and undertakings, both written and oral, among the parties
with respect to such specific subject matter.
Section 3.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 3.9 Further Assurances. Each party shall cooperate and take such
actions as may be reasonably requested by another party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section 3.10 Specific Performance; Injunctive Relief. In addition to any
other rights or remedies which may be available at law, in equity or by
contract, any Investor shall be entitled to obtain in any court of competent
jurisdiction specific performance of, or an injunction or other order
restraining any act or proposed act by the Company or any Investor which would
result in a violation
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<PAGE>
of, any of the terms or provisions of any of the Company's or such Investor's
covenants, agreements or obligations hereunder, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of such provision
will be inadequate compensation for any loss and that any defense in any action
for specific performance that a remedy at law would be adequate is waived. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any other rights or remedies which any party would otherwise have pursuant to
any other Transaction Document, at law, in equity, by statute or otherwise.
Section 3.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided, that if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a court of competent jurisdiction, then such court may
substitute therefor a suitable and equitable provision in order to carry out, so
far as may be valid and enforceable, the intent and purpose of the invalid, void
or unenforceable provision and, if such court shall fail to decline to do so,
the parties shall negotiate in good faith in an effort to agree upon such a
suitable and equitable provision. To the extent that any provision shall be
judicially unenforceable in any one or more states, such provision shall not be
affected with respect to any other state, each provision with respect to each
state being construed as several and independent.
Section 3.12 Rights and Obligations Several, Not Joint. No Investor shall
have any obligation or liability with respect to any other Investor's
liabilities or obligations hereunder, and each Investor shall be separately and
independently entitled to rely on the representations and warranties of each
other party made to the Investors or such Investor in this Agreement to the
benefit of all agreements, covenants, obligations and commitments of each other
party made with or to the Investors or such Investor or herein.
Section 3.13 Consent to Jurisdiction; Service of Process. To the fullest
extent permitted by applicable law, each party hereto hereby irrevocably and
unconditionally (i) submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State or Federal court sitting in New York City
(and of any appellate court to which an appeal of any judgment, order, decree or
decision of any such court may be taken) in any suit, action or proceeding
arising out of or relating to this Agreement or for recognition or enforcement
of any judgment rendered in any such suit, action or proceeding, (ii) waives any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding in any such court, including any claim that any such
suit, action or proceeding has been brought in an inconvenient forum, (iii)
waives all rights to a trial by jury in any such suit, action or proceeding,
(iv) waives personal service of any summons, complaint or other process by any
means, manner or method other than in the manner provided for the giving of
notices to such party in Section 3.5, and agrees that any process served upon
such party in such manner provided for in Section 3.5 shall have the same
validity and legal force and effect as if served upon such party personally
within the State of New York and (iv) if any such party at
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<PAGE>
any time is not a resident of the State of New York, agrees to appoint and
maintain the appointment of an agent in the State of New York as such party's
agent for service and acceptance of legal process in connection with any such
action, suit or proceeding with the same validity and legal force and effect as
if served upon such party personally within the State of New York, and to notify
promptly each other such party of the name and address of such agent.
Section 3.14 Facsimile Signatures. This Agreement may be executed by
facsimile signatures.
Section 3.15 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, and in any action or proceeding
otherwise arising under or with respect to this Agreement, the successful party
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
Section 3.16 Termination of Agreement. This Agreement shall terminate on
the occurrence of a Qualified IPO.
Section 3.17 Terms Generally; Certain Rules of Construction. The
definitions of terms contained in this Agreement shall apply equally to both the
singular and plural forms of the terms defined and words in the singular include
the plural and words in the plural include the singular. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation." The words "herein", "hereof" and
"hereunder" and words of similar import refer to this Agreement in its entirety
and not to any part hereof unless the context shall otherwise require. All
references herein to Sections shall be deemed references to Sections of this
Agreement unless the context shall otherwise require. Unless otherwise expressly
provided herein or unless the context shall otherwise require, any references as
of any time to any agreement or other instrument or document or to any statute
or regulation or any specific section or other provision thereof are to it as
amended and supplemented through such time (and, in the case of a statute or
regulation or specific section or other provision thereof, to any successor of
such statute, regulation, section or other provision). Any reference herein to a
"day" or number of "days" (without the explicit qualification of "Business")
shall be interpreted as a reference to a calendar day or number of calendar
days. If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then such action or
notice shall be deferred until, or may be taken or given on, the next Business
Day. Unless otherwise expressly provided herein or unless the context shall
otherwise require, any provision of this Agreement using a defined term which is
based on a specified characteristic, qualification, feature or status shall, as
of any time, refer only to such Persons who have the specified characteristic,
qualification, feature or status as of that particular time. Whenever used with
respect to any New Security or any other security, the word "issue" includes any
issuance, sale or other method of transfer or delivery thereof, whether such New
Security or other security is newly issued or is a treasury share and variants
of such word (including "issued", "issuance" or "issuable") shall have
correlative meanings. When used with reference to any Right, the term "exercise"
shall mean to exercise the right to exchange or convert such Right for
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<PAGE>
or into, subscribe for, purchase or otherwise acquire shares of Common Stock or
other securities represented by such Right, and variants of such word (including
"exercised" and "exercisable") shall have correlative meanings.
(Signatures continue on the next page)
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<PAGE>
IN WITNESS WHEREOF, this Preemptive Rights Agreement has been signed
by and on behalf of each of the parties hereto, all as of the date first above
written.
THE MENTUS GROUP, INC.
By:_________________________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP., General Partner
By:_________________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP.,
General Partner
By:_________________________________________
Michael J. Marocco
President
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<PAGE>
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By:_________________________________________
Michael J. Marocco
President
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<PAGE>
Exhibit 10.1 (i)
FIRST AMENDMENT TO PREEMPTIVE RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO PREEMPTIVE RIGHTS AGREEMENT is dated as of
August 29, 1997 and is made and entered into by and among the undersigned
parties (this "Amendment").
Recitals
All of the undersigned parties, except Pulitzer Publishing Company
(the "New Investor"), are the parties to a certain Preemptive Rights Agreement,
dated as of September 25, 1996 (the "Preemptive Rights Agreement"), relating to
Mentus Media Corp., a Delaware corporation formerly named The Mentus Group, Inc.
(the "Company").
Pursuant to one or more Stock Purchase Agreements, dated as of the
date hereof, the Company is selling to certain purchasers, including the New
Investor, shares of the Series C Senior Cumulative Compounding Convertible
Redeemable Preferred Stock, par value $1.00 per share, of the Company.
Such purchasers have advised the Company that the conditions to
their willingness to purchase such shares include the admission of the New
Investors as parties to and certain amendments of the Preemptive Rights
Agreement.
Therefore, in order to induce each such purchaser to purchase such
shares to be purchased by it, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Certain Defined Terms. Unless otherwise expressly defined
in this Amendment, capitalized terms used in this Amendment have the respective
meanings assigned to them in the Preemptive Rights Agreement.
Section 2. Amendments to the Preemptive Rights Agreement. The
undersigned parties who are parties to the Preemptive Rights Agreement hereby
agree that, effective as of the date hereof, the Preemptive Rights Agreement is
hereby amended as follows:
(a) The definition of "Initial Investors" in Section 1.1 of
the Preemptive Rights Agreement is hereby amended to read in its entirety
as follows:
"'Initial Investors' means each of the entities named in
the first paragraph of this Agreement as an 'Initial Investor'
and the New Investor."
<PAGE>
(b) Each of the definitions of "Investors", and "Qualifying
Rights" in Section 1.1 of the Preemptive Rights Agreement is amended by
substituting "Senior" for the word and letter "Series B" in each place
such word and letter appear in each such definition.
(c) The definition of "Investors" in Section 1.1 is further amended
by (i) deleting the word "and" at the end of clause (ii) thereof; (ii)
substituting for the phrase "under clause (i) or (ii)" appearing in clause (iii)
thereof the words "under clause (i), (ii), (iv) or this clause (iii)"; (iii) by
adding immediately after the word "Investor" appearing in clause (ii) the phrase
"under clause (i), (ii), (iii) or this clause (iv)"; (iv) by substituting a
semicolon for the period at the end of clause (iv) thereof, inserting the word
"and" immediately after such semicolon and adding a new clause (v) that reads in
its entirety as follows:
"(v) each of the Persons named on Schedule A to this
Agreement, so long as such Person (A) agrees to become a party to
and an Investor under this Agreement pursuant to a written
instrument in form and substance satisfactory to the Majority
Investors and (B) continues to own any shares of Senior Stock or any
shares of Common Stock issued upon conversion of any shares of
Senior Stock formerly held by such Person."
(d) The definition of "Majority Investors" in Section 1.1 is amended
to read in its entirety as follows:
"'Majority Investors'" means, as of any time, any Investor or
Investors who qualify as such under clause (i), (ii) or (iii) of the
definition of 'Investor' in this Section 1.1 and who holds or hold,
in the aggregate, at least a majority of the aggregate number of
shares of Common Stock then held by all Investors who qualify as
such under clause (i), (ii) or (iii) of the definition of 'Investor'
in this Section 1.1, determined consistently with Section 2.1."
(e) The definition of "Transaction Documents" in Section 1.1 of the
Preemptive Rights Agreement is hereby amended to read in its entirety as
follows:
"'Transaction Documents' means any and all of the 'Transaction
Documents' within the definition of such term in the Purchase
Agreement, the Series C Purchase Agreement or any Co-Investment
Agreement."
(f) Section 1.1 of the Preemptive Rights Agreement is hereby further
amended by adding thereto, in the proper alphabetical order, the following
additional defined terms:
<PAGE>
"'Additional Purchase Agreements' means the Stock Purchase
Agreement or Agreements, dated as of the date of the Series C
Purchase Agreement, among the Company and certain purchasers of
Series C Preferred Stock other than the Investors, as the same may
be amended from time to time in accordance with their respective
terms and the terms of the Stockholders Agreement.
"Co-Investment Agreement" means a stock purchase agreement
pursuant to which Lazard, Freres & Co., any of its Affiliates or any
one or more other Persons designated by it and reasonably acceptable
to the Company (collectively, "Lazard") acquire shares of the Series
C Preferred Stock after the date of the closing under the Series C
Purchase Agreement and that is substantially in the form of the
Series C Purchase Agreement and provides for the purchase and sale
of such number of shares of Series C Preferred Stock for such price,
at such time and on such terms and conditions as may be approved by
a majority of the Board of Directors of the Company, which majority
includes the Series B Director, in each case as the same may be
amended from time to time in accordance with its terms and with the
prior written consent of the Majority Investors.
"'New Investor' means Pulitzer Publishing Company."
"'Senior Stock' means the Series B Preferred Stock or the
Series C Preferred Stock."
"'Series C Preferred Stock' means the Series C Senior
Cumulative Compounding Convertible Redeemable Preferred Stock, par
value $1.00 per share, of the Company."
"'Series C Purchase Agreement' means that certain Stock
Purchase Agreement among the Company, the original Initial Investors
and the New Investor pursuant to which such Initial Investors and
the New Investor originally acquired shares of Series C Preferred
Stock, as the same may be amended from time to time in accordance
with its terms."
"'Stockholders Agreement'" means the Stockholders Agreement,
dated
<PAGE>
September 25, 1996, among the Corporation, the original Initial
Investors and certain other stockholders of the Corporation, as
amended by the First Amendment thereto, dated as of the date of the
Series C Purchase Agreement, among the original parties thereto and
the New Investor and as the same may be further amended from time to
time in accordance with its terms.
(g) Clause (vi) of Section 2.4 of the Preemptive Rights
Agreement is amended by substituting the term "Investors" for the word
"Holders" appearing therein.
(h) Section 2.4 of the Preemptive Rights Agreement is further
amended by (i) deleting the word "or" that immediately precedes clause
(viii) thereof and (ii) the following at the end thereof, immediately
after the end of clause (viii) thereof:
"or (ix) the shares of Series C Preferred Stock originally issued
pursuant to the Series C Purchase Agreement, any of the Additional
Purchase Agreements or any Co-Investment Agreement, or any other
Common Stock Rights or any shares of Common Stock issued upon
conversion thereof."
(i) Section 2.6 of the Preemptive Rights Agreement is amended
by substituting the term "Investor" for the term "Exercising Holder"
appearing therein.
(j) The Preemptive Rights Agreement is further amended by
attaching thereto, as Schedule A thereto, the form of Schedule A attached
to this First Amendment.
Section 3. Admission of New Investor as a Party to the Preemptive
Rights Agreement. The New Investor hereby agrees to become, effective as of the
date hereof, a party to and a "New Investor," an "Initial Investor" and an
"Investor" under the Preemptive Rights Agreement, as amended pursuant to Section
2 hereof, and to be bound by the terms and provisions thereof. Each of the other
parties hereto consents and agrees that, effective as of the date hereof, (i)
the New Investor shall be a party to and a "New Investor," an "Initial Investor"
and an "Investor" under the Preemptive Rights Agreement, as amended pursuant to
Section 2 hereof, and (ii) each of the Persons named on Schedule A hereto shall
be a party to and an "Investor" under the Preemptive Rights Agreement if and so
long as such Person qualifies as such under clause (v) of the definition of such
term (as set forth under Section 2(c) hereof).
Section 4. Subsequent Purchase of Series C Shares. The parties
anticipate
<PAGE>
that the Company will enter into a stock purchase agreement pursuant to which
Lazard (as defined under Section 2(d) above) acquires shares of the Series C
Preferred Stock after the date hereof. In the event that such acquisition occurs
pursuant to a stock purchase agreement that qualifies as a Co-Investment
Agreement (as such term is defined under Section 2(d) of this First Amendment),
the parties agree as follows:
(i) Lazard may become a party to, and an "Initial Investor" and an
"Investor" under the Preemptive Rights Agreement, as amended,
by executing and delivering to the Company and each of the
other parties to the Preemptive Rights Agreement, an
instrument pursuant to which Lazard agrees to be a party
thereto and an "Initial Investor" and an "Investor" under the
Preemptive Rights Agreement, as amended, without the necessity
of any consent or action by the parties hereto.
(ii) If Lazard so agrees to become a party to the Preemptive Rights
Agreement, then the Preemptive Rights Agreement shall be
deemed to be amended, without further action by the parties,
to add Lazard as an "Initial Investor" and an "Investor" under
the Preemptive Rights Agreement.
Section 5. Waiver of Preemptive Rights. Each party to this Agreement
who is a party to the Preemptive Rights Agreement hereby waives such party's
right of first refusal, if any, under Article II of the Preemptive Rights
Agreement with respect to all shares of Series C Preferred Stock issued and sold
pursuant to or as expressly provided in Section 2.4 of the Series C Purchase
Agreement, issued pursuant to the Pugliese Employment Agreement Amendment (as
defined in the Series C Purchase Agreement) or issued and sold to Lazard (as
defined under Section 2(d) above) pursuant to a stock purchase agreement that
qualifies as a Co-Investment Agreement (as defined under Section 2(d) hereof),
and all shares of Common Stock and other securities which are or shall become
issuable upon conversion thereof, and also waives compliance with the notice and
other requirements of Article II of the Preemptive Rights Agreement in
connection with such issuance and sale.
Section 6. Reaffirmation. The undersigned parties hereby acknowledge
that the Preemptive Rights Agreement, as amended hereby, remains in full force
and effect and is hereby ratified and confirmed.
[Signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
First Amendment to Preemptive Rights Agreement as of the date first above
written.
MENTUS MEDIA CORP.
By: ________________________________________
Name:
Title:
21ST CENTURY COMMUNICATIONS PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP., General Partner
By: ________________________________________
Michael J. Marocco
President
<PAGE>
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP.,
General Partner
By: ________________________________________
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By: ________________________________________
Michael J. Marocco
President
PULITZER PUBLISHING COMPANY
By: ________________________________________
Name:
Title:
<PAGE>
Exhibit 10.1(j)
JOINDER AGREEMENT
This JOINDER AGREEMENT is made and entered into as of the ___ day of
December, 1995, by and between Stephen Adams ("Adams"), Gerard P. Joyce
("Joyce") and Thomas M. Pugliese ("Pugliese").
R E C I T A L S :
A. Joyce and Pugliese are shareholders, officers and directors of The
Mentus Group, Inc., a Delaware corporation ("Mentus").
B. Adams is acquiring 11,042 shares of common stock of Mentus pursuant to
a Stock Purchase Agreement of even date herewith, and has requested that, if
either Joyce or Pugliese, or both, (individually a "Selling Shareholder" and
collectively, "Selling Shareholders") sell all or any portion of their
stockholdings, Adams has the right to be included in such transaction on the
same terms and conditions as those given the Selling Shareholder or Selling
Shareholders, as the case may be.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and as an inducement for Adams to
enter into the Stock Purchase Agreement, the parties agree as follows:
1. Right to Join in Sale. If one or both of the Selling Shareholders
enters into a transaction for the sale of all or any portion of their Mentus
common stock in any transaction or series of transactions, then Adams shall have
the right (the "Joinder Right") to join in such transaction on the same terms
and conditions as those given such Selling Shareholder. The Joinder Right shall
apply in a given transaction with respect to (and Adams shall have the right to
sell in such transaction) a proportion of Adams' shares that corresponds to the
proportion of the Selling Shareholder's shares (or in the case that both Selling
Shareholders are selling shares into the transaction, a proportion of Adams'
shares that corresponds to the proportion of the Selling Shareholders' combined
shares) that are the subject of the transaction (taking Adams' shares to be sold
in the transaction into consideration in determining the proportion of the
Selling Shareholder's shares to be sold). For example, if Pugliese enters into a
transaction in which Pugliese is to sell a portion of his shares, then Adams
shall have the right to join in the transaction as to a proportion of Adams'
shares equal to the proportion of Pugliese's shares sold in the transaction. For
further example, if Joyce and Pugliese enter into a transaction to sell shares,
then Adams also shall have the right to join in the transaction as to a
proportion of Adams' equal to the proportion of Pugliese's and Joyce's combined
shares sold in the transaction.
2. Exercise of Right. A Selling Shareholder shall notify Adams in
writing at least 10 days prior to closing of any transaction in which Adams may
exercise the Joinder Right. Adams may exercise the Joinder Right with respect to
the transaction up until 3 days prior to the closing of the transaction by
notifying the Selling Shareholder in writing of his intention to sell his shares
as a part of the transaction. The terms and conditions of any such transaction
will be as determined by the Selling Shareholder in his sole discretion, and
Adams' Joinder Right to participate in the transaction shall be limited to the
right to join in the transaction (as to Adams' respective pro-rata share of
stock) on the same terms and conditions as such terms and conditions may be
determined by the Selling Shareholder.
<PAGE>
3. Rights Non-Transferable. Adams' rights under this agreement may
not be assigned, except to an entity that is controlled by Adams and that
acquires the shares purchased by Adams under the Stock Purchase Agreement.
4. Notices. Notices to Adams or any permitted assignee under this
Agreement shall be sufficiently given if delivered in person or sent by
registered mail, postage prepaid, addressed as follows:
Stephen Adams
c/o Affinity Group, Inc.
2575 Vista Del Mar Drive
Ventura, CA 93001
IN WITNESS WHEREOF, the parties hereto have executed this Joinder
Agreement as of the ___ day of December, 1995.
- -------------------------------
Stephen Adams
- ------------------------------- ------------------------------
Gerard P. Joyce Thomas M. Pugliese
<PAGE>
Exhibit 10.1(k)
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement") dated as of September 25,
1996, by and among The Mentus Group, Inc., a Delaware corporation (the
"Company"), each of 21st Century Communications Partners, L.P., a Delaware
limited partnership, 21st Century Communications T-E Partners, L.P., a Delaware
limited partnership, and 21st Century Communications Foreign Partners, L.P., a
Delaware limited partnership (collectively, the "Initial Investors"), Gerard
Joyce and Thomas P. Pugliese and certain other holders of shares of the
Company's Common Stock set forth on Schedule II hereto (collectively, the
"Initial Shareholders").
WHEREAS, the Company and the Initial Investors have entered into a
certain Stock Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which each of the Initial Investors, individually and
not jointly, is purchasing from the Company, simultaneously with the execution
and delivery of this Agreement on the date hereof, certain newly issued
securities of the Company;
WHEREAS, the Company's Board of Directors has determined that such
purchase is in the Company's best interests, and each Initial Investor has
concluded that such purchase is in its best interests;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements herein contained, in order to induce the Initial
Investors to enter into the Purchase Agreement and consummate the transactions
contemplated thereby and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Initial Shareholders and
the Company agree with the Initial Investors as follows:
I
DEFINITIONS
1.1. Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings indicated:
Adjusted Net Income (Loss): For any period, the net income or net
loss, as the case may be, of the Company and its Subsidiaries for such period
from continuing operations as determined on a Consolidated basis in accordance
with GAAP, adjusted, to the extent included in calculating such net income or
net loss, as the case may be, by excluding without duplication (i) any gain or
loss attributable to the sale, conversion or other disposition of assets
otherwise than in the ordinary course of business, (ii) any other extraordinary
gain or loss, (iii) any gains resulting from the write-up of assets and any loss
resulting from the write-down of assets, (iv) any gain or loss on the repurchase
or redemption of any securities (including in connection with the early
retirement or defeasance of any Debt), (v) any foreign exchange gain or loss,
(vi) any other extraordinary or unusual items, (vii) the net income (or loss) of
any Person acquired in a pooling-of-interests transaction for any period prior
to the date of such transaction, (viii) all income of Persons accounted for by
the Company using the equity method of accounting except, in the case of any
such income, to the extent of dividends, interest or other cash distributions
actually received by the Company or a Consolidated Subsidiary from any such
Person, (ix) the net income (but not net loss) of any Subsidiary which is
subject to restrictions which prevent the payment of dividends or the making of
distributions to the Company or to any Subsidiary intermediate between the
Company and such Subsidiary, (x) any reversal of any liability of the Company or
any Subsidiary accrued in conformity with purchase accounting in connection with
any transaction and (xi) the noncash gains related to any cumulative effect of
changes in accounting principles.
<PAGE>
Affiliate: With respect to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such first Person. The term "affiliated" (whether or not
capitalized) shall have a correlative meaning. For the purposes of this
definition, "control", as used with respect to any Person, shall mean the
possession, directly or indirectly through or with one or more intermediaries,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise. The terms "controlled by" and "under common control with" shall have
correlative meanings. For purposes of this Agreement, no Investor or group of
Investors (whether or not affiliated with or otherwise related to each other and
whether or not acting in concert with respect to any matter or matters) shall be
deemed to be an Affiliate of the Company, any Stockholder or any of their
respective Affiliates by reason of the ownership of any Covered Securities or
other securities or by reason of the possession or exercise of the right to
elect Directors of the Company or any other rights hereunder, under any other
Transaction Document or otherwise. For purposes of this Agreement, neither the
Company nor any Shareholder, nor any Affiliate of the Company or any Shareholder
shall be deemed to be an Affiliate of any Investor.
Agreement: This Stockholders' Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
Annualized Operating Cash Flow: As of any date of determination, either
(i) if Operating Cash Flow for the most-recent full Fiscal Quarter ending on or
prior to such date is positive, then the product of such Operating Cash Flow for
such Fiscal Quarter multiplied by four (4) or (ii) if Operating Cash Flow for
such Fiscal Quarter is not positive, then $1.00 (One Dollar).
Audit Committee: As defined in Section 3.13.
Beneficial Owner: A beneficial owner within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act, as interpreted by the Securities and Exchange
Commission, including the provision of such Rules that a Person shall be deemed
to have beneficial ownership of all securities that such Person has a right to
acquire within 60 days, provided that a Person shall not be deemed a beneficial
owner of, or to own beneficially, any securities if such beneficial ownership
(i) arises solely as a result of a revocable proxy delivered in response to a
proxy or consent solicitation made pursuant to, and in accordance with, the
Exchange Act and the applicable rules and regulations thereunder and (ii) is not
also then reportable on Schedule 13D under the Exchange Act. The terms (whether
or not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
Board of Directors: The board of directors of the Company.
Business Day: Any day other than a Saturday, a Sunday or a day on which
banking institutions in either New York, New York, or the city and state in
which the principal executive offices of the Company within the United States
are located are not open for business.
capital stock: "Capital stock" when used with respect to any corporation
and whether or not capitalized, shall mean (unless the context otherwise
indicates) any and all shares of capital stock of such corporation, including
each class and series of common stock and preferred stock of such corporation,
any and all stock appreciation rights and any and all equivalents of any of the
foregoing, in each case regardless of how denominated and whether or not
evidenced by any certificate, instrument or other document and whether voting or
nonvoting.
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<PAGE>
Capitalized Lease Obligation: With respect to any Person for any period,
an obligation of such Person to pay rent or other amounts under a lease of (or
any other arrangement conveying the right to use) real or personal property that
is required to be capitalized for financial reporting purposes in accordance
with GAAP; and the amount of such obligation shall be the capitalized amount
thereof as determined in accordance with GAAP.
Change in Control: The occurrence of any of the following:
(i) any "person" (within the meaning of that term as used in the
Rules under Section 13(d) and 14(d) of the Exchange Act, as interpreted by
the Securities and Exchange Commission) other than any Investor or any
Affiliate of any Investor or any group of persons acting in concert which
includes any Investor or any Affiliate of any Investor and other than
Thomas Pugliese and Gerard Joyce, who was not, on the date hereof, the
Beneficial Owner, directly or indirectly, of 50% or more of the combined
voting power represented by all then outstanding Voting Equity of the
Company becomes (after such date) the Beneficial Owner, directly or
indirectly, of 50% or more of the combined voting power represented by all
outstanding Common Stock of the Company;
(ii) for any reason (including death or disability), Gerard Joyce or
Thomas Pugliese ceases to be the Beneficial Owners, directly or
indirectly, of 80% or more of the shares of Common Stock beneficially
owned by Gerard Joyce or Thomas Pugliese, respectively on the Closing Date
(as appropriately adjusted for any subdivision, combination,
reclassification, recapitalization, reorganization, merger or other change
of or in the outstanding Common Stock).
For purposes of determining the percentage of the combined voting power of the
outstanding Common Stock beneficially owned by any particular Person as of any
time, any Common Stock not actually outstanding but which is deemed to be
beneficially owned by a Person through the application of the definition of
"Beneficial Owner" above in this Section 1.1 shall be deemed to be outstanding,
but no Common Stock not actually outstanding but which is deemed to be
beneficially owned by any other Person through the application of such
definition shall not be deemed to be outstanding. For purposes of clause (ii) of
this definition, Mr. Joyce or Mr. Pugliese, as the case may be, shall be deemed
to continue to be the Beneficial Owner of shares of Common Stock transferred by
him for estate planning purposes to his spouse or minor children or to a trust
described in Section 664 of the Internal Revenue Code of 1986, as amended of
which the income beneficiaries consist exclusively of one or more of him, his
spouse and his minor children, so long as Mr. Joyce or Mr. Pugliese, as the case
may be, continues to have the power to vote and dispose or direct the voting or
disposition of such transferred shares.
Combined: In respect of any specified accounting or financial item as of
any time or for any period, such item determined, without duplication and after
eliminating intercompany accounts and transactions, by combining (i) such item
as determined for the Company as of such date or for such period with (ii) such
item as determined for each Subsidiary as of such date or for such period.
Combined Debt to Annualized Operating Cash Flow Ratio: As at any date of
determination, the ratio of (i) the aggregate amount of Debt of the Company and
its Subsidiaries on a Combined basis outstanding or deemed to be outstanding as
at the date of determination to (ii) Annualized Operating Cash Flow as at such
date. If any Debt is proposed to be incurred which requires a calculation of the
Combined Debt to Annualized Operating Cash Flow Ratio, the amount of Debt
proposed to be
3
<PAGE>
incurred will be deemed to be outstanding on the date of determination, and to
the extent that the proceeds of the Debt proposed to be incurred is to be used
to repay or retire other Debt actually outstanding, the amount of such Debt to
be repaid or retired with the proceeds of such Debt proposed to be incurred will
be presumed to have been repaid or retired on the date of determination.
Commission: The Securities and Exchange Commission.
Common Stock: The Common Stock, $0.01 par value per share, of the Company.
Company: The Mentus Group, Inc., a Delaware corporation, and its
successors.
Compensation Committee: As defined in Section 3.13.
Consolidation: The consolidation of the accounts of each of the
Subsidiaries with those of the Company, if and to the extent that the accounts
of each such Subsidiary would normally be consolidated with those of the Company
in accordance with GAAP. The term "Consolidated" shall have a correlative
meaning.
Contingent Obligation: As applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any Debt or
other obligation of another Person, if the purpose or intent of such Person in
incurring the Contingent Obligation or the effect of such Contingent Obligation
is to provide assurance to the obligee of such Debt or other obligation that
such Debt or other obligation will be paid or discharged, or that any agreement
relating thereto will be complied with, or that any holder of such Debt or other
obligation will be protected (in whole or in part) against loss in respect
thereof. Contingent Obligations of such Person include (i) the direct or
indirect guarantee, endorsement (other than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another Person, (ii) any liability
of such Person for the obligations of another Person through any agreement
(contingent or otherwise) to (A) purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of a loan, advance, stock
purchase, capital contribution or otherwise), (B) maintain the solvency, working
capital, equity capital or other balance sheet item, level of income or
financial condition or liquidity of another Person, (C) make take-or-pay or
similar payments, if required, regardless of non-performance by any other party
or parties to an agreement, or (D) purchase property, securities or services, if
in the case of any agreement described under subclause (A), (B), (C) or (D) of
this sentence the primary purpose, intent or effect thereof is as described in
the immediately preceding sentence, and (iii) all obligations (contingent or
otherwise) to purchase or otherwise acquire or assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds referred to in
any of clauses (i) through (ix), inclusive, of the definition of "Debt". For
purposes of this definition, the indemnification obligations of the Company
under the Purchase Agreement and the other Transaction Documents shall not be
considered Contingent Obligations of the Company. The amount of any Contingent
Obligation of a Person shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as reasonably determined by
such Person in good faith. If a Person holds any assessable capital stock in a
corporation or assessable equity interest in any other Entity or is or might
become otherwise obligated (absolutely or contingently) to make contributions to
the capital of any Entity, then the term Contingent Obligations also shall
include the maximum reasonably anticipated liability of such Person for
assessments or capital contributions as determined by such Person in good faith.
Contract: Any agreement, contract, commitment, indenture, lease, license,
instrument, note, bond, security, agreement in principle, letter of intent,
undertaking, promise, covenant, arrangement or
4
<PAGE>
understanding, whether written or oral.
Control Change Transaction: Any Proposed Restricted Disposition which, if
consummated, would or is reasonably likely to result in a Change in Control.
Debt: With respect to any Person, whether recourse is to all or a portion
of the property of such Person and whether or not matured, absolute or
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances, surety bonds, or
similar facilities issued for the account of such Person, (iv) every obligation
of such Person issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising in
the ordinary course of business, in each case which are payable on customary
terms and, are not overdue or which are being contested in good faith), (v)
every Capitalized Lease Obligation of such Person, (vi) the maximum fixed
redemption or repurchase price of Redeemable Equity of such Person at the time
of determination plus accrued but unpaid dividends, (vii) every obligation of
such Person under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person, (viii) every obligation of
such Person under any conditional sale or title retention arrangement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender in the event of default are limited to repossession or
sale of such property), (ix) every obligation of such Person or any other Person
secured by any lien or encumbrance on any asset of such Person, (x) every
Contingent Obligation of such Person and (xi) every obligation of the type
referred to in clauses (i) through (x) of this sentence of any other Person and
all dividends of another Person the payment of which, in either case, such
Person has Guaranteed.
DGCL: The Delaware General Corporation Law.
Director: Any individual who is a member of the Board of Directors of the
Company.
Disinterested Outside Director: Unless any such requirement is waived by
the Majority Investors, an individual who satisfies each of the following
requirements set forth in clauses (i), (ii) and (iii): (i) has either a
significant financial investment in the Company or a significant strategic
position or expertise relative to the business of the Company, (ii) is not (A)
an officer or employee of the Company or any of its Subsidiaries, (B) a
director, employee, partner, manager or other member of management of any of
Affiliate of the Company (except a director of a Subsidiary of the Company), (C)
a relative of any Person described in subclause (ii)(A) or (ii)(B) or (C) a
trustee of any trust or estate in which any Person described in subclause
(ii)(A), (ii)(B) or (ii)(C) is a beneficiary has a substantial beneficial
interest and (iii) does not have any other relationship which would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a Director of the Company.
Dispose of: With respect to any Common Stock, Right or other security, to
directly or indirectly, voluntarily or involuntarily, (i) sell, assign, make a
gift of, exchange, pledge, hypothecate, grant an option or other right for or
otherwise transfer (whether by merger or otherwise), encumber or subject to any
claim, lien, encumbrance or restriction any such Common Stock, Right or other
security or any interest therein, (ii) grant any voting or other rights with
respect to any such Common Stock, Right or other security or (iii) enter into
any agreement or arrangement regarding the acquisition, holding, disposition or
voting of any such Common Stock, Right or other security. The terms
"Disposition", "Disposing of" and similar variants shall have correlative
meanings. Without limiting the generality of the foregoing:
5
<PAGE>
(i) in the case of any Common Stock or Rights held by a Shareholder
which is an Entity, (A) any merger, consolidation, binding share exchange
or similar transaction to which such Shareholder is a party and in which
such Shareholder is not the surviving or continuing Entity shall be deemed
to be a Disposition of all of such Common Stock and Rights; and (B) any
issuance by such Shareholder of any shares of capital stock of or other
equity interests in such Shareholder or any options, warrants, convertible
securities or similar rights or securities with respect to any of the
foregoing (including any such issuance in connection with any merger,
consolidation, binding share exchange or similar transaction to which such
Shareholder is a party and in which such Shareholder is the surviving or
continuing Entity), or any Disposition by any Person who holds any capital
stock of or other equity interests in such Shareholder of any such capital
stock or other equity interests or of any options, warrants, convertible
securities or similar rights with respect thereto, shall in each case be
deemed to constitute a Disposition of (x) if the shares of capital stock
or other equity interests issued or transferred confer upon any Person
control of such Shareholder, all of the Common Stock and Rights held by
such Shareholder or (y) in all other cases, a number of shares of Common
Stock and Rights (the "Transferred Shares") held by such Shareholder
(determined consistently with Section 1.5) equal to the product of the
total number or amount of shares of Common Stock held by such Shareholder
(determined consistently with Section 1.5) multiplied by the percentage of
all outstanding assumed equity interests in such Shareholder (after giving
effect to such issuance or Disposition of capital stock or other equity
interests and the assumed exercise, exchange or conversion of all Rights,
if any, included in such equity interests) represented by such equity
interests issued or Disposed of (the "Transferred Equity Interests"), and,
for purposes of Article II the aggregate consideration for all such
Transferred Shares shall be deemed to be the product of (x) the percentage
of the Fair Market Value of all such outstanding equity interests in such
Shareholder represented by the Fair Market Value of all Common Stock held
by such Shareholder (determined consistently with Section 1.5), multiplied
by (y) the amount of consideration proposed to be paid for such
Transferred Equity Interests (including, in the case of Rights, any
additional consideration payable upon the exercise, exchange or conversion
thereof);
(ii) any redemption, purchase or other acquisition in any manner
(whether or not for any consideration) by the Company or any Subsidiary of
any Common Stock or Rights shall be deemed to be a Disposition of such
Common Stock or Rights except to the extent that such redemption, purchase
or other acquisition by the Company is of all holders of such Common Stock
or all holders of Rights of such class; and
(iii) if any Shareholder agrees to act in concert with one or more
other Shareholders or other Persons for the purpose of acquiring, holding,
voting or disposing of any Common Stock or Rights, and such Shareholder or
any of its Affiliates or Related Parties receives, directly or indirectly,
any form of consideration directly or indirectly attributable to such
agreement, then such Shareholder shall be deemed to have Disposed of all
Common Stock and Rights beneficially owned by him which are subject to
such agreement.
Any Disposition or Proposed Disposition at any time by any Shareholder of any
Right which is exercisable or exchangeable for or convertible into any Common
Stock shall be deemed for all purposes of this Agreement to be a Disposition or
Proposed Disposition of the maximum number of shares of Common Stock determined
as of such time, which would be issuable or deliverable upon the exercise,
exchange or conversion of such Right, whether or not such Right is then
exercisable, exchangeable or convertible.
6
<PAGE>
Electing Investors: As defined in Section 2.4(a).
Employee Option: Any option to purchase Common Stock for cash which is
granted by or with the approval of the Compensation Committee to any director,
officer, employee or consultant of the Company or any subsidiary of the Company
pursuant to either (i) the Company's 1993 Stock Option Plan or the Company's
1994 Stock Option Plan as in effect on the Closing Date or (ii) any other Option
Plan adopted by the Company after the Closing Date with the prior approval of
the Majority Investors, in each case as the same may be amended from time to
time with the prior approval of the Majority Investors.
Entity: Any corporation, limited liability company, general or limited
partnership, joint venture, association, joint stock company, trust, other
unincorporated business or organization or other Person which is not either a
natural person or a Governmental Authority.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time, or any successor statute, and (unless the context otherwise requires) the
rules and regulations promulgated thereunder.
Exempt Transfer: (i) A sale of Common Stock by a Shareholder in accordance
with Article II hereof, to any Initial Investor or any Affiliate of any Initial
Investor, to the public pursuant to an effective registration statement under
the Securities Act or in a transaction, consummated while Common Stock of that
Class are registered under Section 12(b) or 12(g) of the Exchange Act, which
satisfies the requirements of the first sentence of paragraph (f) of Rule 144
under the Securities Act (as such sentence and paragraph are in effect on the
date hereof) and, if such transaction is a "brokers' transaction" referred to in
such paragraph of Rule 144, also satisfies the requirements of paragraph (g) of
Rule 144 under the Securities Act (as such paragraph is in effect on the date
hereof) and (ii) a transfer by a Shareholder who is a natural person to (A) an
Immediate Family Member or (B) a trust described in Section 664 of the Internal
Revenue Code of 1986, as amended of which the income beneficiaries consist
exclusively of one or more of such Shareholder and the Immediate Family Members
of such Shareholder, provided that in the case of each transfer pursuant to
subclause (ii)(A) or (ii)(B) such Disposition is made without consideration and
the transferee, by written instrument reasonably satisfactory to the Investors,
makes representations and warranties to the Investors equivalent to those set
forth in Section 3.10, becomes a party to this Agreement as a "Shareholder"
hereunder.
Expiration Date: As defined in Section 2.5(b).
Fair Market Value: With respect to any securities or property, the price
at which a willing seller would sell and a willing buyer would buy such property
having full knowledge of the facts, in an arm's-length auction transaction
without time constraints, and without being under any compulsion to buy or sell.
Fair Market Value, in the case of the Company, shall be determined on a going
concern or liquidation basis, whichever yields the highest value. In determining
the Fair Market Value of any shares of capital stock, there shall be no discount
due to lack of liquidity of such shares because of the absence of a significant
public market or due to the minority ownership position in the issuer
represented by such shares, nor any premium due to the majority or control
ownership position in the issuer represented by such shares.
Fiscal Quarter: A fiscal quarter of the Corporation, which (unless and
until the fiscal year of the Corporation is changed by the Board of Directors)
shall be a three-month period ending on the last day of any March, June,
September or December.
FTC: As defined in Section 3.11.
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GAAP: As of any date, generally accepted accounting principles in the
United States, consistently applied.
Governmental Authority: Any nation or government, any state or other
political subdivision thereof and any court, panel, judge, board, bureau,
commission, agency or other entity, body or other Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
Guarantee: Any Person means any direct or indirect obligation, contingent
or other, of such Person guaranteeing any Debt of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) any such Debt or to purchase (or advance or supply
funds for the purchase of) any security for the payment of such Debt, (ii) to
purchase property, securities or services for the purpose of assuring the holder
of such Debt of the payment of such Debt or (iii) to maintain working capital,
equity capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Debt; provided,
however, that the Guarantee by any Person shall not include endorsement by such
Person of negotiable instruments for collection or deposit in the ordinary
course of business. The terms (whether or not capitalized) "guaranteed",
"guaranteeing" and "guarantor" shall have correlative meanings.
HSR Act: The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
HSR Report: As defined in Section 3.11.
Immediate Family Member: With respect to any specified natural person, any
other natural person related to such specified natural person by blood, marriage
or adoption not more remote than first cousin.
Incur: With respect to any Debt or other liability or obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable or obligated in respect of such Debt or
other obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and the terms "incurrence", "incurred",
"incurrable" and "incurring", whether or not capitalized, shall have meanings
correlative to the foregoing). For purposes of clause (viii) of Section 3.8,
Debt incurred by a Person before it becomes a Subsidiary shall be deemed to have
been incurred at the time it becomes a Subsidiary.
Initial Investors: As defined in the introductory paragraph of this
Agreement.
Initial Shareholders: As defined in the introductory paragraph of this
Agreement.
Investors: Any and all of the following Persons, in each case for so long
as such Person continues to own (i) for purposes of Section 3.8, any Series B
Preferred Stock or (ii) for purposes of any other provision of this Agreement,
any Common Stock or Rights to acquire any Common Stock:
(i) Each Initial Investor;
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(ii) any Qualified Institutional Investor who (A) at any time
acquires any Series B Preferred Stock, Common Stock or any Rights to
acquire Common Stock directly or indirectly from any Initial Investor or
an Affiliate of an Initial Investor, (B) is designated by the transferor
Investor, with the consent of a the Investor Representative, as an
"Investor" in a written designation delivered to the Company and (C) by
written instrument reasonably satisfactory to the Investor Representative
and the Company, becomes a party to this Agreement as an "Investor"
hereunder;
(iii) any Affiliate of any Investor under clause (i) or (ii) who (A)
at any time acquires any Series B Preferred Stock, Common Stock or any
Rights to acquire Common Stock directly or indirectly from such Investor,
(B) is designated by the transferor Investor, with the consent of a the
Investor Representative, as an "Investor" in a written designation
delivered to the Company and (C) by written instrument reasonably
satisfactory to the Investor Representative and the Company, becomes a
party to this Agreement as an "Investor" hereunder; and
(iv) in the case of any Investor which is a corporation, partnership
or other Entity, any stockholders, partners or other owners of such Entity
(or any liquidating or similar trust for their benefit) to whom any Series
B Preferred Stock, Common Stock or Rights to acquire Common Stock held by
such Entity are distributed or transferred in connection with the
liquidation, dissolution or winding up of such Entity or any other
required distribution pursuant to the provisions of the organizational or
other governing document of such Entity.
Investor Representative: Any Investor designated by the Majority Investors
as the representative of the Investors, collectively. The initial Investor
Representative shall be 21st Century Communications Partners, L.P. The Majority
Investors may, at any time by a written notice delivered to the Company, remove
and replace the Person then serving as the Investor Representative, without the
consent or approval of the Company or any Shareholder.
Judgment: Any order, judgment, writ, decree, award or other determination,
decision or ruling of any court, judge, justice or magistrate, any other
Governmental Authority or any arbitrator.
Junior Stock: (i) Each class or series of Common Stock, (ii) the Series A
Preferred Stock of the Company, (iii) any other class or series of capital stock
of the Company hereafter created, other than (A) any class or series of Parity
Stock (except to the extent provided under clause (iv) of this sentence) and (B)
any class or series of Senior Stock (except to the extent provided under clause
(iv) of this sentence), and (iv) any class or series of Parity Stock or Senior
Stock to the extent that it ranks junior to the Series B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation, as the case may
be. For purposes of clause (iv) above, a class or series of Parity Stock or
Senior Stock shall rank junior to the Series A Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation if the holders of shares
of Series B Preferred Stock shall be entitled to dividend payments, payments on
redemption or payments of amounts distributable upon dissolution, liquidation or
winding up of the Company, as the case may be, in preference or priority to the
holders of shares of such class or series.
Majority Investors: For purposes of Section 3.8, as of any time, any
Investor who holds, or Investors who hold in the aggregate, at least a majority
of the Series B Preferred Stock then held by all Investors. For purposes of any
other provision of this Agreement, as of any time, any Investor who holds, or
Investors who hold in the aggregate, at least a majority of the Common Stock
then held by all Investors (determined consistently with Section 1.5).
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Majority Shareholders: As of any time, any Shareholder who holds, or
Shareholders who hold, in the aggregate, at least a majority of the Common Stock
then held by all Shareholders (determined consistently with Section 1.5).
Offer Consideration: As defined in Section 2.2.
Offer Notice: As defined in Section 2.2.
Offer Number: As defined in Section 2.2.
Offered Shares: As defined in Section 2.2.
Operating Cash Flow: For any Fiscal Quarter, (i) the Adjusted Net Income
(Loss) for such Fiscal Quarter plus all amounts deducted in calculating such
Adjusted Net Income (Loss) for such Fiscal Quarter in respect of depreciation,
amortization, interest expense and other financing costs and all income taxes,
whether or not deferred, applicable to such income period, all as determined on
a Combined basis in accordance with GAAP and without duplication. For purposes
of calculating Operating Cash Flow for the most-recent Fiscal Quarter ending at
or prior to any date on which any Debt is incurred or proposed to be incurred
which requires a calculation of the Combined Debt to Annualized Operating Cash
Flow Ratio, (i) any Person that is a Subsidiary on such date (or would become a
Subsidiary in connection with the transaction that requires the determination of
such ratio) shall be deemed to have been a Subsidiary at all times during such
Fiscal Quarter, (ii) any Person that is not a Subsidiary on such date (or would
cease to be a Subsidiary in connection with the transaction that requires the
determination of such ratio) shall be deemed not to have been a Subsidiary at
any time during such Fiscal Quarter, (ii) if the Company or any Subsidiary shall
have in any manner acquired (including through commencement of activities
constituting such operating business) or disposed (including through termination
or discontinuance of activities constituting such operating business) of any
operating business or assets during or subsequent to such Fiscal Quarter, such
calculation shall be made on a pro forma basis on the assumption that such
acquisition or disposition had been completed on the first day of such Fiscal
Quarter.
Other Purchase Agreements: The Stock Purchase Agreements, dated the date
hereof, among the Company and certain purchasers of Series B Preferred Stock as
the same may be amended from time to time in accordance with their respective
terms.
Parity Stock: (i) The Series B Preferred Stock and (ii) each class or
series of capital stock of the Company, if any, hereafter created with the
approval of the Investors and ranking on a parity basis with the Series B
Preferred Stock as to any of dividends, rights of redemption or rights on
liquidation. Capital stock of any class or series shall rank on a parity as to
dividends, rights of redemption or rights on liquidation with shares of Series B
Preferred Stock, whether or not the dividend rates, dividend payment dates,
redemption or liquidation prices per share or sinking fund provisions, if any,
are different from those of the Series B Preferred Stock if the holders of such
stock shall be entitled to the receipt of dividends, amounts distributable upon
dissolution, liquidation or winding up of the Company or redemption payments, as
the case may be, in proportion to their respective dividend rates, liquidation
prices or redemption prices, respectively, without preference or priority, one
over the other, as between the holders of such stock and the holders of shares
of the Series B Preferred Stock. No class or series of capital stock that ranks
junior to the Series B Preferred Stock as to rights on liquidation shall rank or
be deemed to rank on a parity basis with the Series B Preferred Stock as to
dividend rights or rights of redemption, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides.
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Per-Share Offer Consideration: As defined in Section 2.2.
Person: Any individual, corporation, limited liability company, general or
limited partnership, joint venture, association, joint stock company, trust,
unincorporated business or organization, Governmental Authority or other entity
or legal person, whether acting in an individual, fiduciary or other capacity.
Preemptive Rights Agreement: The Preemptive Rights Agreement dated the
date hereof among the Company and certain stockholders of the Company as the
same may be amended from time to time in accordance with its terms.
Preferred Stock: The Series A Preferred Stock and the Series B Preferred
Stock, as constituted on the date hereof and any capital stock into which such
Preferred Stock may thereafter be changed, the capital stock of the Company of
any other Class (regardless of how denominated) which is preferred as to the
payments of dividends or distributions or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of the Company over
capital stock of any other Class of the Company or which is subject or entitled
(absolutely or contingently) to redemption and except where the context
otherwise indicates, shares of preferred stock of any successor or acquiring
corporation received by or distributed to the holders of capital stock of the
Company in the circumstances contemplated by Section 7.4 of the Registration
Rights Agreement.
Proposed Restricted Disposition: As defined in Section 2.2.
Prospective Purchaser: As defined in Section 2.2.
Purchase Agreement: The Stock Purchase Agreement dated as of the date
hereof, among the Company and the Initial Investors, as the same may be amended
from time to time in accordance with its terms.
Purchase Notice: As defined in Section 2.5(b).
Qualified Institutional Investor: Any Person described in paragraph (a)(1)
of Rule 501 under Regulation D promulgated under the Securities Act, as in
effect on the date such Qualified Institutional Investor acquires any Covered
Securities or any Affiliate of any such Person.
Qualified IPO: Either (i) the consummation of an initial public offering
of the Company's Common Stock generating proceeds of at least $20 million on a
pre-money equity valuation of at least $308 per share of Common Stock (as
appropriately adjusted for stock splits, reverse splits, stock dividends or
other reclassifications, reorganizations or similar events affecting the capital
stock of the Company, the record date for which occurs after the Closing Date)
or (ii) the date (A) the Common Stock is registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended or traded in an
over-the-counter market and quoted in an automated quotation system of the
National Association of Securities Dealers, Inc., (B) the Common Stock is listed
for trading on a national securities exchange registered under the Exchange Act
or traded in over-the counter market and quoted in an automated quotation system
of the National Association of Securities Dealers, Inc. (C) the average daily
trading volume of shares of the Common Stock reported by such exchange or
quotation systems for the period of 5 consecutive trading days prior to such
date of closing has exceeded, .7% of the number of shares of Common Stock
actually issued and outstanding on such date and (D) the average closing price
for the period of 20 consecutive trading days before such date
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is at least $308 per share (as appropriately adjusted for stock splits, reverse
splits, stock dividends or other reclassifications, reorganizations or similar
events affecting the outstanding Common Stock, the record date for which occurs
after the Closing Date).
Registration Rights Agreement: The Registration Rights Agreement dated as
of the date hereof, among the Company, the Initial Investors and certain other
parties, as the same may be amended from time to time in accordance with its
terms.
Related Contract or Transaction: As defined in Section 2.2.
Related Party: With respect to any Person, (i) any Entity (other than the
Company or a Subsidiary) of which such Person is a Director, officer, partner,
manager or other member of management, or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class or series of equity
interests, and (ii) any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
capacity. If such Person is a natural person, such Person's "Related Parties"
shall also include such Person's parents, children, siblings and spouse, the
parents and siblings of such Person's spouse and the spouses of such Person's
children and any Entity (other than the Company or a Subsidiary), trust or
estate with which any such relative of such Person has any relationship
specified in clause (i) or (ii) of the first sentence of this definition.
Requirement of Law: With respect to any Person, all federal, state and
local laws, rules, regulations, Judgments, injunctions, standards, codes,
limitations, restrictions, conditions, prohibitions, notices, demands or other
requirements or determinations of a court or other Governmental Authority or an
arbitrator, applicable to or binding upon such Person, any of its property or
any business conducted by it or to which such Person, any of its assets or any
business conducted by it is subject.
Restricted Disposition: Any Disposition by any Shareholder, other than an
Exempt Transfer.
Restricted Person: (i) Any beneficial owner of 5% or more of any class or
series of equity interests in the Corporation, (ii) any Affiliate of the Company
other than a Wholly Owned Subsidiary, (iii) any director or officer of the
Company or any Subsidiary, (iv) any beneficial owner of 5% or more of any class
or series of equity interests in any Subsidiary and any director, officer or
Affiliate of any such owner, and (iv) any Related Party of any Person covered by
clause (i), (ii), (iii) or (iv) of this sentence; provided that in no event
shall any of the following Person be deemed to be a "Restricted Person": (x) any
Investor, any Affiliate or Related Party of any Investor or any Related Party of
any Affiliate of any Investor or (y) any Series B Director.
Rights: Any options, warrants, convertible or exchangeable securities or
other rights, however denominated, to subscribe for, purchase or otherwise
acquire any Common Stock, with or without payment of additional consideration in
cash or property, either immediately or upon the occurrence of a specified date
or a specified event or the satisfaction or happening of any other condition or
contingency.
Securities Act: The Securities Act of 1933, as amended from time to time,
or any successor statute, and (unless the context otherwise requires) the rules
and regulations promulgated thereunder.
Selling Stockholder: As defined in Section 2.2.
Senior Stock: Each class or series of capital stock of the Company, if
any, hereafter created with the
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approval of the Investors and ranking prior to the Series B Preferred Stock as
to dividends, rights of redemption or rights on liquidation. Capital stock of
any class or series shall rank prior to the Series B Preferred Stock as to
dividends, upon redemption or upon liquidation if the holders of such class or
series shall be entitled to the receipt of dividends, payments on redemption or
payments of amounts distributable upon the dissolution, liquidation or winding
up of the Company, as the case may be, in preference or priority to the holders
of shares of Series B Preferred Stock. No class or series of capital stock that
ranks junior to the Series B Preferred Stock as to rights on liquidation shall
rank or be deemed to rank as senior to the Series B Preferred Stock as to
dividend rights or rights of redemption, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides.
Series A Preferred Stock: The 8.25% Convertible Series A Preferred Stock,
par value $1.00 per share, of the Company.
Series B Certificate of Designation: The Certificate of Designation in the
form of Exhibit E to the Purchase Agreement, filed with the Delaware Secretary
of State pursuant to Section 151 of the DGCL or any successor provisions of the
Company's Certificate of Incorporation.
Series B Director: As defined in Section 3.1.
Series B Preferred Stock: The Series B Senior Cumulative Compounding
Convertible Redeemable Preferred Stock, par value $1.00 per share, of the
Company.
Shareholder: Each Initial Shareholder and each other Person (except an
Investor or the Company) who becomes or is required to become a party to this
Agreement pursuant to Section 5.2 and the respective successors and permitted
assigns of any of the foregoing, in each case for so long as such Shareholder or
other Person continues to hold any Common Stock of any Class or any Rights to
acquire Common Stock of any Class.
Shareholder Representative: Any Shareholder designated by the Majority
Shareholders as the representative of the Shareholders, collectively. The
initial Shareholder Representative of the Shareholders shall be Thomas Pugliese.
The Majority Shareholders may at any time by written notice delivered to the
Company, remove and replace the Person then serving as the Shareholder
Representative, without the consent or approval of the Company or any Investor.
Stockholders: The Investors and the Shareholders.
Subsidiary: All corporations and all partnerships and other non-corporate
Entities in which the Company has an interest.
Tag-Along Rights: As defined in Section 2.2.
Tag-Along Securities: As defined in Section 2.4(a).
Tender Notice: As defined in Section 2.5(b).
Transaction Documents: As defined in the Purchase Agreement.
Underlying Securities: When used with reference to any Rights as of any
time, each class, series,
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issue or other kind of equity interests or other securities issuable or
deliverable upon exercise, exchange or conversion of such Rights (whether or not
such Rights then are exercisable, exchangeable or convertible).
Valuation Committee: As defined in Section 3.13.
Voting Equity: Capital stock of and other equity interests in the Company
which ordinarily have voting power for the election of directors of the Company
generally, whether at all times or only so long as no other class or series of
equity interests has such voting power by reason of any contingency.
Wholly Owned Subsidiary: An Entity all of the equity interests of which
(other than directors' qualifying shares) at the time are owned beneficially and
of record by the Company, one or more Wholly Owned Subsidiaries of the Company
or the Company and one or more Wholly Owned Subsidiaries of the Company.
1.2. Terms Generally; Certain Rules of Construction. The definitions in
Section 1.1 shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". The words "herein", "hereof" and "hereunder" and words of similar
import refer to this Agreement in its entirety and not to any part hereof unless
the context shall otherwise require. All references herein to Sections, Exhibits
and Schedules shall be deemed references to and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise require. Unless
otherwise expressly provided herein or unless the context shall otherwise
require, any references as of any time to the "Certificate of Incorporation",
"Articles of Incorporation", "charter", "organizational or constituent
documents" or "By-laws" of any Entity, to any agreement (including this
Agreement) or other Contract, instrument or document or to any statute or
regulation or any specific section or other provision thereof are to it as
amended and supplemented through such time (and, in the case of a statute or
regulation or specific section or other provision thereof, to any successor of
such statute, regulation, section or other provision). Any reference in this
Agreement to a "day" or number of "days" (without the explicit qualification of
"Business") shall be interpreted as a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then such
action or notice shall be deferred until, or may be taken or given on, the next
Business Day. Unless otherwise expressly provided herein or unless the context
shall otherwise require, any provision of this Agreement using a defined term
(by way of example and without limitation, such as "Investors", "Majority
Investors", "Majority Shareholders", or "Shareholders") which is based on a
specified characteristic, qualification, feature or status shall, as of any
time, refer only to such Persons who have the specified characteristic,
qualification, feature or status as of that particular time. The word "property"
includes property and assets of any kind, whether real or personal, tangible or
intangible.
1.3. Outstanding Shares. Capital stock or other securities of any Class
held in treasury by the Company or held by any Subsidiary shall not be
considered to be outstanding for any purpose of this Agreement.
1.4. Capital Stock Includes Preferred Stock. As used in this Agreement,
the term "capital stock" includes any class or series of preferred stock,
however denominated and regardless of the characterization thereof for
accounting purposes under generally accepted accounting principles or the rules,
regulations, interpretations or releases of the Securities and Exchange
Commission.
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1.5. Determining Shares of Common Stock Held. Unless otherwise expressly
provided, for purposes of this Agreement, any Person shall be deemed to hold, as
of any time, (i) all issued and outstanding shares of Common Stock or other
securities then held or deemed to be held by such Person, (ii) all additional
shares of Common Stock or other securities which would then be held by such
Person if it were assumed that all shares of Series B Preferred Stock, if any,
then held or deemed to be held by such Person had been duly and effectively
converted in full at and effective as of such time, (iii) all additional shares
of Common Stock or other securities which would then be held by such Person if
it were assumed that all Rights, if any, then held or deemed to be held by such
Person had been duly and effectively exercised in full at and effective as of
such time and (iv) all additional shares of Common Stock or other securities, if
any, which such Person then has a right to purchase pursuant to the Preemptive
Rights Agreement by virtue of any prior exercise of preemptive rights under such
agreement, assuming, in the case of each of clauses (ii) and (iii), that all
adjustments to the kind, number and amount of shares of capital stock or other
securities issuable upon exercise, exchange or conversion of any of the shares
of Series B Preferred Stock or other Rights referred to in such clause required
by reason of any event or transaction occurring at or prior to such time had
been duly and effectively made as and when required by the terms thereof.
II
TAG-ALONG RIGHTS
2.1. General. Unless and until complying with the provisions of this
Article II, no Shareholder shall consummate or enter into any binding Contract
for any Restricted Disposition; provided, however, for purposes of this Article
II, a binding Contract shall not include any Contract, the terms, rights,
obligations, and performance of which are specifically conditioned upon the
fulfillment by any Shareholder of its rights and obligations under this Article
II. The provisions of this Article II shall apply successively to each and every
Restricted Disposition and Proposed Restricted Disposition.
2.2. Notice.
(a) Any Shareholder (a "Selling Stockholder") who desires to consummate or
enter into a Contract for any Restricted Disposition (a "Proposed Restricted
Disposition") shall deliver to each Investor a written notice signed by such
Selling Stockholder (the "Offer Notice") which shall (i) identify the Person to
whom such Restricted Disposition is proposed to be made (the "Prospective
Purchaser"); (ii) specify the number of shares of Common Stock proposed to be
Disposed of (the "Offered Shares") and the manner of Restricted Disposition;
(iii) state the kind and aggregate amount of consideration proposed to be paid
or delivered by the Prospective Purchaser for the Offered Shares (the "Offer
Consideration") and the amount thereof allocable to each Offered Share (the
"Per-Share Offer Consideration"), and the timing of the payment or other
delivery thereof; (iv) describe any option or right of election which the
Selling Stockholder may have as to the kind or amount of consideration; (v)
describe the other material terms and conditions of the Proposed Restricted
Disposition to the Prospective Purchaser; (vi) describe any Contract or
transaction (including, but not limited to, any Restricted Disposition) between
the Selling Stockholder or any of its direct or indirect Affiliates, Related
Parties or designees or beneficiaries and the Prospective Purchaser or any of
its direct or indirect Affiliates, Related Parties or agents which was entered
into or consummated at any time within the past year or is proposed to be
entered into or consummated (each a "Related Contract or Transaction"); (vii)
state that such Selling Stockholder has informed the Prospective Purchaser of
the existence and requirements of this Article II; (viii) state whether such
Restricted Disposition will, to the knowledge or belief of the Selling
Stockholder, result in a Change in Control; and (ix) state the maximum number of
shares of Common Stock which such Prospective Purchaser is willing to purchase
from all participating sellers pursuant to this Article
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II (such number so stated being referred to as the "Offer Number.") If any
Prospective Purchaser is not then subject to and in compliance with the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Offer
Notice must also be accompanied by a statement identifying each Person who, to
the best knowledge of the Selling Stockholder, is an Affiliate of such
Prospective Purchaser. The Selling Stockholder shall promptly provide such
additional information concerning the Prospective Purchaser and the Proposed
Restricted Disposition as any Investor reasonably may request and which the
Selling Stockholder possesses or can obtain without unreasonable effort or
expense. To the extent the Proposed Restricted Disposition consists of or
includes the purchase from the Selling Stockholder of Rights, rather than issued
and outstanding shares of Common Stock, the Offer Notice will so state and shall
also state whether the Offer Consideration reflects any discount or reduction
attributable to any requirement that an exercising holder of such Rights pay or
deliver additional consideration to the Company, and the Per Share Offer
Consideration stated in the Offer Notice must be the amount of Offer
Consideration allocable to each Offered Share increased by the amount of any
such discount or reduction allocable to each share of Common Stock covered by
such Rights.
(b) The giving of an Offer Notice shall constitute the representation and
warranty by the Selling Stockholder to each Investor that (i) neither the Offer
Consideration nor any other terms of the Proposed Restricted Disposition have
been established for the purpose of circumventing or impairing the tag-along
rights of the Investors pursuant to this Article II (the "Tag-Along Rights") or
increasing the probability that the Tag-Along Right of any Investor will not be
exercised in full, (ii) that the Proposed Restricted Disposition is not subject
to conditions, contingencies or material terms not disclosed in the Offer Notice
and (iii) that each Related Contract or Transaction described in such Offer
Notice was or is bona fide and in good faith and was not entered into or
proposed to be entered into for the purpose of circumventing or impairing an
Investor's Tag-Along Right pursuant to this Article II or increasing the
probability that any Investor's Tag-Along Right will not be exercised in full.
If any Prospective Purchaser, whether directly or indirectly, would, upon
consummation of the Proposed Restricted Disposition (individually or with one or
more other Proposed Restricted Dispositions) control the Company, then the term
"Related Contract or Transaction" shall be deemed to include any Contract or
transaction between the Selling Stockholder or any of its direct or indirect
Affiliates, Related Parties or designees or beneficiaries and the Company (or
any successor or acquiring Entity if it is proposed or contemplated that any
consolidation, merger or transfer of assets of the Company will be consummated
in connection with or following the Proposed Restricted Disposition) or any of
the respective direct or indirect Affiliates, Related Parties or agents of the
Company (or any such successor or acquiring Entity) which is proposed to be
entered into or consummated.
2.3. Valuation of Consideration.
(a) If the Offer Consideration does not consist entirely of cash, the
Offer Notice must state the good faith evaluation of the Selling Stockholder of
the Fair Market Value of such noncash consideration as of the date the Offer
Notice is given, together with a description of the method by which such
evaluation was made and copies of any appraisals or similar reports, if any, on
which such evaluation was based. Each statement of Fair Market Value of any
noncash consideration stated in the Offer Notice shall be binding on the
Prospective Purchaser, the Stockholders and the Investors for all purposes of
this Article II unless, within ten (10) days after the Offer Notice is given,
any Investor notifies the Selling Stockholder and the other Investors in writing
that it objects to any valuation so stated in the Offer Notice. If any Investor
makes such a written objection on a timely basis, the Selling Stockholder and
the Investors shall attempt in good faith to agree on the Fair Market Value of
such noncash consideration. If they are unable to so agree within ten (10)
Business Days after such notice of objection was given, then within five (5)
Business Days thereafter, the Selling Stockholder and the Investors shall select
one appraiser satisfying the requirements of Section 4.1 and
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the Investors and the Selling Stockholder shall submit to such appraiser (and
each other) a brief written statement of their respective positions regarding
the matter in dispute and supporting arguments, and each shall be given a period
of five (5) Business Days thereafter to submit to the other and to the appraiser
a written response to such written statement of the other. Such appraiser shall,
within fifteen (15) days of the date of its selection, resolve such dispute by
choosing either the position of the Selling Stockholder set forth in such
written statement so submitted by the Selling Stockholder or the position of the
Investors set forth in such written statement so submitted by the Investors,
whichever in the opinion of the appraiser, in its sole discretion, is more
consistent with the purposes and intent of this Agreement. Decisions with
respect to such determination made pursuant to this Section 2.3(a) by the
Majority Investors shall be binding on all Investors. The determination of the
Fair Market Value of any such noncash consideration by agreement of the Selling
Stockholder and the Investors or by the appraiser appointed as provided in this
Section 2.3(a) and Article IV shall be final and conclusive for all purposes of
this Article II. Promptly after the Fair Market Value of any such noncash
consideration is finally determined in accordance with this Section 2.3(a), the
Selling Stockholder shall give each Investor a written notice stating such Fair
Market Value.
(b) If any Related Contract or Transaction was entered into or consummated
at any time within the past one (1) year or is proposed to be entered into or
consummated, the Offer Notice must also state the good faith evaluation of the
Selling Stockholder of the Fair Market Value, as of the date received or, if not
yet received, as of the date the Offer Notice is given, of the maximum aggregate
consideration and benefits received or to be received by the Selling Stockholder
or any of its direct or indirect Affiliates, Related Parties or designees or
beneficiaries by virtue of such Related Contract or Transaction and of the
minimum amount of property, services or other consideration received or to be
received by the Prospective Purchaser in consideration thereof, together with a
description of the method by which such evaluation was made and copies of any
appraisals or similar reports, if any, on which such evaluation was based. If
any Investor, within ten (10) days after any Offer Notice is given, notifies the
Selling Stockholder and the other Investors in writing that it believes, in good
faith, that either (i) the Per-Share Offer Consideration stated in the Offer
Notice has not been properly calculated in accordance with the last sentence of
Section 2.2(a) or (ii) absent any Related Contract or Transaction described in
the Offer Notice (or otherwise known to such Investor), the amount of
consideration which would be offered or paid for the Offered Shares would be
higher, so that the Per-Share Offer Consideration stated in the Offer Notice
should be increased to include all or part of the consideration and benefits
received or to be received by the Selling Stockholder or any of its direct or
indirect Affiliates, Related Parties or designees or beneficiaries by virtue of
such Related Contract or Transaction, then the Selling Stockholder and the
Investors shall attempt in good faith to resolve the issue. If they are unable
to so agree within ten (10) Business Days after such notice was given, then
within five (5) Business Days thereafter, the Selling Stockholder and the
Investors shall select one appraiser satisfying the requirements of Section 4.1
and the Investors and the Selling Stockholder shall submit to such appraiser
(and each other) a brief written statement of their position regarding the
matter in dispute and supporting arguments, and each shall be given a period of
five (5) Business Days thereafter to submit to the other and to the appraiser a
written response to such written statement of the other. Such appraiser shall,
within fifteen (15) days of the date of its selection, resolve such dispute by
choosing either the position of the Selling Stockholder set forth in such
written statement so submitted by the Selling Stockholder or the position of the
Investors set forth in such written statement so submitted by the Investors,
whichever in the opinion of the appraiser, in its sole discretion, is more
consistent with the purposes and intent of this Agreement. Decisions made
pursuant to this Section 2.3(b) by the Majority Investors shall be binding on
all Investors. The determination of any dispute referred to in this Section
2.3(b) by agreement of the Selling Stockholder and the Investors or by an
appraiser appointed as provided in this Section 2.3(b) and Article IV shall be
final and conclusive for all purposes of this Article II. If, after the
completion of the procedures specified above in this Section 2.3(b), it is
finally determined that the Per-Share Offer Consideration stated in the Offer
Notice
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should be increased, then references hereinafter in this Agreement to the
"Per-Share Offer Consideration" shall be such stated Per-Share Offer
Consideration as so increased. Promptly after any dispute referred to in this
Section 2.3(b) is resolved as provided in this Section, the Selling Stockholder
shall give each Investor a written notice describing such resolution and, if the
Per-Share Offer Consideration stated in the Offer Notice was increased, stating
such increased Per-Share Offer Consideration.
(c) If more than one Shareholder proposes to Dispose of Common Stock or
Rights to the same Prospective Purchaser as part of a single transaction or a
number of concurrent transactions on substantially the same terms and
conditions, then such Shareholders shall be considered a single Selling
Stockholder for purposes of the provisions of this Article II.
2.4. Tag-Along Rights of Investors Absent Control Change Transaction.
(a) In the case of any Proposed Restricted Disposition which is not a
Control Change Transaction, a Selling Stockholder shall be permitted to dispose
of Offered Shares to the Prospective Purchaser only after compliance with
Section 2.2 and Section 2.3, only pursuant to a binding purchase agreement
between that Selling Stockholder and the Prospective Purchaser and only if the
terms and conditions of this Section 2.4 are satisfied. As used herein, the term
"Electing Investors" includes each Investor who gives to the Selling
Stockholder, within ten (10) Business Days after the later of (i) the date such
Selling Stockholder's Offer Notice was given and (ii) if one or more valuations
pursuant to Section 2.3(a) are required or if one or more disputes referred to
in Section 2.3(b) arise, the first date as of which all such valuations have
been completed in accordance with Section 2.3(a) and all such disputes have been
resolved in accordance with Section 2.3(b) and all notices required under the
last sentence of either such Section have been given, written notice of such
Investor's election to sell to the Prospective Purchaser pursuant to this
Article II such portion (which may be up to and including 100%) of the shares of
Common Stock held by such Investor as shall be specified in such notice (such
Electing Investor's "Tag-Along Shares"). Neither the Selling Stockholder nor any
Electing Investor shall enter into a binding purchase agreement with the
Prospective Purchaser prior to the expiration of such period of ten (10)
Business Days. If, within forty-five (45) days after such period of ten (10)
Business Days elapses, the Selling Stockholder enters into a binding purchase
agreement with the Prospective Purchaser, the Prospective Purchaser shall comply
with whichever of the following clauses is applicable:
(i) If the aggregate number of Offered Shares plus the Tag-Along
Shares of all of the Electing Investors is less than or equal to the Offer
Number, then the binding purchase agreement between the Prospective
Purchaser and the Selling Stockholder must provide for the purchase of all
Offered Securities and the Prospective Purchaser must, at the same time as
or within fifteen (15) days after entering into such binding purchase
agreement, also enter into a binding purchase agreement with each of the
Electing Investors to purchase all of such Electing Investor's Tag-Along
Shares of that Class.
(ii) If the aggregate number of Offered Shares plus the Tag-Along
Shares of all Electing Investors is greater than the Offer Number, then
the Prospective Purchaser must, at the same time as or within fifteen (15)
days after entering into such binding purchase agreement with the Selling
Stockholder, also enter into a binding purchase agreement with each of the
Electing Investors, and such binding agreements, collectively, must
provide (A) for the purchase from the Selling Stockholder of a number of
shares of Common Stock which is equal to the product of the Offer Number
multiplied by a fraction the numerator of which is the number of
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shares of Common Stock held by the Selling Stockholder and the denominator
of which is the aggregate number of shares of Common Stock held by the
Selling Stockholders and all Electing Investors and (B) for the purchase
from each Electing Investor of a number of shares of Common Stock which is
equal to the product of the Offer Number multiplied by a fraction the
numerator of which is the number of shares of Common Stock held by such
Electing Investor and the denominator of which is the aggregate number of
Common Stock held by all Electing Investors and the Selling Stockholders.
(b) Subject to Section 2.4(c) and Section 2.4(d), each binding purchase
agreement entered into with any Investor pursuant to this Section 2.4 must
provide for the purchase from such Investor to be on substantially the same
terms and conditions as those applicable to the Proposed Restricted Disposition
by the Selling Stockholder and specified in the Offer Notice (without discount
or other discrimination based on differences in the number or amount of Common
Stock held). Without limiting the generality of the immediately preceding
sentence, each Electing Investor must be given the same options and rights of
election, if any, as to the kind or amount of consideration to be received as
the Selling Stockholder and, in addition, if the Offer Notice stated that the
Offer Consideration for any Offered Shares is to be paid in whole or in part
with consideration other than cash, then the Prospective Purchaser shall be
obligated to offer each Electing Investor the option of receiving cash in lieu
of, and in an amount equal to the Fair Market Value (determined pursuant to
Section 2.3) of, the noncash consideration which otherwise would be payable to
such Electing Investor.
(c) The price per share to be received by each Electing Investor for
Tag-Along Shares to be sold by it upon exercise of the Tag-Along Right pursuant
to this Section 2.4 shall be the Per-Share Offer Consideration for the Offered
Shares.
(d) No Electing Investor shall be required to make any covenant or
commitment to the Prospective Purchaser, except, to the extent that the Selling
Stockholder makes the same covenant, a covenant to sell, on the terms and
conditions stated in this Article II, its Tag-Along Securities (or portion
thereof determined as provided above) at the closing thereunder (assuming
satisfaction of all conditions to such closing), but the sole recourse of the
Prospective Purchaser, the Selling Stockholder and the other Investors in the
event of a failure by any Electing Investor to comply with such covenant shall
be the right of the Prospective Purchaser to purchase from the Selling
Stockholder and the complying Electing Investors, pro rata based on their
respective participations in the transaction as determined pursuant to Section
2.4(a), additional Covered Securities equal in kind and number or other relevant
amount to the Tag- Along Securities which such Electing Investor failed to
tender or deliver at the closing; provided however, that if the Prospective
Purchaser shall incur in connection with closing of the purchase and sale of the
Tag-Along Securities any additional out-of-pocket costs or expenses solely as a
result of any such substitution of sellers, then such Electing Investor which
failed to tender or deliver its Tag-Along Securities at the closing shall
reimburse the Prospective Purchaser for such additional reasonable out-of-pocket
costs and expenses. The obligation of the Prospective Purchaser to purchase any
Tag-Along Securities of any Electing Investor shall not be subject to any
conditions which such Electing Investor could not reasonably be expected to
satisfy (even if any such condition is one applicable to the purchase by the
Prospective Purchaser from the Selling Stockholder). Any representations and
warranties made by an Electing Investor shall consist solely of such
representations and warranties relating to (i) such Electing Investor's title to
the Tag-Along Securities (or portion thereof) to be sold by such Electing
Investor, (ii) such Electing Investor's power and authority to consummate the
sale thereof to the Prospective Purchaser and (iii) other similar
representations and warranties as are customarily given by similarly situated
holders of securities similar to those being sold by such Electing Investor in a
similar transaction, but no Electing Investor shall be required to give any such
representations or warranties which the Selling Stockholder does not give. The
representations, warranties, covenants and agreements of the participating
Electing Investors shall be several and not joint and shall
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terminate upon the earlier of (i) the expiration of any representation or
warranty made by the Selling Stockholder or the Prospective Purchaser and (ii)
one year after closing. The closings of the purchases from the participating
Electing Investors and the Selling Stockholder shall occur simultaneously and
shall be conditioned upon each other, and, unless the Electing Investors
otherwise agree, such closing must occur not later than the ninetieth (90th) day
after the expiration of the period of ten (10) Business Days referred to in the
second sentence of Section 2.4(a) (subject to extension pursuant to subsection
(g) of this Section 2.4).
(e) If (i) the Prospective Purchaser does not, within the time period
provided in the last sentence of Section 2.4(a), enter into a binding purchase
agreement meeting the requirements of this Section 2.4 with the Selling
Stockholder, (ii) such an agreement is entered into within such time period but
the Prospective Purchaser does not tender for signature by each of the Electing
Investors an executed purchase agreement meeting the requirements set forth
above, (iii) if such an agreement with the Selling Stockholder is entered into
and such purchase agreements are so tendered to the Electing Investors, in each
case on a timely basis, but the Prospective Purchaser does not tender on the
closing date with respect to the Proposed Restricted Disposition, or does not
tender on the terms and conditions provided in this Section 2.4, to the Selling
Stockholder and each of the Electing Investors the full purchase price for all
of the Covered Securities which the Selling Stockholder, the Electing Investors
are entitled to Dispose of pursuant to this Article II or (iv) if for any other
reason the closing under such purchase agreement with the Selling Stockholder or
any Electing Investor who signed the purchase agreement tendered to it does not
occur (other than by reason of a material breach or violation by such Electing
Investor of its representations, warranties, covenants, agreements or
obligations under its purchase agreement with the Prospective Purchaser that are
a condition to the closing thereunder) not later than the ninetieth (90th) day
after the expiration of the period of ten (10) Business Days referred to in the
second sentence of Section 2.4(a) (as such may be extended pursuant to
subsection (g) of this Section 2.4), then the Selling Stockholder shall not be
entitled to Dispose of any Offered Securities in such Proposed Restricted
Disposition, whether pursuant to the transaction in question or otherwise,
without again complying with this Article II. No purchase agreement with any
Prospective Purchaser entered into by the Selling Stockholder shall contain any
terms or provisions inconsistent with this Article II.
2.5. Tag-Along Rights of Investors in a Control Change Transaction.
(a) In the case of any Proposed Restricted Disposition which is a Control
Change Transaction, a Selling Stockholder shall be permitted to dispose of
Offered Shares to the Prospective Purchaser only after compliance with Section
2.2 and Section 2.3 and only if the Prospective Purchaser, in accordance with
this Section 2.5, makes an offer (the "Purchase Offer") to purchase all shares
of Common Stock held by the Investors and purchases all such shares tendered for
purchase pursuant to the Offer.
(b) The Prospective Purchaser shall deliver to each Investor, promptly
after the later of (i) the date such Selling Stockholder's Offer Notice was
given and (ii) if one or more valuations pursuant to Section 2.3(a) or Section
2.5(c) are required or if one or more disputes referred to in Section 2.3(b)
arise, the first date as of which all such valuations have been completed in
accordance with Section 2.3(a) and all such disputes have been resolved in
accordance with Section 2.3(b) and all notices required under the last sentence
of either such Section have been given, a written notice (the "Purchase Notice")
making and setting forth the terms of the Purchase Offer. The Purchase Notice
shall specify an expiration date (the "Expiration Date") for the Purchase Offer,
which Expiration Date shall be a Business Day not less than 30 days nor more
than 60 days after the date the Purchase Notice is given. The Offer Notice must
be accompanied by an appropriate form (a "Tender Notice") by which each Investor
may elect, subject to the withdrawal rights hereinafter described, to tender any
or all of the shares of capital stock of the Company held by such Investor for
purchase pursuant to the Purchase Offer. No tendering holder, however, shall be
required to deliver any of such holder's shares
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that he intends to tender prior to the Purchase Date. The Purchase Notice must
state that, unless the Purchase Offer is terminated as provided below, the
Prospective Purchaser will accept for payment and pay for, in accordance with
the provisions of this Agreement, all of the outstanding shares of capital stock
of the Company tendered for purchase on or prior to the Expiration Date. Any
tendering holder may, at any time prior to the close of business on the
Expiration Date, withdraw (in whole or in part) any election previously made to
tender such holders' shares. For a withdrawal to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Prospective
Purchaser on or before the Expiration Date, and the Purchase Notice must specify
one or more addresses and facsimile telephone numbers for such purpose, as well
as for the giving of other notices, elections and other communications regarding
the Purchase Offer. The Purchase Offer may not be made subject to any condition
other than acceptance on or prior to the Expiration Date as provided herein. The
Prospective Purchaser may terminate the Purchase Offer on or prior to the
Expiration Date, provided that written notice to such effect shall be given,
promptly and in any event not later than the second Business Day after the
Expiration Date, to all Persons to whom the Purchase Notice was required to be
given, but in the event of such termination the Selling Stockholder may not
consummate any Proposed Restricted Disposition unless or until the requirements
of this Article IV are again complied with in full. If the Purchase Offer is not
terminated as provided above, then the Prospective Purchaser shall be deemed to
have accepted and agreed to pay for, in accordance with this Agreement, all of
the shares of capital stock of the Company tendered for purchase as provided
above, and the Offeror shall, promptly after the Expiration Date, give each
tendering Investor reasonable and appropriate instructions for delivering all of
such Investor's tendered shares for purchase and payment. Any shares delivered
by or on behalf of any Investor in connection with a tender for purchase
pursuant to a Purchase Offer which, for any reason, are not paid for as provided
herein shall promptly be redelivered to such Investor (without limitation of any
other rights or remedies such holder may have by reason of such failure of
payment).
(c) The purchase price for any shares of capital stock tendered for
purchase by any Investor pursuant to any Purchase Offer shall be paid in cash
and shall be an amount per share of each class or series of capital stock of the
Company so tendered equal to the highest of the following:
(i) if such class or series is the Common Stock, the Per-Share Offer
Consideration;
(ii) if applicable, the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
in order to acquire any shares of such class or series beneficially owned
by the Prospective Purchaser or any of its Affiliates which were acquired
within the two-year period immediately prior to the date the Purchase
Notice is given, appropriately adjusted to reflect any stock split, stock
dividend, reverse stock split or similar event which may have occurred
after the date such price was paid;
(iii) if applicable, the highest amount per share to which the
holders of shares of such class or series are entitled in the event of any
mandatory redemption of such shares (whether or not any of the conditions
to any such redemption have been satisfied); and
(iv) the Fair Market Value per share of such class or series on the
date the Purchase Notice is given.
The Fair Market Value per share of any class or series of capital stock of the
Company shall be determined as follows: Promptly after the Purchase Notice is
given, the Investor Representative and the Prospective Purchaser shall attempt
in good faith to arrive at unanimous agreement on such Fair Market Value. If
they are unable to so agree within ten days, each shall select one appraiser
satisfying the requirements of Section
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4.1 and each shall submit to such appraiser (and each other) a brief written
statement of their respective positions regarding the matter in dispute and
supporting arguments, and each shall be given a period of five (5) Business Days
thereafter to submit to the other and to the appraiser a written response to
such written statement of the other. Such appraiser shall, within fifteen (15)
days of the date of its selection, resolve such dispute by choosing either the
position of the Investor Representative set forth in such written statement so
submitted by him or the position of the Prospective Purchaser set forth in such
written statement so submitted by the Prospective Purchaser, whichever in the
opinion of the appraiser, in its sole discretion, is more accurate. Decisions
with respect to such determination made pursuant to this Section 2.5(c) by the
Investor Representative shall be binding on all Investors. The determination of
the Fair Market Value of any such noncash consideration by agreement of the
Prospective Purchaser and the Investor Representative or by the appraiser
appointed as provided in this Section 2.5(c) and Article IV shall be final and
conclusive for all purposes of this Section 2.5.
(d) If the Prospective Purchaser does not comply with this Section 2.5 on
a timely basis, then the Selling Stockholder shall not be entitled to Dispose of
any Offered Shares in the Proposed Restricted Disposition in question or
otherwise without again complying with this Article II.
2.6. Election by Investor of Securities to be Sold. In any case where any
Investor has a right pursuant to this Article II to sell Common Stock which is
issuable to such Investor upon exercise of any Right, such Investor may elect,
in its sole discretion, to either exercise such Right and sell the Common Stock
issued upon such exercise or to sell such Right. If the Investor elects to sell
such Right, then the aggregate purchase price payable for such Right shall be
the aggregate purchase price which would be payable for the shares of Common
Stock issuable upon exercise of such Right if such Investor had elected to
exercise such Right and sell such shares, reduced by the aggregate amount of
cash which such Investor would have had to pay to the Company in order to
exercise such Right.
2.7. Multiple Classes of Voting Equity. The Company covenants to and
agrees with each Investor that, without the prior approval of the Investor
Representative (in addition to any other approvals required by law, the Series B
Certificate of Designation or the Company's Certificate of Incorporation) it
will not authorize, create (through any amendment of its Certificate of
Incorporation, any designation of authorized but undesignated shares, any
recapitalization or other change of the outstanding shares of Common Stock or
otherwise) or issue any class, series or other kind of Voting Equity other than
the Common Stock, and each Shareholder covenants to and agrees with each
Investor that it shall not acquire any such Voting Equity (or any options,
warrants, convertible securities or other rights to acquire any such Voting
Equity) unless, prior thereto, the Shareholders and the Company enter into an
agreement with the Investors, in form and substance reasonably satisfactory to
the Majority Investors, pursuant to which each Shareholder grants to the
Investors rights to participate in any Disposition or Proposed Disposition of
any class, series or other kind of Voting Equity (including the Common Stock),
notwithstanding that one or more Investors may not hold Voting Equity of that
particular class, series or kind, which are as nearly equivalent as practicable
to the provisions of Article II. In addition, the Company covenants to and
agrees with each Investor that, without the prior approval of the Investor
Representative (in addition to any other approvals required by law, the Series B
Certificate of Designation or the Company's Certificate of Incorporation) it
will not consummate, and each Shareholder covenants to and agrees with each
Investor that it shall not vote for, approve or otherwise authorize the Company
to consummate any covered business combination (as defined below) unless the
successor or acquiring corporation and the Shareholders enter into an agreement
with the Investors, in form and substance reasonably satisfactory to the
Majority Investors, pursuant to which each Shareholder grants to the Investors
rights to participate in any disposition or proposed disposition of any class,
series or other kind of common stock or other voting equity of such successor or
acquiring corporation,
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notwithstanding that one or more Investors may not hold voting equity of that
particular class, series or kind, which are as nearly equivalent as practicable
to the provisions of Article II. For purposes of this Section, a "covered
business combination" is any consolidation, merger, binding share exchange or
reorganization to which the Company is a party or any sale, conveyance, transfer
or lease to another corporation of the properties of the Company as an entirety
or substantially as an entirety if as a result of such transaction the
outstanding Common Stock is exchanged for or converted into common stock or
other voting equity of a successor or acquiring corporation and if immediately
after consummation of such transaction the Shareholders collectively are the
Beneficial Owners of at least 50% of the combined voting power of all voting
equity of such successor or acquiring corporation. References to "voting equity"
of any such successor or acquiring corporation are intended to be interpreted
consistently with the definition of "Voting Equity" in Section 1.1.
2.8. Miscellaneous. No purchase or other agreement with any Prospective
Purchaser entered into by the Selling Stockholder shall contain any terms or
provisions inconsistent with this Article II. If any sale of shares of Common
Stock or other capital stock or securities to any Prospective Purchaser
requires, as a condition to the legal and valid transfer thereof to such
Prospective Purchaser, any consent, approval, waiver, or authorization of,
notice to or filing with, any Governmental Authority or the expiration of any
waiting period imposed by applicable law, then the date of such sale shall be
extended for the period of time during which efforts to obtain each such
consent, approval, waiver, or authorization, to give such notice or make such
filing and to obtain the termination of each such waiting period at the earliest
reasonably practicable time are diligently being made; provided, however, that
in no event shall the extension of any such closing date pursuant to this
Section 2.4(g) exceed ninety (90) days. Each party shall (and shall cause such
party's controlled Affiliates to) reasonably cooperate with the other parties in
obtaining any such consent, approval, waiver, or authorization, to give any such
notice or make any such filing and in obtaining the termination of any such
waiting period at the earliest practicable time.
III
CORPORATE GOVERNANCE; CERTAIN REPRESENTATIONS,
WARRANTIES AND COVENANTS
3.1. Board Representation. Each Stockholder severally covenants and agrees
that, such Stockholder shall vote, or cause to be voted, all Voting Equity from
time to time owned or controlled by such Stockholder and which such Stockholder
is entitled to vote for such purpose, as of the record date of any action of the
shareholders of the Company, whether by consent or at a meeting, at which
members of the Board of Directors are to be elected or to establish the number
of Directors of the Company, in favor of a Board of Directors comprised of seven
Directors designated as follows:
(a) Subject to Section 3.2 below, two Directors designated by the
Shareholder Representative.
(b) Subject to Section 3.2 below, four Disinterested Outside
Directors who either (A) represent a significant financial interest in the
Company or (B) have strategic expertise or a position relative to the
business of the Company which Disinterested Outside Directors are
nominated by the Shareholder Representative .
(c) The remaining Director of the Company (the "Series B Director")
elected by the holders of the Series B Preferred Stock as set forth in the
Series B Certificate of Designation. The
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provisions of the Series B Certificate of Designation shall govern to
designation, election and removal of the Series B Director and filling of
any vacancy in the office of the Series B Director. The provisions of
Section 3.2, Section 3.3, Section 3.4, Section 3.5 and Section 3.6 shall
apply only to the other six Directors comprisingthe Board of Directors.
3.2. Termination of Right to Designate Directors. The right to designate
any Director pursuant to Section 3.1(a) and Section 3.1(b) and the designated
size of the Board set forth in the first sentence of Section 3.1 shall terminate
on the earlier of the date on which (i) all of the shares of Series B Preferred
Stock held by the Investors are converted into Common Stock of the Company in
accordance with the terms of the Series B Certificate of Designation or (ii) the
Investors no longer hold any shares of Series B Preferred Stock.
3.3. Term of Appointment. Subject to the earlier death, resignation or
removal of any Director designated hereunder, each Director elected or appointed
at any time as provided herein shall serve until the next annual meeting of the
Company's stockholders and until his or her successor shall have been elected as
provided herein or as provided in the Series B Certificate of Designation, as
the case may be.
3.4. Filling of Vacancy. In the event of any vacancy in the Board of
Directors of the Company occurring for any reason, each Stockholder severally
covenants and agrees to vote, or cause to be voted, all Voting Equity from time
to time owned or controlled by such Stockholder and which such Stockholder is
entitled to vote for such purpose to fill such vacancy in the manner set forth
in Section 3.1.
3.5. Intentionally omitted.
3.6. Consistent Bylaw and Charter Provisions. The Certificate of
Incorporation and the Bylaws of the Company shall at all times contain
provisions consistent with the provisions, purposes and intent of this Article
III.
3.7. Voting on Certain Matters. Each Shareholder agrees with and covenants
to each Investor that if any affirmative vote, consent, approval or other action
by any of the Company's stockholders, as such, is required in order to
authorize, or otherwise in connection with, the Company's observance of any of
the terms of, or the performance by the Company of any of the Company's
agreements, covenants, obligations or commitments under or with respect to any
Transaction Document, such Shareholder shall, in its capacity as a stockholder
of the Company, give such affirmative vote, consent or approval and take such
other action, including any such vote, consent, approval or other action
contemplated by this Article III or pursuant to the Series B Certificate of
Designation. Whenever any action is required to be taken by a Shareholder
pursuant to this Agreement, such Shareholder agrees to take all steps reasonably
necessary to implement such action including, without limitation, voting at any
meeting of stockholders all shares of capital stock held by such Shareholder in
favor of such action, and/or executing or causing to be executed, as promptly as
practicable, a consent in writing to the taking of such action. Any agreement by
a Shareholder to vote capital stock held by such Shareholder in a certain manner
shall be deemed, in each instance, to include an agreement by such Shareholder
to use its reasonable efforts to take all actions necessary to call, or to cause
the Company and the appropriate officers and Directors of the Company to call,
as promptly as practicable, a special or annual meeting of stockholders to
consider such action (and such Shareholder shall thereafter attend any such
annual or special meeting in person or by proxy), or to cause a written consent
to the taking of such action to be circulated among the stockholders of the
Company (and to execute and deliver any such consent to such action). Each
Shareholder further agrees to vote all of its shares of capital stock entitled
to vote, and to take all other actions necessary, to ensure that the Certificate
of Incorporation and Bylaws of the Company facilitate and do not at any time
prohibit the actions contemplated by this Agreement or any other Transaction
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Document.
3.8. Restrictive Covenants.
(a) Other Consent Rights. Without the affirmative consent of the Majority
Investors:
(i) the Company will not amend, alter or repeal (whether by
amendment, merger, consolidation or otherwise) the Series B Certificate of
Designation;
(ii) the Company will not amend, alter or repeal (whether by
amendment, merger or consolidation or otherwise) any of the provisions of
its Certificate of Incorporation or By-laws, or any resolution of the
Board of Directors or any other instrument establishing and designating
the Series A Preferred Stock or any other capital stock of the Company now
or hereafter exiting and determining the relative rights, privileges,
powers or preferences thereof;
(iii) the Company will not (A) create, designate or issue any Senior
Stock, (B) create or designate any Parity Stock, (C) issue any shares of
Series B Preferred Stock other than pursuant to the Purchase Agreement or
Other Purchase Agreements or (D) issue or sell any shares of Common Stock
or any other equity interests of the Company or any rights to acquire or
securities convertible into any Common Stock or other equity interests of
the Company, whether upon exchange, conversion, exercise of purchase
rights or otherwise, except in the case of this subclause (D) for grants
of Employee Options approved by the Compensation Committee, the exercise
of existing Employee Options or the conversion of any share or shares of
Series A Preferred Stock or Series B Preferred Stock in accordance with
the terms thereof;
(iv) the Company will not, and will cause each Subsidiary not to,
(A) enter into any agreement with any Person which, in the absence of a
default thereunder, would prevent the Company from paying dividends or
making redemption payments on the Series B Preferred Stock in accordance
with the terms of the Series B Certificate of Designation or from fully
performing on a timely basis any of its obligations with respect to the
Series B Preferred Stock or, or would condition or otherwise limit or
restrict the ability of any Subsidiary to (1) pay dividends or make any
other distributions permitted by applicable law to the Company or any
other Subsidiary; (2) pay any Debt owed to the Company or any other
Subsidiary; (3) make loans or advances to the Company or any other
Subsidiary; or (4) transfer any of its property or assets to the Company
or any other Subsidiary; or (B) otherwise create or suffer to become
effective any consensual arrangement which would have any effect referred
to in subclause (A) of this clause (iv);
(v) the Company will not, and will cause each Subsidiary not to,
consolidate with, or merge with or into, any Person or enter into a
binding share exchange or similar transaction with any Person other than
(A) the merger of a Wholly Owned Subsidiary into the Company, with the
Company being the surviving Person or (B) a merger or consolidation
exclusively between Wholly Owned Subsidiaries;
(vi) the Company will not, and will cause each Subsidiary not to,
sell, transfer, convey, mortgage, pledge or otherwise dispose of or
encumber any of their respective properties (including any property
consisting of an equity interest or other investment or interest in any
Subsidiary), except for (A) transfers of assets by a Wholly Owned
Subsidiary to the Company or another Wholly Owned Subsidiary, (B) sales of
property (including sales of markets and options to purchase markets) in
the
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ordinary course of business, consistent with past practices, in arm's
length transactions with non-affiliates, (C) encumbrances of assets
(including sales of markets and options to purchase markets) on customary
terms and consistent with past practices to secure indebtedness permitted
by clause (viii) of this sentence, and (D) the sale of property not
permitted by subclause (A), (B) or (C) of this clause (vi) if such sale is
to a non-Affiliate of the Corporation, is at a price not less than Fair
Market Value and the aggregate sale price for such sale and all other
sales (whether or not related) during any single fiscal year made in
reliance on this subclause (D) does not exceed $100,000;
(vii) the Company will not, and will cause each Subsidiary not to
dissolve, liquidate or wind-up its business or affairs or otherwise
terminate or permit the termination of its legal existence, provided that
the Company shall be permitted to cause Wholly Owned Subsidiary to
dissolve, liquidate or wind-up its business or affairs or otherwise
terminate or permit the termination of its legal existence if such act
would not violate clause (vi) hereof or otherwise require the approval of
the Majority Investors pursuant to any other provision of this Section
3.8.
(viii) the Company will not, and will cause each Subsidiary not to,
directly or indirectly Incur any Debt if (A) the Combined Debt to
Annualized Operating Cash Flow Ratio is or would (after giving effect to
such Incurrence) be greater than 3 to 1 and (B) the aggregate amount of
Debt of the Company and its Subsidiaries, determined on a Combined Basis,
is in excess of, or would (after giving effect to such Incurrence) exceed,
$5,000,000;
(ix) the Company will not, and will cause each Subsidiary not to,
declare or pay any dividend on, or declare or make any distribution to
holders of, or purchase, redeem or otherwise acquire for cash, property,
securities or any other form of property any capital stock or other equity
interests of the Company or any Subsidiary except as provided hereunder,
other than dividends and distributions by a Wholly Owned Subsidiary to the
Company or another Wholly Owned Subsidiary;
(x) the Company will not, and will cause each subsidiary not to,
make investments, purchase or otherwise acquire any property for any
consideration, except for (A) transfers of assets by a Wholly Owned
Subsidiary to the Company or another Wholly Owned Subsidiary, (B)
purchases of material property in the ordinary course of business,
consistent with past practices, in arm's length transactions with
non-Affiliates, and (C) purchases of property not permitted by subclause
(A) or (B) of this clause (x) if such purchase is from a non-Affiliate, is
at a price not greater than Fair Market Value and the aggregate purchase
or other acquisition price for such purchase and all other purchases
(whether or not related) during any single fiscal year made in reliance on
this subclause (C) does not exceed $100,000;
(xi) except as set forth on Schedule 3.8 hereto, the Company will
not, and will cause each Subsidiary not to, enter into any contract or
agreement with or for the benefit of, make any loan or advance to or
investment in, obtain any loan, advance or other extension of credit from,
sell, assign or otherwise transfer any assets to, purchase or otherwise
acquire any assets from, guarantee, assume or otherwise become liable for
any Debt or other liabilities or obligations of or engage in any other
transaction with or for the benefit of any Restricted Person, except
payment or provision of salaries and other employee compensation to
officers or directors of the Company or such Subsidiary commensurate with
compensation levels and deferred compensation amounts in effect on the
date of and disclosed pursuant to the Purchase Agreement or approved by
the Compensation Committee or pursuant to any employment agreement
disclosed pursuant to the Purchase Agreement or approved by the
Compensation Committee;
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(xii) the Company will cause each Subsidiary not to issue or sell
any of its equity interests to any Person other than (A) issuances and
sales by a Wholly Owned Subsidiary to the Company or another Wholly Owned
Subsidiary or (B) issuances (otherwise than for value) by a Subsidiary
which is not a Wholly Owned Subsidiary to the Company or a Wholly Owned
Subsidiary;
(xiii) the Company will not, and will cause each Subsidiary not to,
establish any new employee benefit plans or modify any existing employee
benefit plan;
(xiv) the Company will not, and will cause each Subsidiary not to
dissolve, liquidate or wind-up its business or affairs or otherwise
terminate or permit the termination of its legal existence, provided that
the Company shall be permitted to cause any Wholly Owned Subsidiary to
dissolve, liquidate or wind-up its business or affairs or otherwise
terminate or permit the termination of its legal existence if such act
would not violate Section 3.8(a) hereof or otherwise require the approval
of the Majority Investors pursuant to any other provision of this Section
3.8(a);
(xv) the Company will not, and will cause each Subsidiary not to,
enter into or engage in, directly or indirectly, any line of business
other than the business of electronic out-of-home media; and
(xvi) the Company will not, and will cause each Subsidiary not to,
amend, abandon, terminate, waive or release any rights, or exercise any
rights not in the ordinary course of business, under any certificate of
incorporation, by-laws, partnership or joint venture agreement or other
charter, organizational, governing or constituent documents of any
Subsidiary where the result is any fundamental change in the
organizational or ownership structure of such Subsidiary or would involve
total payments or costs or a total value in excess of $500,000.
To the extent that the Company proposes to take any action or consummate any
transaction of any kind specified in any clause of the immediately preceding
sentence in order to redeem, or in connection with, redemption of all
outstanding shares of the Series B Preferred Stock required or permitted by
Section 6 of the Series B Certificate of Designation, the consent or approval of
the Majority Holder shall not be required to the extent that the Company
provides assurances, reasonably satisfactory to the Majority Investors, that
such action or transaction will not be taken or consummated unless such
redemption is first or simultaneously effected in accordance with all applicable
provisions of Section 6 of the Series B Certificate of Designation (including
the requirements of Section 6(f) of the Series B Certificate of Designation with
respect to the indefeasible deposit of the Redemption Price (as defined in the
Series B Certificate of Designation)) and all applicable requirements of law and
that the Company will not Incur any liability or obligation in the event that
such action or transaction is abandoned or any condition to the taking or
consummation thereof (including the redemption of the Series B Shares in
accordance with the terms of the Series B Certificate of Designation and as
required by this sentence) is not satisfied.
(b) Delivery of Certificate. In each instance in which the Company or any
of its Subsidiaries proposes to Incur Debt otherwise than with the approval of
the Majority Investors, no later than three Business Days prior to the proposed
date for such Incurrence, the Company shall deliver to each Investor a
certificate, signed by the Chief Financial Officer of the Company, setting forth
in reasonable detail the calculations and information necessary to establish
that such Incurrence would not require such approval pursuant to this Section
3.8.
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(c) For purposes of this Section 3.8, the Majority Investors shall have 20
days from the later of (i) the date Company notifies the Investors of any of the
events or circumstances set forth in Section 3.8(a) or Section 3.8(b) or (ii)
the date of receipt by the Investors of all information reasonably requested by
the Investors in connection with such notice, to give their consent pursuant to
this Section 3.8. After the expiration of such 20 day period, such consent by
the Majority Investors shall be deemed to be given.
3.9. Reports; Access.
(a) The Company agrees to furnish each Investor, within 120 days after the
end of each fiscal year of the Company within 45 days after the end of each
Fiscal Quarter and within 30 days after the end of each month, an annual,
quarterly or monthly, as the case may be, consolidated balance sheet and related
statements of income and cash flows for the Company and its consolidated
Subsidiaries, certified (in the case of each annual and each quarterly balance
sheet and statement of income), by the chief financial officer of the Company as
having been prepared in accordance with generally accepted accounting principles
consistently applied and as fairly presenting the consolidated financial
condition and results of operations of the Company and such Subsidiaries as of
the date and for the periods covered thereby (and, in the case of such annual
financial statements, accompanied by an auditor's report, without qualification
as to the scope of the audit, of a nationally recognized independent accounting
firm), and any other information or reports furnished in writing to the holders
of the Company's Junior Stock, Parity Stock or Senior Stock, generally,
simultaneously with their delivery to such holders. Such financial statements
for any period shall be accompanied by a certificate, signed by the Chief
Financial Officer of the Company, setting forth in reasonable detail the
calculations of the Combined Debt to Annualized Operating Cash Flow Ratio as of
the end of such period. Such annual financial statements shall be accompanied by
a report of such independent certified public accountants confirming any
adjustments made pursuant to GAAP during the fiscal year covered by such
financial statements. The Corporation also shall furnish to each Investor any
other information concerning the business, affairs or condition of the Company
or any Subsidiary as such holder at any time or from time to time may reasonably
request for the purpose of securing or exercising the rights and benefits
intended to be conferred by this resolution or to ascertain whether the Company
is in compliance herewith.
(b) The Company will file on or before the required date all regular or
periodic reports and statements required to be filed by it with the Commission,
and will deliver to the Investor Representative, promptly upon filing, a copy of
each such report and statement and of each registration statement, prospectus or
written communication (other than transmittal letters) filed by the Company with
(i) the Commission, (ii) any securities exchange on which shares of Common Stock
are listed or (iii) the National Association of Securities Dealers, Inc.
(c) The Company shall cooperate with each Investor in supplying such
information as may be reasonably necessary for such Investor or holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from registration under the Securities Act for the sale or other transfer of any
securities of the Company held by such Investor. Without limiting the generality
of the immediately preceding sentence, each holder and prospective purchaser of
any such securities designated by such Investor will have the right to obtain
from the Corporation upon request by such holders or prospective purchasers,
during any period in which the Corporation is not subject to Section 13 or 15(d)
of the Exchange Act, the information required by paragraph d(4)(i) of Rule 144A
in connection with any transfer or proposed transfer of any such securities.
(d) At any reasonable time and at reasonable intervals, the Company shall
permit any Investor
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who holds 5% or more of the outstanding shares of Series B Preferred Stock or
the outstanding shares of such class or series of Conversion Stock (as defined
in the Series B Certificate of Designation) and any authorized agent or
representative thereof to (i) visit the properties of the Company and any of its
subsidiaries and (ii) discuss the business affairs, finances and accounts of the
Company and any of its subsidiaries with any of their respective officers or
directors.
(e) Attendance at Stockholder Meetings. Each Investor will be entitled to
receive notice of and to attend all meetings of stockholders of the Company,
irrespective of whether such Investor shall be entitled to vote with respect to
any of the matters to be considered by the stockholders at such meeting. Notice
of stockholders' meetings shall be given to each Investor in the same manner as
such notice is required to be given to the stockholders entitled to vote at such
meeting, in accordance with the By-laws of the Company and applicable law.
3.10. Certain Representations and Covenants of Each Shareholder. Each
Shareholder, individually and not jointly, represents and warrants to and
covenants with each Investor as follows:
(a) Other than pursuant to the other Transaction Documents, such
Shareholder is not a party to or bound by, and the Common Stock and Rights held
by such Shareholder are not otherwise subject to, any Contract, Requirement of
Law or Judgment, or (in the case of any Shareholder which is an Entity) subject
to any restriction of any nature under any of its charter or other
organizational or constituent documents, which does or may prevent, impede or
delay the due and punctual performance by such Shareholder of its covenants,
agreements, obligations and commitments contained in this Agreement, and such
Shareholder will not enter into any such Contract nor take any other voluntary
action or voluntarily omit to take any action which would have any such effect.
(b) Such Shareholder is the sole record and beneficial owner of the shares
of Common Stock, Rights and other securities of the Company indicated on
Schedule II hereto and owns the same free and clear of all liens, claims,
encumbrances and restrictions of any nature whatsoever (including any claim,
right or interest of any spouse or former spouse under any community property or
similar law), other than any created by this Agreement or any other Transaction
Document. Except for this Agreement, there is no option, warrant, right, call,
proxy, or Contract that directly or indirectly calls for or might call for the
sale, pledge or other Restricted Disposition of any of such Common Stock, Rights
or other securities, any interest therein or any rights with respect thereto,
relates to the voting, Restricted Disposition or control of any thereof or
obligates or may obligate such Shareholder to grant, offer or enter into any of
the foregoing.
3.11. Regulatory Approvals; Hart-Scott-Rodino Act. Each of the Company and
the Shareholders, severally and not jointly, covenants and agrees with each
Investor that it shall, at its own expense, reasonably cooperate with each
Investor and each Prospective Purchaser in making any filings and obtaining any
consents, approvals, permits or authorizations required to be made or obtained
under any federal, state or foreign law or regulation and any consents,
approvals or waivers required to be obtained under loan agreements or other
Contracts material to the respective businesses of the Company and its
Subsidiaries in connection with any exercise of any Tag-Along Right pursuant to
Article II. Without limiting the generality of the foregoing, if any Investor is
advised by its own legal counsel that its intended exercise of any Tag-Along
Right pursuant to Article II would or might be subject to the HSR Act, each of
the Company and the Shareholders, with reasonable cooperation from such Investor
shall promptly comply with any applicable requirements under the HSR Act
relating to filing and furnishing of information (the "HSR Report") to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice, such actions to include, without limitation, (i) filing
the HSR Report and taking all other action required by the HSR Act,
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(ii) coordinating with respect to the filing of the HSR Reports of such
Investor, the Company and each other participant in the transaction required to
file an HSR Report, including exchanging drafts thereof, so as to present all
required HSR Reports to the FTC and the Department of Justice at the time
selected by such Investor and to avoid substantial errors or inconsistencies
among such HSR Reports in the description of the transaction, (iii) complying
with any additional request for documents or information made by the FTC or the
Department of Justice or by a court and assisting the other participants in the
transaction to so comply and (iv) causing all Persons which are part of the same
"person" (as defined for purposes of the HSR Act) as the Company or such
Shareholder (as the case may be) to cooperate and assist in such filing and
compliance. If any Investor is advised by its own legal counsel that its
intended exercise of any Tag-Along Right pursuant to Article II would or might
be subject to any other law, rule or regulation which requires any filing with
or review or approval by any Governmental Authority or agency, each of the
Company and the Shareholders shall promptly comply with any requirements of such
law, rule or regulation applicable to it and shall cooperate with such Investor
in such Person's efforts to comply with the requirements of such law, rule or
regulation applicable to it on a timely basis. Each party shall bear and pay any
costs or expenses that it incurs in complying with this Section 3.11, except
that the Company shall pay all filing fees under the HSR Act.
3.12. Continued Validity. Any Investor who is a holder of Conversion
Securities (as defined in the Series B Certificate of Designation) issued upon
the conversion of any shares of Series B Preferred Stock (other than an Investor
who acquires such Conversion Securities after the same have been publicly sold
pursuant to a registration statement under the Securities Act or sold pursuant
to Rule 144 thereunder) shall continue to be entitled with respect to such
Conversion Securities to all rights to which such holder would have been
entitled as an Investor under this Article III. The Company will, upon the
request of any such Investor, acknowledge in writing, in form reasonably
satisfactory to such Investor, the Company's continuing obligation to afford to
such Investor all such rights; provided, however, that if such holder shall fail
to make any such request or the Company shall fail to comply with any such
request made, such failure shall not affect the continuing obligation of the
Company to afford to such Investor all of such rights.
3.13. Audit and Compensation Committees. Unless the Majority Investors
otherwise agree, the Board of Directors shall have an audit committee (the
"Audit Committee"), a compensation committee (the "Compensation Committee") and
a valuation committee (the "Valuation Committee"), each of which shall have
three members one of whom shall be the Series B Director, at least one other of
whom shall be a Disinterested Outside Director and, so long as the directors of
the Company include directors designated pursuant to Section 3.1(a), one of the
directors designated pursuant to Section 3.1(a). The Audit Committee will have
the authority and responsibility for the selection, engagement or discharge of
independent auditors, reviewing with the independent auditors the plan and
results of the auditing engagement, reviewing the Company's systems of internal
accounting controls, directing investigations in matters within the scope of its
functions and performing any and all other such functions customarily performed
by audit committees of public companies. The Compensation Committee will have
the authority and responsibility for establishing and administering the stock,
incentive and other employee benefit plans of the Company, establishing and
changing the compensation of executive officers, approving or amending existing
and proposed employment agreements between the Company and its executive
officers and performing any and all other such functions customarily performed
by compensation committees of public companies. The Valuation Committee shall
have the authority and responsibilities as described in the Series B Certificate
of Designation. The requirement of the Board of Directors to designate each of
the Audit Committee, the Compensation Committee and the Valuation Committee as
set forth in this Section 3.13 shall terminate on the earlier of the date on
which (i) all of the shares of Series B Preferred Stock held by the Investors
are converted into Common Stock of the Company in accordance with the terms of
the Series B Certificate of Designation or (ii) the Investors no longer hold any
shares of Series B Preferred Stock.
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IV
APPRAISAL PROCEDURES
4.1. Appraisals of Fair Market Value. Any appraiser appointed pursuant to
Section 2.3 or Section 2.5 shall be a nationally recognized appraiser or
investment banking firm which has substantial experience in making appraisals
similar to that being made, which is not directly or indirectly affiliated with
the Company or any other Person who is a party to or otherwise interested in the
event resulting in the need for such appraisal and which has no interest (other
than the receipt of customary fees) in such event. The fees and expenses of any
appraisers appointed pursuant to Article II shall be borne by the Person or
Persons by whom or on whose behalf the written statement not chosen by such
appraiser was submitted and if that statement was submitted by or on behalf of
the Investors, then the fees and expenses of such appraiser shall be borne by
the Investors pro rata based upon the number of shares of Common Stock held by
each.
4.2. Determinations Generally. Unless otherwise expressly provided herein,
all decisions and determinations required or permitted to be made hereunder by
any Investor, by the Majority Investors, by any Shareholder or by the Majority
Shareholders (including any decision as to whether to give any consent or
approval) shall be made by such Person or Persons in its or their sole
discretion. Any notice, consent, approval or other decision by or on behalf of
the Majority Investors or the Majority Shareholders required or permitted by
this Agreement shall be effective if expressed in a writing which is either (i)
executed by the Majority Investors or the Majority Shareholders, as the case may
be, or (ii) executed by the Investor Representative or the Shareholder
Representative, as the case may be, in which case the other parties may assume
that the Investor Representative or the Shareholder Representative, as the case
may be, has the power and authority to do so and may rely conclusively on such
writing as expressing the action of the Majority Investors or the Majority
Shareholders, as the case may be. No Investor Representative or former Investor
Representative shall be liable, in damages or otherwise, to the Company or any
of its Affiliates, stockholders, Directors, officers, employees or agents, to
any Stockholder, to any other Person except the Investors, for or by reason of
any act or failure to act in its capacity as Investor Representative. No
Investor Representative or former Investor Representative shall be liable, in
damages or otherwise, to any Investor for any act or failure to act in its
capacity as Investor Representative unless such act or failure to act was not
within the scope of the authority or discretion conferred on the Investor
Representative by this Agreement and constituted willful misconduct, and each
Investor Representative and former Investor Representative shall in any event be
fully protected with respect to any act or failure to act authorized, approved
or ratified by the Majority Investors. No Shareholder Representative or former
Shareholder Representative shall be liable in damages, or otherwise to the
Company or any of its Affiliates, stockholders, Directors, officers, employees
or agents, to any Investor or to any other Person except the Shareholders, for
or by reason of any act or failure to act in its capacity as Shareholder
Representative. No Shareholder Representative or former Shareholder
Representative shall be liable in damages, or otherwise to any Shareholder for
any act or failure to act in its capacity as Shareholder Representative unless
such act or failure to act was not within the scope of the authority or
discretion conferred on the Shareholder Representative by this Agreement and
constituted willful misconduct, and each Shareholder Representative and former
Shareholder Representative shall in any event be fully protected with respect to
any act or failure to act authorized, approved or ratified by the Majority
Shareholders.
V
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MISCELLANEOUS
5.1. Legends.
(a) Each certificate or other instrument representing any Common Stock or
Rights held at any time or from time to time by any Shareholder shall bear the
following legend, in addition to any other legend required under applicable law
or by contract:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN STOCKHOLDERS' AGREEMENT, DATED SEPTEMBER 25,
1996, BY AND AMONG THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY
SPECIFIED THEREIN, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY. THE SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY INTEREST THEREIN IS
RESTRICTED BY SUCH AGREEMENT AND ANY SUCH SALE, PLEDGE, TRANSFER OR OTHER
DISPOSITION MAY BE MADE ONLY UPON COMPLIANCE THEREWITH. SUCH AGREEMENT
ALSO CONTAINS PROVISIONS RELATING TO THE EXERCISE OF CERTAIN VOTING AND
CONSENT RIGHTS, IF ANY, OF THE HOLDER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE."
(b) The Company shall not, and shall direct each registrar and transfer
agent of the Company not to, register any Disposition of any Common Stock or
Rights by any Shareholder which is not made in compliance with Article II,
Section 5.2 and the other applicable provisions of this Agreement.
5.2. Binding Effect; Assignability.
(a) This Agreement and all of the provisions hereof including the exhibits
hereto shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, assigns, executors, administrators and heirs;
provided that, except as otherwise specifically permitted or required pursuant
to this Agreement, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Company or any Shareholder
without the prior written consent of the Majority Investors.
5.3. Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers of or consents to departures from the provisions hereof may not be
given unless approved in writing by the Company, the Majority Investors and the
Majority Shareholders.
5.4. Governing Law. This Agreement and the validity, interpretation and
performance of the terms and provisions hereof shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the provisions thereof relating to choice or conflict of laws, except to the
extent that the laws of the jurisdiction of incorporation of the Company shall
be mandatorily applicable.
5.5. Interpretation. The headings of the articles and sections contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect the meaning or interpretation of
this Agreement.
5.6. Notices. All notices, requests, consents, demands, elections and
other communications required or permitted hereunder shall be in writing and
shall be given to the intended recipient at: (i) in the
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case of any Investor or any Shareholder, to the Investor Representative or the
Shareholder Representative, as the case may be, at such address as such Investor
Representative or Shareholder Representative, as the case may be, may from time
to time specify by written notice to the Company; and (ii) in the case of the
Company, to the Company at its principal office at 9531 West 78th Street,
Minneapolis, Minnesota, 55344, or at such changed address as the Company may
from time to time specify in writing to the Investor Representative and the
Shareholder Representative. Any such notice, request, consent, demand, election
or other communication shall be deemed to have been duly given if personally
delivered or sent by registered or certified mail, return receipt requested,
Express Mail, Federal Express or similar overnight delivery service for next
Business Day delivery or by telegram, telex or facsimile transmission and will
be deemed given, unless earlier received: (1) if sent by certified or registered
mail, return receipt requested, five calendar days after being deposited in the
United States mail, postage prepaid; (2) if sent by Express Mail, Federal
Express or similar overnight delivery service for next Business Day delivery,
the next Business Day after being entrusted to such service, with delivery
charges prepaid or charged to the sender's account; (3) if sent by telegram or
telex or facsimile transmission, on the date sent; and (4) if delivered by hand,
on the date of delivery.
5.7. No Implied Waivers. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein or made pursuant hereto. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any preceding or succeeding breach and no failure by any party to
exercise any right or privilege hereunder shall be deemed a waiver of such
party's rights or privileges hereunder or shall be deemed a waiver of such
party's rights to exercise the same at any subsequent time or times hereunder.
5.8. Entire Agreement. This Agreement (together with the Schedules hereto)
constitutes the entire agreement of the parties with respect to the specific
subject matter hereof, and supersedes all prior agreements and undertakings,
both written and oral, among the parties with respect to such specific subject
matter.
5.9. Inspection. Copies of this Agreement will be available for inspection
or copying by any stockholder of the Company at the offices of the Company
through the secretary of the Company.
5.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
5.11. Further Assurances. Each party shall cooperate and take such actions
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
5.12. Specific Performance; Injunctive Relief. In addition to any other
rights or remedies which may be available at law, in equity or by contract, any
Investor shall be entitled to obtain in any court of competent jurisdiction
specific performance of, or an injunction or other order restraining any act or
proposed act by the Company or any Shareholder which would result in a violation
of, any of the terms or provisions of any of the Company's or such Shareholder's
covenants, agreements or obligations hereunder, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of such provision
will be inadequate compensation for any loss and that any defense in any action
for specific performance that a
33
<PAGE>
remedy at law would be adequate is waived. The rights and remedies herein
expressly provided are cumulative and not exclusive of any other rights or
remedies which any party would otherwise have pursuant to any other Transaction
Document, at law, in equity, by statute or otherwise.
5.13. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, provided, that if any provision hereof or the application
thereof shall be so held to be invalid, void or unenforceable by a court of
competent jurisdiction, then such court may substitute therefor a suitable and
equitable provision in order to carry out, so far as may be valid and
enforceable, the intent and purpose of the invalid, void or unenforceable
provision and, if such court shall fail to decline to do so, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision. To the extent that any provision shall be judicially unenforceable in
any one or more states, such provision shall not be affected with respect to any
other state, each provision with respect to each state being construed as
several and independent.
5.14. Rights and Obligations Several, Not Joint. No Investor or
Stockholder shall have any obligation or liability with respect to any other
Investor's or Shareholder's liabilities or obligations hereunder, and each
Investor and each Shareholder shall be separately and independently entitled to
rely on the representations and warranties of each other party made to the
Investors or such Investor or the Shareholders or such Shareholder in this
Agreement to the benefit of all agreements, covenants, obligations and
commitments of each other party made with or to the Investors or such Investor
or the Shareholders or such Shareholder or herein.
5.15. Consent to Jurisdiction; Service of Process. To the fullest extent
permitted by applicable law, each party hereto hereby irrevocably and
unconditionally (i) submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State or Federal court sitting in New York City
(and of any appellate court to which an appeal of any judgment, order, decree or
decision of any such court may be taken) in any suit, action or proceeding
arising out of or relating to this Agreement or for recognition or enforcement
of any judgment rendered in any such suit, action or proceeding, (ii) waives any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding in any such court, including any claim that any such
suit, action or proceeding has been brought in an inconvenient forum, (iii)
waives all rights to a trial by jury in any such suit, action or proceeding,
(iv) waives personal service of any summons, complaint or other process by any
means, manner or method other than in the manner provided for the giving of
notices to such party in Section 5.6, and agrees that any process served upon
such party in such manner provided for in Section 5.6 shall have the same
validity and legal force and effect as if served upon such party personally
within the State of New York and (iv) if any such party at any time is not a
resident of the State of New York, agrees to appoint and maintain the
appointment of an agent in the State of New York as such party's agent for
service and acceptance of legal process in connection with any such action, suit
or proceeding with the same validity and legal force and effect as if served
upon such party personally within the State of New York, and to notify promptly
each other such party of the name and address of such agent.
5.16. Facsimile Signatures. This Agreement may be executed by facsimile
signatures.
5.17. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, and in any action or proceeding otherwise arising
under or with respect to this Agreement, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to any other available
34
<PAGE>
remedy.
5.18. Termination of Agreement. Unless otherwise set forth in this
Agreement, the rights and obligations of the parties set forth in Article III
shall terminate on the earlier of the date on which (i) all of the shares of
Series B Preferred Stock held by the Investors are converted into Common Stock
of the Company in accordance with the terms of the Series B Certificate of
Designation or (ii) the Investors no longer hold any shares of Series B
Preferred Stock and the remaining provisions of the Agreement shall terminate
with respect to any Investor or any Shareholder if such party shall cease to own
any shares of Common Stock, any shares of Series B Preferred Stock or any
Qualifying Rights (as such term is defined in the Preemptive Rights Agreement);
provided, however, that any obligations incurred by such party prior to the
termination of this Agreement pursuant to this subsection shall continue.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stockholders' Agreement
as of the date first above written.
THE MENTUS GROUP, INC.
By:
Name:
Title:
Gerard P. Joyce
Thomas P. Pugliese
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By:
Michael J. Marocco
President
36
<PAGE>
21ST CENTURY COMMUNICATIONS PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By:
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By:
Michael J. Marocco
President
[Signature page to the Stockholders' Agreement]
37
<PAGE>
Schedule I
Initial Investors and Addresses
Covered Securities
------------------
Series A Series B
Name and Address Common Stock Preferred Stock Preferred Stock
21st Century Communications 0 0 44,028
Partners, L.P.
General Motors Building
767 Fifth Avenue
New York, NY 10153
Attn: Hannah Stone
21st Century Communications 0 0 14,980
T-E Partners, L.P.
General Motors Building
767 Fifth Avenue
New York, NY 10153
Attn: Hannah Stone
21st Century Communications 0 0 5,927
Foreign Partners, L.P.
General Motors Building
767 Fifth Avenue
New York, NY 10153
Attn: Hannah Stone
38
<PAGE>
Schedule II
Initial Stockholders, Covered Securities Owned and Addresses
Covered Securities
------------------
Series A Series B
Name and Address Common Stock Preferred Stock Preferred Stock
Gerald P. Joyce [___] [___] [__]
The Mentus Group, Inc.
9531 West 78th Street
Minneapolis, MN 55344
Thomas M. Pugliese [___] [___] [___]
The Mentus Group, Inc.
9531 West 78th Street
Minneapolis, MN 55344
[Stephen Adams]
[John Strauss]
39
<PAGE>
Exhibit 10.1(l)
FIRST AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS FIRST AMENDMENT TO STOCKHOLDERS' AGREEMENT is dated as of
August 29, 1997 and is made and entered into by and among the undersigned
parties (this "Amendment").
Recitals
All of the undersigned parties, except Pulitzer Publishing Company
(the "New Investor"), are the parties to a certain Stockholders' Agreement,
dated as of September 25, 1996 (the "Stockholders' Agreement"), relating to
Mentus Media Corp., a Delaware corporation formerly named The Mentus Group, Inc.
(the "Company").
Pursuant to one or more Stock Purchase Agreements, dated as of the
date hereof, the Company is selling to certain purchasers, including the New
Investor, shares of the Series C Senior Cumulative Compounding Convertible
Redeemable Preferred Stock, par value $1.00 per share, of the Company.
Such purchasers have advised the Company that the conditions to
their willingness to purchase such shares include the admission of the New
Investor as a party to and certain amendments of the Stockholders' Agreement.
Therefore, in order to induce each such purchaser to purchase such
shares to be purchased by it, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Certain Defined Terms. Unless otherwise expressly defined in this Amendment,
capitalized terms used in this Amendment have the respective meanings assigned
to them in the Stockholders' Agreement.
2. Amendments to the Stockholders' Agreement. The undersigned
parties who are parties to the Stockholders' Agreement hereby agree that,
effective as of the date hereof, the Stockholders' Agreement is hereby amended
as follows:
(a) The third sentence of the definition of "Contingent
Obligation" in Section 1.1 of the Stockholders' Agreement is amended by
adding the words "or any Series C Purchase Agreement" immediately after
the term "Purchase Agreement" appearing in such sentence.
(b) The definition of "Initial Investors" in Section 1.1 of
the
<PAGE>
Stockholders' Agreement is hereby amended to read in its entirety as
follows:
"Initial Investors: Each of the entities named in the first
paragraph of this Agreement as an `Initial Investor' and each of the
New Investors."
(c) The definition of "Investors", in Section 1.1 of the
Stockholders' Agreement is amended by substituting "Senior" for the word
and letter "Series B Preferred" in each place such word and letter appear
in such definition.
(d) The definition of "Junior Stock" in Section 1.1 of the
Stockholders' Agreement is amended to read in its entirety as follows:
"Junior Stock: (i) Each class or series of Common Stock, (ii)
the Series A Preferred Stock of the Company, (iii) any other class
or series of capital stock of the Company hereafter created, other
than (A) the Series B Preferred Stock or the Series C Preferred
Stock, (B) any class or series of Parity Stock (except to the extent
provided under clause (iv) of this sentence) and (C) any class or
series of Senior Stock (except to the extent provided under clause
(iv) of this sentence), and (iv) any class or series of Parity Stock
or Senior Stock to the extent that it ranks junior to the Series B
Preferred Stock or the Series C Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case
may be. For purposes of clause (iv) above, a class or series of
Parity Stock or Senior Stock shall rank junior to the Series B
Preferred Stock or the Series C Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation if the holders
of shares of Series B Preferred Stock or Series C Preferred Stock
(as the case may be) shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Company, as the case
may be, in preference or priority to the holders of shares of such
class or series."
(e) The definition of "Majority Investors " in Section 1.1 of
the Stockholders' Agreement is amended to read in its entirety as follows:
"Majority Investors: As of any time, any Investor who holds,
or Investors who hold in the aggregate, shares of Series B Preferred
Stock, Series
<PAGE>
C Preferred Stock or both having an aggregate Liquidation Price (as
hereinafter defined) representing more than 50% of the total
Liquidation Price of all shares of Series B Preferred Stock and
shares of Series C Preferred Stock then held by the Investors.
"Liquidation Price" means, as of any time, (i) in the case of any
Series B Share, the "Liquidation Price" of such Series B Share as of
such time as defined in and determined in accordance with the Series
B Certificate of Designation and (ii) in the case of any Series C
Share, the "Liquidation Price" of such Series C Share as of such
time as defined in and determined in accordance with the Series C
Certificate of Designation."
(f) The definition of "Parity Stock" in Section 1.1 of the
Stockholders' Agreement is amended to read in its entirety as follows:
"Parity Stock: (i) The Series B Preferred Stock, (ii) the
Series C Preferred Stock and (iii) each other class or series of
capital stock of the Company, if any, hereafter created with the
approval of the Investors and ranking on a parity basis with the
Series B Preferred Stock or the Series C Preferred Stock as to any
of dividends, rights of redemption or rights on liquidation. Capital
stock of any class or series shall rank on a parity as to dividends,
rights of redemption or rights on liquidation with shares of Series
B Preferred Stock or the Series C Preferred Stock, whether or not
the dividend rates, dividend payment dates, redemption or
liquidation prices per share or sinking fund provisions, if any, are
different from those of the Series B Preferred Stock or the Series C
Preferred Stock (as the case may be), if the holders of such stock
shall be entitled to the receipt of dividends, amounts distributable
upon dissolution, liquidation or winding up of the Company or
redemption payments, as the case may be, in proportion to their
respective dividend rates, liquidation prices or redemption prices,
respectively, without preference or priority, one over the other, as
between the holders of such stock and the holders of shares of the
Series B Preferred Stock or the Series C Preferred Stock (as the
case may be). No class or series of capital stock that ranks junior
to the Series B Preferred Stock or the Series C Preferred Stock (as
the case may be) as to rights on liquidation shall rank or be deemed
to rank on a parity basis with the Series B Preferred Stock as to
dividend rights or rights of redemption unless the instrument
creating or evidencing such class or series of capital stock
otherwise expressly provides."
(g) The definition of "Preferred Stock" in Section 1.1 of the
Stockholders' Agreement is amended by deleting the words "Series A
Preferred Stock and the Series B Preferred Stock" and substituting for
such deleted words the words "Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock".
<PAGE>
(h) The definition of "Restricted Person" in Section 1.1 of
the Stockholders' Agreement is hereby amended by adding "or (z) any Series
C Director" immediately after the end of clause (y) of the proviso.
(i) The definition of "Senior Stock" in Section 1.1 of the
Stockholders' Agreement is amended to read in its entirety as follows:
"Senior Stock: Each class or series of capital stock of the
Company, if any, hereafter created with the approval of the
Investors and ranking prior to the Series B Preferred Stock or the
Series C Preferred Stock as to dividends, rights of redemption or
rights on liquidation. Capital stock of any class or series shall
rank prior to the Series B Preferred Stock or the Series C Preferred
Stock as to dividends, upon redemption or upon liquidation if the
holders of such class or series shall be entitled to the receipt of
dividends, payments on redemption or payments of amounts
distributable upon the dissolution, liquidation or winding up of the
Company, as the case may be, in preference or priority to the
holders of shares of Series B Preferred Stock or Series C Preferred
Stock (as the case may be). No class or series of capital stock that
ranks junior to the Series B Preferred Stock or the Series C
Preferred Stock as to rights on liquidation shall rank or be deemed
to rank as senior to the Series B Preferred Stock or the Series C
Preferred Stock (as the case may be) as to dividend rights or rights
of redemption, unless the instrument creating or evidencing such
class or series of capital stock otherwise expressly provides."
(j) The definition of "Transaction Documents" in Section 1.1
of the Stockholders' Agreement is hereby amended to read in its entirety
as follows:
"Transaction Documents: Any and all of the "Transaction
Documents" within the definition of such term in the Purchase
Agreement, the Series C Purchase Agreement or any Co-Investment
Agreement."
(k) Section 1.1 of the Stockholders' Agreement is hereby
further amended by adding thereto, in the proper alphabetical order, the
following additional defined terms:
"Additional Purchase Agreements: The Stock Purchase Agreement
or Agreements, dated as of the date of the Series C
<PAGE>
Purchase Agreement, among the Company and certain purchasers of
Series C Preferred Stock other than the Initial Investors (with such
purchasers including Restricted Persons that have been identified to
and are approved by the Majority Investors), as the same may be
amended from time to time in accordance with their respective terms
and the terms hereof."
"Co-Investment Agreement" means a stock purchase agreement
pursuant to which Lazard, Freres & Co., any of its Affiliates or one
or more other persons who are designated by it and reasonably
satisfactory to the Company (collectively, 'Lazard') acquire shares
of the Series C Preferred Stock after the date of the closing under
the Series C Purchase Agreement and that is substantially in the
form of the Series C Purchase Agreement and provides for the
purchase and sale of such number of shares of Series C Preferred
Stock for such price, at such time and on such terms and conditions
as may be approved by a majority of the Board of Directors of the
Company, which majority includes the Series B Director, in each case
as the same may be amended from time to time in accordance with its
terms and with the prior written consent of the Majority Investors.
"New Investor: means Pulitzer Publishing Company."
"Senior Stock: The Series B Preferred Stock or the Series C
Preferred Stock."
"Series C Certificate of Designation: The Certificate of
Designation in the form of Exhibit E to the Series C Purchase
Agreement, filed with the Delaware Secretary of State pursuant to
Section 151 of the DGCL or any successor provisions of the Company's
Certificate of Incorporation as the same may be amended from time to
time."
"Series C Director: As defined in Section 3.1."
"Series C Preferred Stock: The Series C Senior Cumulative
<PAGE>
Compounding Convertible Redeemable Preferred Stock, par value $1.00
per share, of the Company."
"Series C Purchase Agreement: That certain Stock Purchase
Agreement among the Company, the original Initial Investors and the
New Investor pursuant to which such original Initial Investors and
the New Investor originally acquired shares of Series C Preferred
Stock, as the same may be amended from time to time in accordance
with its terms."
(l) Each of Sections 1.5 and 3.2 of the Stockholders'
Agreement is amended by substituting "Senior Preferred Stock" for the term
"Series B Preferred Stock" in each place such term appears in each such
Section.
(m) Section 2.7 of the Stockholders' Agreement is amended by
adding, "the Series C Certificate of Designation" immediately after the
term "Series B Certificate of Designation" in each place such term
appears.
(n) Section 3.1 of the Stockholders' Agreement is amended to
read in its entirety as follows:
"3.1 Board Representation. Each Stockholder severally
covenants and agrees that, such Stockholder shall vote, or cause to
be voted, all Voting Equity from time to time owned or controlled by
such Stockholder and which such Stockholder is entitled to vote for
such purpose, as of the record date of any action of the
shareholders of the Company, whether by consent or at a meeting, at
which members of the Board of Directors are to be elected or to
establish the number of Directors of the Company, in favor of a
Board of Directors comprised of eight Directors designated as
follows:
"(a) Subject to Section 3.2 below, two Directors designated by the
Shareholder Representative.
"(b) Subject to Section 3.2 below, four Disinterested Outside
Directors who are nominated by the Shareholder Representative.
"(c) One Director (the 'Series B Director') elected by the holders
of the Series B Preferred Stock as set forth in the Series B
Certificate of Designation and one Director (the 'Series C
<PAGE>
Director') elected by the holders of the Series C Preferred
Stock as set forth in the Series C Certificate of Designation.
The provisions of the Series B Certificate of Designation
shall govern to designation, election and removal of the
Series B Director and filling of any vacancy in the office of
the Series B Director. The provisions of the Series C
Certificate of Designation shall govern the designation,
election and removal of the Series C Director and the filling
of any vacancy in the office of the Series C Director. The
provisions of Section 3.2, Section 3.3, Section 3.4, Section
3.5 and Section 3.6 shall apply only to the other six
Directors comprising the Board of Directors. If the holders of
the Series B Preferred Stock or the Series C Preferred Stock
cease being entitled to elect a director as a class pursuant
to the Series B Certificate of Designation or the Series C
Certificate of Designation, respectively, the size of the
entire Board of Directors shall be reduced by one director."
(o) Section 3.3 of the Stockholders' Agreement is amended by
adding "or the Series C Certificate of Designation" immediately after the
term "Series B Certificate of Designation" appearing in such Section.
(p) Clause (i) of the first sentence of Section 3.8(a) of the
Stockholders' Agreement is amended by adding "or the Series C Certificate
of Designation" immediately after the term "Series B Certificate of
Designation" appearing in such clause.
(q) Clause (iii) of the first sentence of Section 3.8(a) of
the Stockholders' Agreement is amended to read in its entirety as follows:
"(iii) the Company will not (A) create, designate or issue any
Senior Stock, (B) create or designate any Parity Stock other than
the Series B Preferred Stock and the Series C Preferred Stock, (C)
issue any shares of Series B Preferred Stock other than pursuant to
the Purchase Agreement or Other Purchase Agreements, (D) issue any
shares of Series C Preferred Stock other than pursuant to the Series
C Purchase Agreement, the Pugliese Employment Agreement Amendment
(as defined in the Series C Purchase Agreement) or as expressly
contemplated by Section 2.4 of the Series C Purchase Agreement or
(E) issue or sell any shares of Common Stock or any other equity
interests of the Company or any rights to acquire or securities
convertible into any Common Stock or other equity interests of the
Company, whether upon exchange, conversion, exercise of
<PAGE>
purchase rights or otherwise, except in the case of this subclause
(E) for grants of Employee Options approved by the Compensation
Committee, the exercise of existing Employee Options or the
conversion of any share or shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock in accordance
with the terms thereof;"
(r) Clause (iv) of the first sentence of Section 3.8(a) of the
Stockholders' Agreement is amended by (i) adding "or the Series C
Preferred Stock" immediately after the term "Series B Preferred Stock" in
each place that such term appears in such clause and (ii) adding "or the
Series C Certificate of Designation, respectively," immediately after the
term "Series B Certificate of Designation" appearing in such clause.
(s) The last sentence of Section 3.8(a) is amended to read in
its entirety as follows:
"To the extent that the Company proposes to take any action or
consummate any transaction of any kind specified in any clause of
the immediately preceding sentence in order to redeem, or in
connection with redemption of, all outstanding shares of the Series
B Preferred Stock required or permitted by Section 6 of the Series B
Certificate of Designation and the simultaneous redemption of all
outstanding shares of the Series C Preferred Stock required or
permitted by Section 6 of the Series C Certificate of Designation,
the consent or approval of the Majority Investors shall not be
required to the extent that the Company provides assurances,
reasonably satisfactory to the Majority Investors, that such action
or transaction will not be taken or consummated unless such
redemptions are first or simultaneously effected in accordance with
all applicable provisions of Section 6 of the Series B Certificate
of Designation and of Section 6 of the Series C Certificate of
Designation (including the requirements of Section 6(f) of each of
the Series B Certificate of Designation and the Series C Certificate
of Designation with respect to the indefeasible deposit of the
applicable redemption price) and all applicable requirements of law
and that the Company will not incur any liability or obligation in
the event that such action or transaction is abandoned or any
condition to the taking or consummation thereof (including the
redemption of the Series B Shares and the Series C Shares as
required by this sentence) is not satisfied."
(t) The first sentence of Section 3.9(c) of the Stockholders'
<PAGE>
Agreement is amended by deleting the words "or holder" immediately
following the term "Investor" the first time such term appears in such
sentence.
(u) Section 3.9(d) of the Stockholders' Agreement is amended
by (i) adding ", Series C Preferred Stock" immediately after the term
"Series B Preferred Stock" appearing in such Section and (ii) modifying
the parenthetical immediately following the term "Conversion Stock" to
read in its entirety as "(as defined in either the Series B Certificate of
Designation or the Series C Certificate of Designation)."
(v) Section 3.12 of the Stockholders' Agreement is amended by
adding, immediately after the term "Series B Preferred Stock" appearing in
such Section, the following: "or of Conversion Securities (as defined in
the Series C Certificate of Designation) issued upon conversion of any
shares of Series C Preferred Stock."
(w) The first sentence of Section 3.13 of the Stockholders'
Agreement is amended by adding "or, if there is no Series B Director the
Series C Director" immediately after the term "Series B Director"
appearing in such sentence.
(x) The next-to-last sentence of Section 3.13 of the
Stockholders' Agreement is amended by adding "or the Series C Certificate
of Designation" immediately after the term "Series B Certificate of
Designation" appearing in such sentence.
(y) The last sentence of Section 3.13 of the Stockholders'
Agreement is amended by (i) deleting from clause (i) thereof the words "in
accordance with the Series B Certificate of Designation" and (ii) by
substituting "Senior Preferred Stock" for the term "Series B Preferred
Stock" in each of the two places such term appears in such sentence.
(z) Section 5.18 of the Stockholders' Agreement is amended to
read in its entirety as follows:
"Section 5.18 Termination of Agreement. Unless otherwise set
forth in this Agreement, the rights and obligations of the parties
set forth in Article III shall terminate on the earlier of the date
on which (i) all of the shares of Series B Preferred Stock and all
shares of the
<PAGE>
Series C Preferred Stock held by the Investors are converted into
Common Stock of the Company in accordance with the terms of the
Series B Certificate of Designation, in the case of the Series B
Preferred Stock, and the Series C Certificate of Designation, in the
case of the Series C Preferred Stock or (ii) the Investors no longer
hold any shares of Senior Preferred Stock and the remaining
provisions of the Agreement shall terminate with respect to any
Investor or any Shareholder if such party shall cease to own any
shares of Common Stock, any shares of Senior Preferred Stock or any
Qualifying Rights (as such term is defined in the Preemptive Rights
Agreement); provided, however, that any obligations incurred by such
party prior to the termination of this Agreement pursuant to this
subsection shall continue."
(aa) Section 5.2 of the Stockholders' Agreement is amended to
read in its entirety as follows:
"Except as expressly provided in this Agreement, no party may assign
or delegate any of its rights or obligations under this Agreement
without the prior written consent of the Majority Shareholders and
the Majority Investors. Any Investor may at any time or from time to
time assign a proportionate part of its rights, interests or
obligations hereunder to any transferee of any shares of Senior
Preferred Stock or any share of Common Stock held by such Investor,
provided that such transferee meets any applicable qualifications
set forth under the definition of 'Investor' in Section 1.1 hereof.
herein."
(bb) The Stockholders' Agreement is further amended by adding
thereto, immediately after Section 5.18 thereof, a new Section 5.19 that
shall read in its entirety as follows:
"Section 5.19. Group Agreements; Certain Provisions Relating
to Investor Representative.
"(a) The Investors may agree among themselves as to the
manner in which the Investors will make decisions and take other
actions required or permitted to be taken by the Investors as a
group or by the Majority Investors under this Agreement. Decisions
made in accordance with the procedures set forth in such agreement
or, in the absence of such an agreement, made by the Majority
Investors shall be binding on all of the Investors. Any notice
required or permitted to be given under this Agreement by the
Investors or by the Investor
<PAGE>
Representative must either (i) be executed by the Majority Investors
or (ii) executed by the Investor Representative, in which case each
Person to whom such notice is addressed may assume that the Investor
Representative has power and authority to do so and to rely
conclusively on such notice as the action of such group.
"(b) Notwithstanding any other provision of this
Agreement, the obligations and liabilities of the Investors
hereunder shall be several and not joint, and no Investor shall have
any obligation or liability for the obligations or liabilities of
any other Investor if such other member fails to perform or
discharge such obligations or liabilities or otherwise. No provision
of this Agreement shall be construed as creating any concept of
'group' liability.
"(c) No Investor Representative shall be liable, in
damages or otherwise, to any Investor, the Company, any Shareholder
or any other Person for any act or failure to act which act was
within the scope of authority conferred on such Investor
Representative by this Agreement unless such act or omission
constituted fraudulent or willful misconduct. Each Investor
Representative shall be indemnified by the Investors for liability
for damages and expenses, including reasonable attorneys' fees,
judgments and settlements, resulting from a threatened, pending or
completed claim, action, investigation, suit or proceeding involving
such Investor Representative by reason of acts or omissions by such
Investor Representative relating to his or her service in such
capacity, provided his or her actions did not constitute fraud or
willful misconduct. The indemnification liabilities and obligations
of the Investors shall be borne by them in proportion to their
respective Liability Percentages. The 'Liability Percentage' of any
Investor as of any time means the percentage of the aggregate
Liquidation Price of all shares of Senior Preferred Stock then held
by all Investors represented by the total Liquidation Price of all
shares of Senior Preferred Stock then held by such Investor. The
provisions of this Section 5.19 shall inure to the benefit of and be
enforceable by each Investor Representative and former Investor
Representative."
3. Admission of New Investor as Party to the Stockholders'
Agreement. The New Investor hereby agrees to become, effective as of the date
hereof, a party to and a "New Investor," an "Initial Investor" and an "Investor"
under the Stockholders' Agreement, as amended pursuant to Section 2 hereof, and
to be bound by the terms and provisions thereof. Each of the other parties
hereto consents and agrees that, effective as of the date hereof, the New
Investor shall be a party to and a "New Investor," an "Initial Investor" and an
"Investor"
<PAGE>
under the Stockholders' Agreement, as amended pursuant to Section 2 hereof.
4. Approval Under Section 3.8(a) of Stockholders' Agreement.
Pursuant to Section 3.8(a) of the Stockholders' Agreement, each of 21st Century
Communications Partners, L.P., a Delaware limited partnership, 21st Century
Communications T-E Partners, L.P., a Delaware limited partnership, and 21st
Century Communications Foreign Partners, L.P., a Delaware limited partnership,
which constitute all of the Investors prior to the admission of the New Investor
as a party to the Stockholders' Agreement, in their capacities as such
Investors, hereby consent to (i) the execution, delivery and performance by the
Company of the Series C Purchase Agreement and any Co-Investment Agreement (as
such terms are defined under Section 2(k) of this First Amendment); (ii) the
consummation of the transactions contemplated by the Series C Purchase Agreement
and any Co-Investment Agreement, including, without limitation, the issuance and
sale of shares of the Series C Preferred Stock (as defined under Section 2(k) of
this First Amendment) pursuant thereto and the issuances of shares of Series C
Preferred Stock pursuant to the Additional Purchase Agreements (subject to the
applicable limitations and requirements set forth in Section 2.4 of the Series C
Preferred Stock); (iii) the execution, delivery and performance by the Company
of the Allonge dated as of the date hereof and in the form of Exhibit A hereto
and the issuance by the Company to Gerard P. Joyce of 6,494 shares of the Series
C Preferred Stock as payment in full of $500,038 of the principal amount of the
Note referred to therein; and (iv) the execution, delivery and performance by
the Company of the Second Amendment to Employment Agreement dated as of the date
hereof and in the form of Exhibit B hereto. The Company covenants to and agrees
with the Investors that, without the prior written consent of the Majority
Investors, the Company shall not consent or agree to amend, modify or
supplement, grant any waiver or release of, under or with respect to, or forbear
to exercise or assert any right, benefit or claim existing or arising by virtue
of the terms, conditions or provisions of any of such Allonge, Note or the
Employment Agreement referred to in Exhibit B hereto.
5. Subsequent Purchase of Series C Shares. The parties anticipate
that the Company will enter into a stock purchase agreement pursuant to which
Lazard (as defined under Section 2(k) above) acquires shares of the Series C
Preferred Stock after the date hereof. In the event that such acquisition occurs
pursuant to a stock purchase agreement that qualifies as a Co- Investment
Agreement (as such term is defined under Section 2(k) of this First Amendment),
the parties agree as follows:
(i) Lazard may become a party to, and an "Initial Investor" and an
"Investor" under the Stockholders' Agreement, as amended, by
executing and delivering to the Company and each of the other
parties to the Stockholders' Agreement, an instrument pursuant
to which Lazard agrees to be a party thereto and an "Initial
<PAGE>
Investor" and an "Investor" under the Stockholders' Agreement,
as amended, without the necessity of any consent or action by
the parties hereto.
(ii) If Lazard so agrees to become a party to the Stockholders'
Agreement, then the Stockholders' Agreement shall be deemed to
be amended, without further action by the parties, to add
Lazard as an "Initial Investor" and an "Investor" under the
Stockholders' Agreement.
6. Reaffirmation. The undersigned parties hereby acknowledge that
the Stockholders' Agreement, as amended hereby, remains in full force and effect
and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the undersigned parties have duly executed and
delivered this First Amendment to Stockholders' Agreement as of the date first
above written.
[Signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
First Amendment to Stockholders' Agreement as of the date first above written.
MENTUS MEDIA CORP.
By:
--------------------------------
Name:
Title:
-----------------------------------
GERARD P. JOYCE
-----------------------------------
THOMAS P. PUGLIESE
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP., General Partner
By:
--------------------------------
Michael J. Marocco
President
<PAGE>
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJM MEDIA CORP.,
General Partner
By:
--------------------------------
Michael J. Marocco
President
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJM MEDIA CORP., a General Partner
By:
--------------------------------
Michael J. Marocco
President
PULITZER PUBLISHING COMPANY
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 10.1(m)
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of this
___ day of December, 1995, by and between Stephen Adams or his designated
assignee ("Purchaser"), and The Mentus Group, Inc., a Delaware corporation (the
"Company" or "Mentus").
R E C I T A L S:
Purchaser and the Company have engaged in negotiations concerning
the purchase by Purchaser of common stock of the Company, and, to memorialize
the results of those negotiations, Purchaser desires to purchase from the
Company, and the Company desires to sell to Purchaser, Eleven Thousand Forty-two
(11,042) shares of common stock of the Company ("Common Stock") on the terms and
conditions set forth below.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Subscription to Purchase. Purchaser hereby agrees to purchase
from the Company, and the Company hereby agree to sell and issue to Purchaser,
Eleven Thousand Forty-two (11,042) shares of Common Stock (the "Adams Shares").
2. Purchase Price; Payment. The purchase price ("Purchase Price")
for the Common Stock being purchased by Purchaser hereunder is One Million
Dollars ($1,000,000.00), or Ninety Dollars and Fifty-six Cents ($90.56) per
share. The Purchase Price is payable as follows:
(a) Five Hundred Thousand Dollars ($500,000.00) by cash, cashier's
check or wired funds upon execution of this Agreement (the "Initial Payment");
and
(b) Five Hundred Thousand Dollars ($500,000.00) on February 15,
1996.
As soon as practicable following the Company's receipt of the Initial Payment,
the Company shall cause to be issued to Purchaser a stock certificate
representing the Adams Shares.
3. Registration Rights. Purchaser shall have the right with respect
to all shares of Common Stock purchased hereunder to participate in any
registration of Common Stock of the Company, to the extent and on terms and
conditions set forth in the Registration Rights Agreement executed by the
parties concurrently with this Agreement.
4. Purchaser Sophistication; Access to Information. Purchaser's
acquisition of the Adams Shares is the result of negotiations between the
parties. By executing this Stock Purchase Agreement, Purchaser acknowledges that
(i) Purchaser has been provided with or has had full and complete access and
opportunity to obtain all available information concerning the Company and its
business, and all other items deemed relevant by Purchaser, to evaluate the
merits and risks of an investment in the Common Stock and (ii) Purchaser has had
an opportunity to ask questions of, and receive satisfactory answers from, the
Company concerning the Common
<PAGE>
Stock, the Company and the transactions contemplated hereby. Any questions
raised by Purchaser concerning the Common Stock, the Company, and the
transactions contemplated hereby have been answered to the satisfaction of
Purchaser. Purchaser or Purchaser's representatives are knowledgeable and
experienced in financial and business matters and are in a position to make an
informed investment decision concerning an investment in the Common Stock.
Consequently, Purchaser has reached its own conclusions as to the viability of
the business contemplated by the Company.
5. Representations and Warranties. Purchaser hereby represents and
warrants to the Company that:
(a) Purchaser is purchasing for Purchaser's own account, for
investment, and not for resale or distribution, is aware that no public market
exists for the resale of the Common Stock, is aware that the Common Stock has
not been registered under the Securities Act of 1933, as amended (the "Act"),
and thus cannot be resold unless they are registered under the Act or unless an
exemption from registration is available, and is aware of the restrictions
imposed on further distribution of the Common Stock including the limitations
and applicability of Securities and Exchange Commission Rule 144 and including
the restrictive legend to be placed thereon and stop transfer orders to which it
will be subject.
(b) Purchaser is an "accredited investor" as defined in Rule
501(a) of Regulation D under the Act, as amended.
(c) Purchaser understands the terms and conditions of the this
Agreement, has investigated all issues to Purchaser's satisfaction, has
consulted with such of Purchaser's own legal counsel or other advisors as
Purchaser deems necessary, and is not relying, and has not relied, on the
Company for an explanation of the terms or conditions of this Agreement or the
risks associated with an investment in the Common Stock.
The representations, warranties and covenants of Purchaser
contained herein shall survive the issuance of the Common Stock by the Company
to Purchaser. Purchaser hereby agrees to indemnify and hold harmless the Company
and its officers, directors, employees and agents from and against any and all
loss, damage or liability due to or arising out of a breach of any
representation, warranty or covenant of Purchaser. Notwithstanding any of the
representations, warranties and covenants made herein by Purchaser, Purchaser
does not thereby or in any other manner waive any rights granted to Purchaser
under applicable securities laws, except to the extent permissible thereunder.
6. Legends; "Stop Transfer" Instructions.
(a) The certificate representing any shares of the Company's
Common Stock sold pursuant to this Agreement shall bear the following legend:
"The shares represented by this certificate are subject
to the restrictions stated in (and are transferable only upon compliance with)
the Stock Purchase Agreement, dated December ___, 1995. The shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), or other
securities laws. They are "restricted securities" within the meaning of SEC Rule
144. The shares may not be sold or otherwise transferred except pursuant to an
effective registration statement under the Act and such laws or pursuant to an
exemption from registration under the Act and such laws, the availability of
which is to be
<PAGE>
established to the satisfaction of the Company."
(b) In addition, in accordance with Section 156 of the
Delaware General Corporation Law, until such time as the full amount of the
Purchase Price is paid, the certificate requesting the Adams Shares shall bear a
legend indicating that the shares are not fully paid, and setting forth the
amount to be paid thereon.
(c) The Company may place "stop transfer" instructions against
the Adams Shares. Purchaser acknowledges by entering into this Agreement that
the Company has informed Purchaser of the intention to issue such instructions.
7. Restrictions on Transfers of Common Stock. Purchaser shall not
transfer any shares of the Company's Common Stock unless and until he has first
given written notice to the Company describing briefly the manner and nature of
the transfer and until:
(a) A registration statement filed by the Company with respect
to the Common Stock is declared effective; or
(b) The Company and Purchaser shall have complied with SEC
Rule 144; or
(c) Purchaser presents the Company with a "no-action" letter,
satisfactory to the Company, from the SEC with respect to the proposed transfer;
or
(d) The Company has received opinions from Purchaser's
counsel, in form and substance satisfactory to the Company that such transfer
can be made without compliance with the registration provisions of the Act or
other securities laws, and has received such certifications and agreements from
Purchaser and any prospective transferee as the Company deems appropriate under
the circumstances.
8. Put Option. The parties acknowledge that they currently are in
negotiations for the acquisition by Purchaser or an affiliated entity of
Purchaser of exclusive rights to own and operate American Consumer Service
Network ("ACSN") locations in certain designated market areas. In the event that
the Company and Purchaser and/or an affiliated entity or entities of Purchaser
do not enter into a definitive agreement in connection with the foregoing by May
31, 1996 (the "Target Date"), Purchaser shall have an option (the "Put Option"),
exercisable for a period ending 30 days after the Target Date, to sell to the
Company all, but not less than all, of the Adams Shares. The purchase price
payable by the Company upon the exercise of the Put Option shall be One Million
Dollars ($1,000,000), or $90.56 per share (the "Put Option Purchase Price"). In
the event Purchaser elects to exercise the Put Option, Purchaser shall so notify
the Company in writing on or before the date of termination of this Put Option.
Upon such notice, the Company and Purchaser shall determine a mutually
satisfactory closing date, in no event later than 90 days from the date of
exercise, at which time and place the Adams Shares shall be transferred to the
Company and the Company shall pay the full amount of the Put Option Purchase
Price as set forth herein. If the full amount of the Put Option Purchase Price
is not paid when due, any unpaid amount thereof shall bear interest at twelve
percent (12%) per annum until paid.
9. Construction and Binding Effect. As used herein, any gender shall
include any other gender, singular shall include the plural and the plural shall
include the singular,
<PAGE>
as appropriate to the context thereof. This Agreement shall inure to the benefit
of, and be enforceable by and against, the Company and shall be binding upon the
Company and its successors and assigns.
10. No Broker. Purchaser and the Company represent and warrant to
each other that no person has acted in the capacity of broker or finder on its
behalf to bring about the negotiation or consummation of this Agreement. Each
party (the "Indemnifying Party") shall indemnify and hold harmless each other
party against every claim or liability asserted against any other party by any
person acting or claiming to act as a broker or finder on behalf of the
Indemnifying Party.
11. Notices. Any notice or other communication required or permitted
hereunder shall be sufficiently given if delivered in person or sent by
registered mail, postage prepaid, addressed to the appropriate party as follows:
In the case of Purchaser:
Stephen Adams
c/o Affinity Group, Inc.
2575 Vista Del Mar Drive
Ventura, CA 93001
<PAGE>
In the case of the Company:
The Mentus Group, Inc.
Cabriole Center
9531 W. 78th Street
Minneapolis, Minnesota 55344
or such substituted address as any party (or other party to whom a copy is to be
sent) shall have given notice to the other in writing. Purchaser acknowledges
that the address set forth above shall be the address of Purchaser on the
Corporation's shareholder records.
12. Amendment. This Agreement may be amended or modified in whole or
in part only by an agreement in writing executed in the same manner as this
Agreement and making specific reference hereto.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute one instrument.
14. Severability. If any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions of this Agreement and any other application thereof shall
not in any way be affected or impaired thereby; provided, however, that to the
extent permitted by applicable law, any invalid, illegal, or unenforceable
provision may be considered for the purpose of determining the intent of the
parties in connection with the other provisions of this Agreement.
15. Waivers. The parties may, solely by written agreement, (a)
extend the time for the performance of any of the obligations or other acts of
the parties hereto, (b) waive any inaccuracy in any of the representations
contained in this Agreement or in any document delivered pursuant to this
Agreement, (c) waive compliance with, or modify, any covenant or condition
contained in this Agreement, and (d) waive or modify performance of any of the
obligations of any of the parties hereto; provided, that no such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall operate as a waiver of, or an estoppel with respect
to, any subsequent or other matter or failure.
16. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and in no way alter, amend, modify, limit or
restrict the contractual obligations of the parties.
17. Attorney's Fees. If litigation is instituted between the parties
over a dispute arising directly or indirectly out of this Agreement, the losing
party shall pay the prevailing party's reasonable attorney's and other
professional fees and expenses in all courts (which fees and expenses shall be
fixed by the court sitting without a jury).
18. Entire Agreement; Law Governing. All prior negotiations and
agreements between the parties hereto are superseded by this Agreement, and
there is no representation, warranty, understanding or agreement other than
those expressly set forth herein. This Agreement shall be governed by and
construed and interpreted according to the laws of the State of Delaware. Each
party hereby irrevocably submits to the process, jurisdiction, and venue of the
courts of the
<PAGE>
State of Minnesota, Hennepin County, and to the process, jurisdiction and venue
of the United States District Court of Minnesota, for purposes of suit, action
or other proceedings arising out of or relating to this Agreement or the subject
matter hereof.
19. Further Assurances. After the Closing, each of the parties
hereto shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and documents and take such action
as may be necessary or advisable to carry out its obligations under this
Agreement and under any document, agreement, certificate or other instrument
delivered pursuant hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the date first above written.
"PURCHASER" "MENTUS"
The Mentus Group, Inc., a Delaware
Stephen Adams corporation
By:_______________________________
Its:______________________________
Attest:__________________________
<PAGE>
Exhibit 10.1(n)
March 19, 1996
Page
March 19, 1996
Mr. Stephen Adams
c/o Affinity Group, Inc.
2575 Vista Del Mar Drive
Ventura, CA 93001
Dear Steve:
This letter agreement (the "Amendment") is made by and between
Stephen Adams or his designated assignee ("Purchaser"), and The Mentus Group,
Inc., a Delaware corporation (the "Company" or "Mentus"), for the purpose of
amending that certain Stock Purchase Agreement between Purchaser and Mentus
dated December 26, 1995, (the "Stock Purchase Agreement" or "Agreement"), with
the effective date of such amendment to be December 26, 1995 (the "Effective
Date").
A G R E E M E N T:
Purchaser and Mentus hereby agree to modify the Stock Purchase
Agreement as herein set forth as of the Effective Date. Except as modified
hereby, all of the terms and conditions of the Stock Purchase Agreement shall
remain in full force and effect.
Section 4 is modified in its entirety to read as follows:
4. Purchaser Sophistication; Access to Information. Purchaser's
acquisition of the Adams Shares is the result of negotiations between the
parties. By executing the Stock Purchase Agreement, Purchaser acknowledges that
(i) Purchaser has been provided with or has had full and complete access and
opportunity to obtain all information concerning the Company and its business,
and all other items deemed relevant by Purchaser, to evaluate the merits and
risks of an investment in the Common Stock and (ii) Purchaser has had an
opportunity to ask questions of, and receive satisfactory answers from, the
Company concerning the Common Stock, the Company and the transactions
contemplated hereby. Any questions raised by Purchaser concerning the Common
Stock, the Company, and the transactions contemplated hereby have been answered
to the satisfaction of Purchaser. Purchaser or Purchaser's representatives are
knowledgeable and experienced in financial and business matters and are in a
position to make an informed investment decision concerning an investment in the
Common Stock. Consequently, based upon the information received by the Purchaser
from the Company, Purchaser has reached its own conclusions as to the viability
of the business contemplated by the
<PAGE>
March 19, 1996
Page 2
Company.
Section 5 is modified so that the title of the Section reads as follows:
"5. Representations and Warranties of the Purchaser."
The following is added to the Agreement as Section 5A:
5A. Representations and Warranties of the Company. The Company
hereby, by its acknowledgement, execution and delivery of this Agreement,
represents and warrants to the Purchaser that, as of the Effective Date:
(a) American Consumer Service Network ("ACSN") is owned and operated by
the Company; provided that Purchaser understands that the Company in certain
territories is contemplating a business structure pursuant to which certain
rights related to ACSN may be licensed to and operated by entities other than
the Company. No operations related to ACSN are conducted, and no rights in
respect of ACSN are owned by the Principals (as defined herein) or any affiliate
of the Principals.
(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has corporate power
to own its properties and assets and to carry on its business as is now being
conducted and is proposed to be conducted, and is duly qualified or licensed to
conduct business in each state where the business currently conducted by the
Company requires such qualification or license. The authorized capital stock of
the Company consists of: 1,000,000 shares of Common Stock, $.01 par value, of
which 239,850 shares are validly issued and outstanding (exclusive of any Adams
Shares); and 20,000 shares of 8.25% Convertible Exchangeable Preferred Stock
("Preferred Stock"), authorized pursuant to the Certificate of the Designations,
Preferences and Relative Participating, Optional and Other Special Rights,
Qualifications, Limitations and Restrictions of 8.25% Convertible Exchangeable
Preferred Stock, as amended, of which 6,000 shares are issued and outstanding.
All of the outstanding shares of the Common Stock (exclusive of any Adams
Shares) and Preferred Stock are duly authorized, validly issued and
non-assessable. The Adams Shares have been or will be duly authorized and
validly issued and, upon payment by the Purchaser of the Purchase Price, the
Adams Shares will be fully paid and non-assessable. The Company has outstanding
warrants to purchase 3,100 shares of Common Stock. The Company has a 1993 Stock
Option Plan (the "1993 Plan") and a 1994 Stock Option Plan (the "1994 Plan").
Both the 1993 Plan and the 1994 Plan permit the granting of incentive stock
options and non-qualified options. A total of 4,000 shares of the Company's
Common Stock have been reserved for issuance for options that may be granted
under the 1993 Plan, and options to purchase 3,406 shares of Common Stock are
outstanding. A total of 8,000 shares of the Company's Common Stock have been
reserved for issuance for options that may be granted under the 1994 Plan.
Options for the purchase of 1,200 shares of Common Stock have been exercised
under the 1994 Plan, and there are zero (0) options currently outstanding under
the 1994 Plan.
(c) All necessary corporate proceedings of the Company have been or will
be duly and validly taken to authorize the execution, delivery and performance
of the Agreement and this Amendment by the Company and the issuance of the
Adams' Shares as contemplated by the
<PAGE>
March 19, 1996
Page 3
Agreement. The Agreement and this Amendment have been or will be duly and
validly authorized, executed and delivered by the Company and constitutes the
legal, valid and binding obligations of the Company and are enforceable (except
as such enforceability may be limited by bankruptcy, insolvency and other laws,
legal and equitable principles) in accordance with their respective terms.
(d) The execution and delivery of the Agreement and this Amendment do not,
and the consummation of the transactions contemplated by the Agreement will not,
violate or constitute a default under any provision of the Articles of
Incorporation or Bylaws of the Company, or to the best of the Company's
knowledge any provisions of, or result in the acceleration of any obligation
under, any mortgage, deed of trust, indenture, note, lien, lease, franchise,
license, permit, agreement, instruments, order, arbitration award, judgment or
decree, or in the termination of any material license, franchise, lease or
permit to which the Company is a party or is bound and to the best of the
Company's knowledge will not violate or conflict with any other restriction of
any material kind or character to which the Company is subject.
(e) Adams has received a copy of the Company's annual financial statements
for the fiscal year ended December 31, 1994 (the "Financial Statements"). The
Financial Statements present fairly in all material respects the financial
position of the Company as of such dates and the results of its operations for
such periods then ended and have been prepared in all material respects with
generally accepted accounting principles applied on a consistent basis.
(f) The Company is not a party to, subject to, or threatened with, any
judgment, decree or order, or any suit or proceeding brought by any governmental
agency or by any other person in which an adverse result would have material
adverse effect on the assets, business or operation of the Company. The Company
has not received notice of, and to the best of the Company's knowledge has not
been investigated for or threatened with a charge for possible violation of any
provision of any foreign, Federal, state or local law or administrative ruling
or regulation relating to any aspect of the Company's business or operations.
(g) Neither the Agreement, this Amendment, the Joinder Agreement (executed
in connection with the Agreement by Gerard P. Joyce and Thomas M. Pugliese (the
"Principals")), the Registration Rights Agreement, the Financial Statements, any
other document, certificate, schedule or statement attached hereto or thereto
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading, taking into account the circumstances under which such statements
were made.
The representations, warranties and covenants of the Company contained
herein shall survive the issuance of the Adams' Shares by the Company to
Purchaser.
The following is added to the Agreement as Section 5B:
5B. Covenants of the Company. The Company hereby covenants and
agrees that:
(a) Purchaser shall have a right, subject to the terms and conditions set
forth below and
<PAGE>
March 19, 1996
Page
the Certificate of Incorporation of the Company, to subscribe to and purchase
any additional non-public issue of Common Stock from the Company or any security
convertible into such Common Stock in an amount necessary to maintain
Purchaser's then existing percentage of ownership of Common Stock represented by
the Adams Shares held by Purchaser plus any shares of Common Stock (or other
security convertible into Common Stock) purchased through the exercise of this
right and held by Purchaser, on a fully diluted basis, assuming conversion of
all then outstanding warrants, options and convertible securities, and the
Company shall take such action as is required under applicable law to provide
such right to the Purchaser. Such right shall not apply to the issuances of
stock, options, warrants or securities convertible into Common Stock, issued by
the Company to employees (provided that, with respect to issuances to the
Principals, Section 5B(b) below applies) or third parties, including without
limitation underwriters, officers, directors and consultants, as an incentive or
as partial or total compensation for services. In the event of any proposed
issuance as to which the foregoing right would apply, the Company shall notify
Purchaser in writing of the existence of such proposed issuance and the material
terms thereof. If such issuance is proposed to be made pursuant to a written
offer or other written understanding, such notice shall contain a true, correct
and complete copy of such writing. The Company agrees to take all necessary and
appropriate corporate actions in order to effect the foregoing right and the
issuance of shares to the Purchaser upon exercise by Purchaser of such rights.
Purchaser shall have ten days thereafter to notify the Company of Purchaser's
exercise of the right, and, if Purchaser exercises such right, Purchaser
thereafter shall be obligated to acquire the shares of Common Stock (or other
securities convertible into shares of Common Stock) as to which such right
applies on the same terms and conditions as any other party receiving shares of
Common Stock (or other securities convertible into shares of Common Stock) in
such issuance. In the event of any modification to the material terms of such
transaction, the Company shall promptly notify Purchaser of the modification,
and Purchaser shall have three business days to rescind the exercise of its
right. Purchaser understands that the consummation of any purchase of shares as
a result of the exercise of the foregoing right shall not be effective until all
appropriate corporate actions have been taken. The foregoing right is an
agreement between the Company and Purchaser as identified on the date of the
Agreement, is not transferrable (except that the right may be transferred to no
more than 3 entities at least 51% of the equity securities of which are held,
directly or indirectly, by Stephen Adams) and is not a characteristic or right
of the Adams Shares. Any attempt to transfer the right granted hereunder (except
in accordance with the preceding sentence) is void. The rights granted under
this Section shall terminate at such time as (i) there have been sold equity
securities of the Company pursuant to a registration statement or statements
filed under the Securities Act of 1933, as amended, in an aggregate amount of at
least $10 million or (ii) the Company is required to register any of its equity
securities pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
(b) The Company shall not, directly or indirectly, conduct any business or
enter into any transaction or series of transactions with or for the benefit of
the Principals, except in good faith and upon the approval of directors not
party to such transaction, and (except as to transactions related to employment
and compensation for employment) on terms that are, in the aggregate, no less
favorable to the Company than those that could have been obtained in a
comparable transaction on an arm's length basis from a person not an affiliate
of the Company or such individuals. Until (i) there have been sold equity or
debt securities of the Company pursuant to a registration statement or
statements filed under the Securities Act of 1933, as amended, in an aggregate
amount of at least $10 million or (ii) the Company is required to register any
of its equity or debt securities
<PAGE>
March 19, 1996
Page
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, the
Company shall not issue new shares of capital stock of the Company to the
Principals, including under any incentive or non-incentive stock option plan,
except if the Purchaser shall have been afforded the right to purchase shares of
capital stock, in amounts and pursuant to the procedure established in paragraph
(a) above, on identical terms and conditions.
(c) All rights pertaining to ACSN, derived therefrom or developed in
connection therewith constitute a corporate opportunity of the Company and will
not be exploited or otherwise availed of by either of the Principals or any of
their affiliates unless they have first been offered to the Company.
Section 6(c) shall be modified in its entirety to read as follows:
(c) The Company may place "stop transfer" restrictions against the Adams
Shares consistent with the foregoing legend.
<PAGE>
March 19, 1996
Page
The parties acknowledge and agree that:
(a) the second installment under Section 2(b) of the Stock Purchase Agreement is
paid concurrently with the execution and delivery of this Amendment, and that
such payment shall be deemed timely made and not in violation of the Stock
Purchase Agreement;
(b) true and correct copies of the Certificate of Incorporation, as amended, and
Bylaws of the Company have been provided to Purchaser.
(c) the Company has disclosed to Purchaser that, subsequent to the Effective
Date, the Company was made party to an action currently pending in Minnesota
State District Court for Hennepin County, Minnesota, as Visual Circuits
Corporation v. The Mentus Group, Inc., the substantive claims of which the
Company denies and which the Company is vigorously defending.
This Amendment may be executed in one or more counterparts, each of which
shall constitute an original, but all of which taken together shall constitute
one instrument.
The parties hereto have executed this Amendment to Stock Purchase
Agreement to be effective as of the Effective Date.
"MENTUS"
The Mentus Group, Inc., a Delaware
corporation
By:_______________________________
Its:______________________________
"PURCHASER"
__________________________________
Stephen Adams
<PAGE>
Exhibit 10.4
MEDIA NETWORK SERVICES AGREEMENT
--------------------------------
THIS Media Network Services Agreement ("this Agreement") is entered into
this 18th day of April, 1995 (the "Effective Date"), by and between The Mentus
Group, Inc. a Delaware corporation ("Mentus"), and The Southland Corporation, a
Texas Corporation ("Southland").
RECITALS
WHEREAS, Mentus operates the American Consumer Service Network ("ACSN").
ACSN installs, operates and services video display monitors in high traffic
retail businesses. The monitors provide display information and advertising
messages targeted for consumers of these retail businesses (the "Program"); and
WHEREAS, Capital Cities/ABC, Inc. is the national advertising sales
representative for ACSN; and
WHEREAS, Southland operates corporate-owned 7-Eleven-Registered Trademark-
convenience stores in the United States. In addition, 7-Eleven stores are
operated by Southland's franchisees or licensees; and
WHEREAS, subject to the terms and conditions contained in this Agreement,
Mentus will provide the Program and supporting network to participating 7-Eleven
stores.
NOW, THEREFORE, for and in consideration of the terms and conditions set
forth herein, and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
1. STORES.
1.01 For purposes of this Agreement, the terms "Stores" will mean all of
Southland's corporate-owned and operated 7-Eleven convenience stores or other
retail grocery locations which are or may hereafter be owned and operated by
Southland from time to time in the United States. Stores will not include,
subject to section 1.02 below, any 7-Eleven convenience stores or other retail
grocery stores which are or hereafter may be owned or operated by Southland's
franchisees and licensees.
1.02 In the event that any of the Stores are franchised or licensed,
Mentus acknowledges that Southland's franchises or licensees are independent
contractors who determine the manner and means of operating their own stores
pursuant to the terms of the franchise or license agreement and arrangements
relating thereto. Southland agrees to designate Mentus as a recommended supplier
of the products and services under the Program to franchises or licensees where
Mentus is providing such products and services to the Store, provided Mentus (i)
complies with the terms of this Agreement, and (ii) is not in default under this
Agreement. The term "Stores" will include Southland's franchisees or licensees
that elect to participate under the Program. In such event, all rights, duties
and obligations running from Mentus to Southland hereunder, and from Southland
to Mentus, will also run between Mentus and each such franchisee or license that
elect on their own to participate under the Program; provided that all of
Mentus' dealings with respect to such Stores will be exclusively with Southland
for each franchisee or licensee that elects to participate under the Program.
Southland will use its reasonable best efforts to present the Program to
Southland's franchisees and licensees and to solicit franchise or licensee
participation in the Program.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
2. HARDWARE.
2.01 Mentus will install, at its sole cost and expense, at each
participating Store the ACSN 27-inch monitor and related hardware and wiring,
including any necessary telephone lines as set forth in Exhibit "A" (the
"Hardware") at each participating Store. The list of corporate-owned Stores
shall be provided by Southland within a reasonable time after the execution of
this Agreement, and shall be attached as Exhibit "B."
2.02 Southland and Mentus will work together to design the various Store
layouts for the Hardware location and installation that is consistent with
Southland's current Restore program and the 7-Eleven Image. Southland will have
final approval, such approval not to be unreasonably withheld, as to the
location and installation of the Hardware at the Store.
2.03 Mentus will install the Hardware at the Stores in accordance with
the Hardware Installation Rollout Schedule attached as Exhibit "C"; provided
that the specific Hardware Installation Rollout Schedule will be the product of
the mutual agreement between Mentus and Southland following Mentus' receipt of
the addresses of both the corporate-owned Stores and the franchised and licensed
Stores that have chosen to participate in the Program. Southland agrees that the
initial installation under the Hardware Installation Rollout Schedule will not
be earlier than ninety (90) days following the date Mentus receives the
addresses. The date of the first installation will be the "Initial Installation
Date." Mentus will be in material breach of this section only if the failure to
materially comply with the Hardware Installation Rollout Schedule is due to the
actions or inactions of Mentus.
2.04 Upon mutual agreement, Mentus will either provide a full time
installation coordinator or pay for a Southland employee (at an agreed upon
cost, not to exceed $100,000) to assist with the Hardware installation.
2.05 Title and ownership of the Hardware will remain with Mentus.
2.06 Mentus will maintain, repair or replace the Hardware, as necessary,
at its sole cost and expense, excluding the cost of electricity. All costs
associated with the required telephone lines, including monthly telephone line
charges, will be borne by Mentus. Mentus will provide to the Stores, at its sole
cost and expense, a toll free 800 number that a Store may use to report a
Hardware problem. Mentus will respond to a maintenance or repair request within
24 hours (weekends and holidays excluded) after receiving such request. Mentus
will be responsible for ensuring that the Hardware is maintained and operable at
all times.
2.07 Southland will be responsible for any Hardware loss or damage that
is not due to the negligence of Mentus, during the time the Hardware is properly
installed at the Store.
2.08 In the event of a Store closure, lease expiration, franchisee
termination or other factor that causes a cessation of a Store operation during
the term of this Agreement, at Southland's request, Mentus will, at its sole
cost and expense and within five (5) business days from Mentus' receipt of a
request under this Section 2.08, remove the Hardware from the Store and return
the Store to its previous condition, normal wear and tear excepted.
2.09 Upon Southland's reasonable request, Mentus will, at its sole cost
and expense and within a reasonable time period, relocate the Hardware to a
different area in the Store to achieve maximum customer exposure.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
3. SOFTWARE NETWORK.
3.01 Mentus warrants that it will provide and maintain the necessary
network to ensure continuous operation of advertisements, news, weather,
promotions and other information at the Store level.
3.02 Mentus warrants that the programming (news/weather, etc.) and
advertisements will only be broadcast in the designated and proper Store
locations.
3.03 Mentus will repair within 48 hours, any network problem, failure or
malfunction that restricts or hinders the Program from continuously being
broadcast to ten (10) or more Stores for any substantial length of time;
provided that Mentus shall not be deemed to have violated its obligations under
this Section 3.03 if an event giving rise to a network problem, failure or
malfunction described above is an event not within the control of Mentus.
4. PROGRAM CONTENT.
4.01 The Monitor at each Store will continuously broadcast a Program loop
of twenty (20) "slots." Each slot will run for approximately six (6) seconds.
The Program loop will run for approximately two (2) minutes continuously.
4.02 The Program loop will consist of approximately eight (8) program
slots (the "Program Slots") and at least twelve (12) slots that may be sold to
third-party advertisers (the "Ad Slots"). Mentus shall own and retain the
exclusive copyright on all Program Slots and Ad Slots, except to the extent that
such rights with respect to certain Program Slots or Ad Slots are retained by
the advertiser or some other entity through agreement with Mentus.
(a) Program Slots initially will consist of weather, sports scores,
news, promotions, television line-ups, proprietary store
advertisements, lottery information and such other items as may be
developed from time to time. Program Slots will be continuously
updated approximately every four (4) hours as needed, or more
frequently as developed.
(b) Ad Slots will be sold to third party advertisers. Of the eight (8)
Program Slots, Southland will receive _______________* to promote
7-Eleven products, 7-Eleven promotions or other 7-Eleven events, in
Southland's sole discretion ("7-Eleven Slots").
(c) _____________________________________________________*
(d) _____________________________________________________*
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
(e) Mentus will ensure that at least twenty (20) slots are continuously
broadcast. In the event that less than twelve (12) Ad Slots are
sold, Mentus will increase the number of Program Slots to ensure
that twenty (20) different slots are broadcast. Upon the agreement
of the parties, which will not unreasonably be withheld, the total
number of slots may be increased or decreased.
(f) Southland will pay all expenses for delivery of artwork material for
the 7-Eleven Slots ___________*. All commercial announcements must
conform to ACSN commercial standards and operating policies,
including technical quality, as well as Federal Communications
Commission and other government standards. Southland warrants and
represents that it has or will have secured, at its expense, any
necessary performing rights license(s) for material appearing in
commercial announcement(s).
5. PROGRAMMING.
5.01 Mentus will use its best efforts to ensure that the Program Slots
will not damage Southland's trademarks or the 7-Eleven Image. Upon Southland's
request, Mentus will remove within a reasonable time any Program Slots or Ad
Slots objectionable to Southland as damaging to Southland's trademarks or the
7-Eleven image. In addition, Southland and Mentus will cooperate to determine
categories of products and advertisers that Southland has identified as
objectionable and which Mentus has agreed to treat as objectionable under this
Section. Such list of products and advertisers, including guidelines for
advertisers and products, when produced, will be attached as Exhibit D to this
Agreement. Advertisers and or products that fall outside of the agreed upon
guidelines require the prior approval of Southland. Mentus will install a 27
inch ACSN monitor at Southland's corporate offices in Dallas, Texas to allow
Southland to monitor the Program and Ad Slots.
5.02 Upon thirty (30) days prior written notice to Mentus, Southland may
change the ________* 7-Eleven Slots once every thirty (30) days.
6. PROGRAM FEE.
6.01 In accordance with Section 6.02 below, Mentus will pay Southland a
Program Fee equal to a percentage of the "operating revenue" (as defined below)
received by Mentus from the sale of the Ad Slots under the Program. "Operating
revenue" is defined as all revenues earned by Mentus (less bona tide advertising
agency and media buying services commissions), when advertisements are broadcast
by Mentus, in accordance with standard industry practice, from the broadcast of
Ad Slots on monitors installed at the Stores. The Program Fee will be paid to
Southland on a quarterly basis. The Program Fee will be paid to Southland on or
before the thirtieth (30) day following the end of each quarter.
6.02 Mentus' obligation to pay Program Fees shall begin as of the Initial
Installation Date (as defined in Section 2.03). Six (6) months following the
Initial Installation Date shall be the Initial Fee Period. During the Initial
Fee Period, the Program Fee shall be ____*of operating revenue. Thereafter, each
successive twelve (12) month period shall be considered a Fee Year. The Program
Fee during each Fee Year shall be ____* of operating revenue, provided that,
after the Initial Fee Period, the gross amount of Program Fees shall be at least
equal to______________________________________________________________* (the
"Annual Minimum Payment") for each twelve (12) month Fee Year.
6.03 Within thirty (30) days following the end of the first Fee Year, and
annually thereafter within thirty (30) days after the end of each subsequent Fee
Year, the parties will review the Program Fees during the previous Fee Year. In
the event that the Program Fees paid
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
during such Fee Year have not at least equaled the Annual Minimum Payment as set
forth in section 6.02, Mentus will, within thirty (30) days after determination,
pay to Southland an amount equal to the difference between the Program Fees paid
and the Annual Minimum Payment. In the event Mentus fails to pay the Annual
Minimum Payment as provided herein, Southland, as its sole and exclusive remedy,
may terminate this Agreement in accordance with section 97.
6.04 In calculating the Annual Minimum Payment based on the Program Fees,
the Program Fees attributable to a Store shall be prorated based on the time a
Store has installed Hardware and its participating in the Program. For example,
in the case of an installation that is completed during a Fee Year, if the
installation is completed at the end of the third month of a Fee Year, the
amount attributable to such Store in the calculation of the total Annual Minimum
Payment shall be _______*.
6.05 Each month, Mentus will provide Southland with adequate
documentation in a mutually agreed upon form relating to the Program Fee earned
on a Store-by-Store basis so as to allow Southland to credit the Stores for the
Program Fee on a monthly basis.
7. PROGRAM MATERIALS.
7.01 Subject to the parties' approval as to cost, Mentus will pay
Southland for the cost of producing Program Materials and brochures to be used
to solicit store participation under the Program.
8. TAXES.
8.01 Except for federal, state and local income taxes that may be
assessed to Southland as a result of compensation received by Southland under
this Agreement, Mentus will be responsible for all taxes associated with the
Hardware and network installation, operation, maintenance and use of the
Hardware and network, and the programming and advertising broadcasts.
9. TERM AND TERMINATION.
9.01 The term of this Agreement (the "Term") will commence on the
Effective Date and will continue for a period of five (5) years from the earlier
of the first day an Ad Slot is broadcast in any store or January 1, 1996.
9.02 Upon the end of the Term, Southland agrees to negotiate with Mentus
in good faith to extend the Term or renew this Agreement for an additional term
or negotiate a new agreement, which extension, renewal or new agreement the
parties agree will be for at least five (5) years from the end of the Term.
Mentus agrees that Southland is under no obligation to renew or extend this
Agreement. During the period of negotiation (not to exceed ninety (90) days from
the end of the Term), Mentus agrees to operate the network and continue the
Program in accordance with the terms and conditions of this Agreement.
9.03 In addition to and not in lieu of the foregoing, if at any time
Southland desires to enter into negotiations with a provider of services
competitive with Mentus (a "Competitor"), Southland agrees that, prior to
entering into such negotiations, Southland will first negotiate in good faith
with Mentus for the provision of Mentus' services. If, following negotiations
with a Competitor, Southland desires to enter into an agreement with such
Competitors (a "Substitute Agreement"), Southland shall deliver to Mentus
written notice of the terms and conditions of the Substitute Agreement and
Mentus will have a right, exercisable for a period of forty-five (45) days after
Mentus receives notice of the Substitute Agreement, to provide Mentus' services
to Southland on terms substantially equivalent to, and in lieu of, the
Substitute Agreement
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
9.04 Upon thirty (30) days written notice, either party may terminate
this Agreement in the event the other party materially breaches or defaults
under any material term or provision of this Agreement and the defaulting party
fails to cure such breach or default within thirty (30) days of receipt of
written notice of default (the "Cure Period").
9.05 As its sole and exclusive remedy, Southland may terminate this
Agreement in the event the Annual Minimum Payment is not made by Mentus pursuant
to Section 6.03.
10. EFFECT OF EXPIRATION OR TERMINATION.
10.01 In the event this Agreement is terminated effective at the end of
Term and the parties fail to reach an agreement for an additional term, or in
any other event upon termination of this Agreement, Mentus, at its sole cost and
expense, will remove the Hardware from the Stores and restore each Store to its
previous condition, reasonable wear and tear excepted, within ninety (90) days
of such termination.
10.02 Mentus will pay Southland all outstanding Program Fees within thirty
(30) days of termination.
11. STATE OF THE ART TECHNOLOGY.
11.01 During the term of this Agreement, in the event that substantially
enhanced Program technology, compatible with the network, becomes generally
available in the marketplace, Mentus, at its sole cost and expense, will use its
best efforts to incorporate this technology into the Program, provided that such
technology substantially and materially improves the performance of the Program;
12. MONITOR CO-BRANDING.
12.01 Mentus will work with Southland to develop and implement
"co-branding" of the monitor at the Stores between ACSN and 7-Eleven.
13. MENTUS EXCLUSIVITY.
13.01 During the term of this Agreement and any renewal thereof, Mentus
will be the exclusive provider of video-based information, entertainment and
advertising to the Stores.
14. SOUTHLAND EXCLUSIVITY.
14.01 For a period of one year after the Initial Installation Date,
Southland will be the only convenience store chain in the designated market
areas identified on Exhibit E under the Program.
15. INDEMNITY.
15.01 Mentus will absolutely and irrevocably indemnify, defend (with
counsel satisfactory to Southland) and hold harmless Southland and its
affiliates and its and their respective directors, stockholders, officers,
employees, agents, consultants, representatives, successors, transferees,
assignees and franchisees from and against any and all damages arising from,
relating to or associated with (i) any actions or omissions of Mentus, its
employees, agents or representatives, and/or (ii) Mentus' breach, violation or
default of or failure to comply with any one or more of its obligations under
this Agreement.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
16. INSURANCE.
16.01 Mentus will keep in force at all times during the term of this
Agreement commercial general liability insurance, written on an occurrence
basis, with both "product" and "contractual" coverage, each with an aggregate
limit of at least $3,000,000 for each occurrence for any loss that may flow
directly or indirectly from the installation, use and maintenance of the
Hardware at the Store. Mentus will furnish Southland with a certificate from a
financially responsible insurance company evidencing that such insurance is in
force, naming Southland as an additional insured and providing that such
coverage may not be terminated, canceled or amended without thirty (30) days'
prior written notice to Southland. Mentus will furnish Southland a copy of this
certificate upon execution of this Agreement.
17. ASSIGNMENT.
17.01 Other than a collateral assignment for security, neither this
Agreement, nor any right, obligation or claim arising out of or in connection
with this Agreement will be assigned to an unrelated or unaffiliated entity by
either party or by operation of law without prior written consent of the other
party.
18. CONFIDENTIALITY.
18.0l Mentus and Southland will, and will use all reasonable efforts to
cause their respective employees, franchisees and licensees to hold in
confidence all Confidential Information, hereinafter defined, and Mentus and
Southland will not, and will use all reasonable efforts to ensure that any
employees, franchisees and licensees having access to the Confidential
Information through them will not, disclose or use the same in connection with
this Agreement. For purposes hereof, "Confidential Information" means this
Agreement, all information of any kind (including, without limitation, sales,
pricing, financial and promotional information) obtained directly or indirectly
from Mentus or Southland, as the case may be, or from any of their respective
employees, agent, accountants, counsel or other representatives, relating to
either Mentus' or Southland's business, except information that:
(a) constitutes readily ascertainable public information,
including, without limitation, any information filed with the Securities
and Exchange Commission;
(b) subsequently becomes public information through no fault of
the party to whom it was revealed;
(c) either party obtains from a third party who they have no
reason to believe is under any obligation of confidentiality; or
(d) either party becomes legally obligated to disclose, provided
that the other party is afforded an opportunity prior to such disclosure to
apply to the court or other appropriate authority for a form of restrictive
order preventing disclosure of any such information.
18.02 Each franchisee and licensee of Southland that agrees to participate
in the Program will agree in writing to the confidentiality obligations
hereunder.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
19. RELATIONSHIP OF PARTIES.
19.01 The parties to this Agreement will be independent contractors under
this Agreement. It is not the intent of the parties to form any agency,
partnership or joint venture, and it is understood that each party will exercise
full power and authority, except as specifically provided otherwise in this
Agreement, to select the means, method and manner of performing all obligations
to be performed under this Agreement.
19.02 Southland and Mentus represent and warrant to each other, as to
their own acts, that (i) the execution, delivery and performance by Southland
and Mentus under this Agreement will not violate or constitute a default under,
or create a circumstance which with the passage of time will result in a
violation of or default under, any agreement of which Southland or Mentus is a
party or by which any of their respective assets are bound, and (ii) Southland
and Mentus are not party to any agreement that would restrict or inhibit
Southland's or Mentus' ability to perform under this Agreement, or Mentus'
ability to locate, install, service or operate the Hardware or the network
system.
20. GOVERNING LAW.
20.01 THE FORMATION, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT WILL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
21. VENUE.
21.01 It is agreed that any disagreement between the parties of this
contract that require resolution through judicial proceedings must be litigated
in Dallas, County, Texas.
22. NOTICE AND DEMANDS.
22.01 Except as otherwise provided under this Agreement, all notices,
demands, or requests which may be given by either party to the other party must
be delivered to the addresses set forth in Section 22.03 in person or deposited,
postage prepaid, in the United States mail via certified mail, return receipt
requested or if personal delivery, facsimile or expedited mail service is
selected as a method of notice under this Section, a receipt reflecting such
delivery must be obtained.
22.02 It is the obligation of each party to give notice to the other party
of any change of address in accordance with the guidelines for notification as
herein defined.
22.03 Pursuant to this Agreement, without change in address as provided
for herein, all notices, demands, or requests submitted in writing will be made
to the following address:
If to Mentus: If to Southland:
The Mentus Group, Inc. The Southland Corporation
Attn: Program Participation Dept. Attn: Vice President,
Cabriole Center Merchandising
9531 W. 78th Street 2711 N. Haskell Avenue
Eden Prairie, Minnesota 55344 Dallas, TX 75204
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
With a copy to: With a copy to:
Anthony A. Bonacci The Southland Corporation
Colombo & Bonacci Attn: Legal Department
2525 E. Camelback Rd., Suite 840 2711 N. Haskell Avenue
Phoenix, Arizona 85016 Dallas, TX 75204
23. BOOKS AND RECORDS/AUDIT RIGHTS.
23.01 Upon reasonable notice, either party may request and the requested
party will comply with a review of its books and records relating to the Program
Fee and performance under this Agreement.
24. ALTERNATIVE DISPUTE RESOLUTION.
24.01 Southland has subscribed to the Center for Public Resources Policy
(the "Policy") on Alternative Dispute Resolution ("ADR"). The parties
acknowledge that, if Mentus is currently a subscriber or becomes a subscriber to
the Policy at any time during the Term, then the parties will adhere to the
statement of principle set forth in the Policy, to wit:
In the event of a business dispute between the parties, the parties are
prepared to explore resolution of the dispute through negotiation or ADR
techniques before pursuing full scale litigation. If either party believes
that the dispute is not suitable for ADR techniques, or if such techniques
do not produce results satisfactory to the disputants, either party may
proceed with litigation.
Mentus' being a subscriber to the Policy is not a prerequisite for the
parties to engage in ADR.
25. NON-EXCLUSIVE REMEDIES.
25.01 Except as provided in this Agreement, the parties' rights and
remedies under this Agreement will be cumulative and non-exclusive of any other
rights or remedies which either party may have by operation of law or otherwise.
26. WAIVER.
26.01 The failure of either party to enforce at any time for any period of
time any of the provisions of this Agreement will not be construed to be a
waiver of such provisions or of the right of such party thereafter to enforce
each such provision.
27. ENTIRE AGREEMENT.
27.01 This Agreement, including all Exhibits, constitutes the entire
Agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous, written or oral, agreements,
representations and understandings of the parties. The parties acknowledge and
agree that there are no other representations, agreements and understandings
pertaining to the subject matter herein that the parties have relied on in
entering into this Agreement other than those stated in this Agreement. This
Agreement may be amended only by the mutual written agreement of the parties,
signed by an authorized officer or representative of each party, or in the case
of Southland, a Vice President or President, and this Agreement shall not be
deemed to have been amended or any rights waived by any course of dealing or
course of performance between the parties.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective on the day and year first above written.
Attest: THE MENTUS GROUP, INC.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ---------------------------------- --------------------------------
Its: Chairman
-------------------------------
Attest: THE SOUTHLAND CORPORATION
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ---------------------------------- --------------------------------
Assistant Secretary President
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
EXHIBIT A
---------
Hardware Description
* This information has been filed separately with the Securities and Exchange
Commission for Confidential Treatment.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
EXHIBIT B
---------
Southland Corporate-Owned Stores
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
EXHIBIT C
---------
Initial Hardware Installation Roll-Out Schedule
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
EXHIBIT D
---------
Advertiser/Product Guidelines
(to be attached)
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
EXHIBIT E
---------
Areas of Exclusivity
Los Angeles Phoenix
Chicago San Diego
San Francisco Portland
Seattle Milwaukee
Sacramento Salt Lake City
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
Advertising Category Restrictions
---------------------------------
Condoms
Alcohol (Beer not restricted)
Fire Arms and Ammunition
Fast Food Outlets
Gas Companies
Telephone Long Distance Service
ATM
Competitor Convenience Store Chains
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment
<PAGE>
United States
Securities and Exchange Commission
Washington, DC 20549
Form T-1
Statement of Eligibility Under The Trust Indenture Act of 1939 Of A
Corporation Designated To Act as Trustee
Check if an application to determine
Eligibility of a trustee pursuant to
Section 305(b)(2)
United States Trust Company of New York
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street
New York, NY 10036-1532
(Address of principal (Zip Code)
executive offices)
None
(Name, address and telephone number of agent for service)
Mentus Media Corp.
(Exact name of obligor as specified in its charter)
Minnesota 41-1670450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9531 West 78th Street, Suite 400
Minneapolis, Minnesota 55344
(Address of principal executive offices) (Zip Code)
12% Senior Secured PIK Notes due 2003
(Title of the indenture securities)
<PAGE>
General
1. General Information
Furnish the following information as to the trustee:
a) Name and address of each examining or supervising authority to which it is
a subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, DC
New York State Banking Department, Albany, New York
b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor is currently not in default under any of its outstanding securities
for which United States Trust Company of New York is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1
are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 - Organization Certificate, as amended, issued by the State of New
York Banking Department to transact business as a Trust Company,
is incorporated by reference to Exhibit T-1.1 to Form T-1 filed
on September 15, 1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.2 - Included in Exhibit T-1.1.
T-1.3 - Included in Exhibit T-1.1.
<PAGE>
16. List of Exhibits
(cont'd)
T-1.4 - The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form
T-1 filed on September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Act of 1990 (Registration No. 33-97056)
T-1.6 - The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 - A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
As of March 18, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of new York, a corporation organized and existing
under the laws of the State of new York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 18th of
March 1998.
United States Trust Company
Of New York, Trustee
By:
-----------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321 (b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
March 18, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
United States Trust Company of New York
- --------------------------------
By: /s/ Gerard F. Ganey
Senior Vice President
<PAGE>
Exhibit T-1.7
United States Trust Company of New York
Consolidated Statement of Condition
December 31, 1997
($ In Thousands)
Assets
Cash and Due from Banks $ 80, 246
Short Term Investments 386,006
Securities, Available for Sale 661,596
Loans
1,774,551
Less: Allowance for Credit Losses 16,202
----------
Net Loans 1,758,349
Premises and Equipment 61,477
Other Assets 124,499
----------
Total Assets $3,072,173
Liabilities
Deposits:
Non-Interest Bearing $ 686,507
Interest Bearing 1,773,254
----------
Total Deposits 2,459,761
Short Term Credit Facilities 295,342
Accounts Payable and Accrued Liabilities 149,775
----------
Total Liabilities $2,904,878
Stockholder's Equity
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,235
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,524
----------
Total Stockholder's Equity 167,295
----------
Total Liabilities and
Stockholder's Equity $3,072,173
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
February 9, 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
SERIES B 12% SENIOR SECURED PIK NOTES DUE 2003
FOR ALL OUTSTANDING SERIES A 12% SENIOR SECURED PIK NOTES DUE 2003
OF
MENTUS MEDIA CORP.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
United States Trust Company of New York
(the "Exchange Agent")
<TABLE>
<CAPTION>
IF BY OVERNIGHT COURIER: IF BY HAND:
<S> <C>
United States Trust Company United States Trust Company
of New York of New York
770 Broadway, 13th Floor 111 Broadway
New York, New York 10003 Lower Level
Attn: Corporate Trust Services Attn: Corporate Trust Services
New York, New York 10036
</TABLE>
IF BY MAIL:
United States Trust Company
of New York
P.O. Box 844
Attn: Corporate Trust Services
Cooper Station
New York, New York 10276-0844
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL
INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT 1-212-852-1552.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Mentus Media Corp., a Delaware
corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuer's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its Series B 12% Senior
Subordinated PIK Notes due 2003 (the "Exchange Notes"), which have been
registered under the Securities Act (as hereinafter defined) pursuant to a
Registration Statement, for each $1,000 in principal amount of its outstanding
12% Senior Subordinated PIK Notes due 2003 (the "Notes"), of which $45,000,000
aggregate principal amount is outstanding. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
<PAGE>
The undersigned hereby tenders the Series A Notes described in Box 1 below
(the "Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes (" Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, the Issuer, all rights, title, and interest in, to and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuer, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuer upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the procedures
described in the caption "The Exchange Offer" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Issuer upon the terms and subject to the conditions of the Exchange
Offer, subject only to withdrawal of such tenders on the terms set forth in the
Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned and any Beneficial Owner(s), and every obligation
of the undersigned or any Beneficial Owners hereunder shall be binding upon the
heirs, representatives, successors and assigns of the undersigned and such
Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign and transfer the Tendered Notes
and that the Issuer will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances and adverse claims when
the Tendered Notes are acquired by the Issuer as contemplated herein. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents reasonably requested by the Issuer or the Exchange
Agent as necessary or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as otherwise disclosed in
2
<PAGE>
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Issuer or
any of its subsidiaries and (iv) the undersigned and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer with
the intention or for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), in connection with a secondary resale of the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission (the "Commission") set forth in
the no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offer." Each broker-dealer that will receive Exchange
Notes for its own account pursuant to the Exchange Offer hereby acknowledges
that it will deliver a Prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a Prospectus, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<TABLE>
<CAPTION>
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
<S> <C>
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "Use of Guaranteed
Delivery" BELOW (Box 4).
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE
ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
</TABLE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
<TABLE>
<CAPTION>
DESCRIPTION OF NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
NAME(S) AND ADDRESS(ES)
OF REGISTERED NOTE
HOLDER(S),
EXACTLY AS NAME(S)
APPEAR(S) ON NOTE AGGREGATE
CERTIFICATE(S) CERTIFICATE PRINCIPAL AMOUNT AGGREGATE
(PLEASE FILL IN, IF NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT
BLANK) NOTES* CERTIFICATE(S) TENDERED**
<S> <C> <C> <C>
TOTAL
<CAPTION>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders
must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated
in this column, the principal amount of all Note Certificates identified in this Box 1
or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction
4.
<S> <C> <C> <C>
</TABLE>
3
<PAGE>
BOX 2
<TABLE>
<CAPTION>
BENEFICIAL OWNER(S)
- ------------------------------------------------------------------------------------------
<S> <C>
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- -------------------------------------------- --------------------------------------------
</TABLE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s): _____________________________________________________________________
(PLEASE PRINT)
Address:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(INCLUDE ZIP CODE)
Tax Identification or Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY (SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
______________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________________
Name of Institution which Guaranteed Delivery: _______________________________
4
<PAGE>
BOX 5
USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution: _______________________________________________
Account Number: ______________________________________________________________
Transaction Code Number: _____________________________________________________
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
X Signature Guarantee
X (If Required by Instruction 5)
(Signature of Registered Holder(s)
or authorized signatory)
Note: The above lines must be signed by Authorized Signature
the registered holder(s) of Notes as X
their name(s) appear(s) on the Notes or Name:
by person(s) authorized to become (please print)
registered holder(s) (evidence of which
authorization must be transmitted with
this Letter of Transmittal). If
signature is by a trustee, executor,
administrator, guardian,
attorney-in-fact, officer, or other
person acting in a fiduciary or
representative capacity, such person
must set forth his or her full title
below. See Instruction 5.
Name(s): Title:
Name of Firm:
Capacity: (Must be an eligible institution
as defined in instruction 2)
Street Address: Address:
(include zip code) (include zip code)
Area Code and Telephone Number: Area Code and Telephone Number:
Tax Identification or Social Dated:
Security Number:
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "The Exchange Offer--Procedures for Tendering" (and a confirmation of
such transfer received by the Exchange Agent), in each case prior to 5:00 p.m.,
New York City time, on the Expiration Date. The method of delivery of
certificates for Tendered Notes, this Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
tendering holder and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Notes should be sent to the Company.
Neither the Issuer nor the registrar is under any obligation to notify any
tendering holder of the Issuer's acceptance of Tendered Notes prior to the
closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedures set forth below, including completion of Box
4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Notes and the principal amount
of Tendered Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Notes and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New York City
time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and delivery this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and delivery this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner form accompanying this Letter of Transmittal.
6
<PAGE>
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should fill
in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1)
above. The entire principal amount of the Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Notes held by the holder is not tendered, then Notes for
the principal amount of Notes not tendered and Exchange Notes issued in exchange
for any Notes tendered and accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, as soon as practicable following the
Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed bond power with the Letter of Transmittal, with
the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Issuer, evidence satisfactory to the Issuer of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the
applicable box (Box 3), the name and address to which the Exchange Notes and/or
substitute Notes for principal amounts not tendered or not accepted for exchange
are to be sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the
7
<PAGE>
transfer and exchange of Tendered Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
on any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the Holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among other, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding.
The Issuer reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Notes will be
determined by the Issuer in its sole discretion, which determination will be
final and binding. The Issuer reserves the right to reject any and all Notes not
validly tendered or any Notes the Issuer's acceptance of which would, in the
opinion of the Issuer or their counsel, be unlawful. The Issuer also reserves
the right to waive any conditions of the Exchange Offer or defects or
irregularities in tenders of Notes as to any ineligibility of any holder who
seeks to tender Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) by the Issuer shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Notes
must be cured within such time as the Issuer shall determine. Neither the
Issuer, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Notes, nor
shall any of them incur any liability for failure to give such notification.
Tender of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent of the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
8
<PAGE>
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES.
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange all validly tendered Notes as soon as practicable after the
Expiration Date and will issue Exchange Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted tendered Notes when, as and if the Issuer has given written or
oral notice (immediately followed in writing) thereof to the Exchange Agent. If
any Tendered Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
9
<PAGE>
<TABLE>
<CAPTION>
PAYOR'S NAME: MENTUS MEDIA CORP.
SUBSTITUTE Name (if joint names, list first and circle the name of
the person or entity whose number you enter in Part 1
FORM W-9 below. See instructions if your name has changed.)
DEPARTMENT OF THE
TREASURY INTERNAL
REVENUE SERVICE
<S> <C> <C>
Address
City, State and ZIP Code
List account number(s) here (optional)
PART 1--PLEASE PROVIDE YOUR Social Security
TAXPAYER IDENTIFICATION NUMBER Number or TIN
("TIN") IN THE BOX AT RIGHT AND ---------------------
CERTIFY BY SIGNING AND DATING
BELOW.
PART 2--Check the box if you are NOT subject to backup
withholding under the provisions of section 3406(a)(1)(c)
of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or
(2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding. / /
CERTIFICATION--UNDER THE PENALTIES PART 3--
OF PERJURY, I CERTIFY THAT THE Awaiting TIN / /
INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE.
SIGNATURE -------------------------- DATE ----------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
10
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
SERIES B 12% SENIOR SECURED PIK NOTES DUE 2003
FOR ALL OUTSTANDING SERIES A 12% SENIOR
SECURED PIK NOTES DUE 2003
OF
MENTUS MEDIA CORP.
PURSUANT TO THE PROSPECTUS DATED , 1998
This form must be used by a holder of Series A 12% Senior Subordinated PIK
Notes due 2003 (the "Series A Notes") of Mentus Media Corp., a Delaware
corporation (the "Company"), who wishes to tender Series A Notes to the Exchange
Agent pursuant to the guaranteed delivery procedures described in "The Exchange
Offer--Guaranteed Delivery Procedures" of the Company's Prospectus, dated
, 1998 (the "Prospectus") and in Instruction 2 to the related Letter
of Transmittal. Any holder who wishes to tender Series A Notes pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives this
Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange
Offer. Capitalized terms used but not defined herein have the meanings ascribed
to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
United States Trust Company of New York
(the "Exchange Agent"):
<TABLE>
<S> <C>
IF BY OVERNIGHT COURIER: IF BY HAND:
United States Trust Company United States Trust Company
of New York of New York
770 Broadway, 13th Floor 111 Broadway
New York, NY 10003 Lower Level
Attn: Corporate Trust Services Attn: Corporate Trust Services
New York, NY 10036
</TABLE>
IF BY MAIL:
United States Trust Company of New York
P.O. Box 844
Attn: Corporate Trust Services
Cooper Station
New York, NY 10276-0844
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL AGGREGATE
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AMOUNT PRINCIPAL AMOUNT
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY REPRESENTED TENDERED
- --------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or Date: , 1997
Authorized Signatory:
Address:
Name(s) of Registered Holder(s): Area Code and Telephone No.
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Series A Notes or on a security
position listing as the owner of Series A Notes, or by person(s) authorized to
become Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Series A Notes tendered hereby in
proper form for transfer (or confirmation of the book-entry transfer of such
Series A Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility described in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any
other required documents, all by 5:00 p.m., New York City time, on the fifth New
York Stock Exchange trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of firm (Authorized Signature)
Address Name
(Please Print)
Title
(Include Zip Code)
Area Code and Tel. No. Dated , 1997
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Series A Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Series A Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified herein. Holders may also contact
their broker, dealer, commercial bank, trust company, or other nominee for
assistance concerning the Exchange Offer.
4
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
MENTUS MEDIA CORP.
12% SENIOR SECURED NOTES DUE 2003
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
, 1998 (the "Prospectus") of Mentus Media Corp., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 12% Senior Secured Notes Due 2003 (the "Notes") held
by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 12% Senior Secured Notes due 2003
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$ .
/ / NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN
STATE) , (ii) the undersigned is acquiring the Exchange Notes in
the ordinary course of business of the undersigned, (iii) the undersigned is not
participating, does not participate, and has no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes, (iv)
the undersigned acknowledges that any person participating in the Exchange Offer
for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Act"), in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission set forth in no-action letters
that are discussed in the section of the Prospectus entitled "The Exchange
Offer--Purpose and Effect of the Exchange Offer," and (v) the undersigned is not
an "affiliate," as defined in Rule 405 under the Act, of the Company or any of
its subsidiaries; (b) to agree, on behalf of the undersigned, as set forth in
the Letter of Transmittal; and (c) to take such other action as necessary under
the Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signatures(s): _________________________________________________________________
Name (please print): __________________________________________________________
Address: _______________________________________________________________________
_______________________________________
_______________________________________
Telephone number: ______________________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
Date: __________________________________________________________________________
