<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-49279
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO.1
TO
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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
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............................ $60,200,000(2) 100% $60,200,000(2) $17,759.00(1)(3)
</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.
(2) Includes $15,200,000 principal amount of such Notes which may be issued, at
the option of the Registrant, in lieu of cash interest payments thereon.
Such additional principal amount constitutes the Registrant's reasonable
good faith estimate of the amount of such Notes which may be paid as
interest in lieu of cash.
(3) An additional fee of $4,484 is paid concurrently herewith. The amount of
$13,275 was paid in connection with the initial filing hereof.
------------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 3, 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). The Series A Notes and
the Series B Notes are sometimes referred to herein collectively as the "Notes."
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 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. 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." There
can be no assurance that sufficient funds will be available if necessary to make
any required repurchases. See "Risk Factors--Ability to Purchase Notes Upon a
Change of Control."
The Series B Notes will be senior obligations of the Company and will, with
the exception of certain equipment representing approximately 1.7% of the total
assets of the Company as of March 31, 1998, 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. The assets of the Company which secure the obligations under
the Notes had a book value of approximately $47.0 million as of March 31, 1998.
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
(COVER CONTINUED ON NEXT PAGE)
--------------------------
ANYONE INVESTING IN THE SERIES B NOTES OFFERED HEREBY SHOULD HAVE THE
ABILITY TO SUSTAIN A TOTAL LOSS ON THEIR INVESTMENT, AS THE COMPANY MAY NOT HAVE
THE ABILITY TO SERVICE ITS DEBT BASED ON ITS SHORT OPERATING HISTORY IN WHICH IT
HAS INCURRED SUBSTANTIAL LOSSES TO DATE. SEE "RISK FACTORS" BEGINNING ON PAGE 11
FOR FURTHER CONSIDERATIONS BY POTENTIAL HOLDERS OF THE SERIES B NOTES OFFERED
HEREBY.
---------------------
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
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(COVER CONTINUED FROM PREVIOUS PAGE)
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 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 in connection with resales of Series B Notes received in exchange for
Series A Notes only by Participating Broker-Dealers ("Eligible Participating
Broker-Dealers") who acquired such Series A Notes as a result of market-making
activities or other trading activities and not by Participating Broker-Dealers
who acquired such Series A Notes directly from the Company. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any Eligible 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
THE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS UNDER THE CAPTIONS
"PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE 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.
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. The Company believes that 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 March 31, 1998, 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 site agreements for approximately
5,700 additional sites. Collectively with the Company's presently installed
sites, NGN could be viewed by an estimated Daily Audience of approximately 9
million people in 41 of the top 50 DMA's in the United States.
- ------------------------
* The Company categorizes by size the various advertising markets or Designated
Market Areas ("DMAs") 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 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%.
BUSINESS STRATEGY
As the American lifestyle has become increasingly busy, reaching the
consumer through traditional advertising mediums has become more difficult. The
Company believes that approximately 64% of the adult population read newspapers
daily in 1997 as compared to approximately 77% in 1970. In addition, the Company
believes that subscribers to America On-Line tend to watch approximately 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 complete the installation of
NGN Displays in the approximately 5,700 additional sites currently
2
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under 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 300 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"), 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 through 1999. 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 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 in connection with resales of Series B Notes
received in exchange for Series A Notes only by
Participating
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4
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<TABLE>
<S> <C>
Broker-Dealers ("Eligible Participating Broker-Dealers")
who acquired such Series A Notes as a result of
market-making activities or other trading activities and
not by Participating Broker-Dealers who acquired such
Series A Notes directly from the Company. The Company has
agreed that, for a period of 180 days after the Expiration
Date, it will make this Prospectus available to any
Eligible 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."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 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."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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.
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 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. 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.
Interest Payment Date........... February 1 and August 1 of each year, commencing on August
1, 1998 (each an "Interest Payment Date").
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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) which represent approximately 1.7% of the
total assets of the Company as of March 31, 1998, 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. The assets of
the Company that secure the obligations under the Notes
had a book value of approximately $47.0 million as of
March 31, 1998. 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." There can be no
assurance that sufficient funds will be available if
necessary to make any required repurchases. See "Risk
Factors--Ability to Purchase Notes Upon a 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.
8
<PAGE>
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, and condensed unaudited historical
financial data. The historical financial data of the Company for the three
months ended March 31, 1997 and 1998 has been derived from the Company's
unaudited financial statements which, in the opinion of Management of the
Company, have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments and accruals
necessary for a fair presentation of such information. The unaudited pro forma
data for 1997 has been presented as if the Units Offering had been effected on
January 1, 1997 and the unaudited pro forma data for 1998 has been presented as
if the Units Offering had been effected on January 1, 1998.
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>
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED DECEMBER 31, -----------------------------------
-------------------------------------------------
HISTORICAL
HISTORICAL PRO FORMA (5) (UNAUDITED) PRO FORMA (5)
------------------------------- ---------------- -------------------- -------------
1995 1996 1997 1997 1997 1998 1998
--------- --------- --------- ---------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net Advertising revenues........ -- -- $ 1,205 $ 1,205 $ 13 $ 397 $ 397
Network equipment and
territorial rights sales(1)... -- $ 2,688 137 137 12 26 26
Network operating revenues...... -- 490 485 485 189 -- --
--------- --------- --------- -------- --------- --------- -------------
Total revenue(1)............ -- 3,178 1,827 1,827 214 423 423
Cost of network equipment
sales......................... -- 2,214 61 61 12 10 10
Network operating expenses(2)... -- 363 2,799 2,799 601 844 844
Selling expenses................ -- -- 1,757 1,757 266 957 957
General and administrative
expenses...................... $ 2,103 2,507 3,429 3,429 816 1,295 1,295
--------- --------- --------- -------- --------- --------- -------------
Operating loss............ (2,103) (1,906) (6,219) (6,219) (1,481) (2,683) (2,683)
Nonoperating income (expense):
Interest expense................ (240) (231) (281) (7,161) (65) (844) (1,745)
Interest income................. 9 82 113 113 37 263 263
Other expense................... -- -- (1) (1) -- -- --
--------- --------- --------- -------- --------- --------- -------------
Net loss.................. (2,334) (2,055) (6,388) (13,268) (1,509) (3,264) (4,165)
Preferred stock dividends....... 248 541 1,631 1,631 266 529 529
--------- --------- --------- -------- --------- --------- -------------
Net loss applicable to
common stockholders..... $ (2,582) $ (2,596) $ (8,019) $ (14,899) $ (1,775) $ (3,793) $ (4,694)
--------- --------- --------- -------- --------- --------- -------------
--------- --------- --------- -------- --------- --------- -------------
Net loss per common
share................... $ (11.20) $ (10.16) $ (30.12) $ (55.96) $ (6.67) $ (14.24) $ (17.63)
--------- --------- --------- -------- --------- --------- -------------
--------- --------- --------- -------- --------- --------- -------------
OTHER DATA (UNAUDITED):
EBITDA(3)....................... $ (1,911) $ (1,695) $ (5,506) $ (5,506) $ (1,359) $ (2,442) $ (2,442)
Cash flows from operating
activities.................... (1,656) (1,452) (4,652) (4,502) (1,342) (2,320) (2,320)
Cash flows from investing
activities.................... (91) (2,143) (1,388) (1,388) (564) (605) (605)
Cash flows from financing
activities.................... 1,986 7,023 5,008 45,333 (13) 40,530 40,530
Depreciation and amortization... 192 211 714 714 122 241 241
Capital expenditures............ 92 2,141 2,275 2,275 910 597 597
Ratio of deficiency of earnings
to cover fixed charges........ (2,334) (2,055) (6,388) (13,268) (1,509) (3,264) (4,165)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
1998
-------------------
<S> <C>
HISTORICAL
(UNAUDITED)
-------------------
<CAPTION>
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(4)................................................................. $ 40,395
Working capital.............................................................................. 38,313
Total assets................................................................................. 47,821
Total long term debt and other obligations (including current maturities).................... 38,652(6)
Mandatory redeemable preferred stock......................................................... 15,033
Stockholders' deficit........................................................................ (8,183)(6)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
<PAGE>
(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 4,900 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) 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.
(5) 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, in the case of the 1997 data, as of January 1, 1997, and in the
case of the 1998 data, as of January 1, 1998.
(6) Total debt reported with respect to the Notes is net of the value ascribed
to the Warrants which is recorded as additional paid-in capital. The value
ascribed to the Warrants is $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). The Company had total indebtedness at March
31, 1998 of approximately $38.7 million (for reporting under GAAP, total debt
reported is net of the value ascribed to the Warrants of approximately $7.7
million which is 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 March 31, 1998, had a book value of approximately
$47.0 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 to effect a sale of the Collateral may be subject to certain bankruptcy
limitations in the event of a bankruptcy proceeding involving the Company.
11
<PAGE>
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 $22,261,851 at March 31,
1998, 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 for the remainder of 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 5,700 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 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
12
<PAGE>
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
March 31, 1998 covered 1,452 of the approximately 1,800 installed NGN Displays
and 3,414 of the approximately 5,700 additional installation sites for which the
Company has site agreements (representing, in the aggregate, approximately 65%
of the sites currently covered by site agreements). The Southland Contract
expires on January 1, 2004. Although there is no obligation to renew, extend or
enter into a new agreement, the Southland Contract provides that
13
<PAGE>
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, or if
minimum installations are not completed by June 30, 2000. 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 of current key employees could materially and adversely
affect the Company's business, operating results and financial condition. See
"Management."
14
<PAGE>
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.
ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company could be required to
make an offer to purchase all outstanding Notes at a purchase price in cash
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing or be permitted under
the terms of other indebtedness arrangements, to pay the purchase price for all
Notes tendered by holders thereof.
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
15
<PAGE>
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 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 $40.3 million after deducting fees and expenses of approximately
$2.8 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 $12.9 million for working capital and general
corporate purposes.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 the unaudited historical
capitalization of the Company. 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>
MARCH 31, 1998
---------------
<S> <C>
HISTORICAL
(UNAUDITED)
---------------
Current maturities of long-term debt, including capital leases................................... $ 38,945
Long-term debt, including capital leases, less current maturities................................ 1,174,013
12% Senior Secured PIK Notes due 2003............................................................ 37,438,678(1)
---------------
Total Debt................................................................................... 38,651,636
---------------
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.......................................... 8,737,549
14.8% Series C, non-voting; 90,000 shares authorized; 75,540 shares issued and outstanding;
stated at liquidation value, plus accrued dividends.......................................... 6,295,868
---------------
Total Mandatory Redeemable Preferred Stock 15,033,417
---------------
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
Common Stock, $.01 par value; 1,000,000 shares authorized; 266,268 shares issued and
outstanding.................................................................................. 2,663
Additional paid-in capital..................................................................... 11,076,212(2)
Accumulated deficit............................................................................ (22,261,851)
---------------
Total stockholders' deficit.................................................................... (8,182,976)
---------------
Total capitalization............................................................................. $ 45,502,077
---------------
---------------
</TABLE>
- ------------------------
(1) 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 is net of the value ascribed to the Warrants of approximately $7.7
million which is reflected as additional paid-in capital. The Company is, in
turn, increasing this Note balance for the interest amortization of the
discount attributable to the Warrants.
(2) For reporting under GAAP, additional paid-in capital was increased by $7.7
million which is the value ascribed to the Warrants. The Warrant value was
determined based on the total estimated potential market capitalization of
the Company's Common Stock, on a fully diluted basis before Warrant
issuance, using an estimated per share value of $77 per share and the
percentage of such value that the Warrants represent if exercised.
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, and condensed unaudited historical
financial data. The historical financial data of the Company for the three
months ended March 31, 1997 and 1998 has been derived from the Company's
unaudited financial statements which, in the opinion of Management of the
Company, have been prepared on the same basis as the audited financial
statements and includes all normal and recurring adjustments and accruals
necessary for a fair presentation of such information. The unaudited pro forma
data for 1997 has been presented as if the Units Offering had been effected on
January 1, 1997 and the unaudited pro forma data for 1998 has been presented as
if the Units Offering had been effected on January 1, 1998.
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>
THREE MONTHS
ENDED MARCH
31,
-------------
YEAR ENDED DECEMBER 31, HISTORICAL
------------------------------------------------------------------ -------------
PRO
HISTORICAL FORMA(5) (UNAUDITED)
----------------------------------------------------- ----------- -------------
1993 1994 1995 1996 1997 1997 1997
--------- --------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net advertising revenues............. -- -- -- -- $ 1,205 $ 1,205 $ 13
Network equipment and territorial
rights sales(1).................... -- -- -- $ 2,688 137 137 12
Network operating revenues........... -- -- -- 490 485 485 189
--------- --------- --------- --------- --------- ----------- -------------
Total revenue(1)............... -- -- -- 3,178 1,827 1,827 214
Cost of network equipment sales...... -- -- -- 2,214 61 61 12
Network operating expenses(2)........ -- -- -- 363 2,799 2,799 601
Selling expenses..................... -- -- -- -- 1,757 1,757 266
General and administrative
expenses........................... $ 1,650 $ 1,957 $ 2,103 2,507 3,429 3,429 816
--------- --------- --------- --------- --------- ----------- -------------
Operating loss................. (1,650) (1,957) (2,103) (1,906) (6,219) (6,219) (1,481)
Nonoperating income (expense):.......
Interest expense..................... (145) (191) (240) (231) (281) (7,161) (65)
Interest income...................... 3 5 9 82 113 113 37
Other income (expense)............... -- -- -- -- (1) (1) --
--------- --------- --------- --------- --------- ----------- -------------
Net loss....................... (1,792) (2,143) (2,334) (2,055) (6,388) (13,268) (1,509)
Preferred stock dividends............ 248 248 248 541 1,631 1,631 266
--------- --------- --------- --------- --------- ----------- -------------
Net loss applicable to common
stockholders....................... $ (2,040) $ (2,391) $ (2,582) $ (2,596) $ (8,019) $ (14,899) $ (1,775)
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
Net loss per common share............ $ (10.56) $ (11.27) $ (11.20) $ (10.16) $ (30.12) $ (55.96) $ (6.67)
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
OTHER DATA (UNAUDITED):
EBITDA(3)............................ $ (1,449) $ (1,744) $ (1,911) $ (1,695) $ (5,506) $ (5,506) $ (1,359)
Cash flows from operating
activities......................... (1,388) (1,272) (1,656) (1,452) (4,652) (4,502) (1,342)
Cash flows from investing
activities......................... (94) (42) (91) (2,143) (1,388) (1,388) (564)
Cash flows from financing
activities......................... 1,624 1,224 1,986 7,023 5,008 45,333 (13)
Depreciation and amortization........ 201 213 192 211 714 714 122
Capital expenditures................. 94 43 92 2,141 2,275 2,275 910
Ratio of deficiency of earnings to
cover fixed charges................ (1,792) (1,957) (2,334) (2,055) (6,388) (13,268) (1,509)
BALANCE SHEET DATA (AS OF END OF
YEAR):
Cash and cash equivalents(4)......... $ 244 $ 155 $ 393 $ 3,821 $ 2,789
Working capital (deficit)............ (407) (3,260) 3,245 3,202 1,261
Total assets......................... 929 614 1,303 6,399 7,536
Total long term debt and other
obligations (including current
maturities)........................ 2,390 17 107 2,506 3,064
Mandatory redeemable preferred
stock.............................. -- -- -- 7,305 14,487
Stockholders' deficit................ (2,220) (2,858) (2,901) (4,141) (12,090)
<CAPTION>
PROFORMA(5)
-------------
1998 1998
----------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net advertising revenues............. $ 397 $ 397
Network equipment and territorial
rights sales(1).................... 26 26
Network operating revenues........... -- --
----------- -------------
Total revenue(1)............... 423 423
Cost of network equipment sales...... 10 10
Network operating expenses(2)........ 844 844
Selling expenses..................... 957 957
General and administrative
expenses........................... 1,295 1,295
----------- -------------
Operating loss................. (2,683) (2,683)
Nonoperating income (expense):.......
Interest expense..................... (844) (1,745)
Interest income...................... 263 263
Other income (expense)............... -- --
----------- -------------
Net loss....................... (3,264) (4,165)
Preferred stock dividends............ 529 529
----------- -------------
Net loss applicable to common
stockholders....................... $ (3,793) $ (4,694)
----------- -------------
----------- -------------
Net loss per common share............ $ (14.24) $ (17.63)
----------- -------------
----------- -------------
OTHER DATA (UNAUDITED):
EBITDA(3)............................ $ (2,442) $ (2,442)
Cash flows from operating
activities......................... (2,320) (2,320)
Cash flows from investing
activities......................... (605) (605)
Cash flows from financing
activities......................... 40,530 40,530
Depreciation and amortization........ 241 241
Capital expenditures................. 597 597
Ratio of deficiency of earnings to
cover fixed charges................ (3,264) (4,165)
BALANCE SHEET DATA (AS OF END OF
YEAR):
Cash and cash equivalents(4)......... $ 40,395
Working capital (deficit)............ 38,313
Total assets......................... 47,821
Total long term debt and other
obligations (including current
maturities)........................ 38,652(6)
Mandatory redeemable preferred
stock.............................. 15,033
Stockholders' deficit................ (8,183)
</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 4,900 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) 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.
(5) 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, in the case of the 1997 data, as of January 1, 1997, and in the
case of the 1998 data, as of January 1, 1998.
(6) Total debt reported with respect to the Notes is net of the value ascribed
to the Warrants which is recorded as additional paid-in capital. The value
ascribed to the Warrants is $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 and March 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 MARCH 31, 1998
--------- --------- ---------------
<S> <C> <C> <C>
Market:
Washington, D.C.............................................. 183 502 505
Dallas-Ft. Worth, TX......................................... 47 226 226
Tampa-Clearwater-St. Petersburg, FL.......................... 135 136 135
Miami, FL.................................................... 90 87 86
Orlando, FL.................................................. 220 233 238
Baltimore, MD................................................ 111 208 204
Norfolk, VA.................................................. 244 239 237
West Palm Beach, FL.......................................... 65 63 63
Ft. Meyers, FL............................................... 40 43 45
Other........................................................ 4 32 36
--------- --------- ------
Total.................................................... 1,139 1,769 1,775
</TABLE>
As of December 31, 1996, 798 NGN Displays in the aforementioned table
represented owner operator installations, and 341 were Company owned. As of
March 31, 1998, 1,741 installed NGN Displays were
20
<PAGE>
Company owned, and the remainder represent NGN Displays purchased by site owners
and operated by the Company as part of the NGN network.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net revenues for the three months ended March 31, 1998 were $423,000, an
increase of $209,000, or 98%, compared to $214,000 for the three months ended
March 31, 1997. The increase is attributable to the shift in the Company's
business from owner-operator network operating fees to sales of advertising on
the Company's own NGN installations and the opening of local sales offices.
Three sales offices were opened during the first quarter of 1997 and an
additional office was opened in late 1997. Three offices were opened in former
owner-operator markets during the first quarter of 1998. However, advertising
revenues from these markets were minimal since efforts were concentrated on
staff hiring and training. During the first quarter of 1997, the Company
realized the first net advertising revenues from Company owned installations of
approximately $13,000 and had network operating revenues and equipment sales of
approximately $201,000. Advertising revenues increased to $397,000 during the
first quarter of 1998 while network operating revenues were minimal due to the
termination of owner-operator agreements as discussed above. For the three
months ended March 31, 1998, the Company had equipment sales and network
operating revenues from site owners of $26,000. Barter revenue was $85,000
during such period and is included in advertising revenue.
Costs and expenses for the three months ended March 31, 1998 were $3.1
million, an increase of $1.4 million, or 83%, compared to $1.7 million for the
three months ended March 31, 1997. Network operating expenses increased $243,000
due to the increase in both the number of NGN Display installations and
equivalent months in operation. Major components of network operating expenses
include local telephone service, telephone long distance, depreciation,
maintenance and site lease expense related to the NGN Displays. Site leases
generally provide the site operator with a percentage of the advertising
revenues derived by the Company from the NGN Display at the particular site. The
Company accrues monthly site lease expenses, which are the computed amount based
on a percentage of revenues or, where applicable, the appropriate portion of an
annual minimum. Accordingly, such expenses as a percentage of advertising
revenues will continue to decrease as the Company's advertising revenues
increase. Currently, network operating expenses exceed advertising revenues due
to the Company's limited operating history.
Selling expenses increased to $957,000 during the first quarter of 1998
compared to $266,000 during the comparable period of 1997 as a result of the
addition of sales staff and the opening of additional regional sales offices as
noted above. General and administrative expenses increased approximately
$480,000 for the first quarter of 1998 due to the additional administrative
staff in computer operations, graphic creation and accounting which were added
to support the sales offices and increased advertising revenues as well as
marketing efforts such as printing expenses related to promotional material,
market research, sales promotion, and public relations expenses. Major
components of general and administrative expense include compensation, rent,
professional fees, depreciation, travel, and printing and marketing expenses.
Research and development costs decreased to $80,000 for the first quarter of
1998, compared to $120,000 for the same period in 1997, primarily due to
reductions in software consulting fees.
Interest expense for the three months ended March 31, 1998 was $844,000
compared to $65,000 for the same period in 1997 due to the issuance of $45.0
million of Notes and Warrants in the Unit Offering completed in February 1998.
Interest income increased from $37,000 in the first quarter of 1997 to $263,000
in the same period in 1998 due to investing the unused proceeds from the Unit
Offering.
The net loss for the three months ended March 31, 1998 increased to $3.3
million, from $1.5 million in the same period in 1997, primarily as a result of
the items discussed above.
21
<PAGE>
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. Compensation costs increased $286,000 primarily due to
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 increases in
marketing costs such as printing, market research, sales promotion, and public
relations ($266,000), and increases of $189,000 in professional fees due
primarily to increased computer related 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 operating revenues
received from the two network owner-operators. Prior to 1996 the Company was in
the development stage and had no revenues.
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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 March 31, 1998, the Company's primary source of liquidity has been
proceeds from the sale of equity and debt securities.
As of March 31, 1998, total cash and cash equivalents were $40.4 million
compared to $2.8 million as of December 31, 1997. The increase in cash was a
result of $2.3 million of cash used in operating activities and $605,000 of cash
used in investing activities being offset by $40.5 million of net cash provided
by the Units Offering after offering expenses and repayment of long-term debt.
The Company's increasing sales volume has and will require additional cash to
fund increased receivable levels. In addition, the Company paid in 1998
approximately $1.3 million of accrued obligations to site operators relative to
site agreements.
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").
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 $12.9 million for
working capital and general corporate purposes.
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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. 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.
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.
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 $1.6 million at March 31, 1998, 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 $401,000 at March 31, 1998, and approximately $76,000 in respect
of dividends had accrued but had not been added to liquidation value. The
aforementioned accrued dividends are included in the mandatory redeemable
preferred stock amounts on the balance sheet, and would be payable upon
liquidation but do not become part of the liquidation value for purposes of
compounding dividends until the dividend payment date, to the extent not paid.
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.
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. Capital expenditures were
approximately $910,000 and $597,000 for three months ended March 31, 1997 and
1998, respectively. Subsequent to March 31, 1998, the Company executed purchase
orders that provide for additional capital expenditures of approximately $6
million for NGN Displays.
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The Company anticipates that its $40.4 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 through 1999. 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 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. The Company believes that 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 March 31, 1998, 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 site agreements for approximately
5,700 additional sites. Collectively with the Company's presently installed
sites, NGN could be viewed by an estimated Daily Audience of approximately 9
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. The
Company believes that approximately 64% of the adult population read newspapers
daily in 1997 as compared to 77% in 1970. In addition, the Company believes that
subscribers to America On-Line tend to watch approximately 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
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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 complete the installation of
NGN Displays in the approximately 5,700 additional sites currently under
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 300 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 through 1999. 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 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. The Company believes that 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. The Company believes that 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, the
Company believes that subscribers to America On-Line watch approximately 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%.
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 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 March 31, 1998, 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 site agreements for approximately
5,700 additional sites. Collectively with the Company's presently installed
sites, NGN could be viewed by an estimated Daily Audience of approximately 9
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 March
31, 1998 covered 1,452 of the Company's installed NGN Displays and 3,414 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,
2004. 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, extend or enter into a new agreement,
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 or if minimum installations are not
completed by June 30, 2000. 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 maintenance of its NGN Displays. This
additional source of income provides the site operators with an
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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 June 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 corporate development group aimed at increasing the Company's
geographic presence by identifying and negotiating with companies and
organizations that would provide multiple potential new locations. The corporate
development group currently consists of three full-time professionals, based in
Dallas, Texas and the Company hopes to expand the group to five by the end of
1998. 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."
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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 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. The Company
believes that 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 300
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
31
<PAGE>
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 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, the Company believes that radio, newspaper
and television advertising has a CPM of between $7 and $20. 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
32
<PAGE>
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 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 May 15, 1998, the Company had 96 employees, of which 6 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, 16 were involved in management information systems and
accounting, and 53 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.
33
<PAGE>
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 Source Media Inc., which is a public company 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,
34
<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 $100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
SALARY BONUS
NAME AND PRINCIPAL POSITION YEAR ($) ($)
- -------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Gerard P. Joyce............................................... 1997 251,741 60,000
Chairman of the Board of Directors and President
Thomas M. Pugliese............................................ 1997 212,587
Vice Chairman of the Board of Directors and Chief Executive
Officer
</TABLE>
35
<PAGE>
Non-employee directors of the Company receive a director's fee of $1,000 for
each Board of Directors meeting attended in person.
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
36
<PAGE>
depend. The Plans are currently, and have been since their adoption,
administered by the Board of Directors and the compensation committee of the
Board.
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.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 30, 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............................................................ 157,355(1) 54.6%
Thomas M. Pugliese......................................................... 68,549(2) 25.7
Thomas J. Davis............................................................ 1,720(3) *
David Voelker.............................................................. 9,739(4) 3.6
Timothy P. Hartman......................................................... 17,180(5) 6.1
James P. Sheehan........................................................... 2,133(6) *
Michael J. Marocco......................................................... 96,206(7) 26.5
Alejandro Zubillaga........................................................ 13,906(8) 5.0
John Strauss............................................................... 15,700 5.6
200 Crescent Court
Dallas, Texas 75201
Pulitzer Publishing Company................................................ 28,629(9) 9.7
900 North Tucker Boulevard
St. Louis, Missouri 63101
Western Asset.............................................................. 42,093 (10 13.7
117 East Colorado Blvd.
Pasadena, CA 91105
SunAmerica Investments, Inc................................................ 28,062 (10 9.5
1 SunAmerica Center
38th Floor
Century City
Los Angeles, CA 90067-6022
Northstar Investment Management............................................ 23,852 (10 8.2
2 Pickwick Plaza
Greenwich, CT 06830
All directors and executive officers as a Group............................ 366,788 88.1
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 21,857 shares of Common Stock issuable upon conversion of shares of
Series A Preferred Stock and Series C Preferred Stock.
(2) Includes 233 shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock.
(3) Includes 820 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock and 200 shares issuable upon exercise of warrants.
(4) Represents shares owned by Frantzten/Voelker Investments, LLC, of which Mr.
Voelker is a manager, including 1,789 shares of Common Stock issuable upon
conversion of shares of Series C Preferred Stock.
(5) Includes 13,680 shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock and Series C Preferred Stock.
(6) Includes 1,433 shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock.
(7) 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.
(8) 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.
(9) Represents shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock.
(10) Represents shares of Common Stock issuable upon exercise of Warrants issued
in the Units Offering.
38
<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").
COMMON STOCK
The Company has one class of Common Stock. Each share of Common Stock has
equal dividend and liquidation rights. As of April 30, 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 129,778 shares were
issuable upon the exercise of presently outstanding warrants including the
126,678 Warrants issued in connection with the Units Offering (the "Warrants").
As of April 30, 1998, 230,740 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 Company's Certificate of Incorporation (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 75,540 shares of Series C Preferred Stock were outstanding
as of April 30, 1998.
39
<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 April 30, 1998.
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.
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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 $1,617,539 as of
April 30, 1998, and $213,434 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 $401,373 at April
30, 1998, and $153,573 in respect of dividends had accrued but had not been
added to the liquidation preference.
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<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 April 30, 1998, holders of 260,039 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 April 30, 1998, holders of 161,210 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 certain 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. 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. 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
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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, 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 Eligible 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
79
<PAGE>
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
in connection with resales of Series B Notes received in exchange for Series A
Notes only by Participating Broker-Dealers ("Eligible Participating
Broker-Dealers") who acquired such Series A Notes as a result of market-making
activities or other trading activities and not by Participating Broker-Dealers
who acquired such Series A Notes directly from the Company. 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 Eligible
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 Eligible 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."
80
<PAGE>
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
81
<PAGE>
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 April 30, 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.
EXPERTS
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
82
<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.
As a result of the Exchange Offer, the Company will be subject to the
information reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). So long as the Company is subject to such periodic
reporting requirements under the Exchange Act, it will continue to furnish the
information required thereby to the Commission. The Company will be required to
file periodic reports with the Commission pursuant to the Exchange Act during
the Company's current fiscal year and thereafter so long as the Series B Notes
are held by at least 300 registered holders. The Company does not anticipate
that, for periods following December 31, 1998, the Series B Notes will be held
of record by more than 300 holders. Accordingly, after such date, the Company
does not expect to be required to comply with the periodic reporting obligations
imposed under the Exchange Act. However, the Company intends, and is required by
the terms of the Indenture as long as the Series B Notes are outstanding, to
continue 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.
83
<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 and as of March 31, 1998
(unaudited)......................................................................... F-3
Statements of Operations for the Years Ended December 31, 1995,
1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited).... F-4
Statements of Changes in Stockholders' Deficit for the Years Ended
December 31, 1995, 1996 and 1997 and for the Three Months Ended March 31, 1998
(unaudited)......................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996,
and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited)......... 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, MARCH 31,
------------------------ -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTES 2 AND 10)
Current Assets
Cash and cash equivalents.............................................. $ 3,821,195 $ 2,789,142 $40,394,626
Trade accounts receivable, less allowance of $45,000 in 1997........... 163,140 382,108 220,795
Other current assets................................................... -- 120,886 55,778
----------- ----------- -----------
Total current assets............................................. 3,984,335 3,292,136 40,671,199
----------- ----------- -----------
Equipment and Furnishings, at cost (Notes 3 and 7)
Equipment.............................................................. 2,632,909 4,719,812 5,290,106
Office furniture and equipment......................................... 209,499 381,493 408,234
Equipment under capitalized lease...................................... 247,182 276,546 276,546
----------- ----------- -----------
3,089,590 5,377,851 5,974,886
Less accumulated depreciation.......................................... 688,269 1,387,665 1,628,954
----------- ----------- -----------
2,401,321 3,990,186 4,345,932
----------- ----------- -----------
Other Assets
Deposits............................................................... 13,645 44,052 44,638
Noncurrent trade accounts receivable................................... -- 51,562 56,948
Deferred financing costs (Note 10)..................................... -- 78,603 2,615,552
Other.................................................................. -- 79,109 86,683
----------- ----------- -----------
13,645 253,326 2,803,821
----------- ----------- -----------
$ 6,399,301 $ 7,535,648 $47,820,952
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Current maturities of long-term debt................................... $ 52,174 $ 48,302 $ 38,945
Accounts payable....................................................... 517,553 319,405 993,308
Accrued expenses (Note 9).............................................. 212,599 1,663,453 1,325,567
----------- ----------- -----------
Total current liabilities........................................ 782,326 2,031,160 2,357,820
----------- ----------- -----------
Noncurrent Accrued Site Lease Expense.................................... -- 92,253 --
----------- ----------- -----------
Long-Term Debt, including capital leases, less current maturities (Notes
2, 3
and 10)................................................................ 2,453,618 3,015,208 38,612,691
----------- ----------- -----------
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 8,737,549
14.8% Series C, nonvoting; authorized 90,000 shares; issued and
outstanding 75,310 and 75,540, respectively shares; stated at
liquidation value plus accrued dividends............................. -- 6,057,115 6,295,868
----------- ----------- -----------
7,304,845 14,487,030 15,033,417
----------- ----------- -----------
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 (aggregate liquidation
value of $4,237,500 in 1996 and $4,485,000 in 1997 and 1998) (Note
5)................................................................... 3,000,000 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 2,663
Additional paid-in capital............................................. 5,464,920 3,904,889 11,076,212
Accumulated deficit.................................................... (12,609,071) (18,997,555) (22,261,851)
----------- ----------- -----------
(4,141,488) (12,090,003) (8,182,976)
----------- ----------- -----------
$ 6,399,301 $ 7,535,648 $47,820,952
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
------------- ------------- ------------- --------------- --------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 7):
Advertising revenues............. $ -- $ -- $ 1,243,868 $ 12,973 $ 400,077
Less agency commissions.......... -- -- 39,325 233 3,124
------------- ------------- ------------- --------------- --------------
NET ADVERTISING REVENUES....... -- -- 1,204,543 12,740 396,953
Network equipment and territorial
rights sales................... -- 2,688,455 137,279 12,379 26,309
Network operating revenues....... -- 489,512 485,299 189,230 150
------------- ------------- ------------- --------------- --------------
TOTAL REVENUES................. -- 3,177,967 1,827,121 214,349 423,412
------------- ------------- ------------- --------------- --------------
Costs and expenses:
Cost of network equipment
sales.......................... -- 2,213,772 60,893 11,907 9,996
Network operating expenses....... -- 362,889 2,799,498 601,443 844,079
Selling expenses................. -- -- 1,757,523 265,844 956,919
General and administrative
expenses....................... 2,103,220 2,507,134 3,428,649 816,044 1,295,653
------------- ------------- ------------- --------------- --------------
TOTAL COSTS AND EXPENSES....... 2,103,220 5,083,795 8,046,563 1,695,238 3,106,647
------------- ------------- ------------- --------------- --------------
OPERATING LOSS................. (2,103,220) (1,905,828) (6,219,442) (1,480,889) (2,683,235)
Nonoperating income (expense):
Interest expense................. (239,859) (231,355) (280,806) (65,120) (843,774)
Interest income.................. 8,503 81,679 113,037 37,099 262,713
Other expense.................... -- -- (1,273) -- --
------------- ------------- ------------- --------------- --------------
NET LOSS....................... (2,334,576) (2,055,504) (6,388,484) (1,508,910) (3,264,296)
Preferred stock dividends.......... 247,500 540,802 1,630,836 266,023 528,677
------------- ------------- ------------- --------------- --------------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS................. $ (2,582,076) $ (2,596,306) $ (8,019,320) $ (1,774,933) $ (3,792,973)
------------- ------------- ------------- --------------- --------------
BASIC AND DILUTED NET LOSS PER
COMMON SHARE................. $ (11.20) $ (10.16) $ (30.12) $ (6.67) $ (14.24)
------------- ------------- ------------- --------------- --------------
------------- ------------- ------------- --------------- --------------
Weighted-average number of common
shares outstanding................. 230,521 255,538 266,268 266,268 266,268
------------- ------------- ------------- --------------- --------------
------------- ------------- ------------- --------------- --------------
</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)
Accrued dividends on mandatory
redeemable preferred stock.......... -- -- -- -- (528,677) -- (528,677)
Issuance of Warrants in connection
with PIK Notes (Note 10)............ -- -- -- -- 7,700,000 -- 7,700,000
Net loss.............................. -- -- -- -- -- (3,264,296) (3,264,296)
------ ----------- -------- ------- ------------ ------------- -------------
Balance March 31, 1998 (unaudited)...... 6,000 $ 3,000,000 266,268 $2,663 $ 11,076,212 $(22,261,851) $ (8,182,976)
------ ----------- -------- ------- ------------ ------------- -------------
------ ----------- -------- ------- ------------ ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss...................................................... $(2,334,576) $(2,055,504) $(6,388,484) $(1,508,910) $ (3,264,296)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 191,767 211,368 713,892 121,607 241,289
Deferred compensation and stock issued for compensation..... 191,707 -- -- -- 17,710
Compensation element of stock options granted (forfeited)... 68,669 70,430 (21,129) -- --
Loss on disposal of equipment and furnishings............... -- -- 1,896 -- --
Interest amortization and accretion on long-term debt....... -- -- 88,027 13,750 220,926
Changes in assets and liabilities:
Receivables............................................. -- (163,140) (270,530) (64,953) 197,440
Other current assets.................................... 49,191 -- (120,886) (22,167) 23,595
Accounts payable........................................ 115,632 339,815 (198,148) (178,433) 673,903
Accrued expenses........................................ 61,137 145,451 1,543,107 296,956 (430,139)
----------- ----------- ----------- ----------- ------------
Net cash used in operating activities................. (1,656,473) (1,451,580) (4,652,255) (1,342,150) (2,319,572)
----------- ----------- ----------- ----------- ------------
Cash Flows From Investing Activities
Purchase of equipment and furnishings......................... (91,756) (2,140,886) (1,278,775) (562,172) (597,035)
Deposits and other assets..................................... 453 (2,113) (109,516) (2,341) (8,160)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities................. (91,303) (2,142,999) (1,388,291) (564,513) (605,195)
----------- ----------- ----------- ----------- ------------
Cash Flows From Financing Activities
Borrowings under bridge loans, PIK Notes and other long-term
debt........................................................ 781,618 450,000 -- -- 37,300,000
Payments on bridge loans and other long-term debt............. (17,191) (174,936) (56,149) (12,562) (1,889,878)
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 and warrants....... 1,222,554 -- -- -- 7,700,000
Payment received on stock subscription receivable............. -- 500,000 -- -- --
Deferred financing costs...................................... -- -- (78,603) -- (2,579,871)
----------- ----------- ----------- ----------- ------------
Net cash provided by financing activities............. 1,985,885 7,023,097 5,008,493 (12,562) 40,530,251
----------- ----------- ----------- ----------- ------------
Increase (decrease) in cash and cash equivalents...... 238,109 3,428,518 (1,032,053) (1,919,225) 37,605,484
Cash and Cash Equivalents
Beginning..................................................... 154,568 392,677 3,821,195 3,821,195 2,789,142
----------- ----------- ----------- ----------- ------------
Ending........................................................ $ 392,677 $ 3,821,195 $ 2,789,142 $ 1,901,970 $ 40,394,626
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Supplemental Cash Flow Information
Cash payments for interest.................................... $ 215,943 $ 219,479 $ 192,779 $ 51,370 $ 23,369
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 1,383,336 280,986 528,677
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).................................................. -- -- 996,514 348,023 --
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
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. Such allowances charged to expense amounted to $45,363 in 1997.
No similar allowances were necessary in 1995 or 1996.
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.
F-7
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
SOFTWARE DEVELOPMENT COSTS: The majority of the Company's software
development costs are associated with the internal development and enhancement
of the NGN technology and software. The Company's policy is to expense these
costs as incurred and has included them with the aforementioned research and
development costs.
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
F-8
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 and the methods and assumptions used in
estimating their fair value: for cash and cash equivalents, the carrying amount
is fair value; for trade accounts receivable and accounts payable, the carrying
amounts approximate their fair values due to the short term nature of these
instruments; and for the fixed rate notes payable fair value has been estimated
based on discounted cash flows using interest rates being offered for similar
borrowings. 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% unsecured bridge loans. The note holders were also issued warrants
for the purchase of 3,100 shares of common stock at an exercise price of $71.43
per share which the Company had determined to be the fair value of its common
stock at that time. Since the exercise price approximated the estimated fair
value of the common stock and since the scheduled interest over the term of the
bridge loans was not significantly different than interest computed using the
Company's incremental borrowing rate, no separate value was ascribed to the
warrants as it was determined to be immaterial. 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%
unsecured bridge loans. These loans were converted into Series B Preferred Stock
in 1996 at a price of $77 per share.
F-9
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 2. SHORT- AND LONG-TERM DEBT (CONTINUED)
The number of shares of common and preferred stock into which the
aforementioned bridge loans were converted was based on the Company's estimate
of the per share values of the respective classes of stock based on redemption
prices or significant private stock sales near the conversion dates.
LONG-TERM DEBT: A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
12% Senior Secured PIK Notes due February 2003
(net of discount attributed to Warrants issued
in connection with Notes, see Note 10) -- -- $ 37,438,678
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 89,090
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)......... -- 400,226 415,235
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)............... -- 684,315 708,633
------------ ------------ -------------
2,505,792 3,063,510 38,651,636
Less current maturities........................... 52,174 48,302 38,945
------------ ------------ -------------
$ 2,453,618 $ 3,015,208 $ 38,612,691
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The long term debt (excluding capital lease obligations) matures as follows:
$415,235 in 2001 and $38,147,311 in 2003.
- ------------------------
(1) During 1997, $500,038 of this debt was converted to 6,494 shares of Series C
preferred stock using a conversion price of $77 per share which is the same
price at which the Series C preferred stock was sold to private investors
(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).
F-10
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
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>
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. The Company accrues monthly as site lease expense the greater of
computed amount based on a percent of revenue or, where applicable, the
appropriate portion of an annual minimum.
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 (extended through year 2003 subsequent
to year end), based on monitors installed as of December 31,
F-11
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 3. LEASE COMMITMENTS (CONTINUED)
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 portion of this compensation paid in Series C Preferred Stock is
being accrued as compensation expense until the stock is issued at which time
the obligation is transferred to Mandatory Redeemable Stock on the balance
sheet. The number of shares of Series C Preferred Stock to be issued is based on
its $77 redemption value which the Company believes is its fair value per share.
In March 1998 the Company issued 230 of such shares.
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 officers
agreed to terminate these agreements and to contribute the accrued balance
outstanding to paid-in capital of the Company, and the Company simultaneously
issued 8,831 shares of restricted common stock to one officer and 4,983 shares
of restricted common stock to the other officer, effectively in exchange (at $77
per share) for the deferred compensation obligations to them, in connection with
the aforementioned amended employment agreements. The shares become unrestricted
in years 2006 and 2017, respectively, or upon the occurrence of death,
disability, or a qualifying public offering.
NOTE 5. COMMON AND PREFERRED STOCK
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).
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% 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).
F-12
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 5. COMMON AND PREFERRED STOCK (CONTINUED)
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% 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.
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
F-13
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 5. COMMON AND PREFERRED STOCK (CONTINUED)
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.
STOCKHOLDERS AGREEMENT: The company is party to a stockholders agreement
among certain holders of Common Stock and Series B and Series C Preferred Stock,
which requires the approval of a majority of the preferred stockholders party to
the Agreement, for certain significant corporate transactions. In addition, the
holders of preferred stock are entitled to elect up to three directors as set
forth in the Series B and Series C Certificates of Designation.
NOTE 6. STOCK OPTIONS AND WARRANTS
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 rates of 6.37%, 5.98%, and 6.16%
in 1995, 1996, and 1997, respectively; expected lives of 5 years; and expected
volatility of 10%.
F-14
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 6. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
GRANT DATE EXERCISE
FAIR VALUE SHARES PRICE
----------- --------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1994......................... -- 3,631 $ 1.00
Granted................................................ $ 71.43 975 1.00
Exercised.............................................. -- (1,200) 1.00
---------
Outstanding at December 31, 1995......................... -- 3,406 1.00
Granted................................................ 71.43 1,000 1.00
Granted................................................ 71.43 500 90.56
Granted................................................ 77.00 1,000 77.00
---------
Outstanding at December 31, 1996......................... -- 5,906 21.45
Granted................................................ 77.00 1,000 77.00
Canceled............................................... -- (300) 1.00
---------
Outstanding at December 31, 1997......................... -- 6,606 30.79
---------
---------
</TABLE>
There were 3,308 options exercisable at December 31, 1997 at a
weighted-average exercise price of $3.71.
The following table summarizes additional information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING NUMBER
NUMBER CONTRACTUAL OF OPTIONS
RANGE OF OF OPTIONS LIVES EXERCISABLE AT
EXERCISE PRICES OUTSTANDING (IN YEARS) DECEMBER 31, 1997
- ------------------------------------------------ ------------- --------------- -------------------
<S> <C> <C> <C>
$ 1.00.......................................... 4,106 6.0 3,208
77.00.......................................... 2,000 6.0 --
90.56.......................................... 500 6.0 100
----- -----
6,606 3,308
----- -----
----- -----
</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.
In February, 1998 in connection with the Company's sale of 12% Senior
Secured PIK Notes the Company issued warrants to purchase 125,240 shares of
Common Stock at a price of $.01 per share, exercisable at any time prior to
February 1, 2008 (See Note 10).
F-15
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
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
(approximately $366,000, applied to territorial rights), all of which was fully
paid. The agreements also provided for royalties on all advertising revenue and
reimbursement of certain network operating expenses. The original equipment
sales and territorial rights agreements did not provide for any continuing
involvement or obligations by the Company other than the aforementioned payments
to the Company for royalties and costs relative to operating the network. One of
the agreements also provided the grantee with the option to purchase the
exclusive rights to certain additional designated NGN Network territories.
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. This equipment repurchase was
not a condition of or done in connection with the terms of the original
territorial agreement and equipment sales contract. The note is
noninterest-bearing and is payable annually at an amount equal to 40% 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% and no assumed payments until maturity. No periodic payments were assumed
since the former owner-operator's territory was not generating positive
operating cash flow at the time of the equipment repurchase and there is no
assurance that such positive cash flow will be achieved and in what amount.
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. This equipment
repurchase was not a condition of or done in connection with the terms of the
original territorial agreement and equipment sales contract. 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%.
In the aforementioned purchase transactions the entire recorded present
value repurchase price approximated less than fifty percent of the original
aggregate installed cost of the NGN Displays (monitor equipment). The Company
believes this equipment has a five year useful life and at time of repurchase
had been used an average approximately six months to one year. The Company
allocated all of the repurchase price to the NGN Displays in place since it
believed their fair value was significantly greater than the fair value of such
equipment in place. No value was allocated to the territorial rights since they
were forfeited, not repurchased and since the estimated fair value of the
tangible assets repurchased more than exceeded their repurchase cost as noted
above. The repurchased NGN Displays are being depreciated over their approximate
remaining useful lives.
F-16
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
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.
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,
F-17
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 8. INCOME TAXES (CONTINUED)
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,
------------------------ MARCH 31,
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Site-lease fees (Note 3).............................. $ 61,765 $ 1,272,017 $ 465,615
Interest (Note 10).................................... -- -- 599,478
Compensation.......................................... 16,487 119,468 155,319
Legal fees............................................ 92,437 196,217 49,637
Other................................................. 41,910 75,751 55,518
---------- ------------ ------------
$ 212,599 $ 1,663,453 $ 1,325,567
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
NOTE 10. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
On February 18, 1998, the Company sold 45,000 units representing $45 million
of 12% Series A Senior Secured PIK Notes (the Notes) and Warrants to purchase
125,240 shares of common stock. The Notes mature on February 1, 2003. Interest
on the Notes is 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 entitles 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 have subsequently been recorded net of the
value ascribed to the Warrants which is in effect an original issuance discount
on the notes. This discount is being amortized as additional interest expense
over the five year term of the Notes using the interest method. The value
ascribed to the Warrants is $7.7 million, which was recorded as additional paid
in capital. The Warrant value was determined based on the total estimated
potential market capitalization of the Company's
F-18
<PAGE>
MENTUS MEDIA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1998
IS UNAUDITED)
NOTE 10. EVENTS SUBSEQUENT TO DECEMBER 31, 1997 (CONTINUED)
common stock, on a fully diluted basis before the Warrant issuance, using an
estimated per share value of $77 per share and the percentage of such value that
the Warrants represent, if exercised.
The Notes are secured by a first priority lien on substantially all assets
of the Company except for certain equipment collateralizing noninterest-bearing
notes included in long-term debt. The Notes contain certain restrictive
covenants that among other things prohibit the payment of dividends on; and the
redemption of the Company's capital stock.
On April 2, 1998, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission relative to its pending Exchange
Offer of Series B 12% Senior Secured PIK Notes due 2003 for all outstanding
Series A 12% Senior Secured PIK Notes. Generally, the form and terms of the
Series B Notes will be the same as the Series A Notes except that they will not
bear legends restricting their transfer. If the aforementioned Exchange Offer
Registration Statement is not declared effective by July 18, 1998, additional
interest shall accrue on the Series A Notes over and above the stated rate at a
rate of 0.5% per annum for the first 90 days, increasing thereafter by 0.5% per
annum per month to a maximum of 2.0%, until effective. In addition, if the
Company has not exchanged all Series A Notes validly tendered in accordance with
an effective Exchange Offer by August 17, 1998 or if the Exchange offer ceases
to be effective before consummation, additional interest will accrue at 0.5% for
the first 30 days from that date on the validly tendered Series A Notes,
increasing by 0.5% per month a maximum of 2.0%.
F-19
<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 Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 26
Management................................ 34
Certain Transactions...................... 37
Principal Stockholders.................... 38
Description of Capital Stock.............. 39
Description of Notes...................... 44
Certain Federal Income Tax Consequences... 71
The Exchange Offer........................ 71
Plan of Distribution...................... 80
Book-Entry, Delivery and Form............. 80
Legal Matters............................. 82
Experts................................... 82
Additional Available Information.......... 82
Index to Financial Statements............. F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
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) Second 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 between the Company 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*
10.1(o) Agreement for Consents and Waivers dated as of January 21, 1998 by 21st Century Communications
Partners, L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., and Pulitzer Publishing Company
10.1(p) Form of Registration Rights Agreement between the Company and certain holders of common stock
10.1(q) Form of Registration Rights Agreement between the Company and Warrant Holders for the exercise of
Warrant Shares
10.1(r) Second Amendment to Stockholders Agreement 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., Gerard P. Joyce, Thomas Pugliese and Pulitzer Publishing
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
10.3(a) Employment Agreement dated August 1, 1990 between the Company and Thomas M. Pugliese
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.3(b) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Thomas M.
Pugliese
10.3(c) Second Amendment to Employment Agreement entered into August 29, 1997 between the Company and Thomas M.
Pugliese
10.4(a) Media Network Services Agreement by and between The Southland Corporation and the Company ("Southland
Contract"). THIS DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."*
10.4(b) Amendment No. 1 to Southland Contract. THIS DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."
12.1 Statement re: Computation of Ratios
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*
25.1 Statement of Eligibility of Trustee*
27.1 Financial Data Schedule
99.1 Additional Exhibits--Letter of Transmittal*
</TABLE>
- ------------------------
* Previously filed.
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 June 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ------------------------------ -------------------
<S> <C> <C>
* Chairman of the Board of
- ------------------------------ Directors and President June 2, 1998
Gerard P. Joyce (principal executive officer)
/s/ THOMAS M. PUGLIESE Vice Chairman of the Board of
- ------------------------------ Directors, Chief Executive June 2, 1998
Thomas M. Pugliese Officer and Secretary
Treasurer and Assistant
/s/ MICHAEL J. KOLTHOFF Secretary
- ------------------------------ (principal financial officer June 2, 1998
Michael J. Kolthoff and principal accounting
officer)
*
- ------------------------------ Director June 2, 1998
Timothy P. Hartman
*
- ------------------------------ Director June 2, 1998
David R. Voelker
*
- ------------------------------ Director June 2, 1998
Thomas J. Davis
*
- ------------------------------ Director June 2, 1998
James P. Sheehan
*
- ------------------------------ Director June 2, 1998
Alejandro Zubillaga
*
- ------------------------------ Director June 2, 1998
Michael J. Marocco
</TABLE>
/s/ THOMAS M. PUGLIESE
--------------------------------------
Thomas M. Pugliese
*By: ATTORNEY-IN-FACT
II-9
<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) Second 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 between the Company 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*
10.1(o) Agreement for Consents and Waivers dated as of January 21, 1998 by 21st Century Communications
Partners, L.P., 21st Century Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., and Pulitzer Publishing Company
10.1(p) Form of Registration Rights Agreement between the Company and certain holders of common stock
10.1(q) Form of Registration Rights Agreement between the Company and Warrant Holders for the exercise of
Warrant Shares
10.1(r) Second Amendment to Stockholders Agreement 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., Gerard P. Joyce, Thomas Pugliese and Pulitzer Publishing
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
10.3(a) Employment Agreement dated August 1, 1990 between the Company and Thomas M. Pugliese
10.3(b) Amendment to Employment Agreement entered into September 25, 1996 between the Company and Thomas M.
Pugliese
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.3(c) Second Amendment to Employment Agreement entered into August 29, 1997 between the Company and Thomas M.
Pugliese
10.4(a) Media Network Services Agreement by and between The Southland Corporation and the Company ("Southland
Contract"). THIS DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."*
10.4(b) Amendment No. 1 to Southland Contract. THIS DOCUMENT HAS BEEN SUBMITTED TO THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."
12.1 Statement re: Computation of Ratios
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*
25.1 Statement of Eligibility of Trustee*
27.1 Financial Data Schedule
99.1 Additional Exhibits--Letter of Transmittal*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 3.1(b)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/24/1990
902975123 - 2232700
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF THE MENTUS CORPORATION
THE MENTUS 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 MENTUS CORPORATION,
by written consent executed in lieu of a meeting of all the directors, adopted
resolutions setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, and referred the proposed amendments to the
stockholders of the corporation for their consideration and approval. The
resolutions setting forth the proposed amendments are as follows:
RESOLVED, that the Corporation shall amend Article 1
of its certificate of Incorporation in its entirety to read as follower
"1. Name. The name of the Corporation
is the Mentus Group, Inc."; and
FURTHER RESOLVED, that the corporation shall amend
Article 4 of its Certificate of Incorporation in its entirety to road
as follows:
"4. Authorized Capital.
Common Stock. The Corporation shall
be authorized to issue One Million
(1,000,000) shares of common stock,
$.01 par value par share.
Preferred Stock. The Corporation's
Board of Directors shall be
authorized to provide for the
<PAGE>
Issuance of up to Twenty Thousand (20,000) shares of
preferred stock by filing a certificate pursuant, to
the applicable law of the State of Delaware to fix
the designations, rights, powers and preferences of
such shares, and any qualifications, limitations or
restrictions thereof or pertaining thereto. The
authority of the Board shall include, but not be
limited to, the authority to determine the following
with respect to such preferred stock: (i) whether the
shares thereof shall have a par value, and if sol the
amount of such par value per share; (ii) the rote of
dividends, if any, whether such dividends shall be
cumulative, and, if so, the date on which such
cumulative dividends shall commence; (iii) the rights
thereof in the event of voluntary or involuntary
liquidation, dissolution or winding up of the
corporation (iv) the conversion privileges, if any,
and the terms and conditions thereof, including
provisions for adjustment of the conversion rate
based an such events as the Board of Directors may
determine; (v) the redemption feature, if any, and
the terms and conditions thereof, including the data
upon or after which such shares shall be redeemable,
and the amount per share payable in the event of
redemption, which amount may vary under different
conditions and at different redemption dates; (vi)
the voting rights, if any (in addition to such voting
rights as may be required by law), and the terms and
conditions of such voting rights; (vii) the exchange
privileges, if any, and the terms and conditions
thereof, including the terms of any
<PAGE>
security for which the Board of Directors may
determine the preferred stock to be exchangeable; and
(viii) any and all other designations, rights, powers
or preference thereof, or Qualifications,
restrictions or limitations pertaining thereto, that
lawfully may be provided for by resolution of the
Board of Directors and nay be included in a
certificate of the kind contemplated under section
151(g) of the Delaware General Corporation Law or any
Successor statute."
SECOND: That the stockholders of the Corporation, by
written consent in lieu of a meeting, unanimously approved the
amendments.
THIRD: That the Corporation duly adopted the amendments
in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
THE MENTUS CORPORATION has caused this Certificate to be
executed by Charles H. KRATSCH, its President, and by Thomas M.
Pugliese, its Secretary, as of September 11, 1990.
THE MENTUS CORPORATION
By:
----------------------------------
Charles H. Kratech, President
ATTEST:
Thomas M. Pugliese, Secretary
<PAGE>
State of )
)ss.
County of )
The foregoing instrument was acknowledged before as this
day of October, 1990, by Charles H. Kratech, the President of The Mentus
Corporation, a Delaware corporation, as the act and deed of the Corporation, and
he acknowledged that the facts stated in the foregoing certificate are true.
-------------------------------------
Notary Public
My commission expires:
- -------------------------
State of )
)ss.
County of )
The foregoing instrument was acknowledged before as this
day of October, 1990, by Thomas M. Pugliese, the Secretary of The Mentus
Corporation, a Delaware corporation, as the act and deed of the Corporation, and
he acknowledged that the facts stated in the foregoing certificate are true.
-------------------------------------
Notary Public
My commission expires:
- -------------------------
<PAGE>
Exhibit 3.1(c)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/13/1990
903195150 - 2232700
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.
----------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-----------------
THE MENTUS GROUP, INC., a corporation organized under and
by of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that pursuant to the authority in Article
4 of its Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors had adopted the following resolution crating
a series of its Preferred Stock, $500 per value per share, designated as
8.25% Convertible Exchangeable Preferred Stock:
RESOLVED, that pursuant to Article 4 of the Certificate of
Incorporation, there be and hereby is authorized and created a series of
Preferred Stock, par value $500 per share, of the Corporation, and that the
designation, amount, Preferences relative participating optional and other
special rights, and qualifications, limitations and restrictions of the
Exchangeable Preferred Stock from time to time outstanding are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as 8.25% Convertible Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock") and the number of shares constituting such
series shall be Twenty Thousand (20,000).
2. Rank. The Exchangeable Preferred Stock shall with respect
to dividend rights and rights on liquidation dissolution and winding up, rank
(a) prior to any of Common Stock of the Corporation, (b) prior to any other
<PAGE>
series or claim of the Corporation's stock if so designated in the resolution
of the Corporation's Board of Directors creating such other series or class,
(c) on a parity with any other series or class of the Corporation's stock if
so designated in the resolution of the Corporations Board of Directors
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 creating such other series, providing said resolution and the
creation, authorization and issuance of such stock is approved by a majority
of the outstanding shares of Exchangeable Preferred Stock. All equity
securities of the Corporation which (i) rank below the Exchangeable Preferred
Stock are collectively referred to herein as "Junior Stock," (ii) rank on a
parity with the Exchangeable Preferred Stock are collectively referred to
herein as "Parity Stock," and (iii) rank senior to the Exchangeable Preferred
Stock are collectively referred to herein as "Senior Stock."
3. DIVIDENDS. (a) The holders of Exchangeable 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 Exchangeable Preferred Stock and shall
be payable in equal semi-annual installments (computed by 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. Such dividends will be payable pro rate 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
shall be payable on any unpaid dividends on the exchangeable Preferred Stock.
(c) Notwithstanding anything contained herein to the
contrary, the Board of Directors shall not declare, pay or set apart for
payments any cash dividends on shares of Exchange Preferred Stock if any
agreement, instrument or debenture relating to indebtedness 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
Exchangeable Preferred Stock at any time, whether permitted by any of such
agreements or not, or (ii) adversely affect the cumulative accrual of
dividends on Exchangeable Preferred Stock if such 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
Exchangeable 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 on any Parity Stock.
<PAGE>
(e) (i) Holders of shares of the Exchangeable Preferred
Stock shall be entitled to receive the dividends provided for in 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
funds, 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 distribution 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 Stocks 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 sent 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 part for payment, all accrued
and unpaid dividends on shares of the Exchangeable Preferred Stock for all
prior periods. Notwithstanding the forgoing 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
Exchangeable Preferred Stock, such dividends to be paid, declared or set
aside pr rata in proportion to the ratio between accrued and unpaid dividends
on the Exchangeable 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 the 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 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 and other liabilities of the
Corporation, and after liquidation of any Senior Stock, the Holders of the
Exchangeable Preferred Stock then outstanding shall be entitled to receive,
out of the net assets of the Corporation, an amount equal to the same of $500
per share or Exchangeable Preferred Stock outstanding, plus all accrued and
unpaid dividends (whether or not earned or declared) on such Exchangeable
Preferred Stock to the date fixed for liquidation, 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. 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
<PAGE>
Price of the Exchangeable Preferred Stock, then such assets shall be
distributed ratably among the holders of Exchangeable 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 Exchangeable Preferred Stock
and Parity Stock. The holders of Exchangeable 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 Exchangeable 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
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 Exchangeable Preferred Stork into Common
Stock.
5. OPTIONAL REDEMPTION. (a) AT OPTION OF CORPORATION. To
the extent funds are legally available and subject to the rights of holders
of Senior stock, Exchangeable 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 commencing on June 15, 1993 at the redemption price set forth below,
plus the total amount of all accrued and unpaid dividends on the shares of
Exchangeable Preferred Stock to be redeemed to the redemption date:
<TABLE>
<CAPTION>
Redemption Date Redemption Price
--------------- ----------------
<S> <C>
June 15, 1993 to June 14, 1904 $560.00
June 15, 1994 to June 14, 1995 540.00
June 15, 1995 to June 14, 1996 520.00
June 15, 1996 and thereafter 500.00
</TABLE>
The Corporation shall redeem any less than all of the then outstanding shares
of Exchangeable Preferred Stock unless and until all accrued and unpaid
dividends on the then outstanding shares of Exchangeable Preferred Stock and
(except with respect to the shares to be redeemed ) the then current
semi-annual dividends thereon have been pod in full.
(b) If less than all outstanding shares Exchangeable
Preferred Stock are to be redeemed, the shares to be redeemed shall be
redeemed in integral multiple of $500 by lot or in such other manner as the
Board of Directors may determine.
(c) Notice of redemption of the Exchangeable 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 address on the stock
register of the Corporation. Each such notice shall state: (i) the redemption
date; (ii) the number of shares of Exchangeable Preferred Stock to be
redeemed and, if less that 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 shares to be redeemed will cease to accrue on such
redemption date; and (v) that dividends on the shares to be redeemed will
cease to
<PAGE>
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 the 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 Exchangeable preferred Stock called for redemption) dividends on the
shares of Exchangeable 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
Exchangeable 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) AT OPTION OF HOLDER. The Exchangeable Preferred
Stock is redeemable for cash, in whole or in part, at the option of the
holders of the Exchangeable Preferred Stock at the price equal to $500 per
share, plus an amount equal to all accrued unpaid dividends upon the shares
to the redemption date. The redemption price shall be paid by the Corporation
in three equal annual installments on June 15 in the years 1995, 1996 and
1997. The rights to receive the redemption price shall be evidenced by the
Corporation's issuance of the redemption certificate shall be non-negotiable
and shall be in such form and contain such terms and legends as are required
by applicable law and Board of Directors of the Corporation. On or before May
15, 1995, the Corporation shall notify each holder of Exchangeable Preferred
Stock to be redeemed of the procedure to be followed to surrender the
Exchangeable Preferred Stock and receive the redemption certificate.
Thereafter, on or before May 15 in years 1996 and 1997, the Corporation shall
notify each holder of the procedure to be followed to receive payment of the
redemption price evidenced thereby.
(i) The right to have the Exchangeable Preferred
Stock redeemed by the Corporation may be exercised at any time from the date
of issuance of the Exchangeable Preferred Stock until January 15, 1995.
(ii) Any holder of Exchangeable Preferred Stock
desiring to have his shares of Exchangeable Preferred Stock redeemed by the
Corporation must notify the Corporation thereof in writing on or before the
close of business on January 15, 1995. Such notice shall be mailed (first
class mail postage prepaid) to the Corporation's headquarters and shall
specify the amount and certificate number of each share to be redeemed by the
Corporation. Prior to the close of business on January 15 1995, any such
notice may be revoked in writing by the holder. Thereafter, all such notices
shall be irrevocable, and the Exchangeable Preferred Stock with respect to
which such notice was given shall no longer be convertible into Common Stock.
A conversion notice received prior to January 15, 1995 with respect to any
Exchangeable Preferred Stock as to which notice of redemption was previously
given shall be deemed a revocation of the notice of redemption. Notices
<PAGE>
received by the Corporation after the close of business on January 15, 1995
shall be ineffective.
(f) There is no mandatory redemption or sinking fund
obligation with respect to the Exchangeable Preferred Stock.
(g) Shares of Exchangeable Preferred Stock that have
been converted into Common Stock have no redemption.
6. CONVERSIONS. (a) Each share of Exchangeable Preferred
Stock may be converted into such number of shares of Common Stock as shall
equal (i) the Liquidation Price divided by (ii) the Conversion Price (as
hereinafter defined). The conversion rights of Exchangeable Preferred Stock
called for redemption or to be exchanged for Debentures as provided below,
expire on the earlier of the close of business on the tenth day before the
redemption date or the Debenture Exchange Date (as hereinafter Defined), as
the case my be or on January 15, 1995 if the Holder gives notice of
redemption under paragraph 5(e)(ii) above, unless the Corporation defaults in
making payments of redemption price of the shares called for redemption or
shall default in issuing Debentures in accordance with the terms hereof and
of the Debenture Agreement (as hereinafter defined).
As used here, the term "Conversion Price" means $147.37, as
adjusted in accordance with the provisions of this paragraph 6. No payment or
adjustment for accrued and unpaid dividends on the shares of Exchangeable
Preferred Stock, or on the shares of Common Stock into which the Exchangeable
Preferred Stock is converted, is to be made on conversion; provided however,
that, if a share of Exchangeable Preferred Stock (other than a share of
Exchangeable Preferred Stock called for redemption within such period) is
converted between the record date with respect to any dividend payment and
the nest succeeding Dividend Payment Date, such share of Exchangeable
Preferred Stock must be accompanied by funds equal to the dividend payable on
such Dividend Payment Date on the shares of Exchangeable Preferred Stock so
converted.
(b) Any holder of shares of Exchangeable Preferred Stock
electing to convert such shares or any portion thereof shall deliver the
certificates therefor, with the form of the notice of election to convert on
such certificates (which is set for Th on the back of each certificate
representing shares of Exchangeable Preferred Stock) fully completed and duly
executed, to the principals executive office of the Corporation or, if a
transfer agent is named by the Corporation of the Common Stock, to the
principal office of the transfer agent. The conversion right with respect to
any such shares of Exchangeable 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
person 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 Exchangeable Preferred Stock.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any share or shares of Exchangeable 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
<PAGE>
by the conversion Price.
(d) If a holder converts shares of Exchangeable
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 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 Exchangeable 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 Exchangeable Preferred Stock at the time outstanding. In order
that the Corporation may issue shares of Common Stock upon conversion of
shares of Exchangeable Preferred Stock, the Corporation will use its best
efforts to comply with all applicable federal and state securities laws
relating to such issuance.
All shares of Common Stock which may be issued upon
conversion of the shares of Exchangeable Preferred Stock shall be validly
issued, fully paid and nonassessable.
(f) The Conversion Price shall be subject to adjustment
as follows:
(i) ADJUSTMENTS FOR COMMON STOCK ISSUED FOR
CONSIDERATION SUBSTANTIALLY LESS THAN THE CONVERSION PRICE.
(A) If the Corporation issues or sells any
shares of its Common Stock without consideration or for a consideration per
share "substantially" (as defined herein) less than the Conversion Price in
effect immediately prior to such issuance or sale without consideration),
then the Conversion Price shall be reduced to an amount determined by
dividing (I) the sum of (x) the result obtained by multiplying the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
(the "Existing Shares") by the conversion price in effect immediately prior
to such issuance or sale plus (y) the consideration, if any, which would be
received (or deemed hereunder to be received) by the Corporation upon such
issuance or sale, by (II) the number of shares of Common Stock outstanding
(or deemed hereunder to be outstanding) immediately after such issuance for
sale. For purposes hereof, "substantially" means 50% or more. The number
Existing Shares shall exclude shares in the treasury of the Corporation, but
shall include all shares issuable upon conversion or exercise of any Call (as
hereafter defined) which is then outstanding (or which the Corporation is
obligated to issue upon conversion or exercise of any Call).
(B) An or issuance or sale without consideration
includes limitation (I) payment of a dividend or making a distribution upon
any class of capital stock of the Corporation payable in Common Stock, (II)
subdivision of the Corporation's outstanding shares of Common Stock into a
greater number of shares or (III) combination of the Corporation's
outstanding shares of Common Stock into a smaller number of shares.
<PAGE>
(C) (I) For purpose hereof, "Call" includes (a)
the issuance or sale of securities convertible into Common Stock, (b) rights,
warrants or options to acquire shares of Common Stock, and (c) rights,
warrants or options to acquire securities convertible into shares of Common
Stock.
(II) The issuance or sale of Calls shall be
deemed the issuance of shares of Common Stock. The consideration deemed
received by the Corporation upon such issuance or sale ("Deemed
Consideration") shall be an amount equal to the consideration received by the
Corporation upon the issuance or sale of the Calls, plus the minimum
aggregate amount of additional consideration payable to the Corporation upon
conversion or exercise thereof into shares of Common Stock. The consideration
per share shall be the amount nod by dividing the Deemed Consideration by the
maximum number of shares of Common Stock issuable upon such conversion or
exercise (the "Prospective Shares). The number of shares of Common Stock
outstanding immediately after such deemed issuance or sale shall be an amount
equal to the minimum of the sum and the existing Shares and the Prospective
Shares.
(III) If a Call provides for any increase
in the amount of additional consideration payable to the Corporation upon
conversion or exercise thereof (or for any decrease in the conversion ratio),
the Conversion Price shall be readjusted (but to no greater extent than
originally adjusted) upon any such increase or decrease. If any conversions
or exercise rights under the Call expire without exercise, the Conversion
Price shall be readjusted to the price that would have been in effect if an
adjustment had been made on the basis that the only shares of Common Stock
deemed issued or sold were those issued upon exercise of the rights.
(D) In determining the consideration received by
the Corporation upon any issuance or sale, no deduction shall be made for any
expenses incurred or any underwriting or similar commissions, compensation,
concessions or discounts paid or allowed by the Corporation in connection
therewith. Any consideration other than cash received by the Corporation
shall be deemed to be in an amount equal to the fair market value thereof as
determined in good faith by the Corporation. If shares of Common Stock are
issued or sole together with other securities or assets of the Corporation
for a consideration which covers both, the Corporation shall determine in
good faith the portion of such consideration allocable to the issues and sale
of the shares of Common Stock.
(E) The adjustment shall become effective
immediately after (I) the record date in the case of a dividend or
distribution, (II) the effective date in the case of a subdivision or
combination or (III) the issuance or sale in all other cases.
(F) Notwithstanding the foregoing, no adjustment
shall be made in the Conversion Price for the sale or issuance of any Common
Stock (or Calls) to any employee of the Company, regardless of the amount of
consideration received in connection with such sale or issuance to such
employees was made or authorized pursuant to a resolution of the Board of
Directors of the Corporation as an incentive or compensation to such employee.
(ii) ADJUSTMENTS FOR OTHER DISTRIBUTION.
(A) If the Corporation distributes to all
<PAGE>
holder of its Common Stock any of its assets or debt securities (including
without limitation distribution pursuant to a spin-off of a subsidiary), then
the Conversation Price shall be reduced by the fair market value of the
assets or debt securities allocable to one share of Common Stock as of the
record date. The Corporation shall determine such fair market value in good
faith.
(B) This paragraph 6(f)(ii)(B) excludes
distributions of Calls described in paragraph 6(f)(i)(C)(I) her of and
distribution of items in certain events as described in 6(f)(viii) hereof
(the "Excluded Calls"), but includes distribution of (i) rights, warrants or
options to acquire assets or debt securities (other than the Excluded Calls)
and (ii) cash (other than a cash Distribution made as a dividend 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).
(C) The adjustment shall become effective
immediately after the record date.
(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 lease 1% in the Conversion Price. Any
adjustments that are 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) cash dividends that do not require an
adjustment, (b) rights to Common Stock pursuant to a plan of the Corporation
for reinvestment of dividends or interest, (c) 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 (d) issuance of shares of Common Stock or rights, warrants or
option therefor to employees of the Corporation pursuant to employee benefit
plans or similar general arrangements for employees adopted by the
Corporation, (e) issuance of shares of Common Stock upon conversion of the
Exchangeable Preferred Stock or Debentures, or (f) issuance or sale 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 Exchangeable Preferred Stock shall have no preemptive right which
enables said holder to maintain a specific proportion of shares of capitol
stock of the Corporation or any security convertible into or carrying rights
or options to purchase such shares.
(vi) NOTICE OF ADJUSTMENTS. Whenever the
Conversion Price is adjusted the Corporation shall promptly mail to the
holders a notice of the adjustment, In addition, the Corporation shall file
in the custody of its Secretary, at its principal office in Minneapolis,
Minnesota, 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 time for
inspection by any holder.
<PAGE>
(vii) Voluntary Reduction in Conversion
Price by the Corporation. The Corporation may from time to time reduce the
Conversion Price by any amount for any period of time if the period is at
least 20 days and the reduction is irrevocable during the period.
(viii) Reorganization. If there is (a) any
reclassification or change of the Common Stock, or if the Corporation makes a
distribution on its Common Stock in shares of its capital stock other than
Common Stock (or securities convertible into such shares, or in rights,
warrants or options to acquire such shares or such convertible securities),
(b) 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 per value, or as a result of a
subdivision or combination) in, outstanding shares of Common Stock), (c) any
sale or conveyance of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation or (d) any exchange of
the Corporation's Common Stock for securities or property; 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
Exchangeable Preferred Stock shall be convertible in the kind and amount of
shares of stock and other securities or property receivable upon such
reclassification, change consolidation, merger, sale or conveyance by the
holder of the number of shares of Common Stock issuable upon conversion of
each such share of Exchangeable Preferred Stock immediately prior to such
reclassification, changes, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock issuable upon conversion of
each such shares of Exchangeable Preferred Stock immediately prior to such
reclassification, change consolidation, merger, sale or conveyance. Such
Certificate of Incorporation shall provide for adjustments which shall be
nearly equivalent as may be practicable to the adjustments provided for in
this paragraph 6 to be mailed to each holder of exchangeable Preferred Stock
as soon as practicable. The above provision of this paragraph 6 shall be
similarly applied to successive reclassification, consolidations, mergers and
sales. This paragraph 6 shall not apply to the change with respect to par
value or no par value, or from one to the other, or to any subdivision or
combination.
7. Debenture Exchange.
(a) Subject to compliance with applicable law subject to
the terms and restrictions hereof, shares of Exchangeable Preferred Stock may
be exchanged at the option of the Corporation, in whole but not in part, on
any Dividend Payment Date commencing on June 15, 1993, for the Corporation's
8.25% Convertible Subordinated Debentures (hereinafter referred to as the
"Debentures"). The Debentures will be subject to the terms and conditions of
a debenture agreement (the "Debenture Agreement") in substantially the form
available for review upon request.
(b) The Debentures will be issued solely in exchange for
shares of Exchangeable Preferred Stock at the rate of $500 principal amount
of Debentures for each share of Exchange Date (as defined below). Accrued and
unpaid dividends on the Exchangeable Preferred Stock to the Debenture
Exchange Date shall be paid in cash on the Debenture Exchange Date.
<PAGE>
(c) Not less that 30 days prior to the date fixed for
the issuance of Debentures in exchange for Exchangeable Preferred Stock, a
notice shall be given by first class mail, postage prepaid, to the holders of
record of shares of Exchangeable Preferred Stock at their respective address
as the same shall appear on the books of the Corporation, specifying the
effective date of the exchange (the "Debenture Exchange Date") and the place
where certificated or shares of Exchangeable Preferred Stock are to be to be
surrendered for Debentures. Such notice shall also state that dividends on
shares of Exchangeable Preferred Stock will cease to accrue on the Debenture
Exchange Date and shall specify that the voting rights of the Exchangeable
Preferred Stock holders will terminate on the Debenture Exchange Date. The
notice required hereunder shall be accompanied by the opinion of counsel
required by the Debenture Agreement. Neither the failure to mail such notice,
or any defect therein or in the mailing thereof, to any particular holder
shall effect the sufficiency of the notice or the validity of the proceedings
for redemption and exchange with respect to the other holders. Any notice
that was mailed in the manner herein provided shall be conclusively presumed
to have been duly given whether or not the holder receives the notice.
If notice of redemption and exchange has been given as
provided herein, then (unless the Corporation defaults in issuing the
Debentures in exchange for shares for Exchange Preferred Stock or fail to pay
or set aside accrued and unpaid dividends on shares of Exchangeable Preferred
Stock and notwithstanding that any certificates for share and notwithstanding
that any certificates for shares Exchangeable Preferred Stock have not been
surrendered for exchange) on the Debenture Exchange Date the holders of such
shares shall cease to be stockholders with by virtue thereof (except the
right to receive Debentures in exchange there for and such accrued and unpaid
dividends thereon to the Debentures Exchange Date) ans shall have no voting
or other rights with respect to such shares, and the shares of Exchangeable
Preferred Stock shall no longer be out standing. Upon the surrender (and
endorsement if required by the Corporation), in accordance with such notice,
of the certificates for shares of Exchangeable Preferred Stock, such
certificates shall be exchange for Debentures. Notwithstanding the foregoing,
if notice of redemption and exchange has been given pursuant to this
paragraph 7 and any holder of shares of exchangeable Preferred Stock shall,
prior to the close of business on the tenth day preceding the Debenture
Exchange Date, given pursuant paragraph 6 of the conversion of any or all of
the shares to be redeemed and exchanged held by such holder (accompanied by
ta certificate or certificates for such shares duly endorsed or assigned to
the Corporation, and any necessary transfer tax payment, as required by
paragraph 6), then such redemption and exchange shall no become effective as
to such shares to be converted and such conversion shall become effective as
provided in paragraph 6.
8. VOTING.
(a) The holders of record of shares of Exchangeable
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 Exchangeable Preferred
Stock voting as a separate class, the Corporation will not: (A) create,
authorize or issue any class or series of capital stock ranking senior to the
Exchangeable Preferred Stock either as to dividends or liquidation
preference, or (B)
<PAGE>
amend, alter or repeal (whether by merger, consolidation or otherwise) the
Corporation's Certificate of Incorporation to Materially adversely affected
the powers, rights or preferences of the Exchangeable 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 Exchangeable Preferred Stock
to the creation and issuance of, any other capital stock of the Corporation
ranking junior to, or on parity with, the Exchangeable Preferred Stock, and
Any such Increase, creation or issuance shall not be deemed to materially and
adversely affect the powers, rights and preferences of the Exchangeable
Preferred Stock.
(c) If two consecutive dividend payments on the
Exchangeable Preferred Stock are not paid in full, and provided that there
are no Directors elected and then serving on the Board of Directors of the
Corporation pursuant to this paragraph 8(c), beginning on the date on which
such dividends are not paid in full and ending on the date (the "Voting
Period Termination Date") all accrued dividend payments on the Exchangeable
Preferred Stock are paid, the number of Directors of the corporation shall be
increased by two and the holders of the Exchangeable Preferred Stock, voting
separately as a class with the holders of any Parity Stock on which like
voting rights have been conferred and are exercisable, will be entitled to
elect such two Directors. The proper officers of the Corporation shall call a
meeting for the election of such Directors, such meeting to be held not more
than 90 days or less than 45 days after the commencement of the Voting
Period. Each outstanding share of Exchangeable preferred Stock shall be
entitled to one vote. The term of the Directors elected pursuant to this
paragraph 8(c) shall terminate on the Voting Period Termination Date, and the
holders of the Exchangeable Preferred Stock shall be automatically divested
of all voting power vested in the holders of the Exchangeable Preferred Stock
in the event of any similar default or defaults thereafter.
9. NON-ASSESSABLE STATUS OF EXCHANGEABLE PREFERRED STOCK.
All the shares of Exchangeable 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 Board of Directors
authorizing the issuance of such shares, shall be deemed fully paid stock 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 Charles H. Kratsch, its President, and attested
to by Thomas M. Pugliese, its Secretary, this _ day of November, 1990.
THE MENTUS GROUP, INC.
By____________________________________
Charles H. Kratsch
Attest:
Thomas M. Pugliese
Secretary
<PAGE>
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this 12 day of Nov. 1990, before me, the undersigned
officer personally appeared CHARLES H. KRATSCH, 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 MINNESOTA )
) ss.
County of Hennepin )
On this 12 day of Nov. 1990, 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(d)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 06/13/1991
911645036 - 2232700
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
OR DELAWARE ON OCTOBER 24, 1990
The Mantua Group, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is The Mantua Group, Inc. (formerly
known as The Mentus Corporation).
2. A Certificate of Amendment of Certificate of Incorporation of The
Mentus Corporation was filed by the Secretary of State of Delaware an October
24, 1990, and that maid Certificate request correction as permitted by Section
103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy of said Certificate to be corrected is as follows:
The amendment to Article 4 of the Certificate of Incorporation did not set forth
the exact number of preferred shares authorized and did not establish a pax
value per share.
4. The second paragraph of Article 4 of the Certificate, titled
"Preferred Stock", is co the beginning of the paragraph to add the following
sentence at the beginning of the paragraph:
"The Corporation shall be authorized to issue Twenty
Thousand (20,000) shares of preferred stock, $500 par value."
IN WITNESS WHEREOF, The Mentus Group, Inc. has caused this Certificate
to be signed by Charles B. Kratsch, its President and attested by Thomas M.
Pugliese, its Secretary, this 11 day of June, 1991.
THE MENTUS GROUP, INC.
By
-----------------------------------
Charles H. Kratach, Prbaident
ATTEST:
BY
------------------------------
Thomas Pugliese, Secretary
<PAGE>
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this 11 day of June, 1991, before me, the undersigned officer,
personally appeared Charles H. Kratsch, who acknowledged himself to be the
President of The Mantua 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 I I day of June, 1991, before me, the undersigned office
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(e)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:01 AM 06/13/1991
911645037 - 2232700
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF THE MENTUS GROUP, INC.
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 Incorporation of the
Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Corporation shall amend Article 4 of its
Certificate of Incorporation to provide that the series of stock
designated as 8.25% Convertible Exchangeable Preferred Stock shall have
a pay value of $1.00 per share.
Second: That the common stockholder of the Corporation, by written
consent in lieu of a special meeting in with Section 228 of the Delaware General
Corporation Law, unanimously approved the amendment.
Third: That a majority of the holders 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.
<PAGE>
2
Fourth: The Corporation duly adopted the amendment in accordance with
the provisions of Section 242 of the Delaware Corporation Law and the
Corporation's bylaws.
The Mentus Group, has caused this to be executed by Charles H. Kratsch,
its President and by Thomas M. Pugliese, its Secretary, as of June , 1991.
THE MENTUS CORPORATION
By:
-----------------------------------
Charles H. Kratsh, President
ATTEST:
- ----------------------------------
Thomas M. Pugliese, Secretary
<PAGE>
3
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On of June, 1991, before me, the undersigned officer, personally
appeared Charles H. Kratsch, who acknowledged himself to be the President of The
Mentus Group, Inc., a Delaware corporation, and that be, 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
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On ___ of June, 1991, 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 be, 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
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
<PAGE>
Exhibit 3.1(g)
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 by unanimous
written consent executed in lieu of a meeting of all the Directors, adopted
resolutions setting forth the proposed amendments (set forth below) to the
Certificate of Incorporation of the Corporation and referred the proposed
amendments to all the stockholders of the Corporation and to the holders of
the Corporation's 8.25% Convertible Exchangeable Preferred Stock (the "Series
A Preferred Shareholders"), voting separately as a class, for each of their
consideration and approval. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, that the Corporation shall amend the first
sentence of the second paragraph of Article 4 of its Amended
Certificate of Incorporation, to read as follows:
"Preferred Stock. The Corporation's Board of Directors shall be
authorized to provide for the issuance of One Hundred Fifty Thousand
(150,000) shares of preferred stock, par value $1.00 per share, by
filing a certificate pursuant to the applicable law of the State of
Delaware to fix the designations, rights powers and preferences of
such shares, and any qualifications, limitations or restrictions
thereof or pertaining thereto and which shall be issued from time to
time in one or more series, as set forth below."
RESOLVED, that the Corporation shall amend in its entirety the portion
of its Certificate of Incorporation (as amended) entitled "Certificate
of the Designations, Preferences and Relative Participating, Optional
and Other Special Rights, Qualifications, Limitations and Restrictions
of 8.25% Convertible Exchangeable Preferred Stock" to read as set
forth in attached Exhibit A, which is incorporated herein by this
reference, with respect to 20,000 shares of such stock, with such
<PAGE>
changes thereto as may be required to comply with Delaware General
Corporation Law or which are deemed appropriate b counsel.
RESOLVED, that the Corporation shall create, designate and issue
__________ 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.
RESOLVED FURTHER, that the Corporation shall amend the first sentence
of Article 11 of its Certificate of Incorporation (as amended), to
read as follows:
"Non-Cumulative Voting. All rights to vote and all
voting power shall be exclusively vested in the holders of
the Corporation's common stock, except as otherwise set
forth in the Certificate of Incorporation, as amended from
time to time."
SECOND: That on September 20, 1996 at a special meeting of the holders
of the Corporation's Common Stock duly noticed and called in accordance with
Section 222 of the Delaware General Corporation Law, the common stockholders
of the Corporation approved the amendments set forth above by a majority vote.
THIRD: That on September 20, 1996 at a special meeting of the holders
of the Corporation's 8.25% Convertible Exchangeable Preferred Stock duly
noticed and called in accordance with Section 222 of the Delaware General
Corporation Law, the preferred stockholders, voting separately as a class,
approved the amendment by a majority vote.
FORTH: 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.
2
<PAGE>
The Mentus Group, Inc., has caused this Certificate to be executed by
Gerard P. Joyce, its President, and by Thomas M. Pugliese, its Secretary as
of September 20, 1996.
THE MENTUS GROUP, INC.
By:
----------------------------
Gerard P. Joyce, President
ATTEST:
- -----------------------------
Thomas M. Pugliese, Secretary
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this 2nd day of September, 1996, 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 for 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:
1-31-2000
- ----------------------
3
<PAGE>
STATE OF MINNESOTA )
) ss.
County of Hennepin )
On this 2nd day of September, 1996, 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 for 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:
1-31-2000
- ----------------------
4
<PAGE>
Exhibit A
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 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
designed 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,
<PAGE>
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 of 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 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 f"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 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.
2
<PAGE>
(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 unpaid dividends on the
Series A Preferred Stock.
(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 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
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<PAGE>
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, liquidation 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 holder 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 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 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 payment 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.
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<PAGE>
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 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
5
<PAGE>
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), dividends 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 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 dully 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 thereof 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
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<PAGE>
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 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 my be issued upon conversion of
the shares of Series A Preferred Stock shall be validly issued, fully paid
and non-assessable.
(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) Adjustment 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 of 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 Such entitled to participate in such distribution was
determined) or (y) in the case of 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 nominator of which is
the number of shares of Common Stock into which such share of Series A
Preferred Stock
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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 Conversion Price shall be
adjusted so that the holder of such share thereafter 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 holder 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 nominator 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 nominator 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 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
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<PAGE>
Stock and the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date of 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, 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, 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
they 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 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
9
<PAGE>
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 mad 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 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 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.
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<PAGE>
(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 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. New-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 resolution of the 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.
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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 20th day of September, 1996.
THE MENTUS GROUP, INC.
By:
----------------------------
Gerard P. Joyce
President
Attest:
- -----------------------------
Thomas M. Pugliese
Secretary
12
<PAGE>
STATE OF )
) ss.
County of )
On this 2nd day of September, 1996, 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 for 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:
1-31-2000
- ----------------------
STATE OF )
) ss.
County of )
On this 2nd day of September, 1996, 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 for 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:
1-31-2000
- ----------------------
13
<PAGE>
Exhibit B
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 law 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.0
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<PAGE>
(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.
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 provisions 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 revokable 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
15
<PAGE>
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 each class and series of
common stock and preferred stock of such corporation, any class or series,
any and all stock appreciation rights 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 Person
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 other wise disposes of all or
substantially all of its assets to any Person or Parsons; or
(iv) for any reason (including death or disability), Gerard
Joyce and
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<PAGE>
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 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.
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<PAGE>
"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 in itial 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 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
(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.
18
<PAGE>
"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, 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 not such sales take place on any day, such shall not be a Trading
Day), a 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.
of, 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 register 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 Dealers, Inc.
"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 Dat.
"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.
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"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 as capital stock
or other equity security issued by such Entity, 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 evidence
by any certificate, instrument or other document and whether voting or
nonvoting.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Right" 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 the 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.
"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).
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"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, 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
"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 Option Plant) 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.
"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(j).
"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 provide
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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 4b
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 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 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 of 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 asset upon any voluntary or
involuntary liquidation or dissolution of such Person, over equity interests
of any other class of such Person.
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"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 (1) 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).
"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 ca se of a redemption pursuant to Section 6(b) on
the seventh anniversary of the Closing Date, the date
of such anniversary; or
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(iii) in ca se 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(fg), 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 al 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 to 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 any order, judgment or decree by an court of
competent jurisdiction granting relief against the Corporation or any
Significant Subsidiary in a
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proceeding under any Insolvency Law.
"Rights" means any options, warrants or other rights (except
Convertible Securities and 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 1993, as amended, and
the rules and regulation 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 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 upon 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).
"Series B Preferred Stock" has the meaning set forth Section 1(a).
"Series B Shares" 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
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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 fro 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 statement 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 though 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 pr 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 other Subsidiary is a
general partner or joint venturer thereof or has liability for the debts
and obligations thereof over and obligations thereof over and above its
investments therein,
and in the case of any clauses (i), (ii) and (iii), disregarding the 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 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
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from TFC Holder in a transaction or chain of transactions not involving a
public offering within the meaning of 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 Shares.
"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 more Wholly Owned Subsidiaries of the Corporation.
3. Rank; Certain Restrictions; Fraction 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 subsidiaries no 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, 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 other wise acquired 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;
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(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 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 pre 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 numbers of shares
tendered exceeds the number offered to be purchased or otherwise acquired, a
pro rata portion of such shares tendered by ea h 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 on or declare or make
any other distribution to the holders 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 on the percentage of outstanding equity interest 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 restriction contained in clause (i),
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(ii) or (iv) of Section 3(b) shall be in 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 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, or
redeem, purchase or otherwise acquire for cash, property, securities or any
other form of consideration any thereof, nor set aside, pursuant to a sinking
found 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) the 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 where 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 fraction shares) thereof certificates therefor. Each
fractional share of Series B Preferred Stock, if any outstanding shall be
entitled to 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
declare) 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 fraction 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
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holders of its Common Stock in consummating or taking, any transaction or
action which would, if consummated, result in the 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 that 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 holder of the Series B
Preferred Stock written notice thereof promptly, and in 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 the effect stating the material relevant facts
relating thereto and shall thereafter keep each such holder appraised on the
current basis of all related material developments. If any Reorganization
Event occurs, the Corporation shall give the holders of 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 from holders of at least a majority of
the outstanding shares of Series B Preferred Stock how 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 pursuant to Section 6(c), it shall promptly thereafter
redeem from all holders 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 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 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
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Reorganization Event which may occur.
(i) Actions to Facilitate Required Redemption. 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 to 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) additionally borrowings by, or a refinancing of the
debt of, one or more Company Parties, (D) assent sales by one or more Company
Parties (E) sales of one or more Company Parties to third parties and (ii) no
latter than thirty days after the date of delivery of the notice referred to
in clause (i) of this sentence, engaged (at the Corporation's sole expense) a
nationally recognized independent investment banking firm reasonably
acceptable to the Majority Holder (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 Action 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 "Invest 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 shall such additional period is reasonably likely, in its good
faith judgement, 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 of the Corporation shall be entitled to submit its own bid
in the competitive bidding process. In the event that the Investor Approved
Action 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
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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 in 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 other wise 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 holder of the
Series B Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, other 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.% 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 shares 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 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 the 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 relate Dividends Payment Date shall be given, not m ore 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
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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 no 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 shares
effective as of such Dividend Payment Date and shall Remain a part thereof.
All dividends that have accrued on each shares 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 Ends of Such Dividend Period for any Reason
(wether 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 shares
effective as of the first Accrual Date afer 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,
expect in accordance with Section 5 or Section 6, paid by the Corporation
with 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 Series B Preferred Stock pursuant to this Section 4
shall be declared and paid pro rata to all the holder so f 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 holder 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 holder of any Junior Stock (in their capacity as holders
of such Junior Stock) shall be declared, made or provided for are 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 hare,
equal to the sum of the Liquidation Price as of the date of the payment or
distribution thereof to the holders 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) 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 hall be insufficient to permit payment in
full to the holders of the Series B Preferred Stock and the holders of all
other classes of series of Parity Stock, if any, which rank on a parity basis
with the Series B Preferred Stock with respect to distributions upon such
limitation, 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
Parity Stock would otherwise be entitled. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporation
snot the sale, transfer or lease of all or substantially all the assets of
the Corporation shall itself be deemed to be a
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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 seventy 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 Eight
Dollars ($308.00) per share. The Corporation shall not exercise it 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 branch, 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 (wether or not earned or declared) accrued on
such share during the period from the including the Accrual Date immediately
preceding such Redemption Date through the 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 he 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 notice
(collectly, a "Section 6(c)Election Notice") to such effect which,
collectively, have been signed by the holder 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 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, the 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 entered the exercise
of such right or the redemption by the Corporation of Series B Preferred
Stock pursuant to this Section 6(c), the Redemption Price per shares of the
Series B Preferred Stock shall be equal to the sum of the Liquidation Price
of such share determined as 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) though and including such Redemption Date.
(d) From the Source of Redemption Payments. The Redemption Price
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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 the them in writing to the Corporation for the
purpose of such notice. In the case of the 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 to earlier
than the date of related Section 6(c) Election notice is given or later than
the tenth Business Day prior to the applicable Redemption Date. In addition
to any information required by lay 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 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 lease $250,000,000 or having capital, undivided profits and
surplus aggregating at lest $250,000,000 on a consolidated basis with such
bank's or trust company's parent , provided however, that, in 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 purpose sufficient to redeem for the
applicable Redemption Price on such Redemption Date the shares of Series B
Preferred Stock called 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 share of
Series B Preferred Stock to be no longer outstanding and the holders thereof
shall cease to be stockholders with respect to respect to such shares and
shall have no rights with respect thereto, except to right to receive
payment, as provided in this resolution, of the Redemption Price of 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 payment of the Redemption Price
therefor, without interest
7. Board Representation.
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(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 class is sometime herein referred to as the "Series B
Director." Subject to earlier death, registration or removal pursuant to
Section 7(c), each Series B Director elected or appointed at any time as
provided herein shall server 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 of existing in 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 notice of meetings of and proposed actions by the Board
of Directors as directors generally.
(b) Manner of Election. Subject to the to of this 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 in accordance with Section 8(b), at (A) annual
meeting 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 the Secretary of this
Corporation upon the written request of the holder of record of 5% or more of
number of shares of Series B Preferred Stock then outstanding; provided
however, that if the Secretary of this Corporations shall fail to call any
such special meeting within to days 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 stockholders, and if in such
case on special meeting si 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 (or to fill 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 may be filled only by
the Majority Holders. Any director elected to fill a vacancy shall serve the
same 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 of the Board of
Director or such
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committee (or two day prior written notice in case of meeting 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 aft 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) Identification. The Corporation" (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
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 Person Paw 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, suite or proceeding to the maximum extent
permitted by Section 145(e) of the General Corporation Law of the State of
Delaware (or any 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 , 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, investigations in matter within scope of its
functions and performing any and all other such functions customarily
performed by audit committees of public companies. The Compensation
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Committee will have the authority and responsibility for establishing and 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 on
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 d c the persons to whom awards or benefits may be
made, to d the wm 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 exercise or 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 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 die business of the Corporation and (B) is not (A) an
officer or employee of the Corporation or any of its Subsidization (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 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 Preferred Stock then
outstanding, shall be required and be sufficient to constitute a quorum of
such class for any such purpose, and the five 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 election of directors to be elected by the
holders of shares other than the Series B Preferred Stock or the taking of
any other action which
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they are entitled to take, and the absence of a quorum of holders of shares
other that 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 dm the Series B Preferred Stock (or both), a majority of the
holders, present in person or by proxy, of the class or class of stock which
lack a quorum shall have power to adjourn the meeting for the election
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 dm contain provisions
consistent with the provisions, 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 pan, at any
from 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 2. The number of whole or factional
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 sham de as of such time by (ii)
the Conversion Price 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 Shares 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 dm 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 p t 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 holder of Series B Preferred Stock
each holder 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.
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(b) Mechanics of Conversion. In order to convert any Series B
Sham, the Holder thereof shall deliver to the Corporation at its principal
executive offices within the United States or at another officers or agency
designated by the Corporation p t to Section 9(g), of the certificate(s)
evidencing the Series B Share(s) to be convent which certificate(s), if the
Corporation shall so requea shall be duly endorsed to the Corporation or in
blank or accommied 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 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 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 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
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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 ti issue any fraction of
a share of Common Stock and such number of shares issuable shall be rounded
up to the nearest whole number, the Corporation shall no 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 Series B Share shall be surrendered for
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 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 nation,
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
registration qualified approved or listed, as the case may be, and the
conversion of such Series B Shares shall be suspended for the period during
which such registration, qualification, approval or listing is being
diligently pursued or sought by the Corporation. Without
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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 pf Series B Shares require registration or qualification with any
governmental authority under any federal or state law before such shams 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 winch 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 pare 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 a Series B Share(s) would or might e 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 any costs or expenses that it incurs in complying with this
Section 9(f)(B), except that each shall pay on 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 mount of securities and other property issuable
upon conversion of any Series B Share shall be subject to adjustment from
time to time as hereafter 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 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
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Conversion Rate and Conversion Price shall be cumulative and shall be made
successively on each and every occasion and by even 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
Recapitalization. IF the Corporation shall at any time (i) declare to pay a
dividend or declare, pay or make any other distribution to 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) if 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), ans 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
least 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, other securities of any nature whatsoever or any warrants,
options or other Rights to subscribe for, purchase or other wise acquire any
assets, property, capital stock, debt or other securities or evidences of
indebtedness (excluding dividends, distributions or issuances referred to the
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 of which the holders of Common Stock entitled to
participate in 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 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
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Section 9(j) shall become effective, subject to Section(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 dividend
payable after the Issue Date does not exceed the aggregate net income
(determined in accordance with Generally accepted accounting principals
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 any amount (determined in
accordance with subdivisions (A) and (F) of Section 9(p)) per Additional
Shares 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 share 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. Now adjustment of Conversion Rate Shall be Made under this Section
9(k) upon the insurance 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 excise of any
conversion or exchange rights in any other Convertible Securities if, in the
Case of any such Rights or Convertible Securities referred to 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 for 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
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or indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) grant, issue or shall
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
issuance 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 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 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 issuance 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 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 an 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
share and Deemed a new Assurance of convertible Securities for which an
adjustment pursuant to this Section 9(m) shall be made.
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(n) Superseding Adjustment.
(A) If, at any time after 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 department 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 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 (but no such readjustment shall be
made with respect to any Rights or Convertible Securities which for any
reason no. longer am 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 dm 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 moved 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
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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 (l) decreasing the number of shares of Common Stock or the amounts
of other Conversion Securities, cash or other property into which any Series
B Shares is convertible below the greater of the number of such shares and
the amounts of such would Conversion Securities, cash and 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 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 2.
(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 da not have been required to be made pursuant to the provisions of
Section 9(l)or Section 2(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, 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 Affection 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 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 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 decrease as a direct or 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
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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 sham 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 am modification or 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 Sham of Common
Stock or Convertible Securities shall be issued or deemed to be issued in
correction 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, 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 receive 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 Shams of Common Stock
issuable or to be issuable pursuant to any Rights to subscribe for, purchase
or otherwise acquire the same shall be the consideration received or 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
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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 die 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, "it 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 issue for no
consideration except to the extent the Corporation receives in exchange for
the 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 may be postponed (except in the case of a subdivision or
combination of sham 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 subtract less than 1% of the share 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
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 Interest. 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.
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(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 Shares
is convertible, the Corporation shall deliver to the converting Holder a due
bill or other appropriate instrument evidencing such Holders 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 de on 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 Holder 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 fm 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(r)(B) may be disputed in good faith by the Majority Holders, and
any such dispute shall be resolved in accordance with Section 9(v), by the
provided however that the Majority Holders shall not have the right to
dispute under 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 of its Common
Stock which is not one described in any other provision of this Section 9 as
an adjustment, then, unless such action will not have an adverse effect upon
the rights and intended benefits of the Holden 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 circumstance.
(r) Multiple Classes of Common Stock,
(A) If, at any time while any Series B Shares are o the
Corporations authorized capital stock shall include two or more classes or
series of Common Stock, then each Holder shall
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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 tam 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 securities promptly cause to be delivered to each Holder a signed
copy of such certificate. 'Me Corporation shall, upon the written request at
any time of any Holder, furnish or cause to be furnished to such Holder a
like certificate set forth (i) the Conversion Stock 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 shares
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 Corporation Action. If at anytime
(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 o 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 other right interest or
benefit, or
(ii) them 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
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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 an
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 possessed 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 them known to the
Corporation and (iii) give each Holder at least 20 days prior written notice
of the schedule 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 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 sham 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 tam 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 prow 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 shams 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
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 m 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
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and the obligations of the Corporation with respect thereto and thereunder.
(u) Taking of Record; Stock Transfer Books. In the can 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 cm 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 be 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 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 suite 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, Convoke or Lease.
If any of the following shall occur while any Series B Shares are
outstanding: (i) any consolidation, merger, binding share exchange or
reorganizations 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 sham 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 co on
of any such transaction, provided that if the kind or amount of shares of
stock, other securities or property receivable upon co of such on is not the
same for each non-electing share, then the kind and amount of shares of the
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-
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electing shoes). In case of any such merger, consolidation, share exchange,
reorganization, or disposition of assets, the successor or acquiring
corporation shall expressly assume the due mA punctual ob 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 thereto,
subject to such modifications as may be deemed appropriate (as d by
resolution of the Board of Director ) in order to provide for adj of shares
of the Common Stock into which Series B Stock 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, sham 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 Sham 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
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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 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 "antiditution" 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
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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 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 used 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.
56
<PAGE>
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 of and the validity, legality and enforce ability 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, 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.
57
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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 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 24, 1996
THE MENTUS GROUP, INC.
By:
---------------------------
Name: Gerard P. Joyce
Title: President
By:
---------------------------
Name: Thomas M. Pugliese
Title: Secretary
58
<PAGE>
Exhibit 3.2(a)
CORPORATE BYLAWS
OF
THE MENTUS CORPORATION
ARTICLE I
OFFICES AND SEAL
1. OFFICES. The registered office of the Corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle. The
Corporation may also maintain such other offices at such other places, either
within or without the State of Delaware, as may be designated from time to time
by the Board of Directors.
2. CORPORATE SEAL. A corporate seal shall not be requisite to the
validity of any instrument executed by or on behalf of the Corporation;
nevertheless, if in any instance a corporate seal be used, the same shall be, at
the pleasure of the officer affixing same, a circle having on the circumference
thereof the following: THE MENTUS CORPORATION; and in the center the following:
INCORPORATED DELAWARE.
ARTICLE II
STOCKHOLDERS
<PAGE>
2
1. STOCKHOLDERS' MEETINGS. All meetings of stockholders shall be held
at such place as may be fixed from time to time by the Board of Directors, or in
the absence of direction by the Board of Directors, by the President or
Secretary of the Corporation, either within or without the State of Delaware, as
shall be stated in the notice of the meeting. A waiver of notice signed by all
stockholders entitled to vote at a meeting may designate any place, either
within or without the State, as the place for holding such meeting.
2. NOTICE FOR MEETINGS. Written or printed notice stating the place,
day and hour of the meeting and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the stockholder at his address as it
<PAGE>
3
appears on the stock transfer books of the Corporation, with postage thereon
prepaid.
3. ANNUAL MEETINGS. Annual meetings of stockholders shall be held at
such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At the annual meeting,
stockholders shall elect a Board of Directors and transact such other business
as may properly be brought before the meeting.
4. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued,
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
A. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may
<PAGE>
4
fix, in advance, a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting.
B. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
C. In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is
<PAGE>
5
adopted by the Board of Directors. If no record date has been fixed by the Board
of Directors, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by these Bylaws, the Certificate of Incorporation
or the laws of the State of Delaware, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by these Bylaws, the Certificate of Incorporation or the
laws of the State of Delaware, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
D. In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other
<PAGE>
6
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
6. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger
of the Corporation shall prepare and make at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list
<PAGE>
7
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder present.
7. QUORUM, ADJOURNMENT. At any meeting of stockholders a majority of
the holders of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum. If less than said
number of the outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without further
notice, other than announcement at the meeting at which adjournment is taken,
until a quorum shall be present or represented; provided, however, that if the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
<PAGE>
8
8. VOTING.
A. At every meeting of the stockholders, each stockholder shall be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
B. At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period.
C. When a quorum is present at any meeting, the vote of the holders of
a majority of the voting power present, whether in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the Delaware General
Corporation Law or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
D. Upon the demand of any stockholder, the vote for directors and upon
any question before the meeting shall be by ballot.
<PAGE>
9
9. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders, shall be as follows:
A. Roll call.
B. Proof of notice of meeting or waiver of notice.
C. Reading of minutes of preceding meeting.
D. Reports of officers.
E. Reports of committees.
F. Elections, if any.
G. Unfinished business.
H. New business.
10. ACTION WITHOUT MEETING.
A. Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice, and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all stockholders entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the
<PAGE>
10
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail return receipt requested.
B. Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this section to
the corporation, written consents signed by a sufficient number of stockholders
to take action are delivered to the corporation as provided in subsection 10(A)
above of this Article II.
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. In the event that the action
which is consented to is such as would have required the filing of a certificate
under any other section of this title, if such action had been voted on by
stockholders at a meeting thereof, the certificate filed under such other
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been
<PAGE>
11
given in accordance with this section, and that written notice has been given as
provided in this section.
11. WAIVER OF NOTICE. Attendance of a stockholder at a meeting shall
constitute waiver of notice of such meeting, except when such attendance at the
meeting is for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Any stockholder
may waive notice of any annual or special meeting of stockholders by executing a
written notice of waiver either before or after the time of the meeting.
ARTICLE III
BOARD OF
1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts as are not by statute, the Certificate
of Incorporation, or these Bylaws directed or required to be exercised or done
by the stockholders. The Directors shall in all cases act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem
<PAGE>
12
proper, not inconsistent with these Bylaws, the Certificate of Incorporation of
this Corporation, and the laws of the State of Delaware.
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, except as provided in Section 3 of this
Article, and each Director elected shall hold office until his or her successor
is elected and qualified. Directors need not be stockholders.
3. VACANCIES. Vacancies and newly created directorships resulting from
any increase in the authorized number of Directors may be filled by the
affirmative vote of a majority of the remaining Directors then in office,
although less than a quorum, or by a sole remaining Director, and the Directors
so chosen shall hold office until the next annual election and until their
successors are duly elected and qualified, unless sooner displaced. If there are
no Directors in office, then an election of Directors may be held in the manner
provided by statute.
<PAGE>
13
4. REGULAR MEETINGS. A regular meeting of the Directors, the first
meeting of each newly elected Board of Directors, shall be held without other
notice than this By-Law immediately after, and at the same place as, the annual
meeting of stockholders. The Directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
5. SPECIAL MEETINGS. Special meetings of the Board may be called by the
President or the Secretary on one (1) day's notice to each Director, either
personally, by mail, by telegram, or by telephone; special meetings shall be
called by the President or Secretary in like manner and on like notice on the
written request of one (1) Director. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Any Director may waive notice of any annual,
regular, or special meeting of Directors by
<PAGE>
14
executing a written notice of waiver either before or after the
time of the meeting.
6.ELECTRONIC COMMUNICATION.
A. A conference among Directors by any means of communication through
which the Directors may simultaneously hear each other during the conference
constitutes a board meeting, if the same notice is given of the conference as
would be required by their Bylaws for a meeting, and if the number of Directors
participating in the conference would be sufficient to constitute a quorum at a
meeting. Participation in meeting by such means constitutes presence in person
at the meeting.
B. A Director may participate in a board meeting not described in
subparagraph A by any means of communication through which the Director, other
directors so participating, and all Directors physically present at the meeting
may simultaneously hear each other during the meeting. Participation in a
meeting by that means constitutes presence in person at the meeting.
7. PLACE OF MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
<PAGE>
15
8. QUORUM. A majority of the membership of the Board of Directors shall
constitute a quorum and the concurrence of a majority of those present shall be
sufficient to conduct the business of the Board, except as may be otherwise
specifically provided by the Delaware General Corporation Law or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors then present may adjourn the meeting to
another time or place, without notice other than announcement at the meeting,
until a quorum shall be present. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Directors.
9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or Committee.
10. EXECUTIVE AND OTHER COMMITTEES. The Board, by resolution, may
designate from among its members an executive committee and other committees,
each consisting of three or more
<PAGE>
16
Directors. Each such committee shall serve at the pleasure of the Board.
11. REMOVAL OF DIRECTORS. Any or all of the Directors may be removed
for cause by vote of the stockholders or by action of the Board. Directors may
be removed without cause only by vote of the stockholders.
12. RESIGNATION. A Director may resign at any time by giving written
notice to the Board, the President or the Secretary of the Corporation. Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the Board or such officer, and the acceptance of the
resignation shall not be necessary to make it effective.
13. COMPENSATION. No compensation shall be paid to Directors, as such,
for their services, but by resolution of the Board a fixed sum and expenses for
actual attendance at each regular or special meeting of the Board may be
authorized. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. The amount or rate of such
compensation of members of the Board of
<PAGE>
17
Directors or of committees shall be established by the Board of Directors and
shall be set forth in the minutes of the Board.
14. DISALLOWED COMPENSATION. Any payment to an employee in the form of
wages, salary, bonus, travel or entertainment expense, which is disallowed in
whole or in part by the Internal Revenue Service as a deductible expense of the
Corporation, shall be repaid to the Corporation by the employee or employees
involved. The Board of Directors shall, with the approval of the employee, be
authorized to provide for deductions from future compensation paid to the
employee as a method of repayment of the disallowed expense.
15. PRESUMPTION OF ASSENT. A Director of the Corporation who is present
at a meeting of the Directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
ARTICLE IV
<PAGE>
18
OFFICERS
1. NUMBER. The officers of the Corporation shall be a President, a
Vice-President, a Secretary and a Treasurer, each of whom shall be elected by
the Directors. The Board of Directors may also choose a Chairman of the Board, a
Vice-Chairman, additional vice-presidents, and one or more assistant secretaries
and assistant treasurers. Any number of offices may be held by the same person,
unless the Certificate of Incorporation or these Bylaws otherwise provide.
2. ELECTION AND TERM OF OFFICE. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a President, one
or more Vice-Presidents, a Secretary, and a Treasurer, and may choose a chairman
of the Board, each of whom shall serve at the pleasure of the Board of
Directors. The Board of Directors at any time may appoint such other officers
and agents as it shall deem necessary to hold offices at the pleasure of the
Board of Directors and to exercise such powers and perform such duties as shall
be determined from time to time by the Board. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
<PAGE>
19
3. REMOVAL. Any officer or agent elected or appointed by the Directors
may be removed by the Directors whenever in their judgment, the best interests
of the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
4. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. PRESIDENT. The President shall be the principal executive officer of
the Corporation and subject to the control of the Directors, shall in general
supervise and control all of the business and affairs of the Corporation. The
President shall preside at all meetings of stockholders, and if a Chairman of
the Board shall not have been appointed or, having been appointed, shall not be
serving or be absent, the President shall preside at all meetings of the Board
of Directors. He may sign, with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Directors, certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these Bylaws to some
<PAGE>
20
other officer or agent of the Corporation, or shall be required by law to be
otherwise signed or executed; and in general shall perform all duties incident
to the office of President and such other duties as may be prescribed by the
Directors from time to time.
6. VICE-PRESIDENT. In the absence of the President or in event of his
death, inability or refusal to act, the Vice-President shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice-President shall
perform such other duties as from time to time may be assigned to him by the
President or by the Directors.
7. SECRETARY. The Secretary shall keep the minutes of the stockholders'
and of the Directors' meetings in one or more books provided for that purpose,
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required, be custodian of the corporate records and of the seal of
the Corporation and keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder, have
general charge of the stock transfer books of the Corporation and in general
perform all duties incident to the
<PAGE>
21
office of Secretary and such other duties as from time to tire may be assigned
to him by the President or by the Directors.
8. TREASURER. If required by the Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Directors shall determine. He shall have charge and custody
of and be responsible for all funds and securities of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these Bylaws. He shall render financial statements to the President,
Directors, and stockholders at proper times. The Treasurer shall have charge of
the preparation and filing of such reports, financial statements, and returns as
may be required by law. He shall in general perform all of the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the President or by the Directors.
9. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have
been appointed and be serving, shall preside at all meetings of the Board of
Directors and shall perform such other duties as from time to time may be
assigned to him or her.
<PAGE>
22
10. VICE-CHAIRMAN OF THE BOARD. In the absence of the Chairman or in
the event of his death, inability or refusal to act, the Vice-Chairman shall
perform the duties of the Chairman, and when so acting shall have all the powers
and be subject to all the restrictions upon the Chairman. The Vice-Chairman
shall perform such other duties as from time to time may be assigned to him or
her.
11. SALARIES. The salaries of the officers shall be fixed from time to
time by the Directors and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of the Corporation. The
salaries of the officers or the rate by which salaries are fixed shall be set
forth in the minutes of the meetings of the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS. The Directors may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
<PAGE>
23
2. LOANS. No loans shall be contracted on behalf of the Corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Directors.
4. DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Directors. Such
certificates shall be signed by
<PAGE>
24
the President and by the Secretary or by such other officers authorized by law
and by the Directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Directors may prescribe.
2. TRANSFERS OF SHARES.
A. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office.
<PAGE>
25
B. The Corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of Delaware.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January and end on the last day of December in each year.
ARTICLE VIII
REPEAL, ALTERATION OR AMENDMENT
The Bylaws may be repealed, altered, or amended, or substitute Bylaws
may be adopted at any time by a majority of the Board of Directors.
-------------------------------
Gerard P. Joyce, President
ATTEST:
- -------------------------------
Charles H. Kratsch, Secretary
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.]
June 2, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have been requested by Mentus Media Corp. (the "Company"), a
Delaware corporation, to furnish our opinion in connection with the registration
statement (the "Registration Statement") on Form S-4, filed concurrently
herewith, with respect to the registration of $45,000,000 principal amount of
Series B 12% Senior Secured PIK Notes due 2003 of the Company (the "Series B
Notes") to be offered in exchange for outstanding 12% Senior Secured PIK Notes
due 2003 (the "Series A Notes").
We have made such examination as we have deemed necessary for the
purpose of this opinion. Based upon such examination, it is our opinion that
when the Registration Statement has become effective under the Securities Act of
1933, as amended, the Series B Notes have been duly executed and authenticated
in accordance with the Indenture, the Indenture has been qualified under the
Trust Indenture Act of 1939, as amended, the Series A Notes have been validly
tendered to the Company and the Series B Notes have been delivered in exchange
therefor, the Series B Notes will be validly issued and binding obligations of
the Company, subject in each case to the effect of (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally and (ii) the application of general principles of
equity (regardless of whether enforcement is considered in proceedings at law or
in equity).
We express no opinion as to the applicability (and, if
applicable, the effect) of Section 548 of the United States
<PAGE>
Bankruptcy Code or any comparable provision of state law to the conclusions
expressed above.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the Federal laws of the
United States of America, and the General Corporation Law of the State of
Delaware.
The opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purposes or
relied upon or furnished to any other person without our prior written consent.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement.
Very truly yours,
COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
By: /s/ Elliot Brecher
---------------------
<PAGE>
Exhibit 8.1
[LETTERHEAD OF COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN,P.C.]
June 2, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have been requested by Mentus Media Corp. (the "Company"), a
Delaware corporation, to furnish our opinion in connection with the registration
statement (the "Registration Statement") on Form S-4, filed concurrently
herewith, with respect to the registration of $45,000,000 principal amount of
Series B 12% Senior Secured PIK Notes due 2003 of the Company (the "Series B
Notes") to be offered (the "Exchange Offer") in exchange for outstanding 12%
Senior Secured PIK Notes due 2003 (the "Series A Notes").
We have made such examination as we have deemed necessary for the
purpose of this opinion. Based upon the terms of the Exchange Offer, of the
Series A Notes and of the Series B Notes, which are set forth in the
Registration Statement, it is our opinion that the summary set forth under the
heading "Certain Federal Income Tax Consequences" in the Registration Statement
accurately describes, in all material respects, the material federal income tax
consequences of the Exchange Offer to the holders of the Series A Notes.
The foregoing opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service, and case
law, any of which may be changed at any time with retroactive effect. We
undertake no obligation to update
<PAGE>
this opinion in respect of any such changes.
The opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purposes or
relied upon or furnished to any other person without our prior written consent.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement.
Very truly yours,
COOPERMAN, LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
By /s/ Mark L. Lubin
------------------
<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.
2
<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(o)
AGREEMENT FOR CONSENTS AND WAIVERS
This Agreement for Consents and Waivers is given by 21st Century
Communications Partners, L.P., 21st Century Communications T-E Partners,
L.P., and 21st Century Communications Foreign Partners, L.P. (the "21st
Century Investors"), and Pulitzer Publishing Company ("Pulitzer"), as of
January 21, 1998.
RECITALS
A. The 21st Century Investors are holders of Series B Senior
Cumulative Compounding Convertible Redeemable Preferred Stock (the "Series B
Preferred Stock") and, together with Pulitzer hold Series C Senior Cumulative
Compounding Convertible Redeemable Preferred Stock (the "Series C Preferred
Stock") of Mentus Media Corp. (the "Corporation');
B. The 21st Century Investors and Pulitzer also are "Majority
Investors" under the following agreements:
(a) that certain Stockholders' Agreement, dated as of September
25, 1996, and amended by that First Amendment to Stockholders' Agreement
dated as of August 29, 1997 (together, the "Stockholders' Agreement");
(b) that certain Preemptive Rights Agreement, dated as of
September 25, 1996, and amended by that First Amendment to Preemptive Rights
Agreement dated as of August 29, 1997 (together, the "Preemptive Rights
Agreement");
(c) that certain Registration Rights Agreement, dated as of
September 25, 1996, and amended by that First Amendment to Registration
Rights Agreement dated as of August 29, 1997 (together, the "Registration
Rights Agreement");
(d) that certain Agreement, dated as of September 25, 1996, and
amended by that First Amendment to Agreement dated as of August 29, 1997
(together, the "Joyce Agreement"), relating to that certain promissory note
payable by the Company to Gerard P. Joyce (the "Joyce Note"), and the
security agreement securing the same (the "Joyce Security Agreement").
C. In connection with (i) the Company's offering (the "Offering")
of __ % Senior Secured Notes due 2003 (the "Notes"), and the Warrants issued
concurrently therewith (the "Warrants"), and (ii) the Company's conduct of an
exchange offer (the "Exchange Offer") pursuant to which the Notes are
intended to be exchanged for promissory notes that are the subject of a
registration statement filed with the Securities and Exchange Commission
("Exchange Notes") or in a private exchange (the "Private Exchange Notes"),
the undersigned have agreed to consent to certain matters described below,
effective upon closing of the Offering. For purposes of this Agreement, the
Notes, Exchange Notes and Private Exchange Notes are together referred to as
the
<PAGE>
"Senior Notes." For purposes of this Agreement, each of the terms "Notes,"
"Warrants," "Exchange Notes," "Private Exchange Notes," "Senior Notes" and
"Offering" and each reference herein to any Indentures, Security or Pledge
Agreement or other agreement, document or instrument evidencing or relating
to any of the Notes, Warrants, Exchange Notes, Private Exchange Notes or
Offering mean or are references to only such items having terms and
provisions substantially as described in the Offering Memorandum (as
described below), as they may be modified with the specific consent of the
Series B Director as contemplated by paragraph 1 below.
AGREEMENT:
Therefore, with the intent that the Company and its underwriters,
selling agents and representatives, together with the offerees of the Senior
Notes and Warrants, rely on the consents, waivers and covenants set forth
herein, the undersigned agree as follows:
1. CONSENTS AND WAIVERS UNDER STOCKHOLDERS' AGREEMENT. Subject to
paragraph 9 below, pursuant to Section 3.8(a) of the Stockholders' Agreement
(or otherwise as appropriate in connection with item (iv) below), each of the
undersigned, in his, her or its capacity as a party to and an Investor under
the Stockholders' Agreement hereby consents to the actions by the Company
described below in this paragraph; PROVIDED, that in each case, such actions
(including, without limitation, the material terms and conditions of each
document referred to herein) are substantially as described in the
Preliminary Offering Memorandum dated January 21, 1998 furnished to the
undersigned prior to the date hereof (the "Offering Memorandum"), with any
material modifications thereto that may be specifically approved by the
Series B Director (as defined in the Stockholders' Agreement) in his sole
discretion (such consent of the Series B Director constituting the consent of
the Majority Investors under the Stockholders' Agreement).
(i) all actions required to be taken by the Company in connection
with the sale, issuance, delivery of, and performance under, the Senior Notes
and Warrants, including without limitation (a) the execution and delivery by
the Company of all documents necessary to offer, sell, and issue the Senior
Notes and Warrants, including without limitation certificates evidencing the
Notes, Exchange Notes and Private Exchange Notes, global promissory notes, a
global warrant, warrant certificates, warrant agreement, purchase agreement,
security agreement, pledge agreement, indenture, unit agreement, note
registration rights agreement, warrant registration rights agreement, and
UCC-1 financing statements, (b) the issuance of Senior Notes and Warrants
upon the transfer of then outstanding Senior Notes and/or Warrants, as
appropriate, (c) the issuance of shares of common stock of the Company
("Common Stock") upon exercise of the Warrants, (d) the conduct of the
Exchange Offer and exchange of the Notes for Exchange Notes and/or Private
Exchange Notes, (e) the grant by the Company of a security interest covering
substantially all of the assets of the Company, (f) the payment of all
outstanding amounts owed under the Joyce Note, (g) the termination of the
Joyce Agreement and the Joyce Security Agreement, and (h) the modification of
the respective Certificates of Designation for the Series B Preferred Stock
and the Series C Preferred Stock as set forth below.
(ii) all future incurrences of Debt (as defined in the Stockholders'
Agreement) by the Company (including the grant of a security interest in
receivables of the Company in connection
2
<PAGE>
with a working capital credit facility) and all investments by the Company,
on the terms approved by the Board of Directors of the Company, within the
limitations set forth in the Indenture, Security Agreement and/or Pledge
Agreement to be executed in connection with the issuance of the Senior Notes;
provided that the foregoing is not intended to and does not waive any rights
of the Majority Holders under the Stockholders' Agreement to consent to any
refinancing of the Senior Notes, Indenture, Security Agreement and/or Pledge
Agreement;
(iii) the creation of one or more stock option plans in the form
approved by the Compensation Committee, the options granted pursuant to which
will be considered Employee Options under the Stockholders' Agreement, for
the issuance of Common Stock which shall not exceed 53,000 shares of Common
Stock (as adjusted for stock splits and similar transactions), and the
issuance of Common Stock upon the exercise thereof; provided that the
Employee Options under the plans approved hereunder 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 and other similar transactions) or (b) the
Conversion Price per share of the Series B Preferred Stock, in either case
without the consent of the Series B Director; and
(iv) waiver of compliance with the notice and other requirements of
the Stockholders' Agreement in connection with the Offering and the Exchange
Offer.
2. WAIVER OF PREEMPTIVE RIGHTS. As "Majority Investors," and on behalf
of the "Investors" under the Preemptive Rights Agreement, the undersigned
hereby waive all preemptive rights, if any, under the Preemptive Rights
Agreement with respect to all Notes and Warrants offered, issued or sold in
the Offering, all Exchange Notes and/or Private Exchange Notes that are the
subject of the Exchange Offer, and all shares of Common Stock and of the
securities which are or shall become issuable upon the exercise of Warrants,
and also waive compliance with the notice and other requirements of the
Preemptive Rights Agreement in connection with the Offering and the Exchange
Offer.
3. CONSENT TO AMENDMENT OF REGISTRATION RIGHTS. As "Majority
Investors," and on behalf of the "Investors" under the Registration Rights
Agreement, the undersigned hereby consent to the grant of piggy-back
registration rights (under a warrant registration rights agreement) to the
holders of the Warrants and/or shares of Common Stock issuable upon the
exercise of the Warrants, on a pro-rata basis with, and with the same
relative rights as, the "Investors" under the Registration Rights Agreement
with respect to their piggy-back registration rights in the event of any
Demand Registration or Piggyback Registration, and also waive compliance with
the notice and other requirements of the Registration Rights Agreement in
connection with the Offering and Exchange Offer.
4. CONSENT TO PAYMENT OF JOYCE NOTE AND TERMINATION OF JOYCE AGREEMENT.
As "Majority Investors," and on behalf of all of the "Investors" under the
Joyce Agreement, the undersigned consent to (i) the payment of all amounts
owing under the Joyce Note (defined in the Joyce Agreement as the "New Note")
from the proceeds of the Offering, which payment shall be made immediately
upon closing of the Offering, (ii) the termination of the Joyce Agreement,
effective upon such payment, and (iii) the termination of the Joyce Security
Agreement, effective upon such
3
<PAGE>
payment, and also waive compliance with the notice and other requirements of
the Joyce Agreement.
5. CONSENT TO MODIFICATION OF CERTIFICATE OF DESIGNATIONS FOR SERIES B
PREFERRED STOCK. The undersigned hereby consent to such modification as may
be deemed advisable by the Board of Directors of the Corporation to the
Certificate of Designation for Series B Preferred Stock to accomplish the
following:
(i) provide that if, at any time while the Senior Notes, or any
obligation or obligations incurred by the Company in a bona fide refinancing
of the Senior Notes (the "Refinancing Obligations") are outstanding, a
redemption of shares of Series B Preferred Stock is required by the terms
thereof (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
Indenture for the Senior Notes (or other governing document in respect of the
Senior Notes or Refinancing Obligations), then the Company shall comply with
Section 3(i) of the Certificate of Designation for the Series B Preferred
Stock, but unless and until otherwise approved by the requisite holders of
the Senior Notes or Refinancing Obligations, or the outstanding Senior Notes
or Refinancing Obligations are paid in full, the Company 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, except as
expressly provided in this clause, nothing contained herein is intended to
impair, as between the Company and the holders of the Series B Preferred
Stock, the obligations of the Company, 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
Company 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;
(ii) waiver of any adjustment in the conversion price, conversion
rate or otherwise based on the issuance of the Warrants issued in connection
with the Offering (or issued upon transfer of such Warrants) or the Common
Stock issuable upon the exercise of Warrants issued in connection with the
Offering (or issued upon transfer of such Warrants); and
(iii) the creation of one or more stock option plans in the form
approved by the Compensation Committee, the options granted pursuant to which
will be considered Employee Options, for the issuance of Common Stock which
shall not exceed 53,000 shares of Common Stock (as adjusted for stock splits
and similar transactions), and the issuance of Common Stock upon the exercise
thereof, in each case without adjustment in the conversion price, conversion
rate or otherwise; provided that the such Employee Options under the plans
approved hereunder 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
and other similar transactions) or (b) the Conversion Price per share of the
Series B Preferred Stock, in either case without the consent of the Series B
Director;
6. CONSENT TO MODIFICATION OF CERTIFICATE OF DESIGNATION FOR SERIES C
PREFERRED STOCK. The undersigned hereby consents to such modification as may
be deemed advisable by the Board of
4
<PAGE>
Directors of the Corporation of the Certificate of Designation for Series C
Preferred Stock to accomplish the following:
(i) provide that if, at any time while the Senior Notes, or any
Refinancing Obligations are outstanding, a redemption of shares of Series C
Preferred Stock is required by the terms thereof (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 Indenture for the Senior Notes (or
other governing document in respect of the Senior Notes or Refinancing
Obligations), then the Company shall comply with Section 3(h) of the
Certificate of Designation for the Series C Preferred Stock, but unless and
until otherwise approved by the requisite holders of the Senior Notes or
Refinancing Obligations, or the outstanding Senior Notes or Refinancing
Obligations are paid in full, the Company 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, except as expressly provided in
this clause, nothing contained herein is intended to impair, as between the
Company and the holders of the Series C Preferred Stock, the obligations of
the Company, 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 Company 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;
(ii) waiver of any adjustment in the conversion price, conversion
rate or otherwise based on the issuance of the Warrants issued in connection
with the Offering (or issued upon transfer of such Warrants) or the Common
Stock issuable upon the exercise of the Warrants issued in connection with
the Offering (or issued upon transfer of such Warrants);
(iii) the creation of one or more stock option plans in the form
approved by the Compensation Committee, the options granted pursuant to which
will be considered Employee Options, for the issuance of Common Stock which
shall not exceed 53,000 shares of Common Stock (as adjusted for stock splits
and similar transactions), and the issuance of Common Stock upon the exercise
thereof, in each case without adjustment in the conversion price, conversion
rate or otherwise; provided that the such Employee Options under the plans
approved hereunder 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
and other similar transactions) or (b) the Conversion Price per share of the
Series C Preferred Stock, in either case without the consent of the Series C
Director; and
(iv) the extension of mandatory redemption period for 6 months.
7. APPLICATION OF TAG-ALONG AND DRAG-ALONG RIGHTS. The 21st Century
Investors agree to be bound by the tag-along and drag-along rights as
outlined in the Offering Memorandum.
8. TERMINATION OF OPTION. The 21st Century Investors agree to terminate
that certain Option Agreement, dated as of September 26, 1996, relating to
the Chicago DMA.
5
<PAGE>
9. EFFECTIVENESS OF CONSENTS. The consents and waivers of the
undersigned hereunder, the agreements in paragraph 7 and the termination of
the Option Agreement described in paragraph 8 above, are effective upon
closing of the Offering on substantially the terms as outlined in the
Offering Memorandum, with such modifications as may be approved by the Series
B Director.
10. DEFINITIONS. Except as otherwise specifically defined herein, the
defined terms contained in this agreement shall have the meaning ascribed to
them in the referenced document.
11. FURTHER ASSURANCES. The undersigned agree that, upon the
Corporation's request, the undersigned will execute one or more separate
consents for the purpose of confirming or otherwise memorializing the
agreements set forth herein.
This Agreement memorializes the parties' understanding and agreement as of
January 21, 1998.
"Majority Investors"
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., General Partner
By:______________________________
Its: _______________________
6
<PAGE>
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., General Partner
By:______________________________
Its ________________________
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJDM MEDIA CORP., a General Partner
By:______________________________
Its: _______________________
PULITZER PUBLISHING COMPANY
By:______________________________
Name:_______________________
Title:____________________
7
<PAGE>
Exhibit 10.1(p)
REGISTRATION RIGHTS AGREEMENT
between THE MENTUS GROUP, INC.,
a Delaware corporation (the "Company"),
and
_________________________ ("Shareholder"),
as of April ___, 1995.
RECITALS:
In accordance with Section 3 of the Stock Purchase Agreement between the
Company and Shareholder, the parties desire to set forth herein certain
rights, terms and conditions with respect to the registration of the shares
of Common Stock held by Shareholder and purchased in accordance with the
Stock Purchase Agreement.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Shareholder
agree as follows:
1. 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 shares then held by Shareholder and purchased in
accordance with the Stock Purchase Agreement (which request shall specify the
aggregate number of shares intended to be registered by Shareholder, shall
describe the nature or method of the proposed registration 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. The registration rights granted pursuant to
this Section 1 may not be exercised more than once, whether exercised in
whole or in part (provided, however, that any request made pursuant to this
Section 1 which does not result in the declaration of effectiveness of a
registration statement covering the shares owned by Shareholder, whether as a
result of the withdrawal of the registration statement by the Company or
through other action or inaction of the Company or otherwise, shall not be
counted in determining the number of times registration rights have been
exercised pursuant to this Section 1). The Company shall be entitled to
postpone the filing of any registration statement if the Company's Board of
Directors reasonably determines, in good faith, that such registration would
not be in the best interests of the Company.
2. Registration Procedures. If the Company effects a public registration
of any shares held by the Shareholder, the Company shall:
<PAGE>
2
(a) 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;
(b) 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;
(c) furnish to the Shareholder, without charge, a copy of the
preliminary prospectus, any supplements thereto and a final prospectus and
any supplements thereto in conformity with the requirements of the applicable
securities laws, and such other documents as the Shareholder may reasonably
request;
(d) if, during any period in which, in the opinion of the Company's
counsel, a prospectus relating to the shares is required to be delivered
under the applicable securities laws in connection with any offer or sale
contemplated by any registration statement, any event known to the Company
occurs as a result of which the prospectus would include an untrue statement
of material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or
supplement the related prospectus to comply with the applicable securities
laws or the respective rules and regulations thereunder, to notify the
Shareholder promptly to prepare and file with the SEC or FSC an amendment or
supplement, as may be necessary to correct such untrue statement or omission
or to make any registration statement or the related prospectus comply with
such requirements and to furnish to Shareholder and its counsel such
amendment or supplement to such registration statement or prospectus;
(e) timely file with the SEC or FSC (i) any amendment or supplement
to any registration statement or to any related prospectus that is required
by the applicable securities laws or requested by the SEC or FSC and (ii) all
documents (and any amendments to previously filed documents) required to be
filed by the Company pursuant to applicable securities laws and respective
rules and regulations thereunder;
(f) within five days of filing with the SEC or FSC of (i) any
amendment or supplement to any registration statement, (ii) any amendment or
supplement to the related prospectus, or (iii) any document incorporated by
reference in any of the foregoing or any amendment of or supplement to any
such incorporated document, furnish a copy thereof to Shareholder and its
counsel;
(g) 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
<PAGE>
3
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;
(h) 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;
(i) deliver to Shareholder, not later than the time the Company
makes the same available generally to other shareholders of the Company,
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
(j) use its best 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 be
reasonably necessary to enable the Shareholder to consummate the public sale
or other disposition in each such jurisdiction of such shares; 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.
3. 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) 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.
4. Indemnification.
(a) Upon registration of shares 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 therewith 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
<PAGE>
4
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.
(b) Upon registration of shares 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; 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.
(c) 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.
<PAGE>
5
(d) 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.
5. 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.
6. Miscellaneous.
(a) 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.
(b) 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.
(c) 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.
(d) 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.
[Stockholder] THE MENTUS GROUP, INC., a
Delaware corporation
By: By
------------------------------- -----------------------------
Its: Its
------------------------------- ---------------------------
<PAGE>
Exhibit 10.1(q)
REGISTRATION RIGHTS AGREEMENT
between THE MENTUS GROUP, INC., a Delaware
corporation (the "Company"), and
________________________________
("Shareholder"), as of April ___, 1995.
RECITALS:
In accordance with that certain Warrant Agreement between the Company
and Shareholder, Shareholder has exercised certain warrants of the Company
issued pursuant thereto (the "Warrants") to purchase _____ shares of the
Company's 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 held by Shareholder and purchased pursuant to the exercise of
Warrants.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Shareholder
agree as follows:
1. 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 shares then held by Shareholder and purchased in
accordance with the Stock Purchase Agreement (which request shall specify the
aggregate number of shares intended to be registered by Shareholder, shall
describe the nature or method of the proposed registration 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. The registration rights granted pursuant to
this Section 1 may not be exercised more than once, whether exercised in
whole or in part (provided, however, that any request made pursuant to this
Section 1 which does not result in the declaration of effectiveness of a
registration statement covering the shares owned by Shareholder, whether as a
result of the withdrawal of the registration statement by the Company or
through other action or inaction of the Company or otherwise, shall not be
counted in determining the number of times registration rights have been
exercised pursuant to this Section 1). The Company shall be entitled to
postpone the filing of any registration statement if the Company's Board of
Directors reasonably determines, in good faith, that such registration would
not be in the best interests of the Company.
2. Registration Procedures. If the Company effects a public
registration of any shares held by the Shareholder, the Company shall:
<PAGE>
(a) 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;
(b) 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;
(c) furnish to the Shareholder, without charge, a copy of the
preliminary prospectus, any supplements thereto and a final prospectus and
any supplements thereto in conformity with the requirements of the applicable
securities laws, and such other documents as the Shareholder may reasonably
request;
(d) if, during any period in which, in the opinion of the Company's
counsel, a prospectus relating to the shares is required to be delivered
under the applicable securities laws in connection with any offer or sale
contemplated by any registration statement, any event known to the Company
occurs as a result of which the prospectus would include an untrue statement
of material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or
supplement the related prospectus to comply with the applicable securities
laws or the respective rules and regulations thereunder, to notify the
Shareholder promptly to prepare and file with the SEC or FSC an amendment or
supplement, as may be necessary to correct such untrue statement or omission
or to make any registration statement or the related prospectus comply with
such requirements and to furnish to Shareholder and its counsel such
amendment or supplement to such registration statement or prospectus;
(e) timely file with the SEC or FSC (i) any amendment or supplement
to any registration statement or to any related prospectus that is required
by the applicable securities laws or requested by the SEC or FSC and (ii) all
documents (and any amendments to previously filed documents) required to be
filed by the Company pursuant to applicable securities laws and respective
rules and regulations thereunder;
(f) within five days of filing with the SEC or FSC of (i) any
amendment or supplement to any registration statement, (ii) any amendment or
supplement to the related prospectus, or (iii) any document incorporated by
reference in any of the foregoing or any amendment of or supplement to any
such incorporated document, furnish a copy thereof to Shareholder and its
counsel;
(g) 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
2
<PAGE>
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;
(h) 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;
(i) deliver to Shareholder, not later than the time the Company
makes the same available generally to other shareholders of the Company,
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
(j) use its best 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 be
reasonably necessary to enable the Shareholder to consummate the public sale
or other disposition in each such jurisdiction of such shares; 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.
3. 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) 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.
4. Indemnification.
(a) Upon registration of shares 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 therewith 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
3
<PAGE>
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.
(b) Upon registration of shares 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; 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.
(c) 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
<PAGE>
(d) 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.
5. Selection of Underwriters. The Company will have the right to
select p:\nycvestment banking firm(s) acting as Manager(s) in connection with
any underwritten public offering.
6. Miscellaneous.
(a) 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.
(b) 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.
(c) 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.
(d) 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.
THE MENTUS GROUP, INC., a
- ---------------------------------- Delaware corporation
By: By
------------------------------- ------------------------------
Its: Its
------------------------------- ------------------------------
5
<PAGE>
Exhibit 10.1(r)
SECOND AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDMENT TO STOCKHOLDERS' AGREEMENT (this "Amendment") is
dated as of January _____ , 1998 and is made and entered into by and among
the undersigned parties.
Recitals
The undersigned parties, constitute the "Majority Investors," "Majority
Shareholders" and the "Company" under that certain Stockholders' Agreement,
dated as of September 25, 1996, and amended by that First Amendment to
Shareholders' Agreement dated as of August 29, 1997 (the "Stockholders'
Agreement")
The undersigned desire to amend the Stockholders' Agreement under
Section 5.3 thereof.
Agreement
Therefore, for 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. Effective as of the date
hereof, the Stockholders' Agreement is hereby amended as follows:
a. Section 1.1 of the Stockholders' Agreement is amended to add a
definition of Joint Director, as follows:
Joint Director: As defined in Section 3.1.
b. The definition of Restricted Person, appearing in Section 1.1 of
the Stockholders' Agreement is hereby amended in its entirety to read as
follows:
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 (v) any Related Party of any Person covered by
clause (i), (ii), (iii) or (iv) of this sentence; provided that in no
event
<PAGE>
shall any of the following Persons be deemed to be a "Restricted
Person": (w) any Investor, any Affiliate or Related Party of any
Investor or any Related Party of any Affiliate of any Investor, (x)
any Series B Director, (y) any Series C Director, or (z) any Joint
Director.
b. 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 nine
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) Three additional Directors, to be elected as follows:
(i) 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; (ii)
one Director (the `Series C Director') elected by the
holders of the Series C Preferred Stock as set forth in
the Series C Certificate of Designation; and (iii) one
Director (the "Joint Director") elected by the holders
of the Series B and Series C Preferred Stock voting
together as a single class, as set forth in the Series
B Certificate of Designation and the Series C
Certificate of Designation. The provisions of the
Series B Certificate of Designation shall govern the
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 the Series
B Certificate of Designation and the Series C
Certificate of Designation shall govern the
designation, election and removal of the Joint Director
and filling of any vacancy in the office of the Joint
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
2
<PAGE>
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, (i)
the size of the entire Board of Directors shall be
reduced by one director, and (ii) the Director then
designated as the Joint Director shall cease to be so
designated and thereafter shall be chosen according to
Section 3.1(b).
3. Reaffirmation. The undersigned parties acknowledge that the
Stockholder's Agreement, as amended hereby, remains in full force and effect
and is hereby ratified and affirmed.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Second Amendment to Stockholders' Agreement as of the date first above
written.
"Company"
MENTUS MEDIA CORP.
By:
----------------------------
Thomas M. Pugliese, Chief Executive Officer
"Majority Shareholders"
-----------------------------------
GERARD P. JOYCE
-----------------------------------
THOMAS P. PUGLIESE
3
<PAGE>
"Majority Investors"
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., General Partner
] By:
---------------------------------------
President
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., General Partner
By:
---------------------------------------
President
4
<PAGE>
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By: SANDLER INVESTMENT
PARTNERS, L.P., General Partner
By: SANDLER CAPITAL
MANAGEMENT, General Partner
By: MJDM MEDIA CORP., a General Partner
By:
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President
PULITZER PUBLISHING COMPANY
By:
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Name: Title:
5
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Exhibit 10.2(a)
EMPLOYMENT AGREEMENT dated as of August 1, 1990, between THE
MENTUS GROUP, INC., a Minnesota corporation (the "Corporation"),
and GERARD P. JOYCE (the "Employee").
1. Employment, Acceptance and Term.
1.1 The Corporation hereby employs the Employee and the Employee hereby
accepts employment from the Corporation for a term continuing from the date
hereof through August 1, 2002 (the "Term"). The Term may be extended from time
to time by such additional. period or periods as shrill be mutually agreed to in
writing by the Corporation and the Employee; provided that the Term shall be
automatically extended for (i) an additional one-year period in the event that
either the Corporation or the Employee fails on or before January 31, 2002 to
give notice to the other of the intention not to extend the Term, and (ii) for
subsequent one-year periods in the event that either the Corporation or the
Employee fails to give notice of the termination of this Agreement at least six
(6) months prior to the expiration of any such one-year period. As used herein
"Term" shall include the initial ten-year period and such one-year extensions as
may be provided hereunder.
2. Duties and Authority.
2.1 During the Term, the Employee shall devote his full time and
efforts to fulfill his obligations hereunder, with the
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understanding that the Employee may participate in charitable and civic
activities and have business investments which may, from time to time, require
minor portions of his time but shall not interfere with his obligations
hereunder. The Employee agrees to use his best efforts, skill and abilities to
promote the Corporation's interests; to serve as a director and officer of the
Corporation and any of its subsidiary corporations if elected by the Board of
Directors of the Corporation (the "Board") or stockholders of the Corporation
and any such subsidiary corporation; and to perform such duties (consistent with
his status as set forth below in this Section 2) as may be assigned to him by
the Board. The Employee may continue to serve as a member of the boards of
directors of business corporations of which he is now a member and may serve as
a member of the boards of directors of other business corporations.
2.2 The Employee shall be the Chairman of the Board of the Corporation
and shall be in charge of the business, affairs and operations of the
Corporation. The Employee shall perform his services subject only to the
direction and control of the Board (which direction and control shall be such as
is customarily exercised over a Chairman of the Board) and shall report only to
the Board.
2.3 The Corporation shall, for so long as the Employee's employment by
the Corporation continues, use its best efforts to
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(i) cause the Employee to be nominated for election as a director and Chairman
of the Corporation at each meeting of stockholders held for an election of
director; (ii) cause the Employee to be continued in office as Chairman of the
Board of the Corporation once so elected; (iii) cause the Employee to be elected
to serve as a member and Chairman of an Executive Committee so long as the Board
shall appoint an Executive Committee; and (iv) not confer on any other officer
or employee, authority, responsibility or powers superior or equal to the
authority, responsibility or powers vested in the Employee.
3. Principal Office.
3.1 The Employee's services under this Agreement will be performed
primarily at either of the Corporation's offices, currently maintained in Eden
Prairie, Minnesota and Dallas, Texas, subject to reasonable travel requirements
on behalf of the Corporation.
4. Compensation.
4.1 During the Term, the Corporation shall pay to the Employee a salary
at the annual rate of $180,000, which shall be paid in equal monthly or more
frequent installments (the "Base Salary").
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4.2 Commencing on August 1, 1991 and on each August 1 thereafter (each
such March 1 hereinafter referred to as an "Adjustment Date") the Base Salary in
effect for the preceding twelve (12) months shall be increased by an annual
amount (the "Annual Mandatory Adjustment") equal to the product of (x) the Base
Salary in effect for the preceding twelve (12) months multiplied by (y) ten
percent (10%). The Base Salary may be further increased as of any Adjustment
Date at the discretion of the Board taking into account all relevant factors,
including without limitation, the Employee's performance.
4.3 If the Base Salary shall be so increased for any reason, then, from
and after the date of such increase, the Base Salary shall be deemed to be such
increased amount for all purposes hereunder, and may not be decreased during the
Term for any reason whatsoever.
4.4 The Corporation may pay the Employee such bonuses as the Board in
its discretion shall from time to time determine.
5. Expenses.
5.1 During the Term, the Corporation shall pay or reimburse the
Employee for all transportation (first-class), hotel and living expenses
incurred by the Employee on business trips, and for all other business and
entertainment expenses reasonably incurred by him in connection with the
business of the Corporation
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and its subsidiaries during the term of his employment hereunder. Such expenses
shall include the cost of the Employee's membership in such luncheon and other
clubs as the Employee may determine is reasonably necessary, and the costs of an
automobile of the Employee's selection.
6. Employee Benefits.
6.1 During the Term, the Corporation shall, if the Employee is
insurable at standard rates, acquire and maintain, with a reputable insurer, a
life insurance policy on the life of the Employee naming the Employee's designee
or designees as beneficiary or beneficiaries and providing a net death benefit
of not less than $1,000,000. Employee agrees to submit to such physical
examinations as may be required by the insurer as a condition to the issuance of
such policy.
6.2 During the Term, the Employee shall be permitted to participate in
all group health, hospitalization and disability insurance plans, health
programs, pension plans, participation or extra compensation plans, and similar
benefits and perquisites that are now or may become available to other senior
executives of the Corporation, on the same terms as such other senior
executives. Employee shall participate in any stock option, restricted stock or
other equity based plans.
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6.3 During each year of the Term, the Employee shall be entitled to
reasonable annual periods of vacation with full pay and allowances. The timing
and duration of individual vacation periods shall be determined by the Employee
taking into account the needs of the Corporation.
7. Termination of Employment Prior to End of Term;
Amounts Payable Upon Such Termination.
7.1 In the event that the Employee becomes disabled before the
expiration of the Term so that he is unable to substantially perform his
services hereunder for an aggregate of six (6) consecutive months or a total of
nine (9) months within any consecutive eighteen (18) months, the Corporation may
terminate the employment of the Employee; provided that the Corporation shall
pay to the Employee for the balance of the Term an annual amount, payable
monthly, equal to the lesser of (a) the sum of (i) the Base Salary in effect on
the date of termination and (ii) one-half (1/2) of any bonuses awarded to
Employee with respect to the preceding twenty-four (24) months (or if less than
two (2) years of the Term has then elapsed, the entire amount of any bonus paid
during the preceding twelve (12) months, or if less, the period of the Term then
elapsed) (such sum is hereinafter referred to as Employee's "Current Annual
Compensation"), and (b) $500,000. In the event of
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the Employee's death during the Term, the Corporation shall pay the Employee's
salary to the date of death.
7.2 In the event that the Employee's employment is terminated as a
result of disability pursuant to this Section 7, the employee shall be entitled
to receive until the end of the month in which the Employee reaches age 65, (a)
disability payments from the Corporation or its insurer in such monthly amounts
as shall be provided for under such disability coverage as may be provided for
by the Corporation, and (b) such health insurance and similar health-related
insurance coverage and benefits of the Corporation in which the Employee
participated as of the date of disability hereunder or which are otherwise made
available generally to senior executives of the Corporation.
7.3 If the Employee shall not be continued in office during the Term as
Chairman of the Board and a director of the Corporation and appointed and
continued in office as a member and Chairman of the Executive Committee (if any)
appointed by the Board, or if the Employee shall not be afforded the authority,
responsibilities and prerogatives contemplated in Paragraphs 2.2 and 2.3 hereof
(including, without limitation, the continuation of the Employee in the office
of chief executive officer of the Corporation during the balance of the of the
Employee's employment hereunder and the failure of the or a subsidiary to remove
from
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office any corporate officer whose removal shall be requested by the Employee or
if the executive offices of the Corporation shall have moved from the Eden
Prairie, Minnesota area without the consent of the Employee) , the Employee
shall have the right to terminate his employment under this Agreement by sixty
(60) days' prior written notice to the corporation given at any time within
ninety (90) days after such event. If the Employee elects to terminate his
employment pursuant to this Paragraph 7.3, the Corporation shall pay to the
Employee for five (5) years, or, if less, for the balance of the Term, an annual
amount, payable monthly, equal to his Current Annual Compensation. Upon
completion of such payments, the Corporation shall have no further obligations
to the Employee under this Agreement other than such obligations as are
expressly set forth. If the Employee shall die or become disabled subsequent to
the notice of termination of employment provided for in this Paragraph 7.3, such
death or disability shall not diminish or impair his (or his legal
representatives or other successor's) right to receive the payments provided for
in this Paragraph 7.3.
7.4 If the Employee shall be discharged without cause during the Term,
he shall be entitled to receive from the corporation, on or before the date of
discharge, the payments determined as provided in Paragraph 7.3 above.
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7.5 If the Employee shall be discharged for cause during the Term, the
Corporation's obligation to pay compensation or other amounts payable hereunder
to or for the benefit of the Employee, except for compensation or other benefits
payable in respect of services rendered prior to the date of such discharge,
shall terminate on the date of such discharge. As used herein the term "for
cause" shall mean any material breach by the Employee under this Agreement,
which breach if susceptible to cure shall not have been cured within thirty (30)
days after the Employee has received written notice thereof from the Board, the
conviction of the Employee for a felony, or the continued wilful malfeasance or
gross negligence by the Employee in the performance of his duties under this
Agreement for a period of -thirty (30) days after the Board has directed the
Employee in writing to cease the activity giving rise to such wilful malfeasance
or gross negligence. The term "for cause" shall not include a bona fide
disagreement over corporate policy so long as the Employee does not wilfully
violate specific written directions from the Board, which directions are
consistent with the provisions of this Agreement.
7.6 In the event any amounts or other benefits are payable to or for
the Employee (or his legal representatives or other successors) pursuant to
Paragraphs 7.1, 7.2, 7.3, or 7.4 hereof in respect of any period following the
termination of his
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employment hereunder,, such amounts or other benefits shall not be reduced in
any manner by reason of any other earnings, income or benefits of or to the
Employee from any other source. By this provision the parties intend that the
Corporation shall waive any mitigation of damages rule that may otherwise apply
in such circumstances.
7.7 In the event there is a termination of employment pursuant to
Paragraphs 7.1, 7.3 or 7.4. the Corporation shall as of the date of such
termination vest, or cause to vest, in the Employee all of his rights accrued in
and under the Corporation's existing pension plan.
8. Indemnification and Payment of Legal Expenses.
8.1 The Corporation shall indemnify the Employee and his legal
representatives, to the fullest extent permitted by the laws of the State of
Delaware and the existing By-laws of the Corporation, and the Employee shall be
entitled to the protection of any insurance policies the Corporation may elect
to maintain generally for the benefit of its directors and officers, against all
costs, 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, or
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threatened to be made a party, by reason of his being or having been a director
or officer of the Corporation or any of its subsidiaries.
8.2 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 by the Corporation, and if the Employee or Designated Representative
shall prevail in such legal action, the Corporation shall indemnify the Employee
or such Designated Representative for all reasonable legal and accounting fees
and expenses incurred in connection therewith.
9. Non-Competition.
9.1 During the Term (without taking into account any automatic
extensions of the Term as provided in Section 1.1) and for two (2) years
thereafter, unless the Employee is terminated under Sections 7.3 or 7.4, the
Employee will not carry on or engage in any business (other than for the
Corporation, or any of its subsidiaries or affiliates) within fifty (50) miles
of any county in which the corporation is doing business as owner (excluding
ownership of not more than 5% of the outstanding shares of a publicly-held
corporation, so long as such ownership does not involve any managerial or
operational responsibility or other
<PAGE>
employee status), partner, officer, employee or consultant, which business is
directly competitive with any business engaged in or carried on at the date of
termination of the Term by the Corporation, or any of its subsidiaries of
affiliates, provided that if such corporations shall discontinue any line of
business subsequent to such date, this covenant not to compete shall terminate
with respect to such discontinued line of business.
9.2 During the Term (without taking into account any automatic
extensions of the Term as provided in Section 1.1) and for two (2) years
thereafter, the Employee will not, without the prior written consent of the
Corporation, either directly or indirectly solicit or otherwise encourage any
person employed by the Corporation to leave the employ of the Corporation.
9.3 The Employee agrees that the Corporation will suffer irreparable
injury if, in breach of the covenants contained herein, he competes with the
business of the Corporation, or any of its subsidiaries or affiliates, and that
by reason of such competition the Corporation will be entitled to injunctive
relief in a court of competent jurisdiction. The Employee hereby stipulates to
the entry of temporary, preliminary and permanent injunctive relief prohibiting
him from competing with the Corporation, or any of its subsidiaries or
affiliates, in breach of such covenants.
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9.4 The Employee agrees that if in any judicial proceeding a court
shall refuse to enforce any covenant contained in this Agreement because it
covers too extensive a geographic area or too broad a scope of activities or too
long a period of time, such covenant shall be reduced in scope to the extent
required by law.
10. Nondisclosure Agreement.
Except as the Corporation may otherwise permit or direct in writing,
the Employee will not disclose, during the Term and thereafter for a period of
three (3) years, any information, knowledge or data (unless readily
ascertainable from public information or sources, or required by law to be
disclosed) concerning the Corporation or any of its subsidiaries or affiliates,
which he has obtained or hereafter obtains during the Term that relates to the
business processes, trade secrets, methods, customers, machines, inventions,
discoveries or any other matters concerning the respective businesses,, products
or work of the Corporation or any of its subsidiaries or affiliates. All
records, documents and other writings relating to the businesses of such
corporations which are or have been prepared or created by the Employee or which
have come or hereafter come into his possession during the Term are the property
of such corporations and upon
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termination of the Term shall be delivered to or shall remain in the possession
of such corporations, as the case may be.
11. Notices.
Any notice or other communication required to or which may be given to
any party hereunder shall be in writing and shall be deemed given effectively if
delivered personally to such party or if mailed by registered or certified mail,
postage prepaid, addressed to such party as follows (the third business day
following the date of mailing of any such notice is deemed the date of delivery
thereof):
To Employee:
Mr. Gerard P. Joyce
17604 Harboard Oaks Circle
Dallas, TX 75252
To the Corporation:
The Mentus Group, Inc.
9531 West 78th Street
Eden Prairie, MN 55344
Any party may change the persons and addresses to which notices or other
communications are to be sent by giving written notice of
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such change to the other party in the manner provided herein for giving notice.
12. Miscellaneous.
12.1 This Agreement shall be binding upon and inure to the benefit of
the heirs, next-of-kin and legal representatives of the Employee and the
successors and assigns of the Corporation, including any corporation into
or'with which the Corporation shall consolidate or merge or to - which it shall
sell or otherwise transfer substantially all of its assets, properties and
business.
This Agreement is not assignable by the Employee.
12.2 This Agreement is to be governed by and interpreted in accordance
with the laws of the State of Minnesota applicable to agreements made and to be
performed wholly within such State.
12.3 This instrument is the entire agreement of the parties with
respect to the subject matter hereof and may not be amended, supplemented,
cancelled or discharged except by written instrument executed by both parties
hereto. The parties do not intend to confer any benefit hereunder on any third
person and, without limiting the generality of the foregoing, the parties may,
in writing, without notice to or consent of any third person, at any time waive
any rights hereunder or amend this Agreement in any respect or terminate this
Agreement.
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12.4 The termination of the Employee's employment hereunder shall not
affect those provisions of this Agreement that by their terms apply to any
period or periods subsequent to such termination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE MENTUS GROUP, INC.
By
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Title
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Gerard P. Joyce
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Exhibit10.2(b)
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment to Employment
Agreement") to the Employment Agreenient, dated August 1, 1990 (the "Employment
Agreement") and is entered into on September 25, 1996 by and among The Mentus
Group, Inc., a Delaware corporation (the "Corporation") and Gerard P. Joyce (the
"Employee").
WHEREAS, the Corporation and the Employee are parties to the Employment
Agreement dated August 1, 1990; and
WHEREAS, the Corporation and the Employee desire to amend the
Employment Agreement pursuant to Section 12.3 thereof in connection with the
Stock Purchase Agreement (the "Purchase Agreement"), dated as of the date
hereof, among the Corporation and 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 "Investors") and the
issuance of certain newly issued shares of capital stock of the Corporation to
the Investors as set forth in such Purchase Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and in the Employment Agreement, the parties hereto agree as follows:
1 Section 1. I of the Employment Agreement is hereby amended
by deleting the existing, language in its entirety and by substituting
the following language therefor:
1.1 The Corporation hereby, employs the Employee and
the Employee hereby, accepts employment from the Corporation
from a term continuing through and including December 31, 1999
(the "Term").
2 Section 4.1, Section 4.2, Section 4.3 and Section 4.4 to the
Employment Agreement are hereby amended by deleting the existing
language in its entirety, and by substituting the following language
therefore:
4.1 During the Term, the Corporation shall pay to the
Employee a salary at the annual rate of $251,740.80, which
shall be paid in equal monthly or more frequent installments
(the "Base Salary").
4.2 In addition to the Base Salary, starting with the
) year beginning January 1, 1997 and each year during the
remainder of the Term. the Corporation shall pay to the
Employee a Bonus at the annual rate of $60,000 (the "Bonus"),
<PAGE>
which Bonus shall be paid directly to the Employee in cash in
one installment within a reasonable period after December 31
of each year; provided, however, that in the event the
Corporation has not for any year met the budgeted revenue
goals for such year established as hereinafter provided, then
(i) Employee shall not be entitled to receive any part of the
Bonus for such year directly in cash and (ii) if the
Promissory Note dated September 25, 1996 by the Corporation in
favor of the Employee in the original principal amount of
$2,375,500 is then outstanding, the Corporation shall offset
against the Corporation's liability to Employee under such
rate an amount equal to the lesser of (x) the Bonus and (y)
the outstanding principal of and accrued but unpaid interest
on such Note. Any such offset against such Note shall for all
purposes be treated as through it were a prepayment of such
Note by the Corporation. Employee shall negotiate in good
faith with the Corporation and the member of the Corporation's
Board of Directors who from time to time has been elected by
the holders of the Corporation's Series B Senior Cumulative
Compounding Convertible Redeemable Preferred Stock (or any
capital stock into which shares of such Preferred Stock may be
changed) to establish and budgeted revenue goals for each year
reasonably acceptable to Employee, the Corporation and such
director. which shall be reasonable, designed to link the
entitlement of Employee to the Bonus for such year to the
achievement of realistic and reasonable targets for growth in
the Corporations revenues from year to year during the Term.
3 The Employment Agreement is hereby amended by adding the
following Section 13.
13 Grant of Restricted Stock
13.1 As a reward for past, and an incentive for
future, employment performance by the Employee and for other
good and valuable consideration the receipt and sufficiency of
which is hereby, acknowledged, the Corporation is, effective
as of the date hereof, awarding to the Employee, upon and
subject to the terms and conditions set forth in this
Agreement, 8,831 shares (the "Initial Shares") of the Common
Stock, par value $.01 per share, of the Corporation ("Common
Stock"). As used in this Section 13, (i) the term "Restricted
Shares" will mean all Initial Shares and any and all other
shares of stock and other securities which the Employee later
acquires or has the right to acquire by reason of ownership of
or otherwise with respect to any Initial Shares or other
Restricted Shares, irrespective of the time and manner of such
acquisition, including, without limitation, any shares or
other securities (whether issued by the Corporation or
otherwise) acquired by reason of any split-up,
recapitalization, dividend, distribution, combination,
conversion or exchange of shares of capital stock or other
securities of the Corporation (or any other issuer), or
acquired by reason of any merger or consolidation of the
Corporation, any sale or other disposition of all or
substantially all of the assets of the Corporation (or any
other issuer) or any dissolution of the
<PAGE>
Corporation (or any other issuer); and (ii) the term
"Restricted Share Distributions" means any cash or other
property, except stock or other securities, which the Employee
acquires or receives or has the right to acquire or receive by
reason of ownership of or otherwise with respect to any
Restricted Shares, including, without limitation, any cash or
other such property acquired or received by reason of any
event specified in clause (i) of this sentence.
13.2 If a Forfeiture Event (as defined below) occurs
at any time prior to the Vesting Date (as defined below), all
Restricted Shares and, subject to the last sentence of Section
13.3, Restricted Share Distributions held by or for the
account of the Employee or which the Employee has the right to
acquire or receive, and all rights and benefits of Employee
with respect to such Restricted Shares and Restricted Share
Distributions, automatically will be forfeited to and vest in
the Corporation. As used in this Section 13, (i) the term
"Forfeiture Event" means either (a) the termination of the
Employee's employment with the Corporation by the Corporation
for cause or (b) the termination of the Employee's employment
with the Corporation by the Employee; (ii) the term "Vesting
Date" means the first to occur of (A) December 31, 2006, (B)
the death of the Employee, (C) the Employee's Disability, (D)
the termination by the Corporation of the Employee's
employment with the Corporation otherwise than for cause, (E)
the sale, merger, consolidation or reorganization of or the
sale of substantially all of the assets of the Corporation,
(F) the effective date of a public offering of the
Corporation's Common Stock registered under the Securities Act
of 1933, as now or subsequently in effect (the "Securities
Act") in which the Restricted Shares have been registered for
sale or (G) the first date as of which, pursuant to Rule 144
under the Securities Act, the Restricted Shares may be
publicly offered and sold by Employee without registration
under the Securities Act and without any limitation or
restriction, including any limitation as to volume or manner
of sale; and (iii) the term "Disability" means the inability
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can
be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months, as determined by the Board of Directors of the
Corporation in good faith. For purposes of this Section 13,
"cause" for termination of Employee's employment shall have
the meaning set forth in Section 7.5.
13.3 By giving notice to the Employee, the
Corporation at any time: (i) may require that any or all of
the certificates or other instruments or property evidencing
or constituting any or all of the Restricted Shares or any or
all Restricted Share Distributions then subject to forfeiture
be held in escrow by a bank or other institution, or by the
Corporation itself, until the Vesting Date; (ii) may require
that the Employee deliver a stock power or other instrument
endorsed in blank relating to any Restricted Shares held in
escrow; and (iii) may require that any and all Restricted
Shares be held in the name of such escrow agent (in such
capacity) as registered or record owner. Any Restricted Shares
and Restricted Share Distributions held in escrow which no
longer are subject to forfeiture (as determined pursuant
3
<PAGE>
to Section 13.2 hereof) will be delivered out of escrow to the
Employee within a reasonable time after the applicable Vesting
Date, subject to Section 13.12 of this Agreement and the
satisfaction by the Employee of applicable federal and state
securities laws and withholding tax requirements, including
any federal, state or local withholding taxes. Subject to
Section 13.12 of this Agreement, any Restricted Share
Distributions which are not held in escrow may be received and
retained by the Employee free of the restrictions and
forfeiture provisions of this Section 13.
13.4 Except as provided by this Agreement, prior to
the Vesting Date, the Employee will not transfer or otherwise
dispose of any Restricted Shares which are subject to
forfeiture or transfer or dispose of any such Restricted Share
Distributions held in escrow pursuant to Section 13.3 or in
pledge pursuant to Section 13.12, and any such attempt to
dispose of or transfer any such Restricted Shares or
Restricted Share Distributions will be void and ineffective
for all purposes. Each stock certificate or other instrument
evidencing Restricted Shares subject to forfeiture will bear
the following legend:
SHARES OF THE CORPORATION REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A EMPLOYMENT AGREEMENT
DATED AS OF AUGUST 1, 1990 AND AS AMENDED AS OF
SEPTEMBER 25,.1996 WHICH CONTAINS PROVISIONS
RESTRICTING TRANSFER OF SUCH SHARES, REQUIRING SUCH
SHARES TO BE FORFEITED TO THE MENTUS GROUP, INC. IN
CERTAIN CIRCUMSTANCES AND OTHER MATTERS. A COPY OF
SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The words "transfer" and "dispose" include the making of any
sale, exchange or other transfer or disposition of any
ownership interest whatsoever with respect to the Restricted
Shares or subject to the last sentence of Section 13.3,
Restricted Share Distributions. Subject to Section 13.12,
nothing in this Section 13.4 will prevent the transfer or
other disposition, without consideration, of Restricted Shares
or Restricted Share Distributions to a personal representative
of the Employee or to one or more members of the Employee's
immediate family or to trusts or similar entities for their
benefit; provided, however, that in the case of such a
transfer, each transferee must agree in writing to take such
Restricted Shares or Restricted Share Distributions subject to
the forfeiture provisions described above and to be fully
bound by this Section 13. As used in this Agreement, the term
"personal representative" will mean the executor or executors
of the will or administrator or administrators of the estate
and all other legal representatives (by operation of law or
otherwise) of the Employee.
13.5 Whenever any Restricted Shares become free of
the rights and restrictions imposed by this Agreement,
including any pledge pursuant to Section 13.12, the holder of
such Restricted Shares will be entitled to receive a
certificate or
4
<PAGE>
certificates not bearing the restrictive legend provided for
in Section 13.4. If the certificate(s) evidencing such
Restricted Shares are not held in escrow pursuant to Section
13.4, then the holders thereof must deliver them to the
Corporation in order to receive the unlegended certificate(s)
contemplated by this Section 13.5.
13.6 The Employee represents and warrants that he
will be acquiring the Restricted Shares to be acquired by him
pursuant to this Agreement for his own account and not with a
view to reselling or distributing all or any part of the
Restricted Shares in any transaction which would constitute a
"distribution" within the meaning of the Securities Act. The
Employee acknowledges that the Initial Shares have not been,
and it is likely that any other Restricted Shares will not be,
registered under the Securities Act; that the Corporation
neither is obligated nor intends to effect such registration;
that absent such registration (or an exemption from
registration), the Employee may be required to hold the
Restricted Shares for an indefinite period of time; that the
exemption from registration under the Securities Act provided
by Rule 144 promulgated under the Securities Act likely will
not be available to the Employee; and that even if available,
such Rule would permit resales of the Restricted Shares only
in limited amounts and upon compliance with the terms and
conditions of such Rule.
13.7 The Employee agrees that the certificates
evidencing Restricted Shares to be registered in the name of
the employee will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER
SUCH ACT IS IN EFFECT WITH RESPECT TO SUCH SECURITIES
OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
APPLICABLE.
13.8 If at any time the Board of Directors of the
Corporation determines, in its discretion, that the listing,
registration or qualification of any Restricted Shares (other
than the Initial Shares) issuable pursuant to Section 13.1 or
otherwise upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of or
in connection with such issuance, then such Restricted Shares
need not be issued unless such listing, registration,
qualification, consent or approval shall leave been effected
or obtained free of any conditions not acceptable to the
Corporation's Board of Directors. The Corporation in no event
will be obligated to issue any Restricted Shares in any manner
in contravention of the Securities, Act or any state
securities law; provided, however, that if the Corporation
does not issue such Restricted Shares for the reasons set
forth in this sentence or the prior sentence, it will
substitute a distribution of cash or other property to
compensate for the failure to issue such Restricted Shares.
The Board of Directors of the Corporation may, in connection
with any issuance of Restricted Shares (other than the Initial
5
<PAGE>
Shares) pursuant to Section 13. 1, require that, as a
condition precedent to such issuance, in whole or in part, the
Employee make written representations to the effect set forth
in Section 13.1 and also may impose such other terms and
conditions as the Corporation's Board of Directors may
reasonable, require in order to cause such issuance to comply
with all applicable laws.
13.9 The Employee will make appropriate arrangements
with the Corporation for any taxes which either of them is
obligated to collect in connection with any issuance, payment,
distribution, transfer or disposition of any Restricted Shares
or Restricted Share Distributions. including any federal,
state, or local withholding taxes (but excluding any stock
transfer taxes payable in connection with the transfer by the
Corporation of the Initial Shares to the Employee, which taxes
will be paid by the Corporation), and the Corporation, as
applicable, will be entitled to withhold from amounts or other
consideration payable or issuable to the Employee under this
Agreement or otherwise such amounts as may be required by
applicable law.
13.10 Subject to Sections 13.1 through 13.9, the
Employee will have, with respect to each type or class of
Restricted Shares, all rights of a holder of Restricted Shares
of such type or class, including, without limitation, voting
rights and rights to receive dividends or other distributions
with respect to the Restricted Shares.
13.11 The Corporation may refuse to effect the
transfer by the Employee or any subsequent holder (except as
otherwise expressly contemplated hereby) of any of the
Restricted Shares on its books during any period in which such
Restricted Shares are subject to forfeiture to the Corporation
as set forth in Section 13.2 hereof. A copy of this Agreement
shall be filed with the Secretary of the Corporation.
13.12 If, at any time or from time to time while the
Employee continues to be employed by the Corporation pursuant
to this Agreement, any federal, state or local income taxes
shall become due and payable by Employee by reason of the
grant, issuance or delivery by the Corporation of Restricted
Shares to Employee or by reason of any compensation under this
Agreement which was earned by, Employee after December 31,
1992 and prior to September 1, 1996 but the payment of which
was deferred, then provided that no Forfeiture Event shall
have occurred, the Corporation shall, if requested by
Employee, make loans to Employee for the purpose of permitting
Employee to pay such taxes, subject to the following terms and
conditions:
(i) the amount of any such loan shall not exceed the
net amount of such federal, state and local income taxes which
are then or which will within 14 days after such loan is made
become due and payable by Employee, calculated after taking
into account all credits to which Employee is entitled by
virtue of any amounts (including taxes, interest and
penalties) which the Corporation has withheld or otherwise
paid or for which the Corporation is liable with respect to
the event which results in such taxes, and the proceeds of
such loan shall be used solely for the payment of such taxes
when or before due.
(ii) at the time the Corporation is to make any such
loan (a) a petition seeking liquidation, reorganization or
other relief with respect to Employee or his debts has not
been filed under any bankruptcy, insolvency or other similar
law or hereafter in effect, (b) relief has not been granted
with respect to Employee or his debts in any case or
proceeding for liquidation, reorganization, or otherwise under
any bankruptcy, insolvency or other similar law now or
hereafter
6
<PAGE>
in effect, (c) a trustee, receiver, liquidator, custodian or
other similar official has not been appointed (either with or
without the consent of Employee) for any substantial part of
Employee's properties, (d) Employee has not been adjudicated
to be insolvent, and (e) Employee has not made a general
assignment for the benefit of his creditors.
(iii) Each such loan shall be evidenced by a note
payable to the order of the Corporation and executed and
delivered by Employee and shall be secured by a perfected,
first priority security interest in and pledge of Restricted
Shares then existing or thereafter acquired which shall have a
fair market value, determined on the date such loan is made
and on a semi-annual basis thereafter, of not less than the
principal amount of such loan and such note and the documents
and instruments by which such security interest is granted and
such pledge is made shall be in customary form and contain
customary provisions (including, without limitation,
provisions regarding events permitting acceleration of the
maturity of such note), in addition to any other provisions
which the Corporation may reasonably request. As contemplated
by the foregoing, the fair market value of the Restricted
Shares securing each such loan shall be determined on a
semi-annual basis and the number of Restricted Shares held in
pledge by the Corporation as security for such loan shall be
adjusted as necessary so that fair market value of such
Restricted Shares shall be at least equal to the principal
amount of such loan. Each such loan shall be without recourse
to Employee or his property, other than all Restricted Shares
and Restricted Share Distributions then existing or thereafter
acquired, together with all proceeds thereof, substitutions
therefor and replacements thereof.
(iv) Each such loan shall bear interest at a
fluctuating rate per annum at all times equal to the rate of
interest publicly announced from time to time by The Bank of
New York, as its prime rate in effect at its principal office
in the City of New York, State of New York, and such rate of
interest shall change when and as such prime rate changes.
Accrued interest will be payable quarterly in arrears.
(v) The entire principal amount of each such loan,
together with any accrued and unpaid interest thereon, shall
become due and payable on the first to occur of (a) the first
anniversary of the termination of Employee's employment with
the Corporation for any reason, (b) the fifth anniversary of
the date of the first such loan or (c) acceleration in
accordance with the terms of the note contemplated by clause
(i) above. The terms of each such loan shall provide that in
the event of any sale, transfer, exchange or other disposition
by Employee of shares of capital stock of the Corporation for
cash or other consideration, Employee shall promptly make a
prepayment of such loan in an amount equal to the lesser of
(x) the amount of such cash or the fair market value of such
other consideration or (y) the then outstanding principal of
and accrued but unpaid interest on such note.
4 Except as amended or modified hereby, the Agreement as
amended shall remain in full force and effect.
5 This Amendment to Employment 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.
6 All capitalized terms used in this Amendment to Employment
Agreement shall leave the definitions set forth in the Employment
Agreement.
[Signatures Begin on Next Page]
7
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed this
Amendment to Employment Agreement as of the date set forth above.
THE MENTUS GROUP. INC
By:
--------------------------------
Name:
Title:
-----------------------------------
Gerard P. Joyce
<PAGE>
Exhibit10.3(a)
EMPLOYMENT AGREEMENT dated as of August 1, 1990, between THE
MENTUS GROUP, INC., a Minnesota corporation (the "Corporation"),
and THOMAS M. PUGLIESE (the "Employee").
1. Employment, Acceptance and Term.
1.1 The Corporation hereby employs the Employee and the Employee hereby
accepts employment from the Corporation for a term continuing from the date
hereof through August 1, 2002 (the "Term"). The Term may be extended from time
to time by such additional period or periods as shall be mutually agreed to in
writing by the Corporation and the Employee; provided that the Term shall be
automatically extended for (i) an additional one-year period in the event that
either the Corporation or the Employee fails on or before January 31, 2002 to
give notice to the other of the intention not to extend the Term, and (ii) for
subsequent one-year periods in the event that either the Corporation or the
Employee fails to give notice of the termination of this Agreement at least six
(6) months prior to the expiration of any such one-year period. As used herein
"Te=" shall include the initial ten-year period and such one-year extensions as
may be provided hereunder.
2. Duties and Authority.
2.1 During the Term, the Employee shall devote his full
<PAGE>
time and efforts to fulfill his obligations hereunder, with the understanding
that the Employee may participate in charitable and civic activities and have
business investments which may, from time to time, require minor portions of his
time but shall not interfere with his obligations hereunder. The Employee agrees
to use his best efforts, skill and abilities to promote the Corporation's
interests; to serve as a director and officer of the Corporation and any of its
subsidiary corporations if elected by the Board of Directors of the Corporation
(the "Board") or stockholders of the Corporation and any such subsidiary
corporation; and to perform such duties (consistent with his status as set forth
below in this Section 2) as may be assigned to him by the Board. The Employee
may continue to serve as a member of the boards of directors of business
corporations of which he is now a member and may serve as a member of the boards
of directors of other business corporations.
2.2 The Employee shall be the Vice Chairman and Chief Executive Officer
of the Corporation and shall be in charge of the business, affairs and
operations of the Corporation. The Employee shall perform his services subject
only to the direction and control of the Board (which direction and control
shall be such as is customarily exercised over a chief executive officer) and
shall report only to the Board.
2.3 The Corporation shall, for so long as the Employee's
<PAGE>
employment by the Corporation continues, use its best efforts to (i) cause the
Employee to be nominated for election as a director and Vice Chairman of the
Corporation at each meeting of stockholders held for an election of directors;
(ii) cause the Employee to be continued in office as Vice Chairman and Chief
Executive Officer of the Corporation once so elected; (iii) cause the Employee
to be elected to serve as a member and Vice Chairman of an Executive Committee
so long as the Board shall appoint an Executive Committee; and (iv) not confer
on any other officer or employee authority, responsibility or powers superior or
equal to the authority, responsibility or powers vested in the Employee.
3. Principal Office.
3.1 The Employee's services under this Agreement will be performed
primarily at either of the Corporation's offices, currently maintained in Eden
Prairie, Minnesota and Dallas, Texas, subject to reasonable travel requirements
on behalf of the Corporation.
4. Compensation.
4.1 During the Term, the Corporation shall pay to the Employee a salary
at the annual rate of $120,000, which shall be paid in equal monthly or more
frequent installments (the "Base Salary").
<PAGE>
4.2 Commencing on August 1, 1991 and on each August 1 thereafter (each
such, March 1 hereinafter referred to as an "Adjustment Date") the Base Salary
in effect for the preceding twelve (12) months shall be increased by an annual
amount (the "Annual Mandatory Adjustment") equal to the product of (x) the Base
Salary in effect for the preceding twelve (12) months multiplied by (y) ten
percent (10%). The Base Salary may be further increased as of any Adjustment
Date at the discretion of the Board taking into account all relevant factors,
including without limitation, the Employee's performance.
4.3 If the Base Salary shall be so increased for any reason, then, from
and after the date of such increase, the Base Salary shall be deemed-to be such
increased amount for all purposes hereunder, and may not be decreased during the
Term for any reason whatsoever.
4.4 The Corporation may pay the Employee such bonuses as the Board in
its discretion shall from time to time determine.
5. Expenses.
5.1 During the Term, the Corporation shall pay or reimburse the
Employee for all transportation (first-class) , hotel and living expenses
incurred by the Employee on business trips, and for all other business and
entertainment expenses reasonably incurred by him in connection with the
business of the Corporation
<PAGE>
and its subsidiaries during the, term of his employment hereunder. Such expenses
shall include the cost of the Employee's membership in such luncheon and other
clubs as the Employee may determine is reasonably necessary, and the costs of an
automobile of the Employee's selection.
6. Employee Benefits.
6.1 During the Term, the Corporation shall, if the Employee is
insurable at standard rates, acquire and maintain, with a reputable insurer, a
life insurance policy on the life of the Employee naming the Employee's designee
or designees as beneficiary or beneficiaries and providing a net death benefit
of not less than $1,000,000. Employee agrees to submit to such physical
examinations as may be required by the insurer as a condition to the issuance of
such policy.
6.2 During the Term, the Employee shall be permitted to participate in
all group health, hospitalization and disability insurance plans, health
programs, pension plans, participation or extra compensation plans, and similar
benefits and perquisites that are now or may become available to other senior
executives of the Corporation, on the same terms as such other senior
executives. Employee shall participate in any stock option, restricted stock or
other equity based plans.
<PAGE>
6.3 During each year of the Term, the Employee shall be entitled to
reasonable annual periods of vacation with full pay and allowances. The timing
and duration of individual vacation periods shall be determined by the Employee
taking into account the needs of the Corporation.
7. Termination of Employment Prior to End of Term;
Amounts Payable Upon Such Termination.
7.1 In the event that the Employee becomes disabled before the
expiration of the Term so that he is unable to substantially perform his
services hereunder for an aggregate of six (6) consecutive months or a total of
nine (9) months within any consecutive eighteen (18) months, the Corporation may
terminate the employment of the Employee; provided that the Corporation shall
pay to the Employee for the balance of the Term an annual amount, payable
monthly, equal to the lesser of (a) the sum of (i) the Base Salary in effect on
the date of termination and (ii) one-half (1/2) of any bonuses awarded to
Employee with respect to the preceding twenty-four (24) months (or if less than
two (2) years of the Term has then elapsed, the entire amount of any bonus paid
during the preceding twelve (12) months, or if less, the period of the Term then
elapsed) (such sum is hereinafter referred to as Employee's "Current Annual
Compensation"), and (b) $500,000. In the event of the Employee's death during
the Term, the Corporation shall pay the
<PAGE>
Employee's salary to the date of death.
7.2 In the event that the Employee's employment is terminated as a
result of disability pursuant to this Section 7, the employee shall be entitled
to receive until the end of the month in which the Employee reaches age 65, (a)
disability payments from the Corporation or its insurer in such monthly amounts
as shall be provided for under such disability coverage as may be provided for
by the corporation, and (b) such health insurance and similar health-related
insurance. coverage and benefits of the Corporation in which the Employee
participated as of the date of disability hereunder or which are otherwise made
available generally to senior executives of the Corporation.
7.3 If the Employee shall not be continued in office during the Term as
Vice Chairman, Chief Executive Officer and a director of the Corporation and
appointed and continued in office as a member and Vice Chairman of the Executive
Committee (if any) appointed by the Board, or if the Employee shall not be
afforded the authority, responsibilities and prerogatives contemplated in
Paragraphs 2.2 and 02.3 hereof (including, without limitation, the continuation
of the Employee in the office of chief executive officer the Corporation during
the balance of the term of the Employee's employment hereunder and the failure
of the Board or any subsidiary to remove from office any corporate officer whose
<PAGE>
removal shall be requested by the Employee or if the executive offices of the
Corporation shall have moved from the Eden Prairie, Minnesota area without the
consent of the Employee), the Employee shall have the right to terminate his
employment under this Agreement by sixty (60) days' prior written notice to the
corporation given at any time within ninety (90) days after such event. If the
Employee elects to terminate his employment pursuant to this Paragraph 7.3, the
Corporation shall pay to the Employee for five (5) years, or, if less, for the
balance of the Term, an annual amount, payable monthly, equal to his Current
Annual Compensation. Upon completion of such payments, the Corporation shall
have no further obligations to the Employee under this Agreement other than such
obligations as are expressly set forth. If the Employee shall die or become
disabled subsequent to the notice of termination of employment provided for in
this Paragraph 7.3, such death or disability shall not diminish or impair his
(or his legal representatives or other successor's) right to receive the
payments provided for in this Paragraph 7.3.
7.4 If the Employee shall be discharged without cause during the Term,
he shall be entitled to receive from the Corporation, on or before the date of
discharge, the payments determined as provided in Paragraph 7.3 above.
7.5 If the Employee shall be discharged for cause during
<PAGE>
the Term, the Corporation's obligation to pay compensation or other amounts
payable hereunder to or for the benefit of the Employee, except for compensation
or other benefits payable in respect of services rendered prior to the date of
such discharge, shall terminate on the date of such discharge. As used herein
the term "for cause" shall mean any material breach by the Employee under this
Agreement, which breach if susceptible to cure shall not have been cured within
thirty (30) days after the Employee has received written notice thereof from the
Board, the conviction of the Employee for a felony, or the continued wilful
malfeasance or gross negligence by the Employee in the performance of his duties
under this Agreement for a period of thirty (30) days after the Board has
directed the Employee in writing to cease the activity giving rise to such
wilful malfeasance or gross negligence. The term "for cause" shall not include a
bona fide disagreement over corporate policy so long as the Employee does not
wilfully violate specific written directions from the Board, which directions
are consistent with the provisions of this Agreement.
7.6 In the event any amounts or other benefits are payable to or for
the Employee (or his legal representatives or other successors) pursuant to
Paragraphs 7.1, 7.2, 7.3, or 7.4 hereof in respect of any period following the
termination of his employment hereunder, such amounts or other benefits shall
not be
<PAGE>
reduced in any manner by reason of any other earnings, income or benefits of or
to the Employee from any other source. By this provision the parties intend that
the Corporation shall waive any mitigation of damages rule that may otherwise
apply in such circumstances.
7.7 In the event there is a termination of employment pursuant to
Paragraphs 7.1, 7.3 or 7.4, the Corporation shall as of the date of such
termination vest, or cause to vest, in the Employee all of his rights accrued in
and under the Corporation's existing pension plan.
8. Indemnification and Payment of Legal Expenses.
8.1 The Corporation shall indemnify the Employee and his legal
representatives, to the fullest extent permitted by the laws of the State of
Delaware and the existing By-laws of the Corporation, and the Employee shall be
entitled to the protection of any insurance policies the Corporation may elect
to maintain generally for the benefit of its directors and officers, against all
costs, 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, or threatened to be made a party, by reason of his being or
having been a director or officer of the Corporation or any of its
<PAGE>
subsidiaries.
8.2 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 by the Corporation, and if the Employee or Designated Representative
shall prevail in such legal action, the Corporation shall indemnify the Employee
or such Designated Representative for all reasonable legal and accounting fees
and expenses incurred in connection therewith.
9. Non-Competition.
9.1 During the Term (without taking into account any automatic
extensions of the Term as provided in Section 1. 1) and for two (2) years
thereafter, unless the Employee is terminated under sections 7.3 or 7.4, the
Employee will not carry on or engage in any business (other than for the
Corporation, or any of its subsidiaries or affiliates) within fifty (50) miles
of any county in which the Corporation is doing business as owner (excluding
ownership of not more than 5% of the outstanding shares of a publicly-held
corporation, so long as such ownership does not involve any managerial or
operational responsibility or other employee status), partner, officer, employee
or consultant, which business is directly competitive with any business engaged
in or
<PAGE>
carried on at the date of termination of the Term by the Corporation, or any of
its subsidiaries of affiliates, provided that if such corporations shall
discontinue any line of business subsequent to such date, this covenant not to
compete shall terminate with respect to such discontinued line of business.
9.2 During the Term (without taking into account any automatic
extensions of the Term as provided in section 1.1) and for two (2) years
thereafter, the Employee will not, without the prior written consent of the
Corporation, either directly or indirectly solicit or otherwise encourage any
person employed by the Corporation to leave the employ of the Corporation.
9.3 The Employee agrees that the Corporation will suffer irreparable
injury if, in breach of the covenants contained herein, he competes with the
business of the Corporation, or any of its subsidiaries or affiliates, and that
by reason of such competition the Corporation will be entitled to injunctive
relief in a court of competent jurisdiction. The Employee hereby stipulates to
the entry of temporary, preliminary and permanent injunctive relief prohibiting
him from competing with the Corporation, or any of its subsidiaries or
affiliates,, in breach of such covenants.
9.4 The Employee agrees that if in any judicial proceeding a court
shall refuse to enforce any covenant contained in this Agreement because it
covers too extensive a geographic area
<PAGE>
or too broad a scope of activities or too long a period of time, such covenant
shall be reduced-in scope to the extent required by law.
10. Nondisclosure Agreement.
Except as the Corporation may otherwise permit or direct in writing,
the Employee will not disclose, during the Term and thereafter for a period of
three (3) years, any information, knowledge or data (unless readily
ascertainable from public information or sources, or required by law to be
disclosed) concerning the Corporation or any of its subsidiaries or affiliates,
which he has obtained or hereafter obtains during the Term that relates to the
business processes, trade secrets, methods, customers, machines, inventions,
discoveries or any other matters concerning the respective businesses, products
or work of the Corporation or any of its subsidiaries or affiliates. All
records, documents and other writings relating to the businesses of such
corporations which are or have been prepared or created by the Employee or which
have come or hereafter come into his possession during the Term are the property
of such corporations and upon termination of the Term shall be delivered to or
shall remain in the possession of such corporations, as the case may be.
11. Notices.
<PAGE>
Any notice or other communication required to or which may be given to
any party hereunder shall be in writing and shall be deemed given effectively if
delivered personally to such party or if mailed by registered or certified mail,
postage prepaid, addressed to such party as follows (the third business day
following the date of mailing of any such notice is deemed the date of delivery
thereof):
To Employee:
Mr. Thomas M. Pugliese
7512 Bristol Village Curve
Bloomington, MN 55438
To the Corporation:
The Mentus Group, Inc.
9531 West 78th Street
Eden Prairie, MN 55344
Any party may change the persons and addresses to which notices or
other communications are to be sent by giving written notice of
such change to the other party in the manner provided herein for
giving notice.
12. Miscellaneous.
12.1 This Agreement shall be binding upon and inure to
<PAGE>
the benefit of the heirs, next-of-kin and legal representatives of the Employee
and the successors and assigns of the Corporation, including any corporation
into or with which the Corporation shall consolidate or merge or to which it
shall sell or otherwise transfer substantially all of its assets, properties and
business. This Agreement is not assignable by the Employee.
12.2 This Agreement is to be governed by and interpreted in accordance
with the laws of the State of Minnesota applicable to agreements made and to be
performed wholly within such State.
12.3 This instrument is the entire agreement of the parties with
respect to the subject matter hereof and may not be amended, supplemented,
canceled or discharged except by written instrument executed by both parties
hereto. The parties do not intend to confer any benefit hereunder on any third
person and, without limiting the generality of the foregoing, the parties may,
in writing, without notice to or consent of any third person, at any time waive
any rights hereunder or amend this Agreement in any respect or terminate this
Agreement.
12.4 The termination of the Employee's employment hereunder shall not
affect those provisions of this Agreement that by their terms apply to any
period or periods subsequent to such termination.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE MENTUS GROUP, INC.
By
------------------------------
Title
---------------------------
--------------------------------
Thomas M. Pugliese
<PAGE>
Exhibit 10.3(b)
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment to Employment
Agreement") to the Employment Agreement, dated August 1, 1990 (the "Employment
Agreement") and is entered into on September 25, 1996 by and among The Mentus
Group, Inc., a Delaware corporation (the "Corporation") and Thomas Pugliese (the
"Employee").
WHEREAS, the Corporation and the Employee are parties to the Employment
Agreement dated August 1, 1990; and
WHEREAS, the Corporation and the Employee desire to amend the
Employment Agreement pursuant to Section 12.3 thereof in connection with the
Stock Purchase Agreement (the "Purchase Agreement"), dated as of the date
hereof, among 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, and 21st Century Communications Foreign Partners,
L.P., a Delaware limited partnership (collectively, the "Investors") and the
issuance of certain newly issued shares of capital stock of the Corporation to
the Investors as set forth in such Purchase Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and in the Employment Agreement, the parties hereto agree as follows:
1. Section 1.1 of the Employment Agreement is hereby amended
by deleting the existing language in its entirety and by substituting
the following language therefor:
1.1 The Corporation hereby employs the Employee and
the Employee hereby accepts employment from the Corporation
from a term continuing through and including December 1, 1999
(the "Term").
2. Section 4.1, Section 4.2, Section 4.3 and Section 4.4 to
the Employment Agreement are hereby amended by deleting the existing
language in its entirety and by substituting the following language
therefore:
4.1 During the Term, the Corporation shall pay to the
Employee a salary at the annual rate of $212,586.96, which
shall be paid in equal monthly or more frequent installments
(the "Base Salary").
3. The Employment Agreement is hereby amended by adding the
following Section 13.
13. Grant of Restricted Stock
13.1 As a reward for past, and an incentive for
future, employment
<PAGE>
performance by the Employee and for other good and valuable
consideration the receipt and sufficiency of which is hereby
acknowledged, the Corporation is, effective as of the date
hereof, awarding to the Employee, upon and subject to the
terms and conditions set forth in this Agreement, 4,983 shares
(the "Initial Shares") of the Common Stock, par value $.01 per
share, of the Corporation ("Common Stock"). As used in this
Section 13, (i) the term "Restricted Shares" will mean all
Initial Shares and any and all other shares of stock and other
securities which the Employee later acquires or has the right
to acquire by reason of ownership of or otherwise with respect
to any Initial Shares or other Restricted Shares, irrespective
of the time and manner of such acquisition, including, without
limitation, any shares or other securities (whether issued by
the Corporation or otherwise) acquired by reason of any
split-up, recapitalization, dividend, distribution,
combination, conversion or exchange of shares of capital stock
or other securities of tile Corporation (or any other issuer),
or acquired by reason of any merger or consolidation of the
Corporation, any sale or other disposition of all or
substantially all of the assets of the Corporation (or any
other issuer) or any dissolution of tile Corporation (or any
other issuer); and (ii) the term "Restricted Share
Distributions" means any cash or other property, except stock
or other securities, which the Employee acquires or receives
or has the right to acquire or receive by reason of ownership
of or otherwise with respect to any Restricted Shares,
including, without limitation, any cash or other such property
acquired or received by reason of any event specified in
clause (i) of this sentence.
13.2 If a Forfeiture Event (as defined below) occurs
at any time prior to the Vesting Date (as defined below), all
Restricted Shares and, subject to the last sentence of Section
Restricted Share Distributions held by or for tile account of
the Employee or which the Employee has the right to acquire or
receive, and all rights and benefits of Employee with respect
to such Restricted Shares and Restricted Share Distributions,
automatically will be forfeited to and vest in the
Corporation. As used in this Section 13, (i) the term
"Forfeiture Event" means either (a) the termination of the
Employee's employment with the Corporation by the Corporation
for cause or (b) the termination of the Employee's employment
with the Corporation by the Employee; (ii) the term "Vesting
Date" means the first to occur of (A) December 31, 2017, (B)
the death of the Employee, (C) the Employee's Disability (D)
the termination by the Corporation of the Employee's
employment with the Corporation otherwise than for cause, (E)
the sale, merger, consolidation or reorganization of or the
sale of substantially all of tile assets of the Corporation,
(F) the effective date of a public offering of the
Corporation's Common Stock registered under the Securities Act
of 1933, as now or subsequently in effect (the "Securities
Act") in which the Restricted Shares leave been registered for
sale or (G) the first date as of which, pursuant to Rule 144
under the Securities Act, the Restricted Shares may be
publicly offered and sold by Employee without registration
under the Securities Act and without any limitation or
restriction, including any limitation as to volume or manner
of sale; and (iii) the term "Disability" means the inability
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental
2
<PAGE>
impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period
of not less than 12 months, as determined by the Board of
Directors of the Corporation in good faith. For purposes of
this Section 13, "cause" for termination of Employee's
employment shall have the meaning set forth in Section 7.5.
13.3 By giving notice to the Employee, the
Corporation at any time: (i) may require that any or all of
the certificates or other instruments or property evidencing
or constituting any or all of the Restricted Shares or any or
all Restricted Share Distributions then subject to forfeiture
be held in escrow by a bank or other institution, or by the
Corporation itself, until the Vesting Date; (ii) may require
that the Employee deliver a stock power or other instrument
endorsed in blank relating to any Restricted Shares held in
escrow; and (iii) may require that any and all Restricted
Shares be held in the name of such escrow agent (in such
capacity) as registered or record owner. Any Restricted Shares
and Restricted Share Distributions held in escrow which no
longer are subject to forfeiture (as determined pursuant to
Section 13.2 hereof) will be delivered out of escrow to the
Employee within a reasonable time after the applicable Vesting
Date, subject to Section 13.12 of this Agreement and the
satisfaction by the Employee of applicable federal and state
securities laws and withholding tax requirements, including
any federal, state or local withholding taxes. Subject to
Section 13.12 of this Agreement, any Restricted Share
Distributions which are not held in escrow may be received and
retained by the Employee free of the restrictions and
forfeiture provisions of this Section 13.
13.4 Except as provided by this Agreement, prior to
the Vesting Date, the Employee will not transfer or otherwise
dispose of any Restricted Shares which are subject to
forfeiture or transfer or dispose of any such Restricted Share
Distributions held in escrow pursuant to Section 13.3 or in
pledge pursuant to Section 13.12, and any such attempt to
dispose of or transfer any such Restricted Shares or
Restricted Share Distributions will be void and ineffective
for all purposes. Each stock certificate or other instrument
evidencing Restricted Shares subject to forfeiture will bear
the following legend:
SHARES OF THE CORPORATION REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A EMPLOYMENT AGREEMENT
DATED AS OF AUGUST 1, 1990 AND AS AMENDED AS OF
SEPTEMBER 25, 1996 WHICH CONTAINS PROVISIONS
RESTRICTING TRANSFER OF SUCH SHARES, REQUIRING SUCH
SHARES TO BE FORFEITED TO THE MENTUS GROUP, INC. IN
CERTAIN CIRCUMSTANCES AND OTHER MATTERS. A COPY OF
SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The words "transfer" and "dispose" include the making of any
sale, exchange or other transfer or disposition of any
ownership interest whatsoever with respect to the
3
<PAGE>
Restricted Shares or subject to the last sentence of Section
13.3, Restricted Share Distributions. Subject to Section
13.12, nothing in this Section 13.4 will prevent the transfer
or other disposition, without consideration, of Restricted
Shares or Restricted Share Distributions to a personal
representative of the Employee or to one or more members of
the Employee's immediate family or to trusts or similar
entities for their benefit; provided, however, that in the
case of such a transfer, each transferee must agree in writing
to take such Restricted Shares or Restricted Share
Distributions subject to the forfeiture provisions described
above and to be fully bound by this Section 13. As used in
this Agreement, the term "personal representative" will mean
the executor or executors of the will or administrator or
administrators of the estate and all other legal
representatives (by operation of law or otherwise) of the
Employee.
13.5 Whenever any Restricted Shares become free of
the rights and restrictions imposed by this Agreement,
including any pledge pursuant to Section 13.12, the holder of
such Restricted Shares be entitled to receive a certificate or
certificates not bearing the restrictive legend provided for
in Section 13.4. If the certificate(s) evidencing such
Restricted Shares are not held in escrow pursuant to Section
13.4, then the holders thereof must deliver them to the
Corporation in order to receive the unlegended certificate(s)
contemplated by this Section 13.5.
13.6 The Employee represents and warrants that he
will be acquiring the Restricted Shares to be acquired by him
pursuant to this Agreement for his own account and not with a
view to reselling or distributing all or any part of the
Restricted Shares in any transaction which would constitute a
"distribution" within the meaning of the Securities Act. The
Employee acknowledges that the Initial Shares have not been,
and it is likely that any other Restricted Shares will not be,
registered under the Securities Act; that the Corporation
neither is obligated nor intends to effect such registration;
that absent such registration (or an exemption from
registration), the Employee may be required to hold the
Restricted Shares for an indefinite period of time; that the
exemption from registration under the Securities Act provided
by Rule 144 promulgated under the Securities Act likely will
not be available to the Employee: and that even if available,
such Rule would permit resales of the Restricted Shares only
in limited amounts and upon compliance with the terms and
conditions of such Rule.
13.7 The Employee agrees that the certificates
evidencing Restricted Shares to be registered in the name of
the employee will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS A REGISTRATION
STATEMENT UNDER SUCH ACT IS IN EFFECT WITH RESPECT TO SUCH
SECURITIES OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
4
<PAGE>
APPLICABLE.
13.8 If at any time the Board of Directors of the
Corporation determines, in its discretion, that the listing,
registration or qualification of any Restricted Shares (other
than the Initial Shares) issuable pursuant to Section 13.1 or
otherwise upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of or
in connection with such issuance, then such Restricted Shares
need not be issued unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the
Corporation's Board of Directors. The Corporation in no event
will be obligated to issue any Restricted Shares in any manner
in contravention of the Securities Act or any state securities
law; provided, however, that if the Corporation does not issue
such Restricted Shares for the reasons set forth in this
sentence or the prior sentence, it will substitute a
distribution of cash or other property to compensate for the
failure to issue such Restricted Shares. The Board of
Directors of the Corporation may, in connection with any
issuance of Restricted Shares (other than the Initial Shares)
pursuant to Section 13.1, require that, as a condition
precedent to such issuance, in whole or in part, the Employee
make written representations to the effect set forth in
Section 13.1 and also may impose such other terms and
conditions as the Corporation's Board of Directors may
reasonably require in order to cause such issuance to comply
with all applicable laws.
13.9 The Employee will make appropriate arrangements
with the Corporation for any taxes which either of them is
obligated to collect in connection with any issuance, payment,
distribution, transfer or disposition of any Restricted Shares
or Restricted Share Distributions, including any federal,
state, or local withholding taxes (but excluding any stock
transfer taxes payable in connection with the transfer by the
Corporation of the Initial Shares to the Employee, which taxes
will be paid by the Corporation), and the Corporation, as
applicable, will be entitled to withhold from amounts or other
consideration payable or issuable to the Employee under this
Agreement or otherwise such amounts as may be required by
applicable law.
13.10 Subject to Sections 13.1 through 13.9, the
Employee will have, with respect to each type or class of
Restricted Shares, all rights of a holder of Restricted Shares
of such type or class, including, without limitation, voting
rights and rights to receive dividends or other distributions
with respect to the Restricted Shares.
13.11 The Corporation may refuse to effect the
transfer by the Employee or any subsequent holder (except as
otherwise expressly contemplated hereby) of any of
the Restricted Shares on its books during any period in which
such Restricted Shares are subject to forfeiture to the
Corporation as set forth in Section 13.2 hereof. A copy of
this Agreement shall be filed with the Secretary of the
Corporation.
13.12 If, at any time or from time to time while the
Employee continues to
<PAGE>
be employed by the Corporation pursuant to this Agreement, any
federal, state or local income taxes shall become due and
payable by Employee by reason of the grant, issuance or
delivery by the Corporation of Restricted Shares to Employee
or by reason of any compensation under this Agreement which
was earned by Employee after December 31, 1992 and prior to
September 1, 1996 but the payment of which was deferred, then
provided that no Forfeiture Event shall have occurred, the
Corporation shall, if requested by Employee, make loans to
Employee for tile purpose of permitting Employee to pay such
taxes, subject to the following terms and conditions:
(i) the amount of any such loan shall not exceed the
net amount of such federal, state and local income taxes which
are then or which will within 14 days after such loan is made
become due and payable by Employee, calculated after taking
into account all credits to which Employee is entitled by
virtue of any amounts (including taxes, interest and
penalties) which the tile Corporation has withheld or
otherwise paid or for which the Corporation is liable with
respect to the event which results in such taxes, and the
proceeds of such loan shall be used solely for tile payment of
such taxes when or before due.
(ii) at the time the Corporation is to make any such
loan (a) a petition seeking liquidation, reorganization or
other relief with respect to Employee or his debts has not
been filed under any bankruptcy, insolvency or other similar
law now or hereafter in effect, (b) relief has not been
granted with respect to Employee or his debts in any case or
proceeding for liquidation, reorganization, or otherwise under
any bankruptcy, insolvency or other similar law now or
hereafter in effect, (c) a trustee, receiver. liquidator,
custodian or other similar official has not been appointed
(either with or without the consent of Employee) for any
substantial part of Employee's properties, (d) Employee has
not been adjudicated to be insolvent, and (e) Employee has not
made a general assignment for the benefit of his creditors.
(iii) Each such loan shall be evidenced by a note
payable to the order of the Corporation and executed and
delivered by Employee and shall be secured by a perfected,
first priority security interest in and pledge of Restricted
Shares then existing or thereafter acquired which shall have a
fair market value, determined on the date such loan is made
and on a semi-annual basis thereafter, of not less than the
principal amount of such loan and such note and the documents
and instruments by which such security interest is granted and
such pledge is made shall be in customary form and contain
customary provisions (including, without limitation,
provisions regarding events permitting acceleration of the
maturity of such note), in addition to any other provisions
which the Corporation may reasonably request. As contemplated
by the foregoing, the fair market value of the Restricted
Shares securing each such loan shall be determined on a
semi-annual basis and the number of Restricted Shares held in
pledge by the Corporation as security for such loan shall be
adjusted as necessary so that fair market value of such
Restricted Shares shall be at least equal to the principal
amount of such loan. Each such loan shall be without
6
<PAGE>
recourse to Employee or his property, other than all
Restricted Shares and Restricted Share Distributions then
existing or thereafter acquired, together with all proceeds
thereof, substitutions therefor and replacements thereof.
(iv) Each such loan shall bear interest at a
fluctuating rate per annum at all times equal to the rate of
interest publicly announced from time to time by The Bank of
New York, as its prime rate in effect at its principal office
in the City of New York, State of New York, and such rate of
interest shall change when and as such prime rate changes.
Accrued interest will be payable quarterly in arrears.
(v) The entire principal amount of each such loan,
together with any accrued and unpaid interest thereon, shall
become due and payable on the first to occur of (a) the first
anniversary of the termination of Employee's employment with
the Corporation for any reason, (b) the fifth anniversary of
the date of the first such loan or (c) acceleration in
accordance with the terms of the note contemplated by clause
(i) above. The terms of each such loan shall provide that in
the event of any sale, transfer, exchange or other disposition
by Employee of shares of capital stock of the Corporation for
cash or other consideration, Employee shall promptly make a
prepayment of such loan in an amount equal to the lesser of
(x) the amount of such cash or the fair market value of such
other consideration or (y) the then outstanding principal of
and accrued but unpaid interest on such note.
4. Except as amended or modified hereby, the Agreement as
amended shall remain in full force and effect.
5. This Amendment to Employment 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.
6. All capitalized terms used in this Amendment to Employment
Agreement shall have the definitions set forth in the Employment
Agreement.
[Signatures Begin on Next Page]
7
<PAGE>
IN WITNESS OF each party hereto has executed this Amendment to
Employment Agreement as of the date set forth above.
THE MENTUS GROUP, INC.
By:
-------------------------------------
Name:
Title:
------------------------------
Thomas Pugliese
<PAGE>
Exhibit 10.3(c)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated
August 29, 1997, by and between Mentus Media Corp., a Delaware corporation
formerly named `The Mentus Group, Inc. (the "Corporation"), and Thomas Pugliese
(the "Employee").
WHEREAS, the Corporation and the Employee are parties to the Employment
Agreement dated August 1, 1990, as previously amended pursuant to an amendment
dated September 25, 1996 (the "Employment Agreement"); and
WHEREAS, the Corporation and the Employee desire to further amend the
Employment Agreement pursuant to Section 12.3 thereof,
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Employment Agreement, the parties hereto agree as follows:
1. Section 4.1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
"4.1. (a) During the Term, the Corporation shall pay to
Employee a salary at the annual rate of $212,586.96 (the `Base
Salary'), in equal or more frequent installments in accordance with the
Corporation's regular policy.
"(b) Subject to the last sentence of this Section 4.1 (b),
one-third of each installment of the Base Salary payable on or after
January 1, 1998 and one-third of any and all amounts which become
payable on or after such date pursuant to Section 7.1, 7.3 or 7.4 of
this Agreement shall be paid in the form of shares of the Series C
Stock (as hereinafter defined). The number of shares of the Series C
Stock issuable to Employee with respect to any installment of Base
Salary or any such other amount payable for any period commencing on or
after January 1, 1998 shall be the number of whole shares determined by
dividing one-third of such installment of Base Salary or such other
amount (as the case may be) for such period by Seventy-Seven Dollars
($77). No fractional share of the Series C Stock will be issued to
Employee and he shall receive, in lieu of any fractional share to which
he otherwise would be entitled, a cash payment equal to such fraction
of Seventy-Seven Dollars ($77). The term `Employee Series C Shares'
means any or all of the shares of Series C Stock which, as provided
herein, are issued or become issuable to Employee in payment of a
portion of the Base Salary or any amount which becomes payable pursuant
to Section 7.1, 7.3 or 7.4 of this Agreement. The date of original
issuance of any Employee Series C Shares issued hereunder as payment of
any installment of the Base Salary or other amount shall be the date
discretion, determine that any amount which this Section 4.1 (b)
provides will be paid in the form of shares of Series C Preferred Stock
shall instead be paid in cash, provided that (i)
<PAGE>
such determination is approved by a majority of the entire Board of
Directors, which majority includes the director elected by the holders
of the Series B Stock (as hereinafter defined) separately as a series
or class and the director elected by the holders of the Series C Stock
separately as a series or class and (ii) Employee consents to such
payment in cash.
"(c) Employee may elect, by written notice to the Corporation
given not more than 15 days nor less than 5 days before any
Determination Date (as hereinafter defined), to treat all, but not less
than all of the Employee Series C Shares which he earns or otherwise is
entitled to receive during the calendar quarter beginning on such
Determination Date as Restricted Shares (as hereinafter defined). If no
such notice is given on a timely basis with respect to any
Determination Date, the Employee Series C Shares which become issuable
during the calendar quarter commencing with such Determination Date
shall be 'Restricted Shares' for purposes of Section 13 hereof.
"(d) For purposes hereof, the following terms have the following
respective meanings:
"`Determination Date' means each January 1, April 1, July I and October
I during the Term, or any period during which Employee (or his estate,
legal representatives or heirs) are entitled to receive payments
pursuant to Section 7.1, 7.3 or 7.4 hereof, commencing with January 1,
1998.
"`Liquidation Price' has the meaning assigned to that term in the
Series C Certificate of Designation.
"`Majority Senior Holders' means, as of any time, the holder or holders
of shares of Series B Stock, Series C Stock or both having an aggregate
Liquidation Price representing more than 50% of the total Liquidation
Price of all shares of Series B Stock and Series C Stock then
outstanding, excluding any shares of either series which are directly
or indirectly beneficially owned by Employee or any other Restricted
Person.
Restricted Person' has the meaning assigned to that term in 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 date
of this Amendment, among the original parties thereto and certain
purchasers of shares of the Series C Stock.
"`Series B Stock' means the Series B Senior Cumulative Compounding
Redeemable Convertible Preferred Stock, par value $1.00 per share, of
the Corporation."
"`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 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 or hereafter may be amended.
2
<PAGE>
"'Series C Stock' means the Series C Senior Cumulative Compounding
Redeemable Convertible Preferred Stock, par value $1.00 per share, of
the Corporation.
"(e) Employee represents and warrants to, and covenants and
agrees with, the Corporation that he will be acquiring all shares of
Series C Stock (and all shares of the Company's Common Stock and other
securities issuable upon conversion thereof) to be acquired by him
pursuant to this Agreement for his own account and not with a view to
reselling or distributing all or any part of such shares or other
securities in any transaction which would constitute a 'distribution'
within the meaning of the Securities Act. The Employee acknowledges
that it is likely that such shares and other securities will not be
registered under the Securities Act; that the Corporation neither is
obligated nor intends to effect such registration; that absent such
registration (or an exemption from registration), the Employee may be
required to hold such shares and other securities for an indefinite
period of time; that the exemption from registration under the
Securities Act provided by Rule 144 promulgated under the Securities
Act likely will not be available to the Employee; and that even if
available, such Rule would permit resales of such shares or other
securities only in limited amounts and upon compliance with the terms
and conditions of such Rule.
"(f) Employee agrees that the certificates evidencing all such
shares and other securities will bear the following legend (as well as
any others that the Corporation reasonably believes to be required in
order to assure compliance with applicable law):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER
SUCH ACT IS IN EFFECT WITH RESPECT TO SUCH SECURITIES
OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
APPLICABLE.
"(g) The Corporation in no event will be obligated to issue
any shares of Series C Stock in any manner in contravention of the
Securities Act or any state securities law. The Board of Directors of
the Corporation or the Majority Senior Holders may, in connection with
any issuance of shares pursuant to this Section 4.1, require that, as a
condition precedent to such issuance, in whole or in part, the Employee
make written representations and acknowledgments to the effect set
forth in subsection 4.1 (e) and also may impose such other terms and
conditions as the Corporation's Board of Directors may reasonably
require in order to cause such issuance to comply with all applicable
laws.
"(h) The Employee will make appropriate arrangements with the
Corporation for any taxes which either of them is obligated to collect
in connection with any issuance, payment, distribution, transfer or
disposition of any shares issued pursuant to this Section 4.1,
including any federal, state, or local withholding taxes, and the
Corporation, as applicable, will be entitled to withhold from amounts
or other consideration payable or
3
<PAGE>
issuable to the Employee under this Agreement or otherwise such amounts
as may be required by applicable law."
4. The second sentence of Section 13.1 of the Employment Agreement is
amended to read in its entirety as follows:
"As used in this Section 13, (i) the term 'Restricted Shares' means (A)
any and all Initial Shares, (B) any and all Employee Series C Shares
that Employee has elected to treat as Restricted Shares in accordance
with Section 4.1(c) of this Agreement, and (C) any and all other shares
of stock and other securities which the Employee later acquires or has
the right to acquire by reason of ownership of or otherwise with
respect to any Initial Shares, any such Employee Series C Shares or any
other Restricted Shares, irrespective of the time and manner of such
acquisition, including, without limitation, any shares or other
securities (whether issued by the Corporation or otherwise) acquired by
reason of any split-up, recapitalization, dividend, distribution,
combination, conversion or exchange of shares of capital stock or other
securities of the Corporation (or any other issuer), or acquired by
reason of any merger or consolidation of the Corporation, any sale or
other disposition of all or substantially all of the assets of the
Corporation (or any other issuer) or any dissolution of the Corporation
(or any other issuer), or acquired upon exercise of any conversion,
stock purchase, subscription or other rights associated with any
Restricted Shares; and (ii) the term 'Restricted Share Distributions'
means any cash or other property, except stock or other securities,
which the Employee acquires or receives or has the right to acquire or
receive by reason of ownership of or otherwise with respect to any
Restricted Shares, including, without limitation, any cash or other
such property acquired or received by reason of any event specified in
clause (i) of this sentence."
5. Subclause (ii)(E) of the second sentence of Section 13.2 of the
Employment Agreement is amended to read in its entirety as follows:
"(E) 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 change in, distribution upon or exchange of the outstanding
shares of any class or series of capital stock of the Corporation which
includes Restricted Shares) or any sale, conveyance, transfer or lease
to another corporation of the properties and assets of the Company as
an entirety or substantially as an entirety,"
6. The legend appearing in Section 13.4 of the Employment Agreement is
amended to read in its entirety as follows:
"SHARES OF THE CORPORATION REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A EMPLOYMENT AGREEMENT, DATED AS OF AUGUST 1, 1990, BETWEEN THE
CORPORATION AND THOMAS PUGLIESE AS
4
<PAGE>
AMENDED, WHICH CONTAINS PROVISIONS RESTRICTING TRANSFER OF SUCH SHARES,
REQUIRFNG SUCH SHARES TO BE FORFEITED TO THE CORPORATION IN CERTAIN
CIRCUMSTANCES AND OTHER MATTERS. A COPY OF SUCH AGREEMENT IS AVAILABLE
FOR INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
7. Section 13.10 of the Employment Agreement is amended by adding
"conversion rights", immediately before the words "voting rights" appearing in
such sentence.
8. Except as amended or modified hereby, the Employment Agreement shall
remain in full force and effect.
9. This Second Amendment to Employment 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.
10. Unless otherwise defined in this Amendment, all capitalized terms
used in this Amendment to Employment Agreement shall have the definitions set
forth in the Employment Agreement.
[Signatures Begin on Next Page]
5
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed this Amendment to
Employment Agreement as of the date set forth above.
MENTUS MEDIA CORP.
By:
------------------------------------
Name:
Title:
------------------------------------
THOMAS PUGLIESE
6
<PAGE>
Exhibit 10.4(b)
FIRST AMENDMENT TO MEDIA NETWORK SERVICES AGREEMENT
This First Amendment tp Media Network Services Agreement (the
"Amendment") is made and entered as of this 28th a day of April, 1998, by and
between The Southland Corporation ("Southland") and Mentus Media Corp. f/k/a The
Mentus Group, Inc. ("Mentus").
WHEREAS, Southland and Mentus entered into that certain Media Network
Services Agreement on or about April 18., 1995 (the "Media Agreement"); and
WHEREAS, Southland and Mentus desire to amend the Media Agreement for
the purposes set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants,
promises and conditions contained herein, the parties agree to amend the Media
Agreement as follows:
1. Section 9 -- TERM.
Section 9.01 is amended so that the Term of the Media Agreement shall
be extended, unless earlier terminated as provided under the Media Agreement
through January 1, 2004. The parties acknowledge with Sections 9.02, 9.03, 9,04
and 9.05 remain in full force and effect, and that the words "or enter into a
new agreement" are added to the second sentence of Section 9.02
2. Section 2 -- HARDWARE INSTALLATION.
The following shall be added after the last sentence of section 2.02 of
the Media Agreement:
"If the parties do not agree to a mutually acceptable location
for installation, Mentus shall not be obligated to install the
Hardware in such Store, In the event the Hardware is not
installed by Mentus in such Store, the minimum number of Store
Hardware installations referenced in section 2. 03 (a), (b)
and (c) herein shall be reduced by one Store for each Store in
which the Hardware is not installed."
The Hardware Installation Rollout Schedule referenced in section 2.03
of the Media Agreement ("Installation Schedule") is amended as follows:
"(a) Pursuant to the revised Installation Schedule, Mentus shall
install the Hardware in an additional * Stores (from January 1, 1998) to be
completed no later than December 31, 1998. Mentus shall complete Hardware
installation in at least * total Stores no later than December 31, 1999. The
Installation Schedule is attached herein as Exhibit C.
* Denotes this information has been filed seperately with the Securites and
Exchange Commission for Confidential Treatment.
<PAGE>
(b) If, for whatever reason the Hardware has not been installed in an
additional * Stores by December 31, 1998. Mentus shall pay Southland liquidated
damages (and not as a penalty) of * within thirty (30) days after the end of
calendar year 1998. Similarly, Mentus shall pay Southland liquidated damages
(and not as a penalty) of * within thirty (30) days after the end of calendar
year 1999, if for whatever reason, the Hardware has not been installed in at
least * total Stores by December 31, 1999. Except as provided in (c) below, the
liquidated damages shall represent Southland's sole remedy against Mentus in the
event the Installation Schedule is not met.
(c) If, for whatever reason, the Hardware has not been installed in a
at least * total Stores by June 30, 2000, Southland may immediately terminate
the Media Agreement upon thirty (30) days written notice to Mentus."
(d) The dates set forth in subparagraph (a), (b) and (c) above shall be
extended by one (1) day for each day of any delay by Mentus in meeting the
Hardware Installation Schedule that is caused solely by the actions of
Southland, its agents or participating franchisees. Prior to the Installation
Schedule being extended, Mentus shall provide Southland with written notice of
any claimed delay caused solely by Southland."
3. Section 13 -- MENTUS EXCLUSIVITY.
Section 13.01 of the Media Agreement is amended to read as follows:
"During the Term of this Agreement, Mentus will be the exclusive
provider of video-based information, entertainment and advertising to the
Stores. Notwithstanding the above, Mentus agrees that the Mentus exclusivity
provided herein shall be waived and shall not apply to video based information,
entertainment and advertising that may be provided through the use of automatic
teller machines ("ATM's") and automated financial services centers ("FSC's")
that are or may be located in the Stores. This waiver by Mentus of exclusivity
is limited to@ (1) information, entertainment or advertising conducted on the
"transactional screens" during a customer transaction using the ATM and FSC, and
(11) in-Store ATM or FSC placement not being changed by Southland with the
exception of placement changes made in the ordinary course of Southland's
business "Transactional screens" is defined as those screens shown on the ATM
oi- FSC monitor that appear only during a customer transaction and that are
intended to be viewed only by a single person conducting a transaction on the
ATM or FSC and not by Store customers generally or by others not conducting a
transaction on the ATM or- FSC
Except as provided by this Amendment, all of the terms and conditions
in the Media Agreement shall remain in full force and effect.
The Amendment, along with the Media Agreement is the entire agreement
between the parties and supersedes all prior agreements or representations,
whether written or oral or through course of dealing between the parties
* Denotes this information has been filed seperately with the Securites and
Exchange Commission for Confidential Treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first set out above,
THE SOUTHLAND CORPORATION
Attest: By:
--------------------------- ----------------------------------
Assistant Secretary Its:
---------------------------------
MENTUS MEDIA CORPORATION
By:
----------------------------------
Its:
---------------------------------
* Denotes this information has been filed seperately with the Securites and
Exchange Commission for Confidential Treatment.
3
<PAGE>
EXHIBIT 12.1
MENTUS MEDIA CORP.
CALCULATION OF RATIO OF DEFICIENCY OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
PRO FORMA
YEARS ENDED DECEMBER 31, YEAR ENDED HISTORICAL
--------------------------------------------------------------- DECEMBER 31, ------------------------
1993 1994 1995 1996 1997 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss as
reported in the
statements of
operations....... $(1,791,813) $(1,956,937) $(2,334,576) $(2,055,504) $(6,388,484) $(13,268,000) $(1,508,910) $(3,264,296)
Add
Portion of rents
representative
of the interest
factor......... 60,667 50,000 50,000 63,597 421,443 421,443 74,693 145,524
Interest on
indebtedness... 145,193 191,769 239,859 231,355 280,806 7,161,000 65,120 843,774
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Loss as
adjusted..... (1,585,953) (1,715,168) (2,044,717) (1,760,552) (5,686,235) (5,685,557) (1,369,097) (2,274,998)
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Fixed charges
Portion of rents
representative
of the interest
factor......... 60,667 50,000 50,000 63,597 421,443 421,443 74,693 145,524
Interest on
indebtedness..... 145,193 191,769 239,859 231,355 280,806 7,161,000 65,120 843,774
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
205,860 241,769 289,859 294,952 702,249 7,582,443 139,813 989,298
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Deficiency of
earnings to fixed
charges.......... $(1,791,813) $(1,956,937) $(2,334,576) $(2,055,504) $(6,388,484) $(13,268,000) $(1,508,910) $(3,264,296)
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
<CAPTION>
PRO FORMA
1998
-----------
<S> <C>
Net loss as
reported in the
statements of
operations....... $(4,165,000)
Add
Portion of rents
representative
of the interest
factor......... 145,524
Interest on
indebtedness... 1,745,000
-----------
Loss as
adjusted..... (2,274,476)
-----------
Fixed charges
Portion of rents
representative
of the interest
factor......... 145,524
Interest on
indebtedness..... 1,745,000
-----------
1,890,524
-----------
Deficiency of
earnings to fixed
charges.......... $(4,165,000)
-----------
-----------
</TABLE>
<PAGE>
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to use in this Registration Statement on Form S-4 of our
report dated March 2, 1998 relating to the financial statements of Mentus Media
Corp., as of December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
MCGLADREY & PULLEN, LLP
Minneapolis, Minnesota
June 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 40,394,626 2,789,142
<SECURITIES> 0 0
<RECEIVABLES> 268,809 427,108
<ALLOWANCES> (48,014) (45,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 40,671,199 3,292,136
<PP&E> 5,974,886 5,377,851
<DEPRECIATION> (1,628,994) (1,387,665)
<TOTAL-ASSETS> 47,820,952 7,535,648
<CURRENT-LIABILITIES> 2,357,820 2,031,160
<BONDS> 38,612,691 3,015,208
15,033,417 14,487,030
3,000,000 3,000,000
<COMMON> 2,663 2,663
<OTHER-SE> (11,185,639) (15,092,666)
<TOTAL-LIABILITY-AND-EQUITY> 47,820,952 7,535,648
<SALES> 26,309 137,279
<TOTAL-REVENUES> 423,412 1,827,121
<CGS> 9,996 60,893
<TOTAL-COSTS> 3,106,647 8,046,563
<OTHER-EXPENSES> 0 1,273
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 843,774 280,806
<INCOME-PRETAX> (3,264,296) (6,388,484)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,264,296) (6,388,484)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,264,296) (6,388,484)
<EPS-PRIMARY> (14.24) (30.12)
<EPS-DILUTED> (14.24) (30.12)
</TABLE>
