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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________to____________________
Commission File No. 33-9030
MAGNAVISION CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 22-2741313
(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
1725 ROUTE 35, WALL, NEW JERSEY 07719
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (732) 449-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is not available due to the unavailability of price quotations for
the Registrant's securities.
The number of shares of Registrant's Common Stock outstanding on March 31, 1998
was 1,154,390.
Documents Incorporated by Reference: None.
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PART I
ITEM 1. BUSINESS
All common share amounts and prices reflect the effects of the 20 to 1 split.
GENERAL
Magnavision Corporation (the "Registrant" or the "Company")
was incorporated under the name Yardley Ventures Inc. in Delaware on April 3,
1986 for the purpose of acquiring one or more potential businesses. Effective
December 30, 1991, the Registrant acquired all of the issued and outstanding
capital stock of Magnavision Corporation, a New Jersey corporation ("Magnavision
- - N.J."), in a tax-free, stock-for-stock acquisition. The shareholders of
Magnavision - N.J. received newly issued shares of common stock in the
Registrant for their Magnavision - N.J. shares. The newly issued shares
constituted approximately 98% of the Registrant's outstanding common stock. In
connection with the acquisition, the Registrant effected a one-for-400 reverse
split of its common stock and changed its name to Magnavision Corporation. In
addition, the board of directors of Magnavision - N.J. became the board of
directors of the Registrant and Magnavision - N.J. became a wholly-owned
subsidiary of the Registrant.
The Registrant does no business and has no significant assets other than its
stock in Magnavision - N.J. Unless otherwise specified herein, the terms
"Magnavision" and the "Company" shall be deemed to refer to the Registrant
and/or Magnavision - N.J.
In August 1995, the Company entered into a $5,000,000 lending
facility with a bank and two Small Business Investment Companies. On June 3,
1996, the Company amended the Agreement with its lenders and at various times
during 1996 and 1997, the Company, which had borrowed $4,062,932 and had issued
senior subordinated notes in exchange therefore, had not met several covenants
under this Agreement and failed to make its quarterly interest payment of
$122,095. In May 1997, pursuant to an Exchange Agreement, the Company and its
lenders agreed to exchange the entire $5 million of the lending facility for 8%
redeemable preferred stock due in 2002. The then current loan balance, along
with the unused balance of the $5 million line was exchanged for redeemable
preferred stock which has five year mandatory redemption provisions which are
accelerated upon certain liquidity events. In connection with this transaction,
all covenants and defaults under the former lending facility were waived. At
closing, the Company drew down the balance of its line of approximately $800,000
after expenses. The Company issued redeemable preferred stock in the amount of
$5 million, with an 8% preferred dividend, and issued additional warrants (New
Warrants) to purchase additional shares of common stock, representing
approximately 20% of the common stock at $2.00 per share after a 1-for-20
reverse stock split. The exercise price of the original issued warrants, $.27
and $.38 per share, was reduced to $.10 per share prior to such reverse stock
split. The preferred shareholders received a total of 1,826,932 warrants at an
exercise price of $2.00 per share to purchase 58% of the Company's common stock,
acquired the right to and have elected a majority of the Board of Directors, and
thus have effected a change of control of the Company. In connection with the
exchange, the Company issued a note to its lenders totaling $105,468. This note,
bearing 10% interest, represented the interest due in
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May 1997. Both interest and principal were originally payable on May 8, 1998. At
year end 1997 the redeemable preferred stockholders agreed to extended the
maturity of the note to May 8, 1999.
In September 1997, the Company and Access Capital, Inc. agreed
to a $1,250,000 three year revolving line of credit to be used to expand the
Company's private cable business. As of the end of December 1997, the Company
had borrowed approximately $405,000 under the line of credit. Interest is
payable currently at the rate of prime plus 5.5% and is current. The line is
secured by a pledge of private cable contracts and all other Company assets. The
lender received warrants at an exercise price of $2.00 per share to purchase
approximately 4% of the Company's stock on a fully diluted basis.
Subsequent to the fiscal year ended December 31, 1997, the
Company was not in compliance with the working capital and other covenants under
the line of credit and such defaults continue through the date hereof. In
connection therewith, the Company requested a waiver thereof together with a
separate working capital advance.
By letter dated May 8, 1998 Access Capital proposed a
restructuring of the financial covenants, an increase in the line of credit to
$3 million dollars and an increase in its warrant ownership of the Company. The
Company is currently reviewing such proposal and discussions with the lender are
expected to commence shortly. There is no assurance that such restructuring will
be effected on terms satisfactory to the Company, or at all.
DEVELOPMENT OF BUSINESS
The Company was initially formed for the purpose of owning and
operating a multi-channel, wireless cable television system in the New York
market. In August 1990, the Company entered into an agreement to lease channel
capacity (the "Channel Lease Agreement") from the Department of Education of the
Archdiocese of New York (the "Department"). The Channel Lease Agreement
(subsequently amended in January 1994) grants the Company a lease through
January 2004 (with a right to extend for an additional five years, and a right
of first refusal for subsequent renewals), which entitles the Company to use
twenty-eight (28) wireless cable licenses (168 MHZ of spectrum), located on
seven different transmitting towers (24 MHZ per tower) in New York State. Eight
(8) of these channels (48 MHZ of spectrum) are located in New York City.
Since entering into the Channel Lease Agreement, the Company
has conducted various marketing and engineering activities to facilitate the
planned operation of a wireless system and, pursuant to the requirements of the
Channel Lease Agreement, made an escrow deposit of approximately $900,000 to the
Department in September 1995 which is to be utilized for system reconstruction.
However, as of the date hereof, the Company has not commenced operation of a
wireless system, and will require substantial additional funding in order to do
so. There is no assurance that such funding will be available. The Company has
recently begun, in conjunction with potential joint venture partners to develop
and explore alternative use of the spectrum available to it under the Channel
Lease Agreement. The Company is pursuing a business plan to develop high speed
Internet access and data delivery. These tests relate to one-way data
transmission for which the Company was granted a developmental license early in
1997 by the Federal Communications Commission ("FCC").
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There can be no assurance that there will be consumer demand for alternative use
of the spectrum including Internet access services, that the Company will be
able to compete against other providers, that the Company can attract and retain
qualified personnel or that the Company will be able to achieve profitability
from such services in future years.
Apart from development of its wireless television system, the
Company has been engaged, since 1992, in the business of offering a private
cable television service to colleges, universities, nursing homes and hospitals
throughout the East Coast. As of January 31, 1997, the Company had long term
(generally 5-10 years) agreements with a total of 37 institutions located
primarily in the New York, New Jersey, Pennsylvania area, but extending as far
north as Massachusetts, and as far south as North Carolina. For the year ended
December 31, 1997, the Company generated approximately $1,607,049 of revenues
from this business (which constituted 100% of the Company's total revenues for
the year). For the year ended December 31, 1997, revenues from three
institutions which utilize the Company's private cable television service,
Montclair State University, Seton Hall University, and North Carolina A & T
State University, constituted approximately 14%, 13% and 13% of the Company's
revenues, respectively.
PRIVATE CABLE BUSINESS
General
Private cable television service is a multi-channel
subscription television service where the programming is received at a facility
by satellite receiver and then transmitted via coaxial cable throughout private
property, often multiple dwelling units ("MDUs"), without crossing public rights
of way. Private cable companies operate under agreements with private landowners
to service a specific MDU, institution, or commercial establishment.
Since 1992, the Company has offered private cable television
services to various colleges, universities and nursing home facilities,
primarily in the northeastern United States. To date, the Company has entered
into or been awarded contracts with 37 facilities, of which 34 are currently
receiving programming from the Company. The Company believes that it has
developed the necessary skills and "know-how" over time to deliver a quality
product and that it has achieved a favorable reputation with its existing
customer base. It also believes that this business can be expanded on a national
basis with appropriate funding.
Agreements with Institutions
The Company has long-term agreements to provide service to 37
facilities (35 of which are currently operational) for students and patients,
with approximately 11,600 outlets.
From the date a contract is signed, it generally takes
approximately three months to complete an installation and to make a site
operational or place it "on line". Except for one college and two senior living
facilities, where the Company bills residents directly, the Company receives its
fees on a monthly basis (nine (9) months a year for colleges and universities)
directly from these institutions, which include such charges in the tuition or
other fees to students or residents of the subject facilities. The Company
believes that the potential
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market for this segment of its business is, in the near term, located in the
Eastern portion of the United States and is represented by hundreds of thousands
of potential viewers. None of the Company's revenues to date include fees from
advertisers. However, at such time as the Company's subscriber base achieves
"critical mass", estimated at 15,000 outlets, the Company believes that it will
have the ability, with additional staffing and funding, to obtain revenues from
regional or local advertisers seeking to reach the Company's subscribers who the
Company believes are a favored category of consumer for many product
manufacturers and service providers.
Sales and Marketing
The Company's sales and marketing efforts in the private cable
business have and will continue to focus primarily upon institutions with
concentrated populations, such as colleges and universities with dormitories,
nursing homes and other MDUs. Institutional subscribers are asked to commit to
long-term agreements. Some state institutions are prohibited from entering into
long term agreements, but the Company expects that once it has wired the subject
facility and provided private cable television service the relationship will
become one of long term duration.
Competition
The Company's competition in the residential private cable
business consists of numerous private cable operators located throughout the
United States, none of which is deemed to be a dominant factor. Among the
private cable operators, the largest provider to colleges and universities is
presently Campus Televideo. In addition to this competition, any local cable
operator as well as any other cable television programming distributor can
service these institutions in direct competition with the Company. Many of these
competitors are larger, have greater financial resources and have more personnel
to devote to this business than does the Company. The Company believes, however,
that its experience and "know-how" in this field and customer endorsements to
potential clients will greatly assist the Company when competing for this
business.
Regulation
The Telecommunications Act of 1996 (the "1996 Act") changed
the rules with respect to the 1992 Cable Act's uniform rate requirement and
MDUs. Prior to the adoption of the 1996 Act, franchised cable operators were
required to offer uniform rates within franchise areas and with respect to bulk
service contracts for MDUs. Now franchised cable operators may establish
different rates across franchise areas in which they are subject to effective
competition and may offer bulk service contracts to MDUs without any uniform
pricing requirement, except that the franchised cable operator may not engage in
predatory pricing, which concept is undefined in the 1996 Act. This may result
in the Company experiencing more significant price competition in its private
cable business in the future.
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The FCC has adopted a Final Rule and Order on inside wiring
known as ICTA. This rule relates to MDU (multi-housing unit) and delineates
procedures for MDU's to purchase the inside wire at the end of a cable contract.
Under this rule the MDU will notify the current service provider at the end of
the contract and the provider will choose to either sell, abandon or remove the
inside wiring.
WIRELESS CABLE BUSINESS
Wireless Technology
In 1983 the Federal Communications Commission ("FCC")
reallocated a portion of the electromagnetic radio spectrum located between 2500
and 2700 MHZ and permitted this spectrum to be used for commercial purposes.
Today, there are a maximum of thirty-three microwave channels used for wireless
cable in each market. These include thirteen Multipoint/Multichannel
Distribution Service ("MMDS") channels (Channels 1, 2 or 2A, E1- E4, F1-F4 and
H1-H3) and the excess capacity on up to 20 additional Instructional Television
Fixed Services ("ITFS") channels (Channels A1-A4, B1-B4, C1-C4, D1-D4 and
G1-G4). Grandfathered ITFS stations on the eight E and F channels also lease
excess capacity to wireless cable operators. Except in limited circumstances,
the 20 ITFS channels (120 MHZ) in each market can generally be licensed only to
qualified non-profit educational organizations and, in general, each of these
channels or an equivalent video transmission must be used a minimum of 20 hours
per week for instructional programming. The remaining "excess air time" on an
ITFS Channel may be leased to wireless cable operators for commercial use. In
addition, the 13 MMDS channels (78 MHZ) are made available by the FCC for full
time usage without programming restrictions. The ITFS spectrum is now licensed
by the FCC for one-way video and data transmission.
According to industry experts, wireless cable can provide
customers with the same or superior video television, data, and Internet access
services as that of traditional hardwire cable. Wireless systems transmit analog
signals over distances of approximately 25 to 35 miles from their central
transmission point. The transmission of wireless microwave frequencies requires
clear "line-of-sight" between the transmitter and the receiving antenna. Dense
foliage, hilly terrain or tall buildings can cause signal interference which can
diminish or block signals. Certain line-of-sight constraints can be ameliorated
by changing transmission power levels and using engineering techniques,
pre-amplifiers, beambenders and signal repeaters.
Wireless Business Plan
A typical wireless cable system consists of headend equipment
at transmission locations and reception equipment at each subscriber location.
Headend equipment includes microwave transmitters, antennas and other broadcast
equipment. For video services, headend equipment also includes reception
equipment for satellite programming, such as earth stations and satellite
receivers. For downstream data transmission, headend equipment also includes
routers, servers and Internet access lines, all known as an Internet
Point-of-Presence (PoP). An Internet Service Provider (ISP) must also provide
equipment for upstream data, such as routers and modems. Reception equipment
consists of an antenna and frequency converter.
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A set-top converter is generally required for video reception. For data, a
single or multiport wireless modem is required.
The Company intends to develop a digital wireless cable system
with its ITFS leased spectrum as an alternative use of this spectrum including
data and Internet access. Recent developments in technology and regulatory
changes now allow ITFS spectrum to be used for high speed Internet access. The
modem used at a receive site can receive data at speeds up to 27 Mbps, almost
1000 times faster than the typical modem used today (28.8 Kbps). Several
operators are operating one-way Internet over their spectrum using the phone
lines for the less demanding return path. The Company believes there is a market
for businesses which require high speed Internet access and data in the New York
market. However, Internet service over wireless is a newly developed business.
The Company does not currently have the funds to implement such service and
there is no assurance that the proposed service by the Company, if such funds
were available, could be deployed in a commercially viable system.
Channel Lease Agreement
On August 20, 1990, the Company entered into the Channel Lease
Agreement to lease from the Department the use of a portion of three (6 MHZ)
ITFS channels (a total of 18 MHZ) located on seven different tower locations (a
total of 126 MHZ), with an option to utilize one additional 6 MHZ ITFS channel
also located on each of the seven tower locations when the Department obtains
the necessary FCC approvals for such channels. Under the Channel Lease
Agreement, the Company also leases three operationally-fixed microwave service
("OFS") channels (serving as links between the ITFS tower sites), with an option
for one additional OFS channel. The Channel Lease Agreement expires in January,
2004, although the Company has an option to extend the lease for five years if
the FCC renews the Department's license. Following expiration of the option term
(if extended) in 2009, the Company has a right of first refusal covering the
leased channels. Extension and/or renewal of the Channel Lease Agreement is
contingent upon FCC renewal of the Department's license for the channels, of
which there can be no assurance.
The Company also paid a total of $160,000 in monthly royalties
to the Department during 1997 and will be required to pay additional monthly
royalties during 1998 through the expiration of the Channel Lease Agreement,
equal to the greater of $13,200 ($17,606 under certain conditions) plus five
cents ($.05) per subscriber, or five (5) percent of the gross receipts per
month, whichever is higher.
The Channel Lease Agreement includes the Company's right to
use space leased to the Department at the seven transmission sites, including
the Empire State Building, Staten Island, NY, Yonkers, NY, Loomis, NY,
Rhinecliff, NY, Haverstraw, NY and Beacon, NY. Additional space is also
available at all other locations owned or leased by the Department and can be
made available to the Company by the Department for use in providing the
Company's service. The Agreement precludes the Company from transmitting movies
rated "R", "NC-17" or "X" over the Department's channels. The agreement further
precludes the Company from transmitting movies Rated "X" or "NC-17" in the New
York service area, as defined over all channels controlled by the Company or its
affiliates. The Company may,
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however, transmit "R" rated movies over non-Department channels that may be
either controlled by the Company, or the Company's affiliates.
Available Market
According to latest available data, there are approximately
seven million households located in the New York Area of Dominant Interest
("ADI") market. The Company estimates that approximately 70% of these households
can receive wireless cable transmission. (Approximately 50% of such households
subscribe to cable.) The greater New York City area contains the largest
commercial market in the country with over a half million businesses.
Competition
The Company faces competition in data services from a number
of sources, some of which have significantly greater resources, both financial
and other. Some of these are traditional providers of data services, such as
local telephone companies. Others are cable television operators and other
wireless data services.
Telephone Companies
Most Internet access today is provided at relatively low data rates through a
local telephone company using dial-up access at speeds of up to 56 Kilobits per
second (Kbps). Local telephone companies ("Telcos") and competitive access
providers ("CAPS") may also offer services using integrated service data network
("ISDN") technology at 128 Kbps. This service requires an improved Telco
connection and special equipment at the subscriber end. ISDN technology allows a
subscriber to simultaneously communicate using voice and data on a single line.
ISDN is not available in all areas.
A new technology being promoted by the Telcos is asynchronous digital subscriber
line (ADSL). ADSL is intended to provide high speed digital voice and data
services over Telco local loop twisted pair service lines. This service requires
a pre-conditioned ("clean") service line. ADSL has been under development for
many years, and has been field tested in some locations. There is some
speculation that existing phone circuits will be unable to support ADSL in many
cases.
Local Telcos, CAPS and Internet service providers ("ISP") may also offer
services using leased lines. These are available at a variety of data rates,
beginning at Frame Relay (256 Kbps), T-1 (1.54 Mbps) and up to T-3 (45 Mbps).
Leased lines may be available on an exclusive or shared use basis. Leased lines
require customer premises equipment ("CPE") for router connections, and may not
be available in all service areas. Leased lines are generally expensive both for
installation and monthly service.
In addition to Bell Atlantic, the local RBOC, there are at least four major CAPS
of telecommunications services that have proprietary fiber optic networks in the
New York Market. Others are MFS Communications Company, Inc., a unit of
WorldCom; TCG (an acquisition of TCG by AT&T is pending); MCI, primarily a long
distance telephone service provider; and, Liberty Cable, a subsidiary of RCN
Corporation.
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Cable Television Operators
Cable television companies have recently been offering cable modem service to
their customers for Internet access. Cable modems operate at speeds similar to
the wireless modems in that it sends data over a "television" channel. Cable
modems may be either unidirectional or bi-directional.
Before offering cable modem service, cable television operators frequently have
to make improvements to their distribution system (or "plant"). Cable modem
service requires increased capacity for data channels, a reverse path for
upstream communications, and general improvements in system performance
(including in home wiring) to carry high speed digital signals. For these
reasons, cable modem service has been developed in limited geographic areas
where the plant has been upgraded.
Cable systems have "passed" virtually all homes in the United States, but
frequently are not available in business locations. Several of the country's
largest cable operators have franchised cable systems in the greater New York
Market. These include Time Warner Cable, Cablevision Systems, TCI Cable and
Comcast Cablesystems. Some of these operators have been upgrading their CATV
plant to prepare for digital video and data transmissions.
Direct Broadcast Satellite
Direct Broadcast Satellite ("DBS") service provider now offers to bring
unidirectional Internet service to customers. Hughes Corporation's DirecPC
service offers this Internet service. Subscribers must purchase and install a
21" satellite dish and a special computer modem adapter card and must maintain a
separate ISP account for the upstream path.
Other Wireless Multichannel Multipoint Distribution
CAI Wireless Systems, Inc. is the only other MMDS/ITFS provider operating in
the New York Market and is offering high speed Internet access to customers.
With appropriate funding, the Company believes that it will have a competitive
advantage over CAI by having multiple transmitter locations with a wider
geographic coverage and overlapping service areas. The Company will be
concentrating exclusively on the commercial market and institutions and
utilizing all of its wireless spectrum capacity to that end.
Local Multi-Point Distribution
Cellular Vision holds a license for local multi-point distribution service
(LMDS) for the New York Market and offers Internet access at 1.5 MBPS. This
spectrum is located at 28GHz. This higher microwave frequency of LMDS has
significantly greater propagation losses, and signals are severely degraded by
precipitation. As a result, LMDS has a much smaller service area and requires
many more cell locations to cover a geographic area.
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38 Ghz - Point-to-Point
WinStar Communications, Inc. is a competitor with spectrum located at 38 Ghz.
WinStar offers local, long distance and Internet service. This is a
point-to-point technology. Point-to-point service has a separate microwave
transmitter directed at each receiver. The costs associated with this system
configuration require the operator to focus exclusively on customers with very
large usage. The 38 GHz spectrum has propagation disadvantages even more severe
than LMDS.
Government Regulation
General. The wireless cable industry is subject to regulation
by the FCC pursuant to the Communications Act of 1934, as amended. The
Communications Act empowers the FCC, among other things, to issue, revoke,
modify and renew licenses within the spectrum available to wireless cable; to
approve the assignment and/or transfer of control of such licenses; to approve
the location of wireless cable systems; to regulate the kind, configuration and
operation of equipment used by wireless cable systems; and to impose certain
equal employment opportunity and other reporting requirements on wireless cable
operators.
The FCC has determined that wireless cable systems are not
"cable systems" for purposes of the Communications Act. Accordingly, a wireless
cable system does not require a local franchise and is subject to fewer local
regulations than a hardwire cable system. Moreover, all transmission and
reception equipment for a wireless cable system can be located on private
property; hence, there is no need to make use of utility poles, dedicated
easements or public rights-of-way. Although wireless cable operators typically
have to lease the right to use wireless cable channels from the holders of
channel licenses, unlike hardwire cable operators they do not have to pay local
franchise fees. Recently, legislation has been introduced in some states to
authorize state and local authorities to impose on all video program
distributors (including wireless cable distributors) a tax on the distributor's
gross receipts comparable to the franchise fees cable operators pay. While the
proposals vary among states, the bills all would require, if passed, as much as
5% percent of gross receipts to be paid by wireless distributors to local
authorities.
Under the retransmission consent provisions of the
Communications Act, wireless and hardwire cable operators seeking to retransmit
certain commercial television broadcast signals must first obtain the permission
of the broadcast station in order to retransmit the station's signal. However,
wireless cable and private cable systems, unlike hardwire cable systems, are not
required under the FCC's "must carry" rules to retransmit a specified number of
local commercial television or qualified low power television signals.
Under current FCC regulations, a wireless cable operator
generally may broadcast anywhere within the line-of-sight of its transmission
facility, provided that its signal does not violate interference standards in
the FCC-protected area of another wireless license holder. Existing wireless
license holders generally are protected from interference within 35 miles of the
transmission site; however, if that site is moved, the protection remains only
within the original 35 mile zone and approval from the FCC is required before a
transmission site may be moved.
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On July 10, 1996, the FCC adopted an Order in which it
authorized the interim use of certain digital compression technologies for the
provision of video, voice and data services over MDS and ITFS frequencies. Such
technologies may be utilized by a wireless cable operator or an MDS or ITFS
licensee, after applying for, and being granted, such an authorization by the
FCC. Upon receiving a digital authorization, a licensee also may transmit
one-way downstream Internet service. The Department has filed and has received
grants of applications for digital authorizations for its ITFS system located at
the Empire State Building.
In March 1997, various wireless cable industry companies
petitioned the FCC to permit the grant of applications for two-way transmission
of interactive services over MDS and ITFS frequencies. The petition proposes
rule changes which would allow the FCC to routinely grant such licensees the
right to implement two-way wireless services. There can be no assurance that the
petition will be granted, or if granted, that the Company will be able to
develop commercially successful products using two-way transmission.
1996 Telecommunications Act. In February 1996, Congress passed
and the President signed into law the 1996 Act Some of the provisions of the
1996 Act that directly affect wireless cable television operators are discussed
below. Beyond those specific provisions, the 1996 Act contains provisions
intended to increase competition in the telephone, radio, broadcast television,
and hardwire and wireless cable television businesses. The long term effect of
the 1996 Act cannot be determined at this time, although competition in the
video programming delivery industry is likely to increase as a result of the
adoption of the 1996 Act.
The 1996 Act may change the competitive environment of the
wireless cable business. The 1996 Act changes the definition of cable television
system so that the definition excludes any systems that serve customers without
using any public right of way. This change will allow wireless cable system
operators to wire together apartment complexes and other similar properties, as
long as the wiring system does not cross a public right-of-way, without the need
to apply for a local cable television franchise. The 1996 Act will also reduce
the regulatory authority over cable company rates, allow telephone companies,
under certain conditions, to distribute video and afford relief to DBS and
wireless cable providers by exempting them from certain local restrictions on
antennas.
The 1996 Act also requires all providers of telecommunications
services (as defined by the 1996 Act) to contribute to a national Universal
Service Fund (the "Fund"). The Fund was created to promote the availability of
telecommunications services to those in low income, rural, insular, and high
cost areas at rates that are reasonably comparable to the lower rates charged in
urban areas. The 1996 Act expanded the purpose of the Fund to include provision
of affordable access to advanced telecommunications services for schools,
classrooms, health care facilities, and libraries. Previously, only telephone
companies were required to contribute to the Fund. The FCC is considering
whether and to what extent wireless cable operators, such as the Company, must
contribute to the Fund. This matter remains pending before the FCC.
Pursuant to the 1996 Act, video programming distributors,
including wireless cable operators, will be required to provide closed captioned
video programming on a phased-in basis starting on January 1, 2000. Requirements
to pass-through captions already contained
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in programming and to maintain captioning at 1997 levels became effective on
January 1, 1998. Because ITFS programming as a class is exempt from captioning
requirements, wireless cable operators that transmit such programming are not
required to provide closed captioning.
Other Regulations. Wireless cable license holders are subject
to regulation by the Federal Aviation Administration with respect to the
construction of transmission towers and to certain local zoning regulations
affecting construction of towers and other facilities. There may also be
restrictions imposed by local authorities. There can be no assurance that the
Company will not be required to incur additional costs in complying with such
regulations and restrictions.
Copyright. Under the federal copyright laws, permission from
the copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act, certain "cable systems"
are entitled to engage in the secondary transmission of programming without the
prior permission of the holders of copyrights in the programming. In order to do
so, a cable system must secure a compulsory copyright license. Such a license
comes into existence upon the filing of certain reports with the payment of
certain fees to the U.S. Copyright Office. In 1994, Congress enacted the
Satellite Home Viewer Act of 1994 which enables operators of wireless cable
television systems to rely on the cable compulsory license under Section 111 of
the Copyright Act.
TRADEMARKS, COPYRIGHTS, PATENTS
The Company holds no copyrights or patents but has received a
federal service mark registration for the name Magnavision. The Company does not
believe that these proprietary rights are material to its business.
PERSONNEL
The Company currently has a staff of 13 full time employees (3
in sales, 4 in installations, 1 in customer service and marketing, 2 in
administration, and 3 in management) and various part time consultants, advisors
and subcontractors, none of whom is a member of a union. The Company does not
plan to expand its staff until it begins to generate sufficient revenue or
receives funding to support expansion. The Company considers its relationship
with its employees to be excellent.
MAJORITY SHAREHOLDER
Cacomm, Inc., a New Jersey corporation ("Cacomm"), is the
majority shareholder of the Registrant. As of the date of this Form 10-K, the
Company believes that Cacomm owns approximately 79.6% of the Registrant's
outstanding common stock. Certain officers and directors of the Registrant are
also officers and directors of Cacomm. See "Directors and Executive Officers of
the Registrant".
The Registrant has been advised that Cacomm is a 25% partner
in a general partnership known as The Grand MMDS Alliance (the "Alliance"), a
designated selectee of the FCC for four MMDS channels in the New York
metropolitan market. The possibility exists
- 11 -
<PAGE>
that the Alliance could commence business in direct competition with the
Registrant and the Registrant's former Chief Executive Officer, in his letter of
resignation, indicated that he intends to launch such competitive activities.
However, the Alliance has not commenced operations as of the date of this
report. The Company continues periodic discussions with the Alliance (the other
partners of which are unaffiliated with the Registrant) for the purpose of
exploring various alternatives relating to the MMDS channels held by the
Alliance. However, such discussions have not proven fruitful in the past, and
there is no assurance that such discussions will be productive in the future.
ITEM 2. PROPERTIES
The Registrant's principal offices are located at 1725 Highway
35, The Wedgewood Building, Wall, New Jersey, where it occupies approximately
1200 square feet under a lease agreement which expires in May 1998 but expects
to renew for a year.
As part of the Channel Lease Agreement with the Department,
the Company acquired the right to use a portion of the Department's transmitting
space at the Empire State Building, in Yonkers, New York and on Staten Island,
New York. The Company pays no additional consideration for this space beyond the
fees due to the Department under the Channel Leasing Agreement.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
P A R T I I
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Common Stock has been trading in the over-the-counter
market under the symbol "MAGV". The following table sets forth for the periods
indicated the range of high and low bid quotations for the Company's Common
Stock since January 1, 1996 as reported by the National Quotation Bureau, Inc.
and as reported by the National Association of Securities Dealers composite feed
or other qualified inter quotation dealer medium. These quotations represent
inter-dealer prices, without retail mark-up, mark-down or commissions and do not
necessarily represent actual transactions. As trading in the Common Stock has
historically been sporadic and in small volumes, the Company cannot assure that
an active public trading market will develop or be sustained. All Closing Bids
have been restated to reflect the effect of the 1 for 20 reverse stock split of
May 1997.
- 12 -
<PAGE>
CLOSING BID
1996 HIGH LOW
Jan. 2 thru Mar. 29 15.00 5.00
Apr. 1 thru June 28 20.00 10.00
July 1 thru Sept. 30 15.00 7.50
Oct. 1 thru Dec. 31 11.25 3.125
1997
Jan. 2 thru Mar. 31 8.75 1.25
Apr. 1 thru June 30 8.75 4.60
July 1 thru Sept. 30 8.75 1.50
Oct. 1 thru Dec. 31 2.25 1.375
(b) As of December 31, 1997, according to the Registrant's transfer
agent, the approximate number of holders of record of the Registrant's common
stock was 526.
(c) The Registrant has never paid any cash dividends on its Common Stock
and none are presently anticipated. Under the Company's agreements with its
redeemable preferred stockholders and its principal lender, the Company is
prohibited, without their consent, from declaring or paying any dividends on its
Common Stock until the loans made by the lender have been repaid and the
preferred stock is redeemed, in full. As of December 31, 1997, the Company had
accumulated dividends of $257,778 on its 8% redeemable preferred stock . The
Company is not required to pay dividends until the redemption date of May 2002,
unless accelerated by certain liquidity events. The redeemable preferred stock
will have a preference over the common stock as to any dividends that may be
legally available for declaration and payment.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data. This data should
be read in conjunction with "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8-Financial Statements
and Schedules."
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data
Years Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $1,607,049 $ 1,285,442 $ 666,366 $ 516,053 $ 385,512
============ ============ =========== =========== ===========
Loss Before
Extraordinary Item $(1,152,529) $ (1,411,509) $ (844,493) $ (531,863) $ (805,120)
============ ============ =========== =========== ===========
Extraordinary Item-
Loss From Extinguishment
of Debt $ 275,844 $ - $ - $ - $ -
============ ============ =========== =========== ===========
Net Loss $ (1,428,373) $ (1,411,509) $ (844,493) $ (531,863) $ (805,120)
============ ============ =========== =========== ===========
Redeemable Preferred
Stock Dividend
Accumulated $ 257,778 $ - $ - $ - $ -
============ ============ =========== =========== ===========
Net Loss Applicable to (1)
Common Stockholders $ (1,686,151) $ (1,411,509) $ (844,493) $ (531,863) $ (805,120)
============ ============ =========== =========== ===========
Basic & Diluted Loss Per
Common Share $ (1.46) $ (1.23) $ (.66) $ (.40) $ (.63)
============ ============ =========== =========== ===========
Basic & Diluted Weighted
Average Common Shares
Outstanding 1,152,504 1,147,030 1,276,539 1,313,743 1,281,378
============ ============ =========== =========== ===========
Balance Sheet Data
At December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Working Capital (Deficit) $ (787,499) $(4,338,083) $ (213,988) $ (209,103) $ (385,948)
============ ============ =========== =========== ===========
Total Assets $2,427,163 $ 2,196,994 $(2,065,771) $ (689,593) $ (569,970)
============ ============ =========== =========== ===========
Long Term Debt $ 6,041 $ 10,563 $ 2,678,784 $ 58,776 $ 142,898
============ ============ =========== =========== ===========
Redeemable Preferred Stock $ 4,498,456 $ -- $ -- $ -- $ --
============ ============ =========== =========== ===========
Stockholders' Equity (Deficit) $ (3,403,335) $(2,608,645) $(1,272,472) $ 12,004 $ (111,133)
============ ============ =========== =========== ===========
</TABLE>
(1) The 1993 net loss includes a bad debt of $407,722 relating to a
non-management shareholder loan.
- 14 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
and elsewhere in this Form 10-K constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements of the Company, or industry
results expressed or implied by such forward-looking statements. Such factors
include among others, general economic and business conditions, which will,
among other things, impact demand for the Company's services; changes in public
taste, trends and demographic changes; competition from other SMATV and/or cable
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations, which
may affect the Company's results of operations; timely completion of
construction projects for new systems; changes in business strategy or
development plans; the significant indebtedness of the Company; quality of
management; availability of qualified personnel; changes in, or the failure to
comply with, government regulations; and other factors referenced in the Form
10-K.
RESULTS OF OPERATIONS
All of the Company's current revenues are derived from its
private cable operations. The wireless channel capacity operations have not
commenced; therefore, no revenue has been derived from the wireless operation.
The Registrant and its wholly owned subsidiary began service
in February 1992 to various colleges, nursing homes, and hospital facilities in
the New York/New Jersey area utilizing direct satellite technology. This
involves the use of antennas which are installed at the facility and then
separately wired on a room-by-room basis. The Company has long-term agreements
with 37 facilities (34 currently built) under which it is currently providing
service to students and patients through approximately 11,700 outlets in rooms
and common areas at such institutional facilities. On April 1, 1998, the Company
announced the entering into of a "Binding Letter of Intent" with Fordham
University pursuant to which the Company has agreed to serve 3,050 students
located at certain Fordham facilities. This agreement is Phase 1 of a four phase
project, the later three phases are not yet awarded. The Company expects
additional contracts to be signed in the near future and will attempt to have
these and other signed but unbuilt facilities on line in 1998. The majority of
the facilities using the Company's private cable service are in New Jersey and
New York, but the market area currently reaches from North Carolina to
Massachusetts.
Many colleges and senior living and nursing homes in the
United States do not have cable television, but the current trend is for these
institutions to install cable television. Management feels that this trend,
coupled with the fact that the Company can offer cable services normally not
provided by traditional wired cable companies, should permit significant
subscriber expansion in the future. Each installation is comprised of a number
of billing outlets. A billing outlet represents a hookup for a television. The
Company collects revenue from each television on-line. For the most part, the
colleges are on a nine month billing cycle
- 15 -
<PAGE>
starting in September and ending in June of the subsequent year. The nursing
homes and hospitals are on a 12 month billing cycle.
1997 vs. 1996
The net loss for 1997 was $1,428,373 compared to $1,411,509
for 1996. The Company had an extraordinary item of $275,844 related to the
extinguishment of debt to its then principal lenders pursuant to an Exchange
Agreement, whereby its senior lending facility was converted into 5 year 8%
redeemable preferred stock. The net loss from the private cable operation was
$889,289 in 1997, compared to $443,940 in 1996. The loss from the Company's
wireless cable business for 1997 was $539,084 compared to $967,569 for 1996,
which related to expenses such as professional fees, engineering fees, salaries
and channel lease expenses.
Revenues in 1997 increased to $1,607,049 from $1,285,442 in
1996. The increase was attributable to the addition of approximately 3,250
outlets in 1997 and the inclusion of a full year's income for the college
installations built over the summer and put on line in September of 1996.
Cost of sales increased to $677,565 in 1997 from $526,654 in
1996, reflecting the increase in programming expense for outlets in 1997 and the
full year's programming expense from the additional outlets added in 1996.
Operating expenses primarily consist of salaries, depreciation
and amortization and general and administrative expenses. Total operating
expenses for 1997 increased $87,498 to $1,834,831 from $1,747,333 in 1996. The
increase was primarily due to increased salaries because of increased staff and
increased depreciation and amortization expenses.
Interest expense decreased $175,796 to $280,546 in 1997 from
$366,342 due to the conversion of debt to Redeemable Preferred Stock in May
1997. This has been slightly offset by a higher loan balance in 1997 prior to
the conversion and interest for the new Access Capital, Inc. line of credit in
the fourth quarter.
The extraordinary item was for the write off of the deferred
costs upon the extinguishment of the debt after the conversion to Redeemable
Preferred Stock.
1996 vs. 1995
The net loss for 1996 was $1,411,509, compared to $844,493 for
1995. The net loss from the private cable operation was $443,940 in 1996,
compared to $245,111 for 1995. The loss from the Company's wireless cable
business for 1996 was $967,569 compared to $599,382 for 1995, which related to
expenses such as professional fees, engineering fees, salaries and channel lease
expenses.
Revenues in 1996 increased by 93% to $1,285,442 from $666,366
in 1995. The increase was due to the addition of approximately 3,400 outlets in
1996 and the inclusion of a full year's income for the outlets added in 1995.
- 16 -
<PAGE>
Cost of sales increased by 48% to $526,654 from $355,001
reflecting the increase in outlets in 1996 and a full years' programming expense
from the outlets added in 1995.
Operating expenses primarily consist of salaries, depreciation
and amortization and general and administrative expenses. General and
administrative expenses primarily consist of salary payroll taxes, insurance,
professional expenses and channel lease costs. Operating expenses increased 59%
to $1,747,333 in 1996 from $1,098,693 in 1995.
The increase was attributable to, among other things; higher
salaries due to increased staffing and increases in wages to bring staff up to
market rate; depreciation and amortization which was increased due to
amortization of the capitalized debt acquisition costs and the increased
depreciation due to increased outlets. Of such operating expenses, general and
administrative expenses accounted for an increase of $387,576 due to, among
other things, increased professional fees for consulting concerning the
performance of a strategic analysis of the Company's businesses, legal and
accounting fees related to the amended lending facility, and increased channel
lease costs.
Interest expense increased to $466,342 in 1996 from $149,279
in 1995. This increase is attributable to the senior debt for a full year in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Year Ending 1997
For the year end December 31, 1997, total cash decreased by
$22,750. The net cash used in operating activities decreased to $447,166 in 1997
from $1,036,351. The primary reason for the decrease was decreased losses from
operations and an increase in outstanding payables.
The cash used in investing activities increased from $503,408
in 1996 to $674,320 in 1997. The funds were used primarily to purchase equipment
used to increase the outlet count.
Net cash provided by financing activities decreased from
$1,468,728 in 1996 to $1,098,736 in 1997. Cash flow from financing activities in
1997 was principally from the proceeds of the Redeemable Preferred Stock and the
Access Capital, Inc. loan, both described below.
Year Ending 1996
For the year ending December 31, 1996, the total cash
decreased by $71,031. The net cash used in operating activities increased from
$589,685 in 1995 to $1,036,351 in 1996, primarily due to increased losses in
operations.
The cash used in investing activities decreased from
$1,176,683 in 1995 to $503,408 in 1996. The funds for 1996 were used primarily
to purchase equipment used to increase the outlet count.
- 17 -
<PAGE>
Cash flow provided by financing activities decreased from
$1,758,664 in 1995 to $1,468,728 in 1996. Cash flow provided by financing
activities was principally from the proceeds of senior indebtedness.
Liquidity and Capital
Since the inception of service in 1992, the Company has
experienced operating losses, was in default of certain provisions of its senior
debt, and has negative cash flow. At December 31, 1997, the Company had a
working capital deficiency and a shareholders' deficit.
The Company's capital commitments at December 31, 1997 include
additional capital to construct facilities at the Department of Education of the
Archdiocese of New York and capital to expand the number of institutions the
Company is currently servicing in its private cable business. As of the date
hereof, the Company has not commenced operation of a wireless system, and will
require substantial additional funding in order to do so.
Both the private cable and the wireless cable industry require
significant capital. The Company's plan for continued expansion requires
substantial capital investments and the availability of sufficient financing is
essential to its plan. Funds are required for start-up costs related to the
wireless asset and are necessary to continue to build new institutional sites.
The Company has incurred operating losses since inception and its cash flow from
operating activities has been insufficient to cover its expenses.
Management plans to mitigate the uncertainties related to the
Company's ability to continue as a going concern, by exploring alternative uses
of its ITFS spectrum and pursuing longer term financing through obtaining
strategic partner(s) willing to participate with the Company in the development
of alternative uses of its ITFS spectrum. The Company's business plan related to
ITFS spectrum is dependent upon the Company securing a strategic partner(s) for
the capital resources required. There is no assurance that the Company will be
able to secure additional financing or strategic relationships on terms or
conditions satisfactory to the Company, or at all. Failure to obtain financing
will have a material adverse effect on the Company. Also, there can be no
assurance that, even with additional financing, the Company will be able to
launch its alternative use of ITFS spectrum in a commercially successful manner.
The Company plans to meet short term liquidity requirements
for the private cable business through funds available under Access Capital,
Inc. line of credit. The line will not support the extra expense of the wireless
plan. The Company must find additional financing for both the private cable
operations and its wireless plan. There can be no assurance that the Company
will be able to obtain additional financing on a timely basis or at all.
In September 1997, the Company and Access Capital, Inc. agreed
to a $1,250,000 three year revolving line of credit to be used to expand the
Company's private cable business. As of the end of December 1997, the Company
had borrowed approximately $405,000 under the line of credit. Interest is
payable currently at the default rate of prime plus 8% and is current. The line
is secured by a pledge of private cable contracts and other Company
- 18 -
<PAGE>
assets. The lender received warrants at an exercise price of $2.00 per share to
purchase approximately 4% of the Company's stock on a fully diluted basis.
Subsequent to the fiscal year ended December 31, 1997, the
Company was not in compliance with the working capital and other covenants under
the line of credit and such defaults continue through the date hereof. In
connection therewith, the Company requested a waiver thereof together with a
separate working capital advance.
By letter dated May 8, 1998 Access Capital proposed a
restructuring of the financial covenants, an increase in the line of credit to
$3 million dollars and an increase in its warrant ownership of the Company. The
Company is currently reviewing such proposal and discussions with the lender are
expected to commence shortly. There is no assurance that such restructuring will
be effected on terms satisfactory to the Company, or at all.
Exchange of Debt for Redeemable Preferred Stock
In August 1995, the Company entered into a $5 million lending
facility with a bank and two small business investment companies. On June 3,
1996, the Company amended the agreement with the lenders and as of the year
ended December 31, 1996, the Company had borrowed $4,062,932 under this
agreement. See "Item 13- Certain Relationships and Related Transactions" for
further information with regard to the transactions described above.
As of December 31, 1996 the Company was not in compliance with
several covenants under its senior debt agreement and as of March 31, 1997 the
Company did not make its quarterly interest payment of $122,095. On May 8, 1997,
the Company agreed with its lenders to exchange its senior subordinated notes
into redeemable preferred stock. Under the terms thereof, the Company's
outstanding subordinated notes, aggregating approximately $4.1 million, together
with accrued interest and detachable warrants, were exchanged for $5 million of
8% redeemable preferred stock due December 31, 2002. In connection with the
exchange, the lenders also funded the Company the remaining balance on the
existing line. In addition, the note holders received 1,826,932 warrants to
purchase up to 58% of the common stock on a fully diluted basis at an exercise
price of $2.00 per share after the Company effected a 1-for-20 reverse stock
split, and have the right, which they have exercised, to elect the majority of
the Board of Directors. This resulted in a change in control of the Company. The
agreement also requires the warrant holders to surrender up to 10% of their
stock in a fully diluted basis, if, as and when certain liquidity events occur.
In addition, warrant holders have the right to require the Company to repurchase
the warrants under certain conditions. This option can only be exercised upon
the sale of an asset of the Company. The value of the warrants was estimated at
$555,556 and represents a discount to the face value of the redeemable preferred
stock. The cost of the put can not be determined at this time since it is based
upon the value of a sale of a significant asset which cannot be assured. Also,
one of the warrant holders has entered into a management service agreement with
the Company. See Item 10. Directors and Executive Officers of the Registrant.
Inflation
Management believes that inflation and changing prices will
have a minimal effect on operations. The above should be read in conjunction
with the Company's financial statements included elsewhere herein.
- 19 -
<PAGE>
Seasonality of Installation Activities
The Company installs most of its college and university
subscribers over the summer because the institutions are, for the most part,
vacant. Therefore, the Company experiences lower revenues and higher capital
expenditures during the summer.
Year 2000
The Company recognizes the potential problems that may arise if its systems and
operations are adversely impacted by problems related to "year 2000" system and
software failures which can arise when dates go beyond the year 1999. The
Company is in the process of assuring that its purchased software will be year
2000 compliant. In addition, the Company is surveying all major suppliers to
determine the status and schedule for their year 2000 compliance. Where it
believes that a particular supplier's situation poses unacceptable risk, the
Company plans to find alternate sources during fiscal 1998 and 1999. There can
be no assurance, however, that there will not be a delay in, or increased cost
associated with, the implementation of such changes which could have a material
adverse effect on future operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See pages F-1 through F-15.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None. See Form 10-K for the fiscal year ended December 31,
1995.
- 20 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with
respect to the directors and officers of the Registrant. These individuals serve
in the same capacities with Magnavision - N.J.
<TABLE>
<CAPTION>
Director or
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C> <C>
Robert E. Hoffman * 53 Director, Chairman, 1998
President (1) (2)
Nicholas Mastrorilli, Jr.** 35 Director, Vice President 1991
Patrick Mastrorilli** 33 Director, Vice President 1991
Jeffrey Haertlein 49 Chief Financial Officer 1996
Keith M. Heilos 35 Vice President 1991
Brian Mastrorilli 29 Vice President 1991
Evan Wildstein 27 Director (1) (2) (3) (4) 1997
Geoffrey Thompson 57 Director (4) (5) 1997
George Zombek 34 Director (1) (2) (3) (4) (5) 1997
Kevin Falvey 41 Director (4) (5) 1997
</TABLE>
* Mr. Hoffman succeeded Nicholas Mastrorilli, Sr. as Chairman, Chief
Executive Officer and Director effective January 8, 1998 upon Mr.
Mastrorilli's resignation on such date from such positions. Mr. Hoffman
also agreed to assume the additional duties of President of the Registrant.
Mr. Mastrorilli, Sr. was an officer and director of the Registrant since
1989.
** Pursuant to the Exchange Agreement of May 8, 1997 and the related
Stockholders Agreement of such date, Cacomm retained the right to designate
three (3) out of the Registrant's seven (7) member Board of Directors.
Pursuant thereto Cacomm appointed Messrs. Nicholas Mastrorilli, Sr.,
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli to the Registrant's Board
of Directors. Effective upon Mr. Mastrorilli Sr.'s resignation, Cacomm
designated Mr. Hoffman as one of its designees. Subsequent thereto, the
Registrant received a letter dated April 24, 1998 from Cacomm removing
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli as designees of Cacomm to
the Registrant's Board of Directors. The letter indicated that Cacomm
would, in the near future, appoint replacement designees. Such designees,
if not from existing management, must be reasonably acceptable to the
preferred stockholders. To date Cacomm has not submitted the names of its
proposed designees.
(1) Member of Executive Committee.
(2) Member of Audit Committee. The Audit Committee assists the Board of
Directors in fulfilling its responsibilities with respect to the Company's
accounting and financial reporting activities.
(3) Member of Compensation Committee. The Compensation Committee determines the
compensation to be paid by the Company to its officers.
(4) Messrs. Wildstein and Thompson and Messrs. Zombek and Falvey are
representatives of KOCO Capital Company, LP ("KOCO") and IBJS Capital
Company, Inc. ("IBJS") respectively, and serve on the Registrant's Board of
Directors pursuant to the terms of a certain Stockholders Agreement dated
as of May 8, 1997 between the Registrant, KOCO, IBJS, Cacomm and Nicholas
Mastrorilli, Sr. The Stockholders Agreement provides for the Registrant to
have a Board of Directors consisting of not more than seven (7) persons, of
which, so long as KOCO and IBJS own 20% or more of the fully diluted common
stock, such investors shall each have the right to designate two (2)
directors and so long as Cacomm holds 20% or more of the fully diluted
common stock, it has the right to designate three (3) directors that are
members of the Registrant's management or are approved by KOCO and IBJS.
Cacomm, pursuant to such agreement, previously designated Robert E.
Hoffman, Nicholas Mastrorilli, Jr. and Patrick Mastrorilli its designees to
serve on Registrant's Board of Directors. As noted above, by letter dated
April 24, 1998, Cacomm removed Nicholas Mastrorilli, Jr. and Patrick
Mastrorilli as its designees to be members of the Board of Directors
stating that it would appoint alternate members at a later date. Should
there be an increase in the size of the Board of Directors, KOCO and IBJS
have the right to designate additional directors such that their nominees
at all times constitute a simple majority of the Board of Directors. The
parties to the Stockholders Agreement also agreed to appoint one KOCO
director and one IBJS director to serve on the Audit, Compensation and
Executive Committees of the Board of Directors and one management director
to serve on the Compensation and Executive Committees of the Board of
Directors. As a result of the implementation of the Stockholders Agreement,
a change in control of the Registrant has been effected. Reference is made
to the Exhibits attached as part of this Form 10-K for additional
information contained in the Exchange Agreement and the Stockholders
Agreement of May 8, 1997.
(5) Such persons were elected to the Registrant's Board of Directors to replace
Mr. Paul Echausse and Messrs. Rick Krueger and Larry Zilavy, as
representatives of KOCO and IBJS, respectively, each of whom served on
Registrants Board of Directors briefly during 1997.
- 21 -
<PAGE>
The directors and officers, other than Mr. Hoffman, who serves pursuant to
the terms of the Employment Agreement described in Item 11, Executive
Compensation, will hold office until the next annual meeting of shareholders and
directors, respectively, or until their successors are duly elected and
qualified. Nicholas Mastrorilli, Jr., Patrick Mastrorilli and Brian Mastrorilli
are brothers. Nicholas Mastrorilli, Sr. is their father and is the controlling
shareholder of Cacomm.
Robert E. Hoffman, became Chairman and Chief Executive Officer of the
Registrant and its subsidiaries on January 8, 1998, effective upon the
resignation from such positions by Nicholas Mastrorilli, Sr. Mr. Hoffman was
also elected President on such date. Prior thereto, and from August 1996, Mr.
Hoffman was a self-employed technology consultant to telecommunications
businesses in wireless cable, television, communications products and DTH
satellite television. Prior thereto and concurrent therewith, Mr. Hoffman was
President of Wireless America, Inc., a private company which held and leased
frequency licenses for use in wireless cable television systems. Wireless
America, Inc. sold all the assets and was liquidated in February 1997. From June
of 1994 through July of 1996, Mr. Hoffman was Vice President, Engineering for
C-COR Electronics, a manufacturer of cable television distribution equipment.
From January of 1993 through June of 1994, Mr. Hoffman was Vice President,
Engineering for Cincinnati Microwave, Inc., a domestic manufacturer of
speciality consumer electronics and communication products. Prior thereto and
from July of 1986 through December 1992, he was President of Comband
Technologies, Inc., a supplier of systems, equipment and services to the
wireless (microwave) cable television industry. Mr. Hoffman received a Bachelors
and a Masters degree in Electrical Engineering from Rensselaer Polytechnic
Institute in 1966 and 1971, respectively.
Nicholas Mastrorilli, Sr., was Chairman of the Board and Chief Executive
Officer of the Registrant from the Company's inception in June 1989 to January
8, 1998. He has been Chairman and President of Cacomm, Inc., a Company in the
business of producing television programming and video commercials since April
1991 and Executive Vice President from 1981 to 1991. Mr. Mastrorilli, as
Executive Vice President of Cacomm, Inc, directed all of such Company's video
production and distribution business as well as its research and development in
wireless communications. Mr. Mastrorilli was responsible for the successful
acquisition of wireless cable channel capacity for the Registrant from the
Department of Education of the Archdiocese of New York.
Nicholas Mastrorilli, Jr., has been Vice President of administration since
April of 1991. Mr. Mastrorilli, Jr. has also served as Vice President and
Director of Cacomm, Inc. from April 1991 to the present. He also served as
director of administration of Cacomm, Inc. from January 1986 to April of 1991.
He was responsible for all the Company's financial matters until December 1995.
He is now responsible for marketing and sales to senior living facilities with
respect to the Company's private cable television service.
Patrick F. Mastrorilli, has been Vice President of Marketing since April
1991. He has also served as Vice President and Director of Cacomm, Inc. from
April 1991 to the present. He also served as Director of Sales and Marketing of
Cacomm, Inc. from January 1986 to April of 1991. Mr. Mastrorilli is responsible
for advertising campaigns designed to attract additional subscribers to
Magnavision's services, and oversees all right-of-entry negotiations with
building owners, management companies, colleges, and nursing homes.
- 22 -
<PAGE>
Jeffrey Haertlein, was elected as the Company's Chief Financial Officer
effective as of January 1, 1996 with responsibility for all of the Registrant's
financial matters. Mr. Haertlein was previously Assistant Vice President of
Midlantic Corporation from 1978 to 1995 with responsibility for financial
planning and reporting for such bank holding company and its various
subsidiaries. Prior thereto and from 1977 to 1978 Mr. Haertlein was employed by
Chase Manhattan Bank in the capacity of Internal Auditor. Mr. Haertlein received
a B.A. degree from Monmouth College in accounting/marketing and is currently
attending such institution in pursuit of a Masters Degree in Business
Administration.
Keith M. Heilos, has been Vice President, Customer Relations for the
Registrant since April 1991. Prior to 1991, Mr. Heilos served as Director of
Video Production for Cacomm, Inc. from July of 1987 to April 1991. Mr. Heilos is
directly responsible for customer relations and is the liaison between the
Company and its client base. Mr. Heilos received a B.A. degree from Montclair
State College in 1986.
Brian J. Mastrorilli, has been Vice President, Technical Operations since
April 1991. Prior to 1991, Mr. Mastrorilli served as Director of Technical
Operations for Cacomm, Inc. from May of 1988 to April 1991 and Vice President of
Cacomm, Inc. from April 1991 to the present. He previously served as Technical
Director for Video and Audio operations for Cacomm, Inc. Mr. Mastrorilli is
presently responsible for all the company's technical projects, including system
design, construction coordination and FCC licensing.
Arnold Dauer, age 61, performs services in a senior executive capacity that
would otherwise be performed by an officer of the corporation. Mr. Dauer was an
advisor to the President of Magnavision regarding all aspects of the
Registrant's business from June 1989 to January 8, 1998, and has provided
general business consulting services to Cacomm, Inc. (the major shareholder of
Magnavision Corporation) from 1985 to January 8, 1998. Mr. Dauer currently
provides consulting services to the Company concerning all aspects of its
business. Mr. Dauer was creator and founder of various businesses, including
Allaire State Bank, where he also served on the Board of Directors until the
bank merged into The National Community Bank. Mr. Dauer was co-founder and
served as Vice President in charge of operations of "Cathy Arnold", a small
chain of retail apparel stores, and previously served as Vice President of Reid
Manufacturing, Inc., a manufacturer of apparel, from 1959 until the businesses
were sold in 1980.
Evan Wildstein, has been a director of the Registrant since June 1997 as a
representative of Koco Capital Company, LP ("KOCO"), a Small Business Investment
Company. Mr. Wildstein is President of Kisco Capital Corporation, the general
partner of KOCO, and is an associate at Kohlberg & Company, LLC which he joined
in October 1994. Prior to that Mr. Wildstein was a financial analyst at Dean
Witter Reynolds, Inc. from August 1993 to October 1994. Mr. Wildstein received a
bachelor's degree in Business Administration from the University of Michigan in
1993.
Geoffrey Thompson, has been a Director of the Registrant since November
1997 as a representative of KOCO. Mr. Thompson, a principal at Kohlberg &
Company, L.L.C. joined the firm in 1996. Previously, he was managing partner of
Norman Broadbent International (1995-1996), President of Nordeman Grimm
(1993-1994) and President/CEO of Marine
- 23 -
<PAGE>
Midland Banks, Inc. from 1981-1993. He holds a bachelors degree from Columbia
College (1963) and an MBA degree from Harvard University (1967).
George Zombek, has been a Director of the Registrant since June 1997 as a
representative of IBJS, a Small Business Investment Company and a wholly-owned
subsidiary of IBJ Schroder Bank & Trust Co. Mr. Zombek is Chief Operating
Officer of IBJS and joined such firm in 1997. Prior thereto and from its
inception in 1995, Mr. Zombek was a principal at Canterbury Mezzanine Capital, a
mezzanine finance fund. From 1992 through 1995, Mr. Zombek was affiliated with
the BZW Mezzanine Group and briefly during such period with its Mergers and
Acquisitions Group. Mr. Zombek received an MBA degree in Finance from University
of Chicago in 1989 and a BA degree from New York University in 1985.
Kevin Falvey, has been a Director of the Registrant since November 1997 as
a representative of IBJS. Mr. Falvey joined IBJS in November 1997. From 1992 to
February 1997 Mr. Falvey was a Vice President of CIT Group/Equity Investments,
Inc. Prior thereto and from 1986 to 1991, he was Managing Director of
Manufacturers Hanover Capital Partners, Inc. Mr. Falvey received an MBA degree,
with distinction, from New York University in 1978 and a B.B.A. degree from the
University of Massachusetts in 1987.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is the aggregate remuneration paid or accrued by the
Registrant during the years ended December 31, 1997, 1996 and 1995 to the
Company's Chief Executive Officer. No other executive officer of the Company
received salary and bonus aggregating in excess of $100,000 in any of those
years.
SUMMARY COMPENSATION TABLE
Name & Principal Position Year Salary
- ------------------------- ---- ------
Nicholas Mastrorilli, Sr., CEO 1997 $109,800
1996 $112,067
1995 111,771
Employment Agreement
Effective as of January 8, 1998, Nicholas Mastrorilli, Sr. resigned as an
officer, director and employee of the Registrant and its subsidiaries. In
connection therewith, the Registrant agreed to continue Mr. Mastrorilli's base
salary of $105,000 per annum, including all health benefits up to the sum of
$500.00 per month, for the period ending January 8, 1999.
Also effective January 8, 1998, the Registrant entered into an agreement with
Robert E. Hoffman. Pursuant thereto, Mr. Hoffman has agreed to act as Chairman,
President and Chief Executive Officer of the Registrant, for which service an
executive search firm will be paid the sum of $17,500 monthly together with
additional amounts should Mr. Hoffman become an employee on a long term basis,
or upon achievement of mutually agreed goals. The Registrant has the right to
terminate such agreement by giving thirty (30) days advance written notice. The
Agreement was
- 24 -
<PAGE>
scheduled to terminate on April 30, 1998 with the Registrant having the option
to continue such employment. To date no termination notice has been issued, and
no mutually agreed upon goals have been established which would trigger bonus
fees. Discussions are ongoing between the Registrant and Mr. Hoffman regarding
the continuation of his employment but no definitive agreements have been
reached or implemented.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The following table contains information as of December 31,
1997 as to the beneficial ownership of shares of Common Stock of the Registrant
of each person who, to the knowledge of the Registrant at that date, was the
beneficial owner of 5% or more of its outstanding shares.
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership % of Class
- ------------------- ----------------------- ----------
Cacomm, Inc. 917,889 79.6
P.O. Box 163
Sea Girt, NJ 08750
KOCO Capital Company, LP 730,773 (1) 38.8
111 Radio Circle
Mt. Kisco, NY 10549
IBJS Capital Company, Inc. 1,096,159 (2) 48.75
One State Street
New York, NY 10004
Access Capital, Inc. 138,536 (3) 10.73
405 Park Avenue
New York, NY 10022
(1) Constitutes shares subject to currently exercisable warrants issued to
KOCO Capital Company, LP.
(2) Constitutes shares subject to currently exercisable warrants issued to
IBJS Capital Company, Inc..
(3) Constitutes shares subject to currently exercisable warrants issued to
Access Capital, Inc.
- 25 -
<PAGE>
(b) Security Ownership of Management:
Set forth below is certain information, as of December 31,
1997, concerning the number and percentage of shares of Common Stock of the
Registrant owned of record and beneficially by each officer and director of the
Registrant and by all officers and directors as a group.
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership % of Class
- ---------------- -------------------- ----------
Nicholas Mastrorilli, Sr. 49,350 (1) 4.28
Nicholas Mastrorilli, Jr. 14,750 (1) (2) 1.28
Patrick Mastrorilli 14,979 (1) (3) 1.30
Brian Mastrorilli 14,880 (4) 1.29
Keith Heilos 16,511 (5) 1.43
Arnold Dauer 17,082 (6) 1.48
All officers and directors
as a group (6 persons) 127,551 (7) 3.88
(1) Includes 49,350 shares subject to currently exercisable warrants held by
Mr. Mastrorilli, Sr., but does not include 917,889 shares held by Cacomm,
Inc., of which Mr. Mastrorilli, Sr. owns approximately 31% of the
outstanding shares (and, with members of his family, has the right to
acquire an additional 19% on a fully diluted basis) and is the president
and a director. Nicholas Mastrorilli, Jr. and Patrick Mastrorilli are also
directors and own an insignificant amount of Cacomm, Inc. stock. Mr.
Mastrorilli, Sr. disclaims any beneficial ownership of the shares of the
Company owned by Cacomm, Inc. As noted in Item 10, Directors and Executive
Officers of the Registrant, each of the three Messrs. Mastrorilli were
officers and directors of the Registrant as at the year end December 1997.
(2) Constitutes shares subject to currently exercisable warrants held by Mr.
Mastrorilli, Jr.
(3) Includes 14,829 shares subject to currently exercisable warrants held by
Mr. Mastrorilli.
(4) Constitutes shares subject to currently exercisable warrants held by Mr.
Mastrorilli.
(5) Includes 14,879 shares subject to currently exercisable warrants held by
Mr. Heilos.
(6) Includes 14,777 shares subject to currently exercisable warrants held by
Mr. Dauer.
(7) Includes 123,464 shares subject to currently exercisable warrants held by
all officers and directors. Excludes 1,826,932 shares subject to currently
exercisable warrants held in the aggregate by IBJS Capital Company, Inc.
and KOCO Capital Company, L.P., beneficial ownership of which is
disclaimed by Messrs. Zombek and Falvey and by Messrs. Wildstein and
Thompson, respectively, on behalf of IBJS Capital Company, Inc. and KOCO
Capital Company, L.P.
-26-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in Part I of this Form 10-K, in August 1995, the
Company obtained a $5,000,000 lending facility from IBJ Schroder Bank & Trust
Co., IBJS Capital Corporation and KOCO Capital Company, L.P. (the "Lenders").
Approximately $2,637,000 of that amount was furnished to the Company at the time
the facility was entered into, and the remainder was to be advanced based on the
present value of the projected cash flow from new contracts with purchasers of
the Company's private cable television service, with the funds advanced to be
used for equipment and construction costs incurred in connection with
installation of the new outlets and for working capital. In connection therewith
the Company executed 12% interest-only promissory notes, the principal of which
was due on February 26, 2001. The proceeds furnished at the time the lending
facility was entered into were utilized to fund an escrow deposit for system
configuration required under the Channel Lease Agreement, to repurchase
approximately 18% of the Company's issued and outstanding capital stock and to
provide working capital. In connection with obtaining the lending facility, the
Company issued to the Lenders warrants expiring on August 27, 2003 to purchase
approximately 27% of the Company's Common Stock on a fully diluted basis at
exercise prices of $7.60 and $5.40 per share. Under the terms of the lending
facility, the Lenders also had the right to designate two of the Company's five
directors and the Company had agreed to various covenants. In connection
therewith the Company was also required to issue additional warrants to purchase
18,000 shares of its Common Stock at an exercise price of $7.60 in satisfaction
of certain investment banking and finder fees.
On June 3, 1996 the Company and its Lenders amended the terms
of the lending facility. Pursuant thereto, the Lenders agreed to continue to
waive existing defaults and provide up to $1,200,000 toward the Company's
working capital requirements (of which approximately $1,000,000 had been
advanced to the Company by December 31, 1996) without regard to the present
value formula referred to above. In exchange therefor, the Company agreed to
issue warrants ("New Warrants") to purchase additional shares of Common Stock,
representing approximately 12% of the Company's Common Stock on a fully diluted
basis, at an exercise price of $5.40 per share. The New Warrants expire on June
4, 2004. The amended agreements required the Lenders to surrender to the Company
warrants representing the right to purchase certain shares if, as and when the
Company complied with certain conditions outlined in the amended agreements. In
addition, the Lenders each had the right to require the Company to repurchase
certain, and the Company had the right to repurchase all, of the warrants held
by the Lenders under certain conditions. The Lenders also had the right to
designate three out of the five directors of a subsidiary which owns the
Company's rights under the Channel Lease Agreement and under such circumstances,
would receive a proxy to vote the shares thereof. No such rights were ever
exercised.
On May 8 1997 the Company and its lenders reached an agreement
("Exchange Agreement") to exchange their existing senior subordinated note
financing for redeemable preferred stock ("Redeemable Preferred Stock"). The
Registrant's outstanding subordinated notes, approximately $4,000,000, together
with accrued interest and detachable warrants, were
- 27 -
<PAGE>
exchanged for $5,000,000 of 8% Redeemable Preferred Stock due December 31, 2002
and at the close thereof, the Company received the cash balance of the remaining
line of credit (approximately $800,000). The Redeemable Preferred Stock can be
redeemed at the Company's option and has a mandatory redemption feature upon the
occurrence of certain liquidity events. The holders of the Redeemable Preferred
Stock have received warrants to purchase up to 58% of the common stock on a
fully diluted basis at an exercise price of $2.00 per share after giving effect
to a 1-for-20 reverse stock split. In addition, the warrant holders have the
right to require the Company to repurchase certain of the warrants under certain
conditions. In connection with the agreement, the warrant holders have the right
to designate the majority of the directors of the Company and have exercised
their right, which resulted in a change of control of the Registrant. As part of
the Exchange Agreement, the prior lenders converted the accrued interest in the
amount of $105,468 to one year notes at 10% interest, with interest and
principal due and payable May 8, 1998. At year end the preferred stockholders
agreed to extend the maturity of notes to May 8, 1999.
The Company also entered into a two year management service
agreement with one of the preferred stockholders to provide management services
at $24,000 per year plus expenses. From May 8 to year end such fees were
$15,654.23.
The description of the terms and conditions of the 1995 and
1996 agreements with the Lenders is qualified in its entirety by reference to
the entire agreements, copies of which have been filed as exhibits to Form 10-K
dated July 19, 1996 and is incorporated herein in full by reference thereto. The
description of the May, 1997 Exchange Agreement and related documents is
qualified in entirety by reference to the entire agreement, copies of which have
been filed as an exhibit to this Form 10-K.
- 28 -
<PAGE>
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1)Financial Statements. The following financial statements are
included in Part II, Item 8:
Page
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . F-2
Consolidated Statements of Operations for years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Deficiency for years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-6
(a) (2) Schedules. All schedules are omitted since the required information
is either not applicable or not present in amounts sufficient to require
submission of the schedule.
(a) (10) Exhibits
Page or
Document
Item Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
(2) Merger Agreement dated September 13, Form 8-K
1991 between Yardley Ventures, Inc. dated 9/17/91
and Magnavision Corporation
(3) (a) Articles of Incorporation and By Laws Form S-1
dated 12/29/86
(3) (b) Amendment to Certificate of Incorporation Form 8-K
dated 9/17/91
- 29 -
<PAGE>
(10) (a) License Agreement dated August 20, 1990 Form 10-K
between Magnavision Corporation and dated 12/31/91
Department of Education, Archdiocese
of New York
(b) Amended License Agreement dated January Form 10-K
6, 1994 between Magnavision Corporation dated 12/31/93
and Department of Education, Archdiocese
of New York
(c) Microcell Systems Corporation Agreement Form 10-K
dated December 15, 1993 dated 12/31/93
(d) Securities Purchase Agreement dated as of Form 10-K
August 25, 1995 among the Registrant, Magnavision dated 4/19/96
Corporation (N.J.), IBJS Capital Corporation,
IBJ Schroder Bank & Trust Company and Koco
Capital Company, L.P.
(e) Form of Senior Subordinated Note of the Form 10-K
Registrant and Magnavision Corporation (N.J.) dated 4/19/96
due February 26, 2001
(f) Form of Warrant to Purchase Shares of Registrant's Form 10-K
Common Stock expiring on August 26, 2003 dated 4/19/96
(g) Security Agreement and Collateral Assignment dated Form 10-K
as of August 25, 1995 among Magnavision Corporation dated 4/19/96
(N.J.), University Connection, Inc. and IBJS Capital
Corporation as agent
(h) Registration Rights Agreement dated as of Form 10-K
August 25, 1995 among the Registrant and the dated 4/19/96
investors listed therein
(i) Stockholders' Agreement dated as of August 25, 1995 Form 10-K
among the Registrant, the investors and the other dated 4/19/96
parties listed therein
(j) Non-Competition Agreement dated as of August 25, 1995 Form 10-K
between Magnavision Corporation (N.J.) and dated 4/19/96
Nicholas Mastrorilli, Sr.
(k) Indemnification Agreement dated as of August 25, 1995 Form 10-K
between the Registrant, Cacomm, Inc., and the dated 4/19/96
investors listed therein
- 30 -
<PAGE>
(l) Lockbox Service Agreement dated as of August 25, Form 10-K
1995 among Magnavision Corporation (N.J.), dated 4/19/96
University Connection, Inc., IBJS Capital
Corporation and IBJ Schroder Bank & Trust Company
(m) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
Securities Purchase Agreement dated as of August dated 4/19/96
25, 1995 among the Registrant, Magnavision
Corporation (N.J.), Magnavision Wireless Cable, Inc.,
IBJS Capital Corporation, IBJ Schroder Bank & Trust
Company and Koco Capital Company, L.P.
(n) Amended and Restated Stockholders' Agreement dated Form 10-K
as of June 3, 1996 among the Registrant, Magnavision dated 4/19/96
Corporation (N.J), Magnavision
Wireless Cable, Inc. and the investors and
other parties listed therein
(o) Amendment No. 1 dated as of June 3, 1996 Form 10-K
to the Registration Rights Agreement dated as dated 4/19/96
of August 25, 1995 among the Registrant and
the investors listed therein
(p) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
the Security Agreement and Collateral Assignment dated 4/19/96
dated as of August 25, 1995 among Magnavision
Corporation (N.J.) Magnavision Wireless Cable,
Inc., Magnavision Private Cable, Inc., University
Connection, Inc. and IBJS Capital Corporation,
as agent
(q) Amended and Restated Lockbox Service Agreement Form 10-K
dated as of June 3, 1996 among Magnavision dated 4/19/96
Corporation (N.J.), University Connection, Inc.,
Magnavision Private Cable, Inc., IBJS Capital
Corporation and IBJ Schroder Bank & Trust Company
(r) Pledge Agreement dated as of June 3, 1996 between Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96
Corporation as agent
(s) Pledge Agreement dated as of June 3, 1996 between Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96
Corporation as agent
(t) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) and University Connection, Inc.
to Magnavision Private Cable, Inc.
- 31 -
<PAGE>
(u) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) to Magnavision Wireless Cable,
Inc.
(v) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Private dated 4/19/96
Cable, Inc. to Magnavision Corporation (N.J.) and
University Connection, Inc.
(w) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Wireless dated 4/19/96
Cable, Inc. to Magnavision Corporation (N.J.)
(x) Irrevocable Proxy dated June 3, 1996 issued by Form 10-K
Magnavision Corporation (N.J.) to IBJS Capital dated 4/19/96
Corporation as agent
(y) Form of Amended and Restated Senior Subordinated Form 10-K
Notes dated June 3, 1996 dated 4/19/96
(z) Form of Warrant to Purchase Shares of Registrant's Form 10-K
Common Stock expiring on June 4, 2004 dated 4/19/96
(aa) Letter Agreement dated July 11, 1995 between the Form 10-K
Registrant, Cacomm, Inc. and George S. Callas dated 4/19/96
(bb) Letter Agreement dated August 25, 1995 among the Form 10-K
Registrant, Midlantic Bank, N.A. and dated 4/19/96
George S. Callas
(cc) Letter Agreement dated April 3, 1997 between the Form 10-K
Registrant, KOCO Capital Company, L.P. and IBJS dated 4/19/96
Capital Corporation
(dd) Form of Indemnification Agreement for executive officers and
directors
(ee) Exchange Agreement dated May 8, 1997 among the Registrant and
the investors listed therein.
(ff) Stockholders Agreement dated May 8, 1997 among the Registrant and
the other parties listed therein.
(gg) Registration Rights Agreement dated May 8, 1997 among the
Registrant and the other parties listed therein.
(hh) Warrant to purchase shares of Common Stock dated May 8, 1997
among the Registrant and the other parties listed therein
- 32 -
<PAGE>
(ii) Employment Agreements dated May 8 1997 between the Registrant and
Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr., and Patrick
Mastrorilli, respectively.
(jj) Management Agreement dated May 8, 1997 between the Registrant and
KOCO Capital Company, L.P.
(kk) Common Stock Purchase Warrant dated September 10, 1997 issued by the
Registrant to the Lender listed therein.
(ll) Loan and Security Agreement dated September 10, 1997 by and among
the Registrant, Access Capital, Inc. and the other parties listed
therein.
(mm) Resignation letter from Nicholas Mastrorilli, Sr. to the Registrant
dated January 8, 1998.
(nn) Employment Agreement dated January 9, 1998 between the Registrant
and IMCOR concerning Robert E. Hoffman.
(oo) Letter from Cacomm, Inc. to the Registrant dated April 24,1998.
(21) Subsidiaries of Registrant
(27) Financial Data Schedule
(b) Form 8-K
None
- 33 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on the Company's behalf by the undersigned, thereunto duly authorized.
MAGNAVISION CORPORATION
DATE: June 5, 1998 By: /s/
------------------------------------
ROBERT E. HOFFMAN
Principal Executive Officer
By: /s/
------------------------------------
JEFFREY HAERTLEIN
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert E. Hoffman CEO, President, Director June 5, 1998
- ---------------------------
Robert E. Hoffman
/s/ George Zombek Director June 5, 1998
- --------------------
George Zombek
/s/ Evan Wildstein Director June 5, 1998
- ------------------------
Evan Wildstein
/s/ Kevin Falvey Director June 5, 1998
- -------------------------
Kevin Falvey
/s/ Geoffrey Thompson Director June 5, 1998
- ----------------------
Geoffrey Thompson
</TABLE>
- 34 -
<PAGE>
EXHIBITS
(10) (ee) Exchange Agreement dated May 8, 1997 among the Registrant and the
investors listed therein.
(ff) Stockholders Agreement dated May 8, 1997 among the Registrant and
the other parties listed therein.
(gg) Registration Rights Agreement dated May 8, 1997 among the
Registrant and the other parties listed therein.
(hh) Warrant to purchase shares of Common Stock dated May 8, 1997
among the Registrant and the other parties listed therein.
(ii) Employment Agreements dated May 8 1997 between the Registrant and
Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr., and Patrick
Mastrorilli, respectively.
(jj) Management Agreement dated May 8, 1997 between the Registrant and
KOCO Capital Company, L.P.
(kk) Common Stock Purchase Warrant dated September 10, 1997 issued by
the Registrant to the Lender listed therein.
(ll) Loan and Security Agreement dated September 10, 1997 by and among
the Registrant, Access Capital, Inc. and the other parties listed
therein.
(mm) Resignation letter from Nicholas Mastrorilli, Sr. to the
Registrant dated January 8, 1998.
(nn) Employment Agreement dated January 9, 1998 between the Registrant
and IMCOR concerning Robert E. Hoffman.
(oo) Letter from Cacomm, Inc. to the Registrant dated April 24,1998.
Supplemental Information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act.
As of the date hereof, the Registrant has never sent any
annual report or proxy material to its security holders. If and when such annual
report or proxy material is furnished to its stockholders, the Registrant shall
furnish to the Commission for its information copies of such material. Such
material, when furnished, shall not be deemed to be "filed" with the Commission
or otherwise subject to liabilities of Section 18 of the Act (except to the
extent that the Registrant specifically incorporates such material by reference
in its Form 10-K).
- 35 -
<PAGE>
Independent Auditors Report
To the Board of Directors and Shareholders of:
Magnavision Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Magnavision
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders deficiency, and cash flows
for each of the years in the three year period ended December 31,1997. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Magnavision
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, is in default of certain covenants under its line of credit,
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Managements plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New York, New York
April 16, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash 141,546 164,296
Trade Accounts and Other Receivables, net of allowance for doubtful accounts 236,375 156,252
Prepaid Expenses 8,516 8,059
-------------------------------------
Total Current Assets 386,437 328,607
-------------------------------------
PROPERTY AND EQUIPMENT
Property and Equipment at Cost 1,944,558 1,269,887
Less: Accumulated Depreciation (748,375) (501,178)
-------------------------------------
Net Property and Equipment 1,196,183 768,709
OTHER ASSETS
Shareholder Loans Receivable 43,810 44,161
Prepaid lease expense 650,684 757,652
Deferred financing cost, net of accumulated amortization 145,496 293,445
Deposits 4,553 4,420
-------------------------------------
TOTAL ASSETS 2,427,163 2,196,994
-------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses 443,717 284,094
Due to Shareholders -- 139,889
Deferred Revenues 214,490 175,348
Current Portion of Long-Term Debt 4,225 3,686
Income Taxes Payable 741 741
Term Loan 105,468 --
Line of Credit 405,295 --
Notes Payable - Senior Debt -- 4,062,932
-------------------------------------
Total Current Liabilities 1,173,936 4,666,690
LONG-TERM LIABILITIES
Accounts Payable and Accrued Expenses -- 2,000
Security Deposits 152,065 126,386
Long-Term Debt 6,041 10,563
-------------------------------------
Commitments and contingencies
Series A Preferred Stock 9,850,000
shares authorized; issued and outstanding, 5,000,000
shares, net of unamortized warrant discount 4,498,456 --
SHAREHOLDERS' DEFICIENCY
Series B Preferred Stock, 150,000 shares 131,889 --
authorized; issued and outstanding, 131,889 shares.
Common Stock, $0.08 par value - 10,000,000 shares
authorized; issued and outstanding, 1,152,510 shares
in December 31,1997 and 1,152,222 shares December 31, 1996 92,200 92,178
Additional Paid-In Capital 3,876,991 3,321,207
Accumulated Deficit (7,504,415) (6,022,030)
-------------------------------------
Total Shareholder's Deficiency (3,403,335) (2,608,645)
-------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY 2,427,163 2,196,994
-------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Gross Revenues 1,607,049 1,285,442 666,366
Cost of Sales 677,565 526,654 355,001
---------- ---------- ----------
GROSS PROFIT 929,484 758,788 311,365
OPERATING EXPENSES
Salaries 627,356 595,358 383,884
Depreciation 197,198 168,896 119,306
General and Administrative Expenses 1,010,277 983,079 595,503
---------- ---------- ----------
TOTAL OPERATING EXPENSES 1,834,831 1,747,333 1,098,693
OPERATING LOSS (905,347) (988,545) (787,328)
OTHER INCOME (expense)
Interest expense (280,546) (466,342) (149,279)
Interest Income 35,824 35,383 8,913
Other 1,529 8,705 84,653
---------- ---------- ----------
Total other income (expense) (243,193) (422,254) (55,713)
LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM (1,148,540) (1,410,799) (843,041)
PROVISION FOR INCOME TAX 3,989 710 1,452
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,152,529) (1,411,509) (844,493)
---------- ---------- ----------
EXTRAORDINARY ITEM -LOSS ON EXTINGUISHMENT OF DEBT 275,844 -- --
---------- ---------- ----------
NET LOSS (1,428,373) (1,411,509) (844,493)
---------- ---------- ----------
Preferred Stockholders Dividend Requirement 257,778 -- --
---------- ---------- ----------
Net loss to Common Stockholders (1,686,151) (1,411,509) (844,493)
---------- ---------- ----------
Net Loss per Share:
Basic
Loss before extraordinary item (1.22) (1.23) (0.66)
Extraordinary item (0.24) -- --
Net loss (1.46) (1.23) (0.66)
Weighted Average Shares used to Compute net loss per share:
Basic 1,152,504 1,147,030 1,276,539
</TABLE>
F-3
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Series B Common Common
Preferred Stock Stock Stock
Shares Amount Shares(1) Amount
<S> <C> <C> <C> <C>
Balances, December 31,1994 -- 1,340,844 107,268
Common Stock Issued
Jan 1,1995 to December 31,1995 -- 27,628 2,210
Repurchase of Shares
of Common Stock, net (note 11) -- --
Net loss --
--------------------------------------------------------------
Balance, December 31,1995 -- -- 1,368,473 109,478
Common Stock Issued
Jan 1,1996 to December 31,1996 -- -- 15,067 1,205
Retirement of Common Stock held in Treasury -- -- (231,318) (18,505)
Net loss
--------------------------------------------------------------
Balance, December 31,1996 -- -- 1,152,222 92,178
Common Stock Issued
Jan 1,1997 to December 31,1997 -- -- 354 28
Conversion of Shareholder loan to Series B Preferred Stock 131,889 131,889
Allocation to Warrants Issued
Purchase of Fractional Shares (66) (6)
Net loss
Accretion of Redeemable Preferred Stock
--------------------------------------------------------------
Balance, December 31, 1997 131,889 131,889 1,152,510 92,200
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional
Paid in Accumulated Treasury Total
Capital Deficit Stock Equity
<S> <C> <C> <C> <C>
Balances, December 31,1994 3,670,764 (3,766,028) 12,004
Common Stock Issued
Jan 1,1995 to December 31,1995 317,807 320,017
Repurchase of Shares
of Common Stock, net (note 11) (760,000) (760,000)
Net loss (844,493) (844,493)
-------------------------------------------------------------------
Balance, December 31,1995 3,988,571 (4,610,521) (760,000) (1,272,472)
Common Stock Issued
Jan 1,1996 to December 31,1996 74,131 75,336
Retirement of Common Stock held in Treasury (741,495) 760,000 0
Net loss (1,411,509) (1,411,509)
-------------------------------------------------------------------
Balance, December 31,1996 3,321,207 (6,022,030) -- (2,608,645)
Common Stock Issued
Jan 1,1997 to December 31,1997 679 -- -- 707
Conversion of Shareholder loan to Series B Preferred Stock 131,889
Allocation to Warrants 555,556 555,556
Purchase of Fractional Shares (451) (457)
Net loss (1,428,373) (1,428,373)
Accretion of Warrants (54,012) (54,012)
-------------------------------------------------------------------
Balance, December 31, 1997 3,876,991 (7,504,415) -- (3,403,335)
</TABLE>
F-4
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (1,428,373) (1,411,509) (844,493)
Adjustments to Reconcile Net Loss to Net Cash used
in Operating activities
Extraordinary item 275,844 -- --
Depreciation and Amortization 197,198 168,896 119,306
Amortization of deferred financing cost 80,475 70,404 23,474
Amortization of channel lease prepayments 106,968 106,969 35,656
(Gain) Loss on sale of Assets -- (1,583) --
Changes in Assets and Liabilities:
Increase in Trade Accounts and
Other Receivables (80,123) (48,096) (23,130)
(Increase) Decrease in prepaid expenses (457) 4,569 9,876
(Decrease) increase in Deposits 133 -- (75)
(Decrease) Increase in Accounts Payable and -- -- --
Accrued Expenses 336,348 (66,520) 6,419
Increase in Security Deposits Payable 25,679 67,565 36,229
(Decrease) Increase Income Taxes Payable -- (150) 50
Increase Deferred Charges -- 73,104 15,019
Increase in Deferred Revenues 39,142 -- 31,984
---------------------------------------------------
Net cash used in operating activities (447,166) (1,036,351) (589,685)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) loan to shareholders 351 (300) 5,185
Purchase property and equipment (674,671) (503,108) (281,641)
Investment in channel lease -- -- (900,227)
---------------------------------------------------
Net cash used in investing activities (674,320) (503,408) (1,176,683)
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Long-Term Debt (3,983) (3,910) 15,281
Payments of Obligation under Capital leases -- (23,411) (32,492)
Decrease in Due to Shareholders (8,000) (5,000) (34,036)
Proceeds from Issuance of Preferred Stock, net 863,811 -- --
Proceeds from Issuance of Common Stock 707 75,336 320,017
Proceeds from Issuance Debt 405,295 1,425,713 2,637,219
Payment of financing fees (158,637) -- (387,325)
Purchase of Common Stock (457) -- (760,000)
---------------------------------------------------
Net cash provided by financing activities 1,098,736 1,468,728 1,758,664
Net decrease in cash (22,750) (71,031) (7,704)
Cash beginning of year 164,296 235,327 243,031
Cash end of year 141,546 164,296 235,327
Supplemental schedule of cash paid during year for:
Interest 84,161 479,915 41,828
Income Tax 3,989 710 1,402
NON CASH ITEMS:
Exchange of Senior Debt to Redeemable Preferred Stock 4,062,932 -- --
Conversion of Senior Debt Accrued interest to term loan 105,468 -- --
Conversion of amounts Due to Share holder to Preferred Stock 131,889 -- --
Value Assigned to Warrants Issued 555,556 -- --
</TABLE>
F-5
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
1 - OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
a. Consolidated Financial Statements - The accompanying financial
statements present the consolidated accounts of Magnavision
Corporation, a Delaware corporation (formerly Yardley Ventures, Inc.),
and its wholly owned subsidiary, Magnavision Corporation, a New Jersey
corporation, and its wholly owned subsidiaries, University Connection,
Inc., a New Jersey corporation, Accu-Trek, Inc., a New Jersey
corporation and Magnavision Laboratories, Inc., a Delaware Corporation
("the Company"). As required by the amended senior debt agreement of
June 4, 1996, Magnavision Corporation, a New Jersey corporation,
formed two additional wholly owned subsidiaries, Magnavision Private
Cable, Inc., established to hold the private cable contracts and
Magnavision Wireless Cable, Inc., established to hold the wireless
lease. The consolidated financial statements include all of the
assets, liabilities, income, expenses and cash flows for these
companies. All significant intercompany transactions and balances have
been eliminated, in consolidation.
b. Organization, Operations and Liquidity- Magnavision Corporation
(formerly Yardley Ventures, Inc.) was incorporated in Delaware on
April 3, 1986, to seek to acquire one or more potential businesses.
Magnavision Corporation and its subsidiaries were established to
conduct the business of providing wireless and private cable
television, which is now the business purpose of the Company, to
segments where cable television is not available and as an alternative
to cable television. Magnavision Corporation of New Jersey was formed
on June 15, 1989, pursuant to the laws of the State of New Jersey. As
a result of the amended lending agreement, the Company created two new
subsidiaries, Magnavision Private Cable and Magnavision Wireless
Cable.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, the Company has
suffered recurring losses from operations, is in default of certain
provisions of its line of credit with Access Capital, and has a net
capital deficiency at December 31, 1997. In the absence of alternative
financing, sales of assets, or restructuring of its existing debt, the
Company will have insufficient liquidity to pay principal and interest
on its existing debt and may experience liquidity shortfalls in
meeting its ongoing obligations.
The Company plans to meet short term liquidity requirements with a
working capital loan from Access Capital described in Note 9. On a
long term basis, the Company is seeking longer term arrangements with
a strategic partner(s) for financing. Management believes this partner
will participate in the Companys development of the alternative use of
its rights to wireless spectrum. This business plan is dependent upon
the Company securing the necessary capital resources, as well as
engineering and other expertise required to offer this alternative
service. There can be no assurance that the Company will be able to
secure financing or other strategic relationships on terms and
conditions satisfactory, if at all.
F-6
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
Failure to obtain such financing will have a material adverse impact
on the Company. Also, there can be no assurance that, even with
financing, and receipt of necessary regulatory authorization, the
Company will be able to launch this alternative service or that it
will be commercially successful.
c. Property and Equipment - Property and equipment are stated at cost.
Depreciation, for financial reporting purposes, is provided on the
straight-line method over the estimated useful lives of the related
assets, which are:
Office Equipment 5 years
Furniture and Fixtures 10 years
Transportation Equipment 5 years
Machinery and Equipment 5 to 10 years
Leasehold Improvements 7 years
The Company uses accelerated methods and lives, as allowed by the
Internal Revenue Code, to calculate depreciation for income tax
purposes.
d. Deferred Revenues - The Company records subscriptions received in
advance of the service being provided as a current liability.
e. Income Taxes - Deferred tax assets and liabilities are recognized for
the expected tax consequences of temporary differences between the
financial statement carrying amount of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry
forwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
f. Use of Estimates- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and revenue and expenses and the disclosure of contingent
assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
g. Fair Value of Financial Instruments - Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments (Statement 107), requires disclosure of fair
value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In many cases, fair value estimates cannot be
substantiated by comparison to independent market information and
could not be realized in immediate settlement of the instrument.
Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
F-7
<PAGE>
In managements opinion, cash, trade accounts and other receivables,
shareholder loans receivable, deposits, accounts payable and accrued
expenses, equal or approximate fair market value. The long-term debt
and notes payable, and term loans and line of credit are at market
rates, therefore equal or approximate fair value.
h. Impairment of Long-Lived Assets - The Company reviews long-lived
assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
i. Prepaid Lease Expense - Prepaid lease expense represents the Companys
deposit relating to the Channel Lease Agreement (see note 7). The
amount is being amortized over the term of the lease agreement.
j. Deferred Financing Costs - Deferred financing costs at December 31,
1997 represent expenditures relating to the Access Capital, Inc. Debt
financing (see note 9). The amount is being amortized over the term of
the loan and security agreement.
k. Earnings Per Share of Common Stock - The Company adopted SFAS 128
Earnings Per Share (SFAS 128") effective for the Company in 1997. SFAS
128 replaced the calculation of primary and fully diluted net income
per share with basic and diluted net income per share. Net income per
common share amounts for 1997, 1996 and 1995 have been restated to
conform to SFAS 128 requirements. In calculating diluted earnings per
share, no potential shares of Common Stock are to be included in the
calculation when there is a loss from continuing operations available
to Common Stock Holders.
l. Accounting for Stock Issued to Employees - Prior to January 1, 1996,
the Company accounted for its warrants in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25
Accounting for Stock Issued to Employees and related interpretations.
As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB
Opinion No.25 and provide pro forma net income disclosure for employee
stock option grants made in 1995 and future years as if the
fair-value- based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to account for stock options granted
under the provisions of APB 25 and to provide the pro forma
disclosures required by SFAS 123. The pro forma disclosures required
by SFAS 123 for 1997, 1996 and 1995 have not been presented on the
basis of materiality.
F-8
<PAGE>
m. New Accounting Pronouncements - In June 1997, the FASB issued
Statement of Financial Accounting Standard No. 130, Reporting
Comprehensive Income (SFAS 130). This statement requires businesses to
disclose comprehensive income and its components in general purpose
financial statement, with reclassifications of prior period financial
statements. SFAS 130 is effective for fiscal periods beginning after
December 15, 1997. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the
statement requires only additional disclosure, the Company does not
expect it to have material impact on its financial position or results
of operations.
NOTE 2 - RELATED PARTY TRANSACTIONS-CONFLICTS OF INTEREST
The following transactions occurred between the Company and
related parties:
a. Shareholder loans receivable of $43,810 and $44,161 at December 31,
1997 and 1996 are payable after May 1999 and are interest free.
b. In May 1997, the Companys majority shareholder converted its payables
of $131,889 to preferred stock. Previously this was recorded as a
current liability. At December 31, 1996, the payable to the Companys
majority shareholder related to expenses paid by this shareholder on
behalf of the Company in prior years.
c. The Company has been informed that Cacomm, Inc., the Companys majority
shareholder, is a partner in a general partnership known as the Grand
MMDS Alliance. The Grand MMDS Alliance claims to hold the licenses to
certain MMDS channels, as a designated selectee of the FCC. These
channels cover similar broadcast areas as the Company, and the
possibility exists that The Grand MMDS Alliance could commence
business in direct competition with the Company. The Company has no
reliable information as to whether the Grand MMDS Alliance has
commenced business operations as of the date of this report. Certain
officers of the Company are also believed to be officers and directors
of Cacomm, Inc.
d. The prior lenders converted the accrued interest in the amount of
$105,468 to one year notes at 10% interest, with interest and
principal payable May 8, 1998. After year end the preferred
stockholders agreed to extend the maturity of the above mentioned
notes to May 8, 1999.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 are summarized by
major classification as follows:
F-9
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
1997 1996
Office Furniture and Equipment $ 67,771 $ 55,505
Transportation Equipment 46,224 46,224
Machinery and Equipment 1,830,563 1,168,158
----------- -----------
1,944,558 1,269,887
Less: Accumulated Depreciation (748,375) (501,178)
----------- -----------
$ 1,196,183 $ 768,709
=========== ===========
Machinery and equipment relate principally to assets owned by the Company
located at the various college and nursing home sites serviced by the Company.
NOTE 4 - INCOME TAXES
Income tax expense attributable to loss from operations consists of:
Current
Year ended December 31,
1997 1996 1995
---- ---- ----
Federal 0 0 0
State 3,989 710 1,452
------ ------ -------
TOTAL $3,989 $ 710 $ 1,452
====== ====== =======
Income tax expense attributable to net loss before provision for income taxes
was $3,989, $710 and $1,452 for the years ended December 31, 1997, 1996 and
1995 and differed from the amounts computed by applying the U.S. Federal
income tax rate of 34 percent to pretax income from operations as a result of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed expected tax benefit $(485,647) $(479,672) $(286,634)
Increased (reduction) in income
taxes resulting from:
Increase in valuation
allowance for Federal
& state deferred tax assets 462,815 467,009 282,179
Book vs. tax depreciation 19,200 11,153 --
State and local income taxes, net of
Federal income tax benefit 2,633 469 958
Non-deductible portion of
meals and entertainment 2,775 736 303
Other, net 2,213 1,015 4,646
--------- --------- ---------
$ 3,989 $ 710 $ 1,452
========= ========= =========
</TABLE>
F-10
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
The temporary differences and carry forwards which give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward $3,160,701 $2,558,782
Compensation paid with Company stock 28,123 28,123
Organization and construction costs
capitalized for tax purposes 305,197 320,138
Less valuation allowance (3,441,851) (2,874,083)
---------- ----------
Net deferred tax assets 52,170 32,970
---------- ----------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (52,170) (32,970)
---------- ----------
Net deferred tax asset (liability) $ - $ -
========== ==========
</TABLE>
At December 31, 1997, the Company has net loss carry forwards for federal income
tax purposes of approximately $7,100,00 which are available to offset future
taxable income. These carry forwards expire in varying amounts through 2011. The
net change in the total valuation allowance for 1997, 1996 and 1995 was an
increase of $567,768, $563,636, and $334,062 respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to a financing company, payable in monthly
installments of $436, including interest at 12.25%, final
payment due April 2000 collateralized
by a vehicle with a book value of $10,479 $10,266 $14,249
Less Current Portion 4,225 3,686
------- -------
Long-Term Debt 6,041 10,563
======= =======
</TABLE>
At December 31, 1997 maturities of long-term debt are as follows:
1998 4,225
1999 4,760
Thereafter 2000 1,281
-------
$10,266
=======
F-11
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
NOTE 6 - OPERATING LEASES
The Company leases office space and automobiles for use in continuing operations
for terms of 1 to 3 years. Minimum lease payments over the remaining lease terms
are as follows:
1998 17,281
1999 3,624
---------
$ 20,905
=========
Expenses under operating leases amounted to $47,464, $40,127, and $24,468 for
the years ended December 31, 1997,1996 and 1995, respectively.
NOTE 7 - LICENSE AGREEMENT
On August 20, 1990, the Company entered into an agreement with the
Department of Education, Archdiocese of New York ("the Archdiocese")
which would permit the Company to use the transmission capacity of the
Archdiocese. The agreement, which was amended in January 1994, grants
the Company a lease through January 2004 with a right to extend for an
additional five years and a right of first refusal for subsequent
renewals. Pursuant to the agreement, the Company must also pay to the
Archdiocese a royalty fee for the use of the Transmission Capacity, in
accordance with the terms and amounts described in the amended
agreement. In connection with the amended agreement the Company had a
contingent obligation to fund the reconstruction of the Archdioceses
system. In 1995, the Company deposited $900,277 in an escrow account
for the purpose of system reconstruction upgrades. The Company recorded
the deposit as prepaid lease expense, and is amortizing the amount over
the life of the agreement through January 2004.
At December 31, 1997, the minimum royalty payments over the remaining license
term are as follows:
For the Year Ended - 1998 $ 167,200
- 1999 158,400
- 2000 158,400
- 2001 158,400
- 2002 158,400
- Thereafter 171,600
---------
972,400
=========
NOTE 8 - NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted earnings per share in accordance with
SFAS 128 Earnings Per Share which the Company adopted as of December 31, 1997.
The table reconciles the numerator and denominator of the basic earnings per
share computations shown on the Consolidated Statements of Operations.
F-12
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
<TABLE>
<CAPTION>
For the Years Ended December 31 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS
Numerator:
Net loss to common stockholders (1,686,151) (1,411,509) (844,493)
Redeemable preferred stockholders dividend 257,778 -- --
Net Loss (1,428,373) (1,411,509) (844,493)
Denominator:
Weighted Averge Common shares outstanding 1,152,504 1,147,030 1,276,539
Basic EPS (1.46) (1.23) (.66)
</TABLE>
Warrants to purchase 2,134,774, 1,025,150 and 639,321 of common stock
outstanding as of December 31, 1997, 1996 and 1995, respectively, were excluded
from the calculation of diluted net loss per share as the effect of their
inclusion would have been anti-dilutive.
Earnings per share data has been restated for all periods preceded to reflect
the adoption of SFAS 128.
NOTE 9 - ACCESS CAPITAL, INC. LINE OF CREDIT
In September 1997 the Company and Access Capital, Inc. agreed to a $1,250,000
three year revolving line of credit to be used to expand the Companys private
cable business. As of year end the Company had borrowed $405,295 under the line
of credit. Interest is payable currently under the line of credit at prime rate
plus five and one-half percent and all outstanding amounts are payable in
September 2000. The line is secured with the lender by a pledge of private cable
contracts and all other Company assets. In addition the lender received 138,536
warrants at an exercise price of $2.00 per share to purchase approximately 4% of
the Companys stock on a fully diluted basis. The warrants contain a put and call
option in the event that the Company sells a significant asset. The put option
requires the Company to purchase a percentage of the lenders warrants as
required by a formula outlined in the amended agreement. This option can only be
exercised upon the sale of a significant asset of the Company or change of
control. Conversely, the call option allows the Company to purchase all the
outstanding warrants at a price set by the formula stated above. The cost of
either the put or call option can not be determined at this time since it is
based upon the value of a sale of a significant asset which cannot be assured.
Subsequent to the fiscal year ended December 31, 1997, the Company had not met
certain non-monetary working capital covenants under the Agreement and the
lender instituted a default interest rate, equivalent to two and one-half
percent over the contract rate. As a result, the outstanding balance has been
classified as a current liability in the accompanying balance sheet. The lender
has continued to lend funds under the Agreement. The Company requested a waiver
thereof together with a separate working capital advance.
The Company is evaluating a proposed restructuring of its financial covenants,
an increase in the line of credit to $3 million dollars and an increase in its
warrant ownership of the Company. The Company is currently reviewing such
proposal and discussions with the lender are expected to commence shortly. There
is no assurance that such restructuring will be effected on terms satisfactory
to the Company, or at all.
F-13
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
NOTE 10. EXCHANGE OF DEBT TO REDEEMABLE PREFERRED STOCK
In August 1995, the Company obtained a $5,000,000 lending facility from IBJ
Schroder Bank & Trust Co., IBJS Capital Corporation (collectively IBJS) and KOCO
Capital Company, L.P. (KOCO), with interest at 12% payable quarterly on any
outstanding balance. The final maturity date of any outstanding amount under the
lending facility was February 2001. Approximately $2,637,000 of that amount was
furnished to the Company at the time the lending facility was entered into, and
the remainder was to be advanced based on the present value of the projected
cash flow from new contracts with purchasers of the Companys private cable
television service. Funds advanced were to be used for equipment and contract
costs incurred in connection with installation of the service at the new
locations and for working capital. The proceeds furnished at the time the
lending facility was entered into were utilized to fund an escrow deposit of
$900,000 for system configuration required under the Channel Lease Agreement, to
repurchase approximately 18% of the Companys issued and outstanding capital
stock and to provide working capital. In connection with obtaining the lending
facility, the Company issued to its lenders 361,965 and 121,909 warrants,
respectively, to purchase approximately 27% of the Companys Common Stock on a
fully diluted basis at exercise prices of $7.60 and $5.40 per share,
respectively. These warrants expire on August 27, 2003.
On June 3, 1996, the terms of the lending facility were amended. Pursuant to the
amendment, the lenders agreed to waive existing defaults and provide up to the
sum of $1,200,000 toward the Companys working capital requirements without
regard to the present value formula referred to above, with the remaining
balance of the $5 million to be advanced based on the present value of projected
cash flow from the contracts for new outlets with institutions. In exchange
therefore, the Company agreed to issue warrants to purchase an additional
370,547 shares, representing 12% of the Companys Common Stock on a fully diluted
basis at an exercise price of $5.40 per share. These warrants expire on June 4,
2004. The amendment required the lenders to surrender to the Company warrants
for the purchase of up to 344,245 shares if, as and when the Company complied
with certain conditions outlined in the agreement. The amendment had a put/call
option in the event that the Company sold a significant asset. The put option
required the Company to purchase a percentage of the lenders warrants as
required by a formula outlined in the amended agreement. This option was only
exercisable upon the sale of a significant asset of the Company or a change of
control. Conversely, the call option allowed the Company to purchase all the
outstanding warrants at a price set by the formula stated above. The cost of
either the put or call option can not be determined at this time since it is
based upon the value of a sale of a significant asset which cannot be assured.
In connection with the June 3, 1996 amendment, the Companys rights under the
Channel Lease Agreement were transferred to a subsidiary whose stock was pledged
to the Lenders as security for amounts advanced under the lending facility. The
agreement was secured by the License Agreement and the Companys institutional
cable contracts. The agreement contained a prepayment penalty for the first two
years and placed limits on stock sales and payment dividends, and also contained
several financial covenants.
At December 31, 1996, the Company was in default of certain provisions of
certain covenants of its senior debt agreement, and at the end of the first
quarter of 1997, had not made its required interest payment on such debt. As a
result, the outstanding balance has been classified as a current liability in
the accompanying balance sheet.
On May 8, 1997, the Company agreed with its lenders to exchange its senior
subordinated notes into redeemable preferred stock. Under the terms thereof, the
Companys outstanding subordinated notes, aggregating approximately $4.1 million,
together with accrued interest and detachable warrants, were
F-14
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
exchanged for $5 million of 8% redeemable preferred stock due December 31, 2002.
In connection with the exchange, the lenders also funded the Company the
remaining balance on the existing line. In addition, the note holders received
1,826,932 warrants to purchase up to 58% of the common stock on a fully diluted
basis at an exercise price of $2.00 per share after the Company effected a
1-for-20 reverse stock split, and have the right, which they have exercised, to
elect the majority of the Board of Directors. This resulted in a change in
control of the Company. The agreement also requires the warrant holders to
surrender up to 10% of their stock on a fully diluted basis, if, as and when
certain liquidity events occur. In addition, warrant holders have the right to
require the Company to repurchase the warrants under certain conditions. This
option can only be exercised upon the sale of an asset of the Company. The value
of the warrants was estimated at $555,556 and has been assigned to the warrant
and represents a discount to the face value of the redeemable preferred stock.
The cost of the put can not be determined at this time since it is based upon
the value of a sale of a significant asset which cannot be assured. Also, one
of the warrant holders has entered into a management service agreement with the
Company.
In connection with the exchange, the lenders agreed to issue one year unsecured
notes totaling $105,468 with interest at 10% payable at maturity. The Company
and the Preferred Stockholders further agreed to extend the maturity of the
unsecured notes to May 8, 1999. The Company wrote off the unauthorized deferred
finance cost related to the subordinated notes, which has been classified as an
extraordinary item in the accompanying financial statement.
NOTE 11. REDEEMABLE PREFERRED STOCK
During the second quarter of 1997 the Company authorized 10,000,000 shares of
Preferred Stock. The Company also issued 5,000,000 shares of the authorized
amount as Series A Preferred Stock and 150,000 shares as Series B Preferred
Stock concurrent with the designation of the Preferred Stock. The then senior
subordinated notes along with the remaining balance of the line was exchange for
5,000,000 shares of 8% cumulative redeemable preferred stock. At closing, the
Company received cash of approximately $800,000 after expenses.
Holders of Series A Preferred Stock are entitled to receive, when and as
declared by the Companys Board of Directors, cash dividends cumulative at the
rate of 8% per share. Cumulative and unpaid dividends amounted to approximately
$257,778 at December 31, 1997.
NOTE 12 - STOCKHOLDERS EQUITY TRANSACTION
On May 8,1997 the Company effected a 1-for-20 reverse split of its common stock
such that each outstanding share of common stock was, effective May 9, 1997,
converted into .05 shares of post split common stock and the par value of common
stock was changed from $.004 to $.08 per share. All periods have been restated
to reflect the split.
During the fourth quarter of 1997, the Company purchased 66 shares which
represented fractional shares purchased in the execution of the 1 for 20 reverse
stock split for shareholders.
During the second quarter of 1997, the Company also converted a shareholder loan
into shares of Series B Preferred Stock (See Related Party Transactions - Note
2).
During the first quarter of 1997 a management warrant holder exercised warrants
to purchase 354 shares of common stock at $2.00 per share.
F-15
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
During the first quarter of 1996, the Company issued 10,000 shares of common
stock at $5.00. These shares were issued to non-management shareholders who
assisted in facilitating the redemption of the 231,318 shares of common stock
held in treasury.
During the second quarter of 1996 the Company retired the 231,318 shares of
common stock held as treasury stock as was required by its lenders.
During the third quarter of 1996 non-management and management warrant holders
exercised warrants for 5,067 shares of common stock at an exercise price of
$5.00 per share.
During 1996 and 1995, the Company granted 370,546 and 499,874 warrants to
purchase shares of its common stock at exercise prices ranging from $5.00 to
$20.00 per share. At December 31, 1996, the Company has 1,025,150 unexercised
warrants outstanding to purchase 1,025,150 shares of its common stock, which
expire at various dates through May 25, 2005.
Pursuant to the Securities Purchase Agreement of August 1995 with its Senior
Lenders, the Company was required to issue additional warrants to purchase
18,000 shares of its common stock at an exercise price of $7.60 in satisfaction
of certain investment banker and finders fees previously agreed to. In February
1997, the Company reduced the exercise price of 123,464 warrants held by
officers and directors of the Registrant from an exercise price of $5.00 to
$2.00. Such reduction was effected to more accurately reflect the market value
of the underlying shares.
NOTE 13- SALES TO MAJOR CUSTOMERS
For the year ending December 31, 1997, 1996 and 1995, revenue from three
customers represented 40%, 50%, and 62% respectively, of total revenues.
NOTE 14 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash at a financial institution. The Federal Deposit
Insurance Corporation only insures up to $100,000 at any one financial
institution. The Company rarely if ever maintains cash of more than $100,000 in
any one institution.
F-16
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997, 1996 AND 1995
(21) SUBSIDIARIES OF REGISTRANT
Magnavision Corporation, a Delaware Corporation
Subsidiaries
Magnavision, a New Jersey Corporation
Wholly owned subsidiaries:
University Connection, Inc., a New Jersey Corporation
Accu-Trek, Inc., a New Jersey Coporation
Magnavision Laboratories, Inc., a Delaware Corporation
Magnavision Private Cable, Inc., a Delaware Corporation
Magnavision Wireless Cable, Inc., a Delaware Corporation
F-17
<PAGE>
EXHIBIT INDEX
(10) (ee) Exchange Agreement dated May 8, 1997 among the Registrant and the
investors listed therein.
(ff) Stockholders Agreement dated May 8, 1997 among the Registrant and
the other parties listed therein.
(gg) Registration Rights Agreement dated May 8, 1997 among the
Registrant and the other parties listed therein.
(hh) Warrant to purchase shares of Common Stock dated May 8, 1997
among the Registrant and the other parties listed therein.
(ii) Employment Agreements dated May 8 1997 between the Registrant and
Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr., and Patrick
Mastrorilli, respectively.
(jj) Management Agreement dated May 8, 1997 between the Registrant and
KOCO Capital Company, L.P.
(kk) Common Stock Purchase Warrant dated September 10, 1997 issued by
the Registrant to the Lender listed therein.
(ll) Loan and Security Agreement dated September 10, 1997 by and among
the Registrant, Access Capital, Inc. and the other parties listed
therein.
(mm) Resignation letter from Nicholas Mastrorilli, Sr. to the
Registrant dated January 8, 1998.
(nn) Employment Agreement dated January 9, 1998 between the Registrant
and IMCOR concerning Robert E. Hoffman.
(oo) Letter from Cacomm, Inc. to the Registrant dated April 24,1998.
<PAGE>
Execution Copy
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT dated as of May 8, 1997 (the "Agreement") among
MagnaVision Corporation, a Delaware corporation (the "Company"), IBJS Capital
Corporation, a Delaware corporation ("IBJSCC"), and KOCO Capital Company, L.P.,
a Delaware limited partnership ("KOCO" and, together with IBJSCC, the
"Investors"). Certain terms used herein are defined in Section 10 below.
A. The Investors presently hold an aggregate of $5,000,000 principal
amount of Senior Subordinated Notes (the "Notes") of MagnaVision Corporation, a
New Jersey corporation and a wholly-owned subsidiary of the Company, and
warrants to purchase an aggregate of 17,088,409 shares of the Common Stock,
$.004 par value (the "Common Stock"), of the Company (the "Existing Warrants").
B. The Company desires to acquire the Notes and Existing Warrants from
the Investors in exchange for an aggregate of 5,000,000 shares of the Company's
Series A Preferred Stock, $.10 par value (the "Preferred Stock"), and warrants
to purchase an aggregate of 1,826,932 shares of Common Stock, representing
approximately 58% of the fully-diluted Common Stock outstanding after giving
effect to a 20-for-1 reverse split of the Common Stock to be effected prior to
the Closing (the "New Warrants").
THEREFORE, in consideration of the mutual undertakings set forth
herein, the parties agree as follows:
Section 1. Authorization of Securities. The Company has previously
authorized the issuance of (i) 5,000,000 shares of its Preferred Stock (the
"Shares") with the terms set forth in the Certificate of Amendment to the
Company's Certificate of Incorporation attached as Exhibit A hereto (the
"Amendment"), and (ii) the New Warrants in the form of Exhibit B hereto.
Section 2. Exchange of Securities. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Section 3 below),
the Investors agree to acquire the Shares and the New Warrants from the Company
in exchange for the Notes and the Existing Warrants, and the Company agrees to
issue and deliver the Shares and the New Warrants to the Investors. IBJSCC shall
receive 3,000,000 Shares and 1,096,159 New Warrants and KOCO shall receive
2,000,000 Shares and 730,773 New Warrants pursuant to this Section 2. In
connection with such exchange, all accrued and unpaid interest on the Notes
shall be paid at Closing in the form of one-year promissory notes of the Company
bearing interest at 10% per annum.
Section 3. The Closing. The closing of the exchange of securities
pursuant to Section 2 (the "Closing") shall be held at the New York City offices
of Zimet, Haines, Friedman & Kaplan
<PAGE>
on the first business day following the satisfaction or waiver of the conditions
set forth in Section 8 hereof, but in no event later than May 8, 1997 (the
"Closing Date"). At the Closing, (i) the Investors shall deliver to the Company
the certificates representing the Notes and Existing Warrants, and (ii) the
Company shall deliver to the Investors certificates representing the Shares and
the New Warrants duly registered in the names of the Investors or their
designee(s). Concurrently with the Closing, the indebtedness represented by the
Notes shall be discharged and treated as a capital contribution by the Company
to the Subsidiary and the Old Warrants shall be cancelled. On and after the
Closing Date, the Investors shall take all action reasonably requested by the
Company (at the Company's expense) as is necessary to terminate the Securities
Purchase Agreement dated August 25, 1995 and the related Security Agreement and
Collateral Assignment, Lockbox Service Agreement, Pledge Agreements (and
associated General Indentures of Assignment and Transfer and of Assumption of
Liabilities), Irrevocable Proxy from Magnavision Corporation, a New Jersey
corporation, to the Investors and their affiliates and Registration Rights
Agreement, to release the liens securing the Notes and to surrender all
securities in their possession held as collateral for the Notes, in each case
without recourse to or warranty by the Collateral Agent or any Investor (as such
terms are defined in such documents); provided, however, that the provisions of
Article XI and Sections 12.4, 12.5 and 12.15 of the Securities Purchase
Agreement shall survive such termination.
Section 4. Representations and Warranties of the Company. In order to
induce the Investors to enter into this Agreement and to acquire the Shares and
New Warrants, the Company hereby makes the following representations and
warranties to the Investors:
(a) Organization; Corporate Authority. The Company and each direct or
indirect subsidiary of the Company (collectively, the "Subsidiaries"): (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, (ii) has all requisite corporate power
and all governmental licenses, authorizations, consents, permits and approvals
(including any license, authorization, consent, permit and approval required
under any Environmental Law) necessary to own its assets and carry on its
business as now conducted or as proposed to be conducted, and (iii) is qualified
to do business and in good standing in all jurisdictions in which the nature of
the business conducted by it makes such qualification necessary and where
failure to so qualify would have a material adverse effect on the business,
assets, liabilities, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole, or
on the Company's ability to perform its obligations under the Transaction
Documents (a "Material Adverse Effect").
(b) Due Authorization; Enforceability. The Company has all requisite
corporate power necessary to consummate the transactions contemplated by this
Agreement, the New Warrants and the related Stockholders Agreement and
Registration Rights Agreement (collectively, the "Transaction Documents"). The
execution, delivery and performance by the Company of the Transaction Documents
have been duly authorized by all necessary corporate action on the part of the
Company. The Transaction Documents have been duly and validly executed and
delivered
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<PAGE>
by the Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms.
(c) Capitalization. Giving effect to a 20-for-1 reverse split of the
Common Stock to be effected prior to the Closing, the Company's outstanding
capital stock consists of 1,152,575 shares of Common Stock which are held,
beneficially and of record, as set forth on Schedule 4(c). All of such
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable with no personal liability attaching to the ownership
thereof. The Company owns all of the outstanding capital stock of each
Subsidiary, all of which are listed on Schedule 4(c), and the Company has no
direct or indirect equity or other ownership interest in any other entity.
Except for outstanding options and warrants to purchase a total of 170,375
shares of Common Stock (giving effect to the reverse split and the issuance of
warrants to purchase 15,000 additional shares which the Company is contractually
obligated to issue) as set forth on Schedule 4(c) and except for the shares of
Common Stock issuable upon the exercise of the New Warrants, neither the Company
nor any Subsidiary has granted or issued, or agreed to grant or issue, any
options, warrants or similar rights to acquire, subscribe for or receive any of
the shares of any class of capital stock of the Company or any Subsidiary, any
securities convertible into or exchangeable for shares of such capital stock, or
any stock appreciation, "phantom stock" or similar rights with respect to such
capital stock. After giving effect to the consummation of the transactions
contemplated hereby, the Shares will have been duly authorized and validly
issued and will be fully paid and non-assessable, with no personal liability
attaching to the ownership thereof, and will be free from any and all liens,
charges, pledges, encumbrances, security interests and similar restrictions
(collectively, "Liens"). The Common Stock issuable upon exercise of the New
Warrants has been duly authorized and reserved for issuance and is not subject
to any preemptive rights or rights of first refusal. When issued against payment
therefor in accordance with the terms of the New Warrants, such Common Stock
will be duly authorized, validly issued, fully paid and non-assessable, with no
personal liability attaching to the ownership thereof, and will be free from any
and all Liens.
(d) Financial Statements; No Undisclosed Liabilities. Except as set
forth on Schedule 4(d), the Company's audited consolidated financial statements
for the fiscal years ended December 31, 1996 and 1995 previously submitted to
the Investors (i) fairly present the Company's consolidated financial position
and results of operations at the dates thereof and for the periods covered
thereby, and (ii) disclose all liabilities (including contingent and/or
unmatured liabilities) which are required to be disclosed thereon, in each case
described in clause (i) and (ii) above in accordance with GAAP. Except as set
forth or provided for in the Company's audited consolidated balance sheet as of
December 31, 1996 (the "Latest Balance Sheet"), as of the Closing Date, neither
the Company nor any Subsidiary will have any liabilities, contingent or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
(e) Material Adverse Change. Except as set forth on Schedule 4(e) or as
disclosed on the Latest Balance Sheet, the Company and the Subsidiaries have
been operated in the ordinary
3
<PAGE>
course, consistent with past practice, and there has been no change or
development that could reasonably be expected to have a Material Adverse Effect.
(f) Litigation. Except as set forth on Schedule 4(f), there are no
legal or arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against or
affecting the Company or any Subsidiary which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
(g) No Breach. The execution and delivery of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
thereby and compliance with the terms and provisions thereof will not conflict
with or result in a breach of, or require any consent, waiver, filing or
notification under, the certificate of incorporation or by-laws of the Company
or any Subsidiary, any applicable law or regulation, any order, writ, injunction
or decree of any court or governmental authority or agency, or any material
agreement or instrument to which the Company or any Subsidiary is a party or by
which it is bound or to which it is subject, or constitute a default under any
such agreement or instrument or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Company or any Subsidiary pursuant to
the terms of any such agreement or instrument.
(h) Approvals. The Company has obtained all authorizations, approvals
and consents of, and has made all filings and registrations with, any
governmental or regulatory authority or agency necessary for the execution,
delivery or performance by it of the Transaction Documents or for the validity
or enforceability thereof.
(i) ERISA. The Company and each of its ERISA Affiliates have fulfilled
their obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and each is in compliance in all material respects with all
applicable provisions of ERISA and the Code, and have not incurred any liability
to the PBGC or a Plan under Title IV of ERISA (other than to make contributions
or premium payments in the ordinary course). Neither the Company nor its ERISA
Affiliates has any actual or potential liability to any Multiemployer Plan.
(j) Taxes. Except as set forth on Schedule 4(j), the Company and each
Subsidiary has filed all United States federal and state income tax returns and
all other material tax returns which are required to be filed by it. Such
returns are true and accurate in all material respects, and the Company and each
Subsidiary has paid all taxes due pursuant to such returns or pursuant to any
assessment received by it, except to the extent the same may be contested in
good faith and as to which adequate reserves are reflected on the Latest Balance
Sheet. The charges, accruals and reserves on the Latest Balance Sheet in respect
of taxes and other governmental charges are adequate in all material respects.
(k) Title to Properties. Except as set forth on Schedule 4(k), the
Company and the Subsidiaries have good and marketable title to all of their
properties and assets (including real property and tangible and intangible
personal property), in each case free and clear of all Liens
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<PAGE>
other than Permitted Liens (as defined in Section 7(b)). The Company and each
Subsidiary owns, or is licensed to use, all licenses, service marks, franchises,
trademarks, tradenames, patents, patent applications, copyrights, technology,
know-how, processes and other intellectual and proprietary rights (collectively,
the "Intellectual Property") necessary for the conduct of its business. Schedule
4(k) contains a list of all licenses, franchises, patents, patent applications,
trademark, tradename and service mark registrations and applications therefor,
and copyright registrations and applications therefor, owned by the Company and
the Subsidiaries. Except as set forth in Schedule 4(k), no material claim has
been asserted or is pending with respect to the use by the Company or the
Subsidiaries of any Intellectual Property or challenging or questioning the
validity or effectiveness of any Intellectual Property necessary or desirable
for the conduct of the business of the Company or the Subsidiaries.
(l) Contracts. Schedule 4(l) sets forth a complete list as of the date
hereof of each material agreement, contract, guaranty, indenture or instrument
to which the Company or the Subsidiary is a party or by which any of its
respective properties are or may be bound (collectively, the "Contracts"),
correct and complete copies of which have been provided to the Investors. Each
Contract is the binding obligation of the Company or the applicable Subsidiary
and, to the Company's best knowledge, the binding obligation of each of the
other parties thereto, in each case enforceable in accordance with its terms.
Neither the Company or any Subsidiary nor to the Company's best knowledge the
other party thereto is in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in any Contract to
which it is a party.
(m) No Material Misstatements. All information, including financial
information, provided or to be provided from time to time to the Investors in
connection with this Agreement and the Transaction Documents is true and
correct, and none of the documentation furnished to the Investors by the
Company, or any other statement furnished by or on behalf of the Company to the
Investors in connection with the negotiation or confirmation of the transactions
contemplated hereby or by the Transaction Documents, contains or will contain
any untrue statement of a material fact or omits or will omit a material fact
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading and all such statements,
taken as a whole, do not and will not contain any untrue statement of a material
fact or omit a material fact necessary to make the statements contained herein
or therein not misleading, and all expressions of expectation, intention, belief
and opinion contained therein were, and will be, honestly made on reasonable
grounds after due and careful inquiry by the Company (and any other Person who
furnished such material). There is not, and will not be, any fact which the
Company has not disclosed to the Investors in writing which has had or is
reasonably likely to have a Material Adverse Effect.
(n) Outstanding Debt. Schedule 4(n) lists all Indebtedness of the
Company and the Subsidiaries. There does not exist any default under any
Contract relating to or evidencing any Indebtedness of the Company or the
Subsidiaries (or any event which, with only the giving of notice or the passage
of time or both, would result in such a breach or default).
5
<PAGE>
(o) Certain Regulations. Neither the Company nor any Subsidiary is an
"investment company" or an "affiliate" of an "investment company" as defined in,
or subject to regulation under, the Investment Company Act of 1940, as amended.
Neither the Company nor any Subsidiary is a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935, as
amended.
(p) Capital Stock. Giving effect to the transactions contemplated
hereby, there are no restrictions upon the voting rights associated with, or the
transfer of, any of the capital stock of the Company, except as provided by (a)
United States or state securities laws or (b) the terms and provisions of the
Stockholders Agreement.
(q) Small Business Matters. The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations, ss.121.401)
is a "small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title 13, Code
of Federal Regulations, ss.121.802. The information set forth in the Small
Business Administration Forms 480 and 652 regarding the Company and its
Affiliates to be delivered on the Closing Date is correct and complete. Neither
the Company nor any Subsidiary presently engages in, and shall not hereafter
engage in, any activities, nor shall the Company or any Subsidiary use directly
or indirectly the proceeds from the exercise of the New Warrants by any Investor
that is a Small Business Investment Company, for any purpose for which an SBIC
is prohibited from providing funds by the Small Business Investment Act of 1958
and the regulations thereunder, including Title 13, Code of Federal Regulations,
ss.107.901. If the Company breaches this representation in any material respect,
then in addition to all other remedies available to the Investors, an Investor
may demand that the Company immediately repurchase all securities of the Company
held by such Investor at their original cost plus accrued dividends or interest.
(r) Compliance; Licenses and Permits.
(i) The Company and the Subsidiaries have complied in all material
respects with all federal, state, local or foreign laws, ordinances,
regulations or orders applicable to its business. The Company and the
Subsidiaries have all material federal, state, local and foreign
governmental licenses and permits which are required for the conduct of
their business as presently conducted, which licenses and permits are
in full force and effect, and no violations are outstanding or uncured
with respect to any such licenses or permits and no proceeding is
pending or, to the best of the Company's knowledge, threatened to
revoke or limit any thereof. Schedule 4(r) lists all federal, state,
local and foreign governmental licenses and permits of the Company and
the Subsidiaries which are used in or relate to their respective
businesses.
(ii) Neither the Company nor any Subsidiary is in material
violation of, and none of their facilities or assets as currently used
violates in any material respect, any applicable Environmental Law, and
no condition or event has occurred which, with
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<PAGE>
notice or the passage of time or both, would constitute a material
violation of any Environmental Law.
(iii) The Company and the Subsidiaries are in possession of all
material Environmental Permits required under any applicable
Environmental Law for the conduct or operation of its business (or any
part thereof), and are in compliance with all of the requirements and
limitations included in such Environmental Permits.
(iv) Neither the Company nor any Subsidiary is the subject of
federal, state, local or private litigation or proceedings involving a
demand for damages or other potential liability with respect to
violations of Environmental Laws.
(v) Neither the Company nor any Subsidiary is liable, directly or
indirectly, in connection with any release of any hazardous substance
into the environment in violation of Environmental Laws, nor do there
exist any facts upon which a finding of such liability could be based.
(vi) The Company and each Subsidiary has complied in all material
respects with the filing and reporting requirements under all
applicable Environmental Laws and has maintained in all material
respects all required data, documentation and records under all
applicable Environmental Laws.
(s) Business Plan and Projections. The Company's current Business Plan
set forth on Schedule 4(s) is complete and correct in all material respects and
the forecasts and projections included therein are based on estimates and
assumptions which are reasonable in light of the conditions which existed at the
time of their preparation and which exist on the date hereof and constitute
reasonable estimations of (but do not guarantee) the future performance of the
Company.
(t) Communications Act. Neither the Company nor any Subsidiary
qualifies as a "cable television company" prohibited from leasing transmission
time or capacity from a licensee of a station within the meaning of 47 C.F.R.
ss. 74.931(h).
(u) License Applications. The Company has rights as sublicensee in
wireless frequency license applications covering 16 ITFS channels in Monmouth
and Ocean Counties, New Jersey. To the Company's best knowledge, the applicants
for such licenses have duly filed applications therefor with the Federal
Communications Commission (the "FCC") and have taken all actions required by the
FCC to obtain such licenses, and the Company is not aware of any reason why such
licenses will not be granted by the FCC in the ordinary course.
Section 5. Representations and Warranties of the Investors. Each
Investor represents and warrants to the Company, severally and not jointly, as
follows:
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(a) Each Transaction Document to which it is a party constitutes the
valid and binding obligation of the Investor, enforceable against it in
accordance with its respective terms.
(b) It is acquiring the Shares and the New Warrants, and will acquire
the Common Stock underlying the New Warrants (the "Warrant Shares"), for its own
account with the intention of holding the same for investment and not with a
view to the distribution thereof in violation of applicable securities laws.
(c) It understands that the Shares, the New Warrants and the Warrant
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws in reliance upon
exemptions contained in the Securities Act and such applicable state securities
laws, and that the Company's reliance upon such exemptions is based in part on
the representations of the Investors contained in this Agreement. The Investor
further understands and acknowledges that the Shares, the New Warrants and the
Warrant Shares must be held indefinitely unless a subsequent disposition thereof
is registered under the Securities Act and applicable state securities laws or
unless such disposition is exempt from registration thereunder.
(d) It is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act.
(e) It has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of the
investment contemplated hereby.
(f) It has received copies of such documents and other information as
it has deemed necessary in order to make an informed investment decision with
respect to the investment being made hereby, and the Company has made its
officers available to the Investors to answer the Investors' questions
concerning the Company and the investment being made hereby.
(g) The principal offices of such Investor are located in New York and
substantially all of the decisions with respect to the investment being made
hereby were made at such location.
Section 6. Affirmative Covenants. The Company covenants and agrees with
the Investors that, so long as any Shares or New Warrants remain outstanding,
the Company and each Subsidiary (collectively, the "Entities") shall comply with
the covenants set forth in this Section 6, except where such compliance is
prevented by action of a majority of the Investor Directors.
(a) Corporate Existence. Each Entity shall do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its
corporate existence and any necessary state or other qualifications (other than
any qualifications the absence of which, in the aggregate, would not result in a
Material Adverse Effect).
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(b) Obligations and Taxes. Each Entity shall pay or discharge, or cause
to be paid or discharged, before the same shall become delinquent (a) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its business or property unless such taxes,
assessments or governmental charges are being paid in accordance with the terms
of an agreement with the applicable taxing authority, (b) all lawful claims for
labor, materials and supplies, (c) all required payments under any Indebtedness
and (d) all other obligations; provided, however, that it shall not be required
to pay or discharge or to cause to be paid or discharged any such amount so long
as the validity or amount thereof shall be contested in good faith in an
appropriate manner and appropriate reserves and accruals have been made with
respect thereto.
(c) Performance Under Agreements. Each Entity shall perform its
obligations under each Transaction Document and each other Contract to which it
is a party; provided, however, that an Entity shall not be required to so
perform its obligations under any Contract (other than this Agreement and any
other Transaction Document) to the extent it is reasonably contesting such
obligations in good faith and in an appropriate manner and, if required by GAAP,
it has made appropriate reserves and accruals with respect thereto.
(d) Access to Properties and Inspections. The Entities shall maintain
financial records in accordance with GAAP sufficient to allow the Company to
prepare the financial statements, certificates and reports required by Section
6(h) hereof. Each Entity shall permit any authorized representative or agent of
the Investors to visit and inspect its properties and records and to make
extracts from such records, and permit any authorized representative or agent of
the Investors to discuss its affairs, finances and condition with such of its
officers, key employees and independent accountants as the Investors shall deem
appropriate. Delivery of a copy of this Agreement to the independent accountants
acting as auditors for an Entity shall constitute instructions to such
accountants to discuss the financial condition of such Entity with the Investors
and their representatives, and to permit the Investors and their representatives
to inspect, copy and make extracts from all financial statements, analyses, work
papers and other documents and information (including electronically stored
documents and information) prepared by such accountants with respect to such
Entity.
(e) Notices of Litigation, Claims, Etc. The Company shall promptly upon
obtaining notice of the occurrence thereof (but in no event more than 10 days
after obtaining notice of the occurrence thereof), provide the Investors with
written notice of any of the following events:
(i) the issuance by any governmental authority of any injunction,
order or decision involving any Entity or its respective properties;
(ii) the filing or commencement of any action, suit or proceeding
against or affecting any Entity or its properties, whether at law or in
equity or by or before any court or any United States, state, or other
governmental authority;
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(iii) the imposition of any Lien which is not a Permitted Lien;
(iv) any claim, demand or action impairing title to any of the
properties or assets of any Entity;
(v) any other adverse action by or notice from a governmental
authority with respect to any Entity or any of its respective
properties;
(vi) any default by any Entity under any Indebtedness; and
(vii) any development in the business or affairs of any Entity
which could reasonably be expected to have a Material Adverse Effect.
Each notice shall specify, as applicable, (i) the nature and extent thereof,
(ii) any rights of any other parties thereto with respect to termination,
acceleration or similar provisions and (iii) any corrective action taken or
proposed to be taken with respect thereto.
(f) Legal Compliance. Each Entity shall comply in all material respects
with all applicable laws, including Environmental Laws, and shall maintain all
required clearances, consents, permits and approvals of governmental
authorities.
(g) Business and Properties. Each Entity shall:
(i) at all times do or cause to be done all things necessary to (A)
preserve, renew and keep in full force and effect the material rights,
licenses, permits, franchises and concessions necessary to, or used or
useful in the conduct of, its business and (B) keep its assets and
properties used or useful in the conduct of its business in good
repair, working order and condition, ordinary wear and tear excepted,
and from time to time make, or cause to be made, all necessary and
proper repairs, renewals and replacements, betterments and improvements
thereto, all as may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at
all times; and
(ii) as promptly as possible after obtaining knowledge of the
occurrence thereof, furnish written notice to the Investors of the
institution of any proceeding for the condemnation or other taking of
any property of such Entity.
(h) Financial Statements and Reports. The Company shall furnish to the
Investors:
(i) as soon as available but in any event within ninety (90) days
after the end of each fiscal year, consolidated balance sheets, income
statements and cash flow statements of the Company and the
Subsidiaries, showing its financial condition as at the end of such
fiscal year and the results of its operations for such fiscal year,
audited by
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independent accountants of nationally-recognized standing reasonably acceptable
to the Investors and prepared in accordance with GAAP;
(ii) as soon as available but in any event no later than the last
day of the prior fiscal year, current and projected annual budgets,
operating plans and financial projections for the Company and the
Subsidiaries (presented on a monthly basis) for such fiscal year;
(iii) as soon as available but in any event within 30 days after
the end of each month, the Company's unaudited consolidated balance
sheets, income statements and cash flow statements (along with
comparisons to budget), showing the financial condition as at the end
of such month, and the results of operations for such month and for the
then elapsed portion of the fiscal year, in each case prepared in
accordance with GAAP, subject to normal year-end adjustments (none of
which alone or in the aggregate would result in a Material Adverse
Effect) and the absence of notes thereto;
(iv) as soon as available but in any event within 45 days after the
end of each calendar quarter, the Company's unaudited consolidated
balance sheets, income statements and cash flow statements (along with
comparisons to budget), showing the financial condition as at the end
of such calendar quarter, and the results of operations for such
calendar quarter and for the then elapsed portion of the fiscal year,
in each case prepared in accordance with GAAP, subject to normal
year-end adjustments (none of which alone or in the aggregate would
result in a Material Adverse Effect) and the absence of notes thereto;
(v) as soon as received, copies of any notice of potential
liability or charge or complaint received by any Entity from any
governmental authority;
(vi) concurrently with the statements provided pursuant to clauses
(i), (iii) and (iv), a certificate of the chief financial officer of
the Company containing a narrative management discussion and analysis
of the consolidated financial condition and results of operation of the
Company for the periods covered by such statements and, concurrently
with the statements provided pursuant to clause (iv), a forecast of the
Company's results of operations for the following four fiscal quarters;
(vii) promptly upon their becoming available, copies of any
statements, reports and other communications, if any, which any Entity
shall have provided to its stockholders, the Securities and Exchange
Commission or the FCC;
(viii) promptly upon receipt thereof, copies of all financial and
management reports submitted to any Entity by its independent auditors
in connection with each annual audit of the books of such Entity; and
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(ix) promptly, from time to time, such other information (in
writing if so requested) regarding the assets and properties,
operations, business affairs and financial condition of each Entity as
the Investors may reasonably request.
Each certificate of the Company's chief financial officer (and, in the case of
year-end financial statements and reports, the Company's independent auditors)
delivered under this Section 7(h) shall certify (A) that the statement or report
to which such certificate relates fairly presents in all material respects the
financial position and results of operations of the Company and the Subsidiaries
at the dates thereof and for the periods then ended and has been prepared in
accordance with GAAP except, in the case of unaudited financial statements, for
normal year-end audit adjustments (none of which alone or in the aggregate would
result in a Material Adverse Effect) and the absence of notes thereto, (B) that
no Event of Default has occurred and is continuing and (C) that, to the best of
the financial officer's knowledge, no event or condition has occurred which has
had or could reasonably be expected to have a Material Adverse Effect. The audit
report with respect to the financial statements referred to in clause (i) shall
not contain any qualification arising out of the scope of the audit.
(i) Insurance. The Entities shall maintain insurance on their business
and properties to such extent and against such risks, including fire and other
risks insured against by extended coverage, and workers' compensation insurance
and public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of, any
properties owned, occupied or controlled by the them, in each case consistent
with insurance maintained as of August 25, 1995, and shall provide evidence to
the Investors of such insurance upon request.
(j) Employee Plans. If the Company or its Affiliates are required to
comply with ERISA, the Entities shall, and shall cause their Affiliates and
ERISA Affiliates, to (a) comply with the provisions of ERISA, the Code and all
other laws applicable to any Plan; (b) operate and administer each Plan in
accordance with all applicable laws; (c) not terminate or withdraw from any Plan
if such withdrawal could result in a material liability to accrue against an
Entity or any of their Affiliates or ERISA Affiliates; (d) not fail to make full
payment when due of all amounts which, under the provisions of any Plan, an
Entity or any Affiliate or ERISA Affiliate is required to pay as a contribution
or premium payment thereto; (e) furnish to the Investors, as soon as possible,
and in any event with in 10 days after any responsible officer of an Entity
knows or has reason to know of any of the following events, written notice of
the same: (i) the withdrawal from or termination of any Plan by an Entity or any
of its Affiliates or ERISA Affiliates, if such termination or withdrawal could
result in any liability to the same; (ii) that any Plan is not in compliance
with any applicable law; or (iii) that any required employer or employee
contributions or premiums have not been made on a timely basis.
(k) Ownership of the Entities. The Company shall at all times maintain
direct or indirect ownership of 100% of the outstanding shares of each class of
capital stock of each Subsidiary.
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(l) Exchange Act Compliance. So long as the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, the
Company shall comply with all public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. The Company shall supply each stockholder with such
information as may be necessary for such stockholder to utilize Rule 144 and
Rule 144A for the resale of the Common Stock and to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144 or 144A.
(m) Information Rights and Related Covenants.
(i) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall provide to the
Investors a written assessment, in form and substance satisfactory to
the Investors, of the economic impact of the Investors' financing
hereunder, specifying the full-time equivalent jobs created or
retained, the impact of the financing on the Company's business in
terms of expanded revenue and taxes and other appropriate economic
benefits, including but not limited to technology development or
commercialization, minority business development, urban or rural
business development, expansion of exports and assistance to
manufacturing firms.
(ii) Upon the request of any Investor, any Affiliate of an Investor
or any transferee of an Investor holding at least 5% of the outstanding
Common Stock on a fully-diluted basis, the Company shall (i) provide
such financial statements and other information as such Person may from
time to time request for the purpose of assessing the Entity's
financial condition and (ii) furnish to such Person all information
requested by it in order for it to prepare and file SBA Form 468 and
any other information requested or required by any governmental agency
asserting jurisdiction over such Person.
(iii) For a period of one year following the date hereof, neither
the Company nor any of the Subsidiaries will change its business
activity if such change would render such Entity ineligible to receive
financial assistance from a Small Business Investment Company under the
Small Business Investment Act and the regulations thereunder. If an
Entity breaches this covenant, then, in addition to all other remedies
available to the Investors, the Investors may demand that the Entities
immediately repurchase all securities acquired by the Investors at
their original cost plus accrued dividends or interest.
(iv) The Entities shall at all times comply with the
non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
(n) Regulatory Compliance Cooperation.
(i) In the event that a Regulated Holder determines that it has a
Regulatory Problem, the Company agrees to take all such actions as are
reasonably requested by such
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Regulated Holder in order to (A) effectuate and facilitate any transfer
of securities by such Regulated Holder to any Person designated by such
Regulated Holder, (B) permit such Regulated Holder (or any of its
Affiliates) to exchange all or any portion of the voting securities
then held by such Person on a share-for-share basis for shares of a
class of nonvoting securities of the Company, which nonvoting
securities shall be identical in all respects to such voting
securities, except that such new securities shall be nonvoting and
shall be convertible into voting securities on such terms as are
requested by such Person in light of regulatory considerations then
prevailing, (C) continue and preserve the respective allocation of the
voting interests with respect to the Company arising out of such
Regulated Holder's ownership of voting securities before the transfers
and amendments referred to above (including entering into such
additional agreements as are requested by such Regulated Holder to
permit any Person(s) designated by such Regulated Holder to exercise
any voting power which is relinquished by such Regulated Holder upon
any exchange of voting securities for nonvoting securities of the
Company), and (D) entering into such additional agreements, adopting
such amendments to this Agreement, the certificate of incorporation and
bylaws of the Company and other relevant agreements and taking such
additional actions, in each case as are reasonably requested by such
Regulated Holder in order to effectuate the intent of the foregoing.
The Company shall obtain the agreement of all of its stockholders to
cooperate in complying with this Section 7(n), including without
limitation the agreement of such stockholders to approve amending its
certificate of incorporation in a manner reasonably requested by such
Regulated Holder to effectuate clauses (A), (B) and (C) above.
(ii) Before the Company redeems, purchases or otherwise acquires,
directly or indirectly, or converts or takes any action with respect to
the voting rights of, any of its securities, the Company shall give
written notice of such pending action to each Regulated Holder. Upon
the written request of any Regulated Holder made within 10 days after
its receipt of any such notice stating that after giving effect to such
action such Person would have a Regulatory Problem, the Company shall
defer taking such action for such period (not to extend beyond 45 days
after the Company's receipt of such notice) as such Person requests to
permit it and its Affiliates to reduce the quantity of the Company's
securities they own in order to avoid the Regulatory Problem.
(iii) In the event a Regulated Holder has the right to acquire any
of the Company's securities (as the result of a preemptive offer, pro
rata offer or otherwise), at such Person's request the Company shall
offer to sell to such Person nonvoting securities on the same terms as
would have existed had such Person acquired the securities so offered
and immediately requested their exchange for nonvoting securities
pursuant to subsection (i) above.
(iv) In the event that any Subsidiary of the Company offers to sell
any of its securities, then the Company shall cause such Subsidiary to
enter into agreements with each Regulated Holder substantially similar
to those in Sections 7(m) and 7(n) hereof if
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such Regulated Holder reasonably determines that entering into the
agreement is necessary to carry out the intent of this Section 7(n).
(o) Information Rights. Upon the request of a Regulated Holder or any
of its Affiliates, the Company will promptly (and in any event within 20 days of
such request) furnish to such Person all information necessary in order for such
Person to prepare any information requested or required by any governmental
authority asserting jurisdiction over such Person.
(p) Further Assurances. The Entities shall duly execute and deliver, or
cause to be duly executed and delivered, at their own cost and expense, such
further instruments and documents and take or cause to be taken all such
actions, in each case as may be necessary or proper in the reasonable judgment
of the Investors to carry out the provisions and purposes of this Agreement and
the other Transaction Documents and to better assure and confirm unto the
Investors their rights and remedies under this Agreement and the other
Transaction Documents.
Section 7. Negative Covenants. The Company hereby covenants and agrees
with the Investors that, so long as any Shares or New Warrants remain
outstanding, the Entities shall comply with the covenants set forth in this
Section 7, except where such compliance is prevented by action of a majority of
the Investor Directors.
(a) Indebtedness. The Entities shall not incur, create, assume or
suffer or permit to exist any Indebtedness, except:
(i) Indebtedness for borrowed money in an aggregate amount for all
the Entities not to exceed $1,500,000 outstanding at any time;
(ii) Indebtedness existing on the date hereof and identified on
Schedule 4(n);
(iii) Endorsements for collection or deposit in the ordinary course
of business;
(iv) purchase money Indebtedness (including the capital component
of Capital Lease Obligations) incurred after the date hereof not in
excess of the book value, determined in accordance with GAAP, of the
items purchased and in no event to exceed $50,000 in any fiscal year
for all the Entities; and
(v) any renewal, extension, refinancing or refunding of any
Indebtedness permitted hereby, provided that such Indebtedness does not
exceed the principal amount of Indebtedness so renewed, extended,
refinanced or refunded.
(b) Negative Pledge. The Entities shall not incur, create, assume or
suffer or permit to exist any Lien on any of their property or assets or on any
income or rights in respect of any thereof, except the following (the "Permitted
Liens"):
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(i) Liens incurred and arising out of surety bonds, appeal bonds,
statutory obligations, bids, performance and return of money and
similar obligations and pledges or deposits made in the ordinary course
of business in connection with worker compensation, unemployment
insurance, old age pensions and other social security benefits;
(ii) Liens imposed by law, including carriers', warehousemen's,
mechanics', materialmen's and vendors' Liens incurred in the ordinary
course of business and securing obligations which are not yet due or
which are being contested in good faith by appropriate proceedings, and
in any such case as to which it shall have set aside adequate cash
reserves in accordance with GAAP;
(iii) Liens securing the payment of taxes, assessments and
governmental charges or levies, either not yet due and payable or being
contested in good faith by appropriate legal or administrative
proceedings, and in any such case as to which it shall have set aside
adequate cash reserves in accordance with GAAP;
(iv) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title which do not in the aggregate
impair the use of any parcel of property material to the operation of
the business of the Company or the value of such property for the
purpose of the business of the Company;
(v) Liens securing purchase money Indebtedness; provided, however,
that each such Lien does not secure any other Indebtedness and does not
encumber any property other than that property acquired with the
proceeds of such Indebtedness;
(vi) extensions and renewals of Liens permitted hereunder;
provided, however, that the Indebtedness secured thereby is not
increased and the Lien does not encumber any property not previously
encumbered by the Lien so extended or renewed; and
(vii) Liens securing indebtedness permitted by Section 8(a)(i).
(c) Restricted Payments. No Entity shall declare or make any Restricted
Payment.
(d) Nature of Business. The Entities shall not conduct any business or
operations that would cause an investment in any of them to become ineligible as
a "portfolio investment" for the Investors under Regulation K promulgated by the
Federal Reserve Board or any other applicable law, or which would require the
Investors to divest the Shares, New Warrants or Warrant Shares under such
Regulation K or any other applicable law.
(e) Transactions With Affiliates. The Entities shall not enter into any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the
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rendering of any service) with any Affiliate, without the prior written consent
of the Investors. Any such transaction submitted for consent by the Investors
shall include a fairness opinion from an investment bank selected by the
Investors if requested by the Investors.
(f) Merger or Consolidation. The Entities shall not (a) merge with or
into or consolidate or combine with any other Person or (b) sell, lease or
otherwise transfer any of their assets other than a sale of inventory in the
ordinary course of business.
(g) Issuance of Capital Stock or Other Equity Interests. The Entities
shall not issue any capital stock or other equity interest exercisable into
their capital stock (other than pursuant to existing options and warrants set
forth on Schedule 4(c) or pursuant to the Company's Management Incentive Option
Plan covering a total of 349,986 shares of Common Stock as approved by the
Investors) without the prior written consent of the Investors, which consent
shall not be withheld or delayed if, in the Investors' judgment, such issuance
is not dilutive to the Investors' interest (including the Shares and the New
Warrants) in the Company. The parties agree to implement the Management
Incentive Option Plan within 90 days after the Closing and to issue options
thereunder as set forth on Schedule 7(g) attached hereto, a portion of which
options shall be fully vested as set forth on Schedule 7(g).
(h) Charter, Bylaw and Transaction Document Amendments. The Entities
shall not amend, modify or supplement their respective certificates of
incorporation or bylaws or any Transaction Document in any manner that the
Investors deem will adversely affect the rights of the Investors under this
Agreement or any other Transaction Document or their ability to enforce the same
without the prior written consent of the Investors.
(i) Programming. The Entities shall not, directly or indirectly, engage
in the development or production of cable-related or other similar programming.
Section 8. Closing Conditions.
(a) Conditions to Investors' Obligations. The obligations of the
Investors to consummate the transactions contemplated hereby are subject to the
satisfaction of the following conditions precedent:
(i) the Amendment shall have been duly approved by the Company's
board of directors and stockholders, the Amendment shall have been
filed with the Delaware Secretary of State and the Company shall have
effected a 20-for-1 reverse split of its Common Stock;
(ii) the Company shall have entered into employment agreements with
each of Nicholas Mastrorilli, Sr., Patrick Mastrorilli and Nicholas
Mastrorilli, Jr. in the form of Exhibit C hereto;
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(iii) the Company and the existing majority stockholder of the
Company shall have executed and delivered a Stockholders Agreement in
the form of Exhibit D hereto;
(iv) the Company shall have executed and delivered a Registration
Rights Agreement in the form of Exhibit E hereto;
(v) the Company shall have delivered to the Investors duly executed
and completed Small Business Administration Forms 480 and 652;
(vi) the Company shall have obtained directors' and officers'
liability insurance on terms satisfactory to the Investors;
(vii) Cacomm, Inc. shall have exchanged its notes receivable from
the Company in the aggregate amount of $131,889 for 131,889 shares of
Series B Preferred Stock of the Company;
(viii) the Company shall have executed and delivered a Management
Services Agreement in the form of Exhibit F hereto; and
(ix) the Investors shall have received the legal opinion of Zimet,
Haines, Friedman & Kaplan in the form of Exhibit G hereto and a
certificate from the Company's transfer agent as to the Company's
outstanding capital stock.
(b) Conditions to the Company's Obligations. The Company's obligation
to consummate the transactions contemplated hereby is subject to the following
conditions precedent:
(i) the representations and warranties of the Investors set forth
herein shall be true and correct as if made on and as of the Closing
Date;
(ii) the Investors shall have complied with all of its obligations
required to be performed by it hereunder on or prior to the Closing
Date; and
(iii) the Investors shall have funded the entire $5,000,000
principal amount of the Notes.
Section 9. Termination. Anything herein to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date: (i) by mutual written consent of the Company and the Investors;
(ii) by either the Company or the Investors if for any reason the Closing shall
not have occurred on or before May 8, 1997 (or such other date as may be
mutually agreed by the parties); or (iii) by either the Company or the Investors
in the event that a condition to the terminating party's obligations to close
the transactions contemplated by this Agreement shall become incapable of
satisfaction; provided, however, that no party shall be
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entitled to terminate this Agreement in the event that the failure of the
Closing to occur or any condition to Closing to be satisfied shall be
attributable to such party's breach of this Agreement.
Section 10. Certain Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth below:
"Affiliate" shall mean as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, siblings, spouse, children,
step-children, nephews, nieces and grandchildren) of such individual and any
trust whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise) of a Person, provided
that, in any event, any Person which owns directly or indirectly more than 5% of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or more than 5% of the partnership or
other ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person. Notwithstanding the foregoing, no individual shall be deemed to be an
Affiliate of a corporation solely by reason of his or her being an officer or
director of such corporation.
"Capital Lease Obligations" shall mean as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and rulings issued thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and rulings issued thereunder.
"ERISA Affiliate" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with the Company, would be treated as a single
employer under Section 414 of the Code.
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, codes, common law, plans,
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injunctions, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions, contracts, indemnities, assumptions of
liability or agreements, relating to the environment or to emissions, discharges
or releases of pollutants, contaminants, petroleum or petroleum products,
chemicals or industrial, toxic or Hazardous Substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"Environmental Permits" shall mean any of the permits required by or
pursuant to any applicable Environmental Law.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Hazardous Substances" shall mean asbestos, asbestos containing
materials (as defined in regulations adopted under the Toxic Substances Control
Act, as amended), urea formaldehyde containing foam, polychlorinated biphenyls,
radon, petroleum, petroleum products, fuel oil, derivatives and by-products of
petroleum products or fuel oil, explosives, reactive materials, ignitable
materials, corrosive materials, hazardous chemicals, hazardous waste, hazardous
substances, extremely hazardous substances, toxic substances, toxic chemicals,
radioactive materials, medical waste, biomedical waste, infectious materials and
any other element, compound, mixture, solution or substance which may pose a
present or potential hazard to human health or the environment.
"Indebtedness" of a Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by (or which
customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property
or assets purchased by such Person, (e) all obligations of such Person issued or
assumed as the deferred purchase price of property or services, other than
accounts payable incurred and paid on terms customary in the business of such
Person (it being understood that the "deferred purchase price" in connection
with any purchase of property or assets shall include only that portion of the
purchase price which shall be deferred beyond the date on which the purchase is
actually consummated), (f) all obligations of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all obligations of
such Person under forward sales, futures, options and other similar hedging
arrangements (including interest rate hedging or protection agreements), (h) all
obligations of such Person to purchase or otherwise pay for merchandise,
materials, supplies, services or other property under an arrangement which
provides that payment for such merchandise, materials, supplies, services or
other property shall be made regardless of whether delivery of such merchandise,
materials, supplies, services or other
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property is ever made or tendered, (i) any guaranties by such Person of
obligations of others and (j) all Capital Lease Obligations of such Person.
"Investor Directors" means the members of the Company's board of
directors designated by the Investors pursuant to the Stockholders Agreement.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate is
making or accruing an obligation to make contributions or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Pension Plan" shall mean an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by the Company or any ERISA
Affiliate for employees of the Company or any ERISA Affiliate or (b) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which the Company or any
ERISA Affiliate is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"Person" shall mean any corporation, association, partnership, joint
venture, organization, business, individual, government or any agency or
political subdivision thereof or any other entity.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Plan" shall mean an employee benefit plan, as defined in Section 3(3)
of ERISA, at any time maintained by the Company or any ERISA Affiliate for
employees of the Company or any ERISA Affiliate or in which any such employees
participate or at any time participated when employed by the Company or any
ERISA Affiliate.
"Regulated Holder" means any Person that is (or that is a subsidiary of
a bank holding company that is) subject to the various provisions of Regulation
Y of the Board of Governors of the Federal Reserve System, 12 C.F.R., Part 225
(or any successor to Regulation Y) or the Small Business Investment Act of 1958,
as amended, and Title 13 of the C.F.R. that holds any securities of any Entity.
"Regulatory Problem" means (a) any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency (or any
Regulated Holder believes that there is a significant risk of such assertion)
that such Person is not entitled to own, hold, or exercise any material right
with respect to, all or any portion of the securities of an Entity which such
Person holds or (b) when a Regulated Holder and its Affiliates would own,
control or have power (including voting rights) over a greater quantity of
securities of any kind than are permitted under any requirement of any
governmental authority.
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"Restricted Payment" shall mean (i) any dividend or other distribution
on any shares of the capital stock of an Entity (other than stock splits, like
kind stock dividends or the distribution of shares of capital stock of an Entity
pursuant to the exercise of warrants or contingent equity rights), (ii) any
payment on account of the purchase, redemption, retirement or acquisition of (a)
any shares of capital stock of an Entity or (b) any option, warrant or other
right to acquire shares of the capital stock of an Entity and (iii) any optional
redemption of, or other optional prepayment of principal of Indebtedness, other
than any of the foregoing that results solely in a payment by a Subsidiary to
the Company.
Section 11. Miscellaneous.
(a) Communications. Subject to the express provisions of this
Agreement, all communications provided for or permitted hereunder shall be in
writing, personally delivered to an officer or other responsible employee of the
addressee or sent by registered mail, charges prepaid, or by telecopy with
confirmed receipt (with hard copy to follow), telegram or other means of
recorded telecommunication, charges prepaid, to the applicable address set forth
below or to such other address as either party hereto may from time to time
designate to the other in such manner. Any communication so personally delivered
shall be deemed to have been validly and effectively given on the date of such
delivery. Any communication so sent by registered mail shall be deemed to have
been validly and effectively given on the tenth business day next following the
day on which it is sent. Any communication so sent by telecopy, telegram or
other means of recorded telecommunication shall be deemed to have been validly
and effectively given on the business day next following the day on which it is
sent.
Communications sent to the Entities shall be addressed to:
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
Attention: Nicholas Mastrorilli, Sr.
Facsimile: (908) 974-1106
with a copy to:
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Attention: Stephen M. Fields, Esq.
Facsimile: (212) 223-1151
Communications sent to the Investors shall be addressed as follows:
IBJS Capital Corporation
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One State Street
New York, New York 10004
Attention: Rick Krueger
Facsimile: (212) 858-2768
KOCO Capital Company, L.P.
111 Radio Circle
Mt. Kisco, New York 10549
Attention: Paul Echausse
Facsimile: (914) 241-1143
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with copies to:
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Steven Siegel, Esq.
Facsimile: (303) 623-1956
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Facsimile: (212) 408-2420
(b) Survival of Representations, Warranties and Covenants. All
agreements, representations, warranties and covenants made by or on behalf of
the Company in the Transaction Documents or otherwise with respect thereto or
any transactions contemplated thereby are material, shall be considered to have
been relied upon by the Investors and shall survive the execution and delivery
of the Transaction Documents or any investigation made at any time by or on
behalf of the Investors and any disposition of the Shares, New Warrants and/or
Warrant Shares; provided, however, that representations and warranties shall
survive only for a period of two years following the date hereof other than
Section 4(c), which shall survive for an indefinite period of time. All
statements contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant to the Transaction Documents or in connection
with the transactions contemplated hereby shall be deemed representations and
warranties made by the Company pursuant hereto. The obligations of the parties
pursuant to Sections 11(d), 11(e) and 11(g) shall survive the termination of
this Agreement.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding on the parties hereto, their respective successors and any
assignees or transferees of some or all of the parties' rights or obligations
hereunder; provided, that neither this Agreement, nor the benefit hereof, may be
assigned by the Company without the prior written consent of the Investors. Any
assignment by the Company without such consent shall be null and void.
(d) Indemnification.
(i) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify the
Investors, each subsequent holder of the Shares and the New Warrants
and their respective Affiliates, stockholders, officers, directors,
employees, agents, representatives, counsel, successors and permitted
assigns (collectively, the "Indemnified Persons") and save and hold
each of them harmless against and pay on behalf of or reimburse such
party as and when incurred for any loss (including, without limitation,
diminutions in value and consequential damages which shall not extend
to any
24
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lost opportunities which any Indemnified Person might have
experienced), liability, demand, claim, action, cause of action, cost,
damage, deficiency, tax (including any taxes imposed with respect to
such indemnity payments), penalty, fine or expense, whether or not
arising out of any claims by or on behalf of the Company including
interest, penalties, reasonable attorneys' fees and expenses and all
amounts paid in investigation, defense or settlement of any of the
foregoing (collectively, "Losses") which any such party may suffer,
sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(A) any misrepresentation or breach of warranty on the part of
the Company under Section 4 of this Agreement, or any
misrepresentation in or omission from any of the representations,
warranties, statements, schedules and exhibits hereto, certificates
or other instruments or documents furnished to Investors by an
Entity made in or pursuant to this Agreement;
(B) any nonfulfillment or breach of any covenant or agreement
on the part of an Entity under this Agreement;
(C) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, governmental
authorities) against or affecting any Indemnified Person which, if
successful, would give rise to or evidence the existence of or
relate to a breach of any of the representations, warranties or
covenants of an Entity; and
(D) any claim (whenever made) relating in any way to the
Company and any claim (whenever made) arising out of, relating to,
resulting from or caused by any transaction, status, event,
condition, occurrence or situation relating to, arising out of or
in connection with (x) the status or conduct of the Company, (y)
the execution, performance and delivery of the Transaction
Documents and the documents and agreements contemplated thereby, or
(z) any actions taken by or omitted to be taken by any of the
Indemnified Persons in connection with any of the Transaction
Document or the documents and agreements contemplated thereby.
(ii) Notwithstanding the foregoing, and subject to the following
sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification
hereinabove provided resulted primarily out of or was based primarily
upon the Indemnified Person's gross negligence, fraud or willful
misconduct (unless such action was based upon the Indemnified Person's
reliance in good faith upon any of the representations, warranties,
covenants or promises made by the Entities herein or in any other
Transaction Documents) by the Indemnified Person, the Entities shall
not be responsible for any Losses sought to be indemnified in
connection therewith by such Indemnified Person, and the Entities shall
be entitled to recover from the Indemnified Person all amounts
previously paid in full or partial satisfaction of such
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<PAGE>
indemnity with all costs and expenses reasonably incurred in effecting
such recovery, if any.
(iii) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby for a period of two (2) years after
redemption of all outstanding Shares regardless of any investigation,
inquiry or examination made for or on behalf of, or any knowledge of
the Investors and/or any of the Indemnified Persons or the acceptance
by the Investors of any certificate or opinion. In addition, for
purposes of determining whether there has been a breach, and the amount
of any Losses that are the subject matter of a claim for
indemnification hereunder, each representation and warranty contained
in this Agreement shall be read without regard and without giving
effect to any materiality or knowledge standard or qualification
contained in such representation or warranty.
(iv) If for any reason the indemnity provided for in this Section
11(d) is unavailable to any Indemnified Person or is insufficient to
hold each such Indemnified Person harmless from all such Losses arising
with respect to the transactions contemplated by this Agreement, then
the Company shall contribute to the amount paid or payable in respect
of such Loss in such proportion as is appropriate to reflect not only
the relative benefits received by the Company on the one hand and such
Indemnified Person on the other but also the relative fault of the
Company and the Indemnified Person as well as any relevant equitable
considerations. In addition, the Company agrees to reimburse any
Indemnified Person upon demand for all reasonable expenses (including
legal counsel fees) incurred by such Indemnified Person or any such
other Person in connection with investigating, preparing or defending
any such action or claim. The indemnity, contribution and expenses
reimbursement obligations that the Company has under this Section 11(d)
shall be in addition to any liability that the Company may otherwise
have. The Company further agrees that the indemnification and
reimbursement commitments set forth in this Agreement shall apply
whether or not the Indemnified Person is a formal party to any such
lawsuits, claims or other proceedings.
(v) Any indemnification of the Investors or any other Indemnified
Person by the Company pursuant to this Section 11(d) shall be effected
by wire transfer of immediately available funds from the Entities to an
account designated by the Investors or any other Indemnified Person
within 15 days after the determination thereof.
(e) Governing Law; Choice of Forum. All questions concerning the
construction, interpretation and validity of this Agreement shall be governed by
and construed in accordance with the domestic laws of the state of New York
without giving effect to any choice or conflict of law provision or rule
(whether in the state of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the state of New
York. The parties to this Agreement agree that jurisdiction and venue in any
action brought by any part hereto pursuant to this Agreement shall exclusively
lie in any
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<PAGE>
federal or state court located in the state of New York. By execution and
delivery of this Agreement, The parties hereto irrevocably submit to the
exclusive jurisdiction of such courts for themselves and in respect of their
property with respect to such action. The parties hereto irrevocably agree that
venue would be proper in such court, and hereby waive any objection that such
Court is an improper or inconvenient forum for the resolution of such action.
The Company hereby designates and appoints Prentice-Hall Corporation
System, Inc. and such other person as may hereafter be selected by the Company
with the written consent of the Investors which irrevocably agrees in writing to
so serve as its agent to receive on its behalf service of all process in any
such proceedings in any such court, such service being hereby acknowledged by
the Company to be effective and binding service in every respect. A copy of any
such process so served shall be mailed by registered mail to the Company at its
address provided in Section 11(a) except that unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of process. If any agent appointed by the Company refuses to accept
service, the Company hereby agrees that service upon it by mail shall constitute
sufficient notice. Nothing hereby shall affect the right to serve process in any
other manner permitted by law or shall limit the right of an Investor to bring
proceedings against the Company in the courts of any other jurisdiction.
Disputes arising in connection with complex financial transactions are
most quickly and economically resolved by an experienced and expert person.
Therefore, the parties hereby waive all right to trial by jury in any action,
suit or proceeding brought to enforce or defend any rights or remedies under
this Agreement or any other transaction documents related hereto.
(f) Rights and Waivers. The rights and remedies of the Investors under
the Transaction Documents and in connection therewith: (i) are cumulative, (ii)
may be exercised as often and in such order as the Investors considers
appropriate, (iii) are in addition to the rights and remedies of the Investors
under the general law, and (iv) shall not be capable of being waived or varied
except by virtue of an express waiver or variation in writing signed by the
Investors; and in particular any failure to exercise or any delay in exercising
any of such rights and remedies shall, to the extent permitted by law, not
operate as a waiver or variation of that or any other such right or remedy; any
defective or partial exercise of any of such rights shall, to the extent
permitted by law, not preclude any other or future exercise of that or any other
such right or remedy; and no act or course of conduct or negotiation on the part
of the Investors or on their behalf shall, to the extent permitted by law, in
any way preclude the Investors from exercising any such right or remedy or
constitute a suspension or variation of any such right or remedy. No Transaction
Document nor any provision thereof, may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Company
and the Investors.
(g) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this
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<PAGE>
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
and such invalid, void or otherwise unenforceable provisions shall be null and
void. It is the intent of the parties, however, that any invalid, void or
otherwise unenforceable provisions be automatically replaced by other provisions
which are as similar as possible in terms to such invalid, void or otherwise
unenforceable provisions but are valid and enforceable to the fullest extent
permitted by law. All covenants hereunder shall be given independent effect in
any jurisdiction so that, if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a breach if such action is taken or condition exists.
(h) Expense Reimbursement. The Company shall reimburse all reasonable
out-of-pocket expenses incurred by the Investors (including attorneys' fees) in
connection with the transactions contemplated hereby, whether or not such
transactions are consummated.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by the undersigned thereunto duly authorized as of the date set forth
above.
MAGNAVISION CORPORATION
By:______________________________
IBJS CAPITAL CORPORATION
By:______________________________
KOCO CAPITAL COMPANY, L.P.
By: KOCO Capital Partners, L.P.
Its General Partner
By: Kisco Capital Corporation
Its General Partner
By:______________________________
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Exhibit D
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of May 8, 1997 among MAGNAVISION
CORPORATION, a Delaware corporation (the "Company"), the Investors and the other
parties listed on Schedule I hereto (collectively, the "Stockholders").
SECTION 1. Definitions. As used herein, the following terms have
the following respective meanings:
(a) "Cacomm" shall mean Cacomm, Inc., a New Jersey corporation and
a Stockholder of the Company.
(b) "Common Stock" shall mean the Company's Common Stock, $.08 par
value per share, and any successor security to such Common Stock.
(c) "Common-Equivalent Security" means any security convertible
into or exercisable for shares of Common Stock.
(d) "Competitive Business" shall mean any business involving the
design, development, construction or marketing of private cable or wireless
cable systems or services to customers.
(e) "Exchange Agreement" shall mean the Exchange Agreement dated
May 8, 1997 among the Company and the Investors.
(f) "Excluded Issuance" means any issuance (i) for non-cash
consideration, (ii) to lenders in connection with debt financing transactions,
(iii) for compensatory purposes to directors, officers, employees and service
providers, (iv) pursuant to a registered public offering, (v) pursuant to
exercise of the Warrants, or (vi) of "Excluded Stock" as defined in the
Warrants.
(g) "IBJS Stock" shall mean that amount of the Investor Stock
issued or issuable upon exercise of the Warrants originally issued to IBJS
Capital Corporation.
(h) "Investors" means IBJS Capital Corporation and KOCO Capital
Company, L.P. and shall include any successor to, or assignee or transferee of,
any such person who or which agrees in writing to be treated as an Investor and
to be bound by the terms and comply with the provisions hereof.
<PAGE>
(i) "Investor Stock" means, collectively, (i) the Common Stock of
the Company issued to the Investors (or their permitted assigns) upon exercise
of the Warrants and (ii) the shares of Common Stock issuable upon exercise of
the Warrants.
(j) "KOCO Stock" shall mean that amount of the Investor Stock
issued or issuable upon exercise of the Warrants originally issued to KOCO
Capital Company, L.P.
(k) "Non-Investor Stockholders" shall mean all Stockholders other
than the Investors.
(l) "Preferred Stock" shall mean the Company's Series A Preferred
Stock, $.10 par value per share, issued to the Investors pursuant to the
Exchange Agreement.
(m) "Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto.
(n) "Securities Act" means the Securities Act of 1933, and the
rules and regulations of the Securities and Exchange Commission thereunder, all
as the same shall be in effect from time to time.
(o) "Warrants" means the Warrants issued by the Company to the
Investors pursuant to the Exchange Agreement.
(p) "Warrant Stock" means the shares of Common Stock issued or
issuable upon exercise of the Warrants.
SECTION 2. Election of Directors; Voting.
(a) At each special meeting of the stockholders of the Company
called for the purpose of electing directors of the Company, and at any time at
which stockholders of the Company shall have the right to, or shall, vote for or
consent in writing to the election of directors of the Company, then, and in
each such event, the Stockholders shall vote all shares of stock of the Company
owned by them, and their respective transferees shall so vote, for, or consent
in writing with respect to such shares in favor of, the election of a Board of
Directors consisting of not more than seven (7) persons, of which (i) so long as
the Investor Stock represents 20% or more of the fully diluted Common Stock, the
holders of a majority of the IBJS Stock shall have the right to designate two
(2) directors (the "IBJS Directors") and the holders of a majority of the KOCO
Stock shall have the right to designate two (2) directors (the "KOCO Directors"
and, together with the IBJS Directors, the "Investor Directors"), and (ii) so
long as Cacomm holds 20% or more of the fully-diluted Common Stock, Cacomm shall
have the right to designate three (3) directors that are either members of the
Company's management or approved by the Investor Directors, which approval shall
not be unreasonably withheld or delayed (the "Management Directors").
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(b) In the event of an increase in the size of the Board of
Directors, so long as the Investor Stock represents 20% or more of the
fully-diluted Common Stock, the holders of IBJS Stock and KOCO Stock shall be
entitled to designate additional directors such that the Investor Directors at
all times constitute a simple majority of the Board of Directors.
(c) The Company and Stockholders agree to appoint one IBJS
Director and one KOCO Director to serve on the Audit, Compensation and Executive
Committees of the Board of Directors and one Management Director to serve on the
Compensation and Executive Committees of the Board. The composition of the board
of directors of each subsidiary of the Company shall be identical to that of the
Company's Board of Directors.
(d) The Stockholders shall vote their shares of stock (i) to
remove any director whose removal is required by the parties with the power to
designate such director and (ii) to fill any vacancy created by the removal,
resignation or death of a director, in each case for the election of a new
director designated and approved, if approval is required, in accordance with
the provisions of this Section 2.
(e) Representatives of the Investors shall have the right to
attend and observe all Board of Directors and committee meetings of the Company,
and the Investor Directors and any other representatives of the Investors shall
be reimbursed for their out-of-pocket expenses in attending any such meeting.
Cacomm shall have the right to designate one non-voting observer to attend all
meetings of the Board, subject to the approval of the Investor Directors (which
approval shall not be unreasonably withheld or delayed).
(f) The Board of Directors shall meet no less frequently than
quarterly. The Stockholders agree to amend the bylaws of the Company to provide
that a quorum of the Board of Directors shall require the presence of a majority
of the Investor Directors and any action with respect to compensation or bonuses
or any additional expenditures for wireless cable assets shall require the vote
of a majority of the Investor Directors. Such bylaw provisions shall not be
further amended without the consent of the Investors.
(g) Each Stockholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of Sections 6(m),
(n) and (o) of the Exchange Agreement, including without limitation voting to
approve such amendments to the Company's certificate of incorporation and
by-laws and this Agreement as may be reasonably requested by any Regulated
Holder (as defined in the Exchange Agreement) entitled to make such request
pursuant to the Exchange Agreement. Notwithstanding the foregoing, no
Stockholder shall be required by this provision to take any action that would
materially and adversely affect its rights under this Agreement or as a
stockholder of the Company.
(h) The Company and the Stockholders agree not to amend or waive
the voting or other provisions of the Company's certificate of incorporation or
by-laws or this Agreement if such amendment or waiver would cause any Regulated
Holder to have a Regulatory Problem (as
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defined in the Exchange Agreement) and such Regulated Holder has so notified the
Company that it would have a Regulatory Problem promptly after it has notice of
such proposed amendment or waiver.
(i) The provisions of this Section 2 shall terminate in the event
that a majority of the Company's outstanding Preferred Stock is held by persons
other than the Investors.
SECTION 3. Tag-Along Rights.
(a) No Stockholder shall transfer any Common Stock or
Common-Equivalent Securities other than in compliance with the provisions of
this Section 3. If any Stockholder (the "Transferring Stockholder") proposes to
transfer any Common Stock or Common-Equivalent Securities to one or more third
parties (collectively, a "Third Party"), the Transferring Stockholder shall give
written notice (a "Tag-Along Notice") to each other Stockholder, which notice
shall identify the proposed Third Party purchaser and state the number of shares
of Common Stock or Common-Equivalent Securities proposed to be transferred, the
proposed offering price and any other material terms and conditions of the
proposed transfer. The Tag- Along Notice shall also contain a true and correct
copy of any offer by the Third Party offeror.
(b) Each other Stockholder who so elects (a "Participating
Stockholder") shall have the right to transfer, at the same price and upon no
less favorable terms and conditions as the Transferring Stockholder, that number
of shares of Common Stock and/or Common- Equivalent Securities held by such
Participating Stockholder equal to (i) the number of shares of Common Stock
represented by the securities proposed to be transferred pursuant to the Tag-
Along Notice, multiplied by (ii) a fraction, the numerator of which is the
number of shares of Common Stock on a fully-diluted basis held by such
Participating Stockholder, and the denominator of which is the aggregate number
of shares of Common Stock on a fully-diluted basis held by the Transferring
Stockholder and all Participating Stockholders; provided, however, that the
price for any Common-Equivalent Securities to be transferred shall be net of any
unpaid exercise or conversion price associated therewith.
(c) Within thirty (30) days after the date of delivery of a
Tag-Along Notice, any of the Stockholders may elect to participate in the
proposed transfer pursuant to the terms and conditions of such Tag-Along Notice
and this Agreement by delivery of a written notice to the Transferring
Stockholder. No Participating Stockholder shall be required to make any
representations and warranties to the third party purchaser or any other person
except as to good title and the absence of liens with respect to such
Stockholder's shares of Common Stock and/or Common-Equivalent Securities and the
authority for and the validity and binding effect of any agreements entered into
by such Stockholder in connection with such transfer.
(d) The provisions of Section 3 shall not apply to (i) transfers
of Common Stock or Common-Equivalent Securities representing less than 10% of
the fully-diluted Common Stock, or (ii) transfers of Investor Stock to an
Investor or an Affiliate, officer or employee of an Investor.
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SECTION 4. Preemptive Rights.
(a) In the event that any Common Stock or Common-Equivalent
Securities are issued by the Company other than an Excluded Issuance, each
Stockholder shall have the right to purchase its proportionate share of such
issuance in an amount equal to the number of shares of Common Stock or units of
Common-Equivalent Securities to be issued multiplied by a fraction (i) the
numerator of which is the number of shares of Common Stock on a fully-diluted
basis held by such Stockholder and (ii) the denominator of which is the total
number of shares of Common Stock outstanding on a fully-diluted basis prior to
giving effect to such issuance by the Company.
(b) The Company shall give 30 days prior written notice to the
Stockholders of any issuance of Common Stock or Common-Equivalent Securities by
the Company. Each Stockholder shall have the right to purchase its proportionate
share of such issuance by giving written notice of its intention to exercise its
rights in accordance with Section 4(a) hereof, at a closing to be held no later
than 30 days after such Stockholder has received notice of the issuance from the
Company.
SECTION 5. Drag-Along Rights. In the event that the Company's
Board of Directors approves a sale of the Company (pursuant to a merger or other
business combination transaction, sale of outstanding stock or otherwise) to a
third party not affiliated with either Investor (an "Approved Sale"), each
Stockholder shall consent to and raise no objections against such Approved Sale
(including exercising any statutory right of appraisal) and shall take all
necessary and desirable action in their capacities as stockholders of the
Company to facilitate such Approved Sale. If the Approved Sale is structured as
a sale of stock, the Stockholders shall agree to sell all of their shares of
Common Stock and Common-Equivalent Securities on the terms and conditions
approved by the Board of Directors; provided, however, that the obligations of
the Stockholders pursuant to this Section 5 are conditioned upon all
Stockholders concurrently receiving the same form and amount of consideration
per share of Common Stock pursuant to such Approved Sale or, if any Stockholders
are given an option as to the form and amount of consideration to be received,
all Stockholders are given the same option.
SECTION 6. Tax Consolidation. From the date hereof, Cacomm hereby
agrees that it shall not make any federal, state or local tax filing on a
consolidated basis with the Company unless required by law. Cacomm further
agrees that it shall enter into a tax sharing agreement acceptable to the
Investors with respect to such consolidation upon the Investors' request.
SECTION 7. Agreement Not to Compete.
(a) Cacomm acknowledges and agrees that the value and goodwill of
the Company's business would be substantially impaired if Cacomm engaged in a
Competitive Business. Accordingly, Cacomm hereby agrees that until all of the
Preferred Stock has been redeemed by the Company, Cacomm shall not:
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(i) engage in any Competitive Business at any location in the
states between Maine and North Carolina, whether such engagement
shall be as an employer, owner, employee, partner, advisor,
consultant, stockholder or other participant in any Competitive
Business (or in any similar capacity in which Cacomm derives an
economic benefit from a Competitive Business);
(ii) assist others in engaging in any Competitive Business in
the manner described in the foregoing clause (i);
(iii) solicit, entice or induce any employee of the Company
or any subsidiary to terminate his or her employment or engage in
any Competitive Business;
(iv) solicit, entice or induce any vendor, customer or
distributor of the Company or any subsidiary to terminate or
materially diminish its relationship with the Company or such
subsidiary; or
(v) otherwise knowingly damage, disparage or interfere with
the Company or any subsidiary;
provided, however, that (x) nothing contained in this Agreement shall prohibit
(i) Cacomm from owning in the aggregate less than 5% of a class of
publicly-traded securities issued by any Competitive Business or (ii) Cacomm
from maintaining its partnership interest in the Grand Alliance Partnership so
long as Cacomm does not affirmatively vote for, approve or assist the
partnership in a Competitive Business, (y) the provisions of this Section 7
shall expire in the event that the employment of Nicholas Mastrorilli, Sr. is
terminated by the Company without "Cause" (as defined in Mr. Mastrorilli's
employment agreement) upon the expiration of the period in which severance
payments are made by the Company to Mr. Mastrorilli, and (z) nothing in this
Agreement shall prohibit Cacomm from taking actions which, in the written
opinion of its counsel, are required in the exercise of fiduciary duties to the
stockholders of Cacomm not affiliated with Mr. Mastrorilli.
(b) Cacomm acknowledges that a remedy at law for any breach or
threatened breach of the provisions of this Section 7 would be inadequate and
therefore agrees that the Company shall be entitled to injunctive relief;
provided, however, that nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available for any such
breach or threatened breach.
SECTION 8. Restrictions on Transfer. A Non-Investor Stockholder shall
not sell, transfer, assign, pledge or encumber its stock of the Company or any
of its rights hereunder, except to a transferee (a) who or which, prior to such
sale, transfer, assignment, pledge or encumbrance, has executed an agreement to
be bound by all the provisions of this Agreement or (b) pursuant to a sale,
transfer or assignment (i) in compliance with Rule 144 or (ii) as part of a
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public offering of the stock of the Company pursuant to a registration statement
effective under the Securities Act.
SECTION 9. Additional Shares of Stock. In the event additional shares
of stock are issued by the Company to any Stockholder or transferee thereof at
any time during the term of this Agreement, either directly or upon the
conversion, exercise or exchange of securities of the Company convertible into
or exercisable or exchangeable for shares of stock, such additional shares of
stock shall, as a condition to and effective upon such issuance, be subject to
the terms and provisions of this Agreement.
SECTION 10. Legend on Stock Certificates. Each certificate representing
shares of stock held by the Stockholders shall bear a legend containing the
following words:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF THE
HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN RESPECT OF
THE ELECTION OF DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF
THE STOCKHOLDERS AGREEMENT DATED MAY 8, 1997, AMONG MAGNAVISION
CORPORATION AND CERTAIN SECURITY HOLDERS OF MAGNAVISION CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
MAGNAVISION CORPORATION."
SECTION 11. Severability; Governing Law. If any provision of this
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms. This Agreement shall be governed by, and construed in
accordance with, (a) the laws of the State of New York applicable to contracts
made and to be performed wholly therein and (b) the laws of the State of
Delaware with respect to corporations incorporated therein.
SECTION 12. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties and their respective successors and assigns, legal
representatives and heirs.
SECTION 13. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy or sent by
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or at such other address as may hereafter be designated
in writing by such party to the other parties:
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(i) if to the Company, to:
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
Telecopy: (908) 974-1106
Attention: Nicholas Mastrorilli, Sr.
with a copy to:
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Telecopy: (212) 223-1151
Attention: Stephen M. Fields, Esq.
(ii) if to the Investors to their respective addresses set
forth on Schedule I hereto, with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telecopy: (212) 408-2420
Attention: Michael F. Killea, Esq.
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street
Denver, Colorado 80202
Telecopy: (303) 623-1956
Attention: Steven Siegel, Esq.
(iii) if to the Non-Investor Stockholders to their respective
addresses set forth on Schedule I hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
SECTION 14. Modification. Except as otherwise provided herein, neither
this Agreement nor any provisions hereof can be modified, changed, discharged or
terminated except by an instrument in writing signed by the Company and the
Stockholders.
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SECTION 15. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
SECTION 16. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 17. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements and understandings with respect
thereto.
SECTION 18. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement. Facsimile counterpart signatures to this Agreement
shall be acceptable if the originally executed counterpart is delivered within a
reasonable period thereafter.
SECTION 19. Prior Agreement. The Amended and Restated Stockholders'
Agreement dated as of June 3, 1996 among the parties hereto is superseded by
this Agreement, and such prior Stockholders' Agreement is hereby terminated and
is of no further force and effect.
SECTION 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to principles governing conflicts of laws, except that Delaware law shall
govern the relationship between the Company and its stockholders.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement on the date first above written.
MAGNAVISION CORPORATION
By:________________________________
Name:
Title:
IBJS CAPITAL CORPORATION
By:_________________________________
Name:
Title:
KOCO CAPITAL COMPANY, L.P.
By: KOCO Capital Partners, L.P.
Its General Partner
By: Kisco Capital Corporation
Its General Partner
By:_________________________________
Name:
Title:
CACOMM, INC.
By:_________________________________
Name:
Title:
------------------------------------
NICHOLAS MASTRORILLI, SR.
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SCHEDULE I
Stockholders
Name and Address of Stockholder Number of Common
- ------------------------------- Stock Equivalents
-----------------
IBJS Capital Corporation 1,096,159
One State Street
New York, New York 10004
Telecopier: (212) 858-2768
Attention: Rick Krueger
KOCO Capital Company, L.P. 730,773
111 Radio Circle
Mt. Kisco, New York 10549
Telecopier: (914) 241-1143
Attention: Paul Echausse
Cacomm, Inc. 920,889
1725 Highway 35 South
Wall Township, New Jersey 07719
Attention: Nicholas Mastrorilli, Sr.
Nicholas Mastrorilli, Sr. 995,460
1725 Highway 35 South
Wall Township, New Jersey 07719
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Exhibit E
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of May 8, 1997 among MAGNAVISION
CORPORATION, a Delaware corporation (the "Company"), the Investors and the other
parties set forth on Schedule I hereto (the "Stockholders").
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means the Company's Common Stock, $.08 par value per
share, and any successor security to such Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules
and regulations of the Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"Investors" means IBJS Capital Corporation, a Delaware corporation, and
KOCO Capital Company, L.P., a Delaware limited partnership, and their respective
successors, assigns and transferees.
"Other Shares" means at any time those shares of Common Stock which do
not constitute Primary Shares or Registrable Shares.
"Primary Shares" means at any time the authorized but unissued shares
of Common Stock or shares of Common Stock held by the Company in its treasury.
"Registrable Shares" means at any time, with respect to any
Stockholder, the shares of Common Stock held by such Stockholder or issuable to
such Stockholder upon the conversion, exercise or exchange of Restricted Shares.
"Registration Date" means the date upon which the registration
statement pursuant to which the Company shall have initially registered shares
of Common Stock under the Securities Act for sale to the public shall have been
declared effective.
<PAGE>
"Restricted Shares" means at any time, with respect to any Stockholder,
the shares of Common Stock, any other securities which by their terms are
exercisable or exchangeable for or convertible into Common Stock and any
securities received in respect thereof, which are held by such Stockholder and
which have not previously been sold to the public pursuant to a registration
statement under the Securities Act.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
"Transfer" means any disposition of any Restricted Shares or of any
interest therein which constitutes a sale within the meaning of the Securities
Act, other than any disposition pursuant to an effective registration statement
under the Securities Act and complying with all applicable state securities and
"blue sky" laws.
SECTION 2. Required Registration.
If the Company shall be requested by Investors who or which hold
Restricted Shares (based upon Common Stock equivalents) constituting at least
25% of the then-outstanding Common Stock and Common Stock equivalents held by
all Investors, to effect the registration under the Securities Act of
Registrable Shares in accordance with this Section, then the Company shall
promptly give written notice of such proposed registration to all holders of
Restricted Shares and shall offer to include in such proposed registration any
Registrable Shares requested to be included in such proposed registration by
such holders who respond in writing to the Company's notice within 30 days after
delivery of such notice (which response shall specify the number of Registrable
Shares proposed to be included in such registration). The Company shall promptly
use its best efforts to effect such registration under the Securities Act of the
Registrable Shares which the Company has been so requested to register;
provided, however, that the Company shall not be obligated to effect any
registration under the Securities Act except in accordance with the following
provisions:
(a) The Company shall not be obligated to use its best efforts to
file and cause to become effective (i) more than three registration
statements initiated pursuant to this Section or (ii) any registration
statement during any period in which any other registration statement
(other than on Form S-4 or Form S-8 promulgated under the Securities
Act or any successor forms thereto) pursuant to which Primary Shares
are to be or were sold has been filed and not withdrawn or has been
declared effective within the prior 90 days;
(b) The Company may delay the filing or effectiveness of any
registration statement if at the time of a request for registration
pursuant to this
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Section the Company is registering, or has fixed plans to register
within 60 days of the time of such request, Primary Shares under the
Securities Act, in which event such registration shall not count as a
registration initiated pursuant to this Section and the holders of
Restricted Shares may include Registrable Shares pursuant to and in
accordance with Section 3; and
(c) With respect to any registration pursuant to this Section, the
Company may include in such registration any Primary Shares or Other
Shares; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares, Primary Shares
and Other Shares proposed to be included in such registration would
interfere with the successful marketing (including pricing) of all such
securities, then the number of Registrable Shares, Primary Shares and
Other Shares proposed to be included in such registration shall be
included in the following order:
(i) first, the Registrable Shares held by the Stockholders,
pro rata based upon the number of Registrable Shares requested to
be included by each Stockholder in such registration;
(ii) second, the Primary Shares; and
(iii) third, the Other Shares.
(d) A requested registration shall not count as a registration
initiated pursuant to this Section for purposes of paragraph (a) above
unless the Investors are able to register and sell at least 80% of the
Registrable Shares requested to be included therein. A requested
registration may be rescinded by written notice to the Company by the
Investors initiating such request; provided, however, that such
rescinded registration shall not count as a registration statement
initiated pursuant to this Section for purposes of paragraph (a) above
if the Investors initiating such request shall have reimbursed the
Company for all out-of-pocket expenses incurred by the Company in
connection with such rescinded registration.
SECTION 3. Piggyback Registration.
If the Company at any time proposes for any reason to register Primary
Shares or Other Shares under the Securities Act (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto), it
shall promptly give written notice to each Stockholder of its intention so to
register the Primary Shares or Other Shares and, upon the written request, given
within 30 days after delivery of any such notice by the Company, of any
Stockholder to include in such registration Registrable Shares (which request
shall specify the number of Registrable Shares proposed to be included in such
registration), the Company shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the
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same terms and conditions as the securities otherwise being sold in such
registration; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares or Other Shares proposed to
be included in such registration would interfere with the successful marketing
(including pricing) of the Primary Shares proposed to be registered by the
Company, then the number of Primary Shares, Registrable Shares and Other Shares
proposed to be included in such registration shall be included in the following
order:
(a) first, the Primary Shares;
(b) second, the Registrable Shares held by the Stockholders,
pro rata based upon the number of Registrable Shares requested to be
included by each Stockholder in such registration; and
(c) third, the Other Shares.
SECTION 4. Registrations on Form S-3.
Anything contained in Section 2 to the contrary notwithstanding,
at such time as the Company shall have qualified for the use of Form S-3
promulgated under the Securities Act or any successor form thereto, Investors
who or which hold Restricted Shares (based upon Common Stock equivalents)
constituting at least 20% of the then-outstanding Common Stock and Common Stock
equivalents held by all Investors shall have the right to request in writing an
unlimited number of registrations on Form S-3 or such successor form of
Registrable Shares, which request or requests shall (i) specify the number of
Registrable Shares intended to be sold or disposed of, (ii) state the intended
method of disposition of such Registrable Shares, and (iii) relate to
Registrable Shares having an anticipated aggregate offering price of at least
$500,000; provided, however, that the Company shall have no obligation to
undertake more than one (1) registration on Form S-3 in any six (6) month
period. A requested registration on Form S-3 or any such successor form in
compliance with this Section shall not count as a registration statement
demanded pursuant to Section 2, but shall otherwise be treated as a registration
initiated pursuant to and shall, except as otherwise expressly provided in this
Section, be subject to Section 2.
SECTION 5. Holdback Agreement.
If the Company at any time shall register shares of Common Stock
under the Securities Act (including any registration pursuant to Section 2, 3 or
4) for sale to the public, the Stockholders shall not sell, make any short sale
of, grant any option for the purchase of, or otherwise dispose of any Restricted
Shares (other than those shares of Common Stock included in such registration)
without the prior written consent of the Company for a period designated by the
Company in writing to the Stockholders, which period shall not begin more than
10 days prior to the effectiveness of the registration statement pursuant to
which such public offering shall be made and shall not last more than 90 days
after the effective date of such registration statement.
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SECTION 6. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares, the Company shall, as expeditiously as practicable:
(a) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain
effective for a period of 90 days or until all of such Registrable
Shares have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amendments or supplements
relating to such a registration statement or prospectus, to one
counsel selected by the holders of a majority of such Registrable
Shares (the "Selling Stockholders' Counsel"), copies of all such
documents proposed to be filed (it being understood that such
five-business-day period need not apply to successive drafts of
the same document proposed to be filed so long as such successive
drafts are supplied to such counsel in advance of the proposed
filing by a period of time that is customary and reasonable under
the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective for at least a period of 90 days
or until all of such Registrable Shares have been disposed of (if
earlier) and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of such Registrable
Shares;
(d) notify in writing the Selling Stockholders' Counsel
promptly (i) of the receipt by the Company of any notification
with respect to any comments by the Commission with respect to
such registration statement or prospectus or any amendment or
supplement thereto or any request by the Commission for the
amending or supplementing thereof or for additional information
with respect thereto, (ii) of the receipt by the Company of any
notification with respect to the issuance by the Commission of any
stop order suspending the effectiveness of such registration
statement or prospectus or any amendment or supplement thereto or
the initiation or threatening of any proceeding for that purpose
and (iii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of such Registrable
Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of
such jurisdictions as any seller of
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Registrable Shares reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to
enable such seller of Registrable Shares to consummate the
disposition in such jurisdictions of the Registrable Shares owned
by such seller; provided, however, that the Company will not be
required to qualify generally to do business, subject itself to
general taxation or consent to general service of process in any
jurisdiction where it would not otherwise be required so to do but
for this paragraph (e);
(f) furnish to each seller of such Registrable Shares such
number of copies of a summary prospectus or other prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as
such seller of Registrable Shares may reasonably request in order
to facilitate the public sale or other disposition of such
Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to
be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and
operations of the Company to enable the seller or sellers thereof
to consummate the disposition of such Registrable Shares;
(h) notify on a timely basis each seller of such Registrable
Shares at any time when a prospectus relating to such Registrable
Shares is required to be delivered under the Securities Act within
the appropriate period mentioned in paragraph (a) of this Section,
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances then existing and, at the request of such seller,
prepare and furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the offerees of such
shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) make available for inspection by any seller of such
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers,
directors and employees to supply all information (together with
the Records, the "Information") reasonably requested by any such
Inspector in connection with such
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registration statement. Any of the Information which the Company
determines in good faith to be confidential, and of which
determination the Inspectors are so notified, shall not be
disclosed by the Inspectors unless (i) the disclosure of such
Information is necessary to avoid or correct a misstatement or
omission in the registration statement, (ii) the release of such
Information is ordered pursuant to a subpoena or other order from
a court of competent jurisdiction or (iii) such Information has
been made generally available to the public. The seller of
Registrable Shares agrees that it will, upon learning that
disclosure of such Information is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary
form and at customary times and covering matters of the type
customarily covered by cold comfort letters;
(k) use its best efforts to obtain from its counsel an
opinion or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may be the Company) for such Registrable
Shares;
(m) issue to any underwriter to which any seller of
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if
the Common Stock is not listed on a national securities exchange,
use its best efforts to qualify such Registrable Shares for
inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. (the "NASD") or such
national securities exchange as the Company shall reasonably
determine;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make
available to its securityholders, as soon as reasonably
practicable, earnings statements (which need not be audited)
covering a period of 12 months beginning within three months after
the effective date of the registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated
hereby.
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SECTION 7. Expenses.
All expenses incurred by the Company in complying with Section 6,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), fees and expenses of complying with
securities and blue sky laws, printing expenses, fees and expenses of the
Company's counsel and accountants and fees and expenses of one Selling
Stockholders' Counsel, shall be paid by the Company; provided, however, that all
underwriting discounts and selling commissions applicable to the Registrable
Shares shall be borne by the seller or sellers thereof, in proportion to the
number of Registrable Shares sold by such seller or sellers.
SECTION 8. Indemnification.
In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, each underwriter,
broker or any other person acting on behalf of such seller and each other
person, if any, who controls any of the foregoing persons within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint or
several, (or actions in respect thereof) to which any of the foregoing persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the registration statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Company of the Securities Act or state securities or
blue sky laws applicable to the Company and relating to action or inaction
required of the Company in connection with such registration or qualification
under such state securities or blue sky laws; and shall reimburse such seller,
such underwriter, such broker or such other person acting on behalf of such
seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller, its counsel, or such underwriter specifically for use in the preparation
thereof.
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In connection with any registration of Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section) the Company, each director
of the Company, each officer of the Company who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the foregoing persons within the meaning
of the Securities Act and each other seller of Registrable Shares under such
registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller, its counsel, or
such underwriter specifically for use in connection with the preparation of such
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document; provided, however that the obligation to indemnify will
be individual to each seller and will be limited to the net amount of proceeds
received by such seller from the sale of Registrable Shares pursuant to such
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the latter in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available to
such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement provided
in this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section.
If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such
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<PAGE>
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage or liability as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
SECTION 9. Underwriting Agreement.
Notwithstanding the provisions of Sections 5, 6, 7 and 8, to the
extent that the Company and the Stockholders selling Registrable Shares in a
proposed registration shall enter into an underwriting or similar agreement,
which agreement contains provisions covering one or more issues addressed in
such Sections, the provisions contained in such Sections addressing such issue
or issues shall be superseded with respect to such registration by such other
agreement.
SECTION 10. Information by Holder.
Each holder of Registrable Shares to be included in any
registration shall furnish to the Company such written information regarding
such holder and the distribution proposed by such holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
SECTION 11. Exchange Act Compliance.
From and after the Registration Date or such earlier date as a
registration statement filed by the Company pursuant to the Exchange Act
relating to any class of the Company's securities shall have become effective,
the Company shall comply with all of the reporting requirements of the Exchange
Act and with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. The Company shall cooperate with each Stockholder in supplying
such information as may be necessary for such Stockholder to complete and file
any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
SECTION 12. No Conflict of Rights.
The Company represents and warrants to the Stockholders that the
registration rights granted to the Stockholders hereby do not conflict with any
other registration
11
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rights granted by the Company. The Company shall not, after the date hereof,
grant any registration rights which conflict with or impair the registration
rights granted hereby.
SECTION 13. Restriction on Transfer.
(a) The Restricted Shares shall not be transferable except upon
the conditions specified in this Section, which conditions are intended to
insure compliance with the provisions of the Securities Act.
(b) Each certificate representing Restricted Shares shall (unless
otherwise permitted by the provisions of paragraph (c) and (d) below) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 13 OF THE
REGISTRATION RIGHTS AGREEMENT DATED MAY 8, 1997 AMONG MAGNAVISION
CORPORATION AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER
OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF
SUCH CONDITIONS, MAGNAVISION CORPORATION HAS AGREED TO DELIVER TO
THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR
THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF SUCH
HOLDER. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF MAGNAVISION CORPORATION."
(c) The holder of any Restricted Shares by acceptance thereof
agrees, prior to any Transfer of any Restricted Shares, to give written notice
to the Company of such holder's intention to effect such Transfer and to comply
in all other respects with the provisions of this Section. Each such notice
shall describe the manner and circumstances of the proposed Transfer. Upon
request by the Company, the holder delivering such notice shall deliver a
written opinion, addressed to the Company, of counsel for the holder of
Restricted Shares, stating that in the opinion of such counsel (which opinion
and counsel shall be reasonable satisfactory to the
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Company) such proposed Transfer does not involve a transaction requiring
registration or qualification of such Restricted Shares under the Securities Act
or the securities or "blue sky" laws of any state of the United States. Such
holder of Restricted Shares shall be entitled to Transfer such Restricted Shares
in accordance with the terms of the notice delivered to the Company, if the
Company does not reasonably object to such Transfer and request such opinion
within five business days after delivery of such notice, or, if it requests such
opinion, does not reasonably object to such Transfer within five days after
delivery of such opinion. Each certificate or other instrument evidencing the
securities issued upon the Transfer of any Restricted Shares (and each
certificate or other instrument evidencing any untransferred balance of such
Registered Shares) shall bear the legend set forth in paragraph (b) above unless
(i) in such opinion of counsel registration of any future Transfer is not
required by the applicable provisions of the Securities Act or (ii) the Company
shall have waived the requirement of such legends.
(d) Notwithstanding the foregoing provisions of this Section, the
restrictions imposed by this Section upon the transferability of any Restricted
Shares shall cease and terminate when (i) any such Restricted Shares are sold or
otherwise disposed of (A) pursuant to an effective registration statement under
the Securities Act or (B) in a transaction contemplated by paragraph (c) above
which does not require that the Restricted Shares so transferred bear the legend
set forth in paragraph (b) hereof, or (ii) the holder of such Restricted Shares
has met the requirements for Transfer of such Restricted Shares under Rule
144(k). Whenever the restrictions imposed by this Section shall terminate, the
holder of any Restricted Shares as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in paragraph (b) above
and not containing any other reference to the restrictions imposed by this
Section.
SECTION 14. Termination.
This Agreement shall terminate and be of no further force or
effect when there shall not be any Restricted Shares.
SECTION 15. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the Company
and the Stockholders and, subject to Section 16, their respective successors and
assigns.
SECTION 16. Assignment.
Each Stockholder may assign its rights hereunder to any purchaser
from such Stockholder of Restricted Shares (based upon Common Stock
equivalents); provided, however, that such purchaser shall, as a condition to
the effectiveness of such assignment, be required to execute a counterpart to
this Agreement agreeing to be treated as an Investor, as the case may be,
whereupon such purchaser shall have the benefits of, and shall be subject to the
restrictions contained in, this Agreement.
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SECTION 17. Entire Agreement.
This Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior arrangements
or understandings with respect hereto.
SECTION 18. Notices.
All notices, requests, consents and other communications hereunder
to any party shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to have been duly given when delivered in person,
by telecopy, by nationally-recognized overnight courier, or by first class
registered or certified mail, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by the addressee to the addressor:
(i) if to the Company, to:
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
Attention: Nicholas Mastrorilli, Sr.
Facsimile: (908) 976-1106
with a copy to:
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Attention: Stephen M. Fields, Esq.
Facsimile: (212) 223-1151
(ii) if to any Investor Stockholder, to:
IBJS Capital Corporation
One State Street
New York, New York 10004
Attention: Rick Krueger
Facsimile: (212) 858-2768
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<PAGE>
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Facsimile: (212) 408-2420
KOCO Capital Company, L.P.
111 Radio Circle
Mt. Kisco, New York 10549
Attention: Paul Echausse
Facsimile: (914) 241-1143
with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
Attention: Steven Siegel, Esq.
Facsimile: (303) 623-1956
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day and (c) in the case of mailing, on
the third business day following such mailing.
SECTION 19. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be modified or
amended, except pursuant to a writing signed by the Company, the Investors
holding at least 66-2/3% of the Restricted Shares (based upon Common Stock
equivalents) held by all Investors; provided, however, that no modification or
amendment shall discriminate against any Stockholder without the consent of such
Stockholder. This Section may only be amended with the consent of all parties to
this Agreement.
SECTION 20. Counterparts.
This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one agreement.
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<PAGE>
SECTION 21. Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
SECTION 22. Severability.
It is the desire and intent of the parties that the provisions of
this Agreement be enforced to the fullest extent permissible under the law and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any provision of this Agreement would be held in any
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 23. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to principles
governing conflicts of laws.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement on the date first written above.
MAGNAVISION CORPORATION
By:___________________________
Name:
Title:
STOCKHOLDERS:
IBJS CAPITAL CORPORATION
By:___________________________
Name:
Title:
KOCO CAPITAL COMPANY, L.P.
By: KOCO Capital Partners, L.P.
Its General Partner
By: Kisco Capital Corporation
Its General Partner
By:___________________________
Name:
Title:
CACOMM, INC.
By:___________________________
Name:
Title:
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SCHEDULE I
Investor Number of Common Stock
- -------- Equivalents
----------------------
IBJS Capital Corporation 1,096,159
One State Street
New York, New York 10004
Telecopier: (212) 858-2768
Attention: Rick Krueger
KOCO Capital Company, L.P. 730,773
111 Radio Circle
Mt. Kisco, New York 10549
Telecopier: (914) 241-1143
Attention: Paul Echausse
Cacomm, Inc. 920,889
1725 Highway 35 South
Wall Township, New Jersey 07719
Attention: Nicholas Mastrorilli, Sr.
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Exhibit B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
MAGNAVISION CORPORATION
No. ________ Dated May __, 1997
Warrant to Purchase ________ Shares of Common Stock
This certifies that, for value received, ____________________ or
assigns, (the "Holder"), is entitled to purchase from MAGNAVISION CORPORATION, a
Delaware corporation (the "Company"), _____________________ (_____) shares of
Common Stock, $.08 par value, of the Company at a price per share equal to the
Warrant Price (as defined in Section 3) at any time or from time to time during
the Exercise Period. "Exercise Period" shall mean the period commencing with and
including the date hereof and ending at midnight on April 30, 2005. The number
of shares of Common Stock subject to this Warrant and the Warrant Price are
subject to adjustment from time to time as set forth in Section 3 and Section 4
hereof. This Warrant has been issued to the Holder pursuant to the terms of the
Exchange Agreement dated May 8, 1997 (the "Exchange Agreement") among the
Company, the Holder and the other signatories thereto.
SECTION 1. Exercise of Warrant.
The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part at any time or from time to time during the Exercise
Period, by the surrender of this Warrant (properly endorsed) at the office of
the Company at 1725 Highway 35 South, Wall Township, New Jersey 07719 (or at
such other agency or office of the Company in the United States of America as it
may designate by notice in writing to the Holder hereof at the address of such
Holder appearing on the books of the Company), and by payment to the Company of
the Warrant Price for each share being purchased by (i) delivery of cash or a
check, (ii) delivery of shares of Common Stock, valued for such purposes at the
Market Price (as defined in Section 4) per share on the date of exercise, (iii)
delivery of shares of the Company's Series A Preferred
<PAGE>
Stock, valued for such purposes at the then-current liquidation value thereof,
and/or (iv) surrender of Warrants to purchase Common Stock, valued for such
purposes at the difference between the average Market Price per share of Common
Stock for the prior 10 trading days and the Warrant Price. In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased (the "Warrant Stock"),
registered in the name of the person entitled to receive the same, shall be
delivered to the Holder hereof within a reasonable time, not exceeding 15 days,
after the rights represented by this Warrant shall have been so exercised and,
unless this Warrant has expired, a new Warrant representing the number of shares
(including any fractional share, if any) with respect to which this Warrant
shall not then have been exercised shall also be issued to the Holder hereof
within such time. The person in whose name any certificate for shares of Warrant
Stock is issued upon exercise of this Warrant shall for all purposes be deemed
to have become the Holder of record of such shares on the date on which this
Warrant was surrendered and payment of the Warrant Price and any applicable
taxes was made, irrespective of the date of delivery of such certificate, except
that, if the date of such surrender and payment is a date when the stock
transfer books of the Company are closed, such person shall be deemed to have
become the Holder of record of such shares at the close of business on the next
succeeding date on which the stock transfer books are open. This Warrant may not
be exercised for fractional shares of Common Stock. In the event that upon the
final exercise of this Warrant there is a remaining fractional share hereunder,
the Company shall pay the Holder hereof an amount equal to the comparable
fraction of the current Market Price per share as of the date of exercise.
SECTION 2. Covenants as to Common Stock.
The Company covenants and agrees that all shares of Common Stock which
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance in accordance with the terms hereof, be validly issued, fully paid
and non-assessable, and free from all taxes, liens and charges with respect to
the issuance thereof. Without limiting the generality of the foregoing, the
Company covenants that it will from time to time take all such action as may be
required to assure that the stated or par value per share of the Common Stock is
at all times equal to or less than the then effective Warrant Price. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from any and all restrictions, including without limitation
preemptive rights, restrictions with respect to the voting, transfer or other
rights exercisable by a Holder (other than those imposed by the Stockholders
Agreement dated as of May 8, 1997 among the Company and the original holders of
the Warrants) and encumbrances or liens, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company also covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any federal or state law (other than the Securities Act of 1933,
as amended) before such shares may be validly issued or delivered upon exercise
of this Warrant, then the Company will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may be.
2
<PAGE>
SECTION 3. Adjustment of Number of Shares and Warrant Price.
(a) The per share price at which the Holder shall be entitled to
purchase the shares of Common Stock upon the exercise of this Warrant shall
initially be equal to $2.00 per share (as such price may from time to time be
adjusted in accordance with this Section 3, hereinafter called the "Warrant
Price"). The Warrant Price shall be subject to adjustment from time to time as
follows:
(i) If the Company shall at any time or from time to time after
the date hereof (the "Warrant Issuance Date"), issue any Common Stock or
any options, warrants or other securities exercisable or exchangeable for
or convertible into shares of Common Stock, other than Excluded Stock (as
hereinafter defined), without consideration or for a consideration per
share less than the Warrant Price in effect immediately prior to the
issuance of such security, the Warrant Price in effect immediately prior to
each such issuance shall forthwith be lowered, effective as of the date of
such issuance, to the price calculated by dividing (x) an amount equal to
the sum of (1) the number of shares of Common Stock Deemed Outstanding
immediately prior to such issuance multiplied by the then existing Warrant
Price plus (2) the aggregate consideration, if any, received by the Company
upon such issuance (calculated as set forth below), by (y) the total number
of shares of Common Stock Deemed Outstanding immediately after (and
including) such issuance.
(ii) For the purposes of any adjustment of the Warrant Price
pursuant to clause (i), the following provisions shall be applicable:
(1) In the case of the issuance of securities for cash, the
consideration received shall be deemed to be the amount of cash paid
therefor after deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Company for any underwriting
or otherwise in connection with the issuance thereof.
(2) In the case of the issuance of securities for a
consideration in whole or in part other than cash, the consideration
received shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company,
irrespective of any accounting treatment; provided, however, that such
fair market value as determined by the Board of Directors (plus any
cash consideration received in such issuance) shall not exceed the
average Market Price of the shares of Common Stock being issued
calculated for the most recent 30 consecutive day period for which such
Market Price is available.
(3) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of options, warrants or other rights to
subscribe for Common Stock, or upon conversion or exchange of
securities convertible into or
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<PAGE>
exchangeable for Common Stock, shall be deemed to have been issued at
the time such options, warrants, rights or convertible or exchangeable
securities were issued for a consideration equal to the consideration
(determined in the manner provided in subsections (1) and (2) above),
if any, received by the Company upon the issuance of such securities
plus the minimum purchase price provided in such options, warrants or
rights or the minimum additional consideration (if any) payable upon
conversion or exchange of such convertible or exchangeable securities,
as applicable.
(4) Upon any change in the number of shares or exercise price
of Common Stock deliverable upon exercise of any such options, warrants
or rights or conversion or exchange of such convertible or exchangeable
securities, other than a change resulting from the antidilution
provisions thereof, the Warrant Price shall forthwith be readjusted to
the Warrant Price which would have obtained had the adjustment made
upon the issuance of such options, rights or securities not exercised
or converted prior to such change been made upon the basis of such
change.
(5) On the expiration of any such options, warrants or
rights, the Warrant Price shall forthwith be readjusted to the Warrant
Price which would have obtained had the adjustment made upon the
issuance of such options, warrants or rights been made upon the basis
of the issuance of only the number of shares of the Common Stock
actually issued upon the exercise of such options, warrants or rights.
(iii) "Excluded Stock" shall mean:
(A) securities issued pursuant to the acquisition of another
unaffiliated corporation by the Company by merger, stock
acquisition, reorganization, purchase of substantially all of the
assets or otherwise whereby the Company owns not less than a
majority in voting power of such other corporation after such
transaction;
(B) all Common Stock and all warrants and options to
purchase Common Stock issued or granted prior to the Warrant
Issuance Date and all Common Stock issued upon exercise of such
warrants and options;
(C) options to purchase up to 349,986 shares of Common Stock
issued pursuant to one or more stock option plans adopted by the
Company for the benefit of its management and employees and all
Common Stock issued upon the exercise of such options; and
4
<PAGE>
(D) warrants (including shares of Common Stock issuable upon
exercise thereof) issued to lenders in connection with debt
financing transactions.
(iv) If, at any time after the Warrant Issuance Date, the number
of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, effective as of such record date, the
Warrant Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on exercise of this Warrant (after giving effect
to Section 3(a)(ix) below) shall be increased in proportion to such
increase in outstanding shares.
(v) If, at any time after the Warrant Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for
such combination, effective as of such record date, the Warrant Price shall
be appropriately increased so that the number of shares of Common Stock
issuable on exercise of this Warrant (after giving effect to Section
3(a)(ix) below) shall be decreased in proportion to such decrease in
outstanding shares.
(vi) In case, at any time after the Warrant Issuance Date, of any
capital reorganization or any reclassification of the capital stock of the
Company (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 stock dividend or
subdivision, split-up or combination of shares), the Company shall cause
effective provision to be made so that this Warrant shall after such
reorganization or reclassification be exercisable for the kind and number
of shares of stock or other securities or property of the Company to which
such properties and assets shall have been sold or otherwise disposed to
which the Holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization or reclassification)
upon exercise of this Warrant would have been entitled upon such
reorganization or reclassification and any such provision shall include
provisions for adjustments in respect of such stock, securities or other
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The provisions of this Section
3(a)(vi) shall similarly apply to successive reorganizations or
reclassifications.
(vii) In case, at any time after the Warrant Issuance Date, of any
capital reorganization, or any reclassification of the stock of the Company
(other than a change in par value or from par value to no par value or from
no par value to par value as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
Company with or into another corporation, association, partnership, joint
venture, organization, business, individual or any other entity (a
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<PAGE>
"Person") (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any change in the
Common Stock) or of the sale or other disposition of all or substantially
all the properties and assets of the Company as an entirety to any other
Person, this Warrant shall after such reorganization, reclassification,
consolidation, merger, sale or other disposition be exercisable to purchase
the kind and number of shares of stock or other securities or property of
the Company or of the corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall have
been sold or otherwise disposed to which the Holder of the number of shares
of Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or other
disposition) upon exercise of this Warrant would have been entitled upon
such reorganization, reclassification, consolidation, merger, same or other
disposition. The provisions of this Section 3(a)(vii) shall similarly apply
to successive reorganizations, reclassification, consolidations, mergers,
sales or other disposition.
(viii) In case, at any time after the Warrant Issuance Date, the
Company shall declare a dividend upon its Common Stock or shall distribute
to holders of its Common Stock shares of its capital stock (other than
Common Stock), stock or other securities of other Persons, evidences of
indebtedness issued by the Company or other Persons, other assets or
options or rights (excluding options to purchase and rights to subscribe
for Common Stock or other securities of the Company convertible into or
exchangeable for Common Stock), then the Warrant Price shall be
appropriately decreased by the amount of such cash dividend or other
distribution on a Common Stock equivalents basis.
(ix) Upon any adjustment to the Warrant Price hereunder, the
number of shares purchasable upon the exercise of this Warrant shall be
adjusted to the number obtained by dividing:
(A) an amount equal to the product of the number of shares
purchasable hereunder immediately prior to such adjustment and
the Warrant Price immediately prior to such adjustment, by
(B) the Warrant Price immediately after such adjustment.
(x) All calculations under this Section 3(a) shall be made to the
nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a share,
as the case may be.
(xi) As used in this Section 3,
(A) "Market Price" at any date of one share of Common Stock
shall be (1) the last reported sales price regular way or, in
case no such
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<PAGE>
reported sales took place on such day, the last reported bid
price regular way on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if
the Common Stock is not at the time listed or admitted for
trading on any such exchange, then such price as shall be equal
to the last reported sale price, or if there is no such sale
price, the last reported bid price, as reported by the National
Association of Securities Dealers Automated Quotations System
("NASDAQ") on such day, or if, on any day in question, the
security shall not be quoted on the NASDAQ, then such price shall
be equal to the last reported bid price on such day as reported
by the National Quotation Bureau, Inc. or any similar reputable
quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.) or (2) if the
Company's Common Stock is not listed or admitted to trading on a
principal national securities exchange, the value given such
share as determined in good faith by the Company's Board of
Directors; provided, however, that if the Holder notifies the
Company in writing disputing such determination by the Company's
Board of Directors within 20 days after such determination, the
Holder and the Company shall mutually agree upon and select an
investment bank to determine the value of one share of Common
Stock, the investment bank's determination to be conclusive,
absent manifest error, and the costs of such determination to be
equally borne by the Company and the Holder, except that the
Company shall bear such costs if the investment bank's
determination is greater than the Board of Directors'
determination.
(B) "Common Stock Deemed Outstanding" means, at any given
time, without duplication, the number of shares of Common Stock
actually outstanding at such time, plus the number of shares of
Common Stock issuable upon the exercise of any option, warrant or
other right to acquire Common Stock of the Company or issuable
upon the conversion or exchange of any convertible or
exchangeable security of the Company.
(xii) In any case in which the provisions of this Section 3(a)
shall require that an adjustment shall become effective as of a record date
for an event, the Company may defer until the occurrence of such event
issuing to the Holder of this Warrant exercised after such record date and
before the occurrence of such event the additional shares of capital stock
issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such
exercise before giving effect to such adjustment.
(b) Whenever the Warrant Price and the number of shares subject to this
Warrant shall be adjusted as provided in this Section 3, the Company shall
within 10 days file, at the office of the transfer agent for the Common Stock or
at such other place as may be designated by the
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Company, a statement, signed by its President or Chief Financial Officer and by
its Treasurer, showing in detail the facts requiring such adjustment and the
Warrant Price and the number of shares subject to this Warrant that shall be in
effect after such adjustment. The Company shall also cause a copy of such
statement to be given to the Holder of this Warrant. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section 3(c).
(c) In the event the Company shall propose to take any action of the
types described in clauses (i), (iv), (v), (vi), (vii) or (viii) of Section
3(a), the Company shall give 20 days advance written notice to the Holder of
this Warrant at such address as such Holder shall have provided to the Company,
which notice shall specify with respect to any such action and the date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Warrant Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon exercise of this Warrant. In the case of any action
which would require the fixing of a record date, such notice shall be given at
least 10 days prior to the date so fixed. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such action. In
the event the Company proposes to make any distribution to holders of its Common
Stock which would not give rise to any adjustment to the Warrant Price
hereunder, the Company shall establish a record date for determining the holders
of record of Common Stock who will be entitled to receive such distribution, and
shall give the Holder of record of this Warrant notice (in the manner specified
above) of such distribution and record date at least 20 days in advance of such
record date.
(d) The Company shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of capital stock of the
Company upon exercise of all or any part of this Warrant; provided, however,
that the Company shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the Holder of this Warrant.
SECTION 4. Adjustment of Warrant; Put Rights of Holder.
(a) In the event that a Liquidity Event reflecting an Implicit
Valuation for the Company in excess of $30.0 million occurs at any time on or
prior to October 31, 2000, upon consummation of such Liquidity Event this
Warrant shall be automatically adjusted to represent the right to purchase that
number of shares of Common Stock (rounded up to the nearest whole number of
shares) determined by multiplying the number of shares represented by this
Warrant as originally issued to the Holder by the appropriate percentage set
forth below and subtracting from such amount the number of shares with respect
to which this Warrant was previously exercised by the Holder:
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<PAGE>
Implicit Valuation Percentage
------------------ ----------
$30,000,001 to $45,000,000 96.6%
$45,000,001 to $60,000,000 93.1%
$60,000,001 to $70,000,000 89.7%
$70,000,001 to $75,000,000 86.2%
$75,000,001 or more 82.8%
Notwithstanding the foregoing, no adjustment pursuant to this Section 4(a) shall
be required if, immediately following such Liquidity Event, the total number of
shares of Common Stock represented by all Warrants originally issued pursuant to
the Exchange Agreement and all Warrant Stock issued thereunder constitutes less
than 40% of the then-outstanding Common Stock on a fully-diluted basis.
(b) In the event that a Liquidity Event has not occurred on or prior to
the earlier of the expiration of the Exercise Period or the date on which all
outstanding shares of the Company's Series A Preferred Stock have been redeemed
in accordance with the provisions of the Company's Certificate of Incorporation,
the Holder shall have the right to require the Company to repurchase this
Warrant and/or the Warrant Stock previously issued upon exercise of this Warrant
at a cash price equal to Fair Market Value multiplied by a fraction, the
numerator of which is the number of shares of Common Stock represented by this
Warrant and the Warrant Stock to be repurchased and the denominator of which is
the total number of shares of Common Stock outstanding on a fully-diluted basis
on such date less the aggregate unpaid exercise price of this Warrant. The
Holder may exercise its right pursuant to this Section 4(b) by delivering
written notice to the Company; provided, however, that no notice shall be
required in the event that the Holder's rights are triggered by the expiration
of the Exercise Period. The repurchase of this Warrant and the Warrant Stock
shall occur within 30 days following delivery of the Holder's notice or the
expiration of the Exercise Period, as applicable.
(c) For purposes of this Section 4, (x) a "Liquidity Event" shall mean
(i) a registered initial public offering of Common Stock resulting in net
proceeds to the Company of $10.0 million or more and reflecting a total market
capitalization for the Common Stock of $40.0 million or more, (ii) the sale of
100% of the Company's outstanding Common Stock, (iii) the sale of substantially
all the Company's assets, or (iv) the sale of the Company's leasehold interest
in wireless cable assets for net proceeds of $15.0 million or more; (y) "Fair
Market Value" shall mean the greater of (i) the fair value of the entire common
equity interest in the Company as determined by an independent investment
banking firm mutually acceptable to the Company and the Holders of two-thirds of
the outstanding Warrants, or (ii) the value determined by multiplying the number
of cable televisions outlets under contract with the Company by $900 plus the
fair market value of the Company's wireless leasehold assets (in no event less
than $5.0 million) plus the amount of the Company's cash and marketable
securities minus the amount of the Company's long-term debt and the liquidation
value of its preferred stock; and (z) "Implicit Valuation" shall
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<PAGE>
mean (i) in the case of a public offering, the public offering price multiplied
by the number of shares of Common Stock outstanding following such offering,
(ii) in the case of a sale of the Common Stock, the aggregate net proceeds
received by the holders of Common Stock, or (iii) in the case of a sale of
assets, the proceeds to the Company of such sale, less related fees, expenses
and taxes, plus the estimated fair value of the Company's remaining assets.
SECTION 5. Exchange of Warrant.
This Warrant is exchangeable, upon the surrender hereof by the Holder
at the office or agency of the Company designated in Section 1 hereof, for new
Warrants of like tenor representing in the aggregate the rights to subscribe for
and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said Holder hereof at
the time of such surrender.
SECTION 6. Lost, Stolen, Mutilated or Destroyed Warrant.
If this Warrant is lost, stolen, mutilated or destroyed, the Company
shall, upon the receipt of indemnity reasonably satisfactory to it (it being
understood that the written undertaking of any original Holder of this Warrant
shall be sufficient indemnity) and, in the case of a mutilated Warrant, the
surrender thereof, issue a new Warrant of like denomination and tenor as the
Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time
enforceable by anyone.
SECTION 7. Listing on Securities Exchanges.
The Company shall list on each national securities exchange on which
any Common Stock shall at any time be listed, subject to official notice of
issuance upon the exercise of this Warrant, and shall maintain, so long as any
other shares of its Common Stock shall be so listed, all shares of Common Stock
from time to time issuable upon the exercise of this Warrant, and the Company
shall so list on each national securities exchange, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of capital stock of the
same class shall be listed on such national securities exchange by the Company.
Any such listing shall be at the Company' expense.
SECTION 8. Availability of Information.
The Company shall comply with all applicable public information
reporting requirements of the Securities and Exchange Commission (the "SEC")
(including those required to make available the benefits of Rule 144 under the
Securities Act of 1933) to which it may from time to time be subject. The
Company shall also cooperate with each Holder of this Warrant and Holder of any
Common Stock issued upon exercise of this Warrant in supplying such information
10
<PAGE>
as may be necessary for such Holder to complete and file any information
reporting forms currently or hereafter required by the SEC as a condition to the
availability of an exemption from the Act for the sale of any Warrant or Common
Stock issued upon exercise of this Warrant.
SECTION 9. Successors.
All the provisions of this Warrant by or for the benefit of the Company
or the Holder shall bind and inure to the benefit of their respective successors
and assigns. The Company acknowledges and agrees that the Holder shall have the
right to assign its right, title and interests under this Warrant, in whole or
in part, to any of its affiliates or to one or more third parties, subject only
to compliance with applicable securities laws.
SECTION 10. Headings.
The headings of sections of this Warrant have been inserted for
convenience of reference only, are not to be considered a part hereof and shall
in no way modify or restrict any of the terms or provisions hereof.
SECTION 11. No Stockholder Rights.
The Holder hereof shall not be entitled to any voting rights or other
rights as a stockholder of the Company by reason of the rights granted under
this Warrant until the Holder hereof shall purchase shares of Common Stock
hereunder.
SECTION 12. Governing Law.
This Warrant shall be governed by and construed in accordance with the
laws of the State of New York without regard to the laws and principles thereof
which would direct the application of the laws of another jurisdiction.
* * * * *
11
<PAGE>
IN WITNESS WHEREOF, MagnaVision Corporation has caused this Warrant to
be executed by its duly authorized officers under its corporate seal, and this
Warrant to be dated as of the date first set forth above.
MAGNAVISION CORPORATION
By:___________________________
Name:
Title:
[CORPORATE SEAL]
ATTEST:
- ----------------------------
Secretary
12
<PAGE>
FORM OF SUBSCRIPTION
[To be signed upon exercise of Warrant]
TO MAGNAVISION CORPORATION
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _________ shares of Common Stock of MAGNAVISION CORPORATION
and herewith tenders payment of $________ in full payment of the purchase price
for such shares, and requests that the certificates for such shares be issued in
the name of, and be delivered to,
______________________________________________, whose address is _______________
___________________________________.
Dated:
-----------------------------------------
(Signature)
-----------------------------------------
(Address)
13
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers
unto _________________________, all of the rights represented by the within
Warrant to purchase shares of Common Stock of MAGNAVISION CORPORATION to which
the within Warrant relates, and appoints _______________________ Attorney to
transfer such right on the books of MAGNAVISION CORPORATION with full power of
substitution in the premises.
Dated:
-----------------------------------------
(Signature)
-----------------------------------------
(Address)
Signed in the presence of:
- ---------------------------
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<PAGE>
Exhibit C
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
May 8, 1997
Nicholas Mastrorilli, Sr.
c/o MagnaVision Corporation
1725 Highway 35 South
Wall Township, NJ 07719
Re: Employment Agreement
Dear Mr. Mastrorilli:
This letter sets forth the terms and conditions of your employment with
MagnaVision Corporation, a Delaware corporation (the "Company"), to be effective
as of the date of consummation of the transactions contemplated by the Exchange
Agreement dated May 8, 1997 among the Company, IBJS Capital Corporation and KOCO
Capital Company, L.P. (the "Effective Date").
1. Employment and Services. You shall be employed as the Chairman of
the Board and Chief Executive Officer of the Company for the period beginning on
the Effective Date and ending upon the second anniversary of the Effective Date
or earlier termination pursuant to paragraph 4 (the "Employment Period");
provided, however, that in the absence of termination the Employment Period
shall be extended for successive one-year terms so long as neither party gives
written notice of non-renewal to the other party not less than 90 days prior to
the scheduled expiration date of the Employment Period. During the Employment
Period, you shall render such services to the Company and its subsidiaries and
affiliates of a senior executive nature as the Company's Board of Directors (the
"Board") shall lawfully designate from time to time, and you shall devote your
best efforts and substantially all your time and attention to the business of
the Company and its subsidiaries. Your services shall be rendered primarily at
the Company's headquarters, subject to normal business travel required by the
Company's business, and the Company agrees not to require that your services be
rendered at any new headquarters located outside a ten-mile radius of the
current headquarters without your prior consent; provided, however, that this
Agreement shall not restrict the Company from relocating the Company's wireless
cable operations within the tri-state New York City metropolitan area in the
good faith judgment of the Board and requiring that you perform a portion of
your services hereunder at such location.
2. Compensation. During the Employment Period, the Company (and/or its
subsidiaries and affiliates) shall pay you an annual base salary of not less
than $105,000, which salary shall be reviewed annually by the Board and, for any
partial year during the Employment Period, shall be prorated based on the number
of days elapsed in such year. Such salary shall be payable in installments in
accordance with the Company's regular payroll practices. In addition, during the
Employment Period, you will be eligible to receive an annual bonus based on the
achievement of performance targets to be established by the Board and will be
eligible to participate in the Company's stock option plan.
<PAGE>
3. Benefits. During the Employment Period, you shall receive four weeks
of paid vacation per year and shall be entitled to participate in the Company's
insurance plans and all other benefit plans generally available to the Company's
employees (other than severance plans or arrangements) as in effect from time to
time. In addition, the Company will reimburse your reasonable out-of-pocket
expenses incurred in connection with the performance of your services hereunder,
in each case subject to and consistent with Company policy.
4. Termination and Severance. The Employment Period shall terminate on
the first to occur of (i) 30 days following written notice by you to the Company
of your resignation (it being understood that you will continue to perform your
services hereunder during such 30 day period), (ii) your death or permanent
disability (defined as your actual inability to perform normal duties for a
period of 90 consecutive days or for a total of 120 days in any two-year period
or your prospective inability to perform normal duties for a period of 90
consecutive days as determined by a physician reasonably acceptable to both
parties), (iii) a vote of the Board directing such termination for Cause, (iv) a
vote of the Board directing such termination without Cause, or (v) the
then-current scheduled expiration date of the Employment Period. In the event of
termination of the Employment Period pursuant to clause (iv) and so long as you
comply with the restrictions set forth in paragraphs 5 and 6 below, the Company
shall continue to pay your base salary for a period of twelve months following
the date of such termination or for the remainder of the Employment Period,
whichever is less; provided, however, that the Company may in its sole
discretion provide such severance compensation for a period of up to one year
following such termination; and provided further, that such amounts shall be
accelerated in the event that the Company defaults in making such payments for a
period of 30 days. Except as otherwise set forth in this paragraph 4 or pursuant
to the terms of employee benefit plans in which you participate pursuant to
paragraph 3, you shall not be entitled to any compensation or other payment from
the Company following termination of the Employment Period. For purpose of this
agreement, "Cause" shall mean (i) your willful and repeated failure to comply
with the lawful directives of the Board, (ii) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by you that is injurious
in any significant respect to the property, operations, business or reputation
of the Company, (iii) your material breach of this agreement, or (iv) actions by
you which, but for the provisions of clause (ii) of paragraph 6(a), would
violate the provisions of such paragraph 6(a) and which are injurious in any
significant respect to the property, operations, business or reputation of the
Company (it being understood that your mere involvement on behalf of Cacomm
shall not in and of itself constitute an injury to the Company's reputation).
5. Confidential Information. You acknowledge that information obtained
by you during your employment with the Company concerning the business or
affairs of the Company ("Confidential Information") is the property of the
Company. You shall not at any time during or after the Employment Period,
without the prior written consent of the Board, disclose to any unauthorized
person or use for your own account or for the account of any person other than
the Company and its subsidiaries any Confidential Information, except to the
extent necessary to comply with applicable laws or to the extent that such
information becomes generally known to
2
<PAGE>
and available for use by the public other than as a result of your acts or
omissions to act. Upon termination of the Employment Period or at the request of
the Board at any time, you shall deliver to the Board all documents containing
Confidential Information or relating to the business or affairs of the Company
that you may then possess or have under your control. The provisions of this
paragraph 5 shall not prevent your use of general knowledge concerning the
Company's industry so long as such knowledge does not specifically relate to the
Company and is not otherwise proprietary to the Company following the expiration
of the Non-Compete Period defined in paragraph 6.
6. Non-Competition; Non-Solicitation.
a. Non-Competition. You acknowledge that you are and may in
the future be in possession of Confidential Information and that your services
are of unique and great value to the Company. Accordingly, during the Employment
Period and for a period of one year thereafter or, in the case of termination of
your employment without cause, for the period thereafter in which you receive
severance compensation (the "Non-Compete Period"), you shall not directly or
indirectly own, manage, control, participate in, consult with, render services
to, or in any manner engage in, any enterprise competing with any business of
the Company conducted or proposed to be conducted on the date of termination of
the Employment Period within any geographical area in which the Company engages
or plans on the date of termination to engage in such business. Nothing herein
shall prohibit you from (i) being a passive owner of not more than 1% of any
publicly-traded class of capital stock of any entity engaged in a competing
business or (ii) taking actions in your capacity as an officer or director of
Cacomm, Inc. that, in the written opinion of counsel, are required in the
exercise of your fiduciary duties to the stockholders of Cacomm, Inc. not
affiliated with you.
b. Non-Solicitation. During the Non-Compete Period, you shall
not (i) induce or attempt to induce any employee of the Company to terminate, or
in any way interfere with, the relationship between the Company and any employee
thereof, (ii) hire directly or through another entity any person who was an
employee of the Company at any time during the Employment Period or (iii) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company to cease doing business with the Company, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company.
c. Scope of Restriction. If, at the time of enforcement of
this paragraph 6, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area.
d. Injunctive Relief. You acknowledge that the Company would
be irreparably harmed by a breach by you of the provisions of this paragraph 6
or of paragraph 5 above, and hereby consent to the Company's request for
injunctive relief in connection with any
3
<PAGE>
such breach or threatened breach.
7. Prior Agreements. All prior agreements, arrangements or
understandings, written or oral, with respect to your employment with the
Company or any of its subsidiaries or affiliates are superseded by this
Agreement and shall be of no further force and effect.
8. Survival. The provisions of paragraphs 5 and 6 hereof will survive
any termination of this Agreement.
9. Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement shall be governed by the internal law, and
not the law of conflicts, of the State of New Jersey.
Please execute the extra copy of this letter agreement in the space
below and return it to the undersigned at the address set forth above to confirm
your understanding and acceptance of the agreements contained herein.
Very truly yours,
MAGNAVISION CORPORATION
By:_________________________________
Name:
Title:
Accepted and agreed to:
NICHOLAS MASTRORILLI, SR.
4
<PAGE>
Exhibit C
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
May 8, 1997
Nicholas Mastrorilli, Jr.
c/o MagnaVision Corporation
1725 Highway 35 South
Wall Township, NJ 07719
Re: Employment Agreement
Dear Mr. Mastrorilli:
This letter sets forth the terms and conditions of your employment with
MagnaVision Corporation, a Delaware corporation (the "Company"), to be effective
as of the date of consummation of the transactions contemplated by the Exchange
Agreement dated May 8, 1997 among the Company, IBJS Capital Corporation and KOCO
Capital Company, L.P. (The "Effective Date").
1. Employment and Services. You shall be employed as Vice President of
the Company for the period beginning on the Effective Date and ending upon the
second anniversary of the Effective Date or earlier termination pursuant to
paragraph 4 (the "Employment Period")' provided, however, that in the absence of
termination the Employment Period shall be extended for successive one-year
terms so long as neither party gives written notice of non-renewed to the other
party not less than 90 days prior to the scheduled expiration date of the
Employment Period. During the Employment Period, you shall render such services
to the Company and its subsidiaries and affiliates of an executive nature as the
Company's Board of Directors (the "Board") shall lawfully designate from time to
time, and you shall devote your best efforts and full time and attention to the
business of the Company and its subsidiaries.
2. Compensation. During the Employment Period, the Company (and/or its
subsidiaries and affiliates) shall pay you an annual base salary of not less
than $65,000, which salary shall be reviewed annually by the Board and, for any
partial year during the Employment Period, shall be prorated based on the number
of days elapsed in such year. Such salary shall be payable in installments in
accordance with the Company's regular payroll practices. In addition, during the
Employment Period, you will receive a 2 % commission on contracts or contract
renewals originated by you and will be eligible to receive an annual bonus based
on the achievement of performance targets to be established by the Board and
will be eligible to participate in the Company's stock option plan.
<PAGE>
3. Benefits. During the Employment Period, you shall receive three
weeks of paid vacation per year and shall be entitled to participate in the
Company's insurance plans and all other benefit plans generally available to the
Company's employees (other than severance plans or arrangements) as in effect
from time to time. In addition, the Company will reimburse your reasonable
out-of-pocket expenses incurred in connection with the performance of your
services hereunder, in each case subject to and consistent with Company policy.
4. Termination and Severance. The Employment Period shall terminate on
the first to occur of (i) 30 days following written notice by you to the Company
of your resignation (it being understood that you will continue to perform your
services hereunder during such 30 day period), (ii) your death or permanent
disability (defined as your actual inability to perform normal duties for a
period of 90 consecutive days or for a total of 120 days in any two-year period
or your prospective inability to perform normal duties for a period of 90
consecutive days as determined by a physician reasonably acceptable to both
parties), (iii) a vote of the Board directing such termination for Cause, (iv) a
vote of the Board directing such termination without Cause, or (v) the
then-current scheduled expiration date of the Employment Period. In the event of
termination of the Employment Period pursuant to clause (iv) and so long as you
comply with the restrictions set forth in paragraphs 5 and 6 below, the Company
shall continue to pay your base salary for a period of twelve months following
the date of such termination or for the remainder of the Employment Period,
whichever is less; provided, however, that the Company may in its sole
discretion provide such severance compensation for a period of up to one year
following such termination; and provided further, that such amounts shall be
accelerated in the event that the Company defaults in making such payments for a
period of 30 days except as otherwise set forth in this paragraph 4 or pursuant
to the terms or employee benefit plans in which you participate pursuant to
paragraph 3, you shall not be entitled to any compensation or other payment from
the Company following termination of the Employment Period. For purpose of this
agreement, "Cause" shall mean (i) your willful and repeated failure to comply
with the lawful directives of the Board, (ii) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by you that is injurious
in any significant respect to the property, operations, business or reputation
of the Company, (iii) your material breach of this agreement, or (iv) actions by
you which, but for the provisions of clause (ii) of paragraph 6(a), would
violate the provisions of such paragraph 6(a) and which are injurious in any
significant respect to the property, operations, business or reputation of the
Company (it being understood that your mere involvement on behalf of Cacomm
shall not in and of itself constitute an injury to the Company's reputation).
5. Confidential Information. You acknowledge that information obtained
by you during your employment with the Company concerning the business or
affairs of the Company ("Confidential Information") is the property of the
Company. You shall not at any time during or after the Employment Period,
without the prior written consent of the Board, disclose to any unauthorized
person or use for your own account or for the account of any person other than
the Company and its subsidiaries any Confidential Information, except to the
extent necessary to comply with applicable laws or to the extent that such
information becomes generally known to
2
<PAGE>
and available for use by the public other than as a result of your acts or
omissions to act. Upon termination of the Employment Period or at the request of
the Board at any time, you shall deliver to the Board all documents containing
Confidential Information or relating to the business or affairs of the Company
that you may then possess or have under your control. The provisions of this
paragraph 5 shall not prevent your use of general knowledge concerning the
Company's industry so long as such knowledge does not specifically relate to the
Company and is not otherwise proprietary to the Company following the expiration
of the Non-Compete Period defined in paragraph 6.
6. Non-Competition; Non-Solicitation.
a. Non-Competition. You acknowledge that you are and may in
the future be in possession of Confidential Information and that your services
are of unique and great value to the Company. Accordingly, during the Employment
Period and for a period of one year thereafter or, in the case of termination of
your employment without cause, for the period thereafter in which you receive
severance compensation (the "Non-Compete Period"), you shall not directly or
indirectly own, manage, control, participate in, consult with, render services
to, or in any manner engage in, any enterprise competing with any business of
the Company conducted or proposed to be conducted on the date of termination of
the Employment Period within any geographical area in which the Company engages
or plans on the date of termination to engage in such business. Nothing herein
shall prohibit you from (i) being a passive owner of not more than 1% of any
publicly-traded class of capital stock of any entity engaged in a competing
business or (ii) taking actions in your capacity as an officer or director of
Cacomm, Inc. that, in the written opinion of counsel, are required in the
exercise of your fiduciary duties to the stockholders of Cacomm, Inc. not
affiliated with you.
b. Non-Solicitation. During the Non-Compete Period, you shall
not (i) induce or attempt to induce any employee of the Company to terminate, or
in any way interfere with, the relationship between the Company and any employee
thereof, (ii) hire directly or through another entity any person who was an
employee of the Company at any time during the Employment Period or (iii) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company to cease doing business with the Company, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company.
c. Scope of Restriction. If, at the time of enforcement of
this paragraph 6, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area.
d. Injunctive Relief. You acknowledge that the Company would
be irreparably harmed by a breach by you of the provisions of this paragraph 6
or of paragraph 5 above, and hereby consent to the Company's request for
injunctive relief in connection with any
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<PAGE>
such breach or threatened breach.
7. Prior Agreements. All prior agreements, arrangements or
understandings, written or oral, with respect to your employment with the
Company or any of its subsidiaries or affiliates are superseded by this
Agreement and shall be of no further force and effect.
8. Survival. The provisions of paragraphs 5 and 6 hereof will survive
any termination of this Agreement.
9. Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement shall be governed by the internal law, and
not the law of conflicts, of the State of New Jersey.
Please execute the extra copy of this letter agreement in the space
below and return it to the undersigned at the address set forth above to confirm
your understanding and acceptance of the agreements contained herein.
Very truly yours,
MAGNAVISION CORPORATION
By:
------------------------------
Name:
Title:
Accepted and agreed to:
NICHOLAS MASTRORILLI, JR.
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4
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Exhibit C
MagnaVision Corporation
1725 Highway 35 South
Wall Township, New Jersey 07719
May 8, 1997
Patrick Mastrorilli
c/o MagnaVision Corporation
1725 Highway 35 South
Wall Township, NJ 07719
Re: Employment Agreement
Dear Mr. Mastrorilli:
This letter sets forth the terms and conditions of your employment with
MagnaVision Corporation, a Delaware corporation (the "Company"), to be effective
as of the date of consummation of the transactions contemplated by the Exchange
Agreement dated May 8, 1997 among the Company, IBJS Capital Corporation and KOCO
Capital Company, L.P. (The "Effective Date").
1. Employment and Services. You shall be employed as Vice President of
the Company for the period beginning on the Effective Date and ending upon the
second anniversary of the Effective Date or earlier termination pursuant to
paragraph 4 (the "Employment Period")' provided, however, that in the absence of
termination the Employment Period shall be extended for successive one-year
terms so long as neither party gives written notice of non-renewed to the other
party not less than 90 days prior to the scheduled expiration date of the
Employment Period. During the Employment Period, you shall render such services
to the Company and its subsidiaries and affiliates of an executive nature as the
Company's Board of Directors (the "Board") shall lawfully designate from time to
time, and you shall devote your best efforts and full time and attention to the
business of the Company and its subsidiaries.
2. Compensation. During the Employment Period, the Company (and/or its
subsidiaries and affiliates) shall pay you an annual base salary of not less
than $60,000, which salary shall be reviewed annually by the Board and, for any
partial year during the Employment Period, shall be prorated based on the number
of days elapsed in such year. Such salary shall be payable in installments in
accordance with the Company's regular payroll practices. In addition, during the
Employment Period, you will receive a 2 % commission on contracts or contract
renewals originated by you and will be eligible to receive an annual bonus based
on the achievement of performance targets to be established by the Board and
will be eligible to participate in the Company's stock option plan.
<PAGE>
3. Benefits. During the Employment Period, you shall receive three
weeks of paid vacation per year and shall be entitled to participate in the
Company's insurance plans and all other benefit plans generally available to the
Company's employees (other than severance plans or arrangements) as in effect
from time to time. In addition, the Company will reimburse your reasonable
out-of-pocket expenses incurred in connection with the performance of your
services hereunder, in each case subject to and consistent with Company policy.
4. Termination and Severance. The Employment Period shall terminate on
the first to occur of (i) 30 days following written notice by you to the Company
of your resignation (it being understood that you will continue to perform your
services hereunder during such 30 day period), (ii) your death or permanent
disability (defined as your actual inability to perform normal duties for a
period of 90 consecutive days or for a total of 120 days in any two-year period
or your prospective inability to perform normal duties for a period of 90
consecutive days as determined by a physician reasonably acceptable to both
parties), (iii) a vote of the Board directing such termination for Cause, (iv) a
vote of the Board directing such termination without Cause, or (v) the
then-current scheduled expiration date of the Employment Period. In the event of
termination of the Employment Period pursuant to clause (iv) and so long as you
comply with the restrictions set forth in paragraphs 5 and 6 below, the Company
shall continue to pay your base salary for a period of twelve months following
the date of such termination or for the remainder of the Employment Period,
whichever is less; provided, however, that the Company may in its sole
discretion provide such severance compensation for a period of up to one year
following such termination; and provided further, that such amounts shall be
accelerated in the event that the Company defaults in making such payments for a
period of 30 days except as otherwise set forth in this paragraph 4 or pursuant
to the terms or employee benefit plans in which you participate pursuant to
paragraph 3, you shall not be entitled to any compensation or other payment from
the Company following termination of the Employment Period. For purpose of this
agreement, "Cause" shall mean (i) your willful and repeated failure to comply
with the lawful directives of the Board, (ii) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by you that is injurious
in any significant respect to the property, operations, business or reputation
of the Company, (iii) your material breach of this agreement, or (iv) actions by
you which, but for the provisions of clause (ii) of paragraph 6(a), would
violate the provisions of such paragraph 6(a) and which are injurious in any
significant respect to the property, operations, business or reputation of the
Company (it being understood that your mere involvement on behalf of Cacomm
shall not in and of itself constitute an injury to the Company's reputation).
5. Confidential Information. You acknowledge that information obtained
by you during your employment with the Company concerning the business or
affairs of the Company ("Confidential Information") is the property of the
Company. You shall not at any time during or after the Employment Period,
without the prior written consent of the Board, disclose to any unauthorized
person or use for your own account or for the account of any person other than
the Company and its subsidiaries any Confidential Information, except to the
extent necessary to comply with applicable laws or to the extent that such
2
<PAGE>
information becomes generally known to and available for use by the public other
than as a result of your acts or omissions to act. Upon termination of the
Employment Period or at the request of the Board at any time, you shall deliver
to the Board all documents containing Confidential Information or relating to
the business or affairs of the Company that you may then possess or have under
your control. The provisions of this paragraph 5 shall not prevent your use of
general knowledge concerning the Company's industry so long as such knowledge
does not specifically relate to the Company and is not otherwise proprietary to
the Company following the expiration of the Non-Compete Period defined in
paragraph 6.
6. Non-Competition; Non-Solicitation.
a. Non-Competition. You acknowledge that you are and may in
the future be in possession of Confidential Information and that your services
are of unique and great value to the Company. Accordingly, during the Employment
Period and for a period of one year thereafter or, in the case of termination of
your employment without cause, for the period thereafter in which you receive
severance compensation (the "Non-Compete Period"), you shall not directly or
indirectly own, manage, control, participate in, consult with, render services
to, or in any manner engage in, any enterprise competing with any business of
the Company conducted or proposed to be conducted on the date of termination of
the Employment Period within any geographical area in which the Company engages
or plans on the date of termination to engage in such business. Nothing herein
shall prohibit you from (i) being a passive owner of not more than 1% of any
publicly-traded class of capital stock of any entity engaged in a competing
business or (ii) taking actions in your capacity as an officer or director of
Cacomm, Inc. that, in the written opinion of counsel, are required in the
exercise of your fiduciary duties to the stockholders of Cacomm, Inc. not
affiliated with you.
b. Non-Solicitation. During the Non-Compete Period, you shall
not (i) induce or attempt to induce any employee of the Company to terminate, or
in any way interfere with, the relationship between the Company and any employee
thereof, (ii) hire directly or through another entity any person who was an
employee of the Company at any time during the Employment Period or (iii) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company to cease doing business with the Company, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company.
c. Scope of Restriction. If, at the time of enforcement of
this paragraph 6, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area.
d. Injunctive Relief. You acknowledge that the Company would
be irreparably harmed by a breach by you of the provisions of this paragraph 6
or of paragraph 5 above, and hereby consent to the Company's request for
injunctive relief in connection with any such breach or threatened breach.
3
<PAGE>
7. Prior Agreements. All prior agreements, arrangements or
understandings, written or oral, with respect to your employment with the
Company or any of its subsidiaries or affiliates are superseded by this
Agreement and shall be of no further force and effect.
8. Survival. The provisions of paragraphs 5 and 6 hereof will survive
any termination of this Agreement.
9. Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement shall be governed by the internal law, and
not the law of conflicts, of the State of New Jersey.
Please execute the extra copy of this letter agreement in the space
below and return it to the undersigned at the address set forth above to confirm
your understanding and acceptance of the agreements contained herein.
Very truly yours,
MAGNAVISION CORPORATION
By:
-------------------------------
Name:
Title:
Accepted and agreed to:
PATRICK MASTRORILLI
- -----------------------
4
<PAGE>
Exhibit F
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT dated as of May 8, 1997 between
MAGNAVISION CORPORATION, a Delaware corporation (the "Company"), and KOCO
CAPITAL COMPANY, L.P., a Delaware limited partnership ("KoCo").
The Company desires for KoCo to provide certain ongoing management and
advisory services to the Company, and KoCo is willing to provide such services
subject to the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section (a) Services. During the term of this Agreement, KoCo shall
provide such advisory and management services to the Company and its
subsidiaries as the Board of Directors of the Company shall reasonably request.
Such services may be provided at such places as may be designated by KoCo from
time to time, and shall primarily be in the field of financial and strategic
corporate planning.
Section (b) Compensation. In consideration of the services provided and
to be provided pursuant to this Agreement, the Company shall pay to KoCo an
annual management fee equal to $24,000, which fee shall be payable monthly in
arrears commencing on May 31, 1997 unless the Company's Board of Directors
determines in good faith that such fee should be accrued in light of the
Company's financial condition, in which event such fee shall be payable as
determined by the Board (but in any event shall be payable concurrently with
termination of this Agreement).
Section (c) Reimbursement. KoCo and its affiliates shall be entitled to
reimbursement of all reasonable out-of-pocket expenses (including travel
expenses) incurred in connection with the performance of its services pursuant
to this Agreement (other than salary expenses and associated overhead charges),
which amounts shall be promptly reimbursed by the Company upon request.
Section (d) No Liability. (a) None of KoCo, any of its affiliates or
any of their respective partners, officers, directors, stockholders, agents or
employees (each an "Indemnified Party") shall have any liability to the Company
or any of its subsidiaries for any services provided pursuant to this Agreement,
except as may result from such Indemnified Party's gross negligence or willful
misconduct.
<PAGE>
(b) The Company hereby agrees to indemnify each Indemnified Party
against any and all damages, costs, liabilities, losses, judgments, penalties,
fines, expenses or other costs, including attorney's fees, arising from any
claims by third parties relating to this Agreement or any Indemnified Party's
equity interest in the Company.
Section (e) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
when delivered via a nationally recognized overnight courier or when sent via
facsimile (with written confirmation). Such notices, demands and other
communications will be sent to the address indicated below:
To the Company:
MagnaVision Corporation
1725 Highway 35 South
Wall Township, NJ 07719
Attention: Nicholas Mastrorilli, Sr.
Telecopy No.: (908) 974-1106
To KoCo:
KOCO Capital Company, L.P.
111 Radio Circle
Mt. Kisco, NY 10549
Attention: Paul Echausse
Telecopy No.: (914) 241-1143
With a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street, 22nd Floor
Denver, CO 80202-4437
Attention: Steven S. Siegel
Telecopy No.: (303) 623-1956
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
Section (f) Successors and Assigns. This Agreement shall be binding
upon the Company and its successors. This Agreement may not be assigned by
either party without the other party's consent; provided, however, that KoCo may
assign this Agreement to any affiliated entity succeeding to KoCo's portfolio
management functions.
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<PAGE>
Section (g) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and construed
in accordance with the internal law (and not the law of conflicts) of New York.
Section (h) Termination. This Agreement shall terminate on the earlier
of (i) written notice by KoCo to the Company and (ii) the first anniversary of
the date hereof; provided that this Agreement shall automatically renew for
successive one year periods if notice of a election not to renew is not given by
the Company within 30 days of any such anniversary.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MAGNAVISION CORPORATION
By:________________________________
KOCO CAPITAL COMPANY, L.P.
By: KOCO Capital Partners, L.P.
Its General Partner
By: Kisco Capital Corporation
Its General Partner
By:_______________________________
Paul Echausse
3
<PAGE>
Void after _________ __, 2007
This Warrant and any shares acquired upon the exercise
of this Warrant have not been registered under the Securities
Act of 1933. This Warrant and such shares may not be sold or
transferred in the absence of such registration or an exemption
therefrom under said Act. This Warrant and such shares may not
be transferred except upon the conditions specified in this
Warrant, and no transfer of this Warrant or such shares shall be
valid or effective unless and until such conditions shall have
been complied with.
------------------------
COMMON STOCK PURCHASE WARRANT
MAGNAVISION CORPORATION, a Delaware corporation (the "Company"), having
its principal office at 1725 Highway 35, Wall, New Jersey 07719 hereby certifies
that, for value received, Access Capital, Inc., or assigns, is entitled, subject
to the terms set forth below, to purchase from the Company at any time on or
from time to time after _________ __, 1997 and before 5:00 P.M., New York City
time, on _______ __, 2007, 138,536 fully paid and non-assessable shares of
Common Stock of the Company, at the price per share (the "Purchase Price") of
$2.00. The number and character of such shares of Common Stock and the Purchase
Price are subject to adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") originally issued as of the Original Issue Date (as defined below)
and evidencing the right to purchase an aggregate of 138,536 shares of Common
Stock of the Company, subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes the Company and any
corporation which shall succeed to or assume the obligations of the Company
hereunder.
(b) The term "Common Stock" includes all stock of any class or
classes (however designated) of the Company, authorized upon the Original Issue
Date or thereafter, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies and except to the extent
affected by the rights of holders of the Company's Redeemable Preferred Stock,
be entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency).
<PAGE>
(c) The "Original Issue Date" is ________ __, 1997, the date
as of which this Warrant was first issued.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time shall be
entitled to receive, or shall have received, upon the exercise of this Warrant,
in lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common
Stock or Other Securities pursuant to section 6 or otherwise.
(e) The term "Purchase Price per share" shall be the then
applicable exercise price for one share of Common Stock.
(f) The terms "registered" and "registration" refer to a
registration effected by filing a registration statement in compliance with the
Securities Act, to permit the disposition of Common Stock (or Other Securities)
issued or issuable upon the exercise of this Warrant, and any post-effective
amendments and supplements filed or required to be filed to permit any such
disposition.
(g) The term "Securities Act" means the Securities Act of 1933
as the same shall be in effect at the time.
1. Registration, etc.
1.1 In the event that the Company, at any time within the ten (10)
year period commencing on the Original Issue Date, proposes to file a
registration statement (other than a registration statement on Form S-4, S-8 or
similar forms) or maintains the effectiveness of a registration statement on a
general form of registration under the Securities Act and relating to securities
issued or to be issued by it, then it shall give written notice of such proposal
to the record owner of this Warrant and any shares of Common Stock issued upon
exercise thereof. If, within thirty (30) days after the giving of such notice,
the record owner of this Warrant or shares of Common Stock issued upon its
exercise shall request in writing that all or any of such Common Stock or Other
Securities issued or issuable upon exercise of this Warrant be included in such
proposed registration, the Company will, at its own expense, also register such
securities as shall have been requested in writing; provided, however, that:
(a) such owner shall deliver to the Company a statement in
writing from the beneficial owners of such securities that they have a
bona fide intent to sell, transfer or otherwise dispose of such
securities;
(b) the Company shall not be required to include any of such
securities if, by reason of such inclusion, the Company shall be
required to prepare and file a registration statement on a form
promulgated by the Securities and Exchange Commission substantially
different from that which the Company otherwise would use;
-2-
<PAGE>
(c) such owner shall cooperate with the Company in the
preparation of such registration statement to the extent required to
furnish information concerning such owners therein; and
(d) if any underwriter or managing agent is purchasing or
arranging for the sale of the securities then being offered by the
Company under such registration statement, then such owner (i) shall
agree to have the securities being so registered by such owner sold to
or by such underwriter or managing agent on terms substantially
equivalent to the terms upon which the Company is selling the
securities so registered, or (ii) at the request of such underwriter or
managing agent, shall delay the sale of such securities for the 30 day
period commencing with the effective date of the registration
statement; provided that any such request to delay inclusion of
securities to be registered by such owner shall be allocated pari passu
among all holders of Company securities who are asserting registration
rights in connection with such registration statement.
1.2 In connection with the filing of a registration statement
pursuant to subsection 1.1 of this section 1, the Company shall:
(a) notify such owners as to the filing thereof and of all
amendments thereto filed prior to the effective date of said
registration statement;
(b) notify such owners promptly after it shall have received
notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the
registration statement has been filed;
(c) prepare and file without expense to such owners any
necessary amendment or supplement to such registration statement or
prospectus as may be necessary to comply with Section 10(a)(3) of the
Securities Act or advisable in connection with the proposed
distribution of the securities by such owners;
(d) use its reasonable best efforts to qualify the shares of
Common Stock or Other Securities being so registered for sale under the
securities or blue sky laws of not more than eight states as such
registered owners may designate in writing and to register or obtain
the approval of any federal or state authority which may be required in
connection with the proposed distribution, except, in each case, in
jurisdictions in which the Company must either qualify to do business
or file a general consent to service of process as a condition to the
qualification of such securities;
-3-
<PAGE>
(e) notify such registered owners of any stop order suspending
the effectiveness of the registration statement and use its reasonable
best efforts to remove such stop order;
(f) undertake to keep said registration statement and
prospectus effective for a period of sixteen months after such shares
of Common Stock first become free to be sold under such registration
statement;
(g) furnish to such registered owners as soon as available,
copies of any such registration statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this paragraph 1, all in such
quantities as such owners may from time to time reasonably request; and
(h) furnish to Access Capital, Inc. without cost one set of
the Exhibits to such registration statement.
1.3 The record owners of the shares of Common Stock or Other
Securities being so registered agree to pay all of the underwriting discounts
and commissions, transfer taxes, registration fees and their own counsel fees
with respect to the securities owned by them and being registered. The Company
agrees that the costs and expenses which it is obligated to pay in connection
with a registration statement to be filed pursuant to subsection 1.1 above
include, but are not limited to, the fees and expenses of counsel for the
Company, the fees and expenses of its accountants and all other costs and
expenses incident to the preparation, printing and filing under the Securities
Act of any such registration statement, each prospectus and all amendments and
supplements thereto, the costs incurred in connection with the qualification of
such securities for sale in not more than eight states, including fees and
disbursements of counsel for the Company, and the costs of supplying a
reasonable number of copies of the registration statement, each preliminary
prospectus, final prospectus and any supplements or amendments thereto to such
registered owners.
1.4 The Company agrees to enter into an appropriate cross-indemnity
agreement with any underwriter (as defined in the Securities Act) for such
registered owners in connection with the filing of a registration statement
pursuant to subsection 1.1 hereof.
1.5 In the event that the Company shall file any registration
statement including therein all or any part of shares of Common Stock or Other
Securities issued or issuable upon exercise of the Warrants, the Company and
each holder of such securities shall enter into an appropriate cross-indemnity
agreement whereby the Company shall indemnify and hold harmless the holder
against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make statements therein not misleading and each
such holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished or required to be furnished by such holder or such
controlling person expressly for use in such registration statement.
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<PAGE>
2. Sale or Exercise Without Registration. If, at the time of any
exercise, transfer or surrender for exchange of this Warrant or of Common Stock
(or Other Securities) previously issued upon the exercise of this Warrant, this
Warrant or Common Stock (or Other Securities) shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
exercise, transfer or exchange, that the holder or transferee of this Warrant or
Common Stock (or Other Securities), as the case may be, furnish to the Company a
satisfactory opinion of counsel to the effect that such exercise, transfer or
exchange may be made without registration under the Securities Act, provided
that the disposition thereof shall at all times be within the control of such
holder or transferee, as the case may be, and provided further that nothing
contained in this section 2 shall relieve the Company from complying with any
request for registration pursuant to section 1 hereof. The first holder of this
Warrant represents to the Company that it is acquiring this Warrant for
investment and not with a view to the distribution thereof.
3. Exercise of Warrant; Partial Exercise; Exercise by Surrender.
3.1 Exercise in Full. Subject to the provisions hereof, this Warrant
may be exercised in full by the holder hereof by surrender of this Warrant, with
the form of subscription at the end hereof duly executed by such holder, to the
Company at its principal office accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of Common Stock called for on the
face of this Warrant (without giving effect to any adjustment therein) by the
Purchase Price.
3.2 Partial Exercise. Subject to the provisions hereof, this Warrant
may be exercised in part by surrender of this Warrant in the manner and at the
place provided in subsection 3.1 except that the amount payable by the holder
upon any partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock (without giving effect to any adjustment
therein) designated by the holder in the subscription at the end hereof by (b)
the Purchase Price. Upon any such partial exercise, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder in the subscription at the end
hereof.
-5-
<PAGE>
3.3 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in sections 3.1 and 3.2 and in lieu of any cash payment
required thereunder, the holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner and at the place specified in
section 3.1 as payment of the aggregate Purchase Price per share for the
Warrants to be exercised. The number of Warrants to be surrendered in payment of
the aggregate Purchase Price for the Warrants to be exercised shall be
determined by multiplying the number of Warrants to be exercised by the Purchase
Price per share, and then dividing the product thereof by an amount equal to the
Market Price (as defined below). Solely for the purposes of this paragraph,
Market Price shall be calculated as the average of the Market Prices for each of
the ten (10) trading days preceding the date which the form of election attached
hereto is deemed to have been sent to the Company.
3.4 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) if the principal trading market for
such securities is an exchange, the last reported sale price, or, in case no
such reported sale takes place on such date, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported on any consolidated tape, (ii) if the principal market for such
securities is the over-the-counter market, the high bid price on such date as
set forth by Nasdaq or, if the security is not quoted on Nasdaq, the high bid
price as set forth in the National Quotation Bureau sheet listing such
securities for such day. Notwithstanding the foregoing, if there is no reported
closing price or high bid price, as the case may be, on the date next preceding
the event requiring an adjustment hereunder, then the Market Price shall be
determined as of the latest date prior to such day for which such closing price
or high bid price is available, or if the securities are not quoted on Nasdaq,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
3.5 Company to Reaffirm Obligations. The Company will, at the time
of any exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder any
rights (including, without limitation, any right to registration of the shares
of Common Stock or Other Securities issued upon such exercise) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such holder any such rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to section 5 or otherwise.
-6-
<PAGE>
5. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation,
by way of dividend), or
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
then, and in each such case the holder of this Warrant, upon the exercise hereof
as provided in section 3, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this section 5) which such holder would hold on the
date of such exercise if on the Original Issue Date he had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all such other
or additional (or less) stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this section 5)
receivable by him as aforesaid during such period, giving effect to all
adjustments called for during such period by sections 6 and 7 hereof.
6. Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, upon the exercise
hereof as provided in section 3 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall be entitled to receive (and the Company
shall be entitled to deliver), in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation or such effective date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised this
Warrant immediately prior thereto, all subject to further adjustment thereafter
as provided in sections 5 and 7 hereof.
-7-
<PAGE>
7. Other Adjustments.
7.1 General. In any case to which sections 5 and 6 hereof are not
applicable, where the Company shall issue or sell shares of its Common Stock
after the Original Issue Date and prior to the expiration of this Warrant for a
consideration per share less than the Purchase Price in effect pursuant to the
terms of this Warrant at the time of issuance or sale of such additional shares
(the "Lower Exercise Price"), then the Purchase Price in effect hereunder shall
simultaneously with such issuance or sale be reduced to the Lower Exercise Price
and the number of shares of Common Stock issuable upon exercise hereof shall be
increased so that the aggregate exercise price of this Warrant is not reduced as
a result of such reduction of Purchase Price.
7.2 Convertible Securities. In case the Company shall issue or sell
any securities convertible into Common Stock of the Company ("Convertible
Securities") after the date hereof, there shall be determined the price per
share for which Common Stock is issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (b) the maximum number of shares of Common Stock of the Company
issuable upon the conversion or exchange of all of such Convertible Securities.
If the price per share so determined shall be less than the
applicable Purchase Price per share, then such issue or sale shall be deemed to
be an issue or sale for cash (as of the date of issue or sale of such
Convertible Securities) of such maximum number of shares of Common Stock at the
price per share so determined, provided that, if such Convertible Securities
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration, if any, to the Company, or in
the rate of exchange, upon the conversion or exchange thereof, the adjusted
Purchase Price per share shall, forthwith upon any such increase becoming
effective, be readjusted to reflect the same, and provided further, that upon
the expiration of such rights of conversion or exchange of such Convertible
Securities, if any thereof shall not have been exercised, the adjusted Purchase
Price per share shall forthwith be readjusted and thereafter be the price which
it would have been had an adjustment been made on the basis that the only shares
of Common Stock so issued or sold were issued or sold upon the conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon such conversion or
exchange, plus the consideration, if any, actually received by the Company for
the issue or sale of all of such Convertible Securities which shall have been
converted or exchanged.
7.3 Rights and Options. In case the Company shall grant any rights
or options to subscribe for, purchase or otherwise acquire Common Stock, there
shall be determined the price per share for which Common Stock is issuable upon
the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, by (b) the maximum number of shares of
Common Stock of the Company issuable upon the exercise of such rights or
options.
-8-
<PAGE>
If the price per share so determined shall be less than the
applicable Purchase Price per share, then the granting of such rights or options
shall be deemed to be an issue or sale for cash (as of the date of the granting
of such rights or options) of such maximum number of shares of Common Stock at
the price per share so determined, provided that, if such rights or options
shall by their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration payable to the Company upon the
exercise thereof, the adjusted Purchase Price per share shall, forthwith upon
any such increase becoming effective, be readjusted to reflect the same, and
provided, further, that upon the expiration of such rights or options, if any
thereof shall not have been exercised, the adjusted Purchase Price per share
shall forthwith be readjusted and thereafter be the price which it would have
been had an adjustment been made on the basis that the only shares of Common
Stock so issued or sold were those issued or sold upon the exercise of such
rights or options and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights or
options, whether or not exercised.
8. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of stock upon the exercise of all Warrants
from time to time outstanding.
9. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly cause the Company's regularly retained auditor to compute such
adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based, and the
number of shares of Common Stock outstanding or deemed to be outstanding. The
Company will forthwith mail a copy of each such certificate to the holder of
this Warrant.
10. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
-9-
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares
of stock of any class or any other securities, or any right or option
to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities (other than the issue of Common Stock
on the exercise of this Warrant), then and in each such event the
Company will mail or cause to be mailed to the holder of this Warrant a
notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any, as of
which the holders of record of Common Stock (or Other Securities) shall
be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, and
(iii) the amount and character of any stock or other securities, or
rights or options with respect thereto, proposed to be issued or
granted, the date of such proposed issue or grant and the persons or
class of persons to whom such proposed issue or grant and the persons
or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least 20 days prior to
the date therein specified.
11. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of this Warrant.
12. Listing on Securities Exchanges; Registration. If the Company at
any time after the Original Issue Date shall list any Common Stock on any
national securities exchange and shall register such Common Stock under the
Securities Exchange Act of 1934 (as then in effect, or any similar statute then
in effect), the Company will, at its expense, simultaneously list on such
exchange, upon official notice of issuance upon the exercise of this Warrant,
and maintain such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant, and the Company will so list on any
national securities exchange, will so register and will maintain such listing
of, any Other Securities if and at the time that any securities of like class or
similar type shall be listed on such national securities exchange by the
Company.
13. Exchange of Warrants. Subject to the provisions of section 2
hereof, upon surrender for exchange of this Warrant, properly endorsed, to the
Company, the Company at its own expense will issue and deliver to or upon the
order of the holder thereof a new Warrant of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face of this Warrant.
-10-
<PAGE>
14. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
15. Warrant Agent. The Company may, by written notice to each holder of
this Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of this
Warrant pursuant to section 3, exchanging this Warrant pursuant to section 13,
and replacing this Warrant pursuant to section 14, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
16. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) subject to the provisions hereof, title to this Warrant
may be transferred by endorsement (by the holder hereof executing the
form of assignment at the end hereof) and delivery in the same manner
as in the case of a negotiable instrument transferable by endorsement
and delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as
absolute owner hereof and is empowered to transfer absolute title
hereto by endorsement and delivery hereof to a bona fide purchaser
hereof for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona fide
purchaser and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to
the contrary.
-11-
<PAGE>
18. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is so furnished, to
and at the address of the last holder of this Warrant who has so furnished an
address to the Company.
19. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant is being delivered in the State of New York and shall be
construed and enforced in accordance with and governed by the laws of such
State. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
20. Extended Expiration.
The right to exercise this Warrant shall expire at 5:00 P.M., New
York City time, on __________ __, 2007, provided, however, that if the holder of
this Warrant issued hereunder has, in accordance with the terms hereof,
requested a registration statement pursuant to subsection 1.2 hereof and such
registration statement has not become effective prior to the expiration date of
the right to exercise this Warrant, then the right to exercise this Warrant
shall be extended and shall expire thirty (30) days after the effective date of
such registration statement.
21. Drag-Along Rights.
The rights of the holder of this Warrant are subject to the holder's
agreement to the following: In the event that the Company's Board of Directors
approves a sale of the Company (pursuant to a merger or other business
combination transaction, sale of outstanding stock or otherwise) to a third
party not affiliated with either IBJS Capital Corporation or KOCO Capital
Company, L.P. (an "Approved Sale"), the holder of this Warrant (or shares issued
upon exercise hereof) shall consent to and raise no objections against such
Approved Sale (including exercising any statutory right of appraisal) and shall
take all necessary and desirable action in such holder's capacity, if any, as a
stockholder of the Company to facilitate such Approved Sale. If the Approved
Sale is structured as a sale of stock, notwithstanding Section 6 above, the
holder shall agree to sell all of such holder's Warrants and any shares of
Common Stock and Other Securities on the terms and conditions approved by the
Board of Directors; provided, however, that the obligations of the holder
pursuant to this Section 21 are conditioned upon all holders of Common Stock
concurrently receiving the same form and amount of consideration per share of
Common Stock pursuant to such Approved Sale or, if any holders of Common Stock
are given an option as to the form and amount of consideration to be received,
all such holders, including the holder of this Warrant, are given the same
option.
22. Assignability. This Warrant is fully assignable at any time,
subject to applicable securities laws.
-12-
<PAGE>
Dated: ___________ __, 1997
MAGNAVISION CORPORATION
By
----------------------
Name: Nicholas Mastrorilli, Sr.
Title: Chairman & CEO
[Corporate Seal]
Witness:
- -----------------------
-13-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: MAGNAVISION CORPORATION
1725 Highway 35
Wall, New Jersey 07719
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, * shares of Common Stock of MAGNAVISION
CORPORATION, and herewith makes payment of $ __________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to, ______________________________, whose address is
__________________________________________________________________________.
Dated: __________________
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________________________
(Address)
_________________
* Insert here the number of shares called for on the face of the Warrant (or, in
the case of a partial exercise, the portion thereof as to which the Warrant is
being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
-14-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _____________________________________ the right represented by the within
Warrant to purchase shares of Common Stock of MAGNAVISION CORPORATION to
which the within Warrant relates, and appoints _______________ as
Attorney-in-Fact to transfer such right on the books of ________________________
with full power of substitution in the premises. The Warrant being transferred
hereby is one of the Common Stock Purchase Warrants initially issued by
MAGNAVISION CORPORATION as of ___________ __, 1997.
Dated: __________________
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________________________
(Address)
_________________________________
Signature guaranteed by a Bank
or Trust Company having its
principal office in New York City
or by a Member Firm of the New
York or American Stock Exchange
<PAGE>
================================================================================
LOAN AND SECURITY AGREEMENT
================================================================================
ACCESS CAPITAL, INC.
with
MAGNAVISION PRIVATE CABLE, INC.
and
MAGNAVISION CORPORATION, a Delaware corporation
and
MAGNAVISION WIRELESS CABLE, INC.
and
MAGNAVISION CORPORATION, a New Jersey corporation
================================================================================
Dated: _________ __, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1. (a) General Definitions..................................................................... 1
(b) Accounting Terms........................................................................ 9
(c) Other Terms............................................................................. 9
2. Revolving Advances............................................................................... 9
3. Repayment of the Revolving Advances.............................................................. 10
4. Procedure for Revolving Advances; Remittance of Credit Balances.................................. 10
5. Interest and Fees................................................................................ 11
(a) Interest................................................................................ 11
(b) Fees.................................................................................... 12
(i) Closing Fee.................................................................... 12
(ii) Facility Fee................................................................... 12
(iii) Administration Fee............................................................... 12
6. Security Interest................................................................................ 12
7. Representations Concerning the Collateral........................................................ 13
8. Covenants Concerning the Collateral.............................................................. 13
10. Inspections...................................................................................... 15
11. Financial and Other Information.................................................................. 15
12. Additional Representations, Warranties and Covenants............................................. 17
13. Power of Attorney................................................................................ 22
14. Expenses......................................................................................... 23
15. Assignment By Access Capital..................................................................... 24
16. Waivers.......................................................................................... 24
17. Term of Agreement................................................................................ 24
18. Events of Default................................................................................ 25
19. Remedies......................................................................................... 27
20. Waiver; Cumulative Remedies...................................................................... 29
21. Application of Payments.......................................................................... 29
22. Depository Accounts.............................................................................. 29
23. Lock Box Accounts................................................................................ 30
24. Revival.......................................................................................... 30
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
25. Notices.......................................................................................... 30
26. GOVERNING LAW AND WAIVER OF JURY TRIAL........................................................... 31
.......................................................................................................... 31
27. ................................................................................................. 31
28. Subrogation...................................................................................... 32
29. Limitation of Liability.......................................................................... 33
30. Entire Understanding............................................................................. 33
31. Severability..................................................................................... 33
32. Captions......................................................................................... 33
33. Counterparts..................................................................................... 33
34. Construction..................................................................................... 33
35. Publicity........................................................................................ 34
1. (a) General Definitions..................................................................... 1
(b) Accounting Terms........................................................................ 8
(c) Other Terms............................................................................. 8
2. Revolving Advances............................................................................... 8
3. Repayment of the Revolving Advances.............................................................. 9
4. Procedure for Revolving Advances; Remittance of Credit Balances.................................. 9
5. Interest and Fees................................................................................ 10
(a) Interest................................................................................ 10
(b) Fees.................................................................................... 11
(i) Closing Fee.................................................................... 11
(ii) Facility Fee................................................................... 11
(iii) Administration Fee............................................................... 11
6. Security Interest................................................................................ 11
7. Representations Concerning the Collateral........................................................ 12
8. Covenants Concerning the Collateral.............................................................. 12
10. Inspections...................................................................................... 14
11. Financial and Other Information.................................................................. 14
12. Additional Representations, Warranties and Covenants............................................. 15
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13. Power of Attorney................................................................................ 20
14. Expenses......................................................................................... 21
15. Assignment By Access Capital..................................................................... 21
16. Waivers.......................................................................................... 22
17. Term of Agreement................................................................................ 22
18. Events of Default................................................................................ 22
19. Remedies......................................................................................... 25
20. Waiver; Cumulative Remedies...................................................................... 26
21. Application of Payments.......................................................................... 26
22. Depository Accounts.............................................................................. 26
23. Lock Box Accounts................................................................................ 26
24. Revival.......................................................................................... 27
25. Notices.......................................................................................... 27
26. GOVERNING LAW AND WAIVER OF JURY TRIAL........................................................... 28
27. Subrogation...................................................................................... 28
28. Limitation of Liability.......................................................................... 29
29. Entire Understanding............................................................................. 29
30. Severability..................................................................................... 29
31. Captions......................................................................................... 29
32. Counterparts..................................................................................... 29
33. Construction..................................................................................... 29
34. Publicity........................................................................................ 29
</TABLE>
-iii-
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement is made as of
_______ __, 1997 by and among ACCESS CAPITAL, INC. ("Access Capital"), having
executive offices at 405 Park Avenue, New York, New York 10022; and MAGNAVISION
PRIVATE CABLE, INC., a Delaware corporation having its principal place of
business at 1725 Highway 35 South, Wall Township, New Jersey 07719 ("Private
Cable"), MAGNAVISION CORPORATION, a Delaware corporation, having its principal
place of business at 1725 Highway 35 South, Wall Township, New Jersey 07719
("Holdings"), MAGNAVISION WIRELESS CABLE, INC., a Delaware corporation, having
its principal place of business at 1725 Highway 35 South, Wall Township, New
Jersey 07719 ("Wireless") MAGNAVISION CORPORATION, a New Jersey corporation,
having its principal place of business at 1725 Highway 35 South, Wall Township,
New Jersey 07719 ("Magnavision" and together with Private Cable, Holdings and
Wireless, each a "Borrower" and jointly and severally, the "Borrowers").
BACKGROUND
----------
Borrowers have requested that Access Capital make loans and
advances available to Borrowers and Access Capital has agreed to make such loans
and advances to Borrowers on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and undertakings and the terms and conditions contained herein, the
parties hereto agree as follows:
1. (a) General Definitions. When used in this
Agreement, the following terms shall have the following meanings:
"Affiliate" of any Person means (a) any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (i) to
vote ten percent (10%) or more of the securities having ordinary voting power
for the election of directors of such Person, or (ii) to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise.
"Amortization Months" means September, October,
November and December of each year.
"Ancillary Agreements" means all agreements,
instruments and documents including, without limitation, the Warrant, mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements whether heretofore, concurrently, or hereafter
executed by or on behalf of any Borrower or any other Person in favor of
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Access Capital in connection with this Agreement or the transactions
contemplated hereunder.
"Archdiocese" means The Department of Education,
Archdiocese of New York, an unincorporated ecclesiastical-controlled educational
association, and any successor thereto.
"Borrower(s)" shall have the meaning set forth in
the Introductory Paragraph hereof.
"Borrowers on a Consolidated Basis" means the
consolidation in accordance with GAAP of the accounts and other items of
Borrowers and their Subsidiaries.
"Borrowing Agent" shall mean Private Cable.
"Borrowing Base" at a particular date means an
amount equal to the lesser of:
(A) the Maximum Revolving Availability Amount; or
(B) (i) the New Contract Construction Availability less
(ii) New Contract Construction Advances.
"Borrowing Base Certificate" shall have the meaning
set forth in paragraph 4 hereof.
"Cable Contract" shall mean a fully executed,
binding and valid contract entered into by Private Cable whereby Private Cable
has maintained its ownership in the Collateral used in connection with such
Contract and pursuant to which Private Cable installs wiring and/or equipment
and units used in connection with the provision of cable television services by
Private Cable.
"Cacomm" shall mean Cacomm, Inc., a New Jersey
corporation.
"Closing Date" means the date hereof.
"Collateral" means and includes:
(A) all Inventory;
(B) all Equipment;
(C) all General Intangibles;
(D) the License Agreement;
(E) all Receivables;
(F) all books, records, ledgercards,
files, correspondence, computer programs, tapes, disks and related data
processing software (owned by any Borrower or in which it has an interest to
the extent such property may be assigned) which at any
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time evidence or contain information relating to (A), (B), (C), (D) and (E)
above or are otherwise necessary or helpful in the collection thereof or
realization thereupon;
(G) documents of title, policies and
certificates of insurance, securities, chattel paper, other documents or
instruments evidencing or pertaining to (A), (B), (C), (D), (E) and (F) above;
(H) all guaranties, liens on real or
personal property, leases, and other agreements and property which in any way
secure or relate to (A), (B), (C), (D), (E), (F) and (G) above, or are acquired
for the purpose of securing and enforcing any item thereof;
(I) (i) all cash held as cash collateral to
the extent not otherwise constituting Collateral, all other cash or property at
any time on deposit with or held by Access Capital for the account of any
Borrower (whether for safekeeping, custody, pledge, transmission or otherwise),
(ii) all present or future deposit accounts (whether time or demand or interest
or non-interest bearing) of any Borrower with Access Capital or any other Person
including those to which any such cash may at any time and from time to time be
credited, (iii) all investments, investment property and reinvestments (however
evidenced) of amounts from time to time credited to such accounts, and (iv) all
interest, dividends, distributions and other proceeds payable on or with respect
to (x) such investments, investment property and reinvestments and (y) such
accounts; and
(J) all products and proceeds of (A), (B),
(C), (D), (E), (F), (G), (H) and (I) above (including, but not limited to, all
claims to items referred to in (A), (B), (C), (D), (E), (F), (G), (H) and (I)
above) and all claims of any Borrower against third parties (x) for (i) loss of,
damage to, or destruction of any or all of (A), (B), (C), (D), (E), (F), (G),
(H), and (I) above, and (ii) payments due or to become due under leases, rentals
and hires of any or all of (A), (B), (C), (D), (E), (F), (G) and (H) above and
(y) proceeds payable under, or unearned premiums with respect to policies of
insurance in whatever form.
"Contract Rate" means an interest rate per annum
equal to the sum of the Prime Rate plus five and one-half percent
(5.5%).
"Credit Balance" shall mean, at any time, any amount
held by Access Capital to any Borrower's credit (after application of all
amounts then due and owing to Access Capital hereunder) less the positive
amount, if any, by which the then outstanding amount of Revolving Advances
exceeds the amount derived from borrowing base availability as computed at such
time under subsection "(B)" of the defined term "Borrowing Base".
"Current Assets" at a particular date, means all
cash, cash equivalents, accounts and inventory of Borrowers on a
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Consolidated Basis and all other items which would, in conformity with GAAP, be
included under current assets on a balance sheet of the Borrowers on a
Consolidated Basis as at such date; provided, however, that such amounts shall
not include (a) any amounts for any indebtedness owing by an Affiliate of any
Borrower, unless such indebtedness arose in connection with the sale of goods or
other property in the ordinary course of business and would otherwise constitute
current assets in conformity with GAAP, (b) any shares of stock issued by an
Affiliate of any Borrower (other than Cacomm), (c) the cash surrender value of
any life insurance policy (d) any assets which would be classified as intangible
assets under GAAP, or (e) any prepaid expenses.
"Current Liabilities" at a particular date, means
all amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Borrowers on a Consolidated Basis as at such
date, but in any event including, without limitation, the amounts of (a) all
indebtedness payable on demand, or, at the option of the Person to whom such
indebtedness is owed, not more than twelve (12) months after such date, (b) any
payments in respect of any indebtedness (whether installment, serial maturity,
sinking fund payment or otherwise) required to be made not more than twelve (12)
months after such date, (c) all reserves in respect of liabilities or
indebtedness payable on demand or, at the option of the Person to whom such
indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is contested at such date and (d) all accruals for federal or
other taxes measured by income payable within a twelve (12) month period but
shall not include indebtedness payable by Holdings to IBJCC and KOCO with
respect to a promissory note in the sum of $105,468 as of June 30, 1997 plus all
accrued interest thereon.
"Customer" means and includes the account debtor
with respect to any of the Receivables and/or prospective purchaser of goods,
services or both with respect to any contract or contract right, and/or any
party who enters into or proposes to enter into any contract or other
arrangement with any Borrower, pursuant to which such Borrower is to deliver any
personal property or perform any services.
"Default Rate" means a rate equal to two and one-
half (2.5%) per annum in excess of the Contract Rate.
"Equipment" means and includes all of each
Borrower's now owned or hereafter acquired equipment, machinery and goods
(excluding Inventory), whether or not constituting fixtures, including, without
limitation: plant and office equipment, tools, dies, parts, data processing
equipment, furniture and trade fixtures, trucks, trailers, loaders and other
vehicles and all replacements and substitutions therefore and all accessions
thereto.
"Equity Documents" means, collectively, the Exchange
Agreement dated as of May 8, 1997 among IBJSCC, KOCO and Holdings,
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the Registration Rights Agreement dated as of May 8, 1997 among IBJSCC, KOCO and
Holdings, the Stockholders' Agreement dated as of May 8, 1997 among IBJSCC, KOCO
and Holdings, the Management Services Agreement dated as of May 8, 1997 between
Holdings and KOCO, the Warrants issued by Holdings to IBJSCC and KOCO to
purchase an aggregate of 1,826,932 Shares of common stock of Holdings and any
documents, agreements or instruments executed in connection therewith.
"ERISA" shall have the meaning set forth in
paragraph 13(f).
"Event of Default" means the occurrence of any of
the events set forth in paragraph 19.
"FCC" shall mean the Federal Communications
Commission or any successor governmental entity that has jurisdiction over the
matters which are within the jurisdiction of the FCC.
"FCC Rules" shall mean the rules and regulations of
the FCC published in Title 47 of the Code of Federal Regulations, as well as
those rules and regulations not yet incorporated into Title 47 but published in
the Federal Register or in a FCC report and order, including rules and
regulations adopted but not yet effective.
"GAAP" means generally accepted accounting
principles, practices and procedures in effect from time to time.
"General Intangibles" means and includes all of each
Borrower's now owned or hereafter acquired general intangibles including,
without limitation, trademarks, tradenames, tradestyles, trade secrets,
equipment formulation, manufacturing procedures, quality control procedures,
product specifications, patents, patent applications, copyrights, registrations,
contract rights, choses in action, causes of action, corporate or other business
records, inventions, designs, goodwill, claims under guarantees, licenses (to
the extent such property may be assigned), franchises (to the extent such
property may be assigned), tax refunds, tax refund claims, computer programs,
computer data bases, computer program flow diagrams, source codes, object codes
and all other intangible property of every kind and nature.
"Holdings" means Magnavision Corporation, a Delaware
corporation.
"IBJSCC" means IBJS Capital Corporation, a Delaware
corporation.
"Incipient Event of Default" means any act or event
which, with the giving of notice or passage of time or both, would constitute an
Event of Default.
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"Indebtedness" of a Person at a particular date
shall mean all obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities.
"Inventory" means and includes all of each
Borrower's now owned or hereafter acquired goods, merchandise and other personal
property, wherever located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in such Borrower's business or used in selling or furnishing
such goods, merchandise and other personal property, and all documents of title
or other documents representing them.
"KOCO" means KOCO Capital Company, L.P., a Delaware
limited partnership.
"License Agreement" means the License Agreement
dated August 20, 1990 between Magnavision and Archdiocese as amended by First
Agreement of Amendment to License Agreement dated January 6, 1994.
"Loans" means the Revolving Advances and all other
extensions of credit hereunder.
"Magnavision" means Magnavision Corporation, a New
Jersey corporation.
"Maximum Revolving Availability Amount" means
$1,250,000.
"New Contract Construction Advances" shall mean any
Revolving Advances made by Access Capital with respect to any New Units.
"New Contract Construction Availability" shall mean,
at any time, an amount equal to the number of New Units to be installed pursuant
to all New Eligible Contracts multiplied by the lesser of (i) $250.00 or (ii)
the actual estimated installation cost of each New Unit as presented via the
Borrowing Agent's cash flow and profitability analysis with respect to such New
Eligible Contract.
"New Eligible Contract" shall mean a Cable Contract
with (a) a projected internal rate of return (as calculated in accordance with
GAAP) of not less than twenty-five percent (25%) or (b) a net present value in
excess of zero (as calculated in accordance with GAAP) with a discount rate of
twenty-five percent (25%), a copy of which has been furnished to Access Capital
and pursuant to which construction has commenced after June 1, 1997 on the New
Units to be installed in connection with such Cable Contract. In addition, no
Cable Contract shall be deemed to be a New Eligible Contract until Access
Capital has filed all fully executed UCC-1 Financing Statements and/or UCC-1
Fixture Filings in all jurisdictions necessary to perfect its security interest
in the
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Collateral utilized in connection with such Cable Contract which UCC statements
shall be filed by Access Capital within seven (7) business days of receipt by
Access Capital of such executed UCC statements from the applicable Borrower.
"New Unit" shall mean a cable outlet which (a)
enables an end user to receive cable television and/or telecommunication
services from Private Cable, (b) shall be installed by Private Cable pursuant to
a New Eligible Cable Contract and (c) with respect to which Access Capital has
not yet made a Revolving Advance.
"Obligations" means and includes all Loans, all
advances, debts, liabilities, obligations, covenants and duties owing by any
Borrower to Access Capital (or any corporation that directly or indirectly
controls or is controlled by or is under common control with Access Capital) of
every kind and description (whether or not evidenced by any note or other
instrument and whether or not for the payment of money or the performance or
non-performance of any act), direct or indirect, absolute or contingent, due or
to become due, contractual or tortious, liquidated or unliquidated, whether
existing by operation of law or otherwise now existing or hereafter arising
including, without limitation, any debt, liability or obligation owing from any
Borrower to others which Access Capital may have obtained by assignment or
otherwise and further including, without limitation, all interest, charges or
any other payments any Borrower is required to make by law or otherwise arising
under or as a result of this Agreement and the Ancillary Agreements, together
with all reasonable expenses and reasonable attorneys' fees chargeable to any
Borrower's account or incurred by Access Capital in connection with any
Borrower's account whether provided for herein or in any Ancillary Agreement.
"Overadvance" shall have the meaning set forth in
paragraph 2(b) hereof.
"Permitted Liens" means (i) liens of warehousemen,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (ii) liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the applicable
Borrower in conformity with GAAP, (iii) liens in favor of Access Capital, (iv)
liens for taxes (a) not yet due or (b) being diligently contested in good faith,
provided that adequate reserves with respect thereto are maintained on the books
of the applicable Borrower in conformity with GAAP provided, that, the lien
shall have no effect on the priority of liens in favor of Access Capital or the
value of the assets in which Access Capital has a lien and (v) liens specified
on Exhibit 1(B) hereto.
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"Person" means an individual, partnership,
corporation, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Prime Rate" means the prime commercial lending rate
of Citibank, N.A. as publicly announced to be in effect from time
to time, such rate to be adjusted automatically, without notice, on
the effective date of any change in such rate.
"Private Cable" means Magnavision Private Cable,
Inc., a Delaware corporation.
"Receivables" means and includes all of each
Borrower's now owned or hereafter acquired accounts and contract rights,
instruments (negotiable or otherwise), insurance proceeds, documents, chattel
paper, letters of credit and each Borrower's rights to receive payment
thereunder, any and all rights to the payment or receipt of money or other forms
of consideration of any kind at any time now or hereafter owing or to be owing
to any Borrower, all proceeds thereof and all files in which any Borrower has
any interest whatsoever containing information identifying or pertaining to any
of such Borrower's Receivables, together with all of each Borrower's rights to
any merchandise which is represented thereby, and all of each Borrower's right,
title, security and guaranties with respect to each Receivable, including,
without limitation, all rights of stoppage in transit, replevin and reclamation
and all rights as an unpaid vendor.
"Reduction Amount" at any Testing Date shall be the
amount set forth below as corresponds to the amount of outstanding Obligations
set forth below as of such Testing Date:
Outstanding Obligations Reduction Amount
----------------------- ----------------
Less than $500,000 $25,000
$500,000 to $749,999 $50,000
$750,000 to $999,999 $75,000
$1,000,000 to $1,250,000 $100,000
"Revolving Advances" shall have the meaning set
forth in paragraph 2(a) hereof.
"Revolving Request Date" has the meaning set forth
in paragraph 4 hereof.
"Seasonal Month" means June, July and August of each
year.
"Subsidiary" of any Person means a corporation or
other entity whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such
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corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Tangible Net Worth" at a particular date means (a)
the aggregate amount of all assets of Borrowers on a Consolidated Basis as may
be properly classified as such in accordance with GAAP consistently applied
excluding such other assets as are properly classified as intangible assets
under GAAP, less (b) the aggregate amount of all liabilities of Borrowers on a
Consolidated Basis.
"Term" means the Closing Date through ______ __,
2000, subject to acceleration upon the occurrence of an Event of Default
hereunder or other termination hereunder.
"Testing Date" shall mean November 30, February 28
and May 31 of each year.
"Testing Period" shall mean the period commencing on
the first day following a Testing Date and ending on the immediately succeeding
Test Date provided, that, the first Testing Period shall commence on the Closing
Date and end on November 30, 1997.
"UCC" shall mean the Uniform Commercial Code as
adopted in the State of New York as in effect from time to time.
"Warrant" shall mean the Warrant Agreement dated as
of the Closing Date issued by Holdings to Access Capital with respect to 138,536
shares fully paid and non-assessable shares of the common stock of Holdings on a
fully diluted basis, in substantially the form of Exhibit A attached hereto and
made a part hereof.
"Wireless" means Magnavision Wireless Cable, Inc., a
Delaware corporation.
"Working Capital" at a particular date means the
excess, if any, of Current Assets less Current Liabilities at such
date.
(b) Accounting Terms. Any accounting terms used in
this Agreement which are not specifically defined shall have the meanings
customarily given them in accordance with GAAP.
(c) Other Terms. All other terms used in this
Agreement and defined in the UCC, shall have the meaning given therein unless
otherwise defined herein.
2. Revolving Advances.
(a) Subject to the terms and conditions set forth
herein and in the Ancillary Agreements and so long as no Event of Default shall
have occurred and be continuing, upon Borrowing Agent's request for an advance
(a "Revolving Advance") in accordance with the terms and provisions set forth in
paragraph 4
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hereof, Access Capital will make a Revolving Advance to Borrowers jointly and
severally in the amount so requested; provided, however, that, the maximum
Revolving Advance which may be requested by Borrowing Agent on any Revolving
Request Date and the maximum Revolving Advance which will be advanced by Access
Capital hereunder on any Revolving Request Date shall not at any time exceed the
Borrowing Base.
(b) In the event that for any reason any Revolving
Advance advanced by Access Capital to Borrowers on any Revolving Request Date
exceeds the Borrowing Base on such date and Access Capital shall not have
consented in writing to such overadvance (each, an "Overadvance"), such
Overadvance shall in no way reduce or limit the rights of Access Capital with
respect to the entire amount advanced hereunder, including, without limitation,
the amount of any Overadvance.
(c) Each Borrower acknowledges that the exercise of
Access Capital's discretionary rights hereunder may result during the term of
this Agreement in one or more increases or decreases in the Borrowing Base
advance amounts and such Borrower hereby consents to any such increases or
decreases which may limit or restrict advances requested by such Borrower;
provided, however, that Access Capital shall (i) provide Borrowing Agent prior
written notice of each such decrease and (ii) not decrease the Borrowing Base by
more than twenty-five percent (25%) in any forty-five (45) day period.
(d) Any sums reasonably expended by Access Capital as
a result of any Borrower's failure to perform or comply with its obligations
under this Agreement, including but not limited to the payment of taxes,
insurance premiums or leasehold obligations, shall be deemed a Revolving Advance
hereunder and added to the Obligations. Access Capital shall furnish Borrowing
Agent with notice immediately upon making any expenditure pursuant to this
clause (d).
(e) Access Capital will account to Borrowing Agent
monthly with a statement of all Revolving Advances and other charges and
payments made pursuant to this Agreement with respect to the prior month, and
such account rendered by Access Capital shall be deemed final, binding and
conclusive unless Access Capital is notified by Borrowing Agent in writing to
the contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
3. Repayment of the Revolving Advances. Borrowers
shall be required to (a) make a mandatory prepayment hereunder at any time that
(i) an Overadvance shall be in existence, in the amount of such Overadvance,
except to the extent Access Capital consents in writing to the existence of such
Overadvance and (b) repay on the expiration of the Term (i) the then aggregate
outstanding principal balance of Revolving Advances made by Access Capital to
Borrowers hereunder together with accrued and unpaid
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interest, fees and charges and (ii) all other amounts owed Access Capital under
this Agreement and the Ancillary Agreements.
4. Procedure for Revolving Advances; Remittance of
Credit Balances. Borrowing Agent on behalf of any Borrower, may, on Wednesday
(or the following business day if the applicable Wednesday is not a business
day) of every other week during the Term commencing on the Wednesday (or the
following business day if such Wednesday is not a business day) following the
Closing Date (a "Revolving Request Date"), by written notice request a borrowing
of Revolving Advances; provided, however, that, without the prior written
consent of Access Capital, Revolving Advances hereunder shall not be made more
frequently than once every other week. Borrowing Agent shall deliver to Access
Capital no later than 12:00 Noon (New York time) on Wednesday (or the following
business day if such Wednesday is not a business day) of every other week, as
and for the immediately preceding weeks, a borrowing base certificate in the
form of borrowing base certificate attached hereto as Exhibit 4 (the "Borrowing
Base Certificate"). Access Capital is hereby authorized to make Revolving
Advances based upon written notice received from any officer of Borrowing Agent
whose signature is set forth on Exhibit 4A or, at Access Capital's election, if
such Revolving Advances are necessary to satisfy any Obligations then due and
owing hereunder. All Revolving Advances shall be disbursed from whichever
office or other place Access Capital may designate from time to time. The
proceeds of each Revolving Advance made by Access Capital shall be made
available on the day so requested by way of credit to such Borrower's operating
account maintained with such bank as such Borrower shall have designated to
Access Capital. Any and all Obligations due and owing hereunder may be charged
to such Borrower's account and shall constitute Revolving Advances. All
Revolving Advances made hereunder shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, the applicable Borrower
when credited to such Borrower's operating account in accordance with the
provisions of this paragraph 4 or as otherwise disbursed in accordance with such
Borrower's written instructions to Access Capital. In the event, on any
Wednesday (or the following business day if such Wednesday is not a business
day) of every other week during the Term, Access Capital is holding a Credit
Balance, then Access Capital shall disburse such Credit Balance to Borrowing
Agent, for the ratable benefit of Borrowers; provided, however, at such time as
an Incipient Event of Default or an Event of Default is in existence, Access
Capital may establish reserves against all or a portion of the Credit Balance as
determined by Access Capital in its reasonable discretion exercised in good
faith.
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5. Interest and Fees.
(a) Interest.
(i) Except as modified by paragraph
5(a)(iii) below, Borrowers shall pay interest on the unpaid principal balance of
the Loans for each day they are outstanding at the Contract Rate.
(ii) Interest shall (a) be computed on the
basis of actual days elapsed over a 360-day year, (b) be calculated by Access
Capital on a daily basis, (c) be charged by Access Capital to Borrowers' account
as a Revolving Advance in arrears on the last day of each month (other than a
Seasonal Month) and (d) continue to accrue during each Seasonal Month. Any such
accrued interest shall be charged by Access Capital to Borrowers' account as a
Revolving Advance in four consecutive equal amounts on the regularly scheduled
interest payment date in each Amortization Month during the year of such
accrual.
(iii) Upon the occurrence and during the
continuance of an Event of Default, interest shall accrue and be payable at the
Default Rate.
(iv) Notwithstanding the foregoing, in no
event shall interest exceed the maximum rate permitted under any applicable law
or regulation, and if any provision of this Agreement or an Ancillary Agreement
is in contravention of any such law or regulation, such provision shall be
deemed amended to provide for interest at said maximum rate and any excess
amount shall either be applied, at Access Capital's option, to the outstanding
Loans in such order as Access Capital shall determine or refunded by Access
Capital to Borrowers.
(v) Each Borrower, as applicable, shall pay
principal, interest and all other amounts payable by such Borrower hereunder, or
under any Ancillary Agreement, without any deduction whatsoever, including, but
not limited to, any deduction for any set-off or counterclaim.
(b) Fees.
(i) Closing Fee. On the Closing Date,
Borrowers shall pay to Access Capital a closing fee in an amount equal to
$18,750, which fee shall be deemed fully earned as of the Closing Date.
(ii) Facility Fee. Borrowers shall pay to
Access Capital an annual facility fee in an amount equal to $18,750, payable on
each yearly anniversary of the Closing Date. The facility fee shall be deemed
fully earned on the date when same is due and payable hereunder and shall not be
subject to rebate or proration upon termination of this Agreement for any
reason.
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(iii) Administration Fee. Borrowers shall pay
Access Capital an administration fee in an amount equal to $1,750 per month,
payable on the last day of each month.
6. Security Interest.
(a) To secure the prompt payment to Access Capital of
the Obligations, each Borrower hereby assigns, pledges and grants to Access
Capital a continuing security interest in and to the Collateral, whether now
owned or existing or hereafter acquired or arising and wheresoever located,
whether or not the same is subject to Article 9 of the UCC. All of each
Borrower's ledger sheets, files, records, books of account, business papers and
documents relating to the Collateral shall, until delivered to or removed by
Access Capital, be kept by such Borrower in trust for Access Capital until all
Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment hereafter executed by any Borrower shall be deemed to
include the foregoing grant, whether or not the same appears therein.
(b) If, upon the request of Access Capital, any
Borrower fails to execute one or more financing statements disclosing Access
Capital's security interest in the Collateral, Access Capital may immediately
file any such financing statement without a Borrower's signature appearing
thereon or Access Capital may sign on such Borrower's behalf as provided in
paragraph 13 hereof. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement. If
any Receivable becomes evidenced by a promissory note or any other instrument
for the payment of money the applicable Borrower will immediately deliver such
instrument to Access Capital appropriately endorsed.
7. Representations Concerning the Collateral. Each
Borrower represents and warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a
Revolving Advance and made as of the time of each and every Revolving Advance
hereunder):
(a) each Borrower owns its respective Collateral free
and clear of all claims, liens, security interests and encumbrances (including
without limitation any claims of infringement) except (A) those in Access
Capital's favor and (B) Permitted Liens;
(b) none of the Collateral is subject to any
agreement prohibiting the granting of a security interest or requiring notice
of or consent to the granting of a security interest (other than as set forth
on Exhibit 7(b) attached hereto); and
(c) all Receivables (i) represent complete bona fide
transactions which require no further act under any circumstances on the
applicable Borrower's part to make such Receivables payable by the Customers
(other than the providing of cable and/or other telecommunication services
contracted for by
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such Borrower pursuant to a bona fide contract executed by such Customer and the
applicable Borrower in the ordinary course of business), (ii) to the best of
each Borrower's knowledge, are not subject to any present, future or contingent
offsets or counter-claims, and (iii) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar under-
standings or obligations of any Affiliate (other than Cacomm and Nicholas
Mastrorilli, Sr.) or Subsidiary of any Borrower.
8. Covenants Concerning the Collateral. During the
Term, each Borrower covenants that it shall:
(a) not dispose of any of the Collateral whether by
sale, lease or otherwise except for (i) the sale of Inventory, to the extent
applicable, in the ordinary course of business, (ii) the disposition or transfer
in the ordinary course of business of obsolete and worn-out Equipment provided,
that, Private Cable shall be permitted to sell any Equipment or wiring to a
Customer pursuant to the "buy back" provision of the Cable Contract with such
Customer so long as (x) the applicable Borrower receives the purchase price
specified in the applicable Cable Contract with respect to the Collateral sold
and (y) all of the proceeds of each such sale up to an amount equal to the
aggregate Revolving Advances made by Access Capital in connection with such
Cable Contract are remitted to Access Capital for application to the outstanding
principal amount of the Revolving Advances.
(b) not encumber, mortgage, pledge, assign or grant
any security interest in any Collateral or any other assets of any Borrower to
anyone other than Access Capital and except for Permitted Liens, provided,
however, that to the extent any Person shall make an equity
contribution/investment in Wireless in an amount greater than $1,000,000 and as
a condition of such contribution/investment, such Person requires that Wireless
grant such Person a security interest in any of its assets, Access Capital will
not unreasonably withhold or delay its consent to such a transaction so long as
(i) Access Capital shall have received copies of all documentation relating to
the equity contribution/investment and the security interest being granted with
respect thereto, which documentation shall be in form and substance satisfactory
to Access Capital and (ii) such Person shall have entered into a subordination
and/or intercreditor agreement with Access Capital, which agreement(s) shall be
in form and substance satisfactory to Access Capital in all respects;
(c) place notations upon each Borrower's books of
account to disclose Access Capital's security interest in the Collateral;
(d) keep and maintain the Equipment in good operating
condition, except for ordinary wear and tear, and shall make all necessary
repairs and replacements thereof so that the value and operating efficiency
shall to the extent possible be maintained and preserved. To the extent
possible, no Borrower
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<PAGE>
shall permit any such items to become a fixture to real estate or accessions to
other personal property;
(e) not extend the payment terms of any Receivable
without prompt notice thereof to Access Capital;
(f) perform all other steps reasonably requested by
Access Capital to create and maintain in Access Capital's favor a valid
perfected first security interest in all Collateral of each Borrower subject
only to Permitted Liens.
(g) defend the Collateral against the claims and
demands of all parties.
9. Collection and Maintenance of Collateral and
Records.
(a) Access Capital may at any time verify
Receivables utilizing an audit control company or any other agent of Access
Capital. Borrowers shall instruct all Customers or account debtors to remit
payment of all invoices directly to Magnavision Corporation, c/o Access Capital,
Inc. at 405 Park Avenue, New York, New York 10022 and Access Capital shall
collect Receivables directly from such Customers or account debtors. In the
event that any Borrower receives any payments on account of any Receivables,
such Borrower shall hold same for Access Capital's benefit in trust as Access
Capital's trustee and immediately deliver them to Access Capital in their
original form with all necessary endorsements or, as directed by Access Capital,
deposit such payments as directed by Access Capital pursuant to paragraphs 22 or
23 hereof. All payments on Receivables received by Access Capital from Customers
or account debtors of any Borrower shall be deposited by Access Capital into
Access Capital's account. One Business Day following receipt by Access Capital
of such payments in immediately available funds, Access Capital will (a) credit
(conditional upon final collection) all such payments to the Obligations (other
than the outstanding principal balance of the Revolving Advances excluding any
Revolving Advances made to pay interest, fees or expenses hereunder) and (b)
remit to Borrowing Agent the remaining balance, if any, of such payments. At any
time following the occurrence and continuation of an Event of Default, Access
Capital may notify and instruct all Customers or account debtors of (i) Access
Capital's security interest in Receivables and (ii) to make each payment of all
invoices payable to the order of Access Capital and Access Capital will credit
all payments received by Access Capital from Customers or account debtors to any
Obligations (in such order as Access Capital shall determine) on the third
business day following receipt by Access Capital of such payments in immediately
available funds. Promptly after the creation of any Receivables, the Borrowers
shall provide Access Capital with schedules describing all Receivables created
or acquired by them but any Borrower's failure to execute and deliver such
schedules shall not affect or limit Access Capital's security interest or other
rights in and to the Receivables. Each Borrower
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<PAGE>
shall furnish, at Access Capital's request, copies of contracts, invoices or the
equivalent, and any original shipping and delivery receipts for all merchandise
sold or services rendered and such other documents and information as Access
Capital may reasonably require. Each Borrower shall provide Access Capital, as
reasonably requested by Access Capital, such other schedules, documents and/or
information regarding the Collateral as Access Capital may require.
(b) (i) If on any Testing Date the aggregate number of subscribers
under the Cable Contracts has decreased by ten percent (10%) or more (the
"Decrease") during the applicable Testing Period, then, in addition to the
amounts credited against the Obligations by Access Capital in subsection (a)
above, Borrowers' shall reduce the Obligations on a quarterly basis in an amount
equal to the Reduction Amount applicable on such Testing Date (any such amount,
a "Mandatory Repayment Amount"). The Mandatory Repayment Amount shall be paid by
Borrowers to Access Capital on the first day of the first month following the
applicable Testing Date and thereafter on each three month anniversary of such
date.
(ii) If, on any Testing Date subsequent to a
Testing Date on which a Decrease was determined, an additional Decrease is
determined and the applicable Reduction Amount on such Testing Date would be
greater than the Mandatory Repayment Amount, then the Mandatory Repayment Amount
shall be increased to an amount equal to the then applicable Reduction Amount.
(iii) If (i) on any of the three (3) Testing
Dates immediately following a Testing Date on which a Decrease has been
determined ("Initial Decrease Date"), Borrowers shall increase the aggregate
number of subscribers to an amount equal to 110% of the number of subscribers in
existence as of the Testing Date immediately preceding the Initial Decrease Date
("the Preceding Testing Date") and (ii) the Preceding Testing Date was not a
Testing Date on which a Decrease was determined, then Borrower shall no longer
be obligated to make the Mandatory Repayment Amount reductions that commenced on
the Initial Decrease Date.
10. Inspections. At all times during normal
business hours, Access Capital shall have the right to (a) visit and inspect
each Borrower's properties (which shall not include the premises of any
Customer) and the Collateral located at any Borrower's properties, (b) upon (i)
ten (10) days prior notice to Borrowing Agent or (ii) without prior notice if an
Event of Default has occurred and is continuing, inspect any Customer's premises
to the extent Collateral is located at such premises, (c) inspect, audit and
make extracts from each Borrower's relevant books and records, including, but
not limited to, management letters prepared by independent accountants, and (d)
discuss with each Borrower's principal officers, partners, members, and
independent accountants, such Borrower's business, assets, liabilities,
financial condition, results of operations and business prospects. Each Borrower
will deliver to Access Capital any instrument necessary for Access
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<PAGE>
Capital to obtain records from any service bureau maintaining records for such
Borrower.
11. Financial and Other Information.
(a) Borrowers shall provide Access Capital
(i) as soon as available, but in any event within ninety (90) days after
Borrowers' fiscal years, a balance sheet of Borrowers on a Consolidated Basis
and on a consolidating basis as at the end of such fiscal year and the related
statements of income, retained earnings and changes in cash flow for such fiscal
year, setting forth in comparative form the figures as at the end of and for the
previous fiscal year, which shall have been reported on by independent certified
public accountants who shall be a national "Big Six" accounting firm and shall
be accompanied by an unqualified audit report issued by such independent
certified public accountants provided, that, the audit report issued in
connection with Borrowers' Fiscal Year 1997 may be qualified; (ii) as soon as
available, drafts of the balance sheet of Borrowers on a Consolidated Basis and
on a consolidating basis as at the end of each of Borrowers' fiscal years and
the related statements of income, retained earnings and changes in cash flow for
such fiscal year, which have been internally prepared by Borrowers; (iii) as
soon as available, but in any event within (x) thirty (30) days after the close
of each month and (y) forty-five (45) days after the close of each quarter, the
balance sheet as at the end of such month and quarter and the related statements
of income, retained earnings and changes in cash flow for such month and
quarter, which have been internally prepared by Borrowers. All financial
statements required under (i), (ii) and (iii) above shall be prepared in
accordance with GAAP, subject to year-end adjustments in the case of monthly and
quarterly statements. Together with the financial statements furnished pursuant
to (i) above, Borrowers shall deliver a certificate of Borrowers' certified
public accountants addressed to Access Capital stating that (i) they have caused
this Agreement and the Ancillary Agreements to be reviewed and (ii) in making
the examination necessary for the issuance of such financial statements, nothing
has come to their attention to lead them to believe that any Event of Default or
Incipient Event of Default exists and, in particular, they have no knowledge of
any Event of Default or Incipient Event of Default or, if such is not the case,
specifying such Event of Default or Incipient Event of Default and its nature,
when it occurred and whether it is continuing. At the times the financial
statements are furnished pursuant to (i) and (ii) above, a certificate of each
Borrower's President or Chief Financial Officer shall be delivered to Access
Capital stating that, based on an examination sufficient to enable him to make
an informed statement, no Event of Default or Incipient Event of Default exists,
or, if such is not the case, specifying such Event of Default or Incipient Event
of Default and its nature, when it occurred, whether it is continuing and the
steps being taken by the Borrowers with respect to such event. If any internally
prepared financial information, including that required under this paragraph is
reasonably unsatisfactory in any manner to
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<PAGE>
Access Capital, Access Capital may request that Borrowers' independent certified
public accountants review same.
(b) Each Borrower shall furnish Access Capital with written
notice that such Borrower has failed to comply with the reporting or other
requirements of the FCC promptly after such Borrower becomes aware of any such
failure if such failure could reasonably be expected to have a material adverse
effect on such Borrower.
(c) Each Borrower shall promptly furnish Access Capital with
copies of any statements, reports and other communications which such Borrower
shall have provided to or received from the FCC or the Archdiocese in connection
with (i) actual or claimed liability of such Borrower to the FCC or the
Archdiocese, (ii) a default by a Borrower of (x) FCC Rules, (y) the requirements
of any license issued to a Borrower or (z) the License Agreement, (iii) the
termination or revocation of (x) any license issued to a Borrower or (y) the
License Agreement or (iv) the amendment or modification of any license issued to
a Borrower.
(d) Holdings shall promptly furnish Access Capital with copies
of all regular, periodic and special reports which it files with the Securities
and Exchange Commission or any governmental authority which may be substituted
therefor, or any national securities exchange.
12. Additional Representations, Warranties and
Covenants. Each Borrower represents, warrants (each of which such
representations and warranties shall be deemed repeated upon the making of a
request for a Revolving Advance and made as of the time of each Revolving
Advance made hereunder), and covenants that:
(a) such Borrower is a corporation duly organized and
validly existing under the laws of the States listed on Exhibit 12(a), and such
Borrower is duly qualified and in good standing in every other state or
jurisdiction in which the nature of such Borrower's business requires such
qualification;
(b) the execution, delivery and performance of this
Agreement and the Ancillary Agreements (i) have been duly authorized, (ii) are
not in contravention of such Borrower's certificate of incorporation, by-laws,
or of any indenture, agreement or undertaking to which such Borrower is a party
or by which such Borrower is bound and (iii) are within such Borrower's
corporate powers;
(c) this Agreement and the Ancillary Agreements
executed and delivered by each Borrower are such Borrower's legal, valid and
binding obligations, enforceable in accordance with their terms;
(d) it keeps and will continue to keep all of its
books and records concerning the Collateral at the executive offices located at
the address set forth in the introductory
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<PAGE>
paragraph of this Agreement and will not move such books and records without
giving Access Capital at least thirty (30) days prior written notice;
(e) the operation of each Borrower's business is
and will continue to be in compliance in all material respects with all
applicable federal, state and local laws, including but not limited to all
applicable environmental laws and regulations;
(f) based upon the Employee Retirement Income
Security Act of 1974 ("ERISA"), and the regulations and published
interpretations thereunder: (i) no Borrower has engaged in any Prohibited
Transactions as defined in paragraph 406 of ERISA and paragraph 4975 of the
Internal Revenue Code, as amended; (ii) each Borrower has met all applicable
minimum funding requirements under paragraph 302 of ERISA in respect of its
plans; (iii) no Borrower has knowledge of any event or occurrence which would
cause the Pension Benefit Guaranty Corporation to institute proceedings under
Title IV of ERISA to terminate any employee benefit plan(s); (iv) no Borrower
has fiduciary responsibility for investments with respect to any plan existing
for the benefit of persons other than Borrower's employees; and (v) no Borrower
has withdrawn, completely or partially, from any multi-employer pension plan so
as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980;
(g) it is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all businesses in
which it is about to engage and the fair saleable value of its assets
(calculated on a going concern basis) is in excess of the amount of its
liabilities;
(h) there is no pending or threatened litigation,
actions or proceeding which involve the possibility of materially and adversely
affecting any Borrower's business, assets, operations, prospects or condition
(financial or otherwise), or the Collateral or the ability of any Borrower to
perform this Agreement;
(i) all balance sheets and income statements for
the fiscal year ended December 31, 1996, the fiscal quarter ended March 31, 1997
and for the period ended May 31, 1997 which have been presently delivered to
Access Capital fairly, accurately and properly state such Borrower's financial
condition on a basis consistent with that of previous financial statements and
there has been no material adverse change in any Borrower's financial condition
as reflected in such statements since the date thereof and such statements do
not fail to disclose any fact or facts which might materially and adversely
affect such Borrower's financial condition;
(j) (x) it possesses all of the licenses, patents,
copyrights, trademarks and tradenames necessary to conduct its business, (y)
there has been no assertion or claim of violation or infringement with respect
thereof and (z) all such licenses,
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<PAGE>
patents, copyrights, trademarks and tradenames are listed on Exhibit 12(j);
(k) it will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon it when due unless
it is contesting or disputing any such tax, assessment or governmental charge or
levy in good faith, by expeditious protest, administrative or judicial appeal or
similar proceeding and provided that any related lien is stayed and sufficient
reserves are established to the reasonable satisfaction of Access Capital to
protect Access Capital's security interest in the Collateral;
(l) it will promptly inform Access Capital in writing
of: (i) the commencement of all proceedings and investigations by or before
and/or the receipt of any notices from, any governmental or nongovernmental body
and all actions and proceedings in any court or before any arbitrator against or
in any way concerning any of Borrower's properties, assets or business, which
might singly or in the aggregate, have a materially adverse effect on any
Borrower; (ii) any amendment of any Borrower's certificate of incorporation or
by-laws; (iii) any change in any Borrower's business, assets, liabilities,
condition (financial or otherwise), results of operations or business prospects
which has had or could reasonably have a materially adverse effect on any
Borrower; (iv) the occurrence of any Event of Default or Incipient Event of
Default; (v) any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the payment
of money to which any Borrower is a party or by which any Borrower or any of any
Borrower's properties may be bound which would have a material adverse effect on
any Borrower's business, assets, operations, prospects or condition (financial
or otherwise) or the Collateral; (vi) any change in the location of any
Borrower's executive offices; (vii) any change in the location of any Borrower's
Inventory or Equipment from the locations listed on Exhibit 12(l) attached
hereto, (viii) any change in any Borrower's name; (ix) any material delay in any
Borrower's performance of any of its obligations to any account debtor and of
any assertion of any material claims, offsets or counterclaims by any account
debtor and of any allowances, credits and/or other monies granted by it to any
account debtor; (x) furnish to and inform Access Capital of all material adverse
information relating to the financial condition of any account debtor; and (xi)
to the extent applicable, any material return of goods;
(m) it will not (i) create, incur, assume or suffer
to exist any indebtedness (exclusive of trade debt incurred in the ordinary
course of business) whether secured or unsecured other than any Borrower's
indebtedness to Access Capital and as set forth on Exhibit 12(m) attached hereto
and made a part hereof; (ii) declare, pay or make any dividend or distribution
on any shares of the common stock, preferred stock of such Borrower or apply any
of its funds, property or assets to the purchase, redemption or other retirement
of any common or preferred stock, except as may be
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<PAGE>
required under the Warrant, (iii) directly or indirectly, prepay any
indebtedness (other than to Access Capital), or repurchase, redeem, retire or
otherwise acquire any indebtedness of any Borrower; (iv) make advances, loans,
extensions of credit or prepayments of commissions to any Person other than
advances made to installers and sales persons in an aggregate amount not to
exceed $5,000 at any time in connection with work performed by them for any
Borrower; (v) become either directly or contingently liable upon the obligations
of any Person by assumption, endorsement or guaranty thereof or otherwise; (vi)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or stock of any Person or
permit any other Person to consolidate with or merge with it; (vii) form any
Subsidiary or enter into any partnership, joint venture or similar arrangement;
(viii) materially change the nature of the business in which it is engaged on
the Closing Date; (ix) change its fiscal year or make any changes in accounting
treatment and reporting practices without prior written notice to Access Capital
except as required by GAAP or in the tax reporting treatment or except as
required by law; (x) enter into any transaction with any Affiliate, except in
ordinary course on arms-length terms; (xi) bill Receivables under any name
except the present name of such Borrower; or (xii) transfer or assign any
property of any kind to any Subsidiary (other than to a Subsidiary that is also
a Borrower) or to Wireless, including, without limitation, cash, cash
equivalents, tangible or intangible personal property or real property provided,
that, any Borrower may transfer cash to (A) Wireless in an aggregate amount not
to exceed (x) its obligations under the License Agreement (provided such funds
are used by Wireless to pay such obligations) and any reasonable professional
fees incurred in connection therewith plus (y) an aggregate amount equal to
fifty thousand dollars ($50,000) in any fiscal year and (B) any Subsidiary of
Borrower for the sole purpose of paying its taxes;
(n) Holdings on a Consolidated Basis shall not at any
time permit Tangible Net Worth to be less than $250,000;
(o) all financial projections of the Borrowers'
performance prepared by the Borrowers and delivered to Access Capital will
represent, at the time of delivery to Access Capital, the Borrowers' reasonable
estimate of their future financial performance and will be based upon
assumptions which are reasonable in light of the Borrowers' past performance and
then current business conditions;
(p) Intentionally Omitted.
(q) Holdings on a Consolidated Basis shall not at any
time permit its Working Capital to be less than $-0-;
(r) Holdings on a Consolidated Basis shall cause to
be maintained at all times a ratio of Current Assets to Current Liabilities of
not less than 1.00 to 1.00;
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<PAGE>
(s) Holdings on a Consolidated Basis shall cause to
be maintained at all times a ratio of Indebtedness to Tangible Net Worth of no
more than 5.00 to 1.00;
(t) none of the proceeds of the Loans hereunder will
be used directly or indirectly to "purchase" or "carry" "margin stock" or to
repay indebtedness incurred to "purchase" or "carry" "margin stock" within the
respective meanings of each of the quoted terms under Regulation G of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect;
(u) it will bear the full risk of loss from any loss
of any nature whatsoever with respect to the Collateral. At its own cost and
expense in amounts and with carriers acceptable to Access Capital, it shall (i)
keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Borrower's including, without limitation, business interruption
insurance; (ii) maintain public and product liability insurance against claims
for personal injury, death or property damage suffered by others; (iii) maintain
all such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which such Borrower is engaged in business;
(iv) furnish Access Capital with (x) copies of all policies and evidence of the
maintenance of such policies at least thirty (30) days before any expiration
date, (y) endorsements to such policies naming Access Capital as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Access Capital, naming Access Capital as loss payee,
and (z) evidence that as to Access Capital the insurance coverage shall not be
impaired or invalidated by any act or neglect of any Borrower and the insurer
will provide Access Capital with at least thirty (30) days notice prior to
cancellation. Each Borrower shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
Access Capital, as its interest may appear, and not to such Borrower and Access
Capital jointly. If any insurance losses are paid by check, draft or other
instrument payable to any Borrower and Access Capital jointly, Access Capital
may endorse such Borrower's name thereon and do such other things as Access
Capital may deem advisable to reduce the same to cash. Access Capital is hereby
authorized to adjust and compromise claims. All loss recoveries received by
Access Capital upon any such insurance may be applied to the Obligations, in
such order as Access Capital in its sole discretion shall determine. Any surplus
shall be paid by Access Capital to the applicable Borrower or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Borrowers
to Access Capital, on demand;
(v) none of its accounts payable shall be more than
ninety (90) days past due unless a bona fide dispute exists
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<PAGE>
which such Borrower is contesting in good faith and such Borrower establishes
reserves in an amount satisfactory to Access Capital;
(w) it, to the best of its knowledge, has duly
complied with the provisions of the FCC and the FCC Rules and any failure to
comply with the FCC and the FCC Rules would not have a material adverse effect
on such Borrower , including, without limitation, the reporting requirements
thereunder and there have been no outstanding citations, notices or orders of
non-compliance issued to such Borrower relating to its business or assets under
any such laws, rules or regulations;
(x) it has been issued all material required federal,
state, territorial and local licenses, certificates or permits relating to all
applicable laws;
(y) it is certified, tariffed or otherwise qualified
to provide its services in all states and territories where such certification
or qualification is necessary for such Borrower to operate its business and such
Borrower has filed and maintained all necessary tariffs with the appropriate
federal, state, local or territorial authorities;
(z) it is and will remain eligible under Rule
74.931(h) of the FCC to lease transmission time or capacity pursuant to all of
its existing and future Instructional Television Fixed Service excess capacity
leases;
(aa) it shall not, directly or indirectly, engage in
the development of production of cable-related or other similar programming;
(bb) it shall not enter into any material amendment,
waiver or modification of the Equity Documents;
(cc) Magnavision is in compliance with the terms and
conditions of the License Agreement, no default has been declared nor has any
material default occurred and been continuing thereunder beyond any applicable
grace period;
(dd) it shall not assign any Cable Contract to any
Person;
(ee) it shall not waive its right to any of its
property in any Cable Contract (other than a sale of Equipment to a Customer
pursuant to a "buy back" provision under a Cable Contract in accordance with the
provisions of Section 8(a) hereof); and
(ff) at all times at least seventy-five percent (75%)
of all New Eligible Contracts shall be fully assignable.
13. Power of Attorney. Each Borrower hereby appoints Access
Capital or any other Person whom Access Capital may designate as such Borrower's
attorney, with power to: (i) endorse such Borrower's name on any checks, notes,
acceptances, money
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<PAGE>
orders, drafts or other forms of payment or security that may come into Access
Capital's possession; (ii) sign such Borrower's name on any invoice or bill of
lading relating to any Receivables, drafts against customers, schedules and
assignments of Receivables, notices of assignment, financing statements and
other public records, verifications of account and notices to or from customers;
(iii) verify the validity, amount or any other matter relating to any Receivable
by mail, telephone, telegraph or otherwise with account debtors; (iv) to the
extent applicable, execute customs declarations and such other documents as may
be required to clear Inventory through Customs; (v) do all things necessary to
carry out this Agreement, any Ancillary Agreement and all related documents; and
(vi) on or after the occurrence and continuation of an Event of Default, notify
the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Access Capital, and to receive, open
and dispose of all mail addressed to such Borrower. Each Borrower hereby
ratifies and approves all acts of the attorney performed in accordance with this
Agreement. Neither Access Capital nor the attorney will be liable for any acts
or omissions or for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable so long as any Receivable which
is assigned to Access Capital or in which Access Capital has a security interest
remains unpaid and until the Obligations have been fully satisfied.
14. Expenses. Each Borrower shall jointly and severally pay
all of Access Capital's reasonable out-of-pocket costs and expenses, including,
without limitation, reasonable fees and disbursements of counsel and appraisers,
in connection with the preparation, execution and delivery of this Agreement and
the Ancillary Agreements, and in connection with the prosecution or defense of
any action, contest, dispute, suit or proceeding concerning any matter in any
way arising out of, related to or connected with this Agreement or any Ancillary
Agreement. Each Borrower shall also jointly and severally pay all of Access
Capital's fees, charges, out-of-pocket costs and expenses, including without
limitation reasonable fees and disbursements of counsel and appraisers, in
connection with (a) the preparation, execution and delivery of any waiver, any
amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Access Capital's obtaining performance of the Obligations under this Agreement
and any Ancillary Agreements, including, but not limited to, the enforcement or
defense of Access Capital's security interests, assignments of rights and liens
hereunder as valid perfected security interests, (c) any attempt to inspect,
verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Access Capital by any Borrower as Collateral for, or any
other Person as security for, Borrowers' Obligations hereunder and (e) any
consultations in connection with any of the foregoing. Each Borrower shall also
jointly and severally pay Access Capital's customary bank charges for all bank
services performed or caused to be performed by Access Capital for any Borrower
at any Borrower's request or in connection with the
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<PAGE>
transactions contemplated hereunder. All such costs and expenses together with
all filing, recording and search fees, taxes and interest payable by Borrowers
to Access Capital shall be payable on demand and shall be secured by the
Collateral. If any tax by any governmental authority is or may be imposed on or
as a result of any transaction between any Borrower and Access Capital which
Access Capital is or may be required to withhold or pay, each Borrower agrees to
jointly and severally indemnify and hold Access Capital harmless in respect of
such taxes, and each Borrower will jointly and severally repay to Access Capital
the amount of any such taxes which shall be deemed Obligations hereunder; and
until Borrowers shall furnish Access Capital with indemnity therefor (or supply
Access Capital with evidence satisfactory to it that due provision for the
payment thereof has been made), Access Capital may hold without interest any
balance standing to Borrowers' credit and Access Capital shall retain its
security interests in any and all Collateral.
15. Assignment By Access Capital. Upon sixty (60) days prior
written notice to Borrowing Agent, Access Capital may assign any or all of the
Obligations or any or all of the security therefor to any Person other than a
direct competitor of any Borrower and any permitted transferee shall succeed to
all of Access Capital's rights and obligations with respect thereto. Upon such
permitted transfer, Access Capital shall be released from all responsibility for
the Collateral to the extent same is assigned to any permitted transferee.
Access Capital may from time to time sell or otherwise grant participations in
any of the Obligations and the holder of any such participation shall, subject
to the terms of any agreement between Access Capital and such holder, be
entitled to the same benefits as Access Capital with respect to any security for
the Obligations in which such holder is a participant. Each Borrower agrees that
each such holder may exercise any and all rights of banker's lien, set-off and
counterclaim with respect to its participation in the Obligations as fully as
though such Borrower were directly indebted to such holder in the amount of such
participation.
16. Waivers. Each Borrower waives presentment and protest of
any instrument and notice thereof, notice of default and all other notices to
which such Borrower might otherwise be entitled.
17. Term of Agreement. This Agreement shall continue in full
force and effect until the expiration of the Term. Notwithstanding the
foregoing, if Borrowing Agent provides Access Capital with thirty (30) days
prior written notice of its intention to terminate this Agreement, Access
Capital shall release its security interests upon payment to it in cash in full
of all Obligations hereunder if each Borrower shall have (i) provided Access
Capital with an executed release of any and all claims which such Borrower may
have or thereafter shall have under this Agreement and (ii) paid to Access
Capital an early payment fee as follows:
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<PAGE>
(a) during the period commencing on the Closing Date and
ending on the first anniversary of the Closing Date, the fee shall be equal to
$37,500;
(b) during the period commencing on the day immediately
succeeding the first anniversary of the Closing Date and ending on the second
anniversary of the Closing Date, the fee shall be equal to $25,000; and
(c) during the period commencing on the day immediately
succeeding the second anniversary of the Closing Date and ending on the last day
of the Term, the fee shall be equal to $18,750;
such fee being intended to compensate Access Capital for its costs and expenses
incurred in initially approving this Agreement or extending same provided, that,
if Access Capital (a) has provided written notice to Borrowing Agent that Access
Capital intends to assign all or substantially all of the Obligations to another
Person pursuant to Section 15 hereof and the Borrowers prepay the Obligations
after receiving any such notice but prior to such assignment of such Obligations
by Access Capital any early payment fee due to Access Capital pursuant to this
Section shall be reduced by fifty percent (50%) or (b) has decreased the
Borrowing Base, so that the amount of Revolving Advances available to be
borrowed is more than 25% less than would have been available prior to such
decrease and Borrower refinances solely due to such decrease, by exercising its
discretionary rights pursuant to Section 2(c) hereof any early payment fee due
to Access Capital pursuant to this Section shall be reduced by fifty percent
(50%). Such early payment fee shall also be due and payable by Borrower to
Access Capital upon termination of this Agreement by Access Capital after the
occurrence of an Event of Default.
18. Events of Default. The occurrence of any of the
following shall constitute an Event of Default:
(a) failure to make payment of any of the Obligations
within ten (10) days after the same is required hereunder;
(b) failure to pay any taxes within 30 days of the due date
therefor unless such taxes are being contested in good faith by appropriate
proceedings, any related lien is stayed and adequate reserves have been provided
on the applicable Borrower's books with respect thereto;
(c) (i) failure to perform under and/or committing any breach
under Sections 8(c), 8(d), 8(g), 12(l)(i) and/or 11(a) (solely with respect to
financial statements being delivered in reasonable detail) which shall not be
cured within 30 days of the occurrence of such failure or breach or (ii) failure
to perform under and/or committing any other breach of this Agreement or (iii)
failure to perform under and/or committing any breach of any Ancillary Agreement
or any other agreement between any Borrower and Access Capital which is not
cured within any applicable cure period therefor;
-xxix-
<PAGE>
(d) occurrence of a default under any agreement to which any
Borrower is a party with third parties which has a material adverse affect upon
any Borrower's business, assets, operations, prospects or condition (financial
or otherwise) including all leases for any premises where Inventory or Equipment
is located;
(e) any representation, warranty or statement when made by any
Borrower hereunder, in any Ancillary Agreement, any certificate, statement or
document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time be false or
misleading in any material respect;
(f) Intentionally Omitted.
(g) Intentionally Omitted.
(h) an attachment or levy is made upon any Borrower's assets
having an aggregate value in excess of $50,000, or a judgment is rendered
against a Borrower or any Borrower's property involving a liability of more than
$50,000, which shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof;
(i) any material adverse change in any Borrower's condition or
affairs (financial or otherwise) which in Access Capital's reasonable opinion
impairs the Collateral or the ability of such Borrower to perform its
Obligations;
(j) any lien created hereunder or under any Ancillary
Agreement for any reason ceases to be or is not a valid and perfected lien
having a first priority security interest (other than as a direct result of the
failure of Access Capital or its representatives to present proper UCC financing
statements for recording or UCC continuation statements in any jurisdiction
where any Borrower has disclosed to Access Capital in writing that it has a
location or any of its Collateral is located);
(k) if any Borrower shall (i) apply for, consent to or suffer
to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(l) any Borrower shall admit in writing its inability, or be
generally unable to pay its debts as they become due or cease operations of its
private cable business;
-xxx-
<PAGE>
(m) any Affiliate (other than Cacomm and Nicholas Mastrorilli,
Sr.) or any Subsidiary shall (i) apply for or consent to the appointment of, or
the taking possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws or (viii) take any action for the
purpose of effecting any of the foregoing;
(n) any Borrower directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of any assets of any Borrower or any interest therein,
except as permitted herein other than ordinary course of business;
(o) any Borrower fails to operate in the ordinary course of
business (for purposes of this clause the "ordinary course of business" with
respect to Wireless shall mean any utilization of cable channel service pursuant
to the License Agreement;
(p) Intentionally Omitted.
(q) a default by any Borrower in the payment, when due, of any
principal of or interest on any indebtedness for money borrowed in excess of
$10,000 in the aggregate which is not cured within any applicable grace period;
(r) if (i) the Series A Preferred Stock of Holdings held by
IBJSCC and KOCO at any time shall cease to be at least 22% of the outstanding
capital stock of Holdings on a fully diluted basis or (ii) the number of issued
and outstanding shares of common stock of Holdings shall increase by 50% or more
from the number of issued and outstanding shares of common stock as of the
Closing Date; or
(s) occurrence of a material default under the License
Agreement or termination thereof.
19. Remedies.
(a) Upon the occurrence of an Event of Default
pursuant to paragraph 18(k) herein, all Obligations shall be immediately due and
payable and this Agreement shall be deemed terminated; upon the occurrence and
continuation of any other of the Events of Default, Access Capital shall have
the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been fully satisfied, Access Capital
shall retain its security interest in all Collateral. Access Capital shall have,
in addition to all other
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<PAGE>
rights provided herein, the rights and remedies of a secured party under the
UCC, and under other applicable law, all other legal and equitable rights to
which Access Capital may be entitled, including without limitation, the right to
take immediate possession of the Collateral, to require Borrowers to assemble
the Collateral, at Borrowers' expense, and to make it available to Access
Capital at a place designated by Access Capital which is reasonably convenient
to both parties and to enter any of the premises of any Borrower or wherever the
Collateral shall be located, with or without force or process of law, and to
keep and store the same on said premises until sold (and if said premises be the
property of a Borrower, such Borrower agrees not to charge Access Capital for
storage thereof), and the right to apply for the appointment of a receiver for
any Borrower's property. Further, Access Capital may, at any time or times after
default by any Borrower, sell and deliver all Collateral held by or for Access
Capital at public or private sale for cash, upon credit or otherwise, at such
prices and upon such terms as Access Capital, in Access Capital's sole
discretion, deems advisable or Access Capital may otherwise recover upon the
Collateral in any commercially reasonable manner as Access Capital, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Borrower, on behalf of each
Borrower, at Borrower's address as shown in Access Capital's records, at least
ten (10) days before the time of the event of which notice is being given.
Access Capital may be the purchaser at any sale, if it is public. In connection
with the exercise of the foregoing remedies, Access Capital is granted
permission to use all of any Borrower's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights.
The proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order Access
Capital elects) of all Obligations. Access Capital will return any excess to the
applicable Borrower and each Borrower shall remain jointly and severally liable
to Access Capital for any deficiency. In addition to all other sums due to
Access Capital, Borrowers shall pay Access Capital, for costs and expenses
incurred by Access Capital for internal collection efforts to obtain or enforce
payment of Receivables, an amount equal to four percent (4%) of the net face
amount of any Receivables collected until such time as the Obligations have been
paid in full and this Agreement is irrevocably terminated.
(b) Notwithstanding anything to the contrary
contained in this Agreement and subsection (a) of this Section 9, Access Capital
will not take any action pursuant to this Agreement which would constitute or
result in any assignment of a FCC license or any change of control of any
Borrower if such assignment of FCC license or change of control would require
under then existing law (including the FCC Rules), the prior consent of the FCC,
without first obtaining such consent of the FCC. After the occurrence and during
the continuance of any Event of Default, each Borrower shall take any action
which Access Capital may reasonably request in order to obtain and enjoy the
full rights and benefits granted to Access Capital by this Agreement, including
at such Borrower's own
-xxxii-
<PAGE>
cost and expense, the use of its best efforts to assist in obtaining consent of
the FCC for any action or transaction contemplated by this Agreement which is
then required by law, and specifically, with limitation, upon request, to
prepare, sign and file with the FCC the assignor's or transferor's portion of
any application or applications for consent to the assignment of license or
transfer of control necessary or appropriate under the FCC's Rules.
20. Waiver; Cumulative Remedies. Failure by Access Capital to
exercise any right, remedy or option under this Agreement or any supplement
hereto or any other agreement between any Borrower and Access Capital or delay
by Access Capital in exercising the same, will not operate as a waiver; no
waiver by Access Capital will be effective unless it is in writing and then only
to the extent specifically stated. Access Capital's rights and remedies under
this Agreement will be cumulative and not exclusive of any other right or remedy
which Access Capital may have.
21. Application of Payments. Each Borrower irrevocably waives
the right to direct the application of any and all payments at any time or times
hereafter received by Access Capital from or on any Borrower's behalf and each
Borrower hereby irrevocably agrees that Access Capital shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter against (a) at any time, the Obligations hereunder (other
than against the outstanding principal amount of the Revolving Advances
excluding any Revolving Advances made to pay interest, fees or expenses
hereunder) or (b) following the occurrence and during the continuation of an
Incipient Event of Default or an Event of Default against any of the Obligations
hereunder in such manner as Access Capital may deem advisable notwithstanding
any entry by Access Capital upon any of Access Capital's books and records.
22. Depository Accounts. Any payment received by any Borrower
on account of any Collateral shall be held by such Borrower in trust for Access
Capital and such Borrower shall promptly deliver same in kind to Access Capital
or following the occurrence and during the continuation of an Event of Default,
deposit all such payments into a cash collateral account at such bank as Access
Capital may designate for application to payment of the Obligations. Each
Borrower shall also execute such further documents as Access Capital may deem
necessary to establish such an account and all funds deposited in such account
shall immediately be deemed Access Capital's property provided, that, upon and
after the payment in full of the Obligations and the irrevocable termination of
this Agreement all funds deposited in such account shall immediately be deemed
the applicable Borrowers' property and shall be remitted by Access Capital to
Borrowing Agent for the benefit of Borrowers provided, further, that, each
Borrower hereby authorizes Access Capital to set off against any such funds any
expense or fee incurred by Access Capital in connection with making any such
remittance.
-xxxiii-
<PAGE>
23. Lock Box Accounts. Following the occurrence and during the
continuation of an Event of Default, each Borrower shall, at Access Capital's
request, instruct all of its customers and account debtors to make such payments
on account of Receivables to an account under Access Capital's dominion and
control at such bank as Access Capital may designate. Each Borrower shall also
execute such further documents as Access Capital may deem necessary to establish
such an account and all funds deposited in such account shall immediately be
deemed Access Capital's property provided, that, upon and after the payment in
full of the Obligations and the irrevocable termination of this Agreement all
funds deposited in such account shall immediately be deemed the applicable
Borrowers' property and shall be remitted by Access Capital to Borrowing Agent
for the benefit of Borrowers provided, further, that, each Borrower hereby
authorizes Access Capital to set off against any such funds any expense or fee
incurred by Access Capital in connection with making any such remittance.
24. Revival. Each Borrower further agrees that to the extent
any Borrower makes a payment or payments to Access Capital, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
the obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
25. Notices. Any notice or request hereunder may be given to
Borrowing Agent on behalf of Borrowers or Access Capital at the respective
addresses set forth below or as may hereafter be specified in a notice
designated as a change of address under this paragraph. Any notice or request
hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by (a) hand delivery, deemed
to have been given when delivered to any officer of the party to whom it is
addressed, (b) overnight mail, when deposited with an overnight mail carrier of
national recognition (such as Federal Express), (c) registered or certified
mail, on the second business day after the mailing thereof, and (d) telecopy,
when confirmed.
Notices shall be provided as follows:
If to Access Capital: Access Capital, Inc.
405 Park Avenue
New York, New York 10022
Attention: Client Services
Department
Telephone: (212) 644-9300
Telecopier: (212) 644-5488
with a copy to: Hahn & Hessen LLP
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<PAGE>
350 Fifth Avenue
New York, New York 10118-0075
Attention: Linda C. Berman, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to any Borrower: Magnavision Private Cable, Inc.
1725 Highway 35
Wall, New Jersey 07719
Attention: Nicholas
Mastrorilli, Sr.
Telephone: (908) 449-1200
Telecopier: (908) 974-1106
With a copy to: Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Attention: Stephen Fields, Esq.
Telephone: (212) 486-1700
Telecopier: (212) 223-1151
26. GOVERNING LAW AND WAIVER OF JURY TRIAL. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. ACCESS CAPITAL SHALL HAVE THE RIGHTS AND REMEDIES OF A
SECURED PARTY UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM
COMMERCIAL CODE OF NEW YORK. EACH BORROWER AGREES THAT ALL ACTIONS AND
PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT
COURT OF THE SOUTHERN DISTRICT OF NEW YORK OR, AT ACCESS CAPITAL'S OPTION, IN
ANY OTHER COURTS LOCATED IN NEW YORK STATE OR ELSEWHERE AS ACCESS CAPITAL MAY
SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND EACH BORROWER SUBMITS TO
THE PERSONAL JURISDICTION OF SUCH COURTS. EACH BORROWER WAIVES PERSONAL SERVICE
OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS UPON SUCH BORROWER MAY BE MADE
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWING
AGENT AT ITS ADDRESS APPEARING ON ACCESS CAPITAL'S RECORDS, AND SERVICE SO MADE
SHALL BE DEEMED COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.
THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BETWEEN ANY BORROWER AND ACCESS CAPITAL AND EACH BORROWER WAIVES THE
RIGHT TO ASSERT IN ANY ACTION OR PROCEEDING INSTITUTED BY ACCESS CAPITAL WITH
REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS
WHICH IT MAY HAVE.
27. Borrowing Agency Provisions.
(a) Each Borrower hereby irrevocably designates Borrowing
Agent to be its attorney and agent and in such capacity to borrow, sign and
endorse notes, and execute and deliver all instruments, documents, writings and
further assurances now or hereafter required hereunder, on behalf of such
Borrower or Borrowers, and hereby authorizes Access Capital to pay over or
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<PAGE>
credit all loan proceeds hereunder in accordance with the request
of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Borrowers and at their request. Access Capital
shall not incur liability to Borrowers solely as a result thereof. To induce
Access Capital to do so and in consideration thereof, each Borrower hereby
indemnifies Access Capital and holds Access Capital harmless from and against
any and all liabilities, expenses, losses, damages and claims of damage or
injury asserted against Access Capital by any Person arising from or incurred by
reason of the handling of the financing arrangements of Borrowers as provided
herein, reliance by Access Capital on any request or instruction from Borrowing
Agent or any other action taken by Access Capital with respect to this Section
27 except due to willful misconduct or gross (not mere) negligence by the
indemnified party.
(c) All Obligations shall be joint and several, and each
Borrower shall make payment upon the maturity of the Obligations by acceleration
or otherwise, and such obligation and liability on the part of each Borrower
shall in no way be affected by any extensions, renewals and forbearance granted
to Access Capital to any Borrower, failure of Access Capital to give any
Borrower notice of borrowing or any other notice, any failure of Access Capital
to pursue or preserve its rights against any Borrower, the release by Access
Capital of any Collateral now or thereafter acquired from any Borrower, and such
agreement by each Borrower to pay upon any notice issued pursuant thereto is
unconditional and unaffected by prior recourse by Access Capital to the other
Borrowers or any Collateral for such Borrower's Obligations or the lack thereof.
28. Subrogation. Notwithstanding any payment or payments made
by any Borrower hereunder, or any setoff or application of funds of any Borrower
by Access Capital, no Borrower shall be entitled to be subrogated to any of the
rights of Access Capital against any other Borrower or against any Collateral or
guarantee or right of offset held by Access Capital for the payment of the
Obligations, nor shall any Borrower seek or be entitled to seek any contribution
or reimbursement from any other Borrower in respect of payments made by such
Borrower hereunder, until all amounts owing to Access Capital by all Borrowers
on account of the Obligations are paid in full and this Loan Agreement had been
terminated. If, notwithstanding the foregoing, any amount shall be paid to any
Borrower on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full and the Loan Agreement shall not
have been terminated, such amount shall be held by such Borrower in trust for
Access Capital, segregated from other funds of such Borrower, and shall,
forthwith upon and (in any event within two (2) business days of) receipt by
such Borrower, be turned over to Access Capital in the exact form received by
such Borrower (duly endorsed by the undersigned to Access Capital, if required),
to
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<PAGE>
be applied against the Obligations, whether matured or unmatured, in such order
as Access Capital may determine.
29. Limitation of Liability. Each Borrower acknowledges and
understands that in order to assure repayment of the Obligations hereunder,
Access Capital may be required to exercise any and all of Access Capital's
rights and remedies hereunder and agrees that neither Access Capital nor any of
Access Capital's agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for actual bad faith, gross (not mere)
negligence or willful misconduct.
30. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between Borrowers and Access Capital
and any promises, representations, warranties or guarantees not herein contained
shall have no force and effect unless in writing, signed by each Borrower's and
Access Capital's respective officers. Neither this Agreement, the Ancillary
Agreements, nor any portion or provisions thereof may be changed, modified,
amended, waived, supplemented, discharged, cancelled or terminated orally or by
any course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged.
31. Severability. Wherever possible each provision of this
Agreement or the Ancillary Agreements shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or the Ancillary Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
32. Captions. All captions are and shall be without
substantive meaning or content of any kind whatsoever.
33. Counterparts. This Agreement may be executed in
one or more counterparts, all of which taken together shall
constitute one and the same instrument.
34. Construction. The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
35. Publicity. Upon the prior written consent of each
Borrower, such Borrower hereby authorizes Access Capital to make appropriate
announcements of the financial arrangement entered into by and between such
Borrower and Access Capital, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as
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<PAGE>
Access Capital shall in its sole and absolute discretion deem appropriate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-xxxviii-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
WITNESS: MAGNAVISION PRIVATE CABLE,
INC.
By:_________________________ By:________________________
Title:_________________
- ----
WITNESS: MAGNAVISION CORPORATION, a
Delaware corporation
By:_________________________ By:________________________
Title:_________________
- ----
WITNESS: MAGNAVISION WIRELESS CABLE,
INC.
By:_____________________ By:_______________________
Title:____________________
WITNESS: MAGNAVISION CORPORATION, a New
Jersey corporation
By:_____________________ By:_______________________
Title:____________________
ACCESS CAPITAL, INC.
By:______________________
Title:___________________
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<PAGE>
Exhibit A - Warrant
(See Attached)
Exhibit 1(B) - Permitted Liens
------------------------------
NONE
Exhibit 4 - Form of Borrowing Base Certificate
Exhibit 4A - Officers Authorized to make Revolving Advances
- -------------------------- ----------------------------
Name Signature
- -------------------------- ----------------------------
Name Signature
- -------------------------- ----------------------------
Name Signature
- -------------------------- ----------------------------
Name Signature
Exhibit 7(b)
------------
Prohibitions on Granting a Security Interest
Exhibit 12(a) - States of Incorporation
---------------------------------------
Private Cable-Delaware
Holdings-Delaware
Wireless-Delaware
Magnavision-New Jersey
-37-
<PAGE>
Exhibit 12(j) - Licenses, Patents, Trademarks and Copyrights
------------------------------------------------------------
The License Agreement
Exhibit 12(l) - Inventory Locations
-----------------------------------
Exhibit 12(m) - Permitted Indebtedness
--------------------------------------
None
-38-
<PAGE>
IMCOR, The Portable Executive Company
100 Prospect Street, North Tower
Stamford, CT 07901
January 8, 1998
PERSONAL & CONFIDENTIAL
Mr. Geoffrey A. Thompson
Director
Magnavision Corporation
C/O Kohlberg & Co., LLC 111 Radio Circle
Mt. Kisco, NY 10546
Dear Jeff:
Through you as one of its Directors Magnavision Corporation ("Company")
requested that IMCOR, a division or Norrell Services, Inc. ("IMCOR") locate an
individual suuitable to Company to perform certain services as described below
(the "Assignment"). Accordingly, we have introduced Robert E. Hoffman ("IMCOR
Executive") to Company and Company has selected IMCOR Executive to perform the
Assignment. This letter sets forth the Agreement between Company and IMCOR with
respect to the services.
1. ASSIGNMENT
The Assignment will be for IMCOR Executive to be available to Company to
function as interim President. In that capacity, IMCOR Executive will be
responsible to and report directly to the Board. IMCOR Executive has agreed
to devote his full business time and attention to the Assignment and to be
available to Company during the entire Assignment.
2. ASSIGNMENT PERIOD
a) The Assignment Period shall begin on January 8, 1998 and shall continue
through April 30, 1998 unless terminated or extended as provided below.
b) Company may terminate the Assignment (i) by hiring IMCOR Executive as an
employee; or (ii) by giving 30 days' advance written notice on March 31,
1998 or thereafter to IMCOR and IMCOR Executive of Company's intent to
terminate the assignment; or (iii) if, in Company's reasonable opinion,
IMCOR Executive is not performing to Company's requirements.
c) In the event that Company elects to engage IMCOR Executive to perform
services in addition to those required with respect to the Assignment or
desires to extend the Assignment Period beyond the date set forth above.
Company shall contract for IMCOR Executive's services through IMCOR at
fees to be mutually agreed upon by Company and IMCOR.
<PAGE>
Mr. Geoffrey A. Thompson January 9, 1998
d) In the event Company retains IMCOR Executive on an interim basis to
provide services starting within 12 months after the Assignment or an
extension thereof has been completed. Company shall contract for IMCOR
Executive's services through IMCOR at fees to be mutually agreed upon by
the Company and IMCOR.
e) At any time during the Assignment Period (or any extensions thereof which
have been agreed upon by Company, IMCOR Executive, and IMCOR), Company may
freely negotiate with and hire IMCOR Executive as an employee provided
Company first gives IMCOR written notice of its intent to do so and
compensate IMCOR in connection with the employment of IMCOR Executive
pursuant to the terms and conditions contained in paragraph 3(d) below.
3. COMPENSATION AND PAYMENT TERMS
a) Company will pay IMCOR $17,500 per month in Assignment Fees, which will
include IMCOR Executive's and IMCOR's Fees. These fees are based on IMCOR
Executive being available to Company during working hours which are normal
for a President.
b) At the beginning of the Assignment, Company will deposit $17,500 with
IMCOR. Thereafter, IMCOR will invoice Company for Assignment Fees and
sales tax, if any, to be paid on or before the 20th day of each month. For
any partial month, IMCOR will invoice based on a twenty-two business day
month. An invoice for the first month's Assignment Fees is enclosed. At
the end of the Assignment, IMCOR will apply the deposit against the final
invoices, and any balance will be refunded to Company.
c) Company agrees to promptly reimburse IMCOR Executive for business expenses
following presentation by IMCOR Executive of appropriate vouchers and/or
supporting documents as reasonably requested by Company. Company also
agrees to promptly reimburse IMCOR Executive for the incremental travel
and interim living expenses specified in Addendum A to this Agreement.
d) In the event that Company wishes to negotiate with and hire IMCOR
Executive as an employee at any time during either the initial Assignment
or its extensions, or within a 12 month period after the completion of
this Assignment, Company will notify IMCOR of its intentions and shall pay
IMCOR a Conversion Fee on the first day of IMCOR Executive's employment.
The Conversion Fee is 30% of IMCOR Executive's Total Annual Compensation
for the
Page 2
<PAGE>
Mr. Geoffrey A. Thompson January 9, 1998
first 12 months of employment. The Conversion Fee percentage will be
reduced by 5% for each three full months of the interim Assignment until
it reaches 10%.
e) Company will pay IMCOR a performance bonus of up to 20% of Assignment Fees
based upon achievement of goals mutually agreed upon by Company, IMCOR,
and IMCOR Executive at the start of the Assignment and to be described in
an attached as Addendum B to this Agreement. This bonus shall be paid as
specified in Addendum B.
4. IMCOR DUTIES AND RESPONSIBILITIES
a) IMCOR has acted as an intermediary between Company and IMCOR Executive.
For the duration of the Assignment, IMCOR will be responsible only for
administrative matters which consist of:
i) liaison with Company concerning IMCOR Executive's services, including
the signing of a contract for IMCOR Executive's services;
ii) the collection of fees from Company and disbursement of the fees to
be paid IMCOR Executive;
iii) withholding and paying of all statutory payroll taxes; and
iv) if requested by Company, identifying and introducing, on reasonable
notice from Company and on mutually agreeable terms, a replacement
for IMCOR Executive should IMCOR Executive for any reason be unable
to perform or complete the Assignment; accordingly, the Assignment
Fees specified in paragraph 3(a) will not be payable for any days
when an IMCOR Executive is not working.
b) The relationship between Company and IMCOR is one between Company and an
independent contractor. The relationship between Company and IMCOR
Executive is one between Company and independent contractor and not one
between Company and an employee. As a result, IMCOR Executive shall not be
entitled to any employee benefits from Company during the term of this
Assignment. IMCOR agrees to save harmless Company from liability for
employee benefits, statutory withholding or payroll taxes with respect to
the Company's relationship with IMCOR Executive during the term of this
Assignment.
5. COMPANY'S DUTIES AND RESPONSIBILITIES
a) Company, through its own inquiries and interviews with IMCOR Executive, is
satisfied that IMCOR Executive has the skills, experience and professional
qualifications to complete the Assignment. Company shall be responsible
for defining the Assignment with IMCOR Executive, supervising IMCOR
Executive's actions and monitoring IMCOR Executive's performance. Company
shall provide IMCOR Executive with such support, including the cooperation
of the Company's personnel and access to Company's records, as is
necessary or appropriate to enable IMCOR Executive to complete the
Assignment during the Assignment Period.
Page 3
<PAGE>
Mr. Geoffrey A. Thompson January 9, 1998
b) Company will provide a level of indemnification and coverage under any
applicable employee's, officer's, or director's liability guidelines,
bylaws or insurance policies for IMCOR Executive's actions as the
Company's President to the same extent and with the same rights as if
IMCOR Executive were employed directly as an employee of Company.
c) Company agrees to indemnify and hold harmless IMCOR and its employees,
officers, directors and shareholders from any and all liabilities, costs
or damages (including attorneys' fees) that may arise from the services
rendered by IMCOR Executive on this Assignment or any extensions thereof,
except for the gross negligence or willful misconduct of IMCOR.
6. CONFIDENTIALITY
IMCOR and IMCOR Executive agree that they shall not disclose to any person or
otherwise use or exploit any information or knowledge relating to Company or
its business obtained by them at any time as a consequence of this
Assignment, except to the extent necessary to perform the Assignment
hereunder. This shall not apply to information which is, or shall be,
available from third parties who do not have a confidentiality relationship
with Company.
This letter and its addends constitute the entire Agreement between Company and
IMCOR. This Agreement may not be changed orally. The paragraph headings in this
Agreement are for reference purposes only and shall not in any way affect the
interpretation of this Agreement. This Agreement shall be governed by and
construed under the laws of the State of Connecticut. Company and its directors,
officers, and employees agree to submit to the jurisdiction of the Courts of the
State of Connecticut, Fairfield County, with respect to any dispute arising in
connection with this Agreement.
Page 4
<PAGE>
Mr. Geoffrey A. Thompson January 9, 1998
If the above terms are acceptable, please sign and return to me the enclosed
copy of this Agreement with a check for $17,500 to signify Company's acceptance
of this Agreement.
Sincerely yours,
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
By:
------------------------- -------------------------
Jeffrey R. Belitz Date
Chief Financial Officer
ACCEPTED AND AGREED:
Magnavision Corporation
By:
------------------------- -------------------------
Geoffrey A. Thompson Date
Director
Mr. Geoffrey A. Thompson January 9, 1998
Page 5
<PAGE>
Geoffrey A. Thompson January 9, 1998
ADDENDUM A
This is Addendum A to the Letter of Agreement between IMCOR and Magnavision
Corporation ("Company") dated January 9, 1998.
1. It is hereby agreed that Company will reimburse IMCOR Executive for travel
expenses between his Virginia Beach, VA home and Wall, NJ for one round trip
per week. It is acceptable that IMCOR Executive may use the expenses either
for his own travel to and from his home, or for a family member to use them
for a visit with IMCOR Executive in Wall, NJ.
2. Company will provide IMCOR Executive with lodging (including telephone) in
Wall, NJ, either in a furnished condominium, home, apartment, or hotel suite,
to be selected by IMCOR Executive with Jeff Thompson's approval. Rental
payments for such lodging should be paid for by IMCOR Executive and will be
reimbursed by Company.
3. Company will reimburse IMCOR Executive for expenses related to his automobile
at the rate per mile allowed by the Internal Revenue Service.
4. Company will reimburse normal incremental living expenses, e.g., meals,
laundry, etc. to IMCOR Executive for the work days in Wall, NJ after
submission of the Company's normal expense report.
The foregoing Addendum A is hereby agreed and signed in duplicate as of _______.
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
- --------------------------
Jeffrey R. Belitz
Chief Financial Officer
Magnavision Corporation
- ---------------------------
Geoffrey A. Thompson
Director
READ & AGREED TO:___________________________________
Robert E. Hoffman
Page 6
<PAGE>
Mr. Geoffrey A. Thompson January 9, 1998
ADDENDUM B
This is Addendum B to the Letter of Agreement between IMCOR and Magnavision
Corporation dated January 9, 1998.
The criteria for awarding the Performance Bonus specified in Paragraph
3(e) will be attached here before January 31, 1998. The bonus, if
earned, will be paid upon completion of the Assignment.
The foregoing Addendum B is hereby agreed and signed in duplicate as of________.
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
- --------------------------
Jeffrey R. Belitz
Chief Financial Officer
Magnavision Corporation
- ---------------------------
Geoffrey A. Thompson
Director
READ & AGREED TO:
- ---------------------------
Robert E. Hoffman
Page 7
<PAGE>
January 9, 1998
[IMCOR LETTERHEAD]
PERSONAL & CONFIDENTIAL
Mr. Geoffrey A. Thompson
Director
Magnavision Corporation
C/O Kohlberg & Co., LLC 111 Radio Circle
Mt. Kisco, NY 10546
Dear Jeff:
Through you as one of its Directors Magnavision Corporation ("Company")
requested that IMCOR, a division of Norrell Services, Inc. ("IMCOR") locate an
individual suitable to Company to perform certain services as described below
(the "Assignment"). Accordingly, we have introduced Robert E. Hoffman ("IMCOR
Executive") to Company and Company has selected IMCOR Executive to perform the
Assignment. This letter sets forth the Agreement between Company and IMCOR with
respect to the services.
1. ASSIGNMENT
The Assignment will be for IMCOR Executive to be available to Company to
function as interim President. In that capacity, IMCOR Executive will be
responsible to and report directly to the Board. IMCOR Executive has agreed
to devote his full business time and attention to the Assignment and to be
available to Company during the entire Assignment.
2. ASSIGNMENT PERIOD
a) The Assignment Period shall begin on January 8, 1998 and shall continue
through April 30, 1998 unless terminated or extended as provided below.
b) Company may terminate the Assignment (i) by hiring IMCOR Executive as an
employee; or (ii) by giving 30 days' advance written notice on March 31,
1998 or thereafter to IMCOR and IMCOR Executive of Company's intent to
terminate the assignment; or (iii) if, in Company's reasonable opinion,
IMCOR Executive is not performing to Company's requirement.
c) In the event that Company elects to engage IMCOR Executive to perform
services in addition to those required with respect to the Assignment or
desires to extend the Assignment Period beyond the date set forth above.
Company shall contract for IMCOR Executive's services through IMCOR at
fees to be mutually agreed upon by Company and IMCOR.
<PAGE>
[IMCOR LETTERHEAD]
Mt. Geoffrey A. Thompson January 9, 1998
d) In the event Company retains IMCOR Executive on an interim basis to
provide services starting within 12 months after the Assignment or an
extension thereof has been completed, Company shall contract for IMCOR
Executive's services through IMCOR at fees to be mutually agreed upon by
the Company and IMCOR.
e) At any time during the Assignment Period (or any extensions thereof which
have been agreed upon by Company, IMCOR Executive, and IMCOR), Company may
freely negotiate with and hire IMCOR Executive as an employee provided
Company first gives IMCOR written notice of its intent to do so and
compensates IMCOR in connection with the employment of IMCOR Executive
pursuant to the terms and conditions contained in paragraph 3(d) below.
3. COMPENSATION AND PAYMENT TERMS
a) Company will pay IMCOR $17,500 per month in Assignment Fees, which will
include IMCOR Executive's and IMCOR's Fees. These fees are based on IMCOR
Executive being available to Company during working hours which are normal
for a President.
b) At the beginning of the Assignment Company will deposit $17,500 with
IMCOR. Thereafter IMCOR will invoice Company for Assignment Fees and sales
tax if any to be paid on or before the 20th day of each month. For any
partial month, IMCOR will invoice based on a twenty-two business day
month. An invoice for the first month's Assignment Fees is enclosed. At
the end of the Assignment, IMCOR will apply the deposit against the final
invoices, and any balance will be refunded to Company.
c) Company agrees to promptly reimburse IMCOR Executive for business expenses
following presentation by IMCOR Executive of appropriate vouchers and/or
supporting documents as reasonably requested by Company. Company also
agrees to promptly reimburse IMCOR Executive for the incremental travel
and interim living expenses specified in Addendum A to this agreement.
d) In the event that Company wishes to negotiate with and hire IMCOR
Executive as an employee at any time during either the initial Assignment
or its extensions, or within a 12 month period after the completion of
this Assignment, Company will notify IMCOR of its intentions and shall pay
IMCOR a Conversion Fee on the first day of IMCOR Executive's employment.
2
<PAGE>
[IMCOR LETTERHEAD]
Mt. Geoffrey A. Thompson January 9, 1998
The Conversion Fee is 30% of IMCOR Executive's Total Annual Compensation for
the first 12 months of employment. The Conversion Fee percentage will be
reduced by 5% for each three full months of the interim Assignment until it
reaches 10%.
e) Company will also pay IMCOR a performance bonus of up to 20% of Assignment
Fees based upon achievement of goals mutually agreed upon by Company,
IMCOR and IMCOR Executive at the start of the Assignment and to be
described in and attached as Addendum B to this Agreement. This bonus
shall be paid as specified in Addendum B.
4. IMCOR DUTIES AND RESPONSIBILITIES
a) IMCOR has acted as an intermediary between Company and IMCOR Executive.
For the duration of the Assignment, IMCOR will be responsible only for
administrative matters which consist of:
i) liaison with Company concerning IMCOR Executive's services including
the signing of a contract for IMCOR Executive's services;
ii) the collection of fees from Company and disbursement of the fees to
be paid IMCOR Executive;
iii) withholding and paying of all statutory payroll taxes; and
iv) if requested by Company, indentifying and introducing, on reasonable
notice from Company and on mutually agreeable terms, a replacement for
IMCOR Executive should IMCOR Executive for any reason be unable to
perform or complete the Assignment accordingly, the Assignment Fees
specified in paragraph 3(a) will not be payable for any days when an
IMCOR Executive is not working.
b) The relationship between Company, and IMCOR is one between Company and an
independent contractor. The relationship between Company and IMCOR
Executive is one between Company and independent contractor and not one
between Company and an employee. As a result, IMCOR Executive shall not be
entitled to any employee benefits from Company during the term of this
Assignment. IMCOR agrees to save harmless Company from liability for
employee benefits, statutory withholding or payroll taxes with respect to
the Company's relationship with IMCOR Executive during the term of this
Assignment.
3
<PAGE>
[IMCOR LOGO]
Mr. Geoffrey A. Thompson January 9, 1998
5. COMPANY'S DUTIES AND RESPONSIBILITIES
a) Company, through its own inquiries and interviews with IMCOR Executive, is
satisfied that IMCOR Executive has the skills, experience and professional
qualifications to complete the Assignment. Company shall be responsible
for defining the Assignment with IMCOR Executive, supervising IMCOR
Executive's actions and monitoring IMCOR Executive's performance. Company
shall provide IMCOR Executive with such support, including the cooperation
of the Company's personnel and access to Company's records, as is
necessary or appropriate to enable IMCOR Executive to complete the
Assignment during the Assignment Period.
b) Company will provide a level of indemnification and coverage under any
applicable employee's, officer's, or director's liability guidelines,
bylaws or insurance policies for IMCOR Executive's actions as the
Company's President to the same extent and with the same rights as if
IMCOR Executive were employed directly as an employee of Company.
c) Company agrees to indemnify and hold harmless IMCOR and its employees,
officers, directors and shareholders from any and all liabilities, costs
or damages (including attorneys' fees) that may arise from the services
rendered by IMCOR Executive on this Assignment or any extensions thereof,
except for the gross negligence or willful misconduct of IMCOR.
6. CONFIDENTIALITY
IMCOR and IMCOR Executive agree that they shall not disclose to any person or
otherwise use or exploit any information or knowledge relating to Company or
its business obtained by them at any time as a consequence of this
Assignment, except to the extent necessary to perform the Assignment
hereunder. This shall not apply to information which is, or shall be,
available from third parties who do not have a confidentiality relationship
with Company.
This letter and its addends constitute the entire Agreement between Company and
IMCOR. This Agreement may not be changed orally. The paragraph headings in this
Agreement are for reference purposes only and shall not in any way affect the
interpretation of this Agreement. This Agreement shall be governed by and
construed under the laws of the State of Connecticut. Company and its directors,
officers, and employees agree to submit to the jurisdiction of the Courts of the
State of Connecticut, Fairfield County, with respect to any dispute arising in
connection with this Agreement.
Page 4
<PAGE>
[IMCOR LOGO]
Mr. Geoffrey A. Thompson January 9, 1998
If the above terms are acceptable, please sign and return to me the enclosed
copy of this Agreement with a check for $17,500 to signify Company's
acceptance of this Agreement.
Sincerely yours,
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
By: /s/ Jeffrey R. Belitz January 9, 1998
------------------------- -------------------------
Jeffrey R. Belitz Date
Chief Financial Officer
ACCEPTED AND AGREED:
Magnavision Corporation
By:
------------------------- -------------------------
Geoffrey A. Thompson Date
Director
Page 5
<PAGE>
[IMCOR LOGO]
Mr. Geoffrey A. Thompson January 9, 1998
ADDENDUM A
This is Addendum A to the Letter of Agreement between IMCOR and Magnavision
Corporation ("Company") dated January 9, 1998.
1. It is hereby agreed that Company will reimburse IMCOR Executive for travel
expenses between his Virginia Beach, VA home and Wall, NJ for one round trip
per week. It is acceptable that IMCOR Executive may use the expenses either
for his own travel to and from his home, or for a family member to use them
for a visit with IMCOR Executive in Wall, NJ.
2. Company will provide IMCOR Executive with lodging (including telephone) in
Wall, NJ, either in a furnished condominium, home, apartment, or hotel suite,
to be selected by IMCOR Executive with Jeff Thompson's approval. Rental
payments for such lodging should be paid for by IMCOR Executive and will be
reimbursed by Company.
3. Company will reimburse IMCOR Executive for expenses related to his automobile
at rate per mile allowed by the Internal Revenue Service,
4. Company will reimburse normal incremental living expenses, e.g., meals,
laundry, etc. to IMCOR Executive for the work days in Wall, NJ after
submission of the Company's normal expense report.
The foregoing Addendum A is hereby agreed and signed in duplicate as of
_____________________.
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
/s/ Jeffrey R. Belitz
- --------------------------------------------
Jeffrey R. Belitz
Chief Financial Officer
Magnavision Corporation
- --------------------------------------------
Geoffrey A.Thompson
Director
READ & AGREED TO: -------------------------------------------
Robert E. Hoffman
Page 6
<PAGE>
[IMCOR LOGO]
Mr. Geoffrey A. Thompson January 9, 1998
ADDENDUM B
This is Addendum B to the Letter of Agreement between IMCOR and Magnavision
Corporation dated January 9, 1998.
The criteria for awarding the Performance Bonus spcified in Paragraph
3(e) will be attached here before January 31, 1998. The bonus, if
earned, will be paid upon completion of the Assignment.
The foregoing Addendum B is hereby agreed and signed in duplicate as
of________________.
IMCOR, a division of Norrell Services, Inc. IMCOR Assignment #4479
/s/ Jeffrey R. Belitz
- --------------------------------
Jeffrey R. Belitz
Chief Financial Officer
Magnavision Corporation
- --------------------------------
Geoffrey A. Thompson
Director
READ & AGREED TO:
- --------------------------------
Robert E. Hoffman
Page 7
<PAGE>
Nicholas Mastrorilli, Sr.
The Wedgewood Building
1725 Highway 35 -- Suite B
Wall, New Jersey 07719
January 8, 1998
VIA FACSIMILE
Board of Directors
Magnavision Corporation
Attention: Mr. A. Geoffrey Thompson
Gentlemen:
As you are aware, the undersigned is an officer, director and controlling
stockholder of Cacomm, Inc. ("Cacomm"). Cacomm, as you are also aware, is a
significant stockholder of Magnavision Corporation ("Magnavision"), and is a
party to a certain Stockholders Agreement dated as of May 8, 1997 (the
"Stockholders Agreement"), and the undersigned, individually, is a party to a
certain employment agreement with Magnavision dated May 8, 1997 ("Employment
Agreement").
As you have been advised, The Grand MMDS Alliance, of which Cacomm is a
partner, has recently been granted a license ("License") by the Federal
Communications Commission ("FCC") to construct and operate the four (4) "F"
Group wireless cable frequencies in the New York Market, which License is
subject to various provisions and conditions, one of which requires that the
License be utilized so as to effectuate transmissions on the air in the New York
Market (the "License Territory") in the immediate future. Cacomm currently has
no employees but is owned by approximately one hundred (100) shareholders to
whom the undersigned, as an officer, director and signficant shareholder, has
fiduciary responsibilities.
As a result of the foregoing, I have come to the conclusion that it is
necessary for me to utilize a substantial portion of my time and attention, in
the fulfillment of such fiduciary responsibilities, to develop the wireless
cable business of Cacomm. In order to do so it will be impossible for me to
function as Chief Executive Officer of Magnavision and given the potential
conflicts of interest between two entities that may compete in the New York
Market on the Internet, Intranet or related wireless cable business, I do not
believe that it is appropriate for me to remain as an employee or an officer or
director of Magnavision while launching competitive activities on behalf of
Cacomm. As a result, and subject to your acceptance of the terms set forth
below, I hereby resign as an officer, director and employee of Magnavision,
effective immediately. Such resignation is subject to the following:
<PAGE>
1. Magnavision agrees to pay me, in accordance with current practices, my
current base salary, including all health benefits up to the sum of $500 per
month, for the period ending January 8, 1999. In addition, the vesting of 10,765
options granted to me as set forth on Schedule 7(g) of that certain Exchange
Agreement dated as of May 8, 1997 shall not be affected by the actions taken
pursuant to this letter and shall remain in full force and effect in accordance
with the terms thereof, which terms have not yet been determined and are to be
embodied in a Management Incentive Option Plan and related Option Agreement to
be drafted in the future.
2. Magnavision may only terminate such compensation and benefits (other than
the vested options) if, during the period ending January 8, 1999, I
(a) became employed by another firm, other than Cacomm or its
subsidiaries;
(b) enter into a formal employment or consulting agreement with another
firm engaged in wireless or private cable business, other than Cacomm or its
subsidiaries; or
(c) induce an employee, customer, prospect, supplier or licensee to change
his/her relationship with Magnavision.
3. Magnavision agrees to issue a press release announcing the substance of
this letter agreement substantially in the form attached.
If the foregoing is acceptable to the Board of Directors of Magnavision, this
letter agreement shall be deemed to supersede the relevant provisions of the
Stockholders Agreement and the Employment Agreement, the remaining provisions
thereof, to the extent applicable, to remain in full force and effect. With
respect to Section 2 of the Stockholders Agreement, on behalf of Cacomm, I am
authorized to advise you that Cacomm will permit the new Chief Executive Officer
of Magnavision to be chosen by the Board ("New CEO") to occupy one of the three
(3) seats on the Board of Directors to which Cacomm is entitled to designate,
including the right to membership on the Audit, Compensation and Executive
Committees of the Board of Directors of Magnavision, as the representative of
the "Management Directors", as the quoted term is defined in the Stockholders
Agreement; provided, however, that Cacomm shall have the right to appoint one of
its designees as an additional member of each such committee. Cacomm will not,
however, during the period that I have a conflict of interest, appoint the
undersigned as one of its designees to the Board of Directors of Magnavision. It
is understood however that such rights granted to the new CEO are to revert to
Cacomm at the earlier of such time as (i) the "Investor Stock" (as such term is
defined in the Stockholders Agreement) represents less than 20% of the fully
diluted common stock of Magnavision, (ii) the entire Board shall consist of more
than seven (7) persons, and (iii) the holders of the KOCO Stock shall, in the
aggregate, have the right to designate less than four (4) members of the Board
of Directors of Magnavision.
<PAGE>
As you know, members of my family remain as officers, directors, shareholders
and employees of Magnavision and I have a vested interest in the economic
success of Magnavision. Should you wish to call upon me for strategic or other
advice based upon my experience in Magnavision's business, please feel free to
do so. I wish you all the best.
Sincerely,
Nicholas Mastrorilli, Sr.
Agreed and Accepted
Magnavision Corporation
By
-----------------------------
<PAGE>
April 24, 1998
Magnavision Corporation
1725 Highway 35
Wall, NJ 07719
Att: Robert Hoffman
Pres., CEO, Chairman of the Board
Via: Facsimile
Dear Mr. Hoffman,
This letter is to inform you that Cacomm, Inc. has removed Nicholas Mastrorilli,
Jr. and Patrick Mastrorilli as Directors of Magnavision Corporation, a Delaware
Corporation, Magnavision Corporation, a New Jersey Corporation, and all
subsidiaries. This change is effective immediately.
I will notify you of the names of their replacements as soon as possible.
Sincerely,
Nicholas Mastrorilli, Sr.
Pres., CEO, Chairman of the Board
cc: Steven Fields, Esq., Magnavision Corporate Counsel
Nicholas Mastrorilli, Jr.
Patrick Mastrorilli
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