SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Preferred Networks, Inc.
(Name of Issuer)
Common Stock, par value $.0001 per share
(Title of Class of Securities)
73990510
(CUSIP Number)
Thomas R. Stephens, Esq.
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street Suite 700
Denver, Colorado 80202
(303) 592-3100
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 17, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box.
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
Page 1 of 9 Pages
<PAGE>
CUSIP No. 73990510 13D Page 2 of 9 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Centennial Fund IV, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,774,910
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
9 SOLE DISPOSITIVE POWER
EACH
REPORTING 4,774,910
10 SHARED DISPOSITIVE POWER
PERSON
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,774,910
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
23.9%
14 TYPE OF REPORTING PERSON*
PN
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Centennial Holdings IV, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF GROUP*
(a)
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,774,910
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
9 SOLE DISPOSITIVE POWER
EACH
REPORTING 4,774,910
10 SHARED DISPOSITIVE POWER
PERSON
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,774,910
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
23.9%
14 TYPE OF REPORTING PERSON*
PN
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 4 of 9 Pages
Introductory Statement
This amended statement on Schedule 13D relates to the Common
Stock, no par value (the "Shares"), of Preferred Networks, Inc., a Georgia
corporation (the "Company"). Items 2, 3, 4, 5, 6 and 7 of this statement,
previously filed by (i) Centennial Fund IV, L.P., a Delaware limited partnership
("Centennial IV"), as direct beneficial owner of Shares, and (ii) Centennial
Holdings IV, L.P., a Delaware limited partnership ("Holdings IV"), by virtue of
the relationships described previously in this statement, is hereby amended as
set forth below.
Item 2. Identity and Background.
No change except for the addition of the following:
On September 30, 1997, G. Jackson Tankersley, Jr. resigned as
a general partner of Holdings IV.
Item 3. Source and Amount of Funds or Other Consideration.
No change except for the addition of the following:
The total amount of funds required by Centennial IV to acquire
the shares of the Class B Redeemable Preferred Stock (the "Class B Shares") and
the Company's warrants to acquire common stock (the "1998 Warrants") described
in Item 5(c) was $169,000.50. Such funds were provided by Centennial IV's
capital available for investment.
Item 4. Purpose of Transaction
No change except for the addition of the following:
Centennial IV acquired the Class B Shares and 1998 Warrants
reported in Item 5(c) for investment only. Depending upon their evaluation of
the Company's investments and prospects, and upon future developments
(including, but not limited to, market for the Class B Shares and 1998 Warrants,
the effective yield on the Class B Shares, availability of funds, alternative
uses of funds, and money, stock market and general economic conditions), each of
the Reporting Persons may from time to time purchase Class B Shares and/or 1998
Warrants, dispose of all or a portion of the Class B Shares and/or 1998 Warrants
that it holds, or cease buying or selling Class B Shares and/or 1998 Warrants.
Any such additional purchases or sales of the Class B Shares and/or 1998
Warrants may be in open market or privately-negotiated transactions or
otherwise.
On March 17, 1998, Centennial IV entered into a Class B
Redeemable Preferred Stock Purchase Agreement (the "Class B Purchase Agreement")
with the Company and certain other investors pursuant to which Centennial IV
acquired, for an aggregate purchase price of $169,000, 112,667 Class B Shares,
and 114,075 1998 Warrants.
The Class B Shares are entitled to a liquidation preference of
$1.50 per share plus accrued dividends. Dividends on the Class B Shares will
accrue at the rate of $.15 per share annually, in preference to any dividends on
the Shares and any other class ranking junior to the Class B Shares. The Class B
Shares will be entitled to one vote per share and will be entitled to vote
together with the common stock on matters submitted to a vote of the Company's
stockholders. In addition, the Class B Shares will be entitled to a class vote
on certain matters, including without limitation repurchases of common stock,
material changes in the Company's line of business, entering into any merger,
consolidation or amalgamation, sale of all or substantially all of the Company's
assets, acquisitions of more than $5,000,000, and incurring certain
indebtedness. The Class B Shares are redeemable at any time by the Company at a
price equal to $1.50 plus accrued dividends, and each holder of Class B Shares
may require that its Class B Shares be redeemed at any time after March 17, 2003
or earlier in certain circumstances. The holders of Class B Shares are entitled
to preemptive rights in connection with any new issuance of equity securities by
the Company in a private placement. In addition, the holders of Class B Shares
are entitled to elect one director.
Each 1998 Warrant permits a holder to acquire, at any time
during the five year period commencing on March 17, 1998, one Share for an
exercise price of $1.50 per Share, subject to adjustment as provided in the form
of the 1998 Warrant. Payment of the exercise price may be made in cash, debt or
equity securities of the Company, or by withholding from the Shares otherwise to
be delivered upon exercise a number of Shares which have a value equal to the
exercise price. Under some circumstances the holders of the 1998 Warrants may be
required to exercise the 1998 Warrants prior to their expiration.
Pursuant to the Class B Purchase Agreement, Centennial IV and
the Company and certain other stockholders of the Company amended the
Registration Rights Agreement dated as of June 21, 1995, among such persons, as
amended (the "1998 Registration Rights Amendment"), pursuant to which the
holders of 1998 Warrants will have the right to exercise certain demand and
piggyback registration rights with respect to, and, subject to certain
restrictions, the Company will be required to register, the Shares obtainable
upon exercise of the 1998 Warrants.
Pursuant to the Class B Purchase Agreement, the Company, among
other things, (i) made certain representations and warranties to the investors
acquiring Class B Shares and 1998 Warrants, (ii) agreed to provide such
investors with certain inspection and information rights, and (iii) agreed to
reimburse such investors for certain expenses.
The foregoing summaries of the Class B Purchase Agreement, the
rights and preferences of the Class B Shares, the terms of the 1998 Warrants and
the 1998 Registration Rights Amendment are qualified in their entirety by
reference to the Class B Purchase Agreement attached hereto as Exhibit 10, the
rights and preferences of the Class B Shares attached hereto as Exhibit 11, the
form of the 1998 Warrant attached hereto as Exhibit 12, and the Registration
Rights Amendment attached hereto as Exhibit 13, respectively.
Except as described in this Item 4, none of the Reporting
Persons nor any of the Officers and Partners has formulated any plans or
proposals which relate to or would result in any matter required to be disclosed
in response to paragraphs (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
No change except for the addition of the following:
(a) Centennial IV is the direct beneficial owner of 1,507,502
Shares. 3,603,333 warrants issued in 1997 and 114,075 1998 Warrants
(collectively, the "Warrants"), or approximately 23.9% of the sum of (i) the
16,270,028 Shares deemed outstanding as of March 17, 1998, according to
information received from the Company plus (ii) such Warrants. By virtue of the
relationships previously reported under Item 2 of this Statement, Holdings IV
may be deemed to have indirect beneficial ownership of the Shares and Warrants
directly beneficially owned by Centennial IV.
(b) Centennial IV has the direct power to direct the
disposition of and vote the Shares and Warrants held by it. By virtue of the
relationships described in Item 2 of this Statement, Holdings IV may be deemed
to have the indirect power to vote and direct the disposition of the Shares and
Warrants held by Centennial IV.
(c) On March 17, 1998, Centennial IV acquired the Class B
Shares and the 1998 Warrants described in Item 3 of this Statement in a
privately negotiated transaction with the Company for aggregate consideration of
$169,000.50.
Except as set forth above, none of the Reporting Persons has
effected any transaction in the Shares during the
past 60 days.
(d) Centennial IV has the right to receive and the power to
direct the receipt of dividends from, and proceeds from the sale of, the Shares
and Warrants held by it, and, by virtue of the relationships reported in Item 2
of this Statement, Holdings IV has the power to direct receipt of dividends
from, and the proceeds from the sale of, the Shares and Warrants held by
Centennial IV.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
No change except for the addition of the following:
The information included under Item 4 of this statement on
Schedule 13D in connection with the Class B Purchase Agreement, the Class B
Shares, the 1998 Warrant and the 1998 Registration Rights Amendment is hereby
incorporated in its entirety by this reference.
Other than set forth above, none of the Reporting Persons has
any contract, arrangement, understanding or relationship (legal or otherwise)
with any person with respect to securities of the Company, including, but not
limited to, transfer or voting of any such securities, finder's fees, joint
ventures, loans or option arrangements, puts or calls, guarantees of profits,
division of profits or losses, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
No change except the addition of the following:
Exhibit 10. Class B Redeemable Preferred Stock Purchase
Agreement dated as of March 17, 1998 among Alta Communications
IV, Alta Comm S By S, LLC, Centennial Fund IV, L.P., Fleet
Equity Partners VI, L.P., Fleet Venture Resources, Inc.,
Chisholm Partners II, L.P., Saugatuck Capital Company Limited
Partnership III, PNC Capital Corp., Primus Capital Fund III
Limited Partnership, certain other investors and Preferred
Networks, Inc.
Exhibit 11. Articles of Amendment setting forth the rights and
preferences of the Class B Redeemable Preferred Stock of
Preferred Networks, Inc.
Exhibit 12. Form of Common Stock Purchase Warrant to be issued
pursuant to the Class B Redeemable Preferred Stock Purchase
Agreement dated as of March 17, 1998 among Alta Communications
IV, Alta Comm S By S, LLC, Centennial Fund IV, L.P., Fleet
Equity Partners VI, L.P., Fleet Venture Resources, Inc.,
Chisholm Partners II, L.P., Saugatuck Capital Company Limited
Partnership III, PNC Capital Corp., Primus Capital Fund III
Limited Partnership, certain other investors and Preferred
Networks, Inc.
Exhibit 13. Form of Amendment to Registration Rights Agreement
dated June 21, 1995 among Alta Communications IV, Alta Comm S
By S, LLC, Centennial Fund IV, L.P., Fleet Equity Partners VI,
L.P., Fleet Venture Resources, Inc., Chisholm Partners II,
L.P., Saugatuck Capital Company Limited Partnership III, PNC
Capital Corp., Primus Capital Fund III limited partnership,
Preferred Networks, Inc., and certain other persons.
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: March 23, 1998 /s/ Jeffrey Schutz
Jeffrey Schutz, as general partner of
Centennial Holdings IV, L.P., general
partner of Centennial Fund IV, L.P.
<PAGE>
EXHIBIT 10 TO SCHEDULE 13D
PREFERRED NETWORKS, INC.
CLASS B SENIOR REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT
MARCH 17, 1998
This CLASS B SENIOR REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT dated
as of March 17, 1998 (together with the Exhibits and Schedules attached hereto,
the "AGREEMENT") is entered into by and among Preferred Networks, Inc., a
Georgia corporation, with its current principal place of business at 850 Center
Way, Norcross, GA 30071 (the "COMPANY"), and the persons and entities named in
the Schedule of Investors designated as Exhibit A hereto (collectively referred
to as the "INVESTORS" and individually referred to as an "INVESTOR").
1. PURCHASE, SALE AND TERMS OF PURCHASED SHARES.
1.1. The Purchased Shares and Warrants. The Company has duly authorized
the issuance and sale to the Investors for an aggregate purchase price of
$8,000,004 of (a) an aggregate of 5,333,336 shares (the "PURCHASED SHARES") of
its authorized Class B Senior Redeemable Preferred Stock (the "CLASS B PREFERRED
STOCK") and (b) the issuance of common stock purchase warrants (the "WARRANTS")
to be in substantially the form of Exhibit B attached hereto for the purchase of
an aggregate of 5,400,000 shares of the Company's common stock, no par value
(the "COMMON STOCK"). The designations, rights and preferences and other terms
and conditions relating to the Class B Preferred Stock are as set forth in
Exhibit C attached hereto. The Purchased Shares and the Warrants are
collectively referred to herein as the "SECURITIES".
1.2 Purchase and Sale of the Purchased Shares and the Warrants. The
Company agrees to issue and sell to the Investors, and, subject to and in
reliance upon the representations, warranties, terms and conditions of this
Agreement, the Investors, severally but not jointly, agree to purchase that
number of Purchased Shares and Warrants for the purchase price (the "PURCHASE
PRICE") set forth opposite their respective names in Exhibit A hereto under the
respective headings "PURCHASED SHARES" "WARRANTS" and "AGGREGATE PURCHASE PRICE
FOR SECURITIES." The Purchase Price shall be paid in immediately available
funds.
1.3 Closing. The consummation of the purchase and sale (the "CLOSING")
shall occur concurrently herewith (the "CLOSING DATE"). At the Closing, the
Company shall deliver to each Investor a certificate for that number of
Purchased Shares and a Warrant exercisable into that number of shares of Common
Stock set forth opposite such Investor's name in Exhibit A hereto, against
delivery to the Company of the Purchase Price.
1.4 Use of Proceeds. The Company agrees to use the proceeds from the
sale of the Purchased Shares and the Warrants for construction of the Company's
paging system networks and for general working capital purposes for the Company
and its Subsidiaries.
1.5 Covenants of the Company Prior to Closing. The Company shall do all
things necessary to fulfill the conditions to purchase set forth in Sections 2
and 3 of this Agreement, including, without limitation, holding such meetings of
shareholders as are required to obtain the required shareholder approvals and
taking all actions necessary to comply with the applicable federal and state
securities laws in connection with obtaining such approvals.
2. CONDITIONS OF PURCHASE.
The obligations of each Investor under Article 1 of this Agreement are
subject to the compliance by the Company with its agreements herein contained
and to the fulfillment on or before the Closing of the following conditions:
2.1 Opinion of Counsel. The Investors shall have received from
Sutherland, Asbill & Brennan, counsel for the Company, its favorable opinion,
dated the Closing Date, in form and substance reasonably acceptable to the
Investors and the Investors' counsel.
2.2 Authorization; Consents. The Board of Directors of the Company and
an independent committee of the Board of Directors shall have duly adopted
resolutions in form satisfactory to the Investors and shall have received all
necessary approvals of shareholders of the Company authorizing the Company to
consummate the transactions contemplated hereby in accordance with the terms
hereof, and the Investors shall have received a duly executed certificate of the
Secretary or an Assistant Secretary of the Company dated the Closing Date
setting forth a copy of such resolutions and such other matters as may be
requested by the Investors. The Company shall have obtained any and all other
consents, permits and waivers and made all filings necessary or appropriate for
consummation of the transactions contemplated by this Agreement.
2.3 Articles of Incorporation; Certificate of Amendment. The Company
shall have duly filed with the Secretary of State of Georgia a Certificate of
Amendment in the form as set forth in Exhibit C attached hereto amending the
Company's Articles of Incorporation, which amendment shall have become effective
for all purposes on or before and shall remain effective through the Closing
Date.
2.4 Board of Directors. Effective as of the Closing, an individual to
be selected by the Investors shall have been elected to the Company's Board of
Directors as the representative of the Investors.
2.5 Expenses. The Company shall have paid the expenses set forth
in Section 18 hereof.
--------
2.6 Secretary's Certificates; Good Standing Certificates. Each of the
Company and the Subsidiaries shall have delivered to the Investors true and
correct copies of its Articles of Incorporation, Bylaws and other charter
documents, all as amended through the Closing Date and each certified by its
respective corporate Secretary or Assistant Secretary.
2.7 SBIC Matters. The Company shall have duly completed and executed
for the Investors that are small business investment companies (each
individually, an "SBIC HOLDER"), Small Business Administration Forms 480 and 652
together with a written statement from the Company regarding its intended use of
proceeds from the financing.
2.8 Amendment to Registration Rights Agreement. The Registration Rights
Agreement dated as of June 21, 1995 (as heretofore amended) among the Company,
the Investors and the other parties thereto shall have been amended as provided
in the Second Amendment to Registration Rights Agreement in the form attached
hereto as Exhibit D (such Registration Rights Agreement, as heretofore amended
and as amended by such Second Amendment is hereinafter referred to as the
"REGISTRATION RIGHTS AGREEMENT").
2.9 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors, and the Investors shall receive such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith.
3. CONDITIONS OF SALE.
The Company's obligation to issue and sell the Purchased Shares and the
Warrants hereunder shall be subject to compliance by the Investors in all
material respects with their agreements herein contained and to the fulfillment
on or before and at the Closing of the following conditions:
3.1. Representations and Warranties. If the Closing occurs other than
on the date hereof, the representations and warranties of the Investors
contained in Section 6 of this Agreement shall be true and correct in all
material respects with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date, and the Company
shall receive a certificate to such effect executed by a duly authorized
representative of each of the Investors.
3.2. Authorization; Consents. The Board of Directors of the Company
(including the independent board committee) shall have duly adopted resolutions
in form satisfactory to the Investors and shall have received all necessary
approvals of shareholders of the Company authorizing the Company to consummate
the transactions contemplated hereby in accordance with the terms hereof, and
the Investors shall have received a duly executed certificate of the Secretary
or an Assistant Secretary of the Company dated the Closing Date setting forth a
copy of such resolutions and such other matters as may be requested by the
Investors. The Company shall have obtained any and all other consents, permits
and waivers and made all filings necessary or appropriate for consummation of
the transactions contemplated by this Agreement.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES.
As a material inducement to the Investors to enter into this Agreement
and to purchase the Purchased Shares and Warrants as contemplated hereby the
Company represents and warrants to the Investors as follows:
4.1. Organization, Corporate Power and Authority, etc. Each of the
Company and the Subsidiaries (as defined below) is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of its state of incorporation and has full corporate power and
authority to own and hold its properties and to carry on its business as
presently conducted. Each of the Company and the Subsidiaries is duly licensed
or qualified and in good standing as a foreign corporation or limited liability
company authorized to do business in all jurisdictions in which the character of
property owned or leased, or the nature of the activities conducted by it, makes
such licensing or qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect. The attached Schedule 4.1
contains a list of all entities of which the Company owns or controls, directly
or indirectly through one or more other Persons, a majority of the voting stock
or limited liability company interests (each a "SUBSIDIARY" and collectively,
"SUBSIDIARIES"). Except for such Subsidiaries, neither the Company nor any
Subsidiary owns of record or beneficially any shares of capital stock or
securities convertible into capital stock of, or any other proprietary interest
in, any Person.
4.2 Validity and Enforceability. The Company has all necessary
corporate power and authority, and has taken all corporate action required to
execute, deliver and perform this Agreement, to issue, sell and deliver the
Purchased Shares and the Warrants and to issue the Common Stock issuable upon
exercise of the Warrants. This Agreement and all other documents and instruments
executed by the Company pursuant hereto, when delivered, are and will be duly
authorized, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
equitable principles limiting rights to specific performance. The sale of the
Preferred Shares and the Warrants by the Company in accordance herewith is not
subject to preemptive or other preferential rights or similar statutory or
contract rights that have not heretofore been waived and does not give rise to
any "anti-dilution" provisions either arising pursuant to any agreement or
instrument to which the Company is a party or which are otherwise binding on the
Company. Without limitation of the foregoing, the Company and the Investors who
hold Class A Warrants (as such term is defined in Exhibit B) hereby represent
and warrant that the "Exercise Price" for purposes of the Class A Warrants is as
of the date hereof $1.50 per share and shall not be adjusted by reason of the
issuance of the Securities as contemplated hereby. Upon the issuance, sale and
delivery of the Securities in accordance with the terms hereof, the Securities
will be validly issued, fully paid and non-assessable and will be free and clear
of all liens, security interests, charges, restrictions, claims and Encumbrances
of any nature whatsoever (each a "LIEN"), subject to applicable restrictions on
transfer under Federal and state securities laws and any Liens created by the
Investors.
4.3 Capitalization; Status of Capital Stock. (a) The Company has a
total authorized capitalization consisting of 30,000,000 shares of Preferred
Stock (of which 13,500,000 shares are designated as Class A Redeemable Preferred
Stock and 5,500,000 shares are designated as Class B Senior Redeemable Preferred
Stock), and 100,000,000 shares of Common Stock. All issued and outstanding
shares of capital stock of the Company and each Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all applicable state and Federal securities laws.
(b) The Preferred Shares and the Warrants which are being issued
hereunder have been duly and validly authorized and, when issued and delivered
in accordance with the terms hereof for the consideration provided herein, will
be validly issued, fully paid and nonassessable and will not be subject to any
Lien. On or prior to Closing, the Company will have authorized and reserved, and
covenants to continue to reserve, a sufficient number of shares of Common Stock
for issuance upon the exercise of the Warrants. The shares of Common Stock that
will be issued upon exercise of the Warrants will be validly issued, fully paid
and nonassessable and will not be subject to any Lien, subject to applicable
restrictions on transfer under Federal and state securities laws and any Liens
created by the Investors. No further approval or authorization of the
shareholders or the directors of the Company or any successor or other Person is
or will be required for the issuance of the Common Stock upon exercise of the
Warrants.
(c) Except as set forth on Schedule 4.3: (a) neither the Company nor
any Subsidiary has any subscription, warrant, option, convertible security or
other options or rights (contingent or otherwise) to purchase shares of capital
stock, or securities convertible into shares of capital stock, authorized,
issued or outstanding, nor is the Company or any Subsidiary obligated in any
manner to issue shares of its capital stock or securities convertible into or
evidencing any right to acquire shares of its capital stock, or to distribute to
holders of any of its capital stock any evidence of indebtedness or assets; (b)
no Person has any preemptive right, right of first refusal or similar right to
acquire additional shares of capital stock of the Company or any Subsidiary in
connection with the sale and purchase of the Securities pursuant to this
Agreement or otherwise; (c) there are no restrictions on the transfer of the
shares of capital stock of the Company, other than (i) those imposed by relevant
state and Federal securities laws, (ii) as set forth in Section 6.5 hereto; and
(iii) certain restrictions on transfers of shares issued in connection with
certain acquisitions made by the Company, (d) no Person has any right to cause
the Company to effect the registration under the Securities Act of any shares of
capital stock or any other securities (including debt securities) of the Company
other than as set forth in the Registration Rights Agreement and the
registration rights agreements executed by the Company in connection with the
acquisitions of Big Apple Paging Corp. and Mercury Paging & Communications,
Inc.; (e) neither the Company nor any Subsidiary has any obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein, or to pay any dividend or make any other
distribution in respect thereto; and (f) there are no voting trusts,
shareholders' agreements, or proxies relating to any securities of the Company
or any Subsidiary. A complete and correct schedule of the number of shares of
issued and outstanding capital stock and of any subscription, warrant, option,
convertible security or other options or rights (contingent or otherwise) to
purchase shares of capital stock, or securities convertible into shares of
capital stock of the Company and each Subsidiary immediately prior to the
Closing is set forth in Schedule 4.3.
4.4 Governmental and Other Consents, etc. No authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, the absence of which would have a
Material Adverse Effect is or will be necessary for, or in connection with, the
offer, issuance, sale, execution or delivery by the Company, or for the
performance by it of its obligations, under this Agreement except such, if any,
as may be required under any applicable state securities laws that have been
complied with on or prior to the Closing Date.
4.5 Compliance with Securities Laws. (a) Subject to the accuracy of the
representations of the Investors set forth in Section 6 below, the Company has
complied and will comply with all applicable United States Federal and state
securities laws in connection with the offer, issuance and sale of the
Securities in compliance with Section 1.5 of this Agreement. The Company has
not, either directly or through any agent, offered any securities to, or
otherwise approached, negotiated or communicated in respect of any securities
with, any Person so as thereby to require that the offer or sale of the
Securities be registered pursuant to the provisions of Section 5 of the
Securities Act. Subject to the accuracy of the representations of the Investors
set forth in Section 6 below, the offer, sale and issuance of the Purchased
Shares and the Warrants (and of the Common Stock issuable upon the exercise of
the Warrants) in conformity with the terms of this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act and all applicable
state securities laws.
(b) The Company's Annual Reports on Form 10-K for the fiscal year ended
December 31, 1996, and all other reports, registration statements, proxy
statements or information statements filed or to be filed by it or any of its
Subsidiaries subsequent to March 1, 1996 under the Securities Act or the
Exchange Act, in the form filed with the Commission (collectively, "SEC
DOCUMENTS"), as of the date filed, (1) complied as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (2) did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any of the Company's SEC Documents (including the
related notes and schedules thereto) fairly presents the financial position of
the Company and its Subsidiaries as of its date, and each of the statements of
income and changes in shareholders' equity and cash flows or equivalent
statements in the Company's SEC Documents (including any related notes and
schedules thereto) fairly presents the results of operations, changes in
shareholders' equity and changes in cash flows, as the case may be, of the
Company and its Subsidiaries for the periods to which they relate, in each case,
in compliance with applicable accounting requirements and with the published
rules of the SEC with respect thereto and in accordance with generally accepted
accounting principles consistently applied during the periods involved, except,
in each case, as may be noted therein, subject to normal year-end audit
adjustments (which are not expected to be material) in the case of unaudited
statements.
(c) Since December 31, 1997, the Company and its Subsidiaries have not
incurred any material liability other than in the ordinary course of business
consistent with past practice.
(d) Since December 31, 1997, (1) the Company and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related to
this Agreement and the transactions contemplated hereby) and (2) no event has
occurred or fact or circumstance arisen that, individually or taken together
with all other facts, circumstances and events has had or is reasonably likely
to have a Material Adverse Effect.
4.6 Financial Statements. The Company's audited financial statements as
of December 31, 1996 (the "AUDITED FINANCIAL STATEMENTS") and unaudited
financial statements as of September 30, 1997 (such unaudited financial
statements, together with the Audited Financial Statements being referred to
collectively as the "FINANCIAL STATEMENTS") have been previously provided to the
Investors. The Financial Statements present fairly the financial position of the
Company as at the dates thereof and for the periods covered thereby and have
been prepared in accordance with generally accepted accounting principles
consistently applied (except in the case of unaudited financial statements for
footnotes otherwise required by generally accepted accounting principles and
normal year adjustments that are not material in amount). Neither the Company
nor any Subsidiary has any liability, contingent or otherwise, not disclosed in
the Financial Statements or in the notes thereto, that could together with all
such other liabilities, have a Material Adverse Effect. Since December 31, 1996,
(i) there has been no material adverse change in the business, assets or
condition, financial or otherwise, or operations of the Company or any
Subsidiary; (ii) neither the business, condition, financial or otherwise, or
operations of the Company or any Subsidiary nor any of its properties or assets
has been materially adversely affected by any event or occurrence of any type,
whether or not insured against; (iii) except as set forth on Schedule 4.6 hereto
or in the Company's filings under the Exchange Act, and except as entered into
in the ordinary course of business, neither the Company nor any Subsidiary has
incurred any liabilities or obligations in excess of $50,000; and (iv) neither
the Company nor any Subsidiary has entered into any transaction that would have
a Material Adverse Effect.
4.7. Taxes. Each of the Company and the Subsidiaries has accurately
prepared and timely filed all Federal, state and other tax returns that are
required to be filed by it and has paid or made provision for the payment of all
taxes that have become due pursuant to such returns and all other taxes,
assessments and governmental charges that have become due and payable,
including, without limitation, all taxes that the Company or any Subsidiary is
obligated to withhold from amounts owing to employees, creditors and third
parties. There are no tax Liens upon any asset of the Company or any Subsidiary
except statutory liens arising by operation of law for taxes not yet due. Except
as set forth on Schedule 4.7, neither the Company nor any of its shareholders
has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue
Code of 1986, as amended (the "CODE"), that the Company be taxed as an S
corporation or (b) a consent pursuant to Section 341(f) of the Code, relating to
collapsible corporations.
4.8. Litigation. Except as set forth on Schedule 4.8, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary that
might result, either in any case or in the aggregate, in any material adverse
change in the business, assets or condition, financial or otherwise, or
operations of the Company or any Subsidiary, or that might call into question
the validity of, or hinder the enforceability or performance of, this Agreement
or the Securities, or any action taken or to be taken pursuant hereto or
thereto; nor, to the Company's knowledge, has there occurred any event nor does
there exist any condition making likely the institution of any such litigation,
proceeding or investigation. Neither the Company nor any Subsidiary is in
default with respect to any order, writ, injunction, decree, ruling or decision
of any court, commission, board or other government agency by which the Company
or any Subsidiary is bound that might result, either in any case or in the
aggregate, in any material adverse change in the Company's business, assets or
condition, financial or otherwise, or operations.
4.9. ERISA. Except as described on Schedule 4.9, neither the Company
nor any Subsidiary maintains or operates any Employee Benefit Plan or has any
such Employee Benefit Plan been maintained or operated during the past three
years. Neither the Company nor any Subsidiary maintains or contributes to any
Guaranteed Pension Plan or Multiemployer Plan. With respect to each Employee
Benefit Plan listed on Schedule 4.9, to the extent applicable, the following is
true:
(a) Each such Employee Benefit Plan has been maintained and operated in
all material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all applicable regulations, rulings and other
authority issued thereunder;
(b) All contributions required by law to have been made under each such
Employee Benefit Plan (without regard to any waivers granted under Section 412
of the Code) to any fund or trust established thereunder or in connection
therewith have been made by the due date thereof;
(c) Each such Employee Benefit Plan intended to qualify under Section
401(a) of the Code is the subject of a favorable unrevoked determination letter
issued by the Internal Revenue Service as to its qualified status under the
Code, which determination letter may still be relied upon as to such tax
qualified status, and no circumstances have occurred that would adversely affect
qualified status of any such Employee Benefit Plan;
(d) No Employee Benefit Plan is subject to Title IV of ERISA;
(e) None of such Employee Benefit Plans that are "employee welfare
benefit plans" as defined in Section 3(1) of ERISA provides for continuing
benefits or coverage for any participant or beneficiary of a participant after
such participant's termination of employment, except as required by applicable
law, including section 4980B of the Code or Section 601 of ERISA; and
(f) Neither the Company nor any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA.
4.10. No Violations. The execution, delivery and performance by the
Company of this Agreement and any documents or instruments delivered, executed
and performed in connection therewith, the consummation of the transactions
contemplated hereby (including the issuance, sale and delivery of the Purchased
Shares and the Warrants and upon exercise of the Warrants, the issuance and
delivery of the Common Stock issuable in connection therewith), and compliance
with the provisions hereof, will not violate any provision of law, the Articles
of Incorporation or Bylaws, as amended, of the Company or violate any order of
any court or other agency of government or indenture, agreement or other
instrument to which the Company or any Subsidiary is bound, or conflict with,
result in the breach of or constitute (with due notice or lapse of time or both)
a default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any Lien upon any of the properties or assets of
the Company or any Subsidiary.
4.11. Other Agreements. Neither the Company nor any Subsidiary is a
party to or bound by any agreement, contract or commitment or subject to any
charter, bylaw or other corporate restriction that materially adversely affects
its business, assets or condition, financial or otherwise, or operations.
Neither the Company nor any Subsidiary is in default under any provision of its
Articles of Incorporation, Bylaws or other charter documents, each as amended
and in effect on the date hereof.
4.12. Other Agreements of Officers, etc. No officer or Key Employee of
the Company is a party to or bound by any agreement, contract or commitment, or
subject to any restriction that materially and adversely affects, or that in the
future has a reasonable possibility of materially and adversely affecting, the
business, assets or condition, financial or otherwise, or operations of the
Company or the right of any such Person to participate in the affairs of the
Company. To the Company's knowledge, no Key Employee has any present intention
of terminating his employment with the Company, and the Company does not have
any present intention of terminating any such employment. This Section 4.12
shall not be deemed to constitute an employment contract nor to grant any right
in favor of any Person other than the Investors.
4.13. Transactions with Affiliates. Except as set forth on Schedule
4.13 or in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, there are no loans, advances, leases or other continuing transactions
between the Company and any shareholder owning more than 1% of the capital stock
of the Company or any director or officer of the Company or any Subsidiary, or
any member of such officer's, director's or shareholder's immediate family, or
any Person controlled by any such officer, director or shareholder or member of
such officer's, director's or shareholder's immediate family.
4.14. Compliance with Law. Except with regard to environmental matters,
securities matters, and FCC matters covered in other Sections of this Agreement,
each of the Company and the Subsidiaries is currently in compliance in all
respects with all Federal and state laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and has obtained and possesses all necessary certificates of need,
permits, licenses and other authorizations required to conduct its business as
presently conducted except where a failure so to comply to or to obtain and
possess the same would not have a Material Adverse Effect. There is no Federal
or state governmental inquiry, investigation, lawsuit or proceeding pending or,
to the Company's knowledge, threatened against or affecting the Company or any
Key Employee, the effect of which may lead to or result in the suspension or
revocation of any governmental license or approval held by the Company, and, to
the Company's knowledge, there is no basis for any of the foregoing.
4.15. Material Contracts. Except as set forth on Schedule 4.15, the
Company, each Subsidiary and, to the Company's and each Subsidiary's knowledge,
each other party thereto, have in all material respects performed all the
obligations required to be performed by them to date, have not received any
notice of default, and are not in default, under any lease, agreement or
contract now in effect to which the Company or any Subsidiary is a party or by
which the Company, any Subsidiary or their respective property may be bound,
which defaults would have singularly or in the aggregate a Material Adverse
Effect. Neither the Company nor any Subsidiary has any present expectation or
intention of not fully performing all of its obligations under each such lease,
contract or other agreement to which it is a party or by which it is bound, and
neither any Company nor any Subsidiary has any knowledge of any breach or
anticipated breach by the other party to any contract or commitment to which the
Company or any Subsidiary is a party.
4.16. Title to Assets. (a) Each of the Company and the Subsidiaries has
good and marketable title to, and is the owner of, or holds a valid leasehold
interest in or license rights to, all properties and assets necessary to conduct
its business as presently conducted. There are no Liens on or outstanding
against any of the Company's or any Subsidiary's properties and assets except as
set forth on Schedule 4.16, and except for statutory Liens, such as mechanic's,
materialman's, warehouseman's, carrier's or other like Liens, incurred in good
faith in the ordinary course of business, provided that the underlying
obligations relating to such Liens are paid in the ordinary course of business,
or are being contested diligently and in good faith by appropriate proceedings
and as to which the Company has set aside adequate reserves on its books. All
material leases pursuant to which the Company or any Subsidiary leases personal
property are in good standing and are valid and effective in accordance with
their respective terms and there exists no default or other occurrence or
condition that could result in a default or termination thereof, except for
default or other occurrence that would not have a Material Adverse Effect.
(b) The properties and assets owned, leased by or licensed to the
Company and each Subsidiary, if applicable, and reflected in the Financial
Statements constitute all of the real and personal properties, tangible and
intangible, that are necessary, used or useful in the conduct of its business in
the manner and to the extent presently conducted or as presently contemplated to
be conducted. No other material real or personal properties are required for the
conduct of the business of the Company or any Subsidiary as presently conducted.
All such tangible properties and assets are in good working order and repair,
ordinary wear and tear excepted.
4.17. Real Property. Neither the Company nor any Subsidiary owns any
real property. The Company and each Subsidiary has the right to quiet enjoyment
of all real property in which it holds a leasehold interest for the full term
thereof, including all renewal terms, of the lease or similar agreement relating
thereto.
4.18. Environmental Compliance; No Liability. (a) The Company and each
Subsidiary has operated its business and each parcel of real property owned or
leased by it (the "REAL PROPERTY") in compliance in all material respects with
all applicable Environmental Laws. No notice of any violation, citation, summons
or order has been received, no complaint has been filed, no penalty has been
assessed and, to the knowledge of the Company and each Subsidiary, no
investigation or review is pending or has been threatened by any governmental
entity or other person that could require the Company or any Subsidiary to
expend money, or abide by conditions contained in consent decrees, settlement
agreements or orders, in each case with regard to (i) any violation or alleged
violation of any Environmental Law, or (ii) any failure or alleged failure to
comply with any Environmental Permit, or (iii) any use, possession, generation,
treatment, storage, recycling, transportation, disposal or release of a
Regulated Material.
(b) Compliance with Permits. There are no environmental permits,
certificates, licenses, approvals, registrations, and authorizations required
for the operation of its business and the Real Property (the "ENVIRONMENTAL
PERMITS").
(c) Treatment; CERCLIS. Neither the Company nor any Subsidiary has
treated, stored, recycled or disposed of any Regulated Material on any real
property, and, to the Company's knowledge, no other Person has treated, stored,
recycled or disposed of any Regulated Material on any part of the Real Property
except in material compliance with applicable Environmental Laws. There has been
no unremedied release of, and there is not present any Regulated Material at, on
or under any Real Property except such Regulated Material as is used or stored
at, on, or under any Real Property in material compliance with Environmental
Laws. None of the Real Property is listed or, to the knowledge of the Company,
proposed for listing on the National Priorities List pursuant to Superfund,
CERCLIS or any state or local list of sites requiring investigation or cleanup.
(d) Notices; Existing Claims; Certain Regulated Materials; Storage
Tanks. Neither the Company nor any Subsidiary has received any request for
information, notice of claim, demand or other notification that it is or may be
potentially responsible with respect to any investigation, abatement or cleanup
of any threatened or actual release of any Regulated Material. Neither the
Company nor any Subsidiary is required to place any notice or restriction
relating to the presence of any Regulated Material at any Real Property or in
any deed to any Real Property. There has been no past, and there is no pending
or contemplated, claim by the Company or any Subsidiary under any Environmental
Law based on actions of others that may have impacted on the Real Property, and
the Company has not entered into any agreement with any Person regarding any
claim pursuant to any Environmental Law. All underground storage tanks located
on the Real Property are disclosed on Schedule 4.18, and all such tanks and
associated piping are in sound condition and are not leaking and have not
leaked. All underground storage tanks are in material compliance with all
Environmental Laws and if no longer in use or being operated have been closed or
removed materially in accordance with all Environmental Laws.
(e) PCBs; Asbestos, etc. To the knowledge of the Company, no
polychlorinated biphenyls ("PCBs"), asbestos containing material ("ACM's"),
radon, or urea formaldehyde are present at any property now owned or leased by
the Company or any Subsidiary.
(f) Environmental Liens. There are no environmental Liens on any of the
assets of the Company or any Subsidiary or Real Property and no action by a
governmental entity has been taken or is in the process, or to the knowledge of
the Company, pending or threatened that could subject any of such assets or Real
Property to any such Liens.
4.19. Foreign Investment in Real Property Tax Act. The Company is not
now and has never been a "United States real property holding corporation" for
purposes of Section 897(c)(2) of the Code and the Treasury Regulations
thereunder.
4.20. FCC Matters. (a) The FCC has issued to the Company, and the
Company holds all material licenses (the "FCC LICENSES") necessary to conduct
its business as such business is currently conducted and proposed to be
conducted, and such FCC Licenses are valid and in full force and effect. For the
two-year period prior to the date hereof, the Company has filed all statements,
reports and information required by the FCC and duly performed in all respects
all of its obligations under such FCC Licenses and the Communications Act.
(b) The Company is in compliance in all material respects with the
Communications Act governing the ownership and operation of the paging systems
owned, permitted, licensed, being constructed and/or operated pursuant to the
FCC Licenses. There is not now pending or, to the Company's or any Subsidiary's
knowledge, threatened any litigation, proceeding or investigation before the FCC
that might result in a termination of any of the FCC Licenses. The Company has
constructed all of its material facilities operating under the FCC Licenses
within the construction period provided under the Communications Act.
(c) No event has occurred (including any notice issued by the FCC), and
no agreement has been entered into by the Company (including this Agreement),
that now or after notice or lapse of time or both, might reasonably be expected
to permit cancellation, revocation or termination of the FCC Licenses, or would
result in any FCC action that could reasonably be expected to have a Material
Adverse Effect, and there is not, to the Company's knowledge, pending or
threatened any action or matter that would suggest that the FCC Licenses will
not be renewed in the ordinary course.
(d) There is not pending any application, petition, objection or other
pleading filed with the FCC or any federal entity with jurisdiction to review
administrative orders of the FCC, that questions the validity of or contests any
of the FCC Licenses.
(e) No consents, approvals or actions by the FCC are required to permit
the consummation of the transactions contemplated hereby, and such consummation
will not result in a violation of the Communications Act and will not cause any
forfeiture or impairment of the FCC Licenses.
4.21. Disclosure. Neither this Agreement nor any certificate, list,
exhibit, letter or other written statement furnished by the Company to the
Investors or their special counsel in connection herewith (including, without
limitation, in response to any request for information made by any Investor or
its agent to the Company) contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they are or were made. There exists no fact or circumstance that
materially and adversely affects the business, assets or condition, financial or
otherwise, or operations of the Company, that has not been specifically set
forth in financial statements of the Company heretofore delivered to the
Investors or set forth in this Agreement or the Exhibits and Schedules hereto or
a certificate furnished to the Investors by the Company at the Closing.
4.22. Margin Stock. Neither the Company nor any Subsidiary owns or has
any present intention of acquiring any "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve
System.
4.23 Investment Company. The Company is not an "investment company", or
a company "controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
4.24 Boycott. Neither the Company nor any Subsidiary has at any time
has participated in, and is not currently participating in, an anti-Israel
boycott within the scope of Chapter 7 of Part 2 of Division 4 of Title 2 of the
California Government Code.
4.25 Registration Rights. (a) Except for (i) the Registration Rights
Agreement, (ii) the Registration Rights Agreement dated as of September 13, 1996
between the Company and Big Apple Paging Corporation (the "BIG APPLE AGREEMENT")
and (iii) the Registration Rights Agreement dated as of January 31, 1997 among
the Company and stockholders of Mercury Paging and Communications, Inc. (the
"MERCURY AGREEMENT"), the Company is not party to any agreement or otherwise
obligated to register under the Securities Act or include in any underwritten
offering of its securities any shares of its capital stock, whether now
outstanding or subject to issuance upon the exercise of any warrant or option
for shares of the Company's capital stock.
(b) The initial public offering of the Company's Common Stock on March
1, 1996 constituted a "Qualified Public Offering" for all purposes of the
Registration Rights Agreement and the Stockholders Agreement dated as of June
21, 1995 among the Company and certain of its shareholders at such time, as
heretofore amended (the "STOCKHOLDERS AGREEMENT").
(c) The rights of the "Secondary Holders" (as defined in the
Registration Rights Agreement) to "Demand Registrations" (as defined in the
Registration Rights Agreement) have terminated in accordance with Section 1(g)
of the Registration Rights Agreement (as amended by the Amendment thereto dated
as of June 3, 1997); provided, however, that the following Secondary Holders
continue to have as of the date hereof rights to "Secondary Demand
Registrations" (as defined in the Registration Rights Agreement) in accordance
with the terms of the Registration Rights Agreement: Advanced Technology
Development Fund II, Mark H. Dunaway, Marcia M. Dunaway, Michael J. Saner, Saner
Communications, Inc. and Eugene H. Kreeft.
(d) The Company covenants not to effect any registration of its
securities requested under either the Big Apple Agreement or the Mercury
Agreement if, in the opinion of the Company's counsel, such registration is not
required for the immediate transfer of all of the shares subject to such
agreements, as the case may be, pursuant to Rule 144 or other available
exemption from registration under the Securities Act.
4.26 Investments in United States Real Property Interest. The Company's
capital stock does not constitute a United States real property interest as that
term is defined in Section 897(c)(1)(A)(ii) of the Internal Revenue Code of
1986, as amended (the "CODE"). The preceding representation is based on a
determination by the Company that the Company is not and has not been a United
States real property holding corporation (as that term is defined in Section
897(c)(2) of the Code) during the five (5) year period preceding the date of
this Agreement. The Company shall use its best efforts to ensure that it does
not at any time in the future become a United States real property holding
corporation ("USRPHC") and from time to time, upon request of any Investor that
is acquiring more than $100,000 of Securities hereunder, shall make a
determination as to its status as a USRPHC. If at any time in the future the
Company should become a United States real property holding corporation, the
Company shall, as promptly as possible, notify each Investor of such change in
status.
5. COVENANTS OF THE COMPANY.
Until the such time as no Purchased Shares are outstanding, the Company
will comply with the following covenants:
5.1 Board of Directors Meetings. (a) The Company shall use its best
efforts to fix the number of directors of the Company at not more than nine (9)
and to cause one (1) nominee of the Investors to be recommended to the
shareholders for election as a director at all meetings of shareholders, or
consents in lieu thereof, for such purpose. The Company will reimburse all
direct out-of-pocket expenses reasonably incurred by such director of the
Company in attending meetings of the Board of Directors and all other
out-of-pocket expenses reasonably incurred by such director in connection with
such director's serving on the Board of Directors and fulfilling such director's
responsibilities as a director of the Company. The Company shall ensure that
meetings of its full Board of Directors are held at least four times each year
and at intervals of not more than four (4) months. The Company's Articles of
Incorporation and Bylaws shall provide for indemnification and exculpation of
directors from personal liability, to the fullest extent permitted under
applicable state law. The Company shall at all times maintain, at the Company's
expense, directors and officers liability insurance for its directors and
officers.
(b) Board Visitation and Materials. The Company shall deliver to each
Investor investing at least $1,500,000 pursuant to this Agreement (each a
"PRINCIPAL HOLDER") a copy of all materials distributed at or prior to all
meetings of the Board of Directors of the Company or any committee thereof,
(which shall include the minutes of the previous meeting) and shall thereafter
promptly deliver to each Principal Holder any revised minutes as are adopted at
such or any subsequent meeting. The Company shall (a) permit a representative of
each Principal Holder to attend all meetings of the Company's Board of
Directors, and of the Company's shareholders, (b) provide to such designees not
less than 5 calendar days' prior actual notice of all meetings (or as required
by the bylaws, if the meeting is an emergency meeting and the matters to be
discussed or voted on would not in any way adversely affect the Investor or its
interest or rights) of the Company's Board of Directors and of the Company's
shareholders and an agenda for the meetings and other materials related thereto,
(c) permit each such designee to attend such meetings as a non-voting observer,
(d) provide to each such designee a copy of all materials distributed at such
meetings and (e) reimburse all direct out-of-pocket expenses reasonably incurred
by such designee in attending such meetings.
5.2 Consultations and Advice. The Company shall allow each Investor
purchasing more than $100,000 of Securities hereunder to consult with and advise
management of the Company on significant business issues, including management's
proposed annual operating plans, and cause its management to meet with each such
Investor regularly during each year at the Company's facilities at mutually
agreeable times for such consultation and advice and to review progress in
achieving said plans.
5.3. Right of First Offer on Company Sales. Each Investor shall have a
right of first offer with respect to future sales in a private placement by the
Company of its capital stock or securities convertible into or exercisable or
exchangeable for shares of such capital stock. Each time the Company proposes to
offer any such securities in a private offering, the Company shall first offer
such securities to the Investors and the holders of Class A Redeemable Preferred
Stock, who shall each be entitled to purchase its pro rata share (on a
fully-diluted basis as measured by their respective holdings of Common Stock and
Common Stock issuable upon the exercise of Warrants and Class A Warrants) of
such securities, before it offers to sell such securities to other Persons. This
Section 5.3 shall not apply to stock issued in connection with acquisitions.
5.4. Maintenance of Existence; Compliance with Law. The Company shall
and shall cause each Subsidiary to keep in full force and effect its corporate
existence, except where the failure to do so will not have a Material Adverse
Effect, and will comply in all material respects with all applicable laws and
regulations in the conduct of its business except those being contested in good
faith by appropriate procedures and will file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
5.5 Rule 144 Requirements. The Company shall comply with the
requirements of Rule 144(c) under the Securities Act with respect to current
public information about the Company and will furnish to any holder of
Securities upon request such reports and documents of the Company as such holder
may reasonable request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
5.6 Insurance. The Company shall keep the insurable properties owned by
it and by the Subsidiaries insured by financially sound and reputable insurers
against the perils of liability, casualty, fire and extended coverage in amounts
of coverage at least equal to those customarily maintained by companies in the
same or a similar business of similar size. The Company shall also maintain with
such insurers workers' compensation insurance and insurance against hazards and
risks and liability to persons and property to the extent and in the manner
customary for corporations engaged in the same or a similar business of similar
size.
5.7 Key Man Insurance. The Company shall maintain and continue to pay
the premiums on a key-man term life insurance policy on the life of (i) Mark H.
Dunaway in the amount of not less than $9,500,000, (ii) Michael J. Saner in the
amount of not less than $4,500,000 and (iii) Eugene H. Kreeft in the amount of
not less than $2,000,000, in each case naming the Company as the beneficiary.
The life insurance proceeds received by the Company shall be used for valid
business purposes of the Company as approved by the Board of Directors of the
Company.
5.8. Maintenance of Properties. The Company shall and shall cause each
Subsidiary to maintain all properties used in the conduct of its business in
good repair, working order and condition as necessary to permit such business to
be properly and advantageously conducted.
5.9. Affiliated Transactions. All transactions by and between the
Company or any Subsidiary and any officer, Key Employee, director or shareholder
of the Company or any Subsidiary or Persons controlled by or affiliated with
such officer, Key Employee, director or shareholder, shall be conducted on an
arms-length basis, shall be on terms and conditions no less favorable to the
Company or Subsidiary than could be obtained from non-related Persons and shall
be approved in advance by a majority of disinterested Directors after full
disclosure of the terms thereof.
5.10. Management Compensation. Compensation paid by the Company or any
Subsidiary to its management shall be reasonably comparable to compensation paid
to management in companies of similar size, of similar maturity, of similar
profitability and in similar industries.
5.11 Inspection. The Company shall permit and shall cause each
Subsidiary to permit authorized representatives of the Principal Holders to
visit and inspect any of the properties of the Company and its Subsidiaries,
including its books of account, and to make copies thereof at the expense of the
Principal Holders and to discuss its affairs, finances and accounts with its
officers, administrative employees and independent accountants, all at such
reasonable times with reasonable notice as may be reasonably requested but in no
event more than one time in any calendar month and all in a manner that does not
interfere with the business operations of the Company and its Subsidiaries;
provided that all such information provided to the Investors by the Company will
be maintained as confidential by the Investors and not be disclosed to third
parties and provided, further that, subject to the foregoing, each Investor may
provide summaries of such information to affiliates of such Investor in
connection with reports provided by the Investor to its affiliates in its
fiduciary capacity. The Company shall permit and shall cause each Subsidiary to
permit examiners of the Small Business Administration to visit and inspect the
books and records of the Company and its Subsidiaries for the purpose of
verifying the certifications made by the Company to the Small Business
Administration.
5.12 Restrictive Provisions. Until such time as no Purchased Shares are
outstanding, without the written consent of holders of not less than two-thirds
(66.67%) of the then outstanding Purchased Shares, the Company shall not:
(a) take any action that amends, alters or repeals the preferences,
special rights or other powers of the Class B Preferred Stock, so as to affect
adversely the Class B Preferred Stock (including, without limiting the
generality of the foregoing, the authorization, creation or issuance of any
shares of capital stock or other securities with preference or priority equal or
superior to the Class B Preferred Stock or on a parity with the Class B
Preferred Stock in any regard, including, without limitation, redemption rights
and the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the company) or that increases the
authorized number of shares of Class B Preferred Stock;
(b) cause the issuance of any authorized but unissued shares of Class B
Preferred Stock;
(c) redeem, purchase or otherwise acquire for consideration any shares
of its capital stock (or rights, options or warrants to purchase such shares),
other than the Securities in accordance with their terms;
(d) approve any material change in the line of business of the
Company or any Subsidiary;
(e) enter into any merger, consolidation or amalgamation, or any
recapitalization, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) or convey, sell, lease, assign, transfer or
otherwise dispose of all or substantially all of its business, assets or
property;
(f) amend its Articles of Incorporation or Bylaws, if such amendment
would (i) change any material rights, preferences, privileges or limitations
provided to the holders of Class B Preferred Stock therein, (ii) change the size
of the Board of Directors or the procedures for meetings of the Board of
Directors and shareholders, including without limitation, notice and quorum
requirements; or (iii) increase the dividend rate applicable to the Company's
Class A Redeemable Preferred Stock, permit Class A Redeemable Preferred Stock to
be converted into Common Stock or any other equity or debt security or
instrument of the Company or otherwise change the rights, powers or preferences
of the Class A Redeemable Preferred Stock in a manner that adversely affects the
holders of Class B Preferred Stock;
(g) enter into any acquisition or series of related acquisitions
involving an aggregate transaction value equal to or greater than $5,000,000; or
(h) increase its indebtedness for borrowed money in one or more
transactions, whether or not related, in an aggregate amount of $5,000,000 in
excess of the amount of the Company's existing indebtedness and availability
under existing credit facilities immediately preceding the Closing.
6. REPRESENTATIONS WARRANTIES AND
COVENANT OF THE INVESTORS.
In order to induce the Company to enter into this Agreement, each
Investor, severally and not jointly, represents and warrants as follows:
6.1 Accredited Investor. The Investor is an "accredited investor" as
that term is defined in Regulation D under the Securities Act.
6.2 Address, Etc. The address, state of organization and state of
headquarters of the Investor are as set forth on Schedule A attached hereto.
6.3 Understanding of Nature of Securities. The Investor
understands that:
(i) The Securities and the Common Stock issued upon the
exercise of the Warrants (the "Shares")have not been registered under the
Securities Act or any state securities laws (the "STATE ACTS") and are being
issued and sold in reliance upon certain of the exemptions contained in the Act
and the State Acts, and the representations and warranties of the Investors
contained herein are essential to the claim of exemption by the Company under
the Act and the State Acts;
(ii) The Securities and the Shares are "restricted securities"
as that term is defined in Rule 144 promulgated under the Securities Act;
(iii) The Securities and the Shares cannot be sold or
transferred without registration under the Act and any applicable State Acts or
exemption therefrom;
(iv) The Securities and the Shares and any certificates issued
in replacement therefor shall bear the following legend, in addition to any
other legend required by law or otherwise;
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or any state securities
acts and may not be sold, transferred or otherwise disposed of unless a
registration statement under the Act and any applicable state securities acts
with respect to such securities is effective or unless the Company is in receipt
of an opinion of counsel satisfactory to it to the effect that such securities
may be sold without registration under the Act and such acts."
(v) Only the Company can register the Securities and the
Shares under the Securities Act and any of the State Acts;
(vi) Except as set forth in this Agreement and in the
Registration Rights Agreement, the Company has not made any representations to
the Investor that the Company will register the Securities or the Shares under
the Securities Act or any of the State Acts, or with respect to compliance with
any exemption therefrom;
(vii) There are stringent conditions for Investor's obtaining
an exemption for the resale of the Securities or the Shares under the Securities
Act and any State Acts; and
(viii) The Company may from time to time make stop transfer
notations in its transfer records to ensure compliance with the Securities Act
and any State Acts.
6.4 Investment Intent. The Investor is acquiring the Securities and the
Shares for the Investor's own account and not on behalf of any person. The
Investor is acquiring the Securities and the Shares for investment and not with
a view to or for sale in connection with any distribution of the Securities or
the Shares or with the intent to divide the Investor's participation with others
or resell or otherwise participate in a distribution of the Securities or the
Shares, directly or indirectly. Neither the Investor nor anyone acting on the
Investor's behalf has or will pay any commission or other remuneration to any
person in connection with the purchase of the Securities or the Shares.
6.5 Transfer Restriction. The Investor agrees not to effect any public
sale or distribution (including sales pursuant to Rule 144 under the Securities
Act) of any Common Stock during the seven days prior to, and during the 90-day
period beginning on the effective date of, any underwritten Demand Registration
or any underwritten Piggyback Registration (as such terms are defined in the
Registration Rights Agreement) unless the underwriters managing such registered
public offering otherwise agree; provided, however, that the Investor may sell
shares of Common Stock in any such registered public offering as part of such
offering in accordance with the Registration Rights Agreement.
7. MATTERS RELATING TO THE WARRANTS.
7.1 Mandatory Exercise of Warrants. All but not less than all of the
Warrants must be exercised by the holders thereof at the request of the Company
at the then applicable exercise price if and only if (i) the average closing bid
price for shares of Common Stock during the ninety (90) calendar days prior to
the date of such exercise, as well as for each of the ten (10) calendar days
prior to such date, exceeds ten dollars ($10) per share, as appropriately
adjusted for stock dividends, splits, recapitalizations and any similar
occurrence; (ii) the Company has taken all actions necessary to cause all shares
of Common Stock issued upon such exercise to be registered immediately upon
issue, whether through registration on a Form S-3 or otherwise, so as to be
freely tradable immediately upon their issuance and (iii) the Company
simultaneously redeems all outstanding Class B Preferred Stock.
8. BROKERS' FEE.
The Company represents and warrants that no liabilities for brokerage
commissions, finders' fees and the like have been incurred by the Company in
connection with the financing described in this Agreement. The Company hereby
agrees to indemnify and hold the Investors harmless against and in respect of
any claim for brokerage commissions, finders' fees or the like relating to this
Agreement or the transactions contemplated hereby arising out of arrangements
made by the Company.
9. REMEDIES.
(a) The Company agrees to indemnify each holder of any Security
(including such holder's respective directors, officers, partners, employees and
agents) and each person who controls such holder within the meaning of Section
15 of the Securities Act (collectively the "INDEMNITEES" and individually an
"INDEMNITEE") to the full extent permitted by law against all claims, losses,
damages, expenses and liabilities, including any amount paid in settlement of
any action, suit, claim or proceeding and all legal and other expenses
reasonably incurred in investigating or defending against the same (other than
losses arising solely from a diminution in the value of the Preferred Stock, the
Warrants or the Common Stock held by the Indemnitees) ("LOSSES"), arising out of
any breach of any representation, warranty, covenant or agreement made by the
Company herein.
(b) In addition, the Company agrees to indemnify each Indemnitee from
and against any and all Losses or actions in respect thereof (including in such
Indemnitee's capacity, if any, as a director, controlling person or
representative of the Company) as a result of or arising out of, or relating to,
(i) the execution, delivery, performance, or enforcement of this Agreement or
any other instrument, document or agreement executed by any Indemnitee pursuant
to this Agreement; (ii) the solicitation of shareholder approval (including
liabilities under the Exchange Act) pursuant to Section 1.5 of this Agreement or
periodic reporting by the Company of transactions contemplated by this Agreement
under the Exchange Act; or (iii) any transaction financed or to be financed in
whole in part, directly or indirectly, with the proceeds of the issuance of the
Securities, except in each such case for Losses arising out of any Indemnitee's
gross negligence, willful misconduct or bad faith.
(c) If the indemnification provided for in Section 9(b) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any Losses, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Investors in connection with the action or inaction which resulted in such
Losses, as well as any other relevant equitable consideration.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 9, such person (the "INDEMNIFIED PARTY") shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing promptly after such indemnified party has
actual knowledge of any claim as to which indemnity may be sought; provided,
however, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 9. In case any such proceeding shall be brought against any Indemnified
Party and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall pay as incurred the
fees and expenses of the counsel retained by the Indemnified Party in the event
(i) the Indemnifying Party and the Indemnified Party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them as expressed by opinion of counsel. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or judgment.
(e) In the event indemnification arises hereunder as a result of a
third party claim against the Indemnified Party, no indemnification shall be
made pursuant to this Section 9 until such time as the Indemnifying Party shall
have been finally adjudicated (including the exhaustion of all appeals that are
undertaken with respect to any adjudication) or otherwise bound to be liable
hereunder to such third party; provided, however, that all legal and other
expenses reasonably incurred in investigating or defending such claim shall be
paid by the Indemnifying Party at the time incurred by the Indemnified Party.
(f) The indemnification and contribution provided for in this Section 9
will remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnitee or any officer, director, employee, agent or
controlling person of the Indemnitee.
(g) Each party hereto acknowledges that the other parties hereto shall
not have an adequate remedy in the event that this Agreement is breached and
that the non-breaching parties may suffer irreparable damage and injury in such
event, and that, in addition to any other available rights and remedies, the
non-breaching parties shall be entitled to an injunction restricting the
breaching party or parties, as the case may be, from committing or continuing
any violation of this Agreement. The indemnification provided for herein is in
addition to and not in lieu of any other rights and remedies that the Investors
may have in law or equity.
10. AMENDMENTS AND WAIVERS.
For the purposes of this Agreement and all agreements, documents and
instruments executed pursuant hereto or thereto, except as otherwise
specifically set forth herein or therein, no course of dealing between the
Company and the Investors and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof or thereof may
be waived or amended otherwise than by a written instrument signed by the party
so waiving or amending such covenant or other provision; provided, however, that
except as otherwise provided herein or therein, amendments to this Agreement
shall require and shall be effective upon the receipt of the written consent of
(a) the Company and (b) Investors holding Warrants that upon the exercise
thereof represent not less than 75% of the Common Stock issuable upon the
exercise of all of the Warrants. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any Securities at the
time outstanding, each future holder of all such Securities, and the Company.
Notwithstanding any of the above, the conditions to Closing set forth in Section
2 of this Agreement may only be waived by each Investor itself.
11. SURVIVAL OF COVENANTS; ASSIGNABILITY OF RIGHTS.
(a) All covenants, agreements, representations and warranties of the
Company made herein and in the certificates, lists, exhibits, schedules or other
written information delivered or furnished in connection therewith and herewith
shall be deemed material and to have been relied upon by the Investors, and
shall survive the delivery of the Securities and shall bind the Company's
successors and assigns, whether so expressed or not, and all such covenants,
agreements, representations and warranties shall inure to the benefit of each
Investor's successors and assigns and to transferees of the Securities, whether
so expressed or not.
(b) The representations and warranties of the Investors made in Section
6 herein shall be deemed material and to have been relied upon by the Company
and shall survive the delivery of the Securities and shall bind each Investor's
successors and assigns, whether so expressed or not and all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Company's successors and assigns whether so expressed or not.
(c) The Investors may transfer the Securities only in compliance with
Federal and state securities laws.
12. GOVERNING LAW.
(a) This Agreement shall be deemed to be a contract made under, and
shall be construed in accordance with, the laws of the State of Georgia, without
giving effect to any choice of law provision or rule (whether of the State of
Georgia or any other jurisdiction) that would cause the application of the
domestic substantive laws of any jurisdiction other than the State of Georgia.
(b) The Company and each of the Investors that holds Class A Warrants
hereby agrees that the Class A Warrants, together with the Class A Redeemable
Preferred Stock Purchase Agreement dated as of May 21, 1997 (the "CLASS A
PURCHASE AGREEMENT") pursuant to which the Class A Warrants were issued, shall,
notwithstanding anything to the contrary set forth in the Class A Warrants or
such Purchase Agreement, from and after the date hereof be deemed to be a
contract made under, and shall be construed in accordance with, the laws of the
State of Georgia, without giving effect to any choice of law provision or rule
(whether of the State of Georgia or any other jurisdiction) that would cause the
application of the domestic substantive laws of any jurisdiction other than the
State of Georgia.
13. SECTION HEADINGS.
The descriptive headings in this Agreement have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision hereof.
14. COUNTERPARTS.
This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
15. NOTICES AND DEMANDS.
Any notice or demand which, by any provision of this Agreement or any
agreement, document or instrument executed pursuant hereto or thereto, except as
otherwise provided therein, is required or provided to be given shall be deemed
to have been sufficiently given or served for all purposes three days after
being sent by first class mail, postage and charges prepaid, hand delivery, or
FedEx or similar courier service to the following addresses: if to the Company,
at its mailing address set out above, or at any other address designated by the
Company to the Investors in writing; if to any Investor at its mailing address
set forth in Schedule A, or at any other address (or facsimile number)
designated by such Investor to the Company. Any notice given by facsimile
pursuant to this Section 15 shall be followed by written notice delivered by
FedEx or similar courier service.
16. SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
17. DEFINITIONS OF TERMS.
As used in this Agreement, the following terms have the following
meanings or the meanings ascribed to them elsewhere in this Agreement:
DEFINITION SECTION
Agreement.............................................. Preamble
Purchase Shares........................................ 1.1
Class B Preferred Stock................................ 1.1
Common Stock........................................... 1.1
Purchase Price......................................... 1.2
Closing Date........................................... 1.3
Registration Rights Agreement.......................... 2.8
SEC Documents.......................................... 4.5
Audited Financial Statements........................... 4.6
Financial Statements................................... 4.6
Real Property.......................................... 4.17
FCC Licenses........................................... 4.20
Big Apple Agreement.................................... 4.25
Mercury Agreement...................................... 4.25
Stockholders Agreement................................. 4.25
Code................................................... 4.26
Principal Holder....................................... 5.1
Indemnified Party...................................... 9
Indemnifying Party..................................... 9
Class A Purchase Agreement............................. 12
.........Commission. The term "COMMISSION" means the Securities and Exchange
Commission, or any other federal agency at the time
administering the Securities Act.
.........Communications Act. The term "COMMUNICATIONS ACT" means the
Communications Act of 1934, as amended, or any similar law
then in force, and the rules, regulations and policies thereunder.
.........Employee Benefit Plan. The term "EMPLOYEE BENEFIT PLAN" means any
employee benefit plan within the meaning of ss.3(3) of
ERISA maintained or contributed to by the Company or any ERISA Affiliate,
other than a Multiemployer Plan.
.........Encumbrance. The term "ENCUMBRANCE" means any mortgage, deed of trust,
pledge, security interest, encumbrance, option,right of first refusal, agreement
of sale, adverse claim, encroachment, right-of-way, burden or charge of any kind
or nature whatsoever or any item similar or related to the foregoing.
.........Environmental Law. The term "ENVIRONMENTAL LAW" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resources Conservation and Recovery Act of 1976, as amended, and
any applicable laws (whether or not statutory), statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorizations,
concessions, and similar items of all governmental authorities and all
applicable judicial, administrative and regulatory decrees, judgments and
orders, any of which relate to the protection of human health or the environment
from the effects of Regulated Material, including, but not limited to, those
pertaining to reporting, licensing, permitting, investigating and remediating
emissions, discharges, releases or threatened releases of Regulated Material
into the air, surface water,groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Regulated Material.
ERISA. The term "ERISA" means the Employee Retirement Income Security Act
of 1974, any successor statute of similar import, and the rules and regulations
thereunder, collectively, and from time to time amended and in effect.
.........ERISA Affiliate. The term "ERISA AFFILIATE" means any Person that is
treated as a single employer with the Company under ss.414 of the Code.
.........Exchange Act. The term "EXCHANGE ACT" means the Securities Exchange
Act of 1934, as amended.
.........FCC. The term "FCC" means the Federal Communications Commission, or
any other federal agency at the time administering the Communications Act.
.........Guaranteed Pension Plan. The term "GUARANTEED PENSION PLAN" means any
employee pension benefit plan within the meaning of ss.3(2) of ERISA maintained
or contributed to by the Company or any ERISA Affiliate the benefits of which
are guaranteed on termination in full or in part by the Pension Benefit Guaranty
Corporation (or any Person succeeding to the functions thereof).
.........Key Employees. The term "KEY EMPLOYEES" means the Chairman, the
President, any Vice President and the Treasurer of the Company, or any person
who is not an officer of the Company but is in charge of one or more of the
following functions: sales, business development or operations.
.........Knowledge. The terms "KNOWLEDGE" or similar terms (whether or not
capitalized herein) when applied to the Company, means the knowledge of its
Key Employees, officers or directors of the Company or any Subsidiary after
reasonable inquiry.
.........Material Adverse Effect. The term "MATERIAL ADVERSE EFFECT" means any
event, occurrence or condition, if the result thereof, either singly or in the
aggregate would have a material and adverse effect upon the business,
operations, properties, assets, prospects, profitability or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
.........Multiemployer Plan. The term "MULTIEMPLOYER PLAN" means a
multiemployer plan within the meaning ofss.3(37) of ERISA.
........Person. The term "PERSON" means any corporation, association,
partnership, joint venture, organization, business or individual.
.........Regulated Material. The term "REGULATED MATERIAL" means substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental Laws as "hazardous substances," "hazardous materials"
"hazardous wastes" or "toxic substances," or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, radioactivity, carcinogenicity,
reproductive toxicity or "EP toxicity," and petroleum and drilling fluids,
produced waters and other wastes associated with the exploration, development,
or production of crude oil, natural gas or geothermal energy.
.........Rule 144. The term "RULE 144" means Rule 144 promulgated under the
Securities Act.
.........Securities Act. The term "SECURITIES ACT" means the Securities Act of
1933, as amended.
.........18. EXPENSES.
.........The Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. The Company shall reimburse the Investors for (i) their reasonable
travel and out-of-pocket expenses incurred in connection with the transactions
contemplated hereby, including, without limitation, all reasonable audit,
consulting and other professional expenses incurred as part of the Investors'
due diligence with respect to the Company and the transactions contemplated
hereby, (ii) the reasonable legal fees, expenses and disbursements of special
counsel for the Investors (including both Edwards & Angell and Paul, Hastings,
Janosfsky & Walker LLP) incurred in connection with the negotiation, execution,
delivery and performance of this Agreement and the other agreements and
documents contemplated hereby and in connection with any proposed amendments,
waivers or consents to or to be provided in connection with this Agreement and
any such other agreements and documents or the transactions contemplated hereby
or thereby, and the negotiation, preparation and delivery thereof.
<PAGE>
.........19. ENTIRE AGREEMENT.
.........This Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with respect to the subjects hereof and thereof, including without limitation
all term sheets heretofore circulated and discussed among the Company and the
Investors.
<PAGE>
.........IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
Preferred Networks, Inc.
By: ....
Name: ..
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P., its General Partner
By:
Robert F. Benbow, General Partner
ALTA COMM S BY S, LLC
By:
Robert F. Benbow, Member
CENTENNIAL FUND IV, L.P.
By: Centennial Fund V, L.P.,
its General Partner
By:
Jeffrey H. Schultz
SAUGATUCK CAPITAL COMPANY LIMITED PARTNERSHIP III
By:
Richard Campbell
FLEET VENTURE RESOURCES, INC.
By:
Robert M. VanDegna
<PAGE>
PNC CAPITAL CORP.
By:
David Hillman
FLEET EQUITY PARTNERS, VI, L.P.
By: Fleet Growth Resources, Inc.,
its Corporate General Partner
By:
Robert M. VanDegna
PRIMUS CAPITAL FUND III LIMITED PARTNERSHIP
By:
Kevin McGinty
T/W ALFRED W. PUTNAM GST EXEMPT
By:
Trustee:
By:
Trustee:
Anne L. Putnam
Edward B. Putnam, Custodian for
Fitzgerald B. Putnam Under the Uniform
Transfers to Minors Act, Pennsylvania
WEBBMONT HOLDINGS L.P.
By:
Name:
Title:
<PAGE>
SPOTTED DOG FARM, L.P.
By:
Name:
Title:
RTM, INC.
By:
Name:
Title:
Mark H. Dunaway
Marcia M. Dunaway
John J. Hurley
Sylvia Hurley
<PAGE>
SCHEDULES
4.1 -- Subsidiaries 4.3 -- Capitalization 4.6 -- Financial Statements 4.7 --
Taxes 4.8 -- Litigation 4.9 -- ERISA 4.15 -- Material Contracts 4.16 -- Title to
Assets 4.18 -- Environmental
EXHIBITS
Exhibit A -- Schedule of Investors
Exhibit B -- Form of Warrant
Exhibit C -- Certificate of Amendment
Exhibit D -- Second Amendment to Registration Rights Agreement
<PAGE>
EXHIBIT 11 TO SCHEDULE 13D
ARTICLES OF AMENDMENT
OF
PREFERRED NETWORKS, INC.
I.
The name of the corporation, which was organized under the Georgia
Business Corporation Code, is "Preferred Networks, Inc."
II.
The amendment adopted is to amend Article III of the Articles of
Incorporation of the Corporation to create a new series of Preferred Stock of
the Corporation, designated as Class B Senior Redeemable Preferred Stock, by
adding the following to the existing Article III:
The Board of Directors of the Corporation hereby authorizes
the issuance of up to 5,500,000 shares of Preferred Stock, designated
Class B Senior Redeemable Preferred Stock (the "Class B Preferred
Stock"), which shall have the following rights, preferences, powers,
privileges, restrictions, qualifications, and limitations:
1. DIVIDENDS. The holders of the Class B Preferred Stock shall
be entitled to receive, out of funds legally available therefor,
dividends at a rate per annum of fifteen percent (15%) on the
liquidation value of $1.50 per share (as calculated in accordance with
the provisions of this Section 1, the "Accruing Dividends"). Accruing
Dividends shall accrue from day to day, beginning on the date of
issuance of the Class B Preferred Stock and continue through the date
the Liquidation Preference Payments (as defined below) on the Class B
Preferred Stock are paid in full in cash. Accruing Dividends shall
accrue whether or not declared, and whether or not there are profits,
surplus or other funds of the Corporation legally available for the
payment of dividends, shall be cumulative, and shall be compounded
annually. The Corporation shall not be obligated to declare or pay
Accruing Dividends except as set forth in Sections 2 and 4 herein.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
the assets of the Corporation available for distribution to
shareholders shall be paid out, prior to and in preference over any
payment in respect of the shares of Common Stock or shares of the
Corporation's Class A Redeemable Preferred Stock (the "Class A
Preferred Stock") then outstanding, as follows: each holder of Class B
Preferred Stock shall be entitled to be paid in full in cash the sum of
(i) one dollar and fifty cents ($1.50) per share of Class B Preferred
Stock held by such holder plus (ii) all Accruing Dividends unpaid
thereon (whether or not declared) and any other dividends, if any,
declared but unpaid thereon, calculated to the date payment thereof is
made (such sum payable with respect to each share of Class B Preferred
Stock being sometimes referred to as the "Liquidation Preference
Payments"). If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of the Class B Preferred Stock shall be
insufficient to permit payment in full to the holders of Class B
Preferred Stock of the Liquidation Preference Payments, then the entire
assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Class B Preferred Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, immediately
after the holders of Class B Preferred Stock shall have been paid in
full the Liquidation Preference Payments, the remaining net assets of
the Corporation available for distribution shall be distributed first,
ratably among the holders of Class A Preferred Stock until the holders
of Class A Preferred Stock shall have received an amount equal to the
"Liquidation Preference Payments" on account of the Class A Preferred
Stock as provided in Section 2 of the Class A Terms (as defined in
Section 4.2 below), plus interest, if any, pursuant to Section 4.5 of
the Class A Terms, and second, ratably among the holders of Common
Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Preference
Payments and the place where the Liquidation Preference Payments shall
be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or
telex, not less than 20 days prior to the payment date stated therein,
to the holders of record of Class B Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of
the Corporation. The consolidation or merger of the Corporation into or
with any other entity or entities that results in the exchange of
outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof (other than a merger the sole purpose of
which is to reincorporate the Corporation in a different jurisdiction)
and the sale, lease, abandonment, transfer or other disposition by the
Corporation of all or substantially all its assets shall, unless
otherwise provided in a notice signed by the holders of not less than
seventy-five percent (75%) of the then issued and outstanding Class B
Preferred Stock delivered to the Corporation on or prior to the date of
any such transaction, be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of the provisions of
this Section 2.
3. VOTING. 3.1 Voting. Each holder of outstanding shares of
Class B Preferred Stock shall be entitled to one vote with respect to
any and all matters presented to the shareholders of the Corporation
for their action or consideration and shall be entitled to notice of
any shareholder meetings in accordance with the Corporation's bylaws.
Except as provided by law, by the provisions of Subsections 3.2 and 3.3
below or by the provisions establishing any other series of Preferred
Stock, holders of Class B Preferred Stock and of any other outstanding
series of Preferred Stock shall vote together with the holders of
Common Stock as a single class.
3.2 Directors. The holders of the Class B Preferred Stock,
voting as a separate class, shall be entitled to elect one (1) director
of the Corporation.
3.3 Restrictive Provisions. Except as expressly provided
herein or as required by law, so long as any shares of Class B
Preferred Stock remain outstanding, the Corporation shall not without
the vote of or written consent by the holders of at least two- thirds
of the then outstanding shares of Class B Preferred Stock voting as a
class:
(a) take any action that (i) directly or indirectly
amends, alters or repeals the preferences, special rights or other
powers of the Class B Preferred Stock, so as to affect adversely the
Class B Preferred Stock, including, without limiting the generality of
the foregoing, the authorization, creation or issuance of any shares of
capital stock or other securities (other than Common Stock) with
preference or priority equal or superior to the Class B Preferred Stock
or on a parity with the Class B Preferred Stock in any regard,
including, without limitation, redemption rights and the right to
receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation, or (ii) increases the
authorized number of shares of Class B Preferred Stock or (iii) causes
the issuance of any authorized but unissued shares of Class B Preferred
Stock;
(b) redeem, purchase or otherwise acquire for
consideration any shares of its capital stock (or rights, options or
warrants to purchase such shares), other than, in accordance with the
priority set forth herein with respect to the redemption of Class A
Preferred Stock and Class B Preferred Stock, (i) the Securities as
defined in the Class A Redeemable Preferred Stock Purchase Agreement
dated as of May 21, 1997 entered into between the Corporation and the
Investors set forth therein and (ii) the Class B Preferred Stock as
provided for herein;
(c) approve any material change in the line of
business of the Corporation or any Subsidiary;
(d) enter into any merger, consolidation or
amalgamation, or any recapitalization, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) or convey,
sell, lease, assign, transfer or otherwise dispose of all or
substantially all of its business, assets or property;
(e) amend its Articles of Incorporation or Bylaws,
if such amendment would directly or indirectly change any material
rights, preferences, privileges or limitations provided to the holders
of Class B Preferred Stock therein, or change the size of the Board of
Directors or the procedures for meetings of the Board of Directors and
shareholders, including without limitation, notice and quorum
requirements;
(f) increase the dividend rate applicable to the
Class A Preferred Stock, permit Class A Preferred Stock to be converted
into Common Stock or any other equity or debt security or instrument of
the Corporation or otherwise change, directly or indirectly, the
rights, powers or preferences of the Class A Preferred Stock in a
manner that adversely affects the holders of Class B Preferred Stock;
(g) enter into any acquisition or series of related
acquisitions involving an aggregate transaction value equal to or
greater than $5,000,000; or
(h) increase its indebtedness for borrowed money in
one or more transactions, whether or not related, in an aggregate
amount of $5,000,000 in excess of the amount of the Corporation's
existing indebtedness and availability under existing credit facilities
immediately preceding the date of initial issuance of the Class B
Preferred Stock.
4. REDEMPTION. 4.1 Voluntary Redemption. The Corporation, at
its option, may at any time redeem all but not less than all of the
Class B Preferred Stock for an amount per share equal to the
Liquidation Preference Payments on the Class B Preferred Stock as of
the date such amount is paid in full in cash.
4.2 Mandatory Redemption. On the earlier of (i) March 17, 2003
or (ii) the date as of which the Corporation proposes to effect the
redemption of the Class A Preferred Stock at the election of the
Corporation pursuant to notice given by the Corporation to the holders
of Class A Preferred Stock pursuant to Section 4.1 of the Articles of
Amendment filed June 16, 1997 creating the Class A Preferred Stock (the
"Class A Terms") or (iii) the date as of which the Corporation is
required to effect redemption of any Class A Preferred Stock pursuant
to notice given by any holder of Class A Preferred Stock to the
Corporation pursuant to Section 4.2 of the Class A Terms (in any such
case, the "Redemption Date") each holder of Class B Preferred Stock
shall be entitled to require the Corporation to redeem all outstanding
shares of Class B Preferred Stock held by such holder, prior to the
Corporation redeeming any shares of Class A Preferred Stock or any
other class or series of its outstanding capital stock, making any
other payment or distribution on account of the Class A Preferred Stock
(including, without limitation pursuant to Section 4.5 of the Class A
Terms) or any other class or series of its outstanding capital stock,
or setting aside any funds for such purposes, at a price per share
calculated as follows (in either case, the "Redemption Price"):
(a) If the Redemption Date is on or prior to March
17, 2001, the Redemption Price per share shall be equal to the sum of
(i) the Liquidation Preference Payments on the Class B Preferred Stock
as of the date such amount is paid in full in cash, plus (ii) all
additional Accruing Dividends that would have accrued on the Class B
Preferred Stock from the date of such redemption through March 17, 2001
had such redemption not occurred.
(b) If the Redemption Date is after March 17, 2001,
the Redemption Price per share shall be equal to the Liquidation
Preference Payments on the Class B Preferred Stock as of the date such
amount is paid in full in cash.
4.3 Redemption Mechanics. At least 60 days prior to the
Redemption Date (in the case of Section 4.2(i) or (ii) above), or, in
the case of Section 4.2(iii) above, no more than three days following
the Corporation's receipt of notice of redemption from a holder of
Class A Preferred Stock, written notice of the Redemption Date,
including a copy of any notice of redemption delivered by a holder of
Class A Preferred Stock in the case of Section 4.2(iii) (in any such
case, the "Redemption Notice") shall be delivered by the Corporation to
each holder of Class B Preferred Stock by delivery in person of the
Redemption Date. At any time on or prior to five days before the
Redemption Date (and, in the case of Section 4.2(iii) above, not less
than 10 days after delivery of the Redemption Notice, even if such date
is after the Redemption Date), written notice shall be given to the
Corporation by each holder of Class B Preferred Stock who desires to
require the Corporation to redeem shares of Class B Preferred Stock,
notifying the Corporation of such redemption and specifying the number
of shares of Class B Preferred Stock to be redeemed from such holder.
From and after the close of business on a Redemption Date, unless there
shall have been a default in the payment of the Redemption Price, all
rights of holders of Class B Preferred Stock electing to require the
Corporation to redeem the Class B Preferred Stock held by each of them
(except the right to receive the Redemption Price) shall cease with
respect to the shares to be redeemed on such Redemption Date, and such
shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the Corporation legally available for redemption of the
Class B Preferred Stock on the Redemption Date are insufficient to
redeem the total number of Class B Preferred Stock electing to be
redeemed on such Redemption Date, the holders of such shares shall
share ratably in any funds legally available for redemption of such
shares according to the respective amounts that would be payable to
them if the full number of shares to be redeemed on such Redemption
Date were actually redeemed. The Class B Preferred Stock required to be
redeemed but not so redeemed shall remain outstanding and entitled to
all rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the
redemption of such Class B Preferred Stock, such funds will be used, at
the end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion thereof for which funds are then legally
available, on the basis set forth above.
. 4.4 Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of Class B Preferred Stock redeemed pursuant to this Section 4 or
otherwise acquired by the Corporation in any manner whatsoever shall be
canceled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce accordingly the number of shares
of authorized Class B Preferred Stock.
4.5 Failure to Redeem. If the Corporation fails, for any
reason or for no reason, to redeem on the Redemption Date any of the
then outstanding Class B Preferred Stock elected by the holders thereof
to be redeemed in accordance with the terms and conditions of this
Section 4, eighty percent (80%) of the Accruing Dividends that accrue
from and after such Redemption Date (the "Cash Dividends") shall be
payable in cash and shall be due and payable on the first day of each
month after the Redemption Date. Cash Dividends paid by the Corporation
shall satisfy Accruing Dividends in an equal amount, and such Accruing
Dividends shall not be duplicated in determining the Redemption Price
or for any other purpose. If, as of each yearly anniversary of the
Redemption Date, the Corporation shall have failed to pay in full the
Cash Dividends for the immediately preceding 12-month period, the
Redemption Price shall be recomputed on the basis that Accruing
Dividends for such 12-month period had accrued at an annually
compounding rate per annum of twenty percent (20%). If any redemption
elected by the holders of Class B Preferred Stock has not been made in
full on or before the first anniversary of the Redemption Date, then,
in addition to the rights of the holders of Class B Preferred Stock set
forth herein and arising at law or in equity, upon the written request
of the holders of two-thirds of the then outstanding Class B Preferred
Stock the Corporation shall take all actions necessary to submit a
proposal to sell capital stock or assets of the Corporation sufficient
to enable the Corporation to pay the Redemption Price in full for
stockholder approval including, without limitation, the engagement of
an investment banking firm reasonably acceptable to the holders of
two-thirds of the then outstanding Class B Preferred Stock.
4.6 Failure to Surrender. Should any holder of Class B
Preferred Stock redeemed pursuant to this Section 4 fail to surrender
the certificate or certificates representing the shares to be redeemed,
the Corporation may transfer the money distributable upon the
redemption to a trustee for such holder in accordance with and with the
effect set forth in Section 14-2-641(b) of the Georgia Business
Corporation Code, or any successor provision.
4.7 Ranking. The Corporation shall not pay any dividend on, redeem or
make any other payment or distribution on account of (or set aside any
funds for such purpose) capital stock of any class or series,
including, without limitation, any shares of Class A Preferred Stock
(including, without limitation, making any payment pursuant to Section
4.5 of the Class A Terms) while any shares of Class B Preferred Stock
shall remain outstanding.
III.
The date of the adoption of the amendment was March 16, 1998.
IV.
The amendment was duly adopted by the Board of Directors of the
Corporation in accordance with the provisions of O.C.G.A. Section 14-2-602.
* * * * *
<PAGE>
DULY EXECUTED and delivered by the undersigned on March 17, 1998.
PREFERRED NETWORKS, INC.
By:_______________________________
Michael J. Saner
President
* * * * *
<PAGE>
EXHIBIT 12 TO SCHEDULE 13D
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE
STATE SECURITIES ACTS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
PREFERRED NETWORKS, INC.
COMMON STOCK PURCHASE WARRANT
Date of Issuance: March [ ], 1998 Certificate No. W - B[ ]
FOR VALUE RECEIVED, Preferred Networks, Inc., a Georgia
corporation (the "Company"), hereby grants [ ] or its registered assigns (the
"Registered Holder") the right to purchase from the Company during the Exercise
Period (as defined below) up to a number of shares of the Company's Warrant
Stock equal to [ ] shares of Warrant Stock at a price per share of $1.50 (as
adjusted from time to time hereunder, the "Exercise Price"). This Warrant is one
of several warrants (collectively, the "Warrants") issued by the Company to
certain investors pursuant to the Class B Senior Redeemable Preferred Stock
Purchase Agreement dated as of March [ ], 1998 (the "Purchase Agreement").
Certain capitalized terms used herein are defined in Section 6 hereof. The
amount and kind of securities obtainable pursuant to the rights granted
hereunder and the Exercise Price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
1.1. Exercise Period. The Registered Holder may exercise, in whole or
in part (but not as to a fractional share of Warrant Stock), the purchase rights
represented by this Warrant at any time and from time to time after the Date of
issuance of this Warrant to and including the fifth anniversary of the Date of
Issuance of this Warrant (the "Exercise Period"). The Company shall give the
Registered Holder written notice of the expiration of the rights hereunder at
least 30 days but not more than 90 days prior to the end of the Exercise Period.
1.2. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
the Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph
1.3 below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in
Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser, in which case the Registered Holder shall have complied with
the provisions set forth in Section 9 hereof; and
(d) either (1) a check payable to the Company in an amount
equal to the product of the Exercise Price multiplied by the number of
shares of Warrant Stock being purchased upon such exercise.(the
"Aggregate Exercise Price"), (2) the surrender to the Company of debt
or equity securities of the Company having a Market Price equal to the
Aggregate Exercise Price of the Warrant Stock being purchased upon such
exercise (provided that for purposes of this subparagraph, the Market
Price of any note or other debt security or any preferred stock, unless
it is publicly traded, shall be deemed to be equal to the aggregate
outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by
authorizing the Company to withhold from issuance a number of shares of
Warrant Stock issuable upon such exercise of the Warrant which, when
multiplied by the Market Price of the Warrant Stock, is equal to the
Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser and outstanding,
and the Purchaser shall be deemed for all purposes to have become the record
holder of such Warrant Stock, at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Warrant Stock. Each share of Warrant Stock issuable upon
exercise of this Warrant shall, upon payment of the Exercise Price therefor, be
fully paid and nonassessable and free from all liens and charges with respect to
the issuance thereof.
(v) The Company shall not close its books against the transfer
of this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this warrant (including, without limitation, making any filings required to be
made by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
registered public offering of the Company's capital stock or the sale of the
Company, the exercise of any portion of this Warrant may, at the election of the
holder hereof, be conditioned upon the consummation of the public offering or
sale of the Company, in which case such exercise shall not be deemed to be
effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Warrant Stock, solely for
the purpose of issuance upon the exercise of the Warrants, such number of shares
of Warrant Stock issuable upon the exercise of all outstanding Warrants. All
shares of Warrant Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Warrant Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Warrant Stock may be listed (except for
official notice of issuance, which shall be immediately delivered by the Company
upon each such issuance). The Company shall not take any action that would cause
the number of authorized but unissued shares of Warrant Stock to be less than
the number of such shares required to be reserved hereunder for issuance upon
exercise of all of the outstanding Warrants.
(ix) Any certificate for shares of Warrant Stock issued upon
the exercise of this Warrant shall contain a legend in substantially the form of
the legend set forth on the first page of this Warrant except if such exercise
is effected in connection with a registered public offering of the Company's
capital stock and the Warrant Stock issuable upon the exercise of this Warrant
are included in such registered offering.
1.3. Exercise Agreement. Upon any exercise of this Warrant, the
Exercise Agreement shall be substantially in the form set forth in Exhibit I
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof
1.4. Fractional Shares. If a fractional share of Warrant Stock would,
but for the provisions of paragraph 1.1, be issuable upon exercise of the rights
represented by this Warrant, in lieu of issuing such fractional share, the
Company shall, within five business days after the date of the Exercise Time,
deliver to the Purchaser's order the Company's check payable to the Purchaser in
an amount equal to the difference between the Market Price of such fractional
share as of the date of the Exercise Time and the Exercise Price of such
fractional share.
2. ADJUSTMENT OF EXERCISE PRICE. In order to prevent dilution of the rights
granted under this Warrant, the Exercise Price shall be subject to adjustment
from time to time as provided in this Section 2.
2.1. Adjustment of Exercise Price upon Issuance of Common Stock. (i) If
and whenever after the date of this Warrant, the Company issues or sells in a
private placement (including in connection with any acquisition of any interest
in, or any entry into a joint venture with, any business or company), or in
accordance with paragraph 2.2 is deemed to have issued or sold, any share of
Common Stock for a consideration per share less than the Exercise Price in
effect immediately prior to such time, then immediately upon such issue or sale
or deemed issue or sale, the Exercise Price shall be reduced to the lowest price
paid by the purchaser per share at which such share of Common Stock has been
issued or sold or is deemed to have been issued or sold. Notwithstanding the
foregoing, if the Company inadvertently issues or sells, or is deemed to have
issued or sold, any share of Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to such time, the Exercise
Price shall not be reduced if the Company is able to rescind or appropriately
modify the transaction within a reasonable time after it became aware of the
reduction in the Exercise Price that would otherwise occur.
(ii) Notwithstanding the foregoing and Section 2.2, there
shall be no adjustment to the Exercise Price or
the number of shares of Warrant Stock obtainable upon exercise of this Warrant
with respect to (i) issuance of Common Stock by the Company to co-channel
licensees in lieu of cash owed, not to exceed 350,000 shares of Common Stock in
the aggregate, (ii) issuance of up to 675,994 shares of Common Stock pursuant to
options granted by the Company prior to 1996 to purchase common stock at various
prices between $.97 and $1.50, or (iii) stock issued by the Company to the
seller of stock or assets in an arms length transaction consummated in
accordance with the terms of Section 5. 12 of the Purchase Agreement.
Notwithstanding anything to the contrary set forth herein, in no event shall the
Exercise Price at any time be an amount that is higher than the "Exercise Price"
provided for in the Common Stock Purchase Warrants issued by the Company
pursuant to the Class A Redeemable Preferred Stock Purchase Agreement dated as
of May 21, 1997 among the Company, Fleet Equity Partners, VI, L.P., Centennial
Fund IV, L.P. and certain other persons (such warrants are referred to as the
"Class A Warrants"); and if the "Exercise Price" of the Class A Warrants is
adjusted in accordance with the terms thereof by reason of the issuance of the
Warrants, then the Exercise Price of the Warrants shall initially be the price
to which the "Exercise Price" of the Class A Warrants is so adjusted.
2.2. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under paragraph 2.1, the following shall
be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants or sells any Options and the lowest price per share for which any
one share of Common Stock is issuable upon the exercise of any such Option, or
upon conversion or exchange of any Convertible Security issuable upon exercise
of such Option, is less than the Exercise Price in effect immediately prior to
the time of the granting or sale of such Option, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at such time for such lower price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amount of consideration (if
any) paid or payable by the option holder with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Security and the lowest price per share
for which any one share of Common Stock is issuable upon conversion or exchange
thereof is less than the Exercise Price in effect immediately prior to the time
of such issue or sale, then such share or shares of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at such time
for such lower price per share. For the purposes of this paragraph, the "lowest
price per share for which any one share of Common Stock is issuable" shall be
equal to the sum of the lowest amount of consideration (if any) paid or payable
by the holder of the Convertible Security with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Exercise Price in
effect at the time of such change shall be adjusted immediately to the Exercise
Price that would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this paragraph 2.2, if the
terms of any Option or Convertible Security that was outstanding as of the Date
of Issuance of this Warrant are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change; provided that no
such change shall at any time cause the Exercise Price to be increased to an
amount in excess of the Exercise Price in effect immediately upon the issuance
of this Warrant.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that if such expiration or termination would result in an
increase in the Exercise Price then in effect, such increase shall not be
effective until 30 days after written notice thereof has been given to all
holders of the Warrants. For purposes of this paragraph 2.2, the expiration or
termination of any Option or Convertible Security that was outstanding as of the
Date of Issuance of this Warrant shall not cause the Exercise Price hereunder to
be adjusted unless, and only to the extent that, a change in the terms of such
Option or Convertible Security caused it to be deemed to have been issued after
the Date of Issuance of this Warrant.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount paid by the holder to the Company for such security
(including discounts, commissions and related expenses paid to independent third
parties). In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash (including in connection with
acquisitions), the amount of the consideration other than cash paid by the
holder shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of Warrants representing a majority of the
shares of Warrant Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Warrant Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2.3. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2.4. Reorganization, Reclassification, Consolidation, Merger or Sale.
Prior to the consummation of any Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders of the Warrants representing a majority of the Warrant Stock obtainable
upon exercise of all Warrants then outstanding) to ensure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or addition to (as the case may be) the shares of
Warrant Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Warrant Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision (in form and substance
satisfactory to the Registered Holders of the Warrants representing a majority
of the Warrant Stock obtainable upon exercise of all Warrants then outstanding)
with respect to such holders' rights and interests to ensure that the provisions
of this Section 2 and Sections 5 and 6 hereof shall thereafter be applicable to
the Warrants (including, in the case of any such consolidation, merger or sale
in which the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Exercise Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Warrant Stock
acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Exercise Price in effect immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Warrant Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2.5. Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Warrant Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided that no such adjustment shall increase the Exercise Price or
decrease the number of shares of Warrant Stock obtainable as otherwise
determined pursuant to this Section 2.
2.6. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holders at least 20 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
3. MANDATORY EXERCISE OF WARRANT. Upon the occurrence of certain events, the
holder hereof may be required to exercise its right to purchase all but not less
than all of the shares of Common Stock obtainable upon exercise of this Warrant
in accordance with the provisions of Section 7.1 of the Purchase Agreement.
4. DIVIDENDS. If the Company declares or pays a Dividend, then the Company shall
set aside such Dividend for payment upon exercise of this Warrant to the
Registered Holder of this Warrant the Dividend that would have been paid to such
Registered Holder on the Warrant Stock had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such Dividend, or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined.
5. PURCHASE RIGHTS. If at any time the Company grants, issues or sells any
Purchase Rights, then the Registered Holder of this Warrant shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Warrant Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
6. DEFINITIONS. The following terms have meanings set forth below:
"Common Stock" means the Company's Common Stock, no par value
per share, and except for purposes of the shares obtainable upon exercise of
this Warrant, any capital stock of any class of the Company hereafter authorized
that is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company.
"Convertible Securities" means any stock or securities
(directly or indirectly) convertible into or exchangeable for Common Stock.
"Dividend" means any dividend or other distribution upon the
Common Stock except for a stock dividend payable in shares of Common Stock.
"Market Price" means, as to any security, the average of the
closing prices of such security's sales on all domestic securities exchanges on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day,
or, if on any day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day;
provided that if such security is listed on any domestic securities exchange the
term "business days" as used in this sentence means business days on which such
exchange is open for trading. If at any time such security is not listed on any
domestic securities exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the Registered Holders of Warrants
representing a majority of the Warrant Stock purchasable upon exercise of all
the Warrants then outstanding; provided that if such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by the Company and the Registered
Holders of Warrants representing a majority of the Warrant Stock purchasable
upon exercise of all the Warrants then outstanding. The determination of such
appraiser shall be final and binding on the Company and the Registered Holders
of the Warrants, an. d the fees and expenses of such appraiser shall be paid by
the Company.
"Options" means any rights or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Organic Change" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction, in each case, which is effected in such a
way that the holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock.
"Person" means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Purchase Rights" means any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock.
"Warrant Stock" means shares of the Company's Common Stock;
provided that if there is a change such that the securities issuable upon
exercise of the Warrant are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Warrant Stock" shall mean one share of the security issuable upon exercise of
the Warrant if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
Other capitalized terms used in this Warrant but not defined
herein shall have the meanings set forth in the Purchase Agreement.
7. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. This Warrant shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
Registered Holder to purchase Common Stock, and no enumeration herein of the
rights or privileges of the Registered Holder shall give rise to any liability
of such holder for the Exercise Price of Common Stock acquirable by exercise
hereof or as a stockholder of the Company.
8. WARRANT TRANSFERABLE. Subject to the transfer conditions referred to in the
legend endorsed hereon, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the Registered Holder, upon surrender of
this Warrant with a properly executed Assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
9. WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
10. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Company
(an affidavit of the Registered Holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
this Warrant, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company (provided that if
the holder is a financial institution or other institutional investor with
capital and surplus in excess of three times the value of the Common Stock that
can be purchased upon exercise of this Warrant, such holder's agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
11. NOTICES. Except as otherwise expressly provided herein, all notices referred
to in this Warrant shall be in writing and shall be delivered personally, sent
by reputable overnight courier service (charges prepaid) or sent by registered
or certified mail, return receipt requested, postage prepaid and shall be deemed
to have been given when so delivered, sent or deposited in the U.S. Mail (i) to
the Company, at its principal executive offices and (ii) to the Registered
Holder of this Warrant, at such holder's address as it appears in the records of
the Company (unless otherwise indicated by any such holder).
12. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
the Warrants may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Registered Holders
of Warrants representing at least 66-2/3% of the shares of Warrant Stock
obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 85% of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
13. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the several
Sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by, and construed in accordance with, the laws of the State of Georgia,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Georgia or any other jurisdiction) that would cause the
application of the domestic substantive laws of any jurisdiction other than the
State of Georgia.
IN WITNESS Whereof, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof
PREFERRED NETWORKS, INC.
By
Its
[Corporate Seal]
Attest:
Title:
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-B[ ]), hereby agrees to subscribe for the
purchase of___________ shares of the Common Stock covered by such Warrant and
makes payment herewith in full therefor at the price per share provided by such
Warrant.
Payment shall be made by (check one of the following):
_____ 1. Delivery of $________ transmitted hereby by check.
_____ 2. Delivery of stock certificate no(s). ____________
and surrender of____ shares of the Company's _________ stock evidenced thereby
having a Market Price on the date hereof of $_______ (computed in accordance
with the definition of Market Price set forth in Section 7 of the Warrant)
(i.e. a "cashless" exercise).
_____ 3. Delivery of the Company's _______ Note in the
aggregate principal amount of $_______ and surrender of $_______ in principal
amount thereof, plus accrued and unpaid interest in the amount of $________
having a Market Price on the date hereof of $___________ (computed in accordance
with the definition of Market Price set forth in Section 7 of the Warrant)(i.e.
a "cashless" exercise).
_____ 4. Surrender of_________ shares of Warrant Stock,
exerciseable under Warrant No. having a Market Price on the date hereof of
$_________ (computed in accordance with the definition of Market Price set forth
in Section 6 of the Warrant)(i.e., a net issuance exercise).
Signature _____________________ Address
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W-B[ ]) with respect to the number of shares
of the Common Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Signature
Witness
<PAGE>
EXHIBIT 13 TO SCHEDULE 13D
SECOND AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This Second Amendment to Registration Rights Agreement (this
"Amendment") is dated as of March 17, 1998 by and among Preferred Networks,
Inc., a Georgia corporation (the "Company") and each of the Persons listed as a
Stockholder on the signature pages to this Amendment (referred to herein
collectively as the "Stockholders").
The Company and the Stockholders have entered into a Registration
Rights Agreement dated as of June 21, 1995, as amended (the "Registration Rights
Agreement"). Subsequent to entering into the Registration Rights Agreement, the
Company and the Stockholders consented to certain actions by the Company and
waived compliance with certain provisions of the Registration Rights Agreement
pursuant to that certain Consent and Waiver Agreement dated as of September 12,
1996 and that certain Second Waiver and Consent Agreement, dated as of November
12, 1996, and amended the Registration Rights Agreement pursuant to that certain
Amendment to Registration Rights Agreement dated as of June 16, 1997 (the "First
Amendment").
The Company and certain investors, including certain of the persons
defined as Primary Holders in the Registration Rights Agreement, are parties to
a Class B Senior Redeemable Preferred Stock Purchase Agreement dated as of March
17, 1998 (the "1998 Purchase Agreement").
It is a condition to closing under the 1998 Purchase Agreement that the
Registration Rights Agreement be amended as set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements of the parties herein and in the Registration Rights Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Defined Terms. Capitalized terms not defined in this
Amendment are used as defined in the Registration Rights Agreement, including
the First Amendment.
2. Definition of "Primary Holders". The definition of "Primary Holders"
set forth in the first paragraph of the preamble to the Registration Rights
Agreement is hereby expanded to include all persons purchasing stock and
warrants pursuant to the 1998 Purchase Agreement.
3. Section 1(a)(i). Section 1(a)(i) of the Registration Rights
Agreement is hereby amended by adding the following at the end thereof:
Holders of at least 33.33% of the Class B Warrant Securities shall also
be entitled to request Primary Demand Registrations, provided the
estimated aggregate offering value for all securities included in such
a registration initiated by the Class B Holders is at least $5,000,000.
4. Section 7(f). Section 7(f) of the Registration Rights Agreement is
hereby amended to read in full as follows:
"Warrants" means the contingent stock purchase warrants issued
to the Primary Holders pursuant to the Purchase Agreement, the stock purchase
warrants issued to the Primary Holders pursuant to Sections 1.3 and 1.4 of the
1997 Purchase Agreement, and the stock purchase warrants issued to the Class B
Holders pursuant to the 1998 Purchase Agreement.
5. Section 7. Section 7 is amended by adding the following new defined
terms:
"Class B Holder" means a holder of Class B Warrant Securities.
"Class B Warrant Securities" means the stock purchase warrants
issued pursuant to the 1998 Purchase Agreement and Common Stock issued upon the
exercise of such warrants.
6. No Other Effect. Except as specifically set forth in this Amendment,
the Registration Rights Agreement shall remain in full force and effect.
7. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be an original and each of which shall
constitute one and the same amendment. Any party may deliver an executed copy of
this Amendment by facsimile transmission to the other parties and such delivery
shall have the same force and effect as delivery of a manually signed copy of
this Amendment.
[signatures on following pages]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
THE COMPANY: PREFERRED NETWORKS, INC.
March ____, 1998 By:
Its:
THE STOCKHOLDERS:
FLEET EQUITY PARTNERS VI, L.P.
By: Fleet Growth Resources II, Inc.
Its: General Partner
March ____, 1998 By:
Its:
Address: 50 Kennedy Plaza
Providence, RI
FLEET VENTURE RESOURCES, INC.
March ____, 1998 By:
Its:
Address: 50 Kennedy Plaza
Providence, RI 02903
CHISHOLM PARTNERS II, L.P.
By: Silverado II, L.P.
Its: General Partner
By: Silverado II Corp.
Its: General Partner
March ____, 1998 By:
Its:
Address: 50 Kennedy Plaza
Providence, RI 02903
ALTA COMMUNICATIONS, VI, L.P.
By: Alta Communications VI Management
Partners L.P.
Its: General Partner
March ____, 1998 By: ________________________
Its: ________________________
Address: One Embarcadero Ctr.
Suite 4050
San Francisco, CA 94111
ALTA COMM S BY S, LLC
March ____, 1998 By:
Its:
Address: One Embarcadero Ctr.
Suite 4050
San Francisco, CA 94111
<PAGE>
CENTENNIAL FUND IV, L.P.
By: Centennial Holdings IV, L.P.
Its: General Partner
March ____, 1998 By:
Its:
Address: 1428 Fifteenth Street
Denver, CO 80202
SAUGATUCK CAPITAL COMPANY
LIMITED PARTNERSHIP III
By: Greyrock Partners
Its: General Partner
March ____, 1998
Address: One Canterbury Green
Stamford, CT 06901
PRIMUS CAPITAL FUND III
LIMITED PARTNERSHIP
By: Primus Venture Partners III
Limited Partnership
Its: General Partner
By: Primus Venture Partners, Inc.
Its: General Partner
March ____, 1998
Address: 5900 Landerbrook Drive
Suite 200
Cleveland, OH 44124
PNC CAPITAL CORP.
March ____, 1998 By:
Its:
Address: One PNC Plaza, 19th Floor
249 5th Ave & Wood Street
Pittsburgh, PA 15222
DAVID M. ELLIS
March ____, 1998 By:
Address: 22 Arden Place
Short Hills, NJ 07078
PETER J. BICHE
March ____, 1998 By:
Address: 5 Deepwater Court
Edgewater, MD 21037
HOFFMAN INVESTMENT COMPANY
March ____, 1998 By:
Address: Attn: Bette Hoffman
1464 Hunter Road
Rydal, PA 19046
<PAGE>
K. MITCHELL POSNER
March ____, 1998 By:
Address: 7 Druim Moir Ct.
Philadelphia, PA 19116
EDWARD BEALE PUTNAM
March ____, 1998 By:
Address: 8201 St. Martins Lane
Philadelphia, PA 15243
KATHRYN PUTNAM
March ____, 1998 By:
Address: 850 Center Way
Norcross, GA 30071
MICHAEL J. DAVIES
March ____, 1998 By:
Address: 15925 Old York Road
Monkton, MD 21111
SETH J. LEHR
March ____, 1998 By:
Address: 1637 Paper Mill Road
Meadowbrook , PA 19046
ADVANCED TECHNOLOGY
DEVELOPMENT FUND II
March ____, 1998 By:
Its:
Address: 1000 Abernathy Road
Suite 1420
Atlanta, GA 30328
RICHARD H. STEWART
March ____, 1998
Address: 77 E. Crossville Road
Suite 310
Roswell, GA 30075
FISHER FINANCIAL CORP.
March ____, 1998 By:
Its:
Address: 1355 Peachtree Street
Suite 1700
Atlanta, GA 30309
DIGITAL COMMUNICATIONS
March ____, 1998 By:
Its:
Address: 319 Peachtree Parkway
Peachtree City, GA 30269
IDA AKERS MORRIS TRUST
March ____, 1998 By:
Its:
Address: 1000 Brickell Avenue
Suite 1200
Miami, FL 33131
TRUST B. UNDER AGREEMENT DATED
12/31/76 WITH I. WALTER FISHER
March ____, 1998 By:
Its:
Address: 1355 Peachtree Street
Suite 1725
Atlanta, GA 30309
STEVEN E. FOX
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
STEPHEN R. LEEDS
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
HUNTER R. HUGHES
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
MICHAEL ROSENZWEIG
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
DAN F. LANEY
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
RICHARD H. SINKFIELD
March ____, 1998 ____________________________________
Address: 2700 International Tower
Peachtree Center
229 Peachtree Street
Atlanta, GA 30303
SAMUEL L. WORNOM, III
March ____, 1998 ____________________________________
Address: 318 C Court Square
Sanford, NC 27330
SANDRA L. WORNOM
March ____, 1998 ____________________________________
Address: 318 C Court Square
Sanford, NC 27330
FRANK E. PROCTOR
March ____, 1998 ____________________________________
Address: 345 E. 57th Street
Apt. 15B
New York, NY 10022
LLOYD M. SMITH
March ____, 1998 ____________________________________
Address: 14270 Phillips Circle
Alpharetta, GA 30201
ELIZABETH G. SMITH
March ____, 1998 ____________________________________
Address: 14270 Phillips Circle
Alpharetta, GA 30201
RTM, INC.
March ____, 1998 By:
Its:
Address: 5995 Barfield Road
Atlanta, GA 30328
DOUGLAS N. BENHAM
March ____, 1998 ____________________________________
Address: 4 Lullwater Estates Road
Atlanta, GA 30307
BERTIL D. NORDIN
March ____, 1998 ____________________________________
Address: 14 Ball Creek Way
Dunwoody, GA 30350
MARK H. DUNAWAY
March ____, 1998 ____________________________________
Address: 850 Center Way
Norcross, GA 30071
MARCIA M. DUNAWAY
March ____, 1998 ___________________________________
Address: 850 Center Way
Norcross, GA 30071
<PAGE>
MICHAEL J. SANER
March ____, 1998 ____________________________________
Address: 850 Center Way
Norcross, GA 30071
SANER COMMUNICATIONS, INC.
March ____, 1998 By:
Its:
Address: 850 Center Way
Norcross, GA 30071
EUGENE H. KREEFT
March ____, 1998 ____________________________________
Address: 850 Center Way
Norcross, GA 30071
BILL G. HAMPTON
March ____, 1998 ____________________________________
Address: 3100 Briarcliff Road, #470
Atlanta, GA 30329
JOHN P. BUTORAC
March ____, 1998 ___________________________________
Address: 3306 Cove Circle
Stockton, CA 95204
AZURE LIMITED PARTNERSHIP I
March ____, 1998 By:
Its:
Address: 13 Eagles Nest Drive
Lancaster, WA 98257
3-2-1 INVESTMENT COMPANY
March ____, 1998 By:
Its:
Address: 505 Madison Street, #220
Seattle, WA 98104
THOMAS L. WINDLER
March ____, 1998 ____________________________________
Address: 5 Concourse Parkway
Suite 3000
Atlanta, GA 30328
TRANSIT COMMUNICATIONS,
U.S.A., L.P.
March ____, 1998 By:
Its:
Address: 88 E. Crossville Road
Suite 310
Roswell, GA 30075
* * *
